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Summary

On-demand audio subscriber numbers in France broke the 2 million mark in 2014 and are continuing to rise. Deezer and its bundle deal with the telco Orange is thought to be behind the charge. However, record company trade earnings from the likes of Deezer and Spotify in the country seem surprisingly low when compared with the total subscribers. A common feature of subscription service rollout is a link with a telecoms company. But, given the disparity between subscriber numbers in France and record company earnings from on-demand audio services, are bundle deals really as good as we all think?

Balancing subscribers with earnings

Earlier this month, the French music trade body SNEP published revenue figures for its label members from recorded music sales in 2014. SNEP is traditionally the first music body among the leading markets to detail music company revenue and this year was no exception. As well as the usual facts and figures about the French music market, the trade body also included details of a study put together with professional services company EY that shed some light on revenue splits from a monthly subscription.

According to the study, of the €9.99 ($11.40) paid each month by subscribers, record companies receive €4.56, equivalent to a 45.6% share. The subscription service receives just over 20% of the monthly fee, followed by the state through sales tax, and then the authors/publishers. The artist receives the smallest share.

Significant media interest

The figures generated significant media coverage and added useful metrics to the ongoing debate surrounding the benefits of streaming to the music industry. But what everyone seemed to miss was the low level of earnings from audio on-demand subscription services compared with the number of users. SNEP said paying subscribers exceeded 2 million at year end, up from 1.44 million at end-2013.

Based on SNEP’s details, the average number of subscribers to on-demand audio services in 2014 stood at just over 1.7 million ((1.44 + 2.0)/2 = 1.72). If each of these subscribers paid €9.99 per month then total on-demand audio spending would have been around €206m (1.72m x (€9.99 x 12 months)). Digging a bit deeper, if record labels receive 45.6% of the subscription fee, as SNEP/EY say, trade income on €206m would be a shade over €94m. But here’s the thing, it wasn’t. The actual figure was almost half that total, €48m.

Why the difference?

The payment process and the time taken for subscription fees to reach rights holders will account for a chunk of the missing label revenue. The chances are record companies and other rights holders will not receive their share of subscription fees to the likes of Deezer and Spotify in the last couple of months or so of 2014 until 2015. But the probable cause of the lower than expected trade figure is the use of service bundling.

Deezer partnered with the Orange France in the summer of 2010 and user numbers subsequently shot up. Subscribers to Deezer went from a few thousand before the deal with Orange, to 1.5 million within two years. The current Deezer/Orange bundle offer gives new subscribers ad-free access for two months for €4.99, then €9.99 thereafter. What is unknown, however, is what share of the subscription fee is paid to Orange, or who takes the biggest hit.

Orange is providing valuable marketing for Deezer and judging by the rise in subscriber numbers, the partnership has worked well. But who has benefitted most? The current price paid by subscribers as part the bundle deal is only discounted for two months so where does the unaccounted-for revenue go? The SNEP figures certainly suggest it isn’t the record companies.

Is the bundle bad for business?

Bundling deals can be quite complex with some deals based on revenue shares and others incorporating minimum guarantees. Precisely who gets what from the Deezer/Orange bundle is an unknown. But the SNEP figures do appear to indicate that this particular bundle deal is not quite as good for French record companies as we are led to believe. Worryingly, the assumption is that, if record companies are taking a hit as part of a process of driving up subscriber numbers, then everyone else associated with the labels is paying the price as well.

There may, of course, be a straightforward explanation as to why the numbers do not add up. But such is the granularity of SNEP’s figures, explaining why on-demand trade earnings were so low in 2014 compared with the number of subscribers just might take some doing.

Appendix

Author

Simon Dyson, Head of Music Practice

simon.dyson@ovum.com

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