Business Plan of a Multi-sided Platform Focused on Premium Demand in the Music Industry

PROYECTO FINAL DE CARRERA Ingeniería de Telecomunicaciones Business Plan of a Multi-sided Platform Focused on Premium Demand in the Music Industry Autor: José Antonio Torrabadella Ferrer Directora: Carolina Consolación ETSETB - UPC Noviembre 2014 2 3 Contents Acknowledgments .................................................................................................................. 5 Motivación ................................................................................................................................ 7 Motivation ................................................................................................................................. 9 Resumen Ejecutivo .............................................................................................................. 11 1. Executive Summary ........................................................................................................ 14 2. The company .................................................................................................................... 16 2.1. Business description ............................................................................................................16 2.2. Mission and vision .................................................................................................................16 2.3 Entrepreneurial team ...........................................................................................................16 3. Opportunity and Business Model .............................................................................. 17 3.1 Problem definition – Business Idea ....................................................................... 17 3.2 Business Model ........................................................................................................................17 3.3 Analysis of the business opportunity ..............................................................................18 3.3.1 Fans ..................................................................................................................................................... 18 3.3.1.1 Validating the value proposition ...................................................................................................... 18 3.3.1.1.1 Uncovered or not well-covered needs ................................................................................. 18 3.3.1.1.2 Benchmarking analysis of existing solutions .................................................................... 23 3.3.1.1.3 Value proposition to fans ........................................................................................................... 25 3.3.1.2 Customer definition – Customer segments ................................................................................. 27 3.3.1.3 Size of the market .................................................................................................................................... 28 3.3.2 Music Industry ................................................................................................................................ 29 3.3.2.1 Validating the value proposition ...................................................................................................... 29 3.3.2.1.1 Uncovered or not well-covered needs ................................................................................. 29 3.3.2.1.2 Benchmarking analysis of existing solutions .................................................................... 40 3.3.2.1.3 Value proposition to the Music Industry ............................................................................. 45 3.3.1.2 Customer definition – Customer segments ................................................................................. 50 3.3.1.3 Size of the market .................................................................................................................................... 51 3.4 Geographical Market Analysis ...........................................................................................57 4. Marketing Plan................................................................................................................. 62 4.1 The app .......................................................................................................................................63 4.1.1 Product development .................................................................................................................. 63 4.1.2 Channel strategy ............................................................................................................................ 72 4.1.3 Acquisition costs: communication strategy ....................................................................... 73 4.1.4 Pricing Strategy .............................................................................................................................. 77 4.2 The advertising interface ....................................................................................................77 4.2.1 Product development .................................................................................................................. 77 4.2.2 Channel strategy ............................................................................................................................ 81 4.2.3 Communication Strategy ............................................................................................................ 81 4.2.4 Pricing strategy .............................................................................................................................. 83 4.3 Downloads and sales forecast ............................................................................................84 5. Operations Plan ............................................................................................................... 88 5.1 Processes’ identification and classification ..................................................................88 5.2 The infrastructure behind the processes ......................................................................95 5.3 Structural/Permanent Subcontracting ..........................................................................97 5.4 Location .....................................................................................................................................98 5.5 Material utilization: permanent resources ...................................................................98 5.6 Launch Plan-Lean Start-up Plan ........................................................................................99 4 6. Organization and Human Resources..................................................................... 100 6.1 Organizational structure .................................................................................................. 100 6.2 Job descriptions ................................................................................................................... 101 6.3 Human Resources policies ............................................................................................... 103 6.4 Governance structure ........................................................................................................ 103 7. Financial Plan ................................................................................................................ 104 7.1 Financial hypotheses / assumptions ............................................................................ 104 7.2 Pro forma income statements ......................................................................................... 105 7.3 Pro forma cash flow ............................................................................................................ 106 7.4 Pro forma balance sheet ................................................................................................... 110 7.5 Projected financing: needs and sources ...................................................................... 111 7.6 Analysis and financial feasibility ................................................................................... 115 8. Legal Aspects ................................................................................................................. 117 9. Critical Risks and contingency plans .................................................................... 117 10. Company growth and business development strategy ................................ 117 11. Conclusions of the Business Plan ......................................................................... 118 12. Conclusions of the Project ...................................................................................... 119 Conclusiones del Plan de Negocio ............................................................................... 120 Conclusiones del Proyecto Final de Carrera ........................................................... 121 13. Annex ............................................................................................................................. 122 Annex 1: Opportunity and Business Model ....................................................................... 122 Annex 1.1: Potential users calculation.......................................................................................... 122 Annex 1.2: Net Revenues and Marketing Expenditure from Record Labels ................. 124 Annex 1.3: Net Revenues and Marketing Expenditure from Promoters ........................ 125 Annex 1.4: Music industry in the countries we are focusing in ......................................... 127 Annex 1.5: Geographical Market Anaylisis ................................................................................. 129 Annex 2: Marketing .................................................................................................................... 131 Annex 2.1: Downloads and sales Forecast .................................................................................. 131 14. References ................................................................................................................... 132 5 Acknowledgments I would like to thank Professor Carolina Consolación for giving me the opportunity to carry out a final thesis that allowed me to gather both my studies and my entrepreneurial spirit and also for her suggestions and comments during the research. I also want to thank all the good friends who have accompanied me during these university years and who I am sure will be by my side for many years to come. And finally I want to say a huge thank you to my family and my girlfriend for always supporting me unconditionally. 6 7 Motivación El Proyecto Final de Carrera contenido en éste documento desarrolla el Plan de Negocio de una start-up tecnológica dentro de la industria de la música. Durante años he sido un ávido consumidor de música en todos sus formatos y he estado a la vez en el otro lado del sector: tocando, produciendo, grabando y distribuyendo mi propia música. Además, he sido actor de doblaje durante más de diez años y hace unos meses creé mi propia Editorial Musical (Ephyrd Sounds). Al ser consumidor y pertenecer a la propia industria estoy acostumbrado a pensar en ideas que puedan, por un lado, mejorar la experiencia del usuario, y por otro, solucionar los problemas a los que se enfrentan las compañías del sector. Siempre he pensado que la industria de la música aún piensa y actúa de manera anticuada y desfasada. Opino que todavía hay mucho margen de mejora, una mejora que debe y será guiada por la innovación y la tecnología. Y aquí es donde entra en juego el espíritu emprendedor. Creo que los verdaderos emprendedores son aquellos que trabajan día a día para que sus ideas y sueños se hagan realidad. Hace unos meses, cuando estaba considerando las posibilidades que tenía para hacer mi Proyecto Final de Carrera sólo tenía una idea en la cabeza: crear una empresa real partiendo de una de mis ideas de negocio. Pensé que, sin duda, éste era el paso que debía tomar. Quería empezar a profesionalizarme y especializarme en un sector en concreto: la industria de la música. Uno de los objetivos de éste proyecto ha sido analizar la situación actual de la industria. Primero, necesitaba saber cuál era su situación y aprender cómo funcionaba para poder ofrecer algo útil y valioso. El siguiente paso consistió en probar y desarrollar mis ideas iniciales. Al principio, nada salió como tenía planeado. Me vi inmerso en un proceso de aprendizaje constante y de cambios de dirección en el modelo de negocio. Después de meses de investigación di con el modelo de negocio definitivo y empecé a escribir el Plan de Negocio. Dicho Plan aporta soluciones a los problemas que tienen las distintas partes de la industria de la música – dada la situación actual del mercado- y que ahora presento en este proyecto. 8 9 Motivation The final thesis that you are about to read is the business plan for a technological start-up company inside the music industry. Ever since I can remember I have been an active music consumer and also have been on the other side of the chain: playing, producing, recording and distributing my own music. In addition to this I have been a dubbing actor for more than ten years and I started my own Music Publisher (Ephyrd Sounds) a few months ago. As a person who is at both sides of the music business, I am used to constantly think about ideas that could both improve the fan experience and solve problems of the companies in the industry. I have always thought that the music industry works in an old-fashioned way. In my opinion there is a huge room for improvement –an improvement I think has to and will be driven by both innovation and technological solutions-. And this is where entrepreneurs come to place. I believe entrepreneurs are born, not made. Anyone can learn to act like an entrepreneur but the true ones are those who work every day to make their dreams and ideas become real no matter what. A few months ago, back when I was thinking about the possibilities for my final thesis I had one clear thing in mind: creating a real company out of one of my business ideas. I thought it was the logical step to take as I wanted to start to professionalize my music industry career. One of the main goals of this thesis is to analyse the current situation of the music industry. I needed to learn how it works in order to offer something that could be useful and valuable to it. The next step consisted of testing and developing ideas. These ended up being nothing like I had initially planned and I got involved into a process of constant learning and changed the direction of the business model. After months of research I came up with the definitive model and started to write this business plan, which brings up a solution for the music industry’s agents given the current market situation and that I now present on this thesis. 16 2. The company 2.1. Business description POB is an app for music fans that want to keep track of their own musical activity such as going to concerts, buying merchandising, listening to an album or meeting to their favourite artists. In other words, their personal fan diary where they can keep all their musical memories. On the other side, they will receive targeted offers filtered on their demands. 2.2. Mission and vision Mission: To reduce the risks and enforce the music industry by improving the music fan experience. Vision: To become the main worldwide complement to the fan experience. Objectives:  To have the app ready to launch at official stores in less than 7 months.  