Music Chapter 6 Music Candace van Binsbergen The music market consists of recorded music and live music. Recorded music comprises spending on physical formats – albums, single sound recordings and music videos. Digital distribution consists of music distributed to mobile devices and music downloaded from the Internet through licensed services or app stores. Live music consists in spending on concerts and music festivals, and comprises end-users’ ticket spending at the events, spending on merchandise and food, and sponsorship support. Figures represent end-user spending, not revenues to music companies. The recorded music market does not include advertising generated by Internet radio services, nor does it include revenues from music publishing. Spending is measured at retail, which can be substantially higher than the wholesale or trade value revenues that are often reported. 128 | South African entertainment and media outlook: 2012-2016 PwC | 129 Music Music Outlook ... at a glance ...in brief • The shift from physical to digital spending is continuing due to increased broadband, smartphone and tablet penetration. 2012-16 Music total 2011 2016 • South Africa has very few licensed digital services compared to other countries. CAGR(%) spending (R millions) 2 091 2 010 • Recorded music currently dominates the music market, but it is expected to share the -0.8 market with live music equally by 2016. • Artists are relying more on concerts, with 360 deals allowing them to jointly participate in concert and recorded music revenues. • Social media is playing a growing role in marketing tours and concerts. • Live Nation and the FIFA World Cup in 2010 have helped showcase South Africa as an attractive destination for major international artists. 2012-16 2011 2016 CAGR (%) • Total spending on music is expected to decrease at a forecast 0.8% compound annual Recorded music 1 377 1 007 -6.1 rate to R2.0 billion in 2016. Physical distribution 1 263 746 -10.0 Digital distribution 114 261 18.0 Live music 714 1 003 7.0 Overview Total music 2 091 2 010 -0.8 In 2011, the trend of declining physical distribution revenues and increasing digital Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates spending continued. The music industry and all its participants are continuing to fight over a rapidly shrinking pie. To put this shift into context, the recorded music industry in South Africa saw total spending continue to fall, with a 2.6% drop in 2011, following the 4.1% drop experienced in 2010. The decline of 8.0% in recorded music spending was buffered by the accelerated growth of 9.8% in the live music market. Consumers are spending less on music, if they are spending at all. In the physical distribution market, spending declined by 10.2%, while digital distribution spending increased by 26.7% over the same period. In contrast, the live music market grew by 9.8%, with end-user spending increasing by 9.7% and a small sponsorship market growing by 13.3%. As expected, the physical recorded music market in South Africa has held up better than in many other countries as relatively low broadband penetration continues to limit digital competition. With broadband now taking off, the physical market is no longer as protected and declines have become steeper. During the past two years physical spending has fallen at double-digit annual rates. Growth in broadband penetration and rising smartphone penetration is driving a developing licensed digital distribution market. Digital spending in 2011 was nearly three times the level in 2007, with a 26.7% increase in 2011 alone. With the broadband revolution in South Africa, we expect the ongoing shift in spending from physical to digital to continue. Digital distribution allows immediate access to music at prices that are generally less expensive than physical music. The average digital song costs less than half the cost of an average physical single. 130 | South African entertainment and media outlook: 2012-2016 PwC | 131 Music Music Individual tracks, which are for the most part unavailable in physical formats, are spurring Music market (R millions) the market for digital distribution. Digital distribution has made it far easier for fans to 2012-16 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 cherry-pick the best tracks from an album, so rather than pay for a whole CD that contains CAGR (%) weaker songs as well as their favourites, they are opting to only buy the latter. Recorded music Physical distribution 1 757 1 698 1 568 1 407 1 263 1 119 998 898 819 746 With the physical market now declining, artists are relying more on concerts