Global Music Report 2017 Annual State of the Industry

GLOBAL MUSIC REPORT 2017 ANNUAL STATE OF THE INDUSTRY

Global top 10 recording artists of 2016 Never stop playing. GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY 3 WELCOME

he IFPI Global Music Report tells a positive story of music being enjoyed by more people in more ways than ever before. At the heart of this story T are incredible artists, supported by the investment and innovation from record companies and other partners that is helping them to share their music with the world. We are now in an exciting era in which streaming is making the depth and richness of every kind of music available to hundreds of millions of people, with artists Plácido Domingo connecting more directly and more quickly with their Chairman, IFPI audiences. Challenges remain, however, and the fair remuneration of those that create and invest in music must be a priority in this increasingly digital world. The whole community is uniting in its efforts to ensure that music is properly valued so that artists and their work can thrive. UNLOCK THE GLOBAL POWER OF NIELSEN MUSIC YOUR KEY TO THE BEST DATA-DRIVEN SOLUTIONS IN THE BUSINESS

GAIN ACCESS TO MUSIC CONNECT The Industry’s Most Trusted Data & Insights with Over 20 International Charts CUSTOM RESEARCH, ANALYTICS and MORE

GET THE INFORMATION YOU NEED TO GROW YOUR BUSINESS IN 2017 Contact [email protected] CONTENTS

ANNUAL STATE OF THE INDUSTRY

01. Global music market 2016 fgures 6

02. Introduction – Frances Moore 7

03. Global charts 8

04. Global market overview 10 2016 fgures by format and region 12

05. The evolving market: streaming grows global revenues and rewrites the rulebook 16

06. Rewarding creativity: fxing the value gap 24

07. Territory focus: China’s phenomenal potential unlocked by streaming 28

08. Territory focus: Africa – an emerging opportunity 32

09. The value of record companies 34

10. Safeguarding music 37

11. Working with artists 39

See www.ifpi.org for details of the full Global Music Report 2017 including a premium 'Data and Analysis' section.

www.ifpi.org © IFPI 2017 @IFPI_org All data, copy and images are subject to copyright and may not be reproduced, Designed by Studiomade transmitted or made available without permission from IFPI. 6 G LOBAL MUSIC MARK ET 2016 FIGURES GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY

GLOBAL MUSIC MARKET 2016 IN NUMBERS

+5.9% 50% GLOBAL REVENUE GROWTH DIGITAL SHARE OF GLOBAL REVENUES

+17.7% +60.4% DIGITAL REVENUE GROWTH GROWTH IN STREAMING REVENUE

–7.6% –20.5% PHYSICAL REVENUE DOWNLOAD REVENUE GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY INTRODUCTION 7 INTRODUCTION

Modest growth, limitless potential.

Frances Moore CEO, IFPI

he global recording industry is see- The transformation has created an in some territories around the world, in- ing modest growth after more than enormously exciting environment for mu- cluding in Europe where the European a decade of significant decline. sic fans, who are benefitting from new and Commission has recognised the existence T Years of investment and innovation evolving services and accessing more mu- of a value gap and begun working towards have begun to reward an industry that has sic than ever before. In turn, artists have legislation. However, this is a global prob- shifted from adapting to the digital age, to more ways to connect with their fans and lem that requires legislative solutions driving it. more opportunities to share their work in across the globe. The industry continues to The story of the recorded music in- diverse and creative ways. If the digital fight worldwide for a level playing field for dustry over the last two decades is one of market continues to grow, so too will the fairly licensed digital services. transformation: from physical to digital; overall level of remuneration to artists, Copyright infringement, in a variety of downloads to streaming; ownership to ac- as will the levels of overall investment re- guises, remains a major issue, with the cess. The industry is now working with its quired to create new music whilst helping growing practice of ‘stream ripping’ now partners on another, ongoing transforma- to drive digital innovation. very much part of the challenge facing our tion: from years of decline to sustainable However, this is far from ‘mission ac- industry. With an unprecedented amount growth. complished’. Instead, as the market con- of licensed music now available to fans, While physical sales remain significant tinues to evolve at a pace never before these practices have no place in the music in certain territories and for certain artists, seen, the industry is seizing the moment, world, today or tomorrow. there is no doubt that streaming is the key driving further innovation and exploring The global music business is changing driver of growth, with the number of users ever-expanding new ways of engaging with more significantly – and quickly – than of paid subscriptions having broken the fans around the world. ever before, but the fundamental role of 100 million mark and continuing to rise. Realistically, for this growth to become a record company remains the same: to Fans are engaged with music in an amaz- sustainable, for investment in artists to discover, nurture, support and promote ing variety of formats, from the vinyl revival be maintained and for the market to con- artists and to make their music accessible to the phenomenon of musical.ly, but the tinue to evolve and develop, more must be around the world. growth story is centred on services which done to safeguard the value of music and are widening streaming’s demographic to reward creativity. For music to thrive in appeal. Record companies and their distri- a digital world, there must be a fair digital bution partners have been instrumental in marketplace. this, licensing more than 40 million tracks Artists and creators have spoken about to hundreds of digital services worldwide the global ‘value gap’, whereby ‘safe har- and developing the high performance bour’ legislation dating from the Internet’s systems that allow music to be accessed early days is being abused by user upload around the world. Their approach has been services such as YouTube, who are not li- global in scope and yet local in execution, censing music on a fair basis. Gradually, adapting their practices to open up legal policymakers are beginning to listen and digital markets for music. legislation is being examined or proposed 8 G LOBAL CHARTS GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY GLOBAL CHARTS

Most popular artists and best sellers of 2016.

TOP 10 RECORDING ARTISTS

DRAKE DAVID BOWIE COLDPLAY

ADELE JUSTIN BIEBER TWENTY ONE PILOTS

BEYONCÉ RIHANNA PRINCE

2015 top 10 list:

1 ADELE 6 COLDPLAY 2 ED SHEERAN 7 MAROON 5 3 TAYLOR SWIFT 8 SAM SMITH 4 JUSTIN BIEBER 9 DRAKE 5 ONE DIRECTION 10 THE WEEKND THE WEEKND

Source: IFPI. The compilation of the IFPI top artist chart has been independently verifed through certain agreed procedures by BDO LLP. BDO LLP has verifed that IFPI has compiled the chart correctly in line with the outlined procedures. GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY G LOBAL CHARTS 9

GLOBAL TOP 10 ALBUMS OF 2016 GLOBAL TOP 10 DIGITAL SINGLES OF 2016

Units Units Title and artist (m) Title and artist (m)

Lemonade One Dance 2.5 12.5 1 BEYONCÉ 1 DRAKE

25 Love Yourself 2.4 11.7 2 ADELE 2 JUSTIN BIEBER

Closer Views 2.3 3 THE CHAINSMOKERS 11.7 3 DRAKE FEAT. HALSEY

Hardwired...to Cheap Thrills 11.1 4 Self-destruct 2.1 4 SIA METALLICA

Blackstar Sorry 1.9 10.8 5 DAVID BOWIE 5 JUSTIN BIEBER

Blue & Lonesome Work 1.8 10.6 6 THE ROLLING STONES 6 RIHANNA

24k Magic 7 Years 1.7 10.4 7 BRUNO MARS 7 LUKAS GRAHAM

Don’t Let Me Down Blurryface THE CHAINSMOKERS 1.5 10.2 8 TWENTY ONE PILOTS 8 FEAT. DAYA & KONSHENS

A Head Full I Took A Pill 9 Of Dreams 1.4 9 In Ibiza 10.0 COLDPLAY MIKE POSNER

A Pentatonix Stressed Out 9.9 10 Christmas 1.4 10 TWENTY ONE PILOTS PENTATONIX

Source: IFPI. Physical and digital albums included. Streams excluded. Source: IFPI. Units include single-track downloads and track-equivalent streams. For full top 50 global albums and top 20 digital singles, please see the Data and Analysis section of the full report. 10 G LOBAL MARK ET OVERVIEW GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY GLOBAL MARKET OVERVIEW

Growth driven by investment and innovation.

