the REPORT

Issue 241 | 15 April 2010

Music Ally was back in Cannes this week for Also in this issue:
MIPTV, which is to the TV biz what Midem is
to the music industry. Some of the similarities PAGE 4:
were striking. The Pirate Bay is well and truly Nokia's next moves »
on the industry's radar as a villain; and in the
UK at least, the Digital Economy Act is being PAGE 5:
welcomed by the industry. Indeed, Sky's UK UK OK: why Britain
boss Jeremy Darroch referred to both in his is bucking global

This report is registered to: joacotroniks joaquin.fernandez@warnermusic.com Joaquin Fernandez

keynote speech at the show. sales trends »
There's also just as much fierce chatter in PAGE 9:
the TV industry about new platforms and
Market profile:
business models as there is in the music
Sweden »
industry, and an equally tense debate around
free versus paid. Producers and broadcasters PAGE 11:
are increasingly unhappy about purely The Digital Economy
ad-supported business models: there is Act: so what happens

Social discovery:
discernible pressure on video portal Hulu to next? »
introduce a paid option, while über-producer
Ben Silverman complained about Google and
other big web firms in his keynote, saying
Regulars

TV's lessons for music

It's easy to think the TV industry is behind music on the
digital adoption curve. But actually, it's catching up fast
“they're not yet ready to pay for what we do
in a premium way.” PAGE 7:
At points, if you closed your eyes, it could Digital stats »
have been Midem again. There was even a PAGE 8:
90-minute media futurism session from Gerd Dealtracker »
Leonhard. However, one area that we found
really interesting – and possibly useful in
the context of music – was the buzz around

