City Showcase’s Finding The Future: ‘Business Models Online Presented by PRS For Music’

City-Showcase

‘Finding The Future’ is a series of music workshops hosted by City Showcase between the 13th and 15th of November 2014 in Regent Street’s Apple Store. The speakers range from A&R people, booking agents, label managers to marketers, researchers and many more. They also have a hot new artist performance at the end of each day.

Due to conflicting schedules with my university timetable, I could not attend every sessions. I applied for a session on the first day and two sessions on the last day. Thankfully, those two are the ones that I am interested in.

On Thursday the 13th I arrived at the Apple Store at 6.50pm with my friend Aynsley. We met a uni coursemate, Chris, at the store entrance. He had attended the previous sessions and was about to go home. But then he asked:

‘Does anyone of you have a camera phone? Mine’s out of battery’

‘I have’, I replied.

‘Okay, come with me’.

The seminar space

The seminar space

Chris took us to where the workshop was happening. It was at the back of the 1st floor of the store. We passed rows of iMacs, iPhones, hordes of customers and energetic Apple salesmen to get to the area. In contrast to the all-white backdrop of the Apple Store, this section was coloured with purple lights. Chris wanted to take a photo with Mo Pleasure, a producer who has worked with Michael Jackson, Ray Charles, and Earth, Wind and Fire. A lot of people are queuing to have an audience with Pleasure. Suddenly, a lady cut our queue. I didn’t notice immediately as I was surveying the location and the people attending. And then Chris poked me.

‘Did you hear that?’

I said, ‘what?’

‘She said she’s the ambassador for music in China or something’. Chris was referring to the lady who cut our queue and was talking with Pleasure. That did sound interesting, but I didn’t know what to say. When she finished talking with Pleasure, Chris told me to approach her.

‘I don’t know man, I got nothing to say.’

‘Come on, man. In these events you gotta pay attention to conversations and approach people.’

‘Still, I don’t know what to offer.’

Chris was annoyed, so he walked away from the queue and approached the lady who already took her seat. Turned out she runs a consulting company that is trying to introduce British music to China. She gave us her business card and we wrote our names and contact details on a receipt paper. In retrospect, that was a bit lame. We talked for a bit regarding musicians in our university and if we could help out with her project.

Funnily, I was quite excited that I got a chance to talk to her. I thanked Chris ‘for creating the opportunity’ and he replied with ‘go f**k yourself’. Haha.

Anyway, the session was about to begin. Aynsley and I walked to the registry to get the event brochure and Chris went home. Most of the seats were filled, so we ended up sitting at the front row. It was so close to the stage that my knees touched it.

The session was titled ‘Business Models Online presented by PRS For Music’. Mark Mulligan from MIDiA Research was speaking throughout the event. Mulligan opened by introducing MIDiA, himself and what he would be discussing in his talk. Mulligan is a music industry analyst and consultant with 15 years of experience behind him. MIDiA Research provides music industry research, analysis and reporting service. As the title suggests, his session was about the online music business environment.

Mark Mulligan of MIDiA Research

Mark Mulligan of MIDiA Research

Mulligan said that until Napster, music is about scarcity. Nowadays, there is no such thing as content scarcity anymore. In fact, there’s too many music choices that we end up having no choice at all. He called this phenomenon the ‘tyranny of choice’. It is the big challenge that the industry is facing but no one has managed to tackle it.

His presentation slides were full of interesting information. On one of the slides, he proposed that we are entering the fourth phase of digital music. The first phase was in 1999 with the rise of piracy networks, a period where we were given fixed access to music. Then we have fixed portability when iTunes came and download stores came into prominence. The third phase was the fixed streaming era, triggered by Spotify’s launch. Finally, we have arrived at the so-called ‘fixed discovery’ phase, in which most of music-listening is focused on curated and ‘listen’ services. What he meant by that are music services that understands how listeners – humans – want to consume and discover. Beats Music is one of the key players in this phase.

Four different phases of digital music

Four different phases of digital music

Mulligan went on to explain the revenue situation in the digital music sector. Digital music has not yet got a firm foothold on a global revenue basis. The market share for physical music is still larger than digital music in most areas of the world. He showed a graph illustrating the market share in various countries. On one end, we have Japan where physical music still account for around 90% of the market share. On the other extreme is Sweden, where Spotify was born, where only 10% of the market share belongs to physical music.