n 2016, the global recorded music mar- for bespoke, local approaches to develop ket grew by 5.9%, the fastest rate of new and emerging markets. GLOBAL GROWTH growth since IFPI began tracking the The global digital market is now seeing IN MUSIC I market in 1997. This was a second con- unprecedented competition, with stream- secutive year of global growth for the in- ing services developing and extending dustry, with revenue increasing in the vast their offerings around the world. Rather majority of markets, including nine of the than cannibalising the existing streaming top ten. This growth, however, should be base, these developments are expanding ! 5.9% viewed in the context of the industry losing it, providing fans with a more varied, richer Global recorded nearly 40% of its revenues in the preced- experience and bringing streaming to new music market growth. ing 15 years. audiences and new territories. Streaming has been the clear driver Far from being the conclusion of a of this growth, with revenues surging by long-term transition, however, record com- 60.4%. With more than 100 million users panies see this moment as the start of a 50% of paid subscriptions globally, streaming new chapter in recorded music, albeit one Digital music share has passed a crucial milestone. It makes that is underpinned by a continuing com- of global revenue. up the majority of digital revenue, which, mitment to invest in music and develop in turn, now accounts for 50% of total re- artists, and driven by the need to deliver corded music revenues. their music to fans in ever more varied and Record companies are driving this digi- exciting ways. tal evolution. Even through more than a Crucially, the industry is also working decade of market decline, they continued to convert the positive revenue trend cur- their central mission to discover, nur- rently being experienced into sustainable ture and promote artists and their music. growth. To achieve this, music must be Alongside this, record companies have properly protected in an increasingly digi- built the systems and infrastructure that tal marketplace. The market flaw known has enabled the widespread licensing as the ‘value gap’ must be fixed (see page of digital music services and supported 24) and fair revenue must return to those their development. They have engaged on who invest in and create music. a global scale, while recognising the need GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY G LOBAL MARK ET OVERVIEW 11

GLOBAL RECORDED MUSIC INDUSTRY REVENUES 1999–2016 (US$ BILLIONS)

25.0 0.6 Source: IFPI 0.7 0.8 0.9 20.0 0.9 0.4 1.0 1.1 1.2 2.1 1.3 0.4 2.9 1.3 0.3 0.3 15.0 0.3 0.3 0.3 0.4 1.4 2.2 3.7 1.4 1.6 1.7 2.0 4.1 1.9 23.8 23.3 23.0 4.3 21.4 4.9 5.4 10.0 19.8 5.7 19.2 17.9 6.0 6.6 7.8 16.3 14.1 11.9 5.0 10.4 8.9 8.2 7.6 6.8 6.1 5.8 5.4

0.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Total 23.8 23.3 23.6 22.1 20.3 20.5 20.0 19.4 18.2 16.9 15.8 14.9 14.8 14.9 14.6 14.3 14.8 15.7 revenue

Physical Digital Performance rights Synchronisation

GLOBAL RECORDED MUSIC REVENUES Before seeing a return to BY SEGMENT 2016 growth in 2015, the global recording industry lost nearly 40% in revenues from 14% 1999 to 2014. 2%

50% 34%

Performance rights Physical Synchronisation Digital

IMAGES LEFT TO RIGHT: TOVE LO PHOTO BY MATT JONES, STAN VAN SAMANG PHOTO BY NOORTJE PALMERS 12 G LOBAL MARK ET OVERVIEW GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY

2016 FIGURES BY FORMAT

In 2016, global recorded music revenues totalled us$15.7 billion. They rose by 5.9% on 2015, improving on the previous year’s growth of 3.6% and marking the largest growth the industry has seen since IFPI began tracking industry sales in 1997.

PHYSICAL FORMAT revenues PERFORMANCE RIGHTS – the mance rates in Germany and ob- declined by 7.6%, a higher rate revenue generated by the use of taining full performance rights in than the previous year, which recorded music by broadcasters Japan, China and the US. saw a decline of 3.9%. The and public venues – grew by Addressing the shortcomings physical sector still accounts for 7.0% to US$2.2 billion in 2016. in performance rights legislation 34% of the global market and is This revenue stream accounts for worldwide becomes even more particularly significant in leading 14% of the market but remains pressing as the consumption of countries such as Japan and significantly undervalued. music is generally moving away Germany. Despite the continued growth from ownership and towards ser- of performance rights revenues vices that offer consumers access over the past few years, a study by to music. PwC has established that record- Provided such fair market ing industry revenues (including conditions are achieved across DIGITAL REVENUES grew by performers’ revenue) from the ra- territories, and music licensing 17.7% to US$7.8 billion, driven by a dio broadcast sector globally cur- companies continue to drive pro- sharp 60.4% growth in streaming rently amount to only some 2% of cess efficiencies, IFPI believes revenue – the largest growth the radio industry’s income which that the global performance rights in eight years. This more than fails to fairly reflect the value of market still has significant growth offset a 20.5% decline in digital the use of the rights. IFPI believes potential. download revenue. Streaming now that the main reason for such makes up the majority (59%) of anomalies is that, in a number of digital revenues. For the first time, territories, the statutory frame- digital revenues make up 50% of work does not enable those that the share of total recorded music hold the rights to music to nego- SYNCHRONISATION industry revenues. tiate fair commercial rates with REVENUE – the revenue from In 25 markets, digital revenues broadcasters. the use of music in advertising, now account for more than half In 2016 the US, France, and the film, games and television the recorded music market with UK were the three largest perfor- programmes – grew by 2.8% five further countries crossing the mance rights markets, ahead of compared to the 7.0% rise in 2015. 50% threshold last year. the relatively underperforming It maintained its 2% share of the Germany and Japan. The industry global market. is focussed on increasing performance rights revenue in these and other key markets, through obtaining adequate public perfor- GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY G LOBAL MARK ET OVERVIEW 13

FIGURES AT A GLANCE RAMER K ! 17.7% Growth in digital revenue. ERS PHOTO BY RORY K ! 60.4%

Growth in streaming THE CHAINSMO ! revenue.

! 7.6% Decline in physical revenue.

! 7.0% Growth in performance rights revenue. COLDPLAY PHOTO BY JAMES MARCUS HANEY ! 2.8% ! Growth in synchronisation revenue. TAYLOR SWIFT PHOTO BY SARAH BARLOW ! ifpi-print ad.pdf 1 10/03/2017 12:14

Millions of people experience Flow everyday

Deezer would like to thank our Deezer NEXT artists, our partners in the industry, Manchester United and FC Barcelona for helping us connect people to the music they love. GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY G LOBAL MARK ET OVERVIEW 15

2016 FIGURES BY REGION

Within the global upward trend, each region recorded revenue growth in various ways.

ASIA AND AUSTRALASIA returned to growth LATIN AMERICA was, for the seventh consecu- in 2015 and saw revenue grow further last year tive year, the region with the highest level of growth by 5.1%. The region saw a 45.6% rise in stream- in revenue, seeing a 12.0% rise. Digital revenue grew ing income, offsetting a 9.4% decline in digi- by 31.2%, driven by a surge in streaming revenue of tal downloads and contributing to an 18.7% rise 57.0%. Mexico, the region’s second largest market, in digital revenue. Physical formats declined by grew by 23.6% and many smaller markets also saw 1.8%. The Japanese market is the largest in the growth, while the largest market, Brazil, declined by region and the second largest market globally. 2.8% last year. It grew by 1.1%, with digital growth of 12.6% offsetting a 1.3% decline in physical sales. China grew by 20.3% and has undergone enormous change in the last few years (see case study on page 28).

EUROPE grew by 4.0% in 2016, a slightly high- NORTH AMERICA grew by 7.9%, a significant er rate than the 3.7% growth in 2015. It remains increase on last year’s growth of 1.5%. Digital rev- a highly diverse region, with markets adopt- enue was the driving force, growing by 16.5% and ing streaming formats at varying rates. In Swe- more than offsetting declining physical sales den, streaming revenue comprises 69% of the of -17.1%. Streaming revenue showed growth market, growing by 9.9%. By contrast, in Ger- of 84.1%. The US – the world’s largest recorded many, the world’s fourth largest music market, music market – continued its evolution, seeing an physical sales represent 52% of the total market. 80.5% rise in streaming income and growing by It saw streaming revenue increase by a significant 7.6% overall, a significant increase on last year’s 73.0%. The whole region saw a sharp increase 1.0% growth. in streaming revenue of 45.5%.