To get all the potential market of users and customers in Europe (both described in the market size sections: 3.3.1.3 and 3.3.2.3) in no more than 4 years using the Geographical Market Analysis that can be found at section 3.4 of this business plan. 2.3 Entrepreneurial team The next two young entrepreneurs conceived this project: Jóse Antonio Torrabadella  Studied Telecommunications Engineering at UPC  Postgraduate in Company Management in the Music Industry at University Pompeu Fabra  Experience in technological infrastructure development at Mobile World Congress  Experience in the music industry: o Record Labels and Publishers: DIY o Congress: Future Music Forum  Manager, musician and producer of different music projects Jaume Colomer  Bachelor in Business at ESADE Business School  Master in Innovation and Entrepreneurship at ESADE Business School  Music Business Lecturer at SAE Institute  Experience in the music industry: o Record Labels and Publishers: DIY o Promoters: Sónar Festival 17 3. Opportunity and Business Model 3.1 Problem definition – Business Idea Real fans have an intrinsically need of keeping “their fan memories” but they do not have an “all in one” tool to save and organize all of them. Nowadays, fans try to keep their memories by acquiring merchandising / gifts at the venues, taking photos and videos, posting on social media or many others. However, once they want to look back at their memories, it becomes hard to find them because they are all spread around. To solve that, we came up with the idea of creating a tool that helps them track all their musical activities. With this tool we want to improve their fan experience by helping them realize all what they have done so they can feel proud of themselves. This will motivate them to become even a better fan. At the same time, we realized that the recorded music industry is having a hard time with physical sales dropping down dramatically and not being recovered by digital sales, which are growing at a lower speed than physical sales drop. On the other side, the live music industry is growing, but slowly. Consequently, we can say that the music industry total turnover is decreasing. Having lower profitability means that there is less space to risk money, so they need to reduce uncertainty on their investments; in other words, they need to have more evidence of its “return on investment”. The two main investments a company normally does are:  Investment on product development  Investment on communication/advertising Both require information, but the second one also requires reaching the potential customers. To realize that, it expanded our previous idea to become also a bridge of communication from the music industry to fans, because with our previous idea we were able to also provide an online marketing tool to the industry. Online marketing is the safest way to invest on communication, because its return is more quantifiable than traditional marketing. To the music industry, we can become not only a simple online marketing tool, but also a tool that helps them target better. 3.2 Business Model We have a multi-sided platform model. Which means that we “bring together two distinct but interdependent groups of customers” 5 . Our value proposition to the music industry will be valuable only if we have fans using the app and our app will grow in value to the extent that it attracts more users, a phenomenon known as the network effect. During the following business opportunity analysis we will cover the value proposition and the customer segments out of the Business Model Canvas. In other words, we will cover and justify the “what” and the “who”. However, all the “how”, which is the rest of blocks from the Canvas theoretic model will be found among the rest of this Business Plan. 5 Page 77, Business Model Generation by Alexander Osterwalder & Yves Pigneur 18 3.3 Analysis of the business opportunity 3.3.1 Fans First of all, we must define what a fan is to us. And based to that do the research: “A music fan is a music lover that likes at least one artist to the extent of going to one of his gigs.” 3.3.1.1 Validating the value proposition 3.3.1.1.1 Uncovered or not well-covered needs Most of the music companies are focused on the direct needs of the fan, which are the ones related to the music experience only. However, most of them they are forgetting all the indirect needs from the music experience. So we decided to focus on this type of needs. Hypotheses about their indirect needs from music After many years of being fans, observing and talking to them, we realized that there where some possible uncovered indirect needs. So we have elaborated some hypothesis that later we will like to validate. Hypothesis 1: Keeping the moment Things are happening so fast due to the evolution of technology, our mind is constantly focusing the attention in so many distractions at a time. Consequently, we could say that it is really hard to remember everything we do and see, because we are not able to process all the information perceived. It is true that we might not want to remember everything, but even if we try to use our brain trying to rescue lovely memories from the past, the image in our heads will be blurred and we could not see everything in detail; moreover, our mind would imagine some parts of the story that might not ever happened back then. Somehow, social media has become a kind of a lifetime album that acts as a space for “memory files”. Social networks place our memories in a timeline but they have two uncovered needs:  We cannot upload “today” photos from the past with a date of upload in the past, so the social media will consider that these photos are from today even if they are not.  Social media is still a mess when reviewing a concrete memory. To find out something the only way is by going back one by one. With “scroll down” the pain has been reduced, but still. Social media like Facebook was thought to share stuff rather than to look back to the stuff. It is hard to tag or classify the memories in a way that later on they could be easily findable. Real fans are passionate people with music and with the people that made that music. They normally like to remember each special moment related to that music they love to. By experience, we would agree that real fans have a stronger need of “keeping the moment” in musical related things than the average social media users with things happening in their life. Fans take images, videos and also audio notes in their smartphones. What is more, most of the fans like to keep the concert ticket or a gift at the merchandising shop at the venue. However, social media is a mix of all kinds of stuff: there are memories translated into images or comments, but also we might want to share viral videos of the moment that have nothing to do with our real lifetime. So, social media such as Facebook is an all in one, this might look good at a start but if we look deeper, we can spend a big amount of time 19 Hypothesis 2: Finding other “music taste compatible” fans Fans like to know other fans that have similar music tastes, because most of the times the music experience increases when it is shared we someone that understands music the same way. Hypothesis 3: Being updated with relevant stuff Fans also like to see the activities of other fans in order to be updated and to find new discoveries. They like to discover new stuff and recommend new artists to each other. A fan prefers being noticed about his favourite artist playing at the city rather than not being noticed. It is normally the fan the one that asks of being noticed about stuff that matters to them. These are:  Special offers or packages related to their favourite artists that might be accessible to them.  Events or activities going on geographically close to them. Hypothesis 4: Recognition It is part of the human nature, wanting to differentiate from the others without being excluded by the others. We like to feel that we are someone in this life, we like to feel noticed; have the respect from others. So it is a differentiation in terms of being admired, feeling in an upper level than the rest. To sum up, it is a matter of recognition. Fans like to be recognized by other fans, and even more by their artists; because only fans can understand the value of the musical activity of another fan. Social media is a great mirrors for human nature. There, it is very well reflected the need of showing what we know, what we have done, and anything that we posses and no other soul does. Their pleasure sometimes is not only about living the moment but also demonstrating to others that you have lived the moment. Hypotheses validation To validate the hypotheses we have interviewed many fans individually as well as we created a survey only for fans. The results have been very positive. The Sample was of 100 filtered fans based on our previous definition, average age 25 years old, 0.65 variance. Hypothesis 1 validation: Keeping the moment Question 1: Would you like to save your musical activities done throughout your life? As we can see, the response was very positive. And the majority responded yes. Although the sample is not consistent enough to use the numbers, it helps us understanding that there is probably an uncovered need out there, and this helps us validating our hypothesis number 1. Yes 84% No 16% 20 Question 2: Which activities would you like to save? With this question we see that fans mostly want to remember the live experience rather than products. What has surprised as is that fans also like to keep some other emotional experiences they had with music non-related to the live music experience. Question 3: How would you like to keep your memories? Video and images are the favourite way to “keep the moment”. However, they want to keep the moment remembering who was with them. Another surprising thing is that people prefers to write a note or a comment about the memory rather than record it. With this it is clear that people is not interesting on keeping on memory how much did they pay. Hypothesis 2 validation: Finding other “music taste compatible” fans Question 4: Would you like to know the “music taste compatibility” with your friends? Most of fans would like to know their musical compatibility with their friends. This is a first sign to validate the 3rd hypothesis, but not strong enough, because friends might want to know everything about their friends, so it might be not just a “fan” thing. That is why we asked the next question. Question 5: Would you like to find other fans near by “music taste compatibles” with you? Surprisingly a 5% of the surveyed fans would prefer to directly meet music taste compatible fans rather than knowing the compatibility with their friends. And as we see, fans do want to meet other fans with same music tastes. So our 3rd hypothesis gets validated with this question. 90% 43% 55% 69% Festivals and Concerts Bought products (mp3, cd's, merch) Experiences with the artists, different from concerts Emotional experiences with music (listening a song or cd for first time) 48% 29% 67% 66% 60% 16% 5% Written Note Audio Note Video Images People with you Price Others Yes 72% No 28% Yes 77% No 23% 21 Hypothesis 3 validation: Being updated with relevant stuff Question 6: Would you like to be updated about your favourite artists? A vast majority of the fans would like to be updated about their favourite artists. With the affirmation we validate our 2nd hypothesis. Question 7: Precisely, what would you like to know? From the people that responded yes to the fourth question, almost everyone said they would like to know every time the artist plays live near by, the second thing that matters the most is knowing in which festival’ line up the artist will play. Surprisingly on a third level would be noticing about its music and secret or special activities he might do. This underlines the importance that live music is what really matters the most. Hypothesis 4 validation: Recognition Now for the validation of the 4th hypothesis we will use two sources of data:  100 fans survey sample  1,000 music lovers (no fan filter) survey we did last year From the 100 Sample Survey: Question 8: Would you like that your favourite artists could offer you personalized products or experiences? Again, a big majority of the surveyed fans would like to receive personalized products or experiences. However, this is not enough to validate the hypothesis because we did not ask this fans if they would like to be rewarded for their loyalty, which would mean that the artist recognizes the fan for its efforts and support. Yes 86% No 14% 97% 66% 58% 49% 58% 20% 3% Playing live near by Festivals line up Recorded Music Last News Secret or Special Activities Products Others Yes 78% No 22% 22 From the 1,000 Music Lovers Survey, with no fan filter based on our previous definition, and an average age of 25 years old but with a higher variance that the other. Question 1: Would you like to have an online platform that gives benefits/rewards in exchange of your loyalty to artists? Most of these music lovers would like to have rewards in exchange of their loyalty. So our 4th hypothesis gets mostly validated with this answer. The other part of the validation would be to understand which type of recognition want their fans and also to know if fans would accept simple recognition from other fans. One of the two questions remaining to be answered can be answered. Question 2: How would you like to be rewarded for your loyalty? Almost 50% of the rewards are related to the live music experience. With 29% of music lovers that would like to get free tickets in exchange of their loyalty, and a 17% that would like to have a backstage experience. The rest of the rewards are more related to having something that has been in touch with the artist or meeting the artists. We can conclude that fans have 4 needs apart from the direct music related ones. These are:  Keeping the moment  Finding other music taste compatible fans  Being updated with relevant stuff  Recognition: Getting rewards to their loyalty Yes 81% No 19% Signed merchandise 8% Artist's clothes 5% Free Tickets 29% Appearing at Music Video 11% Backstage 17% Others 30% 23 3.3.1.1.2 Benchmarking analysis of existing solutions To understand if those needs are already covered, we will do a benchmarking analysis. Need 1. Keeping the moment: Any tool that helps keeping the moment could be a substitutive of the value proposition. Diary/Journal Apps: These are specialized apps on journals/personal diaries. The written content is totally private and it is thought as substitute of the traditional diary/journal, some of them adding some features such as videos, photos and text style. None specialized in music: Social Media: all the following apps, except Path are thought to share what is going on with our lives. Although, people might not be conscious of that, it is a way of keeping memories. Music Social Media: The only platform useful to keep the moment is last.fm Last.fm counts the amount of plays of each song. Being able to classify the information by songs, albums or artists. It is a tracker of all the music listened by anybody. Users create the content. Setlist.fm is a way of keeping track of the concerts that someone has gone and posting the setlist of the show. Positioning Need1 6 All the apps that look like journals do not offer the same thing we do, because they do not allow to tag the memories by artists and musical activities, we do. It happens the same with Facebook and Google +. Twitter, Memoir and Instagram are way out of our market because they are mostly though to share rather than to keep and save memories. Last.fm would perfectly cover keeping track of all what the fans listen to, through an automated system. It just counts for the plays, so it is just a quantitative journal and specialized on recorded music but not qualitative. 