‘Awakening’ Now Available In Paperback

Regular readers will know that I recently published the Kindle version of my book “Awakening: The Music Industry In The Digital Age”.  Many of you have already bought it (thank you!) but some of you also wanted to know when the paperback edition was going to be available. Well you need wait no longer, you can buy the paperback version of ‘Awakening’ right now by clicking here.

If you are interested in the music industry then this is the book for you. Whether you are a label executive, music publisher, artist, songwriter, entrepreneur or simply interested in what you can learn from the music industry’s experience and want to know what the future holds then this is the book for you.

I wrote this book with three key objectives in mind:

1.    To provide the definitive account of the music industry in the digital era, as an antidote the distorted picture that is painted by the biased and often poorly informed extremes that dominate the industry narrative

2.    To help anyone in the music business better understand how the other parts of the industry work, what they think and what their priorities are

3.    To act as a primer for anyone wanting to build career or business in the music industry, so they know exactly what they’re getting in to, how the business works, the relationships, the conflicts and what’s been tried before.  I want to help people not waste energy making the same mistakes others have, and to also benefit from the insight and experiences of the super smart people I interviewed in the book

The book is full of data, analysis and interviews with more 50 interviews with the CEOs, senior decision makers, artists, managers, start up founders and other decision makers that have shaped the music industry over the last 15 years.  It includes chapters on every key part of the industry (labels, artists, songwriters, start ups, tech companies etc.) and is split into three sections:

1. How We Got Here
2. The Digital Era
3. A Vision For The Future

This really is the only book you need to read on the music industry’s digital transition.  But don’t just take my word for it, check out these 5 Star Reviews:

“I really enjoyed this book. It gives a wide view to music industry, consumption tendencies and much other useful information. Is a must for all of the music industry professionals.”

“Great book on today’s digital music business – how we got here, who did what and most crucially why they did it. There’s no shortage of firmly held opinions and theories about the music industry and how it has navigated its digital transformation and Mulligan’s book is an essential analysis of what’s actually been going on. Insightful, non-judgemental and very well researched and informed, if you want to understand today’s digital music business, read this book.”

And if you’re still not convinced, take a read of the sample chapters on Amazon.  ‘Awakening’ is also available on iTunes and Google Play.

I hope you find the book as interesting to read as I did writing it.

My New Book – Awakening: The Music Industry In the Digital Age

I am very excited to announce the launch of my book ‘Awakening’ which charts the rise of digital music and how it is changing the music industry. ‘Awakening’ is the definitive account of the music industry in the digital era. With exclusive interviews with the people who shaped today’s industry it tells the inside story of how the music business grappled with the emergence of an entirely new digital economy

The music industry is on the brink of an utterly transformative period of change that will result in the creation of an entirely new industry tailor made for the digital era. ‘Awakening’ presents the vision of how and why this change will come, what this future will look like and how the first steps on the journey are already being taken. The book includes interviews with 60 of the music industry’s leading figures, including globally successful artists and more than 20 CEOs (a full list of interviewees can be found at the bottom of the page). Alongside the insight from this unprecedented executive access, ‘Awakening’ uses exclusive consumer data, official market statistics, proprietary models and multiple additional data sources. In doing so it constructs an unparalleled picture of the new global music economy presented across 60 charts and figures.

All good stories start in the beginning. ‘Awakening’ deconstructs the failed state experience of the analogue era music industry with the definitive account of the music industry’s transition from booming $28 billion powerhouse to today’s much humbled $15 billion business. Music fans used to be told what to listen to when, where and how. In the new music industry the balance of power lies with the fans with themselves. The old music industry had the record labels at its centre, the new digital era industry will have the consumer at its core. The change will be generation defining and will transform forever what it means to be an artist and a fan. Livelihoods will be destroyed, others created, millionaires made, culture transformed. The change is already underway. ‘Awakening’ looks at each individual component of the music industry today and looks at each one is dealing with change and preparing for the future. From the superstar artist to the small independent label, from the pirate company CEO to the major label CEO, in the book I explore the incredibly varied picture of confusion and innovation, uncertainty and brilliance, fear and confidence. Most of all it is the story of a rebuilding, an Awakening of the new music industry.