GROWTH FIGURES BY REGION

Asia and Europe Latin America North America Australasia !5.1% !4.0% !12.0% !7.9% 16 T HE EVOLVING MARK ET GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY THE EVOLVING MARKET

Streaming grows global market and rewrites the rulebook.

treaming is now established as the Record companies, however, see this as thing is going to be great. The truth is, we most prevalent and significant for- encouraging, but just part of a much long- cannot be complacent.” mat in the modern music industry, er journey. The definition of what consti- Universal Music’s EVP, Digital Strategy, S fuelling growth in almost all major tutes the mainstream market is also shift- Michael Nash, says: “My perspective on markets and starting to unlock the phe- ing, due to factors such as more flexible 100 million is, that’s great, it sounds really nomenal potential within developing ter- pricing, and technology such as voice con- great, it feels really great and it’s definitely ritories. Physical sales trol that could place an expression of a very significant devel- remain significant in streaming at the heart opment. But if we breathe a sigh of relief certain countries and of the home and in-car and feel that we have arrived somewhere, for certain artists, and If we breathe a sigh of relief music experience. we would be completely misreading the the vinyl revival has and feel that we have arrived Sony Music’s Presi- landscape. been a headline grab- somewhere, we would be dent, Global Digital “This is not simply another format ber, but streaming is Business & US Sales, transition, it is a fundamental transfor- completely misreading the the growth driver that Dennis Kooker, says: mation that is changing everything about is revolutionising the landscape. To raise the Mission “When we look back, the business. To raise the Mission Accom- business. Accomplished banner would 2016 may have been plished banner would be the worst mis- By the end of 2016, be the worst mistake we a tipping point for take we could make." IFPI estimates that could make. streaming and, most the number of paid importantly, for paid subscription accounts Michael Nash, EVP, Digital Strategy, subscription stream- reached 97 million Universal Music ing. A year ago we SUBSCRIBER worldwide. With the listed driving paid sub- GROWTH rapid growth of family plans, where sev- scription as the number one priority, so eral members of the same household can that has been a positive development and share a family subscription, IFPI estimates a lot of hard work went into that. that there were approximately 112 million “So, there has been good news, but I ! 112m users worldwide of these 97 million paid think some people might over-read that, users of paid subscription accounts. they might think, problem solved, every- subscription accounts. GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY T HE EVOLVING MARK ET 17

COMPETITION DRIVING GROWTH One key factor driving growth is increased ly cannibalistic of the paid consumer base competition. Spotify remains the global of the more established players in the leader in streaming and Apple Music has market.” made huge progress since its launch in Current market leader Spotify believes 2015. In China, Tencent Music Enter- competition is helping drive overall market tainment, owner of the country’s leading growth. The firm’s Director of Economics, streaming services, QQ Music, Kugou and Will Page, says: “The key development in Kuwo, is seeing its paid subscriber num- the market at the moment is competition. bers soar. Amazon, meanwhile, launched What is especially key is that it is compe- Amazon Music Unlimited, while Pandora tition based around market growing, not announced plans for an on-demand ser- market stealing. There are more big play- vice (which it has now launched) and ers - and arguably more sustainable play- iHeart introduced beta versions of iHeart- ers - than have come and gone in the past, Radio Plus (US$4.99, enhanced ad-free and it’s all about making new audiences radio listening) and iHeartRadio All Access aware of streaming and expanding the ! PROJOTA PHOTO BY RAFAEL K ENT (US$9.99, radio + full streaming service). market. At the moment, we are growing, Alongside that, record companies reached Apple’s growing, Amazon’s growing, and licensing agreements with Soundcloud and other services are coming on board, and many other smaller services. we’re not stealing each other’s lunch.” Warner Music’s Chief Digital Officer & Universal Music’s Nash says: “Compe- Te key development in the market EVP Business Development, Ole Obermann, tition is absolutely key to advancing the at the moment is competition. says: “The market will develop so that there ecosystem right now. It spurs innovation What is especially key is that it is are a handful of global services. The good and creates a great dynamic from the competition based around market news is that they’re all trying to differenti- standpoint of artists and fans having ser- growing, not market stealing. ate themselves. If we want to attract hun- vices really focused on service and quality. dreds of millions of people to paying ser- We need to have more competition and Will Page, vices, we must recognise that music fans more innovation. Director of Economics, Spotify will have different preferences for how they “I see some people say, ‘Well, now the engage with music. The ideal scenario for business is mature, we need consolida- market development is that these global tion’. I think that is a complete misread. services all take a different approach and Where we are at now, competition is about appeal to different music fans.” expanding the consumer base, it is about Sony Music’s Kooker says: “I think com- competing to bring in the next 100 million petition was a key trigger for growth in subscribers, not competing for the existing 2016. I look at some of the new entrants 100 million. I think there is so much more and to me their consumer base isn’t huge- opportunity ahead.”

STREAMING GROWTH YEAR ON YEAR: 2012–2016

5,000 +60.4%

4,000

+47.3% s n

o 3,000 i ll i

m +36.2%

S 2,000 U +41.1% +56.0% 1,000

- 2012 2013 2014 2015 2016 IN 2007 WE CREATED THE BEST SOUNDING MUSIC SERVICE... IN 2017 WE ARE REINVENTING OURSELVES

More value for the artists and the producers More quality for the music enthusiasts Streaming music with style

NEW EDITORIAL THE TASTE CONTENT OF QOBUZ The music becomes Selections from a wider experience our specialists

We are open in nine countries and soon much more.

a4_ifpi-1.indd 1 03/03/2017 12:36 GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY T HE EVOLVING MARK ET 19

IN 2007 WE CREATED THE BEST SOUNDING MUSIC SERVICE... IN 2017 WE ARE REINVENTING OURSELVES

More value for the artists and the producers More quality for the music enthusiasts Streaming music with style

! FIFTH HARMONY PHOTO BY SASHA SAMSONOVA ! BEYONCÉ PHOTO BY ROBIN HARPER

INNOVATION KEY TO BROADENING APPEAL Universal Music’s Nash also argues that reach other types of people who are ready it is incumbent upon record companies to start paying for music again. to encourage both innovation and com- “The main thing we hear is, ‘Gosh, ever We’re seeing a big new wave of start- petition: “We are in the midst of a pivotal since I got my Echo I listen to way more mu- ups coming to us, wanting to talk transformation of our business and it is sic’. They are listening more frequently, they very important that we are proactive in de- are listening at times and in places where about how music, or music video, veloping and evolving our business mod- they wouldn’t previously have listened – and can be a part of their oﬀerings. els, whether that’s enabling a completely they are listening for longer sessions at a Ole Obermann, new approach to address a market oppor- time. That’s great, because the more you Chief Digital Ofﬁcer & EVP Business tunity in Russia, or working with a sig- listen, the more you are likely to continue Development, Warner Music nificant new digital platform like Amazon to subscribe. So far, streaming has been to uniquely reach out to consumers with driven almost entirely by the smartphone, a subscription proposition that, in part, and that’s great, there’s still a lot of growth hinges on voice activation.” left there. But we do see ourselves entering Kooker also believes voice-controlled into a new phase of growth and we think it’s technology can be crucial in pushing in the home and, a little bit later, because of streaming further into the mainstream, ex- the nature of product cycles, it’s in the car.” panding demographic appeal and reclaim- A widening of streaming’s demographic ing the living room. “I think voice definitely is highlighted as key to the growth of all NEW EDITORIAL THE TASTE re-opens the home for us, and potentially industry sectors by Glen Barros, CEO of CONTENT OF QOBUZ it could be what opens the car up for music Concord Music Group. “Streaming growth subscription as well.” to date has not been uniform; it ran a little The music becomes Selections from Warner Music’s Obermann says: “Ama- lopsided, weighted towards certain genres a wider experience our specialists zon is pioneering voice control in the music and appealing to a younger demographic. space. It feels that if we want to get digital We don’t want to leave anybody behind. We music into people’s living rooms or cars, want all genres to be represented and all then voice activated control will be the inno- types of consumers to feel comfortable in vation that accelerates that usage.” the streaming environment. Amazon itself reports that the Alexa/ “This will take diversification of the vari- Echo combination is already “fundamen- ous services and education to particular tally changing not just the way people inter- audiences. For example, I believe that more We are open in nine countries act with their music service, but when and passive adult consumers will need to be and soon much more. where and how much they listen to music”. guided by existing trusted partners such as Steve Boom, VP of Amazon Music, says: “The Amazon and Pandora. Companies such as Contact us: www.qobuz.com/partners aim is to expand the streaming market, to these can use the trust that they’ve estab-

a4_ifpi-1.indd 1 03/03/2017 12:36 20 T HE EVOLVING MARK ET GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY

lished with their customer to say, ‘Hey, let IN-APP OPPORTUNITIES reality products. As long as these new use us take you a step further. We can give you cases don’t put our core business at risk, greater functionality, a better experience, There is also a concerted willingness on we can be pretty aggressive and we’re will- more choice and it won’t cost you a great the part of the labels to engage with digital ing to experiment. deal of money.’ innovation of all stripes, to make sure mu- “There have been problems with unli- “But there’s also a challenge in delivering sic is not only a part of cutting edge new censed content and fair remuneration for the required diversification and education. services – but a legitimate, licensed and rights holders in the UGC space and that What are the ideas to do this? How do we monetised part. has held back development of the sector. bring them to life? How do we make the ex- The rise and With the success of perience more appealing and communicate rise of licensed lip- apps such as mu- synch app musical. these exciting attributes in order to bring With Streaming growth, we don’t sical.ly, we see the these new groups of people into the fold?” ly is an instruc- demand for inno- want to leave anybody behind. We tive case in point. vation around user Launched in 2014, want all genres to be represented experience that is it came from the and all tpes of consumers to feel built around UGC. world of tech, not comfortable in the streaming This is an area that music, but now has environment. has tremendous more than 120 mil- unlocked value.” lion users around Glen Barros, CEO, Concord Music Group He also sees an the world, with over opportunity within 12 million snippets messaging apps: of music-based “In some cases, music is obviously the user generated content (UGC) being load- foundation of a business. With something ed every day. Labels are also working with like messaging, you don’t have to include the musical.ly community, incorporating music, but it’s about expressing yourself them into launch campaigns to reach con- and music really lends itself to that, it’s a sumers in new and innovative ways. great way of making those services more Obermann says: “We’re seeing a big new fun, engaging and personalised. Music is wave of start-ups coming to us, wanting very attractive for those types of services." to talk about how music, or music video, can be a part of their offerings, apps, social messaging, virtual reality, augmented