– in part because TV companies are learning from the
experiences of labels over the past decade. There are
even areas where music can learn from TV's example.
harnessing social media as a discovery tool
for TV shows, and as a way to interact with
them in real-time.
Some examples. Twitter launched its Twitter
Media Hub this week: a site with case studies
The Report is the copyright of
Music Ally Ltd and may not be
distributed, copied or reproduced
otherwise without permission.
COVER STORY the REPORT | 15 April 2010 | Page 2
continued…
of how broadcasters and other media
companies are using Twitter effectively to
engage with their audiences. Its director of
media partnerships – yes, Twitter has one
of those, and has done since early in its
history – said that the service is becoming
“the way people find what they want to watch
and what they want to read”. She didn't add
“and what they want to listen to”, but the
implication was clear.
Twitter wants to help 'flock' viewers to shows,
so why not also help flock them to albums
or tracks? The difference is that it's actively
working with broadcasters, more so than it
is with labels. For now. Facebook also talked
about its partnerships with broadcasters
during MIPTV – and it seems to be doing
more directly with these companies than
with record labels.
Another example: a new mobile application
called Starling, which is described as a 'co-
viewing' tool. It's a bit like a Foursquare for TV
shows, in that people check in to whatever
show they're watching, comment on it and
read the comments of their friends and the
wider community. A rating system means
the funniest and most insightful comments
bubble to the top. They then fed back to the
broadcaster or producer of the show in real-
time, to be used on-screen if they want.
Starling says it's trying to filter and make
sense of the enormous number of online
comments about TV shows, for both viewers
and broadcasters. Again, switch 'albums' or
'artists' for 'TV shows', and you can see the
potential for someone to do a similar thing
for music.
This stuff is happening first in TV because
comments tend to cluster around live events
– people tweet about X Factor, the Super
Bowl or American Idol during a specific time
period when they're airing. It isn't something
that applies so much to music with the
possible exception of major events like the
BRITs or MTV’s Europe Music Awards and
Video Music Awards; although it is arguable
these examples are TV events first and music
events second.
There's a more general issue here, though:
the idea of tapping into what's known as
the social graph – people's friends and the
conversations they're having with them – in
order to drive awareness of content, be it TV
shows or music. And this IS something that's
happening in the music industry, spread
between a range of initiatives.
You can see it in WaTunes, the US digital
music store that's based entirely on
Facebook, allowing people to see what their
friends are purchasing. The company has just
signed a licensing deal with Warner Music
Group, having already signed up Universal
Music Group and EMI. You can also see it to a
different degree in mflow, the just-launched
UK digital music store that revolves around
social recommendations and rewards.
You can also see it in Apple's growing
partnership with Facebook, having launched
official applications on the social network
for both iTunes and the App Store. There has
been speculation in recent weeks that this
relationship could deepen more, possibly
through Apple integrating the Facebook
Connect API into iTunes itself so people could
share details of their purchases and reviews.
Needless to say, any such move could have
big (negative) implications for the likes of
WaTunes and mflow.
This use of social media to drive
conversations around music can also be
seen in the partnerships companies like
Ustream are signing with labels and artists.
These typically involve webcasts alongside
which fans can chat about what they're
watching, and push their comments back
to Facebook or Twitter, raising awareness
of that particular event and thus driving
more usage. This stuff is happening in music,
although labels have yet to establish the kind
of partnerships with Facebook and Twitter
that the TV broadcasters and producers are
putting in place.
The overriding theme at MIPTV, though,
was that engaging with social media is
definitely not a one-way process: it's about
conversation rather than just broadcasting.
To relate this to music, it's not just about an
artist tweeting or posting video updates. It’s
about trying to tap into the conversations
that fans are having around an album or
song, making sense of those tweets to invite
more people into the conversation, and
perhaps also feeding them back into your
own artist website.
The other interesting thing about Starling
is its reward structure, with users gaining
points for voting up comments or having
their own comments become popular. As a
result, the producers of these shows will be
able to see at a glance who their 'super-fans'
are – a good base for any future social media
campaigns.
Companies like Starling will surely spring
up with a more musical focus, and probably
soon. It seems that Twitter and Facebook
are also keen to forge closer partnerships
with content owners. As Twitter's director
of media partnerships Chloe Sladden said
this week: “Your audience is on Twitter and
already talking about your content. There is
a conversation and it's happening naturally.”
The question is how to tap into it most
effectively.
 DIGITAL FORTNIGHT the REPORT | 15 April 2010 | Page 3
Over the last two weeks
we loved…
It sold 300,000 units on its first day but the iPad’s
appeal to the music industry remains to be seen.
On launch day analyst firm Piper Jaffray surveyed
people buying an iPad on what they planned to
use the device for. Just 8% said music, compared
to 18% for games and apps, 26% for video and 38%
for e-books. So? The earliest iPad adopters might
not be music buffs (or might have another device
fulfilling that role), but this may change as other
music services join Pandora, Shazam and Muziic
in providing support.
It was great to see a double dose of fan Telecom and Deutsche Telekom want
empowerment delivered by pop stars this Google to share its advertising revenues
fortnight. Firstly Mary J Blige released a with them. This is because they have to
motivational iPhone app called ‘Strength bear the bandwidth load of delivering
In Words’ that’s been designed to be YouTube video content to customers.
“inspirational” for her fans. This involves "These guys are using the networks and
daily nuggets of wisdom from Mary and a they don't pay anybody," says Telefonica
‘Living Better’ checklist to encourage some chairman Cesar Alierta. Meanwhile, France
further ‘can do’ attitude. Similarly, Alicia Telecom boss Stephane Richard was keen
Keys launched a new website entitled I Am to link the telcos' complaints with those of
Superwoman that promises to “ignite super content providers. "Today, there is a winner
women with empowering content”. who is Google. There are victims that are
content providers, and to a certain extent,
Finally, it was great to see some ISPs
network operators. We cannot accept this."
fighting the corner of content providers.
European telco firms Telefonica, France
“A few of you have been a total pain in the ass”
Quote
Outgoing head of Amazon’s digital music arm Scott Ambrose Reilly is
of the
leaving to run the company’s Kindle division but is not sad to no longer
fortnight
have to deal with the music industry.
and we learned…
UMG has got into social gaming with a Conduit Labs deal. Remember those articles
we wrote about what the music industry can learn from Farmville? Universal Music
07.04.10
Group clearly has its eye on the social games market as it's signed a deal with Conduit
Labs to license its music for the company's range of Facebook games. Tracks by the likes
of Lady Gaga, Lil’ Wayne and Black Eyed Peas will be sold as virtual items within games.
We think Music Pets in particular is worth keeping an eye on, with over a million sign ups
in its first month.
The UK's Digital Economy Bill was passed featuring a controversial site-blocking
08.04.10
clause. An amendment to clause 8 will allow the secretary of state for business to
order the blocking of a site "which the court is satisfied has been, is being or is likely to
be used for or in connection with an activity that infringes copyright". It's the “is likely
to” which is already causing a rumpus. MPs protested about the lack of time available
to debate it – the last 42 clauses were rushed through in five minutes.
The iPhone OS 4 is ready and could pose a dilemma for music marketers. Apple
09.04.10
previewed its next-generation iPhone OS and there was plenty to ponder for the music
industry. Particularly the addition of iAd, its mobile advertising network. The iAds are
effectively mini-apps that sit inside other apps, offering video and interactivity. They
could present an interesting dilemma for music marketers: rather than spend money
creating artist apps, they may divert that budget towards iAds in other popular apps.
Twitter has unveiled its advertising strategy. Twitter described it 'Promoted Tweets'
initiative as "ordinary Tweets that businesses and organizations want to highlight
13.04.10
to a wider group of users". An important element is what Twitter is describing as
'resonance': "if users don't interact with a Promoted Tweet to allow us to know that
the Promoted Tweet is resonating with them, such as replying to it, favouriting it, or
Retweeting it, the Promoted Tweet will disappear."
From the archives… (click to view archives)
Issue of 15 October 2009 Now we say...
We revealed figures leaked to us that showed Last week, Nokia brought CWM to China to
Nokia’s Comes With Music (CWM) was seriously offer unlimited downloads stripped of DRM.
struggling. Across eight markets, it had only
signed up 107,000 users. Confused messaging
While CWM may continue to struggle in western
countries, its focus on developing markets like
meant it faced a challenge in the west but we Brazil and China could prove the ace in its pack.
said it could prove an “important stepping stone Of course, China is wracked with piracy, but a
into a legal environment for consumers in the major brand like Nokia coming in with a brave
piracy-ravaged developing markets”. music solution should be applauded.
TRENDWATCH the REPORT | 15 April 2010 | Page 4

