2015 performance The latest data from the world’s largest music market - the United States – indicates annual growth of approximately 25% in streaming revenues and 4% decline in download sales. Downloads account for 67% of the digital market (H1 2015), down from 92% in 2010. Global digital revenues grew by 7% in both 2013 and 2014. 2015 may be seen as a ‘game changing year for the music industry, with the launch of Apple’s music streaming service. Whilst this may help drive growth in the overall streaming market, it creates a more challenging market for the specialist players. Available financial data shows that the specialist players (such as Spotify, Deezer and Rhapsody) continue to make substantial losses as they fund subscriber growth and geographic expansion. Profitability is not yet in sight and the industry faces continuing demands from artists to increase royalties. This uncertainty about the future is likely to have contributed to Deezer pulling its planned IPO in October. Long term outlook It is likely that the paid subscription model will eventually hit a growth ceiling, given the relatively high cost of music subscriptions; most consumers will continue to use the ad-funded services or continue to download. The specialist players such as Spotify and Deezer face a difficult future given the competition they face from digital platforms such as Apple and Google (Facebook are also rumoured to be launching music services). Markets where music tastes are more local (e.g. China, Japan, India) may prove more difficult for the likes of Apple Music. Existing players such as QQ Music (China), Saavn (India) and Line Music (Japan) could benefit, but need to convince many of their users to pay for music streaming.

1. © Heernet Ventures Limited 2016
Digital Music
January 2016
IndustryOverview
Challenging future for specialist music streaming services

2. Notes
2015 performance
The latest data from the world’s largest music market - the United States – indicates annual growth of
approximately 25% in streaming revenues and 4% decline in download sales. Downloads account for 67% of the
digital market (H1 2015), down from 92% in 2010. Global digital revenues grew by 7% in both 2013 and 2014.
2015 may be seen as a ‘game changing year for the music industry, with the launch of Apple’s music streaming
service. Whilst this may help drive growth in the overall streaming market, it creates a more challenging market for
the specialist players. Available financial data shows that the specialist players (such as Spotify, Deezer and
Rhapsody) continue to make substantial losses as they fund subscriber growth and geographic expansion.
Profitability is not yet in sight and the industry faces continuing demands from artists to increase royalties. This
uncertainty about the future is likely to have contributed to Deezer pulling its planned IPO in October.
Long term outlook
It is likely that the paid subscription model will eventually hit a growth ceiling, given the relatively high cost of music
subscriptions; most consumers will continue to use the ad-funded services or continue to download. The
specialist players such as Spotify and Deezer face a difficult future given the competition they face from digital
platforms such as Apple and Google (Facebook are also rumoured to be launching music services).
Markets where music tastes are more local (e.g. China, Japan, India) may prove more difficult for the likes of Apple
Music. Existing players such as QQ Music (China), Saavn (India) and Line Music (Japan) could benefit, but need
to convince many of their users to pay for music streaming.
2
Harjinder Singh-Heer
Managing Director,
G2Mi Research
Harjinder@g2mi.com
Tel: +44 (0) 79806 14738
G2Mi Research
provides research and
advisory services
covering the global
TMT industries,
including the
entertainment industry.

3. Notes
7% growth in global digital revenues
Annual growth in global digital revenues may accelerate as Apple Music grows and new music
services become available from other digital platforms (such as Facebook)
IFPI, G2Mi Analysis
3
Digital CAGR of 9% (2009/14)Whilst being a minor category, Vinyl/LP sales have grown in many developed
territories
Global music revenues Global digital music revenues
GLOBAL CONTEXT
0
1
2
3
4
5
6
7
8
Physical Digital Performance rights Synchronisation
USDbillions
2013 2014
-8.1%
+6.85%
0.4
6.85
0%
5%
10%
15%
20%
25%
30%
35%
0
1
2
3
4
5
6
7
8
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
%change
USDmillions
Global digital revenues % change

4. Notes
Digital now accounts for almost half the global music market
Subscription revenues have grown to account for a quarter of digital music revenues whilst the
market for ringtones has declined to just 3% in 2014
IFPI, G2Mi Analysis
4
% global revenues by type % global digital revenues by type
The decline in download sales is largely due to music enthusiasts switching to subscription services –
both free and ad-funded, which offer a better consumer experience
The digital and physical segments account for 46% each of the global
music market
64%
52%
26%
3%
3%
9%
6%
23%
1%
13%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2008 2014
Other
Subscription streams
Ad-supported streams
Mobile personalisation
Permanent downloads
Physical,
46%
Digital,
46%
Performance rights, 6% Synchronisation, 2%
GLOBAL CONTEXT