! CALVIN HARRIS PHOTO BY GAVIN BOND ! HA*ASH PHOTO BY GREGORY ALLEN GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY T HE EVOLVING MARK ET 21

DATA INFORMING STRATEGY A GLOBAL MARKETPLACE A significant and potentially game Another benefit of streaming is an changing by-product of streaming’s increasingly global marketplace, rise to prominence is the exponen- with access to vast catalogues tial growth of incredibly detailed through varied subscription options data on music’s audience at macro (some standalone, some via telco and micro levels. ‘Data’, in fact, may partners) cutting through barriers have been the buzzword of the last that prevented the ownership model 12 months, with much of the indus- becoming established in certain ter- try working hard on the best ways to ritories. interpret it and use it. Beggars Group Chairman Martin In the public arena, hugely in- Mills says: “Streaming continues to fluential playlists, such as Spotify’s open up new markets for our artists Discover Weekly, are driven by anal- that just weren’t there before for ysis of individual user data which us – Russia, Brazil, Mexico. In some ! ED SHEERAN PHOTO BY GREG WILLIAMS delivers personalised playlists to cases it is creating a recorded music tens of millions of Spotify users eve- market where there simply wasn’t ry Monday morning. one. China is a good example, but it Behind the scenes, record com- will take time. Streaming there is at panies are undoubtedly now using a low cost point and it is legitimising Te increased information we’re data in a more sophisticated and markets that were previously writ- geting is a positive development joined-up way than ever before. ten off because of piracy.” and providing deep business As well as the continuing geo- Not only is it helping to shape their intelligence. Not only is ever graphic expansion of major players own strategy, it is also being shared stakeholder, from the label, to with artists and their management such as Spotify and Apple, global the publisher, to the service, to teams to help build careers – and growth is being fuelled locally by create a more transparent relation- streaming services such as Angha- the artist, to the songwriter, able ship. mi in the Middle East and North Af- to gain from that intelligence, to Sony Music’s Kooker says: “The rica; Saavn and Gaana in India; Line, continue to grow the business, AWA and KKBox in Japan; KKBox increased information we’re get- but also there is the transparenc across South East Asia; UMA Music ting is a positive development and element. We are able to provide providing deep business intelli- in Russia and the Tencent-owned meaningful, timely, global gence. Not only is every stakehold- services in China (see page 28). An- er, from the label, to the publisher, other localised factor is the growth information to our artists to the service, to the artist, to the of cheaper smartphones, by manu- and partners. facturers such as Huawei, which are songwriter, able to gain from that Dennis Kooker, President, intelligence, to continue to grow popular in China, India and Africa and which are essential to the glob- Global Digital Business & US Sales, the business, but also there is the Sony Music Entertainment transparency element. We are al growth of streaming services. able to provide meaningful, timely, global information to our artists and partners.” CONTINUED OVER PAGE THANK YOU FOR A GREAT YEAR

175 million listeners

150 million tracks

12 million creators

1 global community GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY T HE EVOLVING MARK ET 23

THANK YOU FOR A ! JAMES ARTHUR PHOTO BY OLAF HEINE

A GLOBAL MARKETPLACE CONTINUED REGIONAL STREAMING GREAT YEAR The impact of streaming is especial- Spotify’s Page also highlights Latin ly evident throughout Latin America, America: “We’re looking at the possibili- where it is fuelling a resurgent busi- ty of Brazil and Mexico potentially over- Latin America: ness. The region saw revenues grow taking the UK and Germany in terms of 12% in 2016 and 50% of the total mar- user numbers. That’s not to the detri- ! ket is now digital. ment of the UK and Germany, it’s all 57% 175 million listeners Jesus Lopez, Chairman/CEO Uni- about the unexpected and exceptional Growth in streaming versal Music Latin America and Ibe- performance of Brazil and Mexico. revenue. rian Peninsula, says: “The growth is They’re bigger countries of course, but being driven by streaming and mostly whilst their infrastructure is much less 150 million tracks by Spotify and Apple. The challenge developed, their smartphone adop- is to get more and more consumers to tion is escalating at a much faster rate, 50% convert from ad-supported models to driving access to services like Spotify.” of the total market subscription services. Part of that chal- Warner Music’s Obermann says: “We is now digital. 12 million creators lenge is to tailor local solutions that re- know digital services are competing flect the consumer behaviour of people against heavily-used unlicensed play- in their own territories, such as differ- ers in some markets. But they offer a ences in the periodicity of payments – user experience that pirate services daily or weekly – and spending in local can’t replicate and that is pulling music 1 global community currency.” fans to paying services.” Alfonso Perez Soto, VP Business Universal’s Nash says: “A lot of very, Development LATAM at Warner Music very significant international mar- Streaming continues to open up Group, agrees: “We need fans to convert kets are coming online right now and new markets for our artists that just to paying for music subscription ser- I think that when you look at the devices and that means digital platforms veloping markets, major territories weren’t there before for us. need to offer a range of ways for peo- like China, India, Russia and nations Martin Mills, Chairman, Beggars Group ple to pay. Digital services also need to in Africa, these are significant oppor- localise their businesses, with people tunities where you also have a very on the ground in different markets in large emerging group of consumers the same way record companies have. that should be willing to pay for music Once they’ve started to produce more streaming services.” local editorial content and forge local partnerships, then they will be in an even better position to unlock the huge potential of this vast regional market.” 24 R EWARDING CREATIVITY: FIXING THE VALUE GAP GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY REWARDING CREATIVITY: FIXING THE VALUE GAP

rior to 2015, the global recording industry experienced more than a decade of significant decline. Throughout this period, record companies P continued to invest in music, to nurture and develop artists and, crucially, to innovate and transform their practices to usher in a new digital era. However, significant challenges need to be over- come if the industry is going to move to sustainable growth. The whole music sector has united in its effort to fix the fundamental flaw in today’s music market, known as the ‘value gap’, where fair revenues are not being returned to those who are creating and investing in music. The value gap is now the industry’s single highest legislative priority as it seeks to create a level playing field for the digital market and secure the future of the industry. “ Te music world is seizing the moment and uniting in its efforts to fix the value gap. If we can get this right, then the recent, modest growth can be just the start of a longer journey to a significantly stronger and fairer global business.” Frances Moore, chief executive IFPI

! PHOTOS LEFT TO RIGHT: DAVID BISBAL PHOTO BY JUANJO MOLINA, ARIANA GRANDE PHOTO BY YOUNG ASTRONAUTS GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY R EWARDING CREATIVITY: FIXING THE VALUE GAP 25

BREAKING DOWN THE VALUE GAP

WHAT IS THE VALUE GAP? WHY IS IT A PROBLEM? The value gap describes the growing mismatch be- The music ecosystem is dependent on record com- tween the value that user upload services, such as panies investing in music and in artists. Music must YouTube, extract from music and the revenue returned be valued fairly and those that invest in it and create to the music community – those who are creating and it must be properly remunerated. If services that are investing in music. The value gap is the biggest threat not recognising the true value of music are allowed to to the future sustainability of the music industry. attract users from other, fairly licensed, services and therefore drain revenues from the system, then it becomes unsustainable. HOW HAS IT COME ABOUT? The situation also creates unfair competition. Inconsistent applications of online liability laws have Services such as Spotify, Deezer and Apple Music are emboldened certain services to claim that they are forced to compete with services that claim they are not liable for the music they make available to the not liable for the music they distribute. public. Today, services such as YouTube, which have developed sophisticated on-demand music platforms, use HOW CAN IT BE FIXED? this as a shield to avoid licensing music on fair terms Legislative action is needed to ensure that liability like other digital services, claiming they are not legally laws are applied correctly and consistently, so that responsible for the music they distribute on their site. services cannot claim they do not need to be licensed to distribute music. The music community is united in calling for policymakers to take action.