The book has three sections:

• How We Got Here: A detailed history of the years up until the launch of the iTunes Music Store, exploring how Napster changed the music industry forever and how the industry responded, or rather didn’t
• The Digital Era: This section has 7 chapters, one for each of the key stakeholders (labels, artists, songwriters, pirates etc) and explores what the current market means to each of them
• A Vision For The Future: A vision for what the next music industry will look like and what needs to happen to enable this to take place

I was extremely fortunate to interview many of the most important figures in the music industry of the last 15 years, including CEOs of major record labels, CEOs of all the major streaming services and platinum selling artists. I’ve managed to get the inside track on exactly what was happening behind the scenes.  I personally learned a huge amount while writing this book and I am confident virtually every reader will do so too.

In short, once you have read this book you will know practically everything that there is to know about the digital music market and where it is heading!

For anyone interested in the music industry and the lessons it provides for all media and technology businesses in the digital era, this is the only book you will ever need.

The book is available now on Amazon and iTunes and Google Play.

Also 10% of net profits will go to the music therapy charity the Nordoff Robins trust.

If you are a journalist and would like a review copy please email me at mark AT midiaresearch DOT COM

People interviewed for this book

Adam Kidron             Founder and CEO, Beyond Oblivion
Alexander Ljung         Founder and CEO, Soundcloud
Alexander Ross        Partner, Wiggin
Alison Wenham        CEO, AIM
Axel Dauchez           CEO, Deezer
Barney Wragg          SVP Universal Music eLabs / Global Head of Digital, EMI
Ben Drury                 Founder and CEO, 7 Digital
Benji Rogers             Founder and CEO, PledgeMusic
Brian Message          Manager, Radiohead, Nick Cave / Chairman MMF
Cary Sherman          CEO, RIAA
Chris Gorman           Founder and CEO, MusicQubed
Cliff Fluet                   Partner, Lewis Silkin / Director 11
Daniel Ek                   Founder and CEO, Spotify
David Boyle              SVP Insight, EMI
David Byrne              Solo artist / Talking Heads
David Isrealite           CEO, MPAA
David Lowery           Camper van Beethoven / The Trichordist
Edgar Berger            President & CEO International, Sony Music Entertainment
Elio Leoni Sceti         CEO, EMI
Erik Nielsen               Manager, Marillion
Geoff Taylor              CEO, BPI
Gregor Pryor             Partner, Reed Smith
Helienne Lindvall       Award winning songwriter
Ian Hogarth                Founder and CEO, Songkick
Ian Rogers                 CEO, Beats Music / CEO TopSpin
Jack Horner               Founder Frukt
Jay Samit                   SVP, EMI / EVP & GM, Sony Corp America
Jeremy Silver            VP New Media EMI / Chairman musicmetric
Jim Griffin                   CTO Geffen Records / CEO, Cherry Lane Digital
Jon Irwin                    President, Rhapsody
Jonathan Grant          Above and Beyond / Founder, Anjunabeats Records
Justin Morey              Senior Lecturer Music Production, Leeds Beckett University
Keith Harris                Manager, Stevie Wonder / GM, Motown
Keith Thomas            Grammy Award Winning Producer and Songwriter
Ken Park                    Chief Content Officer, Spotify
Larry Miller                 COO, a2b Music / President Reciprocal
Liz Schimel                VP Music, Nokia
Lohan Presencer       CEO of Ministry of Sound Group
Mark Kelly                 Marillion / CEO, FAC
Mark Knight               Founder and Chief Architect, Omnifone
Martin Goldschmidt   Founder and MD, Cooking Vinyl
Martin Mills                Founder and Chairman, Beggars Group
Michael Robertson   Founder and CEO, MP3.com
Nenad Marovac        Partner, DN Capital
Oleg Fomenko          CEO, Bloom.fm
Paul Hitchman          Founder and Director Playlouder/ MD Kobalt
Paul Vidich                EVP, WMG / Director, Reverbnation
Peter Jenner             Manager Pink Floyd, Billy Bragg / MD Sincere
Peter Sunde              Founder, The Pirate Bay
Phil Sant                    Founder and Chief Engineer, Omnifone
Ralph Simon             EVP Capitol & Blue Note / Founder Yourmobile
Robert Ashcroft        SVP Network Services Europe / CEO PRS for Music
Roger Faxon             CEO, EMI
Scott Cohen              Founder, The Orchard
Simon Wheeler         Director of Strategy, Beggars Group
Sumit Bothra             Manager, The Boxer Rebellion, PJ Harvey
Tim Westergren        Founder and Chief Strategy Officer, Pandora
Tom Frederikse        Partner, Clintons
Tony Wadsworth      Chairman & CEO, EMI Music UK & Ireland/Chairman BPI
Wayne Rosso           President, Grokster
Will Page                  Chief Economist, Spotify

Note: positions either refer to current position held by interviewee or key position held during the narrative of this book.