than in the past. Labels and artists are entering into 360 deals in which they jointly participate in % change 2.5 -3.4 -7.7 -10.3 -10.2 -11.4 -10.8 -10.0 -8.8 -8.9 -10.0 concert and recorded music revenues. The deals help cross-promote the recorded music and Digital distribution 39 49 60 90 114 140 170 198 229 261 live performance markets. % change 50.0 25.6 22.4 50.0 26.7 22.8 21.4 16.5 15.7 14.0 18.0 Total recorded music 1 796 1 747 1 628 1 497 1 377 1 259 1 168 1 096 1 048 1 007 Consumers have almost unlimited choice and are willing to spend a significant amount of time searching for songs they like, very often using services such as YouTube. Social % change 3.2 -2.7 -6.8 -8.0 -8.0 -8.6 -7.2 -6.2 -4.4 -3.9 -6.1 media features are becoming evident on many music websites. Social media is also playing Live music a growing role in concerts and promoting new acts. Tours are marketed on Facebook and Concerts/music 653 640 610 650 714 770 829 887 945 1 003 other sites and social media activity generates interest in tours. Social media is also playing festivals a role in boosting the digital market – online commentary on acts and artists is stimulating % change 9.0 -2.0 -4.7 6.6 9.8 7.8 7.7 7.0 6.5 6.1 7.0 interest and boosting downloads. Total music 2 449 2 387 2 238 2 147 2 091 2 029 1 997 1 983 1 993 2 010 We expect physical spending to continue to fall at double-digit annual rates until 2014. % change 4.7 -2.5 -6.2 -4.1 -2.6 -3.0 -1.6 -0.7 0.5 0.9 -0.8 We then project high single-digit declines in 2015-16. For the forecast period as a whole, Sources: International Federation of Phonographic Industry (IFPI), Recording Industry of South Africa, PricewaterhouseCoopers LLP, physical spending is expected to decline at a 10.0% compound annual rate to R746 million Wilkofsky Gruen Associates in 2016 from R1.3 billion in 2011. Digital spending is set to more than double from R114 million in 2011 to R261 million in The overall music market has declined since 2007 and we expect it will continue to decline 2016, averaging 18.0% growth on a compound annual basis. during the next three years. Then, beginning in 2015, growth in live music will offset moderating declines in recorded music and total spending will increase at low single- We project overall recorded music spending to fall from R1.4 billion in 2011 to R1.0 billion digit rates. The overall market will total an estimate R2.01 billion in 2016, a 0.8% decline in 2016, a 6.1% compound annual decline. compounded annually from R2.09 billion in 2011. The live music market benefited from special concerts held in conjunction with the 2010 FIFA World Cup and from general exposure during the tournament. South Africa is expected to continue to attract more international tours, which boosted the market in 2011. Figure 6.2: Share of music market Spending during the next five years is projected to increase at a 7.0% compound annual rate 2011 2016 to R1.0 billion in 2016 from R714 million in 2011. Live Live 34% 50% Figure 6.1: Music market (R millions) 2500 2000 60% 37% 6% Physical Physical 1500 Digital 13% Digital 1000 500 Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total recorded music Recorded music spending Live music spending Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates 132 | South African entertainment and media outlook: 2012-2016 PwC | 133 Music Music Recorded music Licensed digital music services in South Africa DJs Only Jamster Just Music Licensed digital distribution Look & Listen MTN Loaded Although growing rapidly in recent years, the digital market remains relatively small because of relatively low broadband penetration. Only 9% of households in South Africa Music Station had a fixed broadband connection in 2011, compared with 53% for all of the Europe, Nokia Music Middle East and Africa (EMEA) regions. Omusic Pick ‘n Play Since digital music in most countries is accessed online, low broadband penetration in South Africa limits digital spending. Digital music comprised only 8% of total recorded Rhythm Online music spending in South Africa in 2011 compared with 23% for EMEA and 33% globally. ThatGig Vodafone Live The disparity in broadband penetration is reflected in the relatively low number of licensed digital services in South Africa. In early 2012, there were only 12 licensed services, up from Source: IFPI 10 a year earlier, but this is still well below that of most other countries, where it is not unusual to have 30 or more licensed digital music services. The service also has an offline mode specifically Digital offerings globally fit into a few categories, many with common attributes.