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.

IFPI says worldwide recorded music sales declined 7% in 2008

The decline of the recorded music industry appears to have slightly slowed down in 2008. With Midem in Cannes only a day away, the IFPI in London revealed that the overall world market was down by 7% last year. This compares to a 8% decline the year before which at Midem 2008 had been previewed as being possibly as high as 10%. 

IFPI Chairman & CEO John Kennedy added that if market data for the United States were to be excluded in the global assessment the sales decline in the rest of the world would be only 4%. The American recorded music market was again hit hard in 2008 by waning consumer demand.

While I was away …

Welcome back, readers of Höf’s Mixtape. Sorry it took me so long to get back online. While I was kicking back in Germany the music world continued to create news. More than I anticipated, actually. In retrospect, though, none of them were real game changers or sensations. But for matters of completeness and for my own sanity I compiled what I think deserves mention. 

Instead of rounding up the old news in chronological order I am listing them by relevance. So this is what’s been missing here: 

• The biggest tours of 2008 were not by the biggest CD sellers. The global #1 was Madonna with a gross of $281.6 million according to Pollstar, followed by Céline Dion with sales of $236.6 million. Bon Jovi sold tickets worth $176 million. Fellow Jerseians Bruce Springsteen & the E-Street Band raked in $166 million in ticket revenue, and The Police managed $120.6 million in sales. Completing the list of Top Tours in 2008 are Neil Diamond, the Eagles, André Rieu, Kenny Chesney and Coldplay. 
• Steve Jobs decided it’s time to say good-bye to the old pricing dogma of 99 cents per song and got rid of DRM in the iTunes Store as well. Downloads (in the AAC format!) will now come without digital locks at three different price points. Watch for iTunes users predominantly cherry-picking songs at 69 cents. $1.29 anybody?
• Related I: iPhone users can now shop wirelessly at iTunes via 3G (fast, sort of) and EDGE (really not fast at all). Can you hear AT&T and other carriers who are trying to sell DRM-ed OTA downloads cussing at Jobs?
• Related II: Apple so far has sold six billion songs via iTunes. Averages around two billion a year now. 
• The recorded music market in the U.S. remains a battlefield. Album sales were down 14.4% in 2008 at 428.4 million units according to Nielsen SoundScan figures. Digital track sales rose 27% to 1.07 billion units, digital albums gained 32% and sold 65.8 million units. The CD album which still accounts for 84% of the entire business collapsed another 19.7% to 360.6 million copies sold. Vinyl, however, made a comeback to 1.88 million albums (an increase of 89%). 
• More SoundScan I: Album market share (catalog & current combined) leader was again Universal Music with 31.52% of overall sales (slightly down), followed by Sony BMG (25.30%, slightly up), Warner Music (21.38%, up by more than one point) and EMI (8.97%, slightly down). The combined share of independent labels decreased half a point to 12.83%. The same pecking order applies to download market shares. 
• More SoundScan II: The best selling albums of 2008 were “Tha Carter III” by Lil Wayne (2.874 million units), “Viva La Vida”/Coldplay (2.144 million), “Fearless”/Taylor Swift (2.112 m) and “Rock N Roll Jesus”/Kid Rock (2.018 m). Top selling album artist was Taylor Swift who had two titles in the Top Ten for a total of over 4 million sales. The best selling digital tracks were “Bleeding Love” by Leona Lewis (3.42 million units), “Lollipop”/Lil Wayne feat. Static Major (3.161 million), “Low”/Flo Rida feat. T-Pain (2.979 m) and “I Kissed A Girl”/Katy Perry (2.977 m). Top selling digital artist was Rihanna with a total of almost 10 million sales. 
• More SoundScan III: Where does the shrinking number of album buyers get their fix? The mass merchant category (Wal-Mart, Best Buy, Target, etc.) is still #1 at U.S. album retail with a share of 37% (down 3 points, though), followed by chain music stores (i.e. f.y.e.) with a 33% share of the market (also down 3 points) and the non-traditional outlet segment with almost 25% (up 7 points) and indie music stores covering the rest. NTOs include digital, internet, mail order, venue and non-traditional retailers, with digital accounting for 65% of the segment. 