Example pages

IFPI and RIAA 2013 Music Sales Figures: First Take

The IFPI and RIAA today released their annual music sales numbers.  Though there are positive signs, overall they make for troubling reading 

• Total sales were down 3.9%.  Based on 2012 numbers the trend suggested that 2013 revenues should have registered a 2% growth, so that is a -6% swing in momentum.
• Digital grew by 4.3% which was not enough to offset the impact of declining CD sales, which has been the story every year since 2000 except last.
• Download sales declined by 1%. Continued competition from apps and other entertainment, coupled with subscriptions poaching the most valuable download buyers is finally taking its toll.
• Subscriptions up by 51%: An impressively strong year for subscriptions but not enough to make the digital increase bigger than the physical decline on a global basis nor in key markets, including the US.

Global numbers of course can be misleading and there is a richly diverse mix of country level stories underneath them, ranging from streaming driven prosperity in the Nordics, through market stagnation in the US to crisis in Japan – where revenues collapsed by 16.8%.  The Nordic renaissance helped push Europe into growth but data from the RIAA, show that total US music revenues were down a fraction – 0.3%.  US download sales were down by 0.9% while subscriptions were up an impressive 57% to $628 million.

On the one hand this shows that Spotify has managed to kick the US subscription market into gear following half a decade or so of stagnation.  But on the other it shows that subscriptions take revenue from the most valuable download buyers.  This backs up the trend I previously noted, that streaming takes hold best in markets where downloads never really got started.  Thus markets like the US with robust download sectors will feel growth slowdown as high spending downloaders transition to streaming, while in markets like Sweden where there was no meaningful download sector to speak of, subscriptions can drive green field digital revenue growth.

The Download Is Not Dead Yet

Though subscriptions now account for 27% of digital revenue, the value trend obscures the consumer behavior trend.  For Spotify’s c.9.5 million paying subscribers (or 6 million last officially reported) Apple’s installed base of iTunes music buyers stands at c.200 million (see figure).  The IFPI report that there are now 28 million subscription customers globally.  In the US and UK this translates into 4 or 5% of consumers. Subscriptions do a fantastic job of monetizing the uber fans, just like deluxe vinyl boxsets and fan funding sites like Pledge do so also.  But they are inherently niche in reach.  This is why downloads remain the music industry’s most important digital tool.  Downloads are the most natural consumer entry point into digital music, and if anyone else had been able to come close to matching Apple’s peerless ability to seamlessly integrate downloads into the device experience, then the sector would be much bigger than it is now.

Do not confuse this with being a luddite view that streaming and subscriptions are not the future, they are, but there is a long, long journey to that destination that we are only just starting upon for most consumers.   And before that there is a far more important issue, namely how to get the remaining CD buyers to go digital.

Sleepwalking Into a Post-CD Collapse

Last year the IFPI numbers showed a modest globally recovery but despite the widespread optimism that surrounded those numbers I remained cautious and wrote that it was “a long way from mission accomplished.”  My overriding concern then was the same as it is now, namely that the music industry does not have a CD buyer migration strategy and it desperately needs one.  So much so that unless it develops one it will end up sleepwalking into a CD collapse.   In fact I predicted exactly what has happened:

“CD sales decline will likely accelerate.  Among the top 10 largest music markets in the world CD revenue decline will likely accelerate markedly in the next few years.  In France and the UK leading high street retailers are on their last legs while in Germany and Japan the vast majority (more than 70%) of sales are still physical.  So the challenge for digital is can it grow as quickly as the CD in those markets will decline?

