Siemer & Associates LLC, a leading merchant bank serving the Digital Media, Software and Technology industries, has published its Summer 2013 Digital Music Industry Report providing an overview of trends taking place in the digital music segment of the music industry. S&A expects the utility of vertical integration to drive music M&A activity going forward. Investors will increasingly put money into rights holder verification services, which help publishers track their music usage so they can collect fees, as well as online advertising vehicles that allow increased monetization of digital music.
The pace of global music revenue declines has continued to slow, a trend that is expected to continue. Global digital revenue has grown at a 28% CAGR, with cloud music services being the fastest growing sub-vertical with 40% growth in 2012. Despite streaming music’s strong growth, margins are continuing to contract due to increased competition, a trend that should continue with Apple’s entry into the sector. The wealth of legal and affordable options for consumers has made a significant dent in music piracy, down 26% year-over-year.
The past year saw four major acquisitions in the cloud music services sector, all by very different acquirers, which shows the high interest in music services from what traditionally have been non-content companies. The leading cloud storage platform, Dropbox, bought audiogalaxy; a leading device manufacturer, Beats Electronics, bought MOG; a leading retail distribution company, TESCO, bought we7; and the leading mobile device manufacturer, Samsung, bought mspot. All these acquirers, presumably, are looking to leverage the consumer demand for music services to sell related products. We expect the number of acquisitions to accelerate in the coming years, both horizontally and vertically.