• While 2008 was an annus horribilis for the U.S. record industry, the business accross the pond did far better than expected. BPI figures show the labels sold 133.6 million albums in the UK - a decrease of only 3.2% (some pundits were fearing up to 10%). The singles market was up 33% with 115 million units (mostly downloads) sold. 2008’s best selling album was Duffy’s “Rockferry” with 1.685 million copies. But Take That came awefully close with 1.446 million copies of “The Circus”. The record only had one month to achieve this sum. Even more impressive: The best selling single was “Hallelujah” (a Leonard Cohen cover) by X factor winner Alexandra Burke. The track sold 888,000 units in just two weeks. Overall entertainment sales in the UK were encouraging considering the tight consumer budgets everywhere. The Entertainment Retailers Association (ERA) said its members sold more product in 2008 than ever before. 
• At the RIAA some people started using their brains. The label group decided it’s time to end the witch hunt on music fans. Since the RIAA started suing alleged filesharers in 2003 legal proceedings have been opened against about 35,000 individuals. P2P fans shouldn’t pop the champagne bottles yet, though. The WSJ wrote: “Instead, the Recording Industry Association of America said it plans to try an approach that relies on the cooperation of Internet-service providers. The trade group said it has hashed out preliminary agreements with major ISPs under which it will send an email to the provider when it finds a provider’s customers making music available online for others to take. Depending on the agreement, the ISP will either forward the note to customers, or alert customers that they appear to be uploading music illegally, and ask them to stop. If the customers continue the file-sharing, they will get one or two more emails, perhaps accompanied by slower service from the provider. Finally, the ISP may cut off their access altogether. The RIAA said it has agreements in principle with some ISPs, but declined to say which ones.” Good luck with that. 
• Just when you think reason is taking over, something stupid happens. Like Warner Music pulling their content from YouTube. It’s about the money, what else.
• Meanwhile, Universal Music says online video streaming is making a significant contribution to the company’s bottom line. eLabs EVP Rio Caraeff told CNet that the category was up 80% last year in U.S. revenues. Company insiders estimate Universal’s video streaming business at around $100 million. 
• No surprise then that the majors are rumored to plan their own video streaming service, perhaps in collaboration with Hulu or YouTube – think “YouTube Music” like MySpace Music. 
• Wholesale distributor EUK was killed after administrators failed to find a buyer for the company. 700 people were laid off. 
• As a result of the EUK drama British retail chain Zavvi (formerly known as Virgin Megastores) went into administration on December 24. Some 2,300 permanent staff and around 1,000 part-time workers are in danger of losing their jobs. Zavvi operates 125 stores, HMV is said to be interested in buying some of the locations. 
• Stateside, retail chain Trans World Entertainment (f.y.e.) also experienced a dissappointing holiday sales season. Comparable store sales in the nine weeks to January 3 decreased 14%. Total sales for the period were $287 million (down 24%). TWE closed 18% of its locations during the quarter. 
• What to do when your CD sales are tanking? If you ask Mike McGuire at research group Gartner, all you need to do is let go of the physical format alltogether. Rather than focusing on the the retail CD as a primary revenue generator, McGuire says, labels should move to a “digital first” strategy before Christmas 2009. Well, I don’t know …
• Universal Music Germany bought out joint venture partner X-Cell Records. 
• The highest German Court (BGH) ruled on the licensing of music as ringtones in a case that had been ongoing for years. In short, music publishers cannot ask for a two-tier licensing system that compensates both, the actual recording and the sound editing. Expert comments can be found here and here.
• Prince wants to release three albums this year. All without the help of traditional label means. Physical formats will be carried by one undisclosed major retailer, digital will be handled by one as-of-yet unnamed download store. 
• Removing DRM for download sales at Amazon MP3 so far has failed to put a dent into Apple’s lead with iTunes. But at least they can claim to be #2 now without being heckled. 
• 2009 will be a year of jam band glory: The Dead will go on their first tour since 2004, Phish will reunite and probably play Bonnaroo, and the Allman Brothers Band will celebrate their 40th anniversary with some live shows.
• Last.fm had to lay off 20% of its staff. 
• Anatomy of a flop. GNR’s “Chinese Democracy” at Best Buy? Nobody seems to care. Not even Axl. 
• The Long Tail? Not so long, after all. 
• Michael Robertson (MP3tunes) writes an open letter to Douglas Merrill (EMI). Good read. 
• Sales of Nokia’s “ComesWith Music” cell phones in the UK have been “OK, but not earth shattering”. 