The IFPI have stressed the fact that Japan’s dramatic 15% decline was the root cause of the global downturn.  While this is largely true – without Japan included global revenues still declined 0.1% – Japan’s problems are simply the global industry’s problems squared.  In 2012 a staggering 80% of Japanese music sales were physical but despite the digital market actually declining 4 successive years total revenues increased 4%.  As the world’s second biggest market, when Japan sneezes the global industry catches a cold.   But expect Japan to continue to drag down global revenues and also keep an eye on Germany.  Germany saw a modest 1.2% increase in revenues in 2013 but only 22.6% of sales were digital.  The most likely scenario is that Germany will follow the Japanese trend and go into a CD-driven dive in 2014 and / or 2015.

In conclusion, there is still cause for optimism from these numbers.  Subscriptions are going from strength to strength, at least in revenue terms, and the download sector remains robust in buyer number terms.  But unless the CD problem is fixed, the best both those digital revenue streams can hope to do is consolidate the market around a small rump of digital buyers.

How Streaming Will Impact Music Sales

With 2013 now behind us we are beginning to see the first full year sales numbers come if for 2013 and the long anticipated ability to assess the impact of streaming on the market.  Until the IFPI annual revenue numbers come out we are mainly constrained to volume data which only paints half of the picture.  This is especially true for streaming given the massive difference in revenue per stream for free versus paid, YouTube versus Spotify etc.  But even within these constraints we have enough to start establishing a view, one that indicates the headline story may be more about transition than it is growth.

Nielsen’s numbers for the US show that digital track sales were down 5.7% and that digital albums were down 0.1% while albums as a whole were down 8.4%. In the UK the BPI reported that digital track sales were down 4.2% though digital albums were up 6.8%.  Nielsen also reported a 103% rise in audio streams.  Let’s assume that a significant portion of those increased streams will be coming from free users and that the impact on streaming revenue growth will therefore be around the 65% mark. That would translate into total US music market revenue growth of just under 1%, though if free usage is a bigger part of the picture then growth could be negative.

It is important to understand the appropriate context for the shift to streaming: it is fundamentally a transition of spending.  Just as the download was a transition from the CD so streaming subscriptions are a transition from the download.  This is because the majority of subscribers were already digital music buyers before becoming subscribers and the majority of those were iTunes customers.  50% of subscribers buy album downloads every month and 26% buy CDs every month (see figure).  On the one hand this can be interpreted as the fantastic capacity of streaming to drive discovery and music purchasing.  There is some truth in this, but it is an inherently temporary state of affairs.  If streaming services do their job well enough there should be little or no reason for a subscriber to additionally buy music.  They do so because consumers transition behaviour gradually not suddenly.  The fact that a third of download buyers still buy CDs illustrates the point.

In this respect streaming services are strongly competitive with music sales in a way that streaming radio services are not. However what is crucially different from the CD transition is that while downloads drove a decrease in ARPU with consumers cherry picking single tracks from albums, subscriptions drive ARPU upwards. So there is more of an opportunity for subscriptions to drive longer term revenue growth than downloads.  The two key questions that arise are:

1. What download market will be left once/if subscriptions have reached scale?
2. What will the net impact on digital music spending be?

1 – Impact on downloads: The answer to the first question is probably the most straight forward.  Looking at markets like Sweden and Denmark we have strong evidence that streaming subscriptions grew at the direct expense of downloads, but in doing so they transformed the total music markets.  In the US, where the download sector is much more entrenched, streaming has resulted in a worst of both worlds, with streaming eating into downloads but not having enough headway to transform the market Sweden style.  The outlook for downloads in big markets such as the US, UK, France and Germany will be one of subscriptions absorbing the spending of the most valuable download customers.  Downloads as a global sector though will remain strong because they are the natural transition technology from download and will thus have strong long term opportunity in emerging digital markets of scale such as Turkey, Brazil and Mexico.  Downloads will also remain the best tool for monetizing mid tier digital music consumers who like to buy a few singles and the occasional album but do not spend 9.99 a month on music.

2 – Net impact on music spending: This one is a tougher call to make.  If subscriptions only reach scale by converting the most engaged music consumers then there is a risk of reducing ARPU among some of them, changing their spending patterns from buying a few albums a month to spending the equivalent of just one.  This effect will be felt more strongly as the dual-consumption behavior of subscribing and buying naturally fades.  The net positive opportunity lies in converting large swathes of the ‘upper middle’ tier of music buyers with more competitive pricing and also with bundles. Though this will likely come at the expense of further erosion of downloads.

