December 24, 2012

Overview of the Digital and Physical music market

Digital music revenue grew 8% globally in 2011 compared to 5% in 2010. Which is also the first time the year on
year growth rate has increased since 2004. The US market alone saw 52% of all music sales come from the digital
market.
On the other hand looking at the physical music market which is dominated by CD sales, has been steadily shrinking
since a number of years, in fact its the digital and concert market have been driving the growth of the overall music
industry.
CD sales have no doubt declined in growth, but they are
still the highest contributor to the Music industry revenue
model. In 2011 CD market alone accounted for 32% of
the global music market, but is on a steady decline.
Year on year growth rate of CD sales Globally
2008 2009 2010 2011 2012
-15.5% -13% -14% -7% -8.5% (E)
E-Estimated


CD sales globally are expected to contract by 6.7% CAGR from 2012 to 2016, where digital sales will surpass CD
by 2015 globally.
Looking at Flipkarts entry into the digital music space with the launch of Flyte at the start of the year shows the
correct direction when compared to its peer companies, as its the only store among the Indian online retailers to
enter this space. Plus the exceptional pricing model of Rs 9 per song fits the Indian market perfectly.
But when looking at Flipkarts physical music category, there is a different story. I base my conclusions by only
observing Flipkarts catalogue as I do not have any official numbers. Flipkart seems to have made extremely good
sales with Hindi music CDs predominately to two factors.
1. Producers are willing to offer very attractive prices as it helps to promote the movie sales. (As always been
the case or Indian movie music)
2. There has been a shift in the quality of Hindi film music during the last 5 years, which has started to show
in CD sales.
But as we see this shift could be short lived due to the digital sales overtaking a large share of the market. CD sales
will give way to digital downloads in the coming years.





Ever sense the decline in physical music sales, there has been one category that has seen a resurrection. Whereas CD
sales have plummeted (and future sales dont seem to shift), the Vinyl industry has increased its growth rate faster
than any other industry. Some statistics below.
LP sales in millions for the US
2008 2009 2010 2011 2012 (6m)
US$ 1.9m US$ 2.5m US$ 2.8m US$ 3.9m US$ 2.2m
2012 is half year sales
The story is similar in UK as well where 337,000 Vinyl LPs were sold in 2011, the highest since 2005. And in 2012
half year sales have touched 240,000 units in the UK.
LP sales in units for the UK
2008 2009 2010 2011
208,526 219,449 234,000 337,000

Its also worth noting, sales of vinyl albums grew 14.2%, just as fast as digital sales 13.2% over the first six months
of 2012.
Getting detailed reports of global vinyl numbers is always difficult, but basing my study on the larger markets shows
the trend of the market and future predictions.
A chart from IFPI shows the dramatic increase in sales for Vinyl globally during the recent years.

Now within Flipkart in the English vinyl section 584 titles are listed but only 199 are available. The figures are
similar within the Hindi section as well where 60 titles are listed and only 30 available.
Looking at the trends described above and Flipkarts successful entry into the digital industry, it seems Vinyl is
being ignored as a novelty and not a serious category in Flipkarts music business model.
I do not want to get into details about why a person would like to purchase/listen vinyls, or also converting existing
CD users to Vinyls as I do not think that there will be enough conversions to effect sales.
But if efforts are concentrated on the existing vinyl buying market in India, there is a strong potential of seeing this
category double its figures and growth rate.
Also Vinyls have a very unique place in the music industry in the present day. Vinyls are not affected by piracy;
Vinyl buyers will not download the music (Legally or illegally), they also do not stop collecting and are dedicated to
quality.
Flipkarts entry into Vinyl industry in India got many things right.
1. One stop place to order Vinyls.
2. A very good collection of catalogue (but many of which are unavailable )
3. Added record players to the their catalogue
4. Mix of Genres
But the above points do not seem to have evolved since they were added. The global vinyl industry is moving ahead
along with Digital music (which is ironic) but Flipkart is missing on addressing all the aspects of the physical
category.
Wanted to take the opportunity to recommend some suggestions
Complementary products:-
Adding record players to the catalogue is a perfect move, but there a number of complementary products for Vinyl
purchasers.
Cartridges
Vinyl cleaners
Stylus brushes
Vinyl sleeves
Adding these helps to keep customers coming back to maintain sales
Campaign & publicity:-
A number of promotion for Flipkarts catalogues are shown both via web advertising as well as TV adverts, but
none of them mentions the availability of Vinyls. A simple mention at correct spots can make wonders to the
number of visits to the vinyl section.

Price Factor :-
Price is a very sensitive topic for any retailer, put being away from playing price wars, which is not at all right for
any market, I do find Flipkarts price for majority of the Vinyls to be very high.
The average Vinyl price overseas is 15$, with premium artist charging upto 20$ for a single gate album. Looking at
Flipkarts category, vinyls price average to 25$-28$ for most artist.
Its difficult to change pricing models but I wanted to add this point since it does impact the sales volumes, but it
does not change the audience.

Excepting my personal biasness towards this format, but I would like to reiterate that the current global trend and
analysis does reflect a similar picture towards Vinyl.



Other avenues of Digital Sales
I would also like to dwell upon the other avenues
of Digital sales as well. Broadly digital sales can
be classified into the following


1. Music
2. Books
3. Games
4. Newspaper
5. Films


Wanted to talk about Flipkarts entering the e-books market, but during preparing this research report Flipkart
released their E-book store to a pleasant surprise I must say. So I will not include that into this report.
As per the graph above we can easily see that the Gaming industry is the largest stakeholder when it comes to digital
products. So wanted to talk very briefly about the Gaming industry which is one the fastest growing industries
currently. As you will notice that Gaming constitutes 42% of the entire digital sales revenue, this is largely being
generated by the giant online game retailers, namely Valves Steam portal and EAs Origin store who specialize in
selling downloadable content and not physical discs. For Flipkart to generate faster revenues and market share for
Indian clients now should be the time to look deeper into this market.
I will definitely cover the gaming and e-book industry in detail which boost exceptional growth for the future, where
the markets are wide and retailers are few in my next report given the chance.
Before I conclude I wanted to add the above points and figures are estimates from various sources (listed below) and
the market overview is very accurate, but mainly wanted to point out there are various assumptions taking Flipkarts
marketing matrix as well as catalogue strategy as the numbers are not available publicly. I do not want to malign any
of Flipkarts strategy, but purely base my research on market observations and trends.
Sources
Digital Music Report 2012 IFPI
PWC research reports
BBC.Com
Digital music news
Its always a pleasure to follow ones passion. I hope the report has been helpful and I do consider myself adapt eager
and passionate to understand these markets when given the opportunity.
Thank you,
Rushad Patel