Tuesday, February 18, 2014

French music market bounces back

(This story was originally published in the Feb. 4 issue of German trade magazine MusikMarkt)

By Emmanuel Legrand

For the French music industry, 2014 started with something unusual: Revenues from the sales of recorded music posted for the first time in years a slight increase. After a decade of decline, music industry executives had the feeling that a regain in CD sales and the strength of the digital market had finally helped the industry turn a corner.

At €603.2 million, sales of recorded music went up 2.3% in 2013 compared to the previous year, according to figures presented at the Midem show in Cannes on Feb. 2 by French trade body SNEP.

Digital sales posted a limited growth at €125.8m (+0.6%) and now represent 26% of total revenues with streaming accounting for about 43% of this amount. Sales of physical products went up for the first time since 2002 (+1% at €367.4m).

SNEP's figures incorporate the proceeds of neighboring rights on sound recordings as well as revenues from physical and digital sales, representing respectively 18%, 61% and 21% of total revenues.

This rebound owes a lot to one artist, Stromae, whose second album “Racine carrée” sold over one million units in France in 2013 (1,159,320 to be specific, according to monitoring company Gfk), a feat that had not been achieved since 2004, when the soundtrack to the movie “Les Choristes” passed the million mark.

The score achieved by the Belgian artist is even more remarkable when considered that the second best-selling album of 2013 is Daft Punk's “Random Access Memories” sold half his amount. Overall, 17 of the 20 best selling albums were by French-speaking artists. Bruno Mars was one of the few international acts on the list.

Return to growth
French music industry executives welcomed the return to growth, but warn that the current market situation is far from being ideal, with consumers switching their digital consumption from downloads to streaming, which impacts revenues, and the state of France's music retail remains preoccupying.

SNEP's Leblanc
The digital market is growing – not as much as we'd like, but it does grow,” says Guillaume Leblanc, Director General of French record labels' body SNEP, which regroups the majors and indie labels. However, the slight rebound of the French market was taken with caution by Jerome Roger, Director General of indie labels' association UPFI, which regroups over 400 labels. “There might have been growth, but it does not paint the whole picture,” says Roger. “Physical and streaming are growing and downloads are slowing down, but behind the success of Stromae and Daft Punk, for a lot of so-called 'middle class' artists – either new talent or in development – the volume of sales has gone down significantly and digital does not compensate.”

For Roger, indies are caught in what he calls a “scissors' effect”, with revenues down when, at the same time, marketing costs have not dropped. “The capacity [of indie labels] to break even on artist – even established artists – is harder to reach than ever,” he says, warning that the next two years will be the most challenging for indies.

In the the mid-term I am quite optimistic that streaming will be the dominant model, says Roger. “The challenge will be to resist during the next two years. While we hope that the market and generate revenues that will be significant to rebuild growth, we are forced to turn to the government and ask that they put systems in place to support indies. Maybe it's time to rethink about the CNM?”

UPFI's Roger
CNM – this acronym stands for Centre National de la Musique. It was the previous government, under the impetus of President Nicolas Sarkozy, that had set up a wide ranging industry consultation which led to the proposal of creating of what would have been a National Centre for Music (CNM), similar in its scope and function as the CNC for the film industry.

The CNM would have combined various existing structures operating in the music field (FCM, Fonds de Soutien, Bureau Export, Francophonie Diffusion, Irma), and provided significant financial support to labels, publishers, concert promoters and also coordinate France's international export efforts. The annual budget of the CNM was expected to be in the region of €130m, mostly financed through various mechanisms and from a transfer of budget from the CNC.

But the election of President Francois Hollande, and the appointment of Aurélie Filippetti as Minister of Culture, overseeing the music sector, had some serious impact on the industry and projects like the CNM. A few weeks after her appointment, Filippetti announced that she was dropping the project, creating havoc among the industry.

The CNM would have been a tool to help structure the music sector and help the mutation to digital,” explains Gilles Castagnac, Managing Director of IRMA, a music information and resources centre. “What was proposed remain valid and many are still calling for such a project to exist. In France, the other two major creative sectors – books and cinema – benefit from such a tool which combines competences and financing.”

Castagnac adds that because is was a project conceived in a period of crisis, the CNM was especially customised to focus on innovation. “What we are missing are tools to do prospective and prepare the future,” he says, taking the example of metadata related to music, a key to the digital economy, which could have been given a major boost through the CNM.

Public policies
The CNM case exemplifies France's long tradition of having its government involved in all things related to culture and arts. The general philosophy, which has been prevalent regardless of the political leaning of governments over the past 30 years was that there a “cultural exception” with creative works – such as films, books, music – and they cannot be treated like any other goods. In the music field, the sector has been looking less for subsidies than regulation and copyright protection.