As the RIAA rightly highlighted, even in the US streaming is becoming a really important part of the music market, and there is no doubt that access based models of shapes and sizes are the future.  The next few years though will see some growing pains as we transition away from the old guard in some of the world’s biggest music markets.

What Happened to the RIAA’s Missing 3.5 Million?

The RIAA has highlighted research which indicates that its closure of P2P site Limewire has significantly reduced P2P levels in the US.  Unfortunately the evidence is not as clear cut as it may first appear.

According to the various sources the RIAA cites (mainly a combination of Nielsen and NPD data) the effects between September 2010 and September 2011 in the US of Limewire’s closure were:

• 95% reduction in usage of Limewire by its users
• Total P2P users declined by 9 million
• Total legal downloaders grew by 5.5 million

An immediately apparent trend is that 3.5 million P2P users appear to have disappeared entirely from the digital music consumption landscape (i.e. 9 million ‘lost’ P2P users minus the 5.5 million new paid downloaders).  For argument’s sake let’s assume that 100% of those consumers that abandoned P2P switched straight to paid downloads. That would mean that 39% just dropped out of digital music.  But of course a 100% transition is improbable.  Also many (the majority?) of the new downloaders will not have previously been P2P users.  So what happened to the missing 3.5 million?  The answer is found in a combination of three factors:

• P2P is a technology in decline for music piracy.  Consumers are going elsewhere, to what I term Non-Network piracy.  That is, activities such as Bluetoothing, harddrive swapping, phone ripping, darknets, binary groups, lockers etc.  Individually each activity is small but collectively this is where music piracy is heading.  I remember in my days as a JupiterResearch analyst that as we watched German P2P penetration decline steadily year-on-year in apparent response to music industry anti-piracy measures, we also saw Germany become Europe’s largest Non-Network Piracy market, actually exceeding P2P penetration.  And that is going back a lot of years now.  Today much more still needs to be done to better understand Non-Network Piracy, particularly so in the age of cloud-based music experiences.  Because the same arguments about ownership mattering less for legitimate services apply to piracy.  Downloading an MP3 file from BitTorrent may seem as incongruous to a Digital Native as buying a CD.  Measuring piracy effectively in the age of cloud means viewing illegal streaming services and even music blog streams in the same way as illegal downloads.
  Bottom Line: many of those missing 3.5 million will actually be happily sating their appetite for free unlicensed music via Non-Network Piracy.
• People lie.  I’ve been tracking music piracy for long enough to know that it is unwise to draw definitive conclusions about year-on-year trends.  In Sweden for example, in the early and mid-noughties P2P penetration dropped from 28% to 18% following the closure of a legal loophole and then again to 12% following government enforcement.  Within a couple of years penetration was back up in the mid 20’s%.  Furthermore the main ISP Telia reported that it had seen no noticeable decline in P2P traffic levels.  As Dr. House’s mantra goes ‘People Lie’.  On the one hand this proves that enforcement is effective in that it makes people conscious they are doing something wrong and don’t want to admit to it, until the heat dies off. But on the other it suggests that the impact can be superficial for many file sharers.  Though untruthful respondents should be less important for Nielsen’s panel methodology than NPD’s survey methodology, bear in mind that file sharers are often pretty savvy consumers who use dedicated computers for download.  So it is not unreasonable to expect many to switch their P2P activity from their metered PC for the same reason they wouldn’t admit to file sharing to a survey vendor.
  Bottom Line: surveys are better at measuring consumer attitudes to piracy than they are actual behaviour. 
• Limewire is closed! A 95% reduction in usage of Limewire by Limewire users sounds pretty impressive until you consider that the site was actually been closed down by the RIAA in October 2010.  Limewire agreed to ‘stop supporting and distributing’ its P2P client.  A number of unauthorized spin-off clients (such as LimeWire Pirate Edition) were created but a visit to Limewire’s site reveals a message urging users to refrain from using these apps and to remove them from their computers).
  Bottom Line:the majority of Limewire users unsurprisingly stopped using the defunct client. 
• P2P users are holding their breath. A significant share of the missing 3.5 million may well have stopped downloading illegally for now.  But if they are not buying downloads nor using Non-Network Piracy then they have markedly changed their music consumption behaviour,  perhaps increasing their use of YouTube, listening to more radio, watching more music TV.  For active music downloaders this means an effective dis-engagement from music, falling on the ‘supporting’ channels as their main behaviour.  This will have 1 of 3 long term outcomes: 1) they remain disengaged, casual music fans 2) they finally opt for legal services 3) they eventually go back to piracy.  Of the three, the third is the most likely outcome.
  Bottom Line: nature abhors a vacuum.

