before itunes, pandora, et al...transitioning to digital: emi, 2002
TRANSCRIPT
Transitioning to DigitalProblems and OpportunitiesEMI Group plcMarch 3, 2002
Topics
• Market environment• Fighting piracy • Enabling legitimate services
34.431.3
33.733.7
15
20
25
30
35
40
Retail recorded music market
35.833.6
35.035.2
15
20
25
30
35
40
19991998 2000 2001
Source: IFPI
Value (US$ bn) Units (bn)
19991998 2000 2001
Commercial CD Piracy
Source: IFPI
% of Global Sales (units)
14 1417
20
28
0
5
10
15
20
25
30
1997 1998 1999 2000 2001
30
50 50 55 60 65
85 90
0102030405060708090
100
SpainGree
ceTaiw
anBraz
ilMex
icoRuss
iaIndo
nesia
China
2001 Piracy as % of Sales (units)
510
815
991
2000 2001 2002
9
64
KazaA
10
89
Morpheus
14%
60%
1999 2002
CD-Rs used for home recording in US (m)
P2P users (m) 2001 v. 2002 CD burner ownership among music consumers
Online digital piracy
Source: RIAA, IFPI, Understanding and Solutions
Consumer demand
0.4
3.3
4.2
5.3
10.3
10.5
10.7
33.6
0 5 10 15 20 25 30 35 40
Paid to stream / download
Went to live concert
Streamed music
Downloaded music clip
Downloaded whole track
Purchased music in store
Burned music CD
Played music on computer
Source: NPD, Nov 2002 fieldwork
Music consumption increasing
2.7 3.7
1.2
4.5
2.8
1.6
0.4
02468
1012
1996 2002
CD tracks sold Commercial CD piracy Downloads Other
Monthly acquisition of music tracks (bn)
5.9
11.0
Source: Jupiter; IFPI; EMI research
Topics
• Market environment• Fighting piracy• Enabling legitimate services
Piracy
• Commercial physical piracy– organized crime– virtually identical to legitimate product– returning to high levels last seen in 1980s
• Online digital piracy– file sharing and CD burning– perception that “not really” stealing– yet supports commercial enterprise
Anti-piracy strategy
• Commercial physical piracy– better laws– improved enforcement
• Online digital piracy– copy control– tighter pre-release management– technical counter measures– consumer awareness– legal / regulatory initiatives
Philosophy of copy control
• Make it more difficult to rip and burn CDs
• Make decision to rip and burn a conscious violation of copyright laws
• Deploy copy control technologies that are consumer friendly
Copy control – percentage of total EMI sales
05
1015202530354045
July 2002 Dec 2002
%
Europe
Japan
LatinAmericaSEA
Pre-release management
• One leak can provide digital source for international piracy
• Forensic watermarking • Process redesign at four different levels:
– studio– initial advance copies– press and promotional copies– radio play
Technical counter-measures
• Experimenting with alternative approaches
• Impact greatest before street date, but value in longer campaign
• Expectation: 50+% of download attempts ineffective
Artist support in consumer education• India.Arie• Mary J. Blige• Sarah Brightman• Steven Curtis Chapman• Sheryl Crow• The Dandy Warhols• Dirty Vegas• Eminem• Enrique Iglesias• Janet Jackson• Mick Jagger• Elton John• Lenny Kravitz• matchbox twenty• Kylie Minogue
• Nelly• N*E*R*D• ‘NSYNC• OK Go• Keith Richards• Rolling Stones• Diana Ross• Shaggy• Britney Spears• Sting• Thalia• Keith Urban• The Vines• Brian Wilson
Legal / regulatory progress
Legislative / legal:• EU proposes harmonised sanctions against piracy• Italian government passes key anti-piracy law• Victory in first online piracy legal case in Japan• Preliminary ruling against Verizon
Enforcement:• Spanish police arrest 40 in one of largest ever anti-piracy
operations• Major CD-piracy ring smashed in Manila• Stolen Beatles tapes recovered in joint UK / Dutch operation
Topics
• Market environment• Fighting piracy • Enabling legitimate services
Enabling legitimate services
• Understanding the consumer: preliminary results
• EMI’s digital download strategy• Additional sources of revenue growth
Downloads by age group
16%
11%
10%
24%
35%
4%
13-15 16-17 18-21 22-29 30-49 50+
Five segments of downloaders
Already own15%Might
buy47%
Will buy13%
Won't buy12%
Non-category buyers
13%
Source: NPD, Nov 2002 fieldwork
15% download when already own CD
14.4
15.1
21.4
23.3
36.7
44.0
53.8
0 10 20 30 40 50 60
Wanted it for MP3
Wanted to hear song
It was easy
I was curious
Wanted to burn CD
Wanted specific song
Wanted it oncomputer
Source: NPD, Nov 2002 fieldwork
%
25% will not buy the CD
9.4
13.8
20.5
30.5
31.7
33.5
38.4
0 5 10 15 20 25 30 35 40 45
Don't like
Already own
Value perception
Can burn later
Don't want whole CD
Have only track I want
Download goodenough
%
Source: NPD, Nov 2002 fieldwork
60% will or might buy the CD
4.1
6.4
18.2
18.9
30.9
33.8
59.2
69.2
0 10 20 30 40 50 60 70 80
Need another copy
Saw promotion / sale
Easier
Enhanced features
Booklet, insert, artwork
Quality of recording
Want more music by artist
Want entire CD
Source: NPD, Nov 2002 fieldwork
%
Behavioural drivers
• Age / demographics• Intensity of downloading behaviour• Physical music purchase behaviour• Music consumption patterns
Enabling legitimate services
• Understanding the consumer: preliminary results
• EMI’s digital download strategy• Additional sources of revenue growth
EMI’ s strategy
• Make available 100% of our repertoire• Allow portability and burning• Make our music available through every
legitimate retailer• Enable retailers to use own preferred
business model• Ensure fair return for EMI and artists by
setting wholesale price• Integrate digital distribution fully into EMI
Status
• US launched November 2002• European launch coming soon• Global roll out over the year
Growing digital download business
Source: EMI research
0100002000030000400005000060000
1-De
c-02
15-D
ec-0
2
29-D
ec-0
2
12-J
an-0
3
26-J
an-0
3
9-Fe
b-03
23-F
eb-0
3
1 Dec 02 = 100
Growth in legitimate services
0
10000
20000
30000
40000
50000
60000
02-Nov-02
09-Nov-02
16-Nov-02
23-Nov-02
30-Nov-02
07-Dec-02
14-Dec-02
21-Dec-02
28-Dec-02
04-Jan-03
11-Jan-03
18-Jan-03
25-Jan-03
01-Feb-03
08-Feb-03
15-Feb-03
22-Feb-03
Source: EMI research
Enabling legitimate services
• Understanding the consumer: preliminary results
• EMI’s digital download strategy• Additional sources of revenue growth
New revenue sources
• Internet physical sales• DVD music video• Internet radio• Ring tones, improving to ring tunes• Digital downloads
Further revenue sources identified
• DVD audio• Pre-loaded content• Additional wireless services
– IVR dedications– SMS– multi-media message services
• B2B services– music clip art– corporate communication– placed base services
• Other non-recording income
New business models
• Consumer subscription• “Traditional retail”• Advertising supported• Blended / hybrid
– bundled– marketing supported– revenue share– combinations with retail
Summary
• Traditional retail market under pressure• Wide range of attractive alternative services• We need to bridge the gap:
– making progress on piracy– understand consumer behaviour – aggressively moving forward to enable legitimate online
models – pursuing other revenue streams
• Challenges significant, but opportunity enormous