6 Source: Compiled by the author 24 Need 2. Finding other fans with similar music taste Tastebuds is an app that shows people nearby with similar music tastes, and lets you start a conversation with them. It is a good idea although it is not in what we would like to specialize. We would show compatibility between fans but we will not show others tastes and we will only allow to talk between them if they are first friends, so the concept is a little bit different and much more protective. Need 3. Being updated with relevant music stuff: only apps related to live music concerts nearby and the official artist’s newsletters do cover the relevant updates, because it is the fan that asks to be updated with that. In the case of Topspin and Merch Direct are a type of services that targets directly the fan (they are one to one platforms), so they usually offer relevant stuff to them. Positioning Need2 7 Using the two variables of demanded update and knowing the fan we would be very similar to bandsintown Normally artists do not know their fans. They have their emails and the request of them to receive newsletters, so they send it all without actually personalizing the content. Specialized companies like Topspin and Merch Direct do use emails data bases, but they know better the fan because they do one to one marketing. Need 4. Recognition Musicness is like a trivial game related to artists. It proves about how much do you know about your favourite artists. Fans are ranked by points and compete between each other. Last.fm can help differentiate the good fans from the bad fans only based on how much they have listened to the songs of that artist through any player with connection to the Internet. The structure to guarantee real rewards to fans is too hard to implement it. We will count points and do rankings for their real activity. But we will not guarantee any reward for that rather than recognition. 7 Source: Compiled by the author 25 3.3.1.1.3 Value proposition to fans Most of the music companies are focused on the direct needs of the fan, which are the ones related to the music experience only. However, most of them they are forgetting all the indirect needs from the music experience. So we decided to focus on this type of needs. We have detected and validated 4 of them, although there might be some more. After detecting them and validating them, we have mentioned all the existing solutions that fans use to cover those needs. Here we are going to analyse those existing solutions for each detected need, proposing value to the uncovered needs detected.  Keep the memories There are many apps that are like personal journals or diaries. However the information is only classified by date. Their interfaces are not thought to classify the information by artists or fan activity. The standard social media, such as Facebook, Google plus and many others also classify information throughout the time only and are mostly thought to share the content. Standard social media are mostly a communication tool. However, fans do not really keep all their memories in this standard social medias, they only keep whatever it has been shared or whatever wants to be shared. People usually do not upload content in this type of social medias if there is no purpose of sharing it. So it is not a realistic mirror of people’s life, only part of it and maybe even disguised. Music specialized platforms such as last.fm or setlist.fm cover some of the fan memories. However, last.fm only quantifies the amount of music that has been listened, but it does not allow to safe qualitative memories (like self-expressed emotions) due to the listening of music. They let you say that you are going to a concert, but not actually keeping memories of the concert. Setlist.fm allows you to tell that you went to a concert and also post the setlist.fm of that concert. Lastly, fans always can try to create an album of their memories by themselves, through technology or physical materials. The fact is that they will spend time creating or adapting that “space” to make it comfortable to save the memories, and if that space is not online, it means that they will have to update the content not at the moment of the experience, which is what makes the process boring. We absolutely see a not well-covered need in here and we believe providing a space that helps organize all the fan activities in an easy way can work. We are considering doing a partnership with last.fm because they have already developed a software that quantifies all the music listened from any possible platform.  Finding other fans with similar music taste The music that we like, might define part of our personality. Meeting other people by music taste matching might be a good idea. Tastebuds, the app, does exactly this. We believe that letting unknown people enter in the “friendzone” just because of being musically compatible, breaks the privacy we are looking in the first need described. However, we see interesting the feature of telling the compatibility of your already friends and the surveys said that almost 70% of the fans would be interested on that. 32 after 2008 most of the companies reduced their budgets on advertising because of the economical crisis. Instead of taking the expensive song, they where taking the cheap songs. As we have seen the publishing industry does not cover the decrease of value of the recorded industry, it has been also falling since 2008 but now it remains stable. The Music publishing industry is also an oligopoly by the publishing section of the BIG 3 Record labels, which their publishing sections are called Sony ATV, Universal Music Publishing Group and Warner Chappell. The 3 of them represented a total market share of 69% in 2010 15 . The last revenue that we are missing is the live music industry. The live music industry accounts for all the business made from live music. However, PwC has only considered two stream revenues, ticket sales and sponsorship. Both together, they represent 20.21 Bn € 16 , and growing at a 3%56. Live music industry is what it looks like one of the saviours of the music industry. Live music industry still does not cover with its 3% growth the fall of the rest of the industry, but there is hope in there. Probably because of the rise of festivals also helped by the interest of brands investing money on them, due to the huge amount of mass they are capable to move. So, at an overall we see an industry that it is changing and is moving from the traditional model of recorded music to the live experience of music. We must note that are some revenues that have not been considered in this analysis because there is no data available out there. All the money made from the image and brand exploitation of artists, from advertising to merchandising. All the ancillary business around live music events is not considered here too due to a lack of data. But we have some articles that might help us to have an idea about them. The first one, image exploitation of artists from record labels. Record labels they put these revenues under the accounting name of “artist services and expanded rights”. To have an idea, it represented 9% of the total record label Warner Music Group revenue 17 (4th quarter of 2012). 15 Universals Music Group Investors’ Presentation (nov 2011), http://www.vivendi.com/wp-content/uploads/2011/11/umg-investor- presentation-november-2011-final.pdf 16 Global Entertainment and Media Outlook: 2013 – 2017 by Price Waterhouse Coopers 17 Warner Music Group Q4 2012 P&L by Billboard, http://www.billboard.com/biz/articles/news/legal-and-management/1561432/updatedwarner-music-group-quarterly-revenue-profit Live Music Ticket Sales 15.75 Bn € 78% Live Music Sponsorship 4.5 Bn € 22% 33 The second one, the ancillary business around live music events is all the money that the promoter makes during the event from the attendants. This is, beverages, food, merchandising and sometimes parking fees. Live Nation CEO stated in a 2009 article 18 on Billboard that “every time a consumer walks in the door I make about $12-$14 on the ancillary business”. There is no reliable data to determine the total amount of ancillary business in the live music industry. However, Ramboll Management Consulting on a 2012 study 19 of the live music market in Denmark, determined the amount of ancillary business to 265 million €, which compared to the revenues from ticket sales (163 million €) it represents 62,5% more than the amount made from tickets. Sponsorship is not represented in the graph, so we believe that must be subtracted from this amount. We must say that not all the ancillary business goes to the promoter, most of it goes to the venues. Livenation is the leader of the live music market and owns a lot of venues that is why they make that big amount of money on ancillary business. But that is also why we cannot consider that the whole amount or estimation of ancillary business goes to promoters, because it wont be entirely true. Why have the music industry suffered this overall change? Here some facts to review: 1. Boost of the musical offer available:  Globalization and the evolution of technology have lowered down the costs of instruments, recording software and recording hardware. Consequently, all these goods are today affordable for the majority of people from developed countries.  The impact of the internet: o Online education. Anyone can become a composer, artist or sound engineer because now it is possible to learn through online tutorials or online schools:  How to make music  How to play an instrument  How to record music o Online music distribution:  Any musician puts their music anywhere on the net  Anyone can upload music in the net; anyone can download music from the net. Although sometimes it might be illegal, free music is still available for anyone. 2. Cultural change due to a technological factor:  Final consumer more demanding. The rise of smartphones and technology has made them change their mind-set. They want anything, anytime, anywhere with one “click”.  The habits of obtaining and listening music without paying brought by the Internet + the boost of musical offer, have diminished the economic value of music. The relation between music and humans is starting to have some similarities with the air and human relation. 3. Economic crisis in some countries:  Affected governments have generally reduced the public money for culture and have increased some music-related taxes in order to collect more money from consumers. The truth is that they are collecting less than before, because people are not willing to pay more for music. 18 http://revenueanalytics.com/wp-content/uploads/2013/11/Billboards-TICKETONOMICS.pdf 19 Page 7, Dansk Musikstatistik 2012 by Ramboll Mgmt Consulting (paid by KODA), http://www.koda.dk/fileadmin/user_upload/docs/Musikstatistik_2012_RAMBOELL.pdf 34  Consumers have lowered down their budget for entertainment. They have to prioritize other basic needs. To sum up, the market needs to focus their efforts on improving the live experience and try to cover all the possible curve of demand it might have. It should all be focused on the live and physical experience. There is where the money can be truly made, and the only way to get there is by engaging first the fan throughout recorded music. That is why it is not fair that record labels create artists brands so later promoters take the value of that brand by selling more tickets. That is why record labels sign now 360 deals in which they take also a piece of revenue from touring. To improve that experience and their revenues they need to convince people to go to festivals and concerts as much as possible, and that is why they need new tools of marketing such the one we are going to propose. Inside the concerts they also need to reinvent the offer by offering different ticket packages with a variety of prices. The music industry also needs to find other stream revenues by understanding demands more deeply and finding the empty spaces of fans. They need to think out of the box and use a huge amount of information. Hypothesis 2 Validation: cost efficiency The traditional map of the music industry is not efficient. There are many steps and processes to get to the point of reaching the fan. This tremendous split of roles that was normally carried out by different companies and not the same ones, has create important inefficiencies among the whole industry making it not advance or adapt to changes, nor predict them. This is mostly because information is spread all over the picture and so a promoter for example might have serious difficulties on getting valuable data about the success of an artist in determined location; an information that record labels have for example. 35 To understand better this cost efficiency of processes, we are going to review the process map of the music industry: The following industry map created by us 20 is based on the traditional structure. Although there are many existing combinations today, the concepts behind the roles of each different stakeholder are still the same in the industry. The manners of working and shapes of the stakeholders change and adapt to the context, but theory behind the whole picture is still the same as the following picture: 21 1. The creation of music – Composers and Publishers It all starts with the composer, who is the creator of music. A composer is normally represented by a publisher, who will be the one responsible of licensing its works to the record labels and media related companies (such as TV, movies, videogames, advertisements...) in exchange for money. Then the publisher takes its split and gives the rest to the composer. 2. The recording of music – Record Labels - Artists The record label takes the licensed work of a composer and assigns an A&R (Artist & Repertoire) to go find an artist to perform that composition. The A&R will deal and close a contract with the manager of the selected artist. Once the artist is signed to the record label he will have to record its interpretation of the composition guided by an Artistic Producer in a Recording Studio. 3. Manufacture and distribution of music Once the recording is finished, the Record Label will pay for the manufacture of that master recording. Then the record label will hire an online and a physical distribution company, otherwise, the record label will do it itself. This will guarantee that the music is available for sell physically and online. 20 Note that we this is a sum up of all our learning from official Music Business courses in Universities such as Berklee College of Music and Pompeu Fabra. Also the information is based on knowledge taken from “All you Need to Know About the Music Business” book (Donald S. Passman), The Music Industry handbook (Paul Rutter), “How Music Works” (David Byrne) and many others. 21 Source: Compiled by the author ARTIST COMPOSER PUBLISHER PRO’s (Performing Right Societies) RECORD LABEL 2. DISTRIBUTION ONLINE DISTRIBUTION PHYSICAL DISTRIBUTION LIVE MUSIC 1. PRODUCTION 3. PROMOTION FAN ONLINE STORES RETAIL STORES A&R PRODUCER+SOU ND ENGINEER + MUSICIANS RECORDING STUDIO MANUFACTURE 4. BOOKING AGENT MEDIA (magazines, newspapers, blogs, tv, radio…) PROMOTER MANAGER SPONSORS 36 4. Promotion of music – Gaining fans However, the music does not sell by itself, it requires promotion. The record label invests in some music videos that are pushed to the TV and Internet platforms, as well as the music pushed to the radios and others. Newspapers, blogs and magazines are also paid to write articles about the music that is going to be sold. Nowadays record labels also promote through social networks. All this promotion pushes the music to the market and this creates a mass of fans. 5. Playing live – Booking agents – Promoters Once there is enough mass of fans in concentrated geographies, then promoters might want to bring these artists to those locations where there is “business opportunity”. To do that, the process is as it follows: The record label or the artist (depending on the contract) hires a booking agent to deal with the promoters all over the world. Promoters are the ones that organize a concert in a venue by taking charge of all costs in exchange of all the tickets sold. By this, it means that the promoter is the one that takes all the risks. No matter how bad a venue can go, the artist and everyone will get paid anyway, except the promoter that totally relies on ticket sales and sponsors. Booking agents sometimes try to sell packages of artists to promoters. It happens in big festivals, in which the agent agrees to close the deal of a big artist by a quantity of money + some unknown artist they also represent. At the venues, artists not only make money from their fees, but also from the merchandise sold. 6. Collecting the royalties: Finally, during all the 5 steps described before, some royalties are being paid each time a recorded music is performed/reproduced or sold. Copyright collection societies:  Artists have their royalties for their interpretations in the recordings, collected by their respective society specialized in those types of royalties.  