AUDIO AND UUC VIDEO STREAMING USERS VS REVENUES

US$3,904m User upload video streaming services, beneftting 4000 from the misapplication of ‘safe harbours’, comprise the world’s largest on-demand music 3000 audience, conservatively estimated at more than 900 million users. The revenue returning to rights holders through these services in 2016 2000 amounted to US$553 million. By contrast, a 900m much smaller user base of 212 million users of USERS 1000 212m US$553m audio subscription services (both paid and ad- USERS supported), that have negotiated licenses on fair terms, contributed over US$3.9 billion. 0 Subscription audio streams UUC video streams (paid and ad-supported)

Users (millions) Revenue (US$ millions)

ESTIMATED REVENUE PER USER From publicly available data, IFPI estimates that Spotify paid record companies US$20 per user in 2015, the last year of available data. vs By contrast, it is estimated that YouTube returned less than US$1 for each music user. US$20

THE MUSIC WORLD SPEAKING OUT

Artists, performers, songwriters, record companies, music publishers, music licensing companies and managers are united in their eﬀorts to ﬁx the value gap.

“The value gap undermines the rights and revenues of those who create, In June 2016, over 1,000 recording artists, invest in and own music, and distorts performers, and songwriters, including the marketplace. This is because, while Sir Paul McCartney, Robin Schulz, David Guetta, Sting and Coldplay, signed a music consumption is at record highs, letter asking the European Commission user upload services are misusing ‘safe to take urgent action to address the harbour’ exemptions. These protections value gap. were put in place two decades ago to help develop nascent digital start- ups, but today are being misapplied to corporations that distribute and monetise our works. We urge you to take action now to create a fair playing feld for artists and rights owners. In doing so, you will be securing the future of music for generations to come.” “One of the biggest problems confronting songwriters and recording artists today is the Digital Millennium Copyright Act. This law was written and passed in an era that is technologically out-of-date compared to the era in which we live. It has allowed major tech companies to grow and generate huge profts by creating ease of use for consumers to carry almost every recorded song in history in their pocket via a smartphone, while songwriters’ and artists’ earnings continue to diminish. Music consumption has skyrocketed, but the monies earned In the US, artists, managers, and songwriters by individual writers and artists for that – from new artists to established acts, consumption has plummeted.” including Taylor Swift, Kings of Leon, Katy Perry, Maroon 5 and Carole King – petitioned Congress to reform outdated safe harbour laws, with record companies and music publishers also calling for change. GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY R EWARDING CREATIVITY: FIXING THE VALUE GAP 27

THE VALUE GAP – A POSSIBLE SOLUTION IN EUROPE The European Commission has identified the value gap as a market distortion that needs a legislative fix. The Commission has now proposed draft legislation clarifying that services that engage with the content uploaded by users are liable for that content and need to be licensed. It also confirms the original intention of safe harbour legislation – to apply only to truly neutral services. Services providing access to large amounts of content would also have to prevent the upload of unauthorised content to their services, reinforcing the role of fair licensing when a service wants to provide access to music. These proposals, which are now in the European Parliament and Council of Ministers for deliberation, would be an important and welcome first step towards addressing the value gap in Europe.

! AL MURRAY PHOTO BY JOHN TSIAVIS

! BOB MARLEY PHOTO BY ADRIAN BOOT ! LITTLE MIX PHOTO BY MARK HUNTER 28 F OCUS ON CHINA GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY FOCUS ON CHINA

China’s phenomenal potential unlocked by streaming.

ith over 1.36 billion people, China streaming service – QQ Music – last year is, in terms of population, the Tencent bought two more leading stream- biggest country in the world. ing services, Kugou and Kuwo, from China W In terms of recorded music Music Corp. With the top three platforms revenue, however, it has never broken into residing in the newly formed division, the top ten markets (it was ranked 12 in Tencent Music Entertainment Group, it 2016, up from 14 in 2015). Historically has more than 15 million paying subscrib- hampered by rampant piracy, it was the ers and trade estimates put its market sleeping giant that many in the industry share at over 70%. believed would never be woken up. Andy Ng, Tencent Music Entertainment Now though, thanks to a confluence of Group Vice President says: “Our number of deals, technology, new government policy monthly active users accessing music is and cultural shifts, it is being talked of actually over 600 million, which means, at as the next great global opportunity, with 15 million, our conversion to subscription the potential to rank alongside the biggest is still less than 3%. If you look at other ! GUO DING PHOTO BY SHAO TING K UEI music markets in the world. Recorded mu- services, in other countries, the conversion sic revenue grew 20.3% in China last year, rate is more like 20-30%, so we see a huge driven by an 30.6% rise in streaming. opportunity and potential for growth, as Major and independent labels from all long as the market situation keeps improv- over the world, fired up by a new sense of ing and the piracy issues keep improving.” possibility and positivity, are playing their In the last few years, both Warner GLOBAL RANKING part in building a new industry, founded Music and Sony Music signed and sub- on streaming and subscription. They are sequently extended licensing deals with working with local partners, equally de- Tencent, which then sub-licenses the China was ranked the termined to create a legitimate business catalogues to other streaming services in delivering quality services that rewards China. artists and rights holders. Universal continues to licence direct 12th The leading player in the streaming and on an individual basis to the country’s largest market in 2016. market is China’s internet giant, Tencent major platforms. Up from 14th in 2015. Holdings (market cap: US$250 billion+). Ng believes that the Chinese govern- Already owning the country’s most popular ment’s increasing resolve to tackle piracy, GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY F OCUS ON CHINA 29

! CHRISTOPHER PHOTO COURTESY OF WARNER MUSIC GROUP plus a change in attitude to the value of Ng continues: “We currently still offer content, is key to the continued move to- a low quality free streaming service, be- wards legitimised and monetised business cause it will take some consumers time SUBSCRIBERS models. He also believes companies like to get used to the idea of paying for mu- Tencent and other streaming platforms, in sic, but we are showing the quality you tandem with the record companies, need get with a subscription and making sure to work co-operatively to accentuate the there is a big difference between what Tencent Music differences between a paid service and you get free and what you get when you Entertainment Group the free tier. pay.” Tencent is encouraging conversion has more than He says: “We are by offering a range all educating peo- of pricing models, 15m ple to accept that We are all educating people to 8, 12 or 15 yuan paying subscribers. content has a value accept that content has a value (US$1.16, US$1.75 and we are mak- and we are making progress. or US $2.18) per ing progress. Young month, and by of- Young people in particular are people in particular fering benefits are more willing to more willing to pay for a music such as exclusive ingly more aware of what they're getting pay for a music ser- service, they are happy to spend a content, concert for their money and are increasingly more vice, they are happy few dollars supporting the artists tickets and even willing to pay for it." to spend a few dol- they truly admire. game credits. He concludes simply: “China’s popula- lars supporting the Andy Ma, Warn- tion is over 1.3 billion. If a small fraction artists they truly Andy Ng, Tencent Music Entertainment er Music’s CCO of this population pays for streaming ser- admire.” Group Vice President for Greater China, vices, it will be the biggest music market in To put the tran- says the combina- the world.” sition from piracy tion of low-cost Samuel Chou, CEO, China and Taiwan to paid in a wider entertainment context, and high quality within the subscription at Sony Music Entertainment, goes as far China has now risen to become the second model is making it easier for consumers as to say that 2016 “was the first year of a largest film market in the world (trailing to decide to pay for music. "I think they're new era for music in China”. He continues: the US). In 2016, box office takings were offering an improved user experience, “Part of the reason is that in July 2015, the estimated to be around 44 billion yuan with their music service plus other added government, after 10 years, introduced (US$6.6 billion); in 2002 they came in at value services such as artist showcases, tough regulations in relation to digital pi- under 1 billion yuan (US$150 million). which music fans can appreciate. For 10 racy. The second thing is that the number China is also believed to have recently yuan a month, music fans are getting ac- of mobile users now accessing music is overtaken the United States as the larg- cess to a vast catalogue in quality audio over 500 million and, in general, mobile us- est video gaming market in the world, with with a good user experience, so they don't ers are more willing to pay; people will pay 2016 revenues of around US$24.4 billion need to download single tracks from unli- for things on their mobile that they won’t (Newzoo Global Games Market Report). censed platforms. Music fans are increas- pay for on their PC.” 30 F OCUS ON CHINA GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY

Chou also stresses the record com- “At the same time, competition is grow- pecially the live sector. “It’s not just about panies’ willingness to work with digital ing, global services are coming in, and putting recorded music on streaming ser- partners to encourage conversion to paid those services all have paid subscrip- vices, it is about supporting the artists and streaming. “We don’t want to simply be tion tiers. Domestically, Tencent has con- working together to build and define this a song provider, we want to add value to solidated some of the biggest platforms, new business.” their subscription which gives them Warner’s Robson also predicts a shift in services, so their more opportunity focus to domestic talent, but also expects KPIs become our to transition their artists from around the world to gravitate KPIs. We will work The streaming services and the customers from to China: “A lot of superstars in today’s Chi- with them to in- free to paid. The nese market are from Hong Kong, Singa- record companies are pushing in the crease the traffic to streaming ser- pore or Taiwan. I think we’ll see more art- their platform and, same direction, towards legitimate, vices and the re- ists emerge from mainland China and we importantly, to in- paid subscription platforms. cord companies are heavily investing in A&R in that area. crease the number George Ash, President, Universal Music are pushing in the There’s a clear business case for doing so of paid users.” Asia Paciﬁc same direction, to- and I think we’ll see many fans become Simon Robson, wards legitimate, even more engaged with homegrown stars. President of Warn- paid subscription “I’m also encouraging all my colleagues er Music Asia, says: platforms. And it’s worldwide to take China seriously, be- “Music was considered a free commodity not just the industry pushing, it’s also to cause it’s going to be a massive market. in China for so long that it will take time to do with China’s demographic dynamic, They need to be doing concert tours, or change people’s perception. We’re talking with the rise of a middle class who have promo trips, or attending awards ceremo- about a situation where about 90% of the money to spend on entertainment and are nies. As we’ve already seen with artists market was piracy. It’s a big shift, but I’m now willing to pay.” such as Christopher from Denmark, it’s a optimistic. Garand Wu, Managing Director of Uni- massive opportunity.” versal China, agrees that “the biggest challenge of the next two to three years is the ongoing conversion of users from free to paid subscriptions”. He is “hopeful of a good result” and stresses the role to be played by content – domestic and international: “At the end of the day, it is always about the artist and the music. I think the consumer will be willing and happy to pay REVENUE INCREASE if the service is good and the quality of the content is exceptional.” Sony’s Chou believes that an important by-product of rapidly increasing streaming ! revenues is increased investment in local 20.3% talent: “In the past, it was very difficult for Revenue growth. record companies to build and support new artists and there have been no superstars coming through in recent times, but ! now, in this new world, we have that pos- 30.6% sibility which we are very focussed on. In- Streaming growth. ! JJ LIN PHOTO COURTESY OF WARNER MUSIC GROUP vesting in new artists is what we need for the long-term benefit of the business here. “Streaming platforms are starting to We have tremendous direction and sup- differentiate more between free and sub- port from Sony Music Asia Pacific Regional scription services and I think that trend President Denis Handlin and the New York needs to accelerate. People will then head office to invest strongly in artist de- gravitate towards paid if the added value velopment and exciting new business is there.” ventures to continue the industry’s growth George Ash, President of Universal Mu- in China.” sic Asia Pacific, says: “The main platforms He goes further and says labels should are now trying to move their customers to- unite with the broader music industry, es- wards paid subscription models. GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY CASE STUDY 31

CASE STUDY

Parlophone, CHRISTOPHER Warner Music BREAKING CHINA: DANISH STAR CHRISTOPHER STORMS THE CHARTS

hristopher Nissen is a pop star who first enjoyed success in his native Denmark in 2012, when he released C his debut album, Colours. He is one of the first Western pop stars to heavily invest time and effort in building an audience in China. His first visit was in 2014, when he performed his single, CPH Girls, on two top-rated TV variety shows. The song went on to top QQ Music’s international chart for nine consecutive weeks.

! CHRISTOPHER PHOTO COURTESY OF WARNER MUSIC GROUP Music fans respect artists from overseas who make the eﬀort to His single, Tulips, released in August travel to China, ofen rewarding 2015, reached the top 10 and in January such performers with passionate 2016 his track, Limousine, went to the top support. Tere is an immense of the QQ chart. In March 2016, Christo- opportunit here for artists that are pher performed at the QQ Music Awards prepared to spend time in China. Gala, an event the service promoted heavily online. His singles, I Won’t Let You Down Simon Robson, President of Warner and Heartbeat, subsequently went to the Music Asia top of the QQ chart in April 2016 and Janu- ary 2017 respectively. In 2016, his music generated more than 155 million streams Christopher also used this visit as an in China, up from 38 million streams in opportunity to take part in a number of 2015. magazine shoots for influential Chinese Christopher’s most recent tour of magazines to further build his profile. China, in the autumn of 2016, took in five In March 2015, he was named Most cities across the country. He is expected Promising International Artist at the V to return later this year, as well as tour- Chart Awards. He combined his visit to ing elsewhere in Asia. Heartbeat received collect the award with a major promo tour, significant airplay in countries including including filming an online reality show Indonesia, South Korea, Taiwan, Thailand called A Day Off With Christopher, in Bei- and the Philippines in Q1 2016. Christo- jing, in partnership with a local online pher’s latest album, Closer, was released platform. internationally on 31st March. 32 F OCUS ON AFRICA GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY FOCUS ON AFRICA

An emerging opportunity.

ith highly varied economic, po- larger African territories, while Spotify litical and social circumstances is yet to make its move in the continent. and challenges from country to Granite says the key to all streaming W country, Africa is a complex re- services is to shape their payment mod- gion for the music industry to navigate. els around pre-payments in local cur- Across the continent, record labels are rencies. working with local partners and artists Like most emerging territories, many to maximise the opportunities created by African countries remain blighted by pi- the advent of streaming – coupled with in- racy. Granite says: “An artist would re- creased smartphone penetration. cord an album and would sell the master Adam Granite, President, Northern & to a pirate on the street for a one-time Eastern Europe and Africa, Sony Music fee and that’s all they would ever see. Entertainment, says: “I think what really The pirate would sell it on and it would excites us is the fact that we’ve not real- go down the food chain; that was the DR BONE PHOTO COURTESY OF WARNER MUSIC GROUP

ly turned on the emerging markets when music business. The artist would earn ! it comes to paid streaming, and when next to nothing, but it would fuel their you start to do the math, when you look live business, they would sell tickets. at some of those countries with mass “The move to streaming has helped populations, that’s very exciting. that, and you’re also seeing mobile leap- I think what really excites us is the “With Nigeria, and West Africa we frogging home broadband penetration, fact that we’ve not really turned on think there’s a huge opportunity for our which is ultimately good because it is catalogue there. We also firmly believe harder to steal music on a mobile device the emerging markets when it comes there’s going to be a global star that than it is on a PC.” to paid streaming, and when you emerges from Africa. There’s huge po- Adrian Cheesley, SVP, Universal Mu- start to do the math, when you look tential for our catalogue to sell there, sic Group International, says: “Africa at some of those countries with mass of course, but we believe there is reper- has a thriving and highly diverse music populations, that’s ver exciting. toire, specifically from Nigeria, that can ecosystem and a young demographic. In break internationally.” (Nigerian artist certain African countries more than half Adam Granite, President, Northern & WizKid featured on the biggest selling the population is under 25 years of age. Eastern Europe and Africa, Sony Music track of 2016, Drake’s One Dance). We have therefore expanded our reach Entertainment Apple has launched in most of the by ramping up our A&R activity, actively GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY F OCUS ON AFRICA 33

partnering with entrepreneurial music clining rapidly. Digital is growing expo- STREAMING producers and independent labels. nentially, but there is still a lot of growth INCREASE “We are making our content available to come, as smartphone penetration is on more services across multiple coun- growing quickly. Streaming is becoming tries, as well as entering new markets to very big for us, but it’s still in its infancy. grow our digital footprint across the re- The largest streaming service is Apple ! gion and are now monetising on behalf Music, with Google Play and Deezer also 334.2% of our artists in more than 20 territories leading players. Digital growth is help- Streaming revenue for the first time. As payment methods, ing enable us to expand our roster, sign- increase in South mobile networks and broadband pene- ing artists such as ASH, Dr Bone, Josh Africa last year. tration improve and with Telcos expand- Kempen and Locnville that reflect the ing their music offerings, the market has diversity of the music scene in South Af- a very positive outlook.” rica today. Sipho Dlamini, Managing Director “We’re seeing smartphone penetra- of Universal Music South Africa and tion rates start to climb in key African Sub-Saharan Africa, adds: “In South Af- markets, such as Kenya and Nigeria, rica, although the physical market re- where it is now close to 50% of the pop- mains important, there are already over ulation. As handset and data prices con- 250,000 paying subscribers on stream- tinue to come down, this growth should ing services and we expect the mar- accelerate across the continent, which ket to grow strongly. In recent years we represents a huge opportunity for digi- have seen a resurgent market in Nige- tal music services and opens the door to ria especially, driven by the CRBT busi- more investment in local music by inter- ness which, coupled with a flourishing national record companies. At the mo- live business, has led to a far healthier ment, the music market is not formal- domestic music scene. We are seeing ised across Africa, but there is masses potential global stars emerge from mar- of activity and a vibrant live scene, with kets like Tanzania, Zimbabwe, Ghana many artists releasing music indepen- and Angola, encouraging us in our strat- dently. What is particularly exciting for egy for developing these artists conti- us is the interest shown by A&Rs world- nentally and globally.” wide in African music. Producers are Tracy Fraser, MD of Warner Music coming here looking for new beats and ! NORAH JONES PHOTO BY DANNY CLINCH South Africa, says: “The South African we’re seeing interesting collaborations market has been dominated for many and artist signings. It’s a very exciting years by physical sales, but they are de- time for African music.”

