Well once again it is that time of year – the beginning of a new year. As with other publications we provide our opinions on the key areas we believe warrant closer attention over the coming year.
2012 has seen increased investment in digital music start-ups as compared to 2011. Numerous new services have launched, and it appears that both physical and digital music sales have begun stabilising compared to previous years’ trends.
Streaming Services Shakedown
We’ve previously questioned the sustainability of numerous streaming services for the limited customer base within the global market. It is widely acknowledged that the current number of streaming services on offer is not sustainable over the medium-term. The question that arises then is, which ones are best positioned to still be in business once the inevitable shakedown occurs?
Despite large losses it can be stated with confidence that Spotify with its current $3 billion valuation is in the race for the long haul – especially considering it will try and launch an IPO in the next 18 months with a valuation of $5 billion. Reinforcing this is Spotify’s recent successful $100 million fundraising round.
Next up is French based powerhouse Deezer, who will most definitely be in it for the long haul. With a massive $130 million war chest compliments of WMG owner Len Blavatnik it will be hard to dislodge their push for global dominance. Furthermore senior executive sources have informed TMV that Deezer is most definitely more proactive when it comes to dealing with the independent label sector.
The founders of Rdio most definitely have deep pockets, but it is still to be seen whether they intend to utilise that finance to make a serious play for cementing themselves as a key service. Industry sources have also informed TMV that a lot has been promised, but not much delivered to date.
Xbox music has the proposition and budget to make a serious push for still being around after the shakedown. The question is whether Microsoft can pull consumers away from iTunes. So the jury is still out.
The aforementioned are the only serious global contenders that have a chance of being in the three that survive the sector shakedown in 2013. Yes, there will also be some small services focused on single territories that may also continue for a while, but for how long becomes the question.
TMV predicts that Facebook shares will hover around the $17-$18 dollar mark, and that a lot of the new shareholders since the company went public will launch lawsuits against the company and its management in 2013. We also predict as Facebook fatigue becomes endemic in western markets, growth will slow at an alarming speed. Whilst on the flipside Facebook will pick up sizeable market share in less profitable developing markets, mobile will continue to be Facebook’s Achilles heel.
G+ will continue to grow especially with the continued convergence of all Google products. Hopefully the service will launch a campaign specifically targeting females to even up its current gender imbalance. We expect its user numbers to exceed 300 million by the close of 2013.
Twitter is the IPO candidate of 2013, and TMV expects the 140 character social network to achieve a valuation of a minimum of $7 billion (albeit that Facebook’s botched 2012 IPO may have a negative effect on Twitters eventual IPO valuation).
Will Three Become Two?
2012 witnessed major label consolidation with UMG picking up EMI’s recorded music business and Sony picking up the EMI’s deep publishing catalogue. This left WMG out in the cold so to speak, as they delisted and became a private company and sacked corporate rapists Bronson Jnr and “Living beyond the labels means” Cohen. In TMV’s view this means WMG will be a stronger label moving forward.
However, TMV did hear numerous rumours from sources (including both current and previous executives) that UMG’s mother company Vivendi was looking at divesting itself from the music business and offering the music monster up for sale. We also had multiple sources informing us that Sony Corp had a similar plan for Sony Music. The question is will there be any willing buyers for either company?
The recorded music business is in decline – that fact is not debatable. The good news is that decline is slowing, but none the less continuing.
If UMG is placed on the chopping block would Sony Corp consider a purchase and the reverse on the flipside…do either mother companies have the caljones to countenance such a play?
The real unknown is whether Russian Oligarch Len Blavatnik will muster a consortium to purchase one of the aforesaid music monsters. If that were to occur TMV ask you the reader to consider the implications for Spotify – especially considering Len’s $130 million investment in competitor service Deezer…
iOS vs. Android
2012 was supposed to be the year of a clear patent winner. Sadly that was not the case in this ‘thermonuclear war’ of mobile operating systems. What is clear is that Android came out the clear leader in terms of install numbers on a global basis. iOS has a total global install base of 14.5% globally, whilst Android has a whopping kickass monopoly like 68.7% market share install base.
Apple won its case in the US, with Samsung being ordered to pay $1.05 billion dollars in compensation to Apple. However, TMV asserts this win will be short-lived, and that we expect the ruling to be overturned in light of the fact that key patents involved in that lawsuit are being re-examined as to whether they were in fact valid patents. This in itself should make all Apple fanboi’s scared.
