Know all about what’s going an at Midem without being in Cannes

Actually, going to Midem should be mandatory for anybody who wants to cover the music business. There is probably no other place where one can find as much expertise and inside stories as in mid-January at the Côte d’Azur. That’s bad for me, because I didn’t go this year. If you need to know what’s going on over there in France I recommend you check one or all of these sites: 

• BBC News summary
• music ally blogstravaganza
• MusikWoche Midem coverage
• paidContent goes MidemNet
• and Billboard is there, too
• Music Week stays busy as well

IFPI: Global digital music business grew 25% in 2008 to $3.7 billion

International music trade body IFPI on January 16 released their Digital Music Report 2009 – right in time for the industry gatherings MidemNet and Midem in Cannes. According to these latest figures, the digital music business grew for the sixth consecutive year. In 2008, the increase in global sales was approximately 25% to a trade value of $3.7 billion. 

This is of course against the backdrop of an overall global decline in recorded music sales of around 7% last year. The Digital Music Report ‘09 goes on to specify that by now digital platforms account for 20% of all recorded music revenues – up from 15% last year. Sales of single track downloads, which still are the key driver in the digital business, grew 24% to 1.4 billion units with Lil Wayne’s “Lollipop” ending up being the international topseller of the year at 9.1 million units. Digital albums experienced a growth of 36% in copies sold. 

The most important global territories for digital sales are basically the same as in the physical world with the United States leading the way ahead of Japan, UK, Germany and France.

• Approximately 50% of the worldwide market value in digital music is generated in the U.S., according to IFPI. Single tracks grew 27% last year to 1.1 billion units, digital albums were up 32% to 66 million copies. 
• Japan, while being predominantly a mobile market, saw 140 million digital singles being sold in 2008 (up 26%).
• The British market experienced an overall digital growth of 45% last year with the singles bracket garnering 110 million sold units (up 42%) and the albums category ending the year with 10.3 million copies (up 65%).
• In Germany the track business only saw an increase of 22% to 37.4 million singles. But digital album sales grew by 57% to a sales total of 4.4 million copies. 
• In France the overall digital market grew 49%.

In these markets digital growth happened at very different speeds. During the first half of 2008, digital accounted for 39% of recorded music sales in the U.S. That percentage was more than four times that of Germany (9%) in the same period. This corresponds with the differences in consumer spending for digital music. While American broadband users on average spent $12.50 on digital music last year, music consumers in the UK only spent $7.80 for downloads in 2008. It’s even less in other European territories.

Even though IFPI sees great improvements in the market, the digital business is still hampered by piracy. Chairman & CEO John Kennedy explained that record companies are transforming their business models “in an environment where 95% of music downloads are illegal and unpaid for”. According to IFPI estimates, more than 40 billion tracks were fileshared in 2008. 

Kennedy still plans to battle this issue by trying to come to agreements with ISPs on models of graduated response. Last year had seen a “tipping point” in that quest, he said. Meanwhile France, UK, Germany and the U.S. appear to be on the same track for this approach.

Nokia discounts “Comes With Music” in UK and prepares German launch

“Comes With Music”, Nokia’s plan to sell new cell phones by bundling the gadgets with almost free access to a vast catalog of digital music, seems to be a tough sell. At least in the UK where exclusive retailer Carphone Warehouse is not reporting that CWM units are flying off the shelves. In fact, CPW had to cut the price on its CWM offer by one third. 

Instead of £127 ($185) the Nokia phone 5310 now only costs £82 ($120) which means users can download “for free” and have a phone for less than 33 cents a day. While it seems like CWM is – as of yet – no runaway success, Nokia is preparing a German launch for the service. The new cell phone Nokia 5800 XpressMusic which comes with a touchscreen and 8GB of storage will hit stores there on January 16. 

No details yet, on when CWM will be ready for lift off in Germany. Company spokespeople say Nokia is still negotiating with distribution partners and providers about a broad release. In the UK Nokia wasn’t able to place CWM with any of the big four providers. Pricing hasn’t been released either. Nokia recommends a retail price of €395 for the 5800 XpressMusic (that’s without a contract and without CWM).

