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1、Macquarie ResearchMACQUARIE15 February 2019GlobalDisruptiveEdgeEQUITIES40,00030,00020.000 -10,000IlHiiH而 ii0 I.2222222222222QQQQOOooooooo。1111111110.0%5.0%0.0%-5.0%-10.0%-15.0%Recorded musicRadioAudiobookStreamcastsAudio yoy (RHS)Source: IFPI, Magna, APA, IAB, MacquarieInsideTable of contents3Exec s
2、ummary5Redefining audio entertainment16Freemium convergence20Streaming revolution29Content-distribution equilibrium disrupted 36Vertical integration appeal/necessity40The buoyant Chinese market42Smart speakers and voice platforms46Global Audio RevolutionThe music has changedKey pointsThe convergence
3、 of advertising and consumer direct spend on audio entertainment disrupts broadcast radio in favour of streaming platforms. But the golden age of recorded music is behind us. Audiobooks and podcasts are gaining share, undermining labels5 competitive position. Our top picks are companies building a c
4、ompetitive advantage in the wider audio entertainment space: TME, SPOT and SIRI. Underperform on VIV.New models in audio entertainmentRecorded music is to audio what films are to video entertainment. Its premium content, but it only represents 36% of the total 2018E audio revenues in the US. OTT is
5、the first technology that brings together all audio content (music, audiobooks and radio/podcasts) on a single distribution platform. And it reunites advertising revenues with consumers5 direct spend (downloads/ subscriptions). Further disruption comes from a new type of integration achieved by TME
6、(social/ entertainment ecosystem) and by Amazon (e-commerce/entertainment plus voice platform).Our new global audio entertainment model 50Regulation53Streamcasts and audiobooks rise, music slowsWe argue our holistic approach allows new investment opportunities:AnalystsMacquarie Capital (Europe) Limi
7、tedGiasone Salati +44 20 3037 2670 Jenny Chen +44 20 3037 5242 Macquarie Capital LimitedWendy Huang, CFA +852 3922 3378Macquarie Capital (USA) Inc.Amy Yong +1 212 231 2624 Benjamin Schachter +1 212 231 0644 Tim Nollen +1 212 231 0635Macquarie Capital Securities (Japan) LimitedDamian Thong, CFA +81 3
8、 3512 7877Macquarie Securities Korea LimitedKwang Cho +82 2 3705 4953Macquarie Capital Limited, Taiwan Securities Branch,1、Steven Yang +886 2 2734 7528用-* 1) Ad revenues shift from broadcast radio to orndemand streaming - We expect commercial radio advertising to decline as streaming platforms grow
9、into podcasts, the equivalent of unscripted TV shows in parallel with video content. Spotify recently announced a $400-500m investment envelope for podcasting content, including the acquisition of Gimlet/Anchor.2) Audiobooks the most interesting growth opportunity - Audiobooks are the equivalent of
10、premium scripted TV shows that have been so successful on Netflix, but are mostly overlooked by consensus. Amazon is a leader with its Audible platform.3) Music slowing, labels dominance challenged - We recently lowered our revenue growth forecasts for Vivendis UMG to 8%, capping EBITA margin improv
11、ement to 15%. Global music majors seem to have missed the chance to grow into the wider audio space and are losing their bargaining power with distributors, in our view.Winners and losersStreaming is not just another music technology cycle like CD or iTunes downloads. We expect OTT distribution will
12、 completely disrupt the current equilibrium and result into a winner-take-all scenario. The business model innovation we describe is the greatest disruption in the last 100 years of audio entertainment and Asian markets are leading with a new diagonal integration model which is little understood by
13、most of the incumbents.Our top picks are companies that are consolidating a dominant position across the entire audio entertainment spectrum, either globally or at the local level. We have high conviction Outperform ratings on TME, SPOT and SIRI; we have an underperform rating on VIV (see page 4 and
14、 12-15 for details).Please refer to page 74 for important disclosures and analyst certification, or on our website .Terms of tradeA change in business model (the combination of ad-supported and subscription payment on the same platform), the reunification of audio content (premium music, audiobooks
15、and radio-like streamcasts) and a general trend towards increased vertical integration, all together challenge the status quo for audio incumbents and force new entrants to adopt a fluid strategy.Streaming revolutionise distribution, which is where most of the disruption has already been observed. H
16、igh street distribution (e.g. CDs) has already been decimated by the shift to digital and by competition from online platforms. Radio advertising revenues are already under pressure and risk seeing talent cost inflation alongside to accelerated audience losses.Music majors re-gained control of retai
