Fig 1 Global Music landscape – Content owners and major digital retailers/distributors (2018)*NTES Cloud music revenue, pay streaming subs are on our estimates. TME revenue is our 2018 forecast, free users and streaming subs are based on company released data for Sep 2018.Source: Macquarie Research, Factset, Company data, February 2019Universal Music (Vivendi)Sony MusicWarner Music Music revenues:$6,873m$5,150m (including ~US$1.4bn at Sony Music Entertainment Japan)$3,576m % of group revenues44%9%100% Music EBIT margin:14.1%16.0%6.2% Rec/pub revs split:85%/ 15%Recorded Music: 69%, Music Publishing: 12%, Visual Media & Platform: 19%84%/ 16% Global share of Recorded:29.7%21.9%16.2% Global share of Publishing:19.5%27.3%12.0% Ownership:Vivendi (VIV FP) owns 100% (plan to sell up to 50% by Dec 2019)Sony (6758 JP) owns 100% of SME and SMEJ, ~90% of EMIPrivate (Len Blavatnik's Access Ind. owns 100%) Macquarie rating: Underperform (VIV FP)Outperform (6758 JP)n/a Macquarie analyst:Giasone SalatiDamian Thongn/a SpotifyApple Music/ iTunesAmazon Prime Music/ FireYouTube Music (Alphabet) Music revenues:$4,669m$4,618m$1,132m$2,687m % of group revenues100%2%0.5%2% Geography:GlobalGlobalGlobalGlobal Free streaming users:116mnonenone1,300m Pay streaming subs:96m40m40m users out of 100m+ Prime subsn/a Premium tier price:$9.99 ($14.99 Family pack)$9.99 ($14.99 Family pack)$99/ year (Amazon Prime)$9.99 ($11.99 for premium access) Other products:Podcasts, TV programme clipsDownloads, Online radio, Music videosFree delivery, Prime Video, etc.User generated content, Music videos Ownership:Spotify (SPOT) owns 100%Apple (AAPL US) owns 100%Amazon (AMZN US) owns 100%Alphabet (GOOGL US) owns 100% Macquarie rating: Outperform (SPOT US)Outperform (AAPL US)Outperform (AMZN US)Outperform (GOOGL US) Macquarie analyst:Giasone Salati, Amy YongBen SchachterBen SchachterBen Schachter Sirius XMTencent Music EntertainmentNetease Cloud MusicKaKao Music revenues:$5,425m$2,751m~$180m$400m % of group revenues47%100%~1.8%30.0% Geography:US, CanadaAsiaMainland ChinaSouth Korea Free streaming usersnone800m+~120m(20m+ IDs only 1min free sample songs) Pay streaming subs33m (satellite radio)35m (music streaming and social combined)~4m4m Premium tier price:$15.9/m streaming 0R$10.9-20.9/m sat radio$2.2/ month for music streaming; $5-75/month for social entertainment$1.7/ month$10.99/ month Other products:News, Sports channelsDownloads, online karaoke, livestreaming, copyright sublicensingDownloads, adsPaid downloads Ownership:Public (J. Malone's Liberty Media ~70%)Tencent (700 HK) owns 58%Netease (NTES) owns majority KaKao Corp owns 100% Macquarie rating: Outperform (SIRI US)Outperform (TME US)Outperform (NTES US)n.a. Macquarie analyst:Amy YongWendy HuangWendy Huangn.a.Macquarie Research Global Audio Revolution15 February 2019 3Table of contentsExec summary ........ 5Redefining the audio entertainment market51) Audio entertainment by distribution technology .. 62) Audio entertainment by content .. 73) Audio entertainment by business model: freemium convergence ........... 8The vertical integration dilemma ..... 9Terms of trade ....... 10China the new focus.......... 10Smart speakers and voice platforms ......... 12Top picks from audio disruption .... 12Apple ......... 13Amazon ..... 14Sirius XM-Pandora14Sony .......... 14Spotify ....... 14Tencent Music Entertainment ....... 15Vivendi ...... 15Redefining audio entertainment .... 16Technology convergence .. 16Audio like video content: music is only the tip of the iceberg ........ 17Freemium convergence .... 20Where is the growth and who benefits from it ....... 20Audiobooks ........... 20Streamcasts, the new podcasts people actually want ....... 23Recorded music .... 26Commercial radio .. 27Concerts and festivals ....... 27Streaming revolution ......... 29Streaming/podcasting as a replacement to radio/physical29Higher streaming ARPU means greater customer satisfaction ..... 30Free users also growing, as a result of audio entertainment convergence ........... 33Free-to-pay conversion keeps increasing . 33Younger demographics equally likely to pay ......... 34Content-distribution equilibrium disrupted . 36Record labels concentration has been an advantage until recently .......... 36Music distribution still relatively fragmented .......... 37Homogeneous pricing suggests labels control music distribution . 38Spotify’s pricing strategy different from Netflix’s .... 38Vertical integration appeal/necessity ......... 40Spotify direct distribution and licencing deals ........ 40Tencent Musicians Plan .... 41Korea case study .. 41The buoyant Chinese market ........ 42Major consolidation in China’s music distribution .. 43East to west disruption ...... 43The booming audio streaming market ....... 44Distribution: upstream expansion is the norm in China ..... 45Western labels collaboration ......... 45Smart speakers and voice platforms ......... 46Sizing the smart home market ...... 46Smart speakers ..... 46Apple an expensive and closed system compared to Google/ Amazon .... 47Music important in smart homes, nice to have in connected cars . 48Our new global audio entertainment model ........... 50Accelerating audio growth, but not because of music ....... 50Macquarie Research Global Audio Revolution15 February 2019 4Audiobooks and podcasts growth contribution underestimated .... 51Slowdown in recorded music growth well documented ..... 51Regulation . 53Online platforms likely to face tighter scrutiny from safe-harbour reviews . 53European Commission and US Copyright Office aims to foster a “fairer and more balanced”framework for content owners ....... 53Global Audio – review of main listed companies ... 54Amazon Music ...... 55Strategy ..... 55Latest trends ......... 57Catalysts ... 57Apple Music/ iTunes (Apple) ......... 58Strategy ..... 58Latest trends ......... 59AAPL and GOOGL mobile OS growing their regulatory risk ......... 60Catalysts ... 60Sirius XM ... 61Strategy ..... 61Latest trends ......... 61Catalysts ... 62Sony Music ........... 63Strategy ..... 63Spotify ....... 64Strategy ..... 64Latest trends ......... 64Catalysts ... 65Universal Music Group (Vivendi) ... 66Strategy ..... 66Latest trends ......... 66Catalysts ... 67Warner Music Group ......... 68Strategy ..... 68Latest trends ......... 68Catalysts ... 69YouTube Music (Alphabet)70Strategy ..... 70Latest trends ......... 71Catalysts ... 71HIM International Music .... 72Financial and valuations .... 72Latest news and development ...... 72。。。。。。