German record business expects single digit losses for 2008

With my sometimes anglocentric view on the business I almost forgot that German trade group Bundesverband Musikindustrie (BVMI) had issued a prediction on what their annual report for 2008 will look like. 

Managing Director Stefan Michalk expects the losses for the German recording industry to be in the single digits. This applies to revenues generated by all available recorded music formats, physical and digital. Additional revenues with any 360-type ancillary business (merch, synch, live, etc.) won’t be included in BVMI’s upcoming report. But Michalk said these new income streams have seen significant growth. 

The digital business in 2008 was up  somewhere between 30% and 40% but still trails behind leading markets like North America, UK or Japan. The share of digital in the overall German market is only around 8%. Michalk attributes this to more conservative consumption habits in the country. 

In 2007 the German business recorded revenues of €1.65 billion ($2.26 billion by today’s rates), down 3.2% from the previous year. Leading executives at EMI and Universal Music have already predicted revenue declines of around 7% for 2008.

TeliaSonera adds music flatrate to online and mobile accounts

This is the kind of flatrate we will see more and more in the future. An ISP mounting “feels free” access to a catalog of music on top of a data plan. TDC in Denmark is doing it with 24-7, Sony Ericsson and Telenor follow that concept with PlayNow plus, Nokia’s Comes With Music combines the music access with a handset purchase, Deutsche Telekom is reportedly preparing some offering along these lines. And now, TeliaSonera, one of the biggest mobile providers in Skandinavia and the Baltics is launching Telia Musik, an all-you-can-eat service for some 13.3 million mobile customers. 

The service will initially be launched in Sweden and will be free of cost for the first three months. After that customers pay 99 kronor ($12.98 / €9.49) per month to access a catolog of three million songs from majors EMI, Universal and Warner Music (no Sony BMG), plus the indies served by The Orchard and Bonnier Amigo. 

The catch here: songs come DRM-ed which could make Telia Musik a non-starter. Nevertheless, TeliaSonery soon wants to launch the service in Norway, Finland, Denmark, Estonia and Lithuania.

Atlantic Records says it has reached the digital tipping point

When Warner Music today reported Q4 and FY results the one detail many news outlets were focusing on was digital sales. $639 million revenue with everything not related to selling shiny discs isn’t bad. It represents 18.3 percent of total group revenue at WMG. More precisely, $599 million digital sales in the recorded music division is the equivalent of 20.7 percent of all recorded music revenue at Warner Music. 

What WMG didn’t release in its report card was the fact that Atlantic Records, Warner’s East Coast recorded music arm, has now reached what they call a milestone in the business: According to information slipped to the International Herald Tribune/New York Times, Atlantic claims “more than half of its music sales in the United States are now from digital products, like downloads on iTunes and ring tones for cellphones.” And let’s not forget subscriptions, Sirius XM, MySpace Music, YouTube, etc. 

Atlantic and WMG didn’t support this with more detailed figures, though. Looking at their annual report of today, domestic digital revenue in the recorded music division reached $388 million, or 28.1 percent of sales in fiscal FY. For Q4 the digital sales figure is $99 million, or a 27.2 percent share of the domestic recorded music pie. 

This begs the question: How can Atlantic be digital beyond 50 percent? Even if Warner’s New York office had significantly outperformed Warner Bros. Records (the West Coast business in L.A.) digitally, it still wouldn’t be able to come up with such a revenue split. 

But Craig Kallman, Chairman & CEO at Atlantic, stands by his claim: “We’re like a college basketball team on an 18-2 run.” Well, I guess that explains it …

Or maybe this does:
“I think we’ve figured it out,” said Julie Greenwald, the president of Atlantic Records. “It used to be that you could connect five dots and sell a million records. Now there are 20 dots you can connect to sell a million records.”

I still have my doubts. WMG/Atlantic will have to prove their point by releasing more details.

