Music Segment

Corporate Control Department

Sony Music business Overview

Ownership

100%

Sony Music
Entertainment

Sony Music
Entertainment Japan

29.8%
(equity method)

50%

100%

EMI
Music Publishing

Sony/ATV
Music Publishing
(JV with estate of Michael Jackson)

Visual Media & Platform

770 Oku-yen (16% of Total)

Outside Sales : 4,900 Oku-yen

SME

SMEJ:

SME:

Music Publishing
660 Oku-yen (13% of Total)

(JV with Mubadala group)

SME
J

SME
J (14%)
SAT
(12%)
V
SME
J(15%)

Recorded Music
3,470 Oku-yen (71% of Total)
SME:

SME
(56%)

SMEJ:

(FYE14 Actual figure)

Corporate Control Department

Competitor Comparison Worldwide Music Market Share

No.2 in Recorded Music and No.1 in Music Publishing
Recorded Music

Music Publishing

(US$ Mil.)

* Excludes Japan

Revenues & EBITDA Amounts Shown for Comparative Purposes; Adjusted for One-Time and Other Items
UNI, SME & WMG 12 Months Ended June 30, 2014
Market Share - Worldwide share in CY2013 (Source: IFPI)

Corporate Control Department

Worldwide Recorded Music Market Projections

Recorded music market expected to return to growth through
growth of digital access models which will more than offset
declines in Physical and downloads
14-17

2.5%
$ 13.3B

7.0

6.3

FYE15

Source: Internal Estimates.

$ 13.0B

-11.9%

+8.0%

(US$ Billion)

6.2

6.8

FYE16

1.6%

+3.9%
$ 12.8B

-15.5%

+11.0%

5.2

7.6

FYE17

-12.6%

+15.2%

CAGR
Flat

Total

4.5

CAGR
13.4%

Physical

8.7

CAGR
+11.4
%

$ 13.3B

Digital

FYE18
Corporate Control Department

MRP Key Strategy

Sony Music Entertainment
Grow market share, expand digital revenue models and enhance international operations
Sony Music Entertainment Japan
Expand recorded music and ancillary business as a total entertainment company
Sony Music Publishing (Sony/ATV + EMI)
Maintain worlds leading market share position of 30%+ and achieve fair market value for digital
rights in the United States

Revenue
CAGR
+1.4%

2,780

Operating Profit

2,896
240

1,598

+2.2%

SM
E
SMEJ

544

SM
E

(SME & SMP : $ Million)

(SMEJ
: Okuyen)

1,706
+5.6%

140

SMEJ

617

+4.3%

100

SM
E

FYE18

SM
E

165
123

+7.0%
SMEJ

SMEJ

SM
P

SM
P

SM
P

SM
P
FYE15

275

CAGR
+4.6%

FYE15

FYE18
Corporate Control Department

Sony Music Entertainment Key Strategy

Grow Market Share
25.85%
25.60%
25.35%
25.10%

+0.25%
pts

+0.25%
pts

+0.25%
pts

Flat Growth

FYE15

Forecast

FYE16

FYE17

FYE18

Mid-Range Planning Period

Maximize New Talent Development Success Across All Our Creative Repertoire Sources
Aggressively Invest In New Talent

Expand Our Relationships With Independent Label Sector

Look For Opportunities to Sign Established Talent and Acquire Catalog

Corporate Control Department

Sony Music Entertainment Key Strategy

Expand and Grow Digital Revenue Models
SME Digital Revenues

Total
CAGR

$1.9 B

+13%
Considers Market &
Market Share Growth

Estimated $0.6B Growth

In Digital Revenues Over
the MRP Period Driven
by Significant Growth In
Paid Streaming

$1.6 B
$1.3 B

$1.3 B

$1.4 B
$1,060

$868
$577

$636

Downloads
Streaming (Paid & Ad-Supported)
Video
Digital Radio
Other
Total

$701

FYE14A
$817
250
85
69
42
$1,263

FYE15FC
$704
375
120
90
26
$1,315

+19%

$728

An Overall 44% Growth

From FYE15
$686

Intl
CAGR

$706

$752

$830

FYE16MRP FYE17MRP FYE18MRP

$600
$496
$401
558
812
1,148
158
194
217
104
116
123
13
3
1
$1,433
$1,621
$1,890

U.S.
CAGR

+7%

CAGR
-17%
45%
22%
11%
-68%
13%

(US$ Mil.)

Corporate Control Department

Japan Recorded Music Market

Physical market are continuously reducing,
digital market are rapidly decreasing at a peak 2009

Physical

Digital
Japan original feature
phone market

Source: RIAJ, ACPCSMEJ Analysis

Other than Japan, digital market are

expanding, however digital market are
decreasing in Japan
Japan had been formed a feature
phone digital market
After that digital market is reducing
during transfer to smart phone
from feature phone

Corporate Control Department

Sony Music Entertainment Japan Segment Summary

SMEJ has been implemented diversified business as a total entertainment company. Focusing
artist management, live and animation business beyond recorded music business.