! ASH PHOTO COURTESY OF WARNER MUSIC GROUP 34 T HE VALUE OF R ECORD C O M P A N I E S GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY THE VALUE OF RECORD COMPANIES Developing artists, prioritising partnerships.

ecord companies are the primary Further, the evolution of the market is investors in music. They spend being reflected in the evolution of ‘stand- RECORD more than US$4.5 billion annually, ard’ record contracts – to the extent that COMPANIES R or about 27% of their revenues, on there is no longer such a thing as a ‘stand- A&R and marketing – discovering, nurtur- ard’ record contract. Instead there is choice ing and promoting artists and their music. and flexibility (including the ‘a-la-carte’ This is a greater share of revenues invest- services model where performers choose ed in A&R than most other sectors invest to engage record companies for a more US$4.5 in their own research and development limited and tailored range of support), the (R&D). They have sustained this share of result being more power in the hands of the billion investment through recent years, even as artists and a growing sense of ‘partnership’. Global investment in A&R the industry weathered more than a dec- and marketing in 2015. ade of revenue decline. The partnership between artists and labels goes far beyond the financial. Record companies nurture artists, allowing them 27% to develop their sound, their craft and their Share of recorded music careers. They also facilitate introductions industry revenues invested to world-class producers, writers and other in A&R and marketing. performers, which can go on to reap huge rewards and re-define careers. Labels’ marketing expertise and re- US$500,000 sources enable them to create and deliver cutting-edge campaigns that engage fans –2,000,000 around the world. They help manage thou- The typical cost of sands of partners spanning the globe – breaking a worldwide including everything from bricks and mor- signed artist in a major tar retail outlets to digital services and market such as US or UK. much more – often requiring local expertise in each market with networks of rela- tionships and marketing and promotional ! K EVIN GATES PHOTO BY JEFF FORNEY resources. GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY T HE VALUE OF R ECORD C O M P A N I E S 35

MUSIC'S A&R INVESTMENT (OR R&D EQUIVALENT)

Sector R&D intensity %

Music’s A&R investment (or R&D equivalent) 16.9

Pharmaceuticals & Biotechnology 14.4

Software & Computer Services 10.1

Technology Hardware & Equipment 8.0

Leisure Goods 5.8

Electronic & Electrical Equipment 4.5

Aerospace & Defence 4.5

Automobile & Parts 4.4

Healthcare Equipment & Services 3.8

Industrial Engineering 2.9 ! HELENE FISCHER PHOTO BY SANDRA LUDEWIG

Chemicals 2.6

Source: 2015 EU Industrial R&D Investment Scoreboard. R&D intensity is the ratio between R&D investment and the net sales of a company or group of companies.

CONNECTING ARTISTS TO FANS BRINGING UNPRECEDENTED LEVELS utilising it to better inform how they deliver and market music around the world and AND BROADENING REVENUE OF INFORMATION TO ARTISTS improving the information they are able to OPPORTUNITIES The digital world has ushered in a new era share with their artists. The investment from record companies of data for the music industry, with un- They have also invested significantly has also been essential in driving music’s precedented levels of detailed information in the development of ‘artist portals’ that digital transformation. Record companies now available on where, when and how pass this information on to artists and built the systems and infrastructure that music fans are accessing licensed music. their management teams in an easily ac- enable the licensing of over 380 digital Record companies have invested in high- cessible way. These sophisticated online music services with more than 40 million performance global systems for delivering platforms provide detailed information on tracks. As a result, today’s music industry data to stores and receiving back granular how, where and to what extent an artist’s helps connect artists and their music with reporting on sales and usage patterns. The music is being consumed and the revenue fans in more ways than ever before and industry has developed the skills and the it is generating. earn revenues through multiple channels, infrastructure to analyse this information, either working directly with digital services or working together with record companies. As this digital market continues to grow and develop, so too will the overall level of remuneration to artists.

! LEONARD COHEN PHOTO COURTESY OF COLUMBIA RECORDS For over thirty years, Lee & Thompson has been at the heart of the music industry, representng the interests of talented individuals and innovatve businesses across the music and wider creatve industries.

Phone +44 (0)20 3073 7600 Email [email protected] Twiter @leeandthompson GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY S AFEGUARDING MUSIC 37 SAFEGUARDING MUSIC

Fighting copyright infringement in all its forms.

rotecting music from being illegally or creating a downloadable file from mu- entire marketing campaign can be put in distributed – and therefore under- sic that is available to stream online. It is jeopardy and an artist’s work can be com- mining the recovering legitimate typically done by users to produce an MP3 pletely undermined. P music market – remains a key prior- from a streamed music video, creating a IFPI and its member record companies ity for the industry. file that can then be kept and listened to constantly work to protect music from be- offline or on other devices. ing leaked online before its official release The process has become the most date. IFPI pursues investigations into the TAKING ACTION ON common way of illegally downloading mu- source of pre-release leaks and works with ILLEGAL MUSIC UPLOADS sic, with research conducted by IPSOS in record companies to improve security in Under the law in the EU, US and many other 2016 finding that 30% of all internet users their supply chains. Measures such as copy- countries around the world, there is a sys- (and 49% of 16-24 year olds) had engaged protection, watermarking, security guides tem known as ‘notice and takedown’. Rights in the practice in the previous six months. for staff and alert systems to detect phish- holders identify where music has been il- Stream ripping sites compete unfairly with ing emails have helped reduced leaks. The legally uploaded online and notify the host licensed music services, enabling users advent of New Music Fridays in 2015, when, to remove the infringing content. The host to permanently download music licensed co-ordinated by IFPI, new music releases provider is then required to remove the con- only for ad-supported streaming and then were aligned to the same day worldwide, tent if it wishes to continue to benefit from listen to it offline without advertisements also played a part in reducing leaks. Now, safe harbour protection from liability for and without paying. Unlicensed stream where leaks do occur, the typical gap before copyright infringement. IFPI works in col- ripping companies profit from the adver- release date has been reduced from a few laboration with record companies and its tising space they sell on their sites and do weeks to a few days, with predictable ‘leak national groups around the world to imple- not return any revenue to those who create windows’ allowing record companies and ment a system for identifying where unli- or invest in the music they make available. IFPI to plan accordingly. censed music has been distributed without In 2016, the industry announced action Underpinning this, IFPI runs a 24/7 site permission and calling for it to be removed against the most heavily used stream rip- checking, alert and takedown service for (or licensed and monetised by advertising ping site, YouTube-MP3.org, which is esti- members and national groups, monitoring where the service offers this ability). There mated to have more than 60 million unique all heavily used copyright-infringing sites has been a particular focus on illegal con- users per month. Further actions against and social networks. In 2016, 19.2 million tent stored on user upload services and in similar sites are likely to follow. URLs were identified as hosting infringing 2016 alone 1.6 million videos and streams content and actioned for removal by IFPI were reviewed, with more than 500,000 in- PROTECTING MUSIC RELEASES and national group programmes, and 339 fringing pieces of content removed. million requests were sent to Google re- Building marketing and publicity around quiring it to ‘delist’ infringing sites. a music release is a crucial part of the STREAM RIPPING – promotional work record labels deliver in ADDRESSING THE THREAT collaboration with their artists. If music is leaked online ahead of its release date, the Stream ripping is the process of ‘ripping’ PEOPLE-POWERED MUSIC

Discover and share new music on Napster’s global Listener Network with unlimited ad-free access to 40 million songs. Listen to music online or ofﬂine, and enjoy songs tuned speciﬁcally to the way you hear with exclusive EarPrint technology. Whether you stream on the go or in the home, Napster is built for you.