Record labels have also a different type of royalties for being the owners of the master, also collected by their respective specialized society.  Composers receive royalties each time their music is being performed live or from a recording. They are the most important ones, and so the associations that collect those royalties are very powerful. Those are called: Performing Rights Organizations. PRO collects and then distributes those royalties to the publisher and the composer. Many other combinations: There are many possible combinations today, but theoretically it is important to have the picture this way. Other possible combinations:  The artist and the composer might be the same entity.  The appearance of labels, which promote and distribute music that is already recorded. They might manage the artists’ careers as well.  Some record labels are expanding their value chain by creating the 360 contracts, which allows them to manage all the different parts of the stream revenues an artist might have.  Record labels can have their own publisher.  Booking agents and managers might be the same entity. Normally record labels are not connected to promoters. Which means that all the fans databases that record labels have, promoters do not have them. Consequently, promoters have difficulties reaching fans. And it happen the same, record labels do not have databases of potential fans that have gone to a concert of their artists. So here we find a big inefficiency. 37 Added to that, the cost structure of the biggest stakeholders in the industry is mostly rigid, which means they have more fixed cost rather than variables, so if the activity of exploitation does not work well, the company will loose probably a lot of money. These are risk structures. Let’s analyse the structures of record labels and promoters to understand better that: Record Labels cost structure: Record labels traditionally had an A&R who was in charge of finding the talent. Then they signed with that artist giving them an advance 22 :  New Artist Signing to Independent Company: 20,000€ to 75,000€  New Artist Signing to Major: 75,000€ to 187,500€  Midlevel Artist: 225,000 € to 562,500  Superstar: From 1 million € Afterwards they were paying for a studio, a producer and a sound engineer to record the album. Recording cost of a record label can go up easily to more than 20,000€, just note that some average studios in Barcelona cost 500€ a day 23 . Later that recording has to be mixed and mastered, which there are specialized studios doing that. Then they have to invest on preparing the whole marketing campaign (Approximately 34% 24 of the net revenue of the record music industry value), such as music videos, photo shots and many others. Later they have to pay for the manufacture of the cds and the distribution, avoiding the manufacture in the online. And of course, they have some overhead costs they have to pay from their company. From this huge investment, only 1 every 10 new artists is successful. Which means 90% of all the investments ends up on losses. It is true that the 10% rate of success covers the rest of costs, but the cost structure that supports success is very inefficient. The music industry is acting traditionally and is not using all the information available to reduce risk. Now they are appearing more labels, which they only promote and distribute already recorded music, sometimes also acting as booking agents or even promoters. This type of labels are normally independent but it is a way to have more efficient structures, the risks are not having good enough quality of recordings because they are normally recorded at not professional studios, such as home studios or low-cost studios. Promoter cost structure: From the total ticket revenues, 25% goes to pay: the VAT, the performing rights societies fee and ticket agency fees. 22 Page 97, All You Need To Know About the Music Business by Donald S. Passman 23 Medusa Studio, Barcelona 24 Page 237, How Music Works by David Byrne, Publisher McSweeney’s Books VAT 10% Performance Rights 6% Ticket Agency Fee 8% Promoters 76% 38 Although it might seem that net revenue from ticket sales is high, it sometimes might not be enough to cover the total amount of expenses. Here are all the fixed expenses that the promoter has to support:  Artist Fee, which normally includes: o Artists o Production team o Booking Agent (20%) o Manager  Other artist expenses: o Ground transportation for the artist and entourage o Catering for artist and crew o Hotels and flights for the artist crew  Advertising (traditional advertising, or corporate advertising)  Rent for the facility  Personnel o Box office o Clean-up o Ushers o Ticket Takers o Doormen o Tec o Security o Stage Crew  Insurance  Medical There is no reliable data to understand the expenses breakdown. However, we know that the most important costs for promoters are: Artist Expenses It is the biggest expense promoters must cover. Their contracts are based on three bases:  Guarantee Fee  Split on Profits  Backline, accommodation, catering/meals, transportation, extras. Ground transportation and catering at the concert are two inevitable costs by the promoter; some of the other costs promoter might want to avoid them not only because of price but time. Guarantee fees can go from 1,000 euros to more than a million. It depends on the amount of people they can draw to the concert, the avg ticket price these people would be willing to pay and the taxes incurred to that fee (to have an idea, international artists that come to Spain, they must pay 25% of taxes from their fee). New/Unknown Artist 25 : From 187.5€ to 1,125€. If the artist is big in the local/regional scene and can draw 1,000 people per show, then fee might vary from 3,750 € to 7,500€. Some might get a split of the box office if the promoter has covered expenses, but when they get a split, normally there is no guarantee fee, or it is very low. Midlevel Artist: 250k-500k music copies sold, 1,500-2,500 seats, fee might vary from 5,625 € to 18,750 €. Superstar Artist: 12,000-20,000 people, can get fees from 75,000€ to 375,000€. The biggest superstars can get over 0.75 million €, but they can “sold out” a whole soccer stadium. Moreover, most of the superstars get a split out of the ticket sales profit. These splits vary from 85/15 to 25 Page 385-392, All You Need to Know About the Music Busines by Donald S. Passman, 7th Edition, Penguin Publisher 39 90/10, meaning that apart from the guarantee fee, artists then can get 90% of the profits made by the promoter on ticket sales. Rental Venue / Production costs Rent the venue as well as the investment on the stage or the space might be the second most important expense. It is also not possible to give a fixed percentage. Added to that, we might need to build a stage, rent PA and rent lights, and pay a production team with a production head to build it. Advertising/ Marketing Using traditional marketing by putting big banners on the street, advert on newspapers and radio it could become 3rd biggest cost. Operations costs/Personnel Some of these costs might be included in the venue rental. However, if not, we must consider having personnel to cover the following areas: box-office, clean-up, ushers, ticket takers, doormen, technicians, security, stage crew and medical support. Insurance The last expenses to cover are insurances, the risk assumed by promoters is huge and some concerts might cancel because of external causes like rain. In this case, promoter would make a huge lost of money, so to avoid that, they hire insurances to reduce that risk. The only variable costs are ticket agency fees, the rest of them are fixed costs. The worst part of it is that they normally do not have the certainty of success. They do not really know the amount of fans that are going to attend to their concerts. They might have estimations made by their own calculations, but they are normally not enough, so being a promoter is like going to the casino, they almost never know what it is going to happen. They are trying to change a little bit the model to diminish risk by increasing festivals where more than one artist plays. If some artist does not sale as much tickets, maybe the other will. But festivals normally have bigger cost structures; the only thing that changes is that risk on sales diminishes. As seen, the music industry needs to readapt the processes in order to create synergies and diminish inefficiencies. They need to use information in order to invest only in whatever will have a positive return on investment. As well they need to move as much fixed costs to variable costs, the first one and easier are marketing costs, which online marketing makes it possible. 40 3.3.2.1.2 Benchmarking analysis of existing solutions Most of the solutions that exist to cover all the needs mentioned before are focused on the two main stakeholders of the industry: Record Labels and Promoters. That is why in the benchmarking analysis we are going to analyse only both figures and separately with their specific needs and the existing solutions for each one of them. RECORD LABELS 1. Fixed offer: Digital sales are not growing as fastest as physical sales are falling, and artist’ image exploitation does not help enough to fill the gap as well as 360 deals. Types of music might have changed a lot, but the way to make money out of it is still mostly traditional. Here offer is understood as the range of products offered from an artist, but not the range of artistic offers. Possible solutions: Offer a bigger range of products. Merchandising normally does not vary much from clothes and commodity objects: Understand deeper “what do customers value and how much do they value it” to expand and reinvent the range of services/product solutions. It could be done through personal interviews; focus groups, surveys, ethnographic research and trial-error testing. All of them are key to get deeper understanding about customers. To get some data about customers they have all this many options available to them.  Online Distributors provide statistics. They can information of all the listening behaviours on the main music online platforms such as Itunes, Spotify and many others.  Social Media: a good management of social media is key for them to obtain their own data, they can find some good opportunities through them.  Market research companies: A part from doing their own analysis from this data, they can also hire market research companies that will help with that. 41 2. Fixed cost structure: We have seen that record labels invest a huge amount of money before they know if an artist is successful. Approximately, every 10 invested artists, only 1 is finally successful. Record labels normally do not know how successful an artist will be, that is why they invest in more than one, to reduce the risk as much as possible. Normally, record labels invest money on advances, the recording and the promotion of it. Afterwards they do invest a lot of money on marketing too (approximately 34% 26 ). Possible solutions: Predicting future potential and successful artists throughout information can increase the A&R success ratio. It could be done creating an algorithm based on predictable patterns through an exhaustive analysis of all social media during the time. An analysis of all social media from previous successful artists compared to the music trends at that time could be an option to develop the algorithm. Afterwards, some patterns could be detected and applied to the present situation. Next Big Sound (https://www.nextbigsound.com/) A NBS has elaborated an algorithm that can predict artist’s success. It is not thought as a substitute to A&R, but a complement for them and record labels to confirm their decisions. The algorithm can detect the social media patterns of past successful cases and compare those cases to new ones to predict the probability of success. Another solution would be to follow the model of labels, in which they take the artist from the finished recording without spending any money on that previous stage. And only pay the artist once everything is ready and the “product” is tested. Another way of being more cost efficient is by targeting better and knowing the return of investment in the marketing campaigns. One of the most difficult things to justify normally in a company is the return on investments from marketing campaigns. Investment on online marketing would help improve the ROI by reducing the advertising investment upfront and making it grow proportionally to its impact. Here some companies that helps with that: Understanding the different traditional marketing campaigns effectiveness would help investing better the money on one way or another. Next Big Sound also offers this service: Next Big Sound (https://www.nextbigsound.com/) Analyses social, sales, and marketing signals to help the customer make smarter and braver decisions. NBS tracks almost every artist, band, and song. To do that they have tracked dozens of social and music streaming networks, combined public and private sales data, and exposed event data. By experience, exhaustive coverage, powerful search and analysis tools they reveal breaking acts and business drivers that give to the client the competitive edge. They have important key partners such as Spotify, The Orchard and Youtube. Their purpose of it is to show data about the key marketing strategies to maximize impact of an artist, sales prediction and marketing campaigns effectiveness. 26 Page 237, How Music Works by David Byrne, Publisher McSweeney’s Books 48 o The customer states the exact need. The customer receives the possible matching solution to the stated need at the moment: As we have said, Google Ads through a search bar is the best-stated need possible. Shazam wanting to know information about a song by pressing a Soundscan recognition button is also a self-expressed immediate need. o Posting the ad in a place with a target customer similar to yours o Direct to fan marketing. They directly manage part of your marketing sales using a targeted email address approach. It is mostly thought to help artist directly or independent labels. Now we are going to compare the matching variable with our three points of differentiation mentioned before. Positioning: MATCHING / DISCOVERY THROUGH ADS: We understand discovery as the fan discovers something new. It is hard to find ads that can suppose a discovery that at the same time matches with the wants of the user. With our first differentiation explained before recommendations will not be pushed unless the user demands them also by choosing the amount of compatibility of their discoveries. Most discoveries are due to nonasked pushed advertisement, as social media, youtube or spotify does. That is why is where it is more probable to be a discovery but the matching is lower than what we can offer, because our matching system is based not only on the patterns of overall recorded music listened but also many other aspects from music. 49 MATCHING / SPECIAL OFFERS: Our ads system will be perfect for the advertisement of any special offer different from the traditional. We have seen the trends of the music industry. There is no doubt we can become the main advertising channel for the industry in the future, because we believe most of the offer will tend to that. Nielsen posted a studio in which said that there are 2 billion € of uncovered premium content demand 27 . A demand that the industry will not let escape probably. MATCHING / VALUABLE EXTRA INFO: Our ads will have some valuable information for the potential customer. Such as other friends that acquired the offer, or that might have been interested. The power of the mass is very effective (as we have demonstrated before with the “downloading of illegal music” case). Also we can tell them automatically how many artists of a festivals set-list do the potential customer like. This simple, fast and valuable extra information can make the difference. RECORDED MUSIC RELATED ADS / LIVE MUSIC RELATED ADS: In our app we can have ads from the two sides of the music industry, because our target fans do care about both sides. This is an important advantage to consider. Google and Youtube touch a little bit everything (youtube more focused on recorded music through music videos). Merch direct and topspin are mostly focused on recorded music ads but they can also offer different things. 