Warner Music surprises with Q4 earnings, FY results bleak

Warner Music Group reported Q4 and full-year (ended September 30) results today. Details can be found in the regulatory filings here.
Upon a first look: Even though it’s a mixed bag, FY revenue actually went up slightly, but net loss is ballooning. Q4, however, saw revenues that weren’t hit as bad as some might have thought, while net profit grew 20 percent. Also, it looks like international business is keeping WMG out of more serious financial trouble. 

Some key group FY details first: 

• Total group revenue grew 3.2 percent to $3.491 billion (down 2.2 percent on a constant-currency basis)
• 46 percent of group revenue was domestic, 54 percent was international
• Domestic revenue declined 3.9 percent, while international revenue was up 10.3 percent (down 0.5 percent on constant currency)
• Group digital revenue increased 38.6 percent to $639 million (domestic vs international = 65:35) and represents 18.3 percent of total revenue (year ago: 13.6 percent of total)
• Group operating income was down 9.2 percent to $207 million
• Loss from continuing operations was up by 338 percent to $35 million
• Net loss increased by 167 percent to $56 million

 FY Recorded Music: 

• Revenue grew 2.1 percent to $2.895 billion (down 2.8 percent on constant currency)
• 48 percent of recorded music sales were domestic, 52 percent were international
• Domestic RM revenue decreased by 5.4 percent to $1.380 billion, while international RM sales went up 10.1 percent to $1.515 billion (flat on constant currency)
• Digital RM revenue grew 38 percent to $599 million (domestic: $388m = 28.1 percent rev. share/ international: $211m = 13.9 percent rev. share) and represents 20.7 percent of total RM revenue
• RM operating income from continuing operations fell 6.4 percent to $233 million

 FY Music Publishing: 

• Revenue at Warner/Chappell grew 9.3 percent to $623 million (up 1.3 percent on constant currency)
• 36 percent of W/C revenue was domestic, 64 percent international 
• Domestic W/C sales were up 6.1 percent to $225 million, while international W/C revenues increaed 11.2 percent to $398 million (down 1.2 percent on constant currency)
• Digital W/C revenue was up 48.1 percent to $40 million and represents 6.4 percent of total W/C revenue (year ago: 4.7 percent)
• Mechanical royalty revenues were down 8.7 percent, synchronization royalties were up 10.9 percent, performance royalties grew 4.5 percent, and digital royalties increased 48.1 percent (all on constant currency)
• W/C operating income declined 7.1 percent to $91 million

And these are the group highlights for Q4: 

• Total group revenue declined 1.5 percent to $854 million (down 5.2 percent on a constant-currency basis)
• Domestic revenue declined 5.4 percent, while international revenue was up 3.7 percent (down 4.1 percent on constant currency), due to strong results in Japan, Italy and France
• Group digital revenue increased 27.5 percent to $167 million, representing 19.6 percent of group total revenue in Q4
• Group operating income from continued operations was down 20.5 percent to $66 million
• Income from continuing operations was down 64.7 percent to $6 million
• Net income increased by 20 percent to $6 million

Q4 Recorded Music: 

• Revenue declined 3.7 percent to $707 million (down 6.9 percent on constant currency)
• Domestic RM sales were down 7.6 percent to $364 million, while international RM revenue was up 0.9 percent to $343 million (down 6.0 percent on constant currency)
• RM digital revenue grew 25.8 percent to $156 million (domestic: $99m = 27.2 percent rev. share/ international: $57m = 16.6 percent rev. share) and represents 22.1 percent of RM sales in Q4
• RM operating income from continuing operations fell 22.2 percent to $56 million

Q4 Music Publishing

• Revenue at Warner/Chappell grew 13.9 percent to $156 million (up 6.1 percent on constant currency)
• Domestic W/C sales were up 12 percent to $56 million, while international W/C revenues increaed 14.9 percent to $100 million (up 3.3 percent on constant currency)
• Digital W/C revenue was up 57.1 percent to $11 million and represents 7.1 percent of total W/C revenue
• Mechanical royalty revenues were down 5.6 percent, synchronization royalties were up 31 percent, performance royalties grew 6.1 percent, and digital royalties increased 57.1 percent (all on constant currency)
• W/C operating income declined 7.7 percent to $36 million 

So, what does all this mean? Warner Music ended their fiscal year in a rather solid manner. And current market trading in the first hours after the release of the FY report suggests that Wall Street is honoring that. But given the increasing decline of domestic sales levels during WMG’s fiscal Q1 (calender Q4) it will be interesting to see how management can further control costs in coming quarters. CEO Edgar Bronfman jr. and his team have downsized operations so much, I wonder were they want to cut next. I suppose, we’ll see much different bottom lines in fiscal 2009.