Whack-a-Mole Remains Firmly Game-On

The last factor is arguably the most important, particularly in the context of locker services running scared in the wake of the Megaupload arrests.  The demand for free music remains whatever happens to supply.  Closing most of the current illegal channels creates a demand vacuum that will unfortunately be filled, and the history of music piracy to date teaches us that what comes next will be even more difficult to enforce than its predecessor. However there is a fortuitously timed wildcard factor which may help aid the digital transition.  Since July 2011 Spotify has been available in the US, so many of those lost Limewire users may quench some or all of their free music thirst there.  But because we still don’t have any definitive data to suggest that Spotify is reducing piracy so we must keep Spotify as a wildcard for now.

The slightly depressing conclusion in all of this is that the Whack-a-Mole game is not over. But encouragingly the RIAA’s Joshua Friedlander states:

The single most important anti-piracy strategy remains innovation, experimentation and working with our technology partners to offer fans an array of legal music experiences.

I couldn’t have put it better myself. Of course enforcement remains an important part of the mix, but there is an increasing risk of negative ROI (both in financial and publicity terms) that the music industry can ill afford at the moment. Closing down sites hits supply not demand. The solution to piracy lies first and foremost in innovating to meet those clearly demonstrated consumer needs.

RIAA to Stop Suing File Sharers: First Take

The RIAA is set to halt its campaign of suing individuals for copyright infringement and is shifting to working with ISPs on something that looks and smells a lot like ‘Three Strikes and You’re Out’.

For years the RIAA has effectively been a bad news story for the music industry, giving it unwanted bad press when it least needed it. Whereas there is a role for some high profile action against high sharing volume individuals, there is a way to implement the policy and a way not to. European organizations such as the BPI and local IFPI’s focused on education first and targeted, measured cases thereafter. The RIAA’s strategy probably didn’t differ that much in essence but it was light-years away in style. The RIAA almost seemed to relish the ‘bad cop’ role and insisted on pursuing individuals for amounts which were widely perceived to be unreasonable. Their heavy handed approach also caught many soft targets (e.g. 12 years olds, dead people (yes they really did)) and aggravated much of the legal community with their railroading.

Indeed the latter point may well be a key issue here. As I blogged back in October Harvard law professor Charles Nesson recently decided to take the RIAA on for their action being unconstitutional. Many legal minds expected Nesson to come out on top.

But whatever the reason, the move has been taken. The RIAA is facing up to the fact that suing individuals alone doesn’t meaningfully impact file sharing traffic, neither directly nor indirectly as a deterrent. The partnerships with ISPs is a tactic borrowed straight from the BPI in the UK. One hopes that the RIAA will be as shrewd as the BPI and do their best to offer the ISPs the carrot of licenses for compelling legal music services.

It won’t be plain sailing. ISPs have agendas that are often out of synch with content owners. But it’s a step in the right direction, as long as the strategy is underpinned with an ambitious licensing strategy.

RIAA Unconstitutional?

Fascinating piece here on the RIAA about to face the intellectual force of Harvard’s legal prowess.  The RIAA has mysteriously avoided suing Harvard students in its copyright infringement campaign, supposedly for the sake of avoiding having Harvard Law School defend its students and shoot down the RIAA’s approach.  Now one of Harvard’s law professors, Charles Nesson, has got tired of waiting and has decided to go after the RIAA.  He’s picked up a number of reasons why the RIAA’s approach is unconstitutional and it will be interesting to see how this plays out.

 

What is clear with the RIAA’s strategy is that it is a PR disaster and it’s neither reducing file sharing nor saving recorded music sales.  Some time, hopefully sooner rather than later, the RIAA will adopt a more considered approach and take a leaf out of the IFPI’s book.  In fact, they’d do well to take the BPI as a role model and focus on acting as a conduit for getting ISPs etc licensed with compelling alternatives to piracy.