Revenue
Net & Media / Live
6%

Operating Profit
Artist Management
& Music Publishing
8%

Artist Management
& Music Publishing
9%

Visual
13%

(Animation)

Label
Marketing &
Distribution
45%

Solution &
Rights
26%

Net & Media / Live

2%

Visual
32%

(Animation)

Label
Marketing &
Distribution
35%

Solution &
Rights
23%
Sony Music
Communications

Total 1,600 Oku-yen

Total 140 Oku-yen

(FYE15 Forecast)

Corporate Control Department

Sony Music Entertainment Japan Key Strategy

Recorded music companies struggle with shrinking record music market and
difficult situation of producing hit products. Although live market is
expanding .

Recorded Music
Grow market share and expand digital streaming business

Create an environment to produce hit products

- Begin to exert effect of label reorganization in this April
Diversity in ways of developing new artists
- Partnership planning
- Develop talent and creators not only artist
- Diverse audition process
Maintain physical market
- Focus on idols, anime songs and 3rd party acquisitions
Create digital market by SMEJ and regenerate music market
- Enter into platform business like LINE Music

Artist Management & Music Publishing

Acquire rights other than recorded music
Enhance talent, actor/actress and voice actor business
Live Entertainment
Enhance live hall business and participate entertainment area

Corporate Control Department

10

Sony Music Entertainment Japan Key Strategy

Important to make profit in non-recorded music business,
during contraction of recorded music market
One-Stop Solution

Solution & Rights

Decrease disk distribution business due to
contraction of physical market
Enhance merchandise business and digital area
Steady performance in rights business
Acquire new property and rights
Visual (Animation)
Success production business target to core user
Aim to grow further
Focus to produce titles which target a broader user
Expand business other than production such as merchandise,
international and game

Corporate Control Department

11

Sony Music Publishing Key Strategy

Maintain position as the worlds leading music publishing company
30%+ market share
Continue to make accretive acquisitions of new and controlled copyrights
Pursue attractive investment opportunities
Achieve fair market value for digital rights in the United States
Music Publisher Revenue & Profits
Music Publishers are subject to below
for every $1,000 at Retail in the United States
market rates for digital performance rights in
the United States (Showing the chart as an
example).
Negotiate direct deals with satellite radio
(SiriusXM), interactive (Spotify, Deezer), noninteractive (Pandora) and video (YouTube)
streaming services at fair market rates

Corporate Control Department

12

Digital Performance Rights Royalty Flow U.S. Repertoire

(Future )

(Current
Music
Publisher

Digital Performance
Rights entrusted
management

Performance
Rights Org.
(PRO)

Music
Publisher

Sony/ATV
Net Royalty

Net Royalty

PRO/Administrator

Less 17% Fee

ASCAP

Sony/ATV

Use of Digital
Performance
Rights subject to
agreement

BMI

Less 10% Fee

ASCAP

Use of Digital
Performance
Rights subject to
agreement

or

Higher than
current
Royalty rate

Digital Streaming Service Platform

Subscription/
Streaming

BMI

Higher than
current
Royalty rate

Digital Streaming Service Platform

Internet Radio

Subscription/
Streaming

Internet Radio

Corporate Control Department

13

MRP Financial Summary (Music Segment Total)

FYE18 KPI:
OP%
OIBDA%
Revenue (Oku-yen)
5,033

Revenue $4,8005,200 mil

10.511.5 %
13.514.5 %
OP (Oku-yen)

5,139

5,212

5,332

5,571

10.4%

10.6%

10.9%

10.0%
9.8%

4,417
609

8.4%
502

506

543

568

372

Act

M13 Act

M13 Bud M14

M13 M14

M13 M14

M14

Act

M13 Act

M13 Bud M14

M13 M14

M13 M14

M14

FYE13

FYE14

FYE15

FYE16

FYE17

FYE18

FYE13

FYE14

FYE15

FYE16

FYE17

FYE18

Corporate Control Department

14

Appendix

Corporate Control Department

15

Sony Music Entertainment Key Strategy

Subscription Will Be Leading Revenue Channel by 2016
Strategies to support growth and healthy transition from ownership to access are critical
PAID STREAMING
26M Paid Monthly Subscribers
520M music hours / month

AD-SUPPORTED

AVERAGE REVENUE PER USER

$70

PAID SUBSCRIPTION

WITHIN SUBSCRIBTION SERVICES

45M monthly listeners
450M music hours / month

DIGITAL VIDEO
1BN monthly users
2.4BN music hours / month

$48

DOWNLOADS

DIGITAL RADIO
76M monthly listeners
1.6BN music hours / month

$19

PHYSICAL

OTHER CONSUMPTION
26M monthly listeners
1.6BN music hours / month

$4

AD-SUPPORTED

400M monthly listeners

Corporate Control Department

16

New Business in SME -Maximize Opportunities With Broader Rights

Maximize opportunities with broader rights and new business

Capture and exploit broader rights from new artist signings

Continue to maximize exploitation of audition program and develop new formats and visual content
SME Global FYE15Fct New Business Revenues