U.S. music business to reach 41 percent digital sales by 2013

About that claim by Atlantic Records that they have reached the digital tipping point in sales … I still don’t believe it. Neither do some other people whose judgement usually isn’t all that bad. However, I’m really surprised at how many news outlets just went with that story. I would like to see some bullet-proof numbers that support Atlantic’s claim. 

Until then, I’d rather believe the latest research by Forrester/JupiterResearch. It says, this year digital music sales will generate 18 percent of overall revenue for the U.S. music industry. By 2013, this figure will increase to 41 percent industry-wide. The catch: The overall music market will shrink 9.8 percent from $10.2 billion this year to $9.8 billion in five years. 

This means, digital sales in the U.S. in 2008 will amount to roughly $1.84 billion and will increase 119 percent until 2013. By then the digital market will be worth $4 billion, according to the research. 

Looks like the CD will be around for a while: 

The report also noted crossover between CD and digital music purchases. In a survey, researchers found that 64 percent of subscribers to digital music services and 57 percent of consumers who download music have bought a CD in a store in the past year.

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.

Catching up – What I’ve been missing

I didn’t post any news recently because work kept me busy. That’s a good thing, right? So here is a brief summary of what I would have blogged on, if I’d had the time. 

• Most likely the most interesting bit of news came from Topspin CEO Ian Rogers who presented at the Grammy Northwest MusicTech Summit. As always with Ian, a very smart synopsis of where the business is at currently, and some nice hands-on examples of how to deal with it. Some others blogged about that, too. 
• Microsoft refreshed the business model for the Zune and the Zune Pass service. I wonder, if and how this will affect the power balance in the digital music field. First guess: probably won’t move the needle at all. Chris Stephenson, GM of global marketing for Microsoft’s entertainment business, likes to think differently, of course. 
• More bad news from the retail world, Part 1: Trans World Entertainment/f.y.e. widened its losses in Q3 by 99 percent to $28.4 million on sales of $195.2 million (minus 25 percent). Same store sales were down 14 percent. For Q1-Q3 net loss was up 78 percent to $59.5 million on revenues of $643 million (down 21 percent). Comparable store sales for the first nine months were down 9 percent. Music slid 22 percent and represented 38 percent of TWE’s business. That is slimmed from 40 percent last year. Management said this slide is in line with the struggles all retailers are having with physical CD sales. 
• More bad news from the retail world, Part 2: Hastings Entertainment reported a $3.6 million loss for Q3 on sales of $114.3 million (down 6.5 percent). In Q3/2007 the company still had a net profit of $73,000. For Q1-Q3 sales were down 1.1 percent to $371.9 million, while net loss was $7,000 compared to profits of $4.4 million in the year-ago period. Same picture here: the music product category was hurt most with a 19.5 percent decline. 
• A little bit of good news from the retail world: eMusic has sold 250 million MP3 downloads since establishing its current subscription business model in 2003. The download retailer also said it boosted its catalog past the 4.5 million track mark with the addition of a new batch of independent record labels. According to the company, the most recent 100 million downloads happened in 453 days, while the first 100 million required 1,122 days. 
• Germany’s public-private music funding program Initiative Musik will have more money to spend in 2009. Both, German Parliament (Bundestag) and Minstry of Culture and Media (BKM) are doubling their funds, giving Initiative Musik €2 million ($2.58m) for next year. 
• The Culture Secretaries in the member nations of the European Union are not exactly crazy about France’s 3-strikes rules. 
• iTunes could go all DRM-free soon, according to this report based on rumors. 
• The number of Europeans willing to pay for online content is expected to grow, driven by the increasing acceptance of legal and commercial music services, says JupiterResearch.
• Mexican billionaire Ricardo Salinas Pliego could save Circuit City. 
• Yahoo! Music’s final attempt?
• EMI’s new CEO, Elio Leoni-Sceti, has a message for ISPs, his team and his customers. 
• Vivendi CEO Jean-Bernard Lévy won’t make any predictions on how the sluggish economy will affect Universal Music and its corporate sibblings. 
• Tennessee might the be the hub of country music. It might also pride itself for having a Democrat Governor in an overwhelmingly red state. But they sure as hell don’t understand digital media and modern technology. Why else would state legislators pass a law like this?
• Just call her the EMI maverick: Sid McCain, daughter of a U.S. Senator who tried to become President, has been appointed as VP of label services, North America, for EMI Music. 