Nokia's next moves

2009 wasn't such a happy year for Nokia: Comes With popular handsets, and that the 10 most active recent weeks that Nokia may be planning
countries (in alphabetical order) are: China, to launch its own tablet as a rival, later this
Music struggled, its Ovi Store was criticised for its poor user Germany, India, Indonesia, Italy, Russia, Saudi year. Analyst Ashok Kumar claimed that
experience and its touchscreen handsets were compared Arabia, Turkey, the UK and Vietnam. Check Nokia's supply chain is “being primed up
negatively to Apple's iPhone. However, the company is nothing the emerging markets in that list: there's for a Fall release”, while games company
evidence that Nokia's store is gaining traction Fishlabs let slip this week that it's working on
if not durable, with a number of recent announcements in and in the parts of the world that iPhone isn't. a game with Nokia “featuring OpenGL ES 2.0
around the music field (and elsewhere). graphics for a large screen”. Nokia's move
iPad-killer? into the tablet market would be no surprise,
Comes With MP3 Music already launched. What the Indian name
While Nokia continues to take the fight to
but it won't be alone in seeking to challenge
change shows is that Nokia is keen to focus Apple. Alongside the above speculation,
Comes With Music's launch alone in China its music activities more tightly under its Ovi Apple with its touchscreen phones, the
there's just as much chatter about Google's
would be significant – just because of its services brand. The strategy was trailed in battle could shift later this year to connected
plans to launch a tablet – while its Android
location. China is huge and so is its piracy January when Nokia launched the Ovi Music tablets. Apple's iPad has sold more than
OS is being used by other companies for
problem. Nokia continues to be an extremely Store in Russia, rather than using the 'Nokia 500,000 units in the US alone so far, but
their own slate devices.
popular handset vendor there, so its launch Music Store' name. But, in a further twist, it there has been increasing speculation in
of a legal service is a big deal. However, the seems that Nokia WILL implement that name
really interesting point is that China is the change to those stores around the world.
first country to get a DRM-free version of In short: Comes With Music services won't
Comes With Music, where its catalogue is change name, but Nokia Music Stores will.
available as MP3s. It's an essential move, Geddit?
given that the main competitor is equally
DRM-free piracy. It does raise the question of Ovi Store growth
when (or indeed whether) labels will agree
to let Nokia switch to MP3 in other countries Since its much-maligned launch last year,
around the world. Nokia has been steadily improving its Ovi
Store. It's still not as slick as iPhone's App
Re-re-brand Store, but it's hugely improved compared
to its initial form. This week, the company
In some markets, Comes With Music isn't, dished out new stats on the store's
well, Comes With Music. The all-you-can- performance. More than 1.6m pieces of
eat service is being rebranded as Ovi Music content are being downloaded a day – that's
Unlimited in India, for example. After that apps, but also ringtones and wallpapers – and
news was revealed recently, however, Nokia the average Ovi Store user downloads 8.5
confirmed that it wouldn’t be changing the pieces of content a month. More than 9,500
brand in countries where the service has content items are available for Nokia's most
FEATURE the REPORT | 15 April 2010 | Page 5
UK OK:
why Britain is bucking global sales trends
Recently Billboard reported that,
for the first time in US digital music
history, sales were down (sliding
in Q1 2010 compared to Q1 last
year). It’s a landmark figure, but is
it worrying? More importantly, is it
globally applicable?
According to Billboard, US sales declined
to 312.4m units, down nearly 1% from the
315.4m units scanned last year during the
first quarter. This is the first quarter-on-
quarter decline since digital track sales were
first reported. The natural assumption is
that digital has either matured or flatlined,
depending on your glass-half-full-or-glass-
half-empty outlook.
Yet the UK is fairing better than most,
according to PRS chief economist Will Page.
Speaking at the Wide Days conference in
Edinburgh last Thursday, Page cautioned
against doom mongering and suggested that
the UK was bucking the trend when it came
to sales of recorded music.
According to figures supplied by the
Entertainment Retailers’ Association (ERA),
revenue for sales of music (including music
video) was almost static at -0.8% in the last
year, totaling £1.313bn for 2009. Explained in
unit sales, the results are even better – with
only a 0.6% decline, the equivalent of 154.8m
units.
Page indicated that certain areas of the
music industry were doing “pretty bloody
well” and estimated that the licensing sector
accounts for a quarter of all revenue, with live
music bringing in 38% (£1.4bn) and recorded
music 36% (£1.3bn).
This is borne out by PRS for Music’s recent
announcement that its B2B revenues were
up by 14% in 2009 (£491m). Moreover, PPL
announced on Monday that it had collected
record international revenues of £21.6m, a
rise of 40% on 2008.
“A quarter of the music is free at the point
of consumption, but compensation is taking
place,” Page told delegates. “That section of
the industry is at best misunderstood and
at worst completely ignored by influential
people such as policy makers. Be wary of
generalisations – it’s not just about CDs and
downloads. And don’t generalise about
markets around the world – it’s not just about
what is happening in America.”