28 27 http://www.billboard.com/biz/articles/news/digital-and-mobile/1551730/nielsen-study-music-industry-could-add-450-million-to 28 Source: Compiled by the author 50 So, to review again all the amount of information that we have seen so far, our value propositions to them are:  Variable cost efficiency: our filtered ads content feature for fans contributes to a very interesting matching ratio, in which fans will see only what they want, so each click will represent a “very interested” potential customer. This gives a lot of value because they are even closer to the sell. Our “adding extra information” feature to any ad can bring closer the fan to the final purchase.  To gain targeted exposure in order to increase sales: our target fan is perfect for any kind of music product; mostly special premium offers that will be perfectly targeted. Also, our recommended ads system based on demand is perfect to gain even more exposure than the existing fans. How are we going to do it? Companies will have website interface in which they will be able to create their marketing campaigns. The interface will allow to chose the type of ad, chose the key words to be shown in the ad, mention valuable information to create better matching with fans (for example, a promoter should put the whole line-up of the festival), location (and venue) and lastly the amount of budget they want to spend. On the other side, fans will have a dedicated space inside the app with all the filtered ads. In the settings panels they will be able to chose from many variables in a simple and intuitive way. These settings will be based on 4 variables:  Type of ad (live event, recorded music, special product, special experience)  Artists: selected artists or all of them. Or selected artists depending on the type of ad  Location: They will be able to determine the ratio where they want to be noticed.  Recommendations: Amount of compatibility selected with the recommendations. If they choose 100% then there is not going to be any recommendation. Because 100% compatibility will be the artists that they are already following. There is going to be more information about the “how” from the marketing section of this business plan. 3.3.1.2 Customer definition – Customer segments Our customer segments will be mostly important record labels and important promoters. Although others like sponsors might be interested, we will not accept any non-artist related ad to keep the quality of the platform. We believe only promoters and record labels will be interested because they are the main stakeholders of the B2C side of the music industry, both are the ones that invest more money in the industry and the ones who risk more, they are the ones with a riskier fixed cost structure and they really need to be efficient. As well, they both need to reinvent the offers tending to premium so they can survive and be sustainable throughout the time. The type of fans that we will have in our are one of the keys of their survival. We must not forget that Nielsen (the most important media research company) has detected a 2 billion € uncovered premium demand. Those demands that differ from the basic offer will need new channels to reach their fans, ours will be “the channel” for them. In the following analysis we will quantify how big is the potential market we can reach. 51 3.3.1.3 Size of the market To estimate the size of the potential market of the 14 European selected countries, we have used the following information: Market size of the recorded industry  Net Revenue of Record Labels  % Marketing they invest out of their net revenue Market size of live music industry in these countries:  Net Revenue of Promoters  % Marketing they invest out of their net revenue To get the percentage of marketing that they are potentially going to spend on us. We are going to get our realistic percentage by:  The total sum of the recorded industry worldwide plus the sum of live music industry worldwide, plus the amount of billions of € of uncovered premium demand.  Get the % of marketing expenditure using the % that we already have.  Calculate the amount of marketing expenditure on this uncovered demand by applying the corresponded percentage. Put the result in comparison of other marketing expenditures.  Apply this last percentage to Net Revenue of both Record Label and Promoter for each. Size and breakdown split to get the marketing expenditure Market size of the recorded industry The total value in 2013 was 11.25 Bn € 29 , here all the types of revenue  Physical Sales – 5.78 Bn €  Digital Sales – 4.41 Bn € o Digital Downloads – 2.96 Bn € o Mobile Music – 0.22Bn € o Ad-Supported Streams – 0.35 Bn € o Subscription – 0.84 Bn € o Others – 0.04 Bn €  Performance Rights from recordings – 0.83 Bn €  Synchronizations from recordings – 0.23 Bn € So the finding of the marketing percentage expenditure will be based on these stream revenues. We are not going to consider performing rights and synchronizations because the data of the marketing expenditure does not apply on it. To understand how much money do the different stakeholders receive from the recording music industry we must understand the royalties’ breakdown from each of the revenues. 29 Page 25, The recording industry in Japan by RIAJ 2014 http://www.riaj.or.jp/e/issue/pdf/RIAJ2014E.pdf (IFPI 2014 data) 52 Physical recorded music royalties’ breakdown 30 : Digital recorded music royalties’ breakdown 31 / 32 (based on the Itunes model): Streaming music royalties’ breakdown 33 (based on the Spotify model): Recordings synchronization and performing rights royalties’ breakdown (hypothesis based on the publishers-composers deals 34 /15): Mobile Music royalties’ breakdown 35 : Using all these royalties’ breakdowns we can get the real amount of money record labels make out of it. Moreover, if we extrapolate the intern net revenues split of record labels 36 in Physical Sales proposed by David Byrne to the other recorded music revenues proposed, we can obtain an estimation of record labels profits. This is the net revenue breakdown from Record Labels: 30 Page 237, How Music Works by David Byrne, Publisher McSweeney’s Books 31 Berklee College of Music, Online Course about Music Business and The Future of Music, designed by David Kusek 32 Music Download & Streaming Royalties by TuneCore, http://www.tunecore.com/blog/2013/02/music-download-streaming-royalties-are- you-getting-your-fair-share.html 33 http://www.spotifyartists.com/spotify-explained/ 34 Page 231, All You Need to Know About the Music Business by Donald S. Passman, 7th Edition, Publisher Penguin Music 35 Income streams in the Music Industry by Dina LaPolt, http://www.musicbizacademy.com/articles/dl_newmedia.htm 36 Page 237, How Music Works by David Byrne, Publisher McSweeney’s Books Overhead 41% Marketing and Promotion 34% Profit 25% 53 For calculations please see Annex 1.2. After these calculations, we could say that the total marketing expenditure from recorded music by Record Labels is about 1.78 billion € worldwide (2013). The percentage of marketing out of the total revenue is 15.8% in the recorded industry. Market size of the live music industry: Promoters are going to be harder to measure, because there are not theoretical percentages. However, thanks to our proximity to the industry, we have some real cases that we can extrapolate. The marketing percentage we have can only be applied to the ticket sales value, which in 2013 was 15.75 Bn € 37 . To understand the promoter’s split we had first to estimate the net revenue. Because it was so hard to estimate this net revenue out of the total market value, we did it based on the 14 European countries we want to focus. To get the percentages of he net revenue we first need to get the total revenue out of ticket sales for these 14 European countries. There are not public market researches that estimate ticket revenues per country, so we have looked into official sources of each country to find them out: Annex 1.3. getting a final result of 5,675 Mil € of ticket sales. From the total ticket price, we have to subtract the VAT and the live performing royalties. From our analysis, the compound average VAT for live music events within these 14 European countries is about 10.4%, and the compound average % to be paid to PRO’s for live performing royalties is about to 6%. See Annex 1.3.. Normally, these two payments are directly made by the ticket agency. So, the promoter would directly receive the “net revenue”, understanding net revenue as total ticket revenue minus VAT, performing royalties and ticket agency fee. To calculate the ticket agency fee, we have analysed the market leader: Ticketmaster. Live Nation finally acquired Ticketmaster in 2010 after their merger in 2009. In 2013, the whole ticketing agencies under the Ticketmaster umbrella (they have acquired many other ticket agencies) embraced 12.75 Bn 38 € in transactions for ticket sales. This means that 81% of the money generated in the live music industry from tickets, passes through Ticketmaster. The total Ticketmaster’s revenue is 1,055,863 mn €. If we consider Ticketmaster only source of revenue as the ticket sale, then the average fee they get from each sale through them is 8.2% (calculated from 1.05/12.75 Bn €). 37 Global Entertainment and Media Outlook: 2013 – 2017 by Price Waterhouse Coopers 38 http://investors.livenationentertainment.com/files/doc_financials/2013/2013%20Annual%20Report.pdf 54 So, the net revenue that promoters would make from ticket sales in the 14 European country analyses is 75.4% of the total ticket sales revenue (100% - 10.4% avg compound VAT - 6% avg compound royalty rights – 8.2% avg ticket agency fee) Net revenue from promoters would be about 75.4% of the total ticket sales value. To understand the total amount of marketing expenditure we needed the net revenue because the costs expenditures we have are based on the net revenue. So, our promoter’s case did not spend more than 10% 39 of its net revenue on marketing. Although it might sound low, it is a real case. Added to that, we must point out that artists do a lot of promotion by posting their tour dates in their websites and facebook accounts. Marketing on concerts is only for the ones that do not follow the constant activity of the artist, but they would like to go. So, to this 75% we apply an approximate percentage of 10%. So the total expenditure on marketing is around 7.5% of the total ticket sales revenue. If we apply this to the total value of the music industry, we will be able to know an estimation of the amount spent in billions of €. 7.5% applied to 15.75 Bn € is 1.18 Bn € of total marketing expenditure worldwide in live music. 39 Based on Promoter: Stage Planet; Music Business Course, University Pompeu Fabra VAT 10% Performance Rights 6% Ticket Agency Fee 8% Promoters 76% 55 Average marketing expenditure from recorded and live music Industries The average spending of marketing in the recorded music industry and the live music industry is: (1.18 Bn€ + 1.78 Bn €) / (11.25 Bn€ + 15.75 Bn €) = 10.96% of total marketing expenditure. Expected marketing expenditure on uncovered premium demand We will apply the 10.96% to the uncovered premium demand found by the Nielsen market research company (the most important media research company in the world). This is 1.95 Bn € 40 of uncovered premium demand. 10.96% applied to 1.95 Bn€ gives as a total amount of 213.72 million € worldwide. Percentage of our potential size market If we compare this expenditure to the total actual marketing expenditure, results would be the following: 0.213 Bn € / (1.18 Bn €+1.78 Bn€ + 0.213 Bn €)= 6.7% of the total marketing expected expenditure on premium/special offers Percentage applied to the countries we are focusing in: Record Labels: We have taken the physical and digital sales from 2013 separately (given by the IFPI 41 ) and applied the percentage that record labels take from each type of sale 42 . For the digital sales breakdown we have calculated the compound percentage. This means that we have used the average percentage considering the amount of each digital revenue stream. Annex 1.4. We have taken the performing rights and the synchronization licenses from the IFPI 2013 and applied the same percentage used in the publishing industry (50%). And finally we have added all the marketing expenditures from the different stream revenues of record label and applied the 6.7% that would represent special or premium offers marketing expenditure. The estimation of total marketing expenditure on premium/special offers from Record Labels in the 14 chosen countries of Europe is 40.7 mil €. Promoters: The estimation of total marketing expenditure on premium/special offers from promoters in the 14 chosen countries of Europe is 28,5 mil €. So, the estimation of the potential market for marketing expenditure on special offers by promoters and record labels in the selected 14 countries of Europe is 69.2 million€. However, taking 69.2 million € would mean that all promoters and record labels will only advertise their special offers through us. We are focusing a very segment target in a “blue ocean” so it might be possible to reach the big piece of this marketing expenditure, but not the whole. However if we consider the last point mentioned in this page (festivals), the amount might sound more realistic. 40 Nielsen Study, http://www.billboard.com/biz/articles/news/digital-and-mobile/1551730/nielsen-study-music-industry-could-add-450- million-to 41 Page 25, The recording industry in Japan by RIAJ 2014 http://www.riaj.or.jp/e/issue/pdf/RIAJ2014E.pdf (IFPI 2014 data) 42 Page 237, How Music Works by David Byrne, Publisher McSweeney’s Books 56 We estimate that we will not have more than 50% of this segmented market, because promoters and record labels will also use other channels for promotion apart from this one. One more type of ad to consider: Added to that, we must note that another potential ad through us will be festivals, which are rising very fast and are an important part of the future of live music. The estimation of the market is very hard to quantify in this case. But we can give an idea of estimation. In the UK, festivals represent approximately 25% 43 (2010) of the total revenue from live music. In Germany festivals represent 17% 44 (2012) and Spain a 14% 45 (2012). If we become an important marketing channel for festivals, then our market potential will boost even more. Just to have an idea, if we consider only Germany (because data is from 2012), 17% out of 1,885 million live music tickets would be from festivals, representing an amount of 320 m€. The estimated total marketing expenditure for those festivals would be around 24 m€ (7.5% of 320m€). Even if we take a 10% market share of the marketing expenditure from festivals, the potential market will rise a lot. 43 Page 3, PRS (UK), https://www.prsformusic.com/aboutus/corporateresources/reportsandpublications/addinguptheindustry2011/Documents/Economic%20I nsight%2011%20Dec.pdf 44 Page 16, CAAMA Report about Music Industry in Germany, http://www.caama.org/wp-content/uploads/German-Music-Market-Report.pdf 45 Page 22, Música Popular, Anuario Sgae 2012, http://www.anuariossgae.com/anuario2012/frames.html 57 3.4 Geographical Market Analysis On sections 3.3.1.3 and 3.3.2.3 we have quantified the market size of our two customer segments, users and music industry. As we have explained before, in order to make the research more feasible, we have narrowed it geographically to the 14 most important countries in Europe in terms of “Music Industry”. However, we do not plan to reach all 14 countries from the start and we might not be interested to some specific country markets. It will mean a huge cost of marketing investment, more personal structure from the start, various languages versions of the app and probably some inefficient processes. We consider that start-ups should have a natural growth speed following the lean startup model. That is why we need to understand more deeply those countries in order to be capable of making decisions that will be key for some parts of this business plan such as the implementation of the communication strategy in the Marketing plan or some human resources. We believe not all the music markets are equally attractive for our value proposition. That is why we are going to deeply analyse them to find key information that might help us making decisions in some parts of this business plan. For this analysis we will consider the following variables: see Annex 1.5.  