17、l pricing: from Spotify to Apple, to Amazon Music Unlimited, all platforms are quite comparable in terms of content on offer and price ($9.99/m before promotions). But this market structure reminds us of the antitrust case brought against book publishers in 2013 (ebook price fixing). In any case, we
18、 argue negotiations with distributors are getting tougher. Indeed an investiqation into music streaming price-fixing was launched in both the US and Europe in 2015.Music majors, radio broadcasting producers, and books publishers were also used to operate in relatively well-defined and highly concent
19、rated (read not competitive) segment. Now they all need to adopt a more holistic content strategy, if they want to defend their competitive advantage.We argue demand for a wider variety of content will allow dominant distribution platforms to play content providers against each other and squeeze bet
20、ter terms over time. One clear example is Spotify where we expect the next round of negotiations with the majors to allow for margin improvement. It has already been the case with the last agreement which lead to a decline in the minimum guaranteed payment set for free users.OTT distributors, global
21、 or local, are the only clear winners. Spotify and Amazon have already proven to be the most innovative, embracing a holistic audio content strategy (e.g. podcasts and audiobooks, respectively). The combination of Sirius XM-Pandora has great potential and TME already achieved 20%+ operating margins,
22、 while still growing top line nearly 40% (CAGR 2018- 22E).In spite of their significant size in audio entertainment, we consider Apple and Google marginal players in audio entertainment in the sense that both companies seem to treat audio as a loss leader to improve their ecosystem. For example, App
23、le was first-mover in podcasting, but never set up a system to monetise them directly.China the new focusMuch of this report focuses on US data because is generally available and because it offers valuable insight in the global market. China is however way more important in terms of growth potential
24、 and it is also the region where business models appear to evolve more rapidly. In this report we lean heavily on the expertise of Wendy Huang, Macquarie media analyst based in Hong Kong.China has historically been afflicted by a very high level of piracy, but things changed in 2001 with a historica
25、l licencing deal between the global majors (via One-Stop-China subsidiary) and Baidu, the largest search engine that until then had made free music available in a very convenient way. Piracy though still remains an issue accounting for 16% of total music listening time, over twice the global average
26、 of 7% (Fig 8-9).Fig 8 China breakdown of music listening time still shows 16% from piracy (2018)Fig 9 Global breakdown of music listening time shows “only 7% from piracy, but interactive not significant (2018)Other14%.radio5%Interactive11%Pirated16%Purchase16%Free audiostreaming16%Youku9%Otherstrea
27、ming 17%Paid audiostreaming7%Other video6%Source: IFPI, Macquarie Research, February 2019Source: IFPI, Macquarie Research, February 2019BroadcastFig 10 China ranked among top 10 music markets by revenue ($bn, 2017)Fig 11 TME controls 70%+ of the streaming distribution market, following four big acqu
28、isitionsSource: IFPI, Macquarie Research, February 2019XiamiMIUI Music(Alibaba)(Xiaomi), 2.3%弋1%Changba,2.5%Ximalaya,J6.2%NetEaseCloud Music,10.3%Migu Music, Qingting FM, Lizhi, 1.3%1.0%1.5% iMusic,0.6%Baidu Music(Baidu), 0.4%Kugou(Tencent)32.4%KuwoTencent Radio(Tencent),(Tencent), 0.8%11.8%QQ Music
29、WeSing (Tencent), (Tencent), 25.6% 14.0%Source: Questmobile, Macquarie Research, February 2019The comparison of music listening time breakdown in China with the global average also highlights another interesting factor: the importance of interactive listening in China. That comes in the form of kara
30、oke, sharing, etc. and contributes to much stronger user engagement with the platform, which bodes well for future migration of free users to pay subscriptions (TME currently has paying ratio of 4% vs Spotifys 45%)China currently represents only 2% of the global recorded music market (Fig 10), but w
31、e expect it will more than double in size over the next few years, moving from #10 to the top-five in global rankings. Beyond recorded music, China is as vibrant a market as the US when it comes to streamcasts and audiobooks.The Chinese music market has different competitive dynamics compared to Wes
32、tern countries. Streaming distribution is more highly concentrated: Tencent Music Entertainment (TME) controls 70%+ of the market (Fig 11), following a number of recent acquisitions in the wider music space, including karaoke platform WeSing, #3 by MAUs.Over the past few years, the three global majo