It’s an interesting point. Given the global
interest in Spotify, Comes With Music and
ISP-funded music models, the fact that a
quarter of all music income in the UK now
comes from sources other that the point of
consumption (i.e. the music consumer) is
worth a second look.
Page also underlines that 2009 sales in the
UK are particularly impressive given that the
year began without significant retail chains
Woolworths and Zavvi (formerly Virgin
Megastore), while most stores in the Fopp
“A quarter of music is free at the point of
consumption, but compensation is taking
place. That section of the industry is at best
misunderstood and at worst completely ignored
by influential people such as policy makers”
Will Page, PRS for Music
chain had also been closed down. value to £1.129bn according to ERA – by the
decline in sales in compilations. Moreover,
“One in five CDs were purchased from stores
sales of artists featured on TV talent shows
in 2008 which didn’t exist in 2009,” Page
are credited with maintaining unit sales.
says.
“Many of the biggest albums [of 2009] are
On a more optimistic note, he said that last
TV-driven. In an increasingly fragmented
year saw the Game and Waterstones chains
media landscape, TV has greater impact and
stock CDs for the first time, while HMV
power,” explains Martin Talbot, MD of the
launched its pop-up stores.
Official Chart Company.
And Kim Bayley, the DG of ERA, believes that
“Susan Boyle is a perfect example of an
other retailers were quick to fill the gap left
act which is hitting a demographic which
by Woolworths and Zavvi.
doesn’t buy more than one album a year,” he
“It’s hard to know exactly where the continues. “There will be a lot of people who
Woolworths sales went, but I suspect that bought that album who wouldn’t dream of
it was mostly to the supermarkets, while going into a record shop.”
in Zavvi’s case it was a combination of the
The ease with which British consumers
internet and HMV,” she said.
can purchase music – both digitally and
While the BPI is still compiling sales data for in the high street – is widely attributed to
2009 (due to be published this summer), maintaining sales, and Page suggests this is
there is a broad consensus that artist album why the UK is fairing better than the US.
sales were brought down – slipping 3.8% in
“I think it’s fascinating that Manhattan doesn’t
UK OK: why Britain is bucking global sales trends the REPORT | 15 April 2010 | Page 6
continued…
have a high street record store left since
Virgin on Time Square closed last year,” he
maintains. “Supply creates its own demand.”
ERA’s Bayley concurs, but suggests that
the trend is moving towards a “short tail”
whereby a decreasing number of hit albums
make up a significantly larger proportion
of sales. “The top 200 albums account for
approximately half of all album sales,” she
says. “Many consumers do not have access
to the long tail product.”
This reflects the limited stock carried by
supermarkets, which tend to base their
selection on the top 100. And it puts the
role of the independent bricks and mortar
record shop under increasing pressure,
which, according to Bayley, has the potential
to impact on breaking new acts which don’t
appear on TV talent contests.
“Independent retailers have a very important
place in the market as they help drive new
talent,” she says.
The problem, of course, is that the
independent retail sector has been massively
hit in recent years. ERA reports that there
were 734 independent stores in the UK in
2005 but this has shrunk to just 269 last year.
Talbot adds that anecdotal evidence from
labels suggests medium-selling artists are
bearing the brunt of changes in retail and
consumer habits.
“An act who 10 years ago might have got
a lead album review in NME and a five star Record label income by sector
review in Q, with the same level of profile
and promotion, are selling much less than
what they once were,” he says. “You might be
achieving the same level of profile, but what
you are getting back is far less than what you
used to get.”
Nevertheless, acts at this level are
increasingly able to tap into online
opportunities – not just in terms of selling
their music, but also in terms of the
consumer data provided by aggregators.
This, in turn, can be used for marketing.
With ERA reporting that digital album sales
are up to £119.1m (56.1% in value) for 2009,
there is increased potential for artists and
labels, not least because the decline in
physical sales is a relatively manageable 8%,
down to £1.01bn.
Although statistics which allow for direct
comparison with the US and UK are not yet
available, Nielsen SoundScan figures for
the first quarter of 2010 cited by Billboard,
indicate that US digital declined for the first Source: PRS for Music
time since the launch of iTunes in 2003,
down 1% to 312.4m units.
suddenly sounds impressive,” he concluded. out. Nevertheless, he believes that the UK
Page points out that it makes little sense
still boasts certain advantages.
simply aspiring to the US model where one in While Adam Liversage, BPI director of
five of sales of recorded music are digital. communications, welcomes the rise in “Our consumption of music remains pretty
licensing opportunities offered by the high on a per capita basis,” he says. “We have
“That tells you more about the collapse in the
likes of Guitar Hero and The Beatles Rock the advantage of enjoying all the repertoire
five than the growth in the one. Perhaps it
Band game, he cautions against premature of the US and everything we produce as well.
should be one in 10, but because the physical
optimism with regards to sales bottoming So it’s the best of both markets.”
market has collapsed [in the US], one in five
TOOLS the REPORT | 15 April 2010 | Page 7