($ in Millions)

Total Op. EBIT

$ 70M
Passive Artist Rights
Participation, $23
Main TV format :Audition program

Other, $26

Artist T shirt

Artist Management ,
$11
Merchandising, $6

TV (Audition
program etc), $84

Total
$ 261
Program image

Brand/Sponsorship,
$37

Live, $74

Corporate Control Department

17

Recorded Music Royalty Flow U.S.

Recorded
Music
Company

Sony
Music

Universal

Warner
Royalty

SoundExchange
Royalty
Agreed rate with service
provider and recorded
company

CD
Sales

NPO for collection of Digital

Performing Rights

Royalty
(Rate is decided
by Copyright
Royalty Board)

Physical
CD

Digital
Downloads

Subscription/
Streaming

Digital Radio

Corporate Control Department

18

Sony Music Entertainment Japan Financial Summary

OP/oku yen
/

200

150

140

10
10

165
15
14

4
13

6
9

37

35

53

54

61

66

57

64

65

66

-24

-27

-28

-36

FY2014

FY2015

FY2016

FY2017

100

50

141

155

37

40

Net&Media / Live Business

Artist Management & Music
Publishing Business
Solution & Rights
Business

Visual Business

1
Label, Marketing &
Distribution Business

HQ/Elimi.

-50

Corporate Control Department

19

Visual
Big Hits from Linkage with Successful Animation Series
Theme song hits lead to further promotion of the animation series and expand fan base

Corporate Control Department

20

Recorded Music vs. Music Publishing

Recorded Music

Owns and monetizes an artists master

recordings
Plays pivotal role in discovering new artists
and helping hone their craft
Ancillary income continues to grow in
importance (e.g. merchandising, TV fees, 360
deals)

Music Publishing

vs

Owns and monetizes an artists copyrights

(lyrics and melodies)
Predominantly business-to-business with no
marketing spend
Minimal overhead and low-cost A&R function
Diverse income streams from a variety of
licensing businesses

Corporate Control Department

21

EMI Music Publishing Overview

SCA
74.87%

Nile
(Acquisition Company)

MJ Estate
25.13%

39.8%

Mubadala and other

financial investors
60.2%

Administration
Services

15% of NPS

(DH Publishing)

In June 2012, an investor group led by Sony Corporation of America and Mubadala Development Company, a
sovereign wealth fund from Abu Dhabi, acquired the music publishing business of EMI
EMI entered into an administration deal with Sony/ATV to administer EMIs copyrights in exchange for a fee
equal to 15% of NPS, subject to certain rights afforded to Mubadala and other equity investors

Sony/ATV bears all incremental costs of administering EMI (A&R, Licensing, Royalty Processing, etc.) in return
for 15% of NPS

Corporate Control Department

22

Differences of Streaming on Publishers and Record Labels in the United States

Non-Interactive Streaming

On-Demand Streaming

(Pandora, Sirius, Slacker, etc.)

(Spotify, Deezer, Rhapsody, etc.)

7.5%
15.0%

85.0%

92.5%

Records

Publishing

Records

Publishing

Corporate Control Department

23

Strategic Alternatives for Digital Performance Rights in the United States

Withdrawal of
Performing Rights
from PROs

US Department of
Justice
Consent Decree
Reform

Appeal of ASCAP
and BMI Rate
Decisions

Corporate Control Department

24

Performance Rights Organization in U.S.

A performance rights organization (PRO) provides intermediary functions, particularly collection
of royalties for performance, between copyright holders and parties.

PROs in U.S.
ASCAP: The American Society of Composers, Authors and Publishers
BMI
: Broadcast Music, Inc.
SESAC : Society of European Stage Authors and Composers

Corporate Control Department

25

Technical term
Downloads

: Digital download (e.g. iTunes)

Purchase music, video contents and save to a user's local desktop
computer, phone and smart phone

Streaming

: Streaming Service (e.g. Music Unlimited, Spotify, YouTube, VEVO)

Listen music and watch video contents on server of service provider via
internet
User-selectable
Consist paid and ad-supported (free) service

Digital Radio

: Digital Radio Services (e.g. Pandora, SiriusXM)

Listen music and watch video contents on server of service provider via
internet and satellite
Unable to select music on demand
Consist paid and ad-supported (free) service

Interactive

: User-selectable streaming services (e.g. Spotify, Deezer

Non-Interactive : Radio service, Unable to select music on demand

Corporate Control Department

26