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CASE STUDY

Island Records, SHAWN MENDES Universal A TRUE PARTNERSHIP AND A NEW SUPERSTAR

anadian singer and songwriter, hours and ended up selling just un- PEOPLE-POWERED Shawn Mendes, may have al- der 200,000 in week one. It was an ready had a strong social me- amazing, innovative, creative and fun C dia profile when he came to way of developing and marketing an the attention of Island Records, but artist organically. We were up and his signing was based on artistry. running and knew how to build on it Island Records president David from there." Massey says: “When Shawn sat down For both Island and Shawn, cre- in my office, aged just 15, it was one ating the right songs was essential. of those three minute decisions. It Massey says: “We introduced Shawn was all about him, he just sat there to a few great young guys, who have MUSIC and played his guitar and sang, and now become very successful, and he he was so engaging and so commit- formed a creative collective around ted. I was utterly convinced by him.” himself and they wrote all these

great songs together. SHAWN MENDES PHOTO BY JAMES MINCHIN ! “We developed him as an artist (He just sat there and played and treated him as an artist from and plot the year ahead. They re- his guitar and sang for me, day one, not as a pop star, or a so- ally made a personal connection with and he was so engaging and cial media phenomenon. The part- Shawn and got to understand him as so commited. I was uterly nership between us and Shawn an authentic artist. convinced by him.” has been extraordinary. It was an “In the past maybe we’d have had amazing synergy in terms of devel- to wait a while to try to make this David Massey, President, oping him and building his profile sort of impact around the world, but Island Records. in a modern, new media way. I think in today’s market, and with the way that’s where a record label is so valu- our territories and affiliate labels He also believes that Mendes is a able for the artist.” all work together, it means we could thoroughly modern example of where In 2015, Mendes’ debut album, take a bolder approach.” The result a record company makes a vital con- Handwritten, went to number one in has been that Illuminate has already tribution to the success of an artist. the US and has now clocked up 3.5 sold close to 1.5 million units outside Massey says: “He had the ambition, million adjusted albums worldwide. the US. the voice and he had star quality. Later that year, he enjoyed phenom- Massey concludes: “When record Our job was to develop him. We had a enal global success with the track, companies get involved early with an song that we both really liked called Stitches. artist like Shawn and commit to true Life of the Party, which we launched His second album, Illuminate, artist development, they can elevate with a three week campaign that en- confirmed him as a truly worldwide that artist and create opportunities Discover and share new music on Napster’s global Listener Network with unlimited ad-free gaged with his fans and made them superstar, reaching the top three in at the right time with the right sup- access to 40 million songs. Listen to music online or ofﬂine, and enjoy songs tuned part of the process. all major territories. Steven Rowen, port, building a career and taking it “That culminated with a live speciﬁcally to the way you hear with exclusive EarPrint technology. Whether you stream on Senior Director, International Mar- global. I think the difference a record stream of Shawn performing the keting, Universal Music says: “Stitch- company can make in those situa- the go or in the home, Napster is built for you. track. From there it went straight es was his breakout track around the tions is exponential.” online and went to number one in world. After that, the key was to co- iTunes in the first 10 minutes. We ordinate the album, launch globally, sold 60,000 copies in the first few get all the teams in the same room

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CASE STUDY

ZARA LARSSON Epic, Sony Music AN EPIC JOURNEY FROM SWEDISH ARTIST TO GLOBAL STAR

give her a global platform. L.A. Reid “Our approach with Zara was al- gave her the opportunity to go into ways multi-pronged – we had a con- the studio with various writers and sistent flow of new songs to keep producers over a two year period. feeding her fanbase on digital music Sessions were booked in Los Ange- platforms and radio, amplified with les, London and Sweden, allowing promotional tours, TV and press. her to get fully involved in the crea- Over the past two years we have cov- tive process.” ered Europe, Australia, Japan and Rhone also flags up the impor- North America consistently to keep tance of the instantaneous, data- her profile high alongside streaming rich, global nature of streaming: and radio play. “Zara’s deal originates with TEN Mu- “The US was actually the last

ZARA LARSSON PHOTO BY MARC REGAS sic Group from Sweden – the capi- market on board, but once they ! tal of streaming and where it was kicked in with the success of Never ara Larsson is a Swedish sing- birthed. Therefore Zara had a natu- Forget You, we truly had a global story.” er songwriter who first came ral relationship with fans and the Throughout the process, to to prominence in her home streaming process. Streaming deliv- broaden her A&R approach, Epic country and across the Nordic ers simultaneous access around the sought out collaborators outside her Z world and we are able to build global Nordic roots. She collaborated with region. Now, as an Epic artist, she is enjoying success around the world. marketing plans based on real time Ed Sheeran on Don’t Let Me Be Yours, Central to her global rise have analytics.” WizKid on Sundown, Ty Dolla $ign on been three key factors: massive So Good and features on Clean Ban- global streaming numbers, smart, “We always saw Zara’s global dit’s Symphony. During the two year engaging social media and high potential from her early process she had local hits in Europe quality collaborations. success in Sweden and other and Australia with Tinie Tempah’s Girls Like in the spring of 2016 and Having won a TV talent show aged Nordic markets. It was our David Guetta’s This One’s For You, re- just 10, Zara was signed locally by responsibilit to give her TEN Music Group and enjoyed some leased for the UEFA Euro Champion- a global platform.” initial success in Sweden, Norway ship in the summer of 2016 and was and Denmark with a single, Uncover, Sylvia Rhone, President, Epic Records a number one single across France, and EP, Introducing. GSA and also had success across In 2013 she signed a worldwide She describes Zara as “a social Europe and Japan. deal with Sony Music’s Epic label, media princess” who connects di- So Good went straight to num- where she benefitted from the guid- rectly and personally with her fans ber one in Sweden and was a top ance of CEO L.A. Reid. She was given via her blog, her podcast, plus Fa- ten album across Europe as well as time and space (as well as facilities cebook, Instagram, Snapchat and in Australia and New Zealand. Along and top quality writers and produc- Twitter. Zara’s first globally released the way, she broke the record for the ers) to hone her craft, refine her album, So Good, was launched in most streamed debut album by a fe- sound and step onto the world stage March 2017. Rhone says: “We spent male artist (over 1.3 billion streams as a more complete artist. two years setting the album up, since and counting). Sylvia Rhone, President, Epic Re- [2015 hit single] Lush Life. We subse- cords, says: “We always saw Zara’s quently released four smash singles global potential from her early suc- – Never Forget You, Ain’t My Fault, cess in Sweden and other Nordic I Would Like and, most recently, So markets. It was our responsibility to Good. 42 WORK ING WITH ARTISTS GLOBAL MUSIC REPORT 2017: ANNUAL STATE OF THE INDUSTRY

CASE STUDY NATHANIEL RATELIFF

Stax, & THE NIGHT SWEATS Concord Music Group INDEPENDENT ATTITUDE, MAJOR MUSCLE, GLOBAL AMBITION

athaniel Rateliff is an Ameri- can singer songwriter from Denver who, since 2013, has N been performing and recording as the soulful R&B band, Nath- aniel Rateliff & The Night Sweats. He is signed to the iconic Stax label through Fantasy Records (both of which are owned by Concord Mu- sic Group) in the US and distributed globally by Caroline, part of Universal Music. An early solo career consist- ing of two albums had built a small ! NATHANIEL RATELIFF AND THE NIGHT SWEATS PHOTO BY LAURA HARVEY but dedicated fan base, but the for- “Honestly, it all still starts with very excited about the record and mation of Nathaniel Rateliff & The they came back with a really innova- a great record. It was a record Night Sweats, and the launch of their tive marketing plan that we all really eponymous debut album in 2015, that everone was passionate liked. We worked with them daily and marked a new promotional approach. about and it made them want they did an amazing job on this re- Fantasy Records president, Margi to work hard to give it the cord; it was a real partnership.” Cheske, describes how their strat- audience it deserved.” By the end of February 2017, egy was focussed on reaching global the Nathaniel Rateliff & The Night markets from the outset: “From the Margi Cheske, President, Sweats album had sold 470,000 start it was a global campaign, eight Fantasy Records units in the US and 240,000 across months before the record was due the rest of the world. we were planning in all markets all A global strategy, a key strategic over the world. on American talk show, The Tonight partnership and an abundance of “It’s a global market now and, Show Starring Jimmy Fallon, to help data all played a part in launching with some exceptions, that’s how you generate further buzz around lead an important new independent art- have to think, you can’t just have a single S.O.B. ist, but, Cheske concludes: “Honestly, local view. You can maybe start local- Cheske also points to the impor- it all still starts with a great record. ly, but if you don’t hit the rest of the tance of working closely with Caro- It was a record that everyone was world early, you’ll find it very hard to line, part of a major record company passionate about and it made them catch up later on.” that dedicated itself wholeheartedly want to work hard to give it the audi- The campaign drew heavily on the to an independent artist: “We have a ence it deserved.” band’s live appeal and, in advance of global distribution deal with Univer- the album launch, showcase slots sal and that allows us to put some were held in key cities around the records out through Caroline. They world. A performance was booked were big fans of Nathaniel, they were