Statistics:
Online Mobile
Pandora – registered users Global music video streams Platform % popular apps Median app
paid for price ($) price US smartphone market share,
50m Current users 40m Users at start of 2010 Country % of streams
iPhone 57 6.00 February 2010
US 40
2m Users added in 25 days – or 80,000 new users per day Japan 10
BlackBerry 33 2.72
8.4
Source: Pandora, April 2010 UK 9 Android 16 2.00 9 BlackBerry

iPhone
Video – fan engagement, January 2010 Germany 3 Source: Mplayit, March 2010
42.1
15.1 Windows Mobile
Source: TubeMogul, April 2010 % of US mobile users...
Video Streams Videos watched Google’s
streamed on... (millions) in their entirety Playing games 21.9 25.4
Android OS
Other
Vevo 226 12% Social networking 18.0
Artist & label sites 25 29% Listening to music 13.1 Source: comScore, April 2010
Source: TubeMogul, April 2010 Source: comScore, April 2010

Financials Social networking Sales

US broadcast royalties, Q1 2010 Twitter Apple iPad – first day of release in US
$52m
Royalties distributed to artists and
25%
Increase on any previous quarter
60% 300,000 Units sold 1m iPad apps downloaded

copyright holders Source: SoundExchange, April 2010

Registered accounts outside the US
250,000 e-books downloaded Source: Apple, April 2010

Advertising 50% US – Q1 2010

Overall album sales
Rise in sign-ups in Spanish-speaking countries
Internet advertising send, Q4 2009 after November 2009* Year Units sold YoY decrease
(millions) %

$6.3bn 3.4% 300%

2010 82
2009
7.9
89 13.5
Total internet advertising spend Fall in total spending for the year
versus 2008 Rise in sign-ups in Colombia
Overall track sales