Economic Situation Analysis of the Country  Populations  GDP  GDP Growth  GDP/capita  Music Industry Analysis of the Country  Total Recorded Music Expenditure  Recorded Music Growth  Total Concert Tickets Sales Expenditure  Ticket Sales Growth  Total Recorded and Ticket Sales Expenditure  Music Industry related to the Economic Situation:  Total expenditure per capita  Amount of expenditure in proportion of its GDP/Capita  Mobile Social Media Analysis of the Country:  Mobile Social Media Penetration  Mobile Social Media Active Users 64 Prototype development Sign up Only the first time someone opens the app; a sign up request will appear. The mandatory information requested will be: name, last name, date of birth, gender, email and password. The name and last name are the ones that are going to appear in the personal profile of the user. The user is free to put whichever name having in mind that later friends might have difficulties finding him. We want to know the date of birth and gender because some offers might be restricted to that. Email is what makes the account unique (“Primary key” in our information systems), our database codes will be assigned to the email provided. That is why we are going to send a confirmation email in order to activate the account. After pressing the sign up button, the user will access directly to his personal account. There he will be able to change all the information of his profile and some other such as: photo, description, role and relationship. Basic structure The general command of the app will be permanent and located at the top of the screen. It will be based on 5 main buttons that represent the whole structure of the app and all its features. Added to that, we will find a search bar that will look for specific information depending on the pressed main button at the top of the screen. On the left of the search bar we will find a button to create a new “memory event”. This button will be fixed to the structure and will respond to the same function no matter which main button the user has previously pressed. Main top-screen buttons: The cloud will contain all the ads and special/different updates given by the music industry. Here the search bar will look into ads only. The clock will contain the album with all the memories kept by the user. Here the search bar will look into the memories only. 65 The guitar will contain all the artists in which the user has at least one memory saved of them. Here the search bar will look into the artists only. The little person will contain all the related stuff with the user’ friends. Search bar here will look into friends related information only. The rhombus will contain all the settings of the app. Settings of the 4 previous buttons. Here there is not going to be neither the search bar nor the button to create a new memory event. Create new “memory event” button: This button will be fixed to the app and with the same function: create a new “memory event”. We want to make it very accessible and visual because users might want to create a memory urgently and fast to not forget it. Once the user presses this button, the screen that will open up, will be the following: Firstly, the user will be able to classify memory in 4 different categories. Memories would be related to: CONCERTS/LIVE GIGS MERCHANDISING/ SPECIAL PRODUCTS RECORDED MUSIC EXPERIENCES Secondly, the user will be able to write down the artist name. If the artist already exists in the database of POB the name will be auto-completed. However, if it does not exist, then the fan will be able to create a new artist entry in the database. Being him the number one fan of that artist at the moment. If that happens a new screen will be opened to first complete the data of the artist. Before releasing the app we will connect the artists database to musicbrainz.org so we will have the most important artists in the world already there. 66 Location and date will be given by default. The app will be getting geo-location information as well as date-time information based on the time zone. However, it will be possible to change it by pressing any of that information. After this, the user will have the option to add information such as:  The exact name of the place  Friends with him: If the friend he adds is already in their friend’ list, then it will be autocompleted. If it is not, the system will give the option to find the friend in the app. If the friend has not the app, then the user will have the option to invite him. From the selected friends, the user will be able to select with whom to share the content.  Amount of money spent. It is possible to specify the different expenses the user has had in the memory. Then the user can fix the memory by: RECORDING AN AUDIO NOTE OR IMPORTING ONE WRITING DOWN A DESCRIPTION TAKING A PICTURE OR IMPORTING ONE RECORDING A VIDEO OR IMPORTING ONE Once, the user press “save”, the memory will be saved inside the memories album: In the memories album, the first thing the user will be able to see is the total amount of memories he has validated with a %. It will be in green colour if it is more than 50% and red if it is less than 50%. If the user clicks, he will be able to see whatever it is not validated yet. Secondly, the amount of plays of music through any device with connection to the Internet, the software will be connected to last.fm (we are planning a partnership with them in which we believe they will accept because is a win-win scenario). If the user clicks the “note”, he will be able to see the artists or songs ranked by amount of plays per each. Thirdly, we will find the amount of concerts that the user has been to. By clicking there, he will be able to see the artists ranked by amount of concerts gone. Fourthly, the green bill represents the total amount of expenditure of the user in all music-related stuff. By clicking there, he will see the artists ranked by amount of expense. Also the user will be able to see in which type of products he spends more or less. Then the list of memories arranged chronologically. Each memory has the icon that corresponds to the type of activity. At the bottom, options to see memories by type of activity: concert/live gig, merchandising, recorded music, experience. 67 Inside the memory: For example, inside the memory of a concert, the user will be able to see the setlist of the concert he has been to, as well as the date-time and location. Inside the memory the user will be able to see or create the following content: Friends that where there and select with whom to share that memory; if the user shares the memory with someone, that memory will become a shared cloud, which means that both users will upload the content to the same cloud-space, the memory event. Content shared might be selected (for example, the friend will be able to select to share only pictures, only videos or maybe everything). Introduce all the expenses during the memory. Also: written descriptions, videos from the memory, pictures from the memory, audio notes from the memory or about the memory. The user has the option of importing from the smartphone more content. From the memory it will not be possible to take pictures or videos to avoid excess of MB used per user. Estimation of the memory space offered to users: Size of the content:  1 smartphone compressed picture – 60 KB  1 min smartphone video compressed – 4.5MB  1 min smartphone compressed voice note – 500KB Estimated needed space per year:  330-500 pictures (20MB- 30MB)  20-25 min of videos (90MB-110MB)  40-60 min of voice note (20MB-30MB) Available space per user:  BEST CASE SCENARIO: 130MB needed per user/per year  WORST CASE SCENARIO: 170MB needed per user/per year  AVG CASE SCENARIO: 150MB needed per user/per year 68 Fan Friends: Friends zone of the app will have a similar interface to whatsapp. The reason is that people is already very familiar with this type of interface. In here, the search bar will help to find the user’s friends. Users will be able to see music taste compatibility with their friends on the right. PROFILE: here the user will be able to update all his personal information as well as choose which one to show to the rest of friends. COMPLETE LIST of FRIENDS: arranged alphabetically CONVERSATIONS with FRIENDS: We have provided this feature in order to share updates and information related to music. This is why each comment will need attached some file, link or tag of an artist. OTHER USERS THAT WANT TO BE YOUR FRIENDS: the user will be able to accept or deny friendship. Also he will see “people that he might know”. FAVORITED CONTENT SHARED WITH FRIENDS: any content that someone shared to the user, and he wanted to save. Favourite content shared by friends: All the content shared in the conversations between friends, can be drawn to the star, an automatically classified by type of content (audio note, concert, picture, music, merchandising, writing and video). The user does not have to look back to the conversation to review some content. Inside the star, the content will be arranged by the chosen category and inside each one, arrangement will be done by chronology. Content shared can be assigned to a memory if it selfcontent creation. 69 Artists’ Section: In the artists section, the user will only find the artists he has kept one memory at least of them. We must remember that if at least one song has been heard of that artist, and last.fm has detected it, that artist will appear automatically in the list, unless the user asks not to. Artists can be arranged in many ways: ALPHABETICALLY NEW UPDATED INFORMATION: artist will be arranged on new updates. FAN RANK: The artists, whom the user is a bigger fan, will appear first. FRIENDS COMPATIBILITY: Artists will be arranged on friend’s compatibility. FAVOURITES: The user arranges the artists as they wish. Updates: the user will be able to select from which artists to be noticed about the updates of information made by fans, as well as the type of information updated. Artist Profile Example: Users will be able to create or modify artists’ profiles: the top 0.5% of each artist based on validated ranking. If the artist already exists in the musicbrainz.org database, then users will be able to modify only the concerts section of each artist, as well as the curiosities section. We will create entries from all the artists at musicbrainz.org, to incentivize movement. Artists will be assigned their unique ISNI codes to avoid repetition. Artists without this code, an automated code will be assigned. However, once the artist obtains an official ISNI code, then it will be re-assigned. Musicbrainz.org will provide us all the discography information about an artist (with deep understanding of each recording). Description of the artist will be taken from Wikipedia. The top fans will create concert entries. Once the concert event is finished, the entry will have a button that will connect to setlist.fm data. In which users will be able to find setlist information as well as some concert statistics about the artist. In curiosities, top fans users will be able to update about rare information such as: artist personal life that is not found in Wikipedia (justified with links to the source), instruments or gear they use. An many others. 70 In each artist profile, fans will be able to access to all memories saved from that artist, as well as see the percentage of validated memories. Artist will be able to see the following stats in each artist profile:  Gold Medal: represents the user’s fan ranking from that artist. By pressing the button, user will be able to select which ranking does he want to see. Variables are: o Location: form worldwide to their city o Validated: the validated rank or the non-validated rank Also, the user will be able to see the Fan tree feature. Which will be a draw of all the connection lines from the artist, to how did the user get to know that artist; all the different steps/media/people in behind of that connection. For example, if someone has known an artist because of a fan recommendation, and that fan discovered the artist, because of another fan, that discovered the artist on Spotify, then the fan tree of the first will be the following: Artist  Spotify  Fan 1  Fan 2  Fan 3 To create and validate a fan tree, fans must agree about the recommendations order. This means, that Fan 1 must mention all the people he has recommended this artist too. If one of the people mentioned agrees to say that the artist was discovered thanks to that recommendation, then the connection line is established, and “fan 1” gets points for that. If “fan 2” validates recommendation with “fan 3”, then “fan 2” will get points, and “fan 1” will get a percentage of "fan 2” points. If a fan has recommended an artist to someone that it is not in the app, then, he has the option to invite that person to join the app. By this little game, fans will be incentivized to recommend new artists to others as well as to increase the amount of users.  Music note: will be the amount of plays of recorded music given by last.fm. If the user clicks that button, he will information ranked by album and by songs.  Concerts: they will represent the amount of concerts the user has gone to regarding its memories. If the user clicks that button, he will be able to see the 3 memories kept of those concerts.  Expenditure: fans will be able to see the amount of stated expenditure on that artist. By clicking he will be able to see the breakdown. How does the user validate a memory?  Past memories: The past will be validated by other fans, if more than 10 friend fans confirm that it is true, then the fan gets a validation. Some of the validation will be checked by top fans to bring trust to the system, by evidence such as tickets, images and confirmation emails after a purchase. If the top fan does not agree on a validation, then the friends that confirmed a validation get penalized. If the top fan agrees, then the friend’s fans gain points.  Present and future memories: It will be the same process of the past, but added to that; geo-location will have a relevant role. If the system detects that more than 50 people has created a memory that matches in terms of geo-location, date-time, artist and type of event, then the memory will be automatically validated. 