33、rs all signed exclusive deals with TME, which effectively controls sub-licencing to other player in China. The government intervened to assure that Tencent “exclusive” content deals are made available to rival distributors (e.g. NetEase), but the devil is in the details.The IPO of TME in the US prov
34、ided greater disclosure and attracted more interest to this very interesting market. The Chinese market has only recently started the conversion of free users to pay subscribers, but it already has a more sophisticated pricing structure (e.g. charges for downloads) than elsewhere.Smart speakers and
35、voice platformsAlongside with convergence of audio entertainment on mobile devices, we cant underestimate the role of smart speakers in conjunction with voice platform. At home, like on the road, consumers dont necessarily need to proactively plan for audio entertainment. They can just shout, litera
36、lly, “Alexa play read me a book，or “Hey Google, play some music from Spotify”.Amazon was first in this segment and it currently has the largest share in the global market (32%), but Google is catching up relatively quickly, having already achieved a 23% share. Three local Chinese players occupy the
37、next three spots reminding us of the importance of the Chinese market. Apple is only #6 globally (Fig 12), having pursued a more closed and premium strategy.Source: S&P Market Intelligence, Macquarie Research, February 2019Fig 12 Global smart speaker shipment market share in 3Q18 Fig 13 US smart hom
38、es as a percent of total UShouseholdsSource: Strategy Analytics, Macquarie Research, February 2019Again, using the US as a reference point, smart home penetration reached 20% in 2018 and is expected to increase to nearly 30% by 2021. Smart speakers dominate the market for connected homes: in the UK
39、almost 40% of homes first get connected via a smart entertainment device.Top picks from audio disruptionOTT distribution has had a deep impact on video entertainment, and we argue it w川 be even more disruptive in the audio entertainment industry. Bringing together different forms of audio content -
40、from “premium music to audiobooks, to “basic“ podcasts - on the same platform and merging different business models - subscriptions and advertising revenues - is a much deeper structural change.The audio industry is disrupted by new entrants and threatened by technology companies that want to use au
41、dio entertainment as a loss-leader to sell more hardware (Apple offers all podcasts for free) or to generate more traffic (e.g. Googles YouTube). To be successful, it is paramount to reach scale, either in content or in distribution.For content owners it should be relatively easy to complete their o
42、ffer acquiring and developing new exclusive copyright. Music majors for example should be proactively acquiring and creating audio IP like audiobooks (online literature is booming in China) and other forms of premium content. We are concerned though that this might happen only at a later stage via e
43、xpensive acquisitions as labels appear focused primarily on growing recorded music revenues.For existing distributors, the challenge is much greater as witnessed by the bankruptcy of a number of high street music retailers (e.g. HMV bankruptcy in 2013 and 2018). Some of the new entrants appear corne
44、red into just one of the revenue model, like Apple (premium subscription) or Google (chiefly ad-supported). But audio entertainment is not the main source of profit forthem.The best place to benefit from audio disruption is in the middle. Spotify rightly embraced both free and pay and expect its sha
45、re of revenue coming from advertising to double over the next few years to 20% of total. Sirius XM recently completed the acquisition of Pandora, bringing together different technologies and revenue models.We also like Amazon and Tencent for their more holistic business models. Amazons leadership in
46、 voice platforms and in audiobooks means its role in audio entertainment can only grow. After a number of important acquisitions, TME boasts strong growth and high margins, testimony of its strong competitive position in China.Fig 14 Global music players valuation metricsNotes: A Deezer EURIbn valua
47、tion is based on latest news in 2018 (Link) -Warner $3.3bn valuation is based on Access Industries acquisition in 2011 *Himalaya $3bn valuation is based on latest news on fund raising (Link) Source: Company Data, Macquarie Research, February 2019CurrentTargetUpside/% of musicMusic Market CapEV/ EBIT
48、DACompanyAnalystTickerRatingCurrencypricePricedownsiderevenuesTop Pick($m)18E P/E18EAlphabetBenjamin SchachterGOOGLUSOutperformUSD1,1291,1501.9%2%781,76314.1x24.4xAmazon Benjamin SchachterAMZN USOutperformUSD1,6401,85012.8%1%805,57318.7x63.OxAppleBenjamin SchachterAAPL USNeutralUSD170149-12.4%1%802,4469.8x13.9xDeezern.a.n.a.n.a.n.a.n.a.n.a.n.a.100%1,160An.a.n.a.KaKao Corpn