The music industry really needs to wake up in light of this imbalance in mobile OS and its continued favourable terms to Apple over all other digital music services. Android installs globally already outnumber iOS installs at a rate of 5:1 and this gap will continue to widen. So TMV predict out of necessity the music industry will begin working more closely with Google to create the next generation’s music service of choice.
Livenation VS AEG
With Irving Azoff only out of the door days ago – stating that running a public company sucks – where to now? Live Nation has continued to consolidate and expand its operational base, and live music is the real area where the majority of the value chain makes a buck. However, how long this lasts is anyone’s guess, with numerous promoters openly airing their disdain at the continuous increase in fees artists are asking for whilst promoters witness drops in attendance.
AEG seems content on its venue expansion in Asia, with news very light on the ground in reference to its overall global strategy. There is no doubt the Live Nation and Ticketmaster merger produced the largest live music company in the world. So what area of the business can Live Nation move into now? Perhaps it could be a potential bidder for UMG or Sony when they are put on the chopping block? Then again, AEG could also throw its hat in the ring too.
Either company bidding for UMG or Sony Music would make sense in terms of further consolidation of the industry. And TMV have no doubt that either AEG or Live Nation buying a major label would result in less profitable non-megastar acts being dropped…perhaps there may even be JV with WMG to purchase one of the big Majors, definitely worth chewing on…
iTunes loses market share
As more people become disillusioned with being locked into the Apple prison ecosystem, they decide to escape en masse and relocate to more open pastures. Yes whilst this prediction may be a bit utopian for 2013, TMV does believe we will witness such an exodus within a three year timeframe (by the start of 2016). The fact that al-la-carte downloads are stagnating year-on-year reinforces this, as does the ever increasing number of streaming service subscribers and ‘freeloading’ users of such services.
But let’s be real: user consumption habits ARE changing and iTunes is very late to the table if it wants to launch a streaming service…even Microsoft beat them on that front.
Access vs. Ownership
The recorded music industry is steadily pushing us consumers into the access model with the intent of it becoming the default rather than the exception.
However the critical roadblock in the major labels’ way is the fact more and more high-level artists are rebelling and refusing to have their tracks made available on streaming services. The list of artists taking such action is growing and includes Adele, Taylor Swift and The Black Keys amongst many others.
Interestingly, although Metallica recently caved in just before Christmas 2012 and allowed Spotify to host its tracks from streaming, Glenn Peoples from Billboard undertook an analysis for the same period going back a number of years. In terms of Metallica track sales, the results of the study indicates that since allowing its tracks on Spotify the band have witnessed a sizeable decline in al-la-carte sales.
Reinforcing this further is the fact that by withholding her most recent releases from Spotify and streaming services, Taylor Swift generally managed to increase her physical and al-la-carte sales figures.
The question now becomes – whether labels want it or not – if massive artists continue to opt out of such streaming services, how long can such services survive without the key artists that consumers obviously want to be included within streaming catalogues? If streaming services do not have the artists music lovers want, what reason is there for consumers to subscribe to such services?
TMV’s prediction is that whilst subscriber numbers will grow for key streaming services in 2013, the road ahead is a lot less secure than many analysts state.
Samsung Will Own Android Speaker Docking System Market
When I went to purchase a speaker system that I could use my Android phone, I learned with disbelief that that not one of the major brand manufacturers of such systems including Bose, JBL, Logitech amongst numerous others sold systems that had docks compatible with Android phones.
The statistics bear the grim truth out folks: Android now represents 68.7% of the smart-phone market on a global basis. Yet only Samsung offered a dual dock speaker system for Android and iPhone as of Christmas 2012. TMV spoke to numerous salespeople at retailers in Australia over the Christmas period, and even they could not understand such a glaring gap in the market. Two retail sales staff stated to TMV that docking speaker system sales were well down on 2011, and they expected a few suppliers to go under.
Unless ALL speaker system manufacturers launch dual docking or Android only docking systems within the first two quarters of 2013, TMV expect Samsung to achieve a 50% plus market share within a twelve-month timeframe. We also expect some familiar names to potentially go bust due to their slowness to respond to the market need for dual dock or Android-only dock systems.
Investor Confidence in Music Start-ups
Whilst it is common knowledge that investor confidence in digital music retail propositions has been lukewarm for years, investments in propositions not requiring music licensing has been steadily increasing year-on year, and we expect this trend to continue in 2013.
So there we have it TMV’s predictions for 2013. Not as many as 2012 but definitely ones to watch in 2013 is our view. Please do feel free to detail your own predictions and/or comment on ours below.