$17% 39% 100% Year

Units sold
(millions)
YoY decrease
%
Of brands' ad budgets allocated Rise in sign-ups in India since the start of 2010 2010 312.4 1
to online in 2009 (up 8% YoY) Increase in digital video advertising
between 2008 and 2009 *launch of Spanish-language version of Twitter 2009 315.4
Source: Internet Advertising Bureau, April 2010 Source: Internet Advertising Bureau, April 2010 Source: Nielsen SoundScan, April 2010
TOOLS the REPORT | 15 April 2010 | Page 8
Dealtracker:
WaTunes signed a number of significant deals in the US this
past fortnight. Its deal with Facebook will see the launch of
a Music Store app. WaTunes quickly followed up the deal by
signing up Warner Music Group’s catalogue to the service,
joining UMG and EMI, who already have deals in place with
WaTunes. The store will allow users to stream 30-second
previews, buy tracks and albums, and share details of their
purchases with their friends on Facebook and Twitter.
Nokia’s Come With Music takes another step into the unknown
by launching the service DRM-free for the first time. Nokia has
partnered with Huadong Feitian to bring the service to China,
and eight handsets will be supported from day one. It’s also the
first time people will be able to sign up to the service without
buying a brand new handset.
Finally, Twitter’s long-awaited ‘promotional tweets’ have
launched. The tweets appear in search results on the Twitter
website, but they'll later spread to users' feeds and Twitter
mobile and desktop apps too. Starbucks, Bravo and Virgin
America are all on board for launch, and users will be able
to retweet the ads just like normal tweets.
Click here to search all the latest deals, launches
and investments across the globe
Deals
01.04.2010 – Juno Download / Discogs.com – global
Juno Download signed a deal with Discogs.com that will see the two companies launch Discogs Downloads.
06.04.2010 – Universal Music Group / Conduit Labs – global
Universal Music Group has signed a deal with Conduit Labs to license its music for the company's range of
Facebook games.
07.04.2010 – Facebook / WaTunes – US
Facebook and music discovery service WaTunes have partnered to launch a new Music Store app.
11.04.2010 – WaTunes / Warner Music Group – US
Warner Music Group has become the third major label to strike a licensing deal with WaTunes. VIEW all
Launches
06.04.2010 – Mixtape For You – global
Mixtape For You launched a site which lets people upload MP3s of songs to create personalised digital 'mixtapes'
to be sent to one person at a time.
07.04.2010 – Kroogi – global
Kroogi launched in North America, Europe and South America. It's aimed at musicians, artists, photographers
and other creative types to sell their work on a 'pay what you like' basis.
08.04.2010 – Nokia – China
Nokia has launched Comes With Music in China with all tracks DRM-free.
12.04.2010 – Twitter – global
Twitter has announced plans to bring ads to its service as its 'promoted tweets' initiative goes live. VIEW all
Mergers, Acquisitions & Investments
01.04.2010 – NearVerse - global
NearVerse has raised $1m in funding to further develop its iPhone app, LoKast. The start-up says it plans to
launch an Android version of the app soon, as well as adding Facebook Connect functionality.
06.04.2010 – Brightcove – global
Brightcove, a provider of Internet video delivery technology, has raised $12m.
06.04.2010 – Yahoo! / Foursquare – global
Yahoo is in talks to acquired location-sharing start-up Foursquare for as much as $100m.
07.04.2010 – AOL / Bebo – global
AOL has announced plans to sell or close Bebo only two years after it bought the social VIEW all
network for $850m.
MARKET PROFILE the REPORT | 15 April 2010 | Page 9
Sweden:
it’s not just about Spotify
Sweden has seen an extraordinary
turnaround in the past year, but
will it continue? High broadband
penetration, one of the most
conspicuous filesharing crises in the
developed world and the emergence
of forward-thinking digital services
such as Spotify and Omnifone
make Sweden a prime example of
the benefits of the ‘carrot and stick’
approach. For this year at least.
Despite an economy affected by the global
crisis and a music industry in decline for
six years, Sweden has shown a strong
turnaround with an increase in total recorded
music sales of 10.2% last year, driven by a
remarkable 98.6% increase in the digital
market (according to IFPI figures).
Digital sales still account for only 16.3% of
the total recorded music market. Some 46.1%
comes from streaming music services (up
from 17% in 2008) and 51.9% comes from
‘other internet services’ such as download
stores (iTunes being the major player) and
mobile sales. The digital market is worth
140m SEK ($19.6m).
Sweden is internet-savvy and piracy is a high-
profile issue which has crippled the growth
of the digital market until now. Some 91% of
16-75-year-olds use the internet and there is
89% broadband penetration. The Pirate Bay
is arguably the most conspicuous filesharing
site in the world and the Swedish arm of the
Pirate Party even has a seat in the European
Union parliament.
Visibility of action and alternatives seems to
be a determinate factor in the fight against
piracy.
On 1st April 2009,
Sweden adopted new
legislation based on
the European Union’s
Intellectual Property Rights
Enforcement Directive
(IPRED), allowing copyright
holders to force ISPs to
reveal IP addresses of
users illegally downloading
copyrighted material.
According to Netnod
figures (covering internet
exchanges in five Swedish cities), internet
traffic dropped by 30% the day after the
ruling.
On 16th April, the four founders of The Pirate
Bay were sentenced to one year in prison and
a 30m SEK ($4.1m) fine. The sentences are