Meanwhile, Filippetti appointed TV personality Pierre Lescure (tipped to become the next president of the Cannes Film Festival) to conduct a mission – yet another – with a vast consultation of stakeholders, and draft a report on cultural policy in the digital era that would offer solutions, especially with regards to digital challenges. The Lescure report, presented mid-2013, made a series of 80 proposals for the industry, even though few of them have so far been implemented.

The findings of the 711-page report were in general well received by the industry, although Lescure did not advocate the pursuit of the CNM. However, most players in the industry welcomed the fact that Lescure agreed that there was a need to continue with a “graduated response” system, albeit slightly loosened. SACEM said it was “pleased that the report demonstrates an underlying concern for the protection of artists’ remuneration. It also applauds the report’s positive attitude towards the cultural industry and its acknowledgment of the close affinity between music and digital sectors.”

Some of the key proposals from Lescure include: Introducing a tax on internet-connected devices such as smartphones and tablet computers that would be used to help finance the creative sector; Promoting up-to-date regulation on digital culture and fighting piracy especially through the transfer of competences of Hadopi to media regulator CSA; Broadening fans’ legal access to cultural works. “We had some reservations on the conclusions of the report,” says SNEP's Leblanc, “but now we need to turn it into operational terms.”

The report also addressed the issue of combatting piracy in the digital age. Many in the industry lamented that French public had been a very early adopter of broadband and also of file-sharing, leading to the passing of a legislation meant to limit the scope of file exchanges. The legislation introduced a “graduated response” regulation, known as Hadopi. “Piracy acts as unfair competition to legal offers,” claims SNEP's Leblanc, himself a former aide to member of Parliament Frank Riester, who was instrumental in getting the Hadopi bill passed by Parliament.

This controversial bill was proposed and adopted by the then Sarkozy administration, and many in the business credit Hadopi as a turning point by focusing on the consequences of file-sharing through educational campaigns. Lescure himself said in his report that Hadopi had a significant and positive educational role. In 2012, after the election of President Francois Hollande, the fate of Hadopi seemed in doubt, but as of early 2014, Hadopi is still operating and there are hints that the government would like its functions – albeit toned down – taken over by broadcasting authority the CSA.

Our main priority is to ensure that regulation on digital stays pertinent and improves,” says Leblanc. “We are not in the 'for or against Hadopi' – incidentally, Lescure said that graduated response works, and the system has been introduced in several other countries. This validates the need to fight against illegal peer to peer file sharing. But we need to make sure that there is a graduated response system and that copyright can continue to be protected and unfair competition limited.”

Digital champions
Transparency's Bert
Another interesting proposal from the Lescure report was the suggestions that improvement needs to be done in the field of digital rights management, and the development of trusted third parties to do the job. One such company is Transparency, a company based in Paris and founded in 2010 by Jean-Francois Bert who has been building a digital infrastructure and a team whose purpose is to monitor the use of content online and provide data to rights owners. Transparency's service is now used by authors' society SACEM to certify the reporting logs from video platform Dailymotion.

We provide a back-office B2B service,” explains Bert. “Our job is to connect the users of repertoire and rights holders. We work with collective rights management organisations but not exclusively. We do not collect rights, we manage data linked to rights. All this is meant to help rights management and provide a more accurate picture. The data we provide is used by SACEM to distribute rights from the use of videos on DailyMotion.”

Bert is a good example of the entrepreneurial spirit in the music and digital field in France. Having worked on the side of rights owners, he felt there was a gap in the market when it came to managing the huge amount of data generated by the digital use of content. “I did not know much about data but when I saw what data was collected from DM and YouTube, I realised there was a huge gap and I thought that rights management had to adapt to the digital world,” says Bert. “I developed the concept, looked for techs, and invested my own money.”

Transparency, which is currently monitoring YouTube usages in five countries and is hoping to convince other rights societies of the value of his service, is not the only French company active in the digital field. Others include streaming service Deezer, now present in over 180 countries, Believe Digital, now Europe's leading digital distribution company and France's largest independent company, Idol-Independent Distribution On Line, another digital distributor set up in 2006, Daily Motion, a video streaming site, My Major Company, a record label using crowd-sourcing to finance projects, or Qobuz, a downloading and streaming platform which specialises in high quality music files offering music consumers sound similar to that of the CDs.

The music market is by definition an international market, and some of the players need to have an international strategy,” says SNEP's Leblanc. “France has international champions like Deezer, Believe, or Daily Motion.”