71 System settings: General settings will be mainly focused on privacy, and personalize ads. In the privacy settings, the user will be able to choose between not showing to anyone their memories, only selected friends or all his friends. Out of the friends zone it will not be possible to show the memories. Ad-cloud settings, the user will be able to control settings by type of ad: concert, merchandising/special product, recorded music or experience from artists. For each type, the user will be able to select 3 options:  Block all ads  Ads of selected artists  Ads of its artists The user will be able to receive ads from other artists different from the ones of their list based on a compatibility bar; the higher the percentage chosen, the lower the probability to appear any ad of a related artist. That compatibility matching between possible artists the user might like, is created by analysed patterns from the users at a whole. If the user wants 100% compatibility, then it means that he just wants ad information about their artists and not any recommendation. All ads will be able to go through the geo-location filter, but festivals could avoid that filter if the fan wants to. Other settings to consider: NOTIFICATIONS: the user will be able to select which information should be notified on the screen of the smartphone and which ones after opening the app. INSTRUCTIONS: a user-friendly visual manual will be provided throughout a selection of videos. SPECIFIC ADJUSTMENTS: such as text size, and many others. ABOUT: will contain information about the app creation as well as the terms and conditions accepted the sign up day. 72 The ad-cloud: The ad-cloud will contain the whole ads filtered by the previous demand-setting system. Ads will be arranged on 5 categories: all, concerts/live gigs, merchandising, recorded music and experiences. Each ad will have information about the artist and the product, as well as a briefly description if needed or the location of the event. The ad will show information such as the deadline of the offer. If it is a concert then it will the day of the concert. Each ad will have a little icon that will tell about the exclusivity of the offer. Finally, every ad will have information about other fan friends from the app that have also clicked to that ad. And festivals ads, will notice how many artists from the line-up match with the users’ artists. With this interface, we believe users will be very interested to see the ads and click on them. All these selected prototype designs determine our product development. NOTE: we must advice that these are just schematic designs and not definitive designs; that is why only the features that we have seen must be considered. 4.1.2 Channel strategy After analysing all possible options, Appstore (Apple) and Google Play (Google) are the main platforms for apps, where 600 million users 46 and 900 million users84 respectively have access. Microsoft has only 12 million84. Although IOS (Apple) has fewer users than Android (Google), IOS users download more apps than Android users: 50 and 48 billions of downloads84 respectively. The same article tells us that the IOS ARPU 47 (Average Revenue per User) is 2.54 times bigger than the Android ARPU. Moreover, the visits to ecommerce sites are 60% from IOS 48 , 39% from Android and 1% from others, meaning that apple users are more willing to purchase, which might mean they might we more willing to click our ads. That is why we will develop the app for IOS and Android, prioritizing IOS if we have to. Inside the Apps Stores of Apple and Google, we will put the app under the following categories: Lifestyle, Social Network and Utilities. We might create the web version of the app so users can access their memories through their laptops too and also create content, which might be easier to some of them. 46 Research by Tristan Louis, Forbes: http://www.forbes.com/sites/terokuittinen/2013/08/05/number-of-app-sessions-on-google-play- growing-by-nearly-twice-as-fast-as-on-ios/ 47 Apsalar, Forbes: http://www.forbes.com/sites/terokuittinen/2013/08/05/number-of-app-sessions-on-google-play-growing-by-nearly- twice-as-fast-as-on-ios/ 48 “Why don’t designers take Android seriously”, Business Insider: http://www.businessinsider.com/android-is-for-poor-people-maps-2014- 4 73 4.1.3 Acquisition costs: communication strategy NOTE: This communication strategy applies once the product is totally finished. This means that all the users that we acquire for the previous testing are considered in the product development but not in this communication strategy plan We are concern about the importance of the first communication steps because creating hype at first might be the key to scale positions on the Appstore’s ranking. Our communication strategy will be based on three points:  We will mainly have an online communication strategy based on Youtube, Facebook, fans communities, opinion leaders (blogs, social media and video –blogs) and print-at-home ticketing ads.  We will combine this online strategy with a “word of mouth strategy” in which will give incentives to users to bring more users to our app.  Finally, we will post signs in strategic places in the most important cities. Places such as key venues, festivals and musical bars. Our user acquisition costs estimation will be determined through the Youtube communication strategy combined with some relevant data about the subject. User Acquisition Costs – Previous analysis Most of the important blogs and online newspapers about app start-ups use the Fiksu indexes for their articles and reports. That is why we are going to trust this source. Fiksu states that the cost (€) per install of an app is the following 49 : Calculating the average price, we will see that the cost of an Android user installing our app is higher than the iOS user: AVG Android CPI: 0.99 € AVG iOS CPI: 0.82 € 49 Fiksu indexes 2013-2014, http://www.fiksu.com/resources/fiksu-indexes 0,00 0,20 0,40 0,60 0,80 1,00 1,20 1,40 iOS Android 80 Fourthly, exposure selection: It will be possible to limit the target market by geographies (from continents, to countries, to cities), by ages and by gender. Fifthly, we will ask about the basic information about the ad, we will limit the characters to the ad space on the app. Lastly, the advertiser will select all the amount of budget they want to spend, we will tell them at any time, the maximum amount of people they might be able to reach with that budget. We are also going to let them distribute the amount of impacts throughout the time of the advert. Current ads The advertisers will not be able to modify the advert information, but they can cancel it anytime and create a new one. This is because stats will not be relevant if the ad changes meanwhile. However, advertisers will be able to see all their ad information anytime. The following real-time statistics will be provided:  Budget expenditure: total budget already spend and the remaining, with options to increase it or decrease it at anytime.  Clicks information: o Total o By countries/by cities (with a visual map) o By gender (percentages) o By age (percentages and average)  Most liked artist from fans. From all the fans that have clicked to the advert, which is the most followed artist. This will help advertisers understand which artists are more successful than others. This information can also be provided by country, which will help them target even better their ads. The report will be downloadable in excel. 81 4.2.2 Channel strategy This will be primarily a web-based interface. To control it, they will have to access to our official website: www.pob-ads.com. However, we are thinking about creating a special app for tablet and smartphone after 2 years, so the tracking can be done anywhere, anytime. 4.2.3 Communication Strategy NOTE: This communication strategy applies once the advertisement interface is totally finished. This means that all the advertisers acquired for the previous testing are considered in the product development but not in the acquisition costs. Our communication strategy will be based on three points:  Online strategy: o Google Ads o Infography for main music industry webs or blogs  Offline strategy: o Music industry networking and conferences o Sponsorship: Associations and music industry events  Word of mouth: o Every new client someone brings in, a 10% discount for the next advert campaign. To make sure about which communication strategies are more effective, we are going to ask the advertisers to tell us how did they know about us. Customer Acquisition Costs – Previous analysis There is much information out there about customer acquisition costs. The most accurate estimations are made using Google Ads. As we have seen before with the Facebook comparison, Google is probably the best target-ad existing platform. So it is reliable to use related data of this platform to analyse the customer acquisition costs. Wordstream in a recent research 55 , analysed thousands of Adwords accounts with a combined 3Bn $ in annual spend. The outcome was that:  25% of all Adwords accounts have a conversion rate lower than 1%.  The top 25% of all Adwords accounts have a conversion rate close 5.31%.  The top 10% of all Adwords accounts have a conversion rate close to 11.45%.  The average conversion rate of all Adwords accounts is about 2.35%. This research also established that conversion percentages vary from industry to industry. Distribution Point All accounts Ecommerce Legal B2B Finance Median CVR 2.35% 1.84% 2.07% 2.23% 5.01% Top 25% CVR 5.31% 3.71% 4.12% 4.31% 11.19% Top 10% CVR 11.45% 6.25% 6.46% 11.70% 24.48% 55 Wordstream blog, http://www.wordstream.com/blog/ws/2014/03/17/what-is-a-good-conversion-rate 82 We are a B2B company, so we are going to keep in mind the 2,23% average conversion rate in this market research analysis. However, considering that almost 25% of all the Google Ads accounts have less than a 1% conversion rate, we prefer to be cautious and use a negative conversion rate which might be more realistic at first. That is why for our customer acquisition costs we are going to use a 1% conversion rate. Online strategy We will mostly base our strategy in the online, because it is the one that we can better quantify the return on investment. Google ads We have created an advertising campaign at Google ads. We have limited the campaign to only search network, so clients will only find us if they state the need at the Google search bar. The adverts will be shown in all possible devices. Geo-location segmentation will be limited to London and UK. We have chosen many combinations using some of these words: fan/s, music, advertise, ad, advert, reach, find, connect, festival, recorded, special, offer… After choosing all these variables, the maximum CPC calculated by Google is: 2,52€ We believe that we will have a conversion rate of 1%. This means that each customer will cost us around 252 €. This is the number we are going to consider for our customer acquisition cost. Infographies We are going to create friendly-designed infography about the most relevant trends and information detected from our app. We will send it to specialized music industry blogs and online music industry newspapers, which they target the clients we are looking for:  Industriamusical.es  Billboard biz magazine  The future of music blog  … We estimate the cost of each infography to 40 hours of work from our designer, and 8 hours from our CMO sending it to all the relevant online platforms with specific comments/personalized messages.  The average price per hour of our designer is about 18 euros. Which means that 40 hours of its time of work will cost 720 euros.  The average price per hour of our CMO is about 25 euros. Which means that 10 hours of its time is about 250 euros. Total investment price per infography will be around 1000€, including the creation and the exposure of it. The estimated impact of each infography will be around 10,000 readers, from which 5% are going to click to the official site of the source (us), and 1% are going to finally convert to clients. This means that out of each infography we are going to obtain from 4 to 5 clients. Average cost per client will be around 200-250 euros. We will release one infography every 4 months. 83 Offline strategy It will be primarily based on presentations and networking at music industry conferences. However, we will try to sponsor promoters associations and maybe some important music industry events. Once the contacts are obtained, it will be the time for “door to door” strategy. Music industry events  Networking: At the event, we estimate that we might be able to talk to 25 potential customers per day of the event, whom at least 30% of them might be convinced. We estimate that the average time of a music industry event is 2 days. Meaning that we can only reach on average 50 potential customers per event if only one representative goes there.  Conference –speech and networking: If we are invited to speech then we believe we can double the exposure and get the double of customers compared to only networking. The average cost of one representative attending the event is:  Time: We estimate that our representative will be working 40 hours on average per a 2- day event, considering that it might take part of the day before and part of the day after, that representative will also have to prepare the event. Price per hour will be equivalent to CMO, which is 25€/hour. Cost of representative 1000€.  The average price for a professional accreditation is around 1,500€. Flight tickets, meals and hotel expenses might add 1,500€ more to that price. Total price will be around 4000€, and the amount of clients that can be obtained are about 15, making it a total customer acquisition cost of 266€. We estimate 20 important events/yearly. Sponsorship We might want to sponsor some specific associations or magazines from promoters and maybe also a music industry event sponsorship. There is no way to measure with exactitude the impact of sponsorship, but it is good for brand exposure. This is why will consider the investment as fixed cost. Our budget for sponsorship will not surpass 20,000 euros yearly. Word of mouth program Every new client that a current client brings to the company and spends more than 300 euros, the current customer will get a 200 euros voucher to be spending on their advertisement. Vouchers can be accumulative. The new client brought by a current client, will get a 50 euros discount on its first advertising campaign. Vouchers implementations will do by promotional codes. Fixing the cost per new client to 250 euros. 4.2.4 Pricing strategy Our pricing strategy will be also based on auctions. For example, if we two advertisers offer something very similar, the one with the biggest bid will get the ad higher than the other one. However, although our auctions system might look similar to Google ads, our average CPC might be lower. To have an idea, Google Awords average CPC is in 0,56€ 56 . 56 Wordstream blog, http://www.wordstream.com/articles/facebook-vs-google-display-network 84 4.3 Downloads and sales forecast To estimate the sales forecast we needed to use the data found in the market size validation for each of the two customer segments (see Annex 2.1). Record Labels invest in producing and distributing artist’ music and products. But most of them do not limit their market to the country they are. Most of them try to reach as much as possible. That is why having one record label in a country with X amount of potential users, cannot be used to understand the value of users for each one of those record labels. However it would be more realistic if each of these labels calculates the value per user concerning the total amount of potential users in these 14 European countries analysed. That is why, to get that calculation we have done the following:  (Total Market Share/Num Total Record Labels)/PUM = Value per user per record label/yearly  (20,300,000/2,889)=7027.82 € is the average money a record label will spend in POB ads if we have all the European market.  7027.82 €/8,950,580 = 0.00078518 € is the value of each new user to the net to each record label customer that we might have in there.  