5. Notes
US market sees 92% growth in streaming volumes (H1 2015)
The growth in subscribers (8.1 million in H1 2015) is now leading to a significant decline in
downloading
Company data; G2Mi Analysis
5
Trends in music downloads and streaming subscribers Streaming volumes
US MARKET
1,472
1,545
1,591
1,497
1,353
7.7
0
1
2
3
4
5
6
7
8
9
1,200
1,250
1,300
1,350
1,400
1,450
1,500
1,550
1,600
1,650
2010 2011 2012 2013 2014
Noofsubscribers(millions)
Noofdownloads(millions)
downloads subscribers
49
78.6
33.7
58.6
57.1
85.3
36.6
76.6
0
20
40
60
80
100
120
140
160
180
2013 2014 H1 14 H1 15
Billionsofstreams
Audio Video
+92.3%

6. Notes
251
808
0
200
400
600
800
1,000
1,200
2012 2013 2014 2015
GBPmillions
Digital streaming Albums & singles
European countries have distinct characteristics in terms of
physical/digital mix and content preferences
Data from various music industry associations; G2Mi Analysis
6
UK France
SpainItaly
The UK has the largest music streaming
markets, but the German market grew strongly
in H1 2015 (with streaming sales now
accounting for 12.8% of total music revenues.
Preferences for local language content in
continental European markets is likely to
provide some protection to local digital
streaming players.
EUROPE
Germany
89.0
118.3
0
100
200
300
400
500
600
2012 2013 2014 7M 14 7M 15
EURmillions
Digital Physical
220.2
465.8
0
500
1,000
1,500
2,000
2012 2013 2014 H1 14 H1 15
EURmillions
Digital Physical
47.4
50.7
0
20
40
60
80
100
120
140
2013 2014 9M 14 9M 15
EURmillions
Digital Physical
+3.5%
-6.2%
+25.8%
+4.4%
38.1
32.5
0
50
100
150
200
2012 2013 2014 H1 14 H1 15
EURmillions
Digital Physical
+10.9%

7. Notes
Market is led by Spotify, Deezer and Apple Music
Company data; G2Mi Analysis; *Active subscribers
7
Company Ownership No of subscribers LFY Revenues % Revenue growth Description
Access Industries (36.7%);
Orange (14.56%); Idinvest;
DC Music
2.99 million (H1
2015)*
£9.99 / month
EUR 141.9 mn
(+4%)
+41% (H1 2015) Founded in 2007 as Blogmusik. Catalogue of over 35
million tracks and 40,000 shows and podcasts. Available
in 32 languages though France accounts 47% of
revenues.
VC investors, Daniel Ek,
Martin Lorentzon
20 million (Jun-15)
75 million users
EUR 1,081 bn
(-7.1%)
+44% (2014) Founded in 2008 in Sweden and launched in US in 2011.
Has free and paid subscription models.
Apple 10 million (Jan 2016) N.A. N.A. Launched in June 2015 in 100 countries. Integrates
Beats music and Apple’s Connect platform.
Google N.A. N.A. N.A. Launched in May 2011 and now available in 63
countries. Free and subscription models.
Amazon N.A. N.A. N.A. Launched in June 2014 as part of the Amazon Prime
subscription.
VC investors,
RealNetworks (43%)
3.5 million (Dec 2015) USD 173.4 mn
(+23%)
+16% (9M 2015) Launched in 2001 and acquired Napster in 2011. Active
in 32 countries. Also offers a radio service called
UnRadio.
Project Panther (Jay Z) 1 million (late 2015) N.A. N.A. Launched in 2014 and acquired by Jay Z in 2015; 16
additional artists became shareholders. Aims to pay
higher royalties to artists. Only offers a paid subscription
model
Listed 3.9 million (Sept
2015)
74.7 million users
USD 920.8 mn
(+115%)
+26% (9M 2015) Internet radio service with both an ad-funded and
premium subscription model. Acquired assets of Rdio – a
music streaming service – in September 2015
Naver Corp N.A. N.A. N.A. Launched in June 2015 by Line Corp. Integrates with
Line messenging app to allow music streaming and
sharing. Market leader in Japan
COMPETITIVE ENVIRONMENT

8. Notes
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8
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9. Notes
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10. Notes
10
ABOUT THE AUTHOR
This report is published by Heernet Ventures Limited. The company provides research, analysis and advisory services to the global media industry and operates the media
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