How to fix the music business

Indie 103.1 programming director Max Tolkoff and Sat Bisla shot a little movie. Watch it and 28 minutes later you won’t find out how to fix the music industry. But you’ll hear a lot of informed guesses by familiar people. 

Why don’t we just agree that we don’t know what to do?

How To Fix The Music Industry Documentary from MUSEXPO on Vimeo.

Online retail sales growth almost stopped in October

The cutbacks consumers have been making in their spending in recent months doesn’t only affect brick-and-mortar retail. Internet sales are also feeling the pinch. According to comScore, online spending in October only grew by 1 percent. That is the lowest monthly growth rate since comScore began tracking e-commerce in 2001. 

Monthly sales growth has been slowing since April and reached 5 percent in September. comScore said the cut in spending was most prevalent among families making less than $50,000, who reported a 3 percent decline in online spending over the last three months. Households making more than $100,000, meanwhile, have increased their online spending 14 percent during that time.

The worst part, though: sales of music and movies over the internet in October fell 38 percent year-over-year. This could be a terrible indicator for the weeks to come, because usually these are the product categories which lead the way during the holiday shopping season.

French business still ailing, waiting for new copyright law

How do you know an industry is in serious trouble? When a 13.9 percent decline in sales is considered an improvement. That’s what’s going on in the French music market. SNEP (Syndicat National de l’edition Phonographique), the industry body in France, yesterday released market data for the first nine months of 2008. The wholesale value of recorded music sank to €382 million ($482 million). So, why is this an improvement? Because last year at the same time, the market had shrunk 20.5 percent. 

Picking up some of the slack is the digital business which until recently failed to deliver on its promise in France. But for the period of Q1-Q3 digital sales increased by an encouraging 52.6 percent to €52.8 million ($66.7 million), which means downloads, streams and mobile business represent almost 14 percent of the entire French music market. 

The biggest chunk of digital sales is made up by mobile formats which account for sales of €23.8 million ($30m). Downloads over the internet generated revenue of €17.8 million ($22.4m). Subscriptions and streaming services raked in €11.2 million ($14.1m). 

“These are good figures,” said Christophe Lameignère, Chairman & CEO of Sony BMG France and President of SNEP at a press conference held in Paris. Now SNEP has high hopes for the new copyright law which is currently being debated in Parliament. ”We know the law won’t eradicate online piracy,” Lameignère acknowledged, “still, we hope it will help reduce it to acceptable levels.” He even promised to strip Sony BMG music off DRM once the law goes into effect.