Axel Dauchez, CEO of Deezer since 2010, has applied a full-speed strategy to the company, in order to compete on equal footing with the likes of Spotify. The company benefited from a partnership with phone operator Orange, which boosted it reach among consumers. In 2012, London-based company Access Industries, owned by Len Blavatnik, took a substantial share in Deezer, investing $130m in the process.

SNEP's Leblanc acknowledges that Deezer, with 80% of streaming market in France, is a key player, but he regrets that it relies too much on bundles with mobile phone operators. “What matters is the conversion rate [of users of the free service into paid subscribers],” he says, adding that streaming services should make more efforts to provide simple offers and develop schemes that would increase the conversion rate.

Adds Leblanc, “While we witness the growth of streaming – both through subscription and free models – downloading is slowing down in France, like in the US. At the moment, 50% of digital revenues come from downloading but streaming has potential to grow. Streaming is a mass market proposition, so there is a need for scale, like in Sweden, and if we had one French consumer out of ten subscribing [to s streaming service], we'd be in a different space. But we definitely see streaming as part of the future.”

Sound machine
One who is convinced of the digital future of music is Yves Riesel, whose company The Quobuz Music Group regroups indie label Abeille, active mainly in classical and jazz, and Quobuz, a streaming and download digital platform focusing on high-end top quality music files. Launched in 2008, it is currently available in nine European countries, Qobuz offers a catalogue of 15 millions tracks, including from such seminal labels as Germany's ECM, and has captured about 50% on the online classical market in France.

Qobuz's Riesel
[ECM founder] Manfred Eicher is obsessive about the quality of the sound and we provide an answer,” enthuses Riesel. “From the outset, we were focusing on the quality of the sound. I think that in the future, we will see general services that will be like commodities, and an upmarket and segmented market, with the likes of Qobuz. Alongside the Spotifys and the Deezers, who are going to be like the hyper markets of music, there will be room for specialised platforms like Qobuz.”

Riesel says the service is reaching profitability in France and in heavy investment mode for its international development. He eyes the German market through the audiophile angle. “The German market is very attentive to the quality of sound,” says Riesel. “There are some fantastic retailers selling amazing sound systems. Qobuz really fits in this environment.”

Through his label Abeille, Riesel is also exposed to the changes in the French market. He confirms that 2013 saw a renewed growth through physical sales. “We seem to be coming out of the tunnel as a market, but revenues are under pressure,” says Riesel, who laments the poor state of France's retail network that has been badly hit by the decline in physical music sales leading to the demise of key players such as Virgin Megastore, the problems faced by Harmonia Mundi (a network of independent stores operated by the eponymous record label) which had to scale down its operations, and the takeover of Saturn, a hardware retailer who also had a small record/DVD section in its stores.

Meanwhile, luxury goods and retail group PPR was considering selling FNAC, which operates the largest network stores selling “cultural” goods (music, books, DVDs, video games and hi-fi) in France, leading to a period of uncertainty for the retailer. “Sales picked up at FNAC by the end of the year,” says Riesel.

France's music retail sector was never as strong as Germany's or the UK's,” explains Olivier Montfort, former CEO of Sony Music France and EMI France, who was also one of the founders of the Virgin Megastore in France, alongside Patrick Zelnik. “But the past few years have been very tough.”

For Montfort, there are different reasons explaining the demise of the various retail chains. Some have been mismanaged for a some time, others did not invest enough in creating a good experience for consumers, others had grown too fast, or did not have the right locations. Virgin's flagship store on the Champs-Elysées in Paris close down in June 2013, alongside other stores across France, leaving some 950 employees without a job, and many distributors with unpaid bills.

Virgin was a story of a death foretold. There were signs that things were wrong,” says Montfort. “It is never a good thing for the business when stores close but stores that are not working properly and do not pay their suppliers also create problems.”

As opposed to Germany where the various players are scattered throughout the country, one of the characteristics of the French market is that everything is taking place in Paris. “France is a hyper-centralised country compared to Germany, which is closer to the US market with regions and their local media and distribution channels,” explains Montfort. “In France, all the main media are in Paris, and even the purchasing policy of retailers is centralised in Paris. There is very little action outside Paris.”

Overall, the French market can be tough but can also deliver the goods for local and international projects. As music publisher Petra Gehrmann from Métisse Music puts it, “The French market is in crisis like all music markets, but on the positive side, I love working with artists here, who have a great spirit, who are open minded. France is a real international music platform, with musicians from all around the world. The business is a bit more difficult, but it is still a good place for business.”

[This piece was part of a series on the French Music Market. Other stories include:

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