Monthly: 0.00078528/12=0.0000654326€ This number is the revenue per record label per user per month. And this is the amount we are going to apply for the sales forecast calculations. This number is the key of finding the revenues from record labels because the revenue from them totally depends on the amount of users we might have. It is pure logic, the users we have the more advertisement customers are going to spend because we will have bigger potential market in our app. As we will see, the record labels revenue per user is lower than the promoters one. However, this revenue applies for any user in our app while the promoter’s revenue can only be applied to its own country users, and not further. This means that the revenue from record labels will be lower at first, because we are going to expand progressively country by country, but in the end, the total revenue per record label might become bigger than promoters. Promoters have a different situation than labels. They organize events and concerts in which normally their customers are the local market. Festivals are the only ones that break the rule, but we have not been able to quantify the size of festivals, that is why we are going to assume that there is no live music consumed by people from other countries into other countries (which will be a negative scenario). The number then, has to be taken per each country. So the Avg revenue per promoter per user will depend on the country in which the promoter operates. The calculations of the revenue per promoter per user per country per month are in the right column. The average spend per promoter has been divided by the total amount of users in their operating country. So each of the values of the right column are the ones that are going to be used for the whole calculations of revenues from promoters, and they will be applied depending on our expansion strategy. Our communication expansion strategy will follow the logic explained in the conclusions of section 3.4 of this business plan. Our speed of growth will depend on the amount of money we can invest on marketing, which will depend on the rounds of investment and possible loans that we might get. So it will depend on that too. This are the variables used for these sales forecast:  Rounds of investment and possible loans – costs (different from marketing) = available money to invest on marketing.  CAC=250 euros and UAC= 2euros  Maximum potential promoters per country  Maximum potential record labels per country  Maximum potential users per country  Revenue per user per record label per month 85  Revenue per user per promoter per country per month  Hypothesis - Network effect of 5% annually, and we lose 2% of users annually, natural growth of 3%.  Hypothesis - We lose 5% of our customers annually The outcome of all these variables is the sales forecast with also the amount of marketing expenditure. 86 YEAR 2 UK UK UK UK UK Ireland Ireland Sweden Sweden Denmark Denmark Norway 2016 January February March April May June July August September October November December TOTAL 2016 Natural Growth 1.669 2.289 2.912 3.535 4.037 4.294 4.305 4.932 4.944 5.289 5.302 5.623 49.131 New Users 275.000 250.000 250.000 250.000 200.000 100.000 0 250.000 0 135.000 0 125.000 1.835.000 Direct mktg costs 550.000 500.000 500.000 500.000 400.000 200.000 0 500.000 0 270.000 0 250.000 3.670.000 Acumulated Users 676.630 928.299 1.180.588 1.433.500 1.637.036 1.741.073 1.745.367 1.999.671 2.004.603 2.144.547 2.149.836 2.280.138 New Promoters 30 0 0 0 0 0 14 0 37 0 19 0 100 Direct mktg costs 7.500 0 0 0 0 0 3.500 0 9.250 0 4.750 0 25.000 Accum Promoters 50 50 49 49 49 49 63 62 99 99 117 117 Lost customers 0 0 0 0 0 0 0 0 0 0 0 0 3 Revenue 61.106 83.492 105.751 127.882 145.444 145.209 165.036 164.769 225.003 224.638 254.174 256.588 1.959.093 New Record Labels 80 150 200 200 200 0 21 0 106 0 70 0 1.027 Direct Mktg Costs 20.000 37.500 50.000 50.000 50.000 0 5.250 0 26.500 0 17.500 0 256.750 Accumulated Labels 100 249 448 647 844 841 858 855 957 953 1.019 1.015 Lost customers 0 1 2 3 3 3 3 3 4 4 4 4 36 Revenue 4.427 15.173 34.690 60.736 90.530 95.891 98.138 111.978 125.720 133.949 143.593 151.676 1.066.502 Total customers 150 299 498 696 893 889 921 917 1.056 1.052 1.137 1.132 9.640 TOTAL REVENUE 65.533 98.665 140.441 188.618 235.974 241.100 263.174 276.748 350.723 358.588 397.767 408.264 3.025.596 TOTAL Direct Mktg 577.500 537.500 550.000 550.000 450.000 200.000 8.750 500.000 35.750 270.000 22.250 250.000 3.951.750 YEAR 1 UK UK UK UK UK 2015 January February March April May June July August September October November December TOTAL 2015 Natural Growth 25 74 173 371 988 1.630 New Users 10.000 20.000 40.000 80.000 250.000 400.000 Direct mktg costs 20.000 40.000 80.000 160.000 500.000 800.000 Acumulated Users 10.000 30.025 70.099 150.272 400.642 New Promoters 5 5 10 20 Direct mktg costs 1.250 1.250 2.500 5.000 Accum Promoters 5 10 20 Lost customers 0 0 0 0 Revenue 635 2.716 14.470 17.821 New Record Labels 5 5 10 20 Direct Mktg Costs 1.250 1.250 2.500 5.000 Accum Labels 5 10 20 Lost customers 0 0 0 0 Revenue 23 98 523 645 Total customers 0 0 10 20 40 70 TOTAL REVENUE 0 0 658 2.815 14.993 18.466 TOTAL Direct Mktg 20.000 40.000 82.500 162.500 505.000 810.000 87 YEAR 4 Austria Austria Switzerland Switzerland Belgium Belgium France France France France Spain Spain 2018 January February March April May June July August September October November December TOTAL 2018 Natural Growth 11.255 11.282 11.742 11.771 12.231 12.261 13.278 14.297 15.319 15.357 16.875 18.396 164.065 New Users 175.000 0 175.000 0 175.000 0 400.000 400.000 400.000 0 600.000 600.000 2.925.000 Direct mktg costs 350.000 0 350.000 0 350.000 0 800.000 800.000 800.000 0 1.200.000 1.200.000 5.850.000 Acum Users 4.563.385 4.574.639 4.760.921 4.772.663 4.959.434 4.971.665 5.383.927 5.797.205 6.211.502 6.226.821 6.842.178 7.459.053 New Promoters 0 17 0 32 0 19 0 0 76 0 0 42 186 Direct mktg costs 0 4.250 0 8.000 0 4.750 0 0 19.000 0 0 10.500 46.500 Accum Promoters 360 376 374 405 403 420 419 417 491 489 487 527 Lost customers 1 2 2 2 2 2 2 2 2 2 2 2 21 Revenue 746.059 770.510 769.263 830.941 829.596 859.005 857.615 856.228 971.711 970.139 968.569 1.012.066 10.441.701 New Record Labels 0 71 0 64 0 17 0 0 0 74 0 45 271 Direct Mktg Costs 0 17.750 0 16.000 0 4.250 0 0 0 18.500 0 11.250 67.750 Accumulated Labels 2.438 2.499 2.489 2.542 2.532 2.539 2.528 2.518 2.508 2.572 2.561 2.596 Lost customers 10 10 10 10 10 10 10 10 10 10 10 11 124 Revenue 728.904 749.007 776.331 795.089 822.838 827.045 891.976 956.533 1.020.716 1.049.257 1.148.251 1.268.669 11.034.616 Total customers 2.798 2.874 2.863 2.947 2.935 2.959 2.947 2.935 2.999 3.061 3.048 3.123 35.488 TOTAL REVENUE 1.474.963 1.519.517 1.545.594 1.626.030 1.652.434 1.686.050 1.749.591 1.812.760 1.992.426 2.019.396 2.116.820 2.280.735 21.476.317 TOTAL Direct Mktg 350.000 22.000 350.000 24.000 350.000 9.000 800.000 800.000 819.000 18.500 1.200.000 1.221.750 5.964.250 YEAR 3 Norway Finland Finland Netherlands Netherlands Germany Germany Germany Germany Germany Germany Germany 2017 January February March April May June July August September October November December TOTAL 2017 Natural Growth 5.637 5.898 5.912 6.913 6.931 8.181 9.434 10.690 10.717 10.743 10.770 10.796 102.623 New Users 0 100.000 0 400.000 0 500.000 500.000 500.000 0 0 0 0 2.000.000 Direct mktg costs 0 200.000 0 800.000 0 1.000.000 1.000.000 1.000.000 0 0 0 0 4.000.000 Acum Users 2.285.762 2.391.399 2.397.297 2.803.209 2.810.123 3.317.053 3.825.234 4.334.668 4.345.358 4.356.075 4.366.818 4.377.588 New Promoters 21 0 12 0 50 0 0 50 50 72 0 0 255 Direct mktg costs 5.250 0 3.000 0 12.500 0 0 12.500 12.500 18.000 0 0 63.750 Accum Promoters 137 137 148 148 197 196 195 245 294 364 363 362 Lost customers 1 1 1 1 1 1 1 1 1 1 1 1 11 Revenue 286.847 286.383 304.381 303.888 387.172 386.545 385.920 491.441 597.053 749.692 748.479 747.268 5.675.069 New Record Labels 110 0 49 0 64 0 0 200 200 200 320 355 1.498 Direct Mktg Costs 27.500 0 12.250 0 16.000 0 0 50.000 50.000 50.000 80.000 88.750 374.500 Accumulated Labels 1.121 1.116 1.161 1.156 1.216 1.211 1.206 1.401 1.595 1.789 2.101 2.448 Lost customers 5 5 5 5 5 5 5 6 6 7 9 10 71 Revenue 167.906 174.950 182.364 212.373 223.814 263.112 302.186 397.841 454.143 510.494 601.231 702.087 4.192.500 Total customers 1.258 1.253 1.309 1.304 1.413 1.407 1.401 1.645 1.889 2.153 2.464 2.809 20.306 TOTAL REVENUE 454.753 461.333 486.744 516.261 610.986 649.658 688.106 889.282 1.051.196 1.260.186 1.349.710 1.449.355 9.867.570 TOTAL Direct Mktg 32.750 200.000 15.250 800.000 28.500 1.000.000 1.000.000 1.062.500 62.500 68.000 80.000 88.750 4.438.250 88 5. Operations Plan 5.1 Processes’ identification and classification As explained in the communication strategy in the marketing plan, the user might reach the app through youtube, facebook, opinion leaders, blogs, signs at concerts, publicity or recommendations. To get the app they will have to first go to their official app stores, follow the respective processes of the platform and finally download the app. Inside the app, the user will be able to create and keep all musical memories, get updated information about their artists, share musical information and memories with friends, and reach special offers. The updated information about their favourite artists (which will be the ones that the user has saved at least one memory of them) will be generated thanks to 4 external partnerships and also the creation of the content by top 0.01% fans (the content that these partnerships might not cover). Last.fm will get the total plays of the fan with their software system. The only thing users will need to do is to connect the last.fm account with it. The second one will be setlist.fm content, which will be a complement to past concerts. Wikipedia will provide us the basic descriptions. Lastly, musicbrainz.org will give us all the information about the discography of the artists. Consequently, the top fans will only have space to create content about curiosities of the artist (such as personal life stories or musical gear used) and future concerts (by taking them from the official site of the artist). All the basic processes are contained in the following process map. From one side, the user case to get to the app, from the other side, the music industry to advertise in the app. And lastly, how content is created in the app, with our three key partnerships in some part of the content creation of artist’s profiles (description, concerts, set list, count plays and validation). 89 The fan will reach special offers posted by the music industry and filtered regarding their ad-cloud settings. The music industry might reach us through Google Adwords, music industry events, infographies posted in industry-related-medias and possible sponsorship. Internal Processes User access Once the user has downloaded the app on his device, if he signed in before in this device, then every time the app is opened, it will directly access to its account. This can be changed by manually signing out session from settings. If it is the first time the user opens the app or he signed out session last time, then the system will show the requirements to sign in if the user has already an account, or sign up if he does not. In the sign up, the user will have to fill the following mandatory information: name, last name, birth date, gender, email and password. Birth date and gender are important because some offers might be exclusive to some ages or genders. If the user has left any blank space, then the system will tell them to fill all blank spaces in order to proceed. Once all blank spaces are filled, the system will ask if the terms and conditions are accepted. If they are not, then the user cannot create an account, if they are accepted, the account will be automatically created. If the user has already an account but the session was not opened last time from that device or it was signed out, then he will have to sign in. To sign in only email and password will be required. First the system will look and see if the email does exist in our database. If it does, then the system will check if the password matches. If it is not, then the system, will tell the user that the written email does not exist in our website, to try write down something different or to sign up. Then, if the password matches, the user will be directed to his personal account in the app. If the password does not match, we are going to ask the user if he has forgot the password. If so, the system will automatically send an email with a new password to reset. If not, then the system will ask them to try again. Once the user gets the new password he will be able to access without problems to his personal account in the app. 96 Finally, our partnerships will also support part of the processes as we have seen. Partnerships Last.fm Our most important partnership will be last.fm, in which we will need to integrate the systems so the fan can connect to his last.fm account through us, and keep counting the plays, that in our system they will add points to the fan. We believe that it is a win –win situation because last.fm has not reinvented the model for a while so its traffic is decreasing (regarding alexa.com statistics). By partnering with us, we will help them get more users, and more engaged, and we will get historic record of the users as well as software that is already developed and working successfully. Musicbrainz.org We personally know the founder and creator of the musicbrainz database. Although it is not recognized by the industry as an official database, they use official copyright codes for the identification of artist names (ISNI code), compositions (ISWC and IPI codes) and recordings (ISCR code). All this codes have been taken from official sites by fans. They are the biggest music industry database in the world concerning information about the discography and the artist. It is an open successful database. Another clear demonstration that data can be increased and be better if it is open to everybody. We want to mix our artist databases without restricting the creation of new artist from our app. We will import data from musicbrainz.org but we will not export data there if it is not required. However, partnering with us will lead to more fans getting into the database and importing even more data. All the data from musicbrainz.org will be mostly used for the discography section of any artist profile, and to validate the existence of that artist with the unique ISNI code. Setlist.fm Setlist.fm is connected to musicbrainz.org, but fans add all the information about the concerts of the artist, information about the location, venue and setlist of the concert. We also want to import this information in order to complement all the past concerts entries from artist profiles. It will be also useful in order to validate past memories related to past concerts. However, setlist.fm does not include all future concerts from artists. That is why; we will give permission to the top 0.01% in order to create that content of the artist they are top fans. Wikipedia It is easy to synchronize by using code without the need of a direct permission. We just want to use Wikipedia for the descriptions of artists in the artist’s profiles. Fans As we have seen, fans will be part of the structure, as they will be the ones responsible of creating the content that might be missing because it is not provided by our partnerships. Only the top 0.01% fans of each artist will have permission to create content in the artists profiles and it will be validated by themselves. 97 5.3 Structural/Permanent Subcontracting We will only subcontract the servers, and the legal and accounting advice. The reasons for not subcontracting more are because we will need our employee’s 24h a day inside the same space – work to make it happen. Servers - Self-hosting is not viable option from the start of this company for many reasons:  Money saving: internalizing the whole equipment will require maintaining and updating the hardware, as well as the space to place them, which will need to be conditioned for optimal performance. Outsource the hosting is a predictable monthly expense.  Security: a specialized web hosting company invests big money to protect the servers in order to grant almost full security to all of their clients.  Scalability: subcontracting a web hosting company is the key to scale up faster. Also, we can react and adapt more easily to the amount of traffic. The other way might require purchase and installation of the hardware, which will surely be slower.  Speed: any good hosting company is assembled close to high-speed communication links with flexible network architecture. This is much better than having our server on a bad communication patch.  Guarantee: the company hired assumes responsibility in case of data loss or any shutdown that is