D-Telekom plans to corner German market for mobile music subscriptions

German telco giant Deutsche Telekom doesn’t want to wait for Nokia or Sony Ericsson to enter its home turf with either Comes With Music or PlayNow plus. The company is in talks to do deals that would allow T-Mobile to offer some kind of music subscription for cell phones in the near future, Financial Times Deutschland reports. Much like the services operated by Nokia and Sony Ericsson the T-Mobile concept would provide customers with (feels-like-)unlimited access to a large catalog of music. 

According to the FTD’s anonymous sources, executives at Deutsche Telekom haven’t made up their minds yet whether they prefer an all-you-can-eat flatrate type of service which would be marketed as a bundle together with certain phone models, or if it will be a more traditional subscription that offers a certain allotment of songs for a monthly rate. 

No matter which kind of product they decide on, Telekom wants this service to hit the market rather sooner than later, one source said. The initiative is seen as an attempt to shield the German mobile market from T-Mobile competitors such as Nokia, Apple or Sony Ericsson. Apparently Telekom officials have been watching Danish telco firm TDC and their flatrate service which is powered by white-label music shop provider 24-7. 

The T-Mobile music subscription will most likely be implemented through an in-house solution via D-Telekom company Musicload which operates an online download shop of the same name that has been iTunes’ toughest competition in Germany for the past five years.

Sirius XM still far, far away from black ink

This doesn’t look good. Sirius XM posted third quarter numbers and the prospects for the near future are just ugly. I really don’t see how this business model is going to pay off mid-term. After the merger of Sirius and XM the combined company had to take a major hit by recording a non-cash impairment charge of $4.75 billion related to the reduced value of certain assets. Moreover, Sirius XM faces almost $1 billion in debt that comes due next year – a problem the company said it is working with creditors to relieve. 

Pro forma revenue was up 16 percent to $613 million, pro forma net loss was down 18 percent to $217 million. But “pro forma” is a pretend world which – in order to appear locigal – needs the assumption that Sirius and XM had merged in January 2007 (which they didn’t, of course). In reality Q3 revenues were $488.4 million and total net loss for the quarter was a whopping $4.88 billion. 
The company added a mere 344.100 net subscribers in Q3 for a total of 18.9 million paying listeners. CEO Mel Karmazin expects to end the year with 19.1 million subscribers. His projection for 2013 is 28.4 million. 

Sirius XM is packing a one-two punch in the current economic climate: Disposable budgets for entertainment are dwindeling and so are new car sales. Detroit (and all other manufacturers) is putting out more and more vehicles with satellite radio receivers but fewer people are buying them. There goes your distribution strategy, Mr. Karmazin.

RealNetworks reports Q3 results, stays in the red zone

RealNetworks today reported a net loss of $4.5 million for its fiscal third quarter (ended September 30). A year ago Real postet a net profit of $4.34 million in Q3. Total revenues climbed 4.7 percent to $151.96 million. After nine months RN’s sales stand at $452.17 million – an increase of 10.1 percent year-over-year. Accordingly, Q1-Q3 results are in the red zone, too, at a net loss of $3.38 million. A year ago RN’s balance sheet still showed a net profit of $45.63 million. 

Said CEO Rob Glaser: ”In spite of a difficult and turbulent macro-economic environment, RealNetworks delivered results in line with our guidance. In particular, we are pleased with the initial results of our Music Without Limits initiative.”

The best performing department at the company was the games business which increased revenues by 19 percent to $34.2 million. The music segment was up 10 percent to $41.6 million. Subscriber numbers are down slightly with consumer music subscribers at 1,900 (-1.3%) and total music subscribers at 2,725 (-0.9%).