Streaming states

Streaming states

An issue of everybody’s confusion is ‘why is Japan not adopting digital music?’ It was at this part of Mulligan’s presentation that audience began asking questions. Why is a nation as technologically advanced as Japan still stuck in a format of the past?

Mulligan responded by saying that in Japan there are a lot of artists with a cult following who release album in several different versions, each with a different perk (DVD, freebies, bonus tracks). One of Japan’s most popular music groups, AKB48, allow fans to vote who will sing on the next single. In order to get the voting slip, the fans must buy the album. Thus, there are heaps of AKB48 CDs in the bin because those guys only buy them to vote for their favourite member. Oh, Japan.

One of the most interesting bits of Mulligan’s presentation was when he began talking about the ‘forgotten fans’. Mulligan showed a slide on behavioural music segmentation and attitudinal music segmentation. Behavioural music segmentation measures the time consumers spent on music versus the money spent on music. Attitudinal music segmentation looks at the relationship between how much consumer value music in life and whether they consider music worth paying for. On both segmentations, 30% of the market is filled by a consumer group called the ‘forgotten fans’. When it comes to behaviour, the forgotten fans spend a lot of time on music but are not willing to spend a lot of money. In terms of attitude, they consider music to be important but not really worth paying for.

The other segments in the behavioural graph include passive majority (47%) who spend a lot of money on music but only spends nearly half the time that forgotten fans dedicate to music. As usual, there is the aficionados (17%) category who spend a huge portion of their time and money on music. Interestingly, there is a segment labeled the collectors (6%), who spend the most money on music yet the time they spend on music is equal to the passive majority.

On the attitudinal music segmentation, aficionados make up for 39% of the market. Disinterested customers, who think that music is not important and not worth paying for forms 11% of the market. The passives segment, where music isn’t a huge part of their life yet considers it worth paying for, makes up 17% of the market. There is a small segment of 2% called the ‘passive buyers’ who considers music really worth paying for, but don’t really see music as something very significant.

Going back to the forgotten fans, a segment of particular interest, Mulligan stated that the industry tend to neglect them. Mulligan argued that they do not spend a lot of money on music simply because they haven’t found what they want yet. These fans want simplicity when they are oppressed by the tyranny of choice. It is also worth noting that the forgotten fans tend to be female, whereas a typical aficionado would be a male.

After talking about music’s customers, Mulligan went on to talk about the revenues of different music services. He showed a chart which illustrates that some services like music videos and interactive radio reach a wide audience, but their financial contribution to the industry is small, measuring at less than 250 million Canadian dollars. Premium subscriptions’ contribution is nearing the 500 million Canadian dollars mark, yet their audience reach is extremely small. Paid downloads still contribute the most, weighing more than 1,5 billion Canadian dollars, and has an audience almost as large as interactive radio. However, downloads’ revenue is decreasing.

Investment in digital music when the big 3 services are factored out.

Investment in digital music when the big 3 services are factored out.

Looking at the trend, it is reasonable to see why a lot of investments now go to the streaming services. Mulligan presented another interesting slide which shows how digital music investment looks like when the big three streaming services (Spotify, Deezer and Beats) are factored out. The big three services drive the drastic growth of investment during the Cloud Years (2009-2013). In 2013, the total investment almost quadruple the amount during the peak of the dotcom years in 1999.

Mulligan’s last part was supposedly the one filled with bad news for the music industry. As a lot of the attendants were musicians and songwriters, Mulligan presented a bleak picture for them. It is a rather known fact that the top 1% artists receive more income than the other 99% combined. However, the story got darker as Mulligan revealed that 76% of the global music industry’s revenue goes to the non-artists, which include labels, stores and promoters.

photo (24)

Artists’ success strategies

It is both an exciting and critical period for music. Streaming services are dividing opinions, clouding the industry’s ability to see the future. There is a shift from valuing the content to focusing on the platform which delivers it. However, at the back of all of those debates, more investment went into the industry than ever before.

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