pending appeals and it could be several years
before a final verdict is reached.
Recent data suggests that the ‘scare effect’
has worn off and internet traffic is back
and above pre-IPRED April 2009 levels.
Combined with the fact that piracy is harder
to spot as filesharers migrate away from P2P
systems to other forms of illegal content
access and also adopt new technologies in
order to hide their identities such as proxy
servers or VPNs (virtual private networks), it
is hard to know how effective the anti-piracy
legislation and Pirate Bay Trials may be in the
long run.
The Pirate Bay released its own VPN
software, called Ipredator, in January this
year. An increase in internet traffic may also
represent an increase in the use of legal
streaming and mobile services driving the
upturn in digital sales.
The focus of the Swedish authorities
has been to tackle the index sites first,
exemplified by the Pirate Bay case. The door
has not been opened yet against uploaders
on BitTorrent-style networks. There are
plans to take legal action in the near future,
Sweden stats
Population:
9m
GDP per capita:
US $36,800
Internet users:
7m
Broadband subscriptions:
2.9m
Mobile subscriptions:
11.2m
3G subscribers:
4.1m
Sources: CIA World Factbook and PTS
but methods of gathering sustainable legal
evidence are still being finalised.
“This is difficult because the nature of torrent
sites means that uploaders, for example, may
only be contributing to small parts of each
file in each case,” says Magnus Martensson,
a lawyer for IFPI Sweden. Nevertheless there
has been some prosecution this year against
filesharers on the DC connect network, made
possible because of the one-to-one visibility
of the system. Users connect and upload/
download whole files so evidence is relatively
straightforward to collect.
Driving the strong swing towards streaming
services (now 46.1%, up from 17% last year)
is Spotify – a site of Swedish origin and with
most of the market share.
MARKET PROFILE the REPORT | 15 April 2010 | Page 10
“Despite an efficient advertising system, there has
been controversy over whether the ad-funded
model is sustainable in the long run”
One of the significant ‘carrots’ available to
internet users, the ad-funded service, is an
incentive to migrate to a ‘free’ platform that is
legal and has music from all the major labels
and many independents.
Users can stream songs while connected to
the internet and adverts are mixed between
display ads and audio ads running between
every few songs. For 99 SEK ($14), users can
upgrade to Spotify Premium and cache and
listen to music offline for a period of up to 30
days without internet connection. They can
also synchronise and cache offline content
to mobile devices across several platforms:
iPhone, iPod Touch, Android and Symbian.
Spotify can also target ad campaigns on age,
gender, geography and musical genre.
Click-through rates (CTR) on display ads are
generally higher when compared with the
industry average CTR in Sweden. In cases
where the audio ads are bespoke, the CTR
increases even more, as there is usually a call
to action to click on the brand logo which
replaces the album artwork.
Despite an efficient advertising system, there
has been controversy over whether the ad-
funded model is sustainable in the long run.
Spotify has recently admitted that migration
towards the premium service is the basis of
long-term growth and revenue generation.
SVP of digital at Universal Music Group
International (UMGI), Rob Wells speculates
that Spotify must convert 10% to 12% of
its user base from ad-funded to premium
subscription to create a sustainable business
model. Payout figures are elusive and there
has been criticism of low ‘per-stream’ payouts
in certain territories. Yet in Sweden, as well as
its four other launch territories, Spotify now
pays the labels directly from its premium
subscription and advertising revenues.
Spotify was UMGI’s fourth largest digital
partner for revenue last year. If Spotify
continues to grow into other territories and
develop its revenue generation model, it
will be a groundbreaker on the global digital
stage and will have successfully led the way
in carving out a new sustainable system
of music content delivery and revenue
generation for the digital market. This is
crucial in the fight against piracy.
There are four major operators in the
Swedish mobile market: TeliaSonara (45%
market share), Tele2/Comviq (25%) and
Telenor (15%), followed by Hutchinson’s
3. Churn rate at 6% is considerably low,
giving the operators a safe springboard
from which to launch services. Omnifone
has been a major player in developing and
bringing mobile music content services to
Sweden, with three significant cloud-based
partnerships offering music from all the
majors and various independents:
In June 2007, Omnifone was the first to enter
the market with Telenor via its MusicStation
unlimited subscription service available
across a range of handsets. In November
2008, it partnered with Sony Ericsson
to offer the PlayNow Plus service across
Sony Ericsson handsets and PC, allowing
synchronisation between computer and
handset and also allowing users to keep
a certain amount of tracks each month as
DRM-free MP3s under their KYF (Keep Your
Favourite) system.
Nokia followed Omnifone into the market
with Comes With Music in April 2009.
During their subscription period, users can
synchronise and download an unlimited
amount of tracks from all four majors and
many independents between their handset
and PC and keep the tracks forever (although
they do come with DRM).
Omnifone has made further strides into the
cloud-based market place with the recent
announcement of its MusicStation service
being pre-loaded onto 16 models of Hewlett-
Packard PCs in Sweden and other territories.
Subscribers can download and play unlimited
tracks on their PC for 99 SEK ($14) per month
and can keep 10 tracks per month DRM-free
as part of the KYF scheme.
Facebook in Sweden has 3m active users and,
with an 80.7% increase on last year, shows
the consistent growth and strong reach of
digital services. Legalmusik.se is now listing
45+ legal music services and even Peter
Sunde of Pirate Bay notoriety has launched
his Flattr site, a micropayments site for
musicians, artists and other content creators
(currently in beta testing) which aims to
help raise revenue by combination of a flat
subscription fee and tip-based system.
It has been a remarkable year indeed in
Sweden, driven by the emerging carrots of
legal content services versus the sticks of the
anti-piracy legislation and Pirate Bay trials.
Will it continue? IFPI Sweden says that things
are looking good so far.
OPINION the REPORT | 15 April 2010 | Page 11
The Digital Economy Act:
so what happens next?
Feargal Sharkey, CEO, UK Music
The Digital Economy Bill is now the
Digital Economy Act. Even though a
number of clauses in the bill did not
make it into the act itself, the hard
works starts now and all in the value
chain must work on forging new
partnerships.
As of last Thursday, the Digital Economy Bill
is now the Digital Economy Act.
Receiving its second reading on 16th April
(the same day that Prime Minister Gordon
Brown called the general election) various
pieces of this wide-reaching and much-
discussed legislation were ejected in the
ensuing “wash-up” period.
Joining the £6 tax on landlines to help fund
next-generation broadband (removed
from the Finance Bill), clauses dealing with
extended collective licensing and orphan
works, funding of local media and an
extension of powers for media regulator
Ofcom were all deleted in the Commons.
Other areas relevant to the wider music
industry – measures to reduce online
copyright infringement, and to future proof
the legislation for non-P2P infringement –
were left intact.
Ultimately, the Bill was passed at its third
reading with a majority vote of 189 to 47.
Which all leads to the fairly pertinent
question: what happens next?
In what has been, at times, an emotional
debate and heavy in semantics – particularly
in the feedback loop of Twitter – this is
something to which all interested parties
should pay attention.
Hopefully, as the dust settles, more focussed
and constructive conversations will emerge
in the days and months ahead.
In reality, the next stage of the Act’s
implementation is further consultation,
leading to the establishment of a Code of
Practice, all overseen by Ofcom.
The Code will govern: (a) the process
of ISPs sending notifications to account
holders detected, by right holders, of
infringing copyright; and (b) the subsequent
development of an anonymised database of
those IP addresses found to be repeatedly
infringing. Work on this gets underway
immediately.
Under those two areas, the Code will
encompass everything from the mechanism
by which right holders detect infringements,
through to the standard of evidence
submitted to ISPs, the appeals process, and
the actual content of the notifications – these
will detail a description of the apparent
infringement, information on the purpose of
copyright, advice on legal services, advice on
internet security and any other information
relevant to the Code.
In itself, this conversation is significant and
involves a wide range of interested parties.
It is important that we get the detail right.
The Code will form part of a public
consultation to take place by the end of May.
(Running alongside it is the issue of costs,
something that the Department for Business,
Innovation and Skills is already consulting on,
and which is due to close on 25th May.)
Post-consultation, the Code must then meet
parallel approval – from both the European
Commission and the Secretary of State. This
will take us towards the end of 2010.
After further Parliamentary scrutiny,
from both Houses of Parliament, ISPs will
be compelled to send notifications. It is
anticipated that this first stage of the Act will
come into effect in January 2011.
From which point, Ofcom must submit
interim reports to the Secretary of State
every three months. These will monitor the
success of the notifications, the actions of
rights holders to develop the legal market
and educate consumers, and the impact of
any potential legal actions against infringers.
After a year, Ofcom will consult on the need
for “technical measures” on the accounts of
serious repeat infringers (and, what those
technical measures might be).
I think it is vitally important these measures
are in place, that we have Government
support for the creative industries, and that
this legislation brings a meaningful change in
how creative content is viewed online.
However, as UK Music and others stated last
week, the Digital Economy Act is not a means
to an end. It will not on its own “fix” the digital
market. It is a spur to action.
We now have in place a vital legislative
foundation on which to develop the UK’s
online economy. But it is up to all of us
– creators, investors, ISPs, technology
companies – to do the building and deliver
fans the content that they want.
All of us should have a mutual interest in this
and it is a time for forging new partnerships.
In context, the digital music market has
diversified enormously over the past three
years. It is a great time to be a music fan, but
we now have a significant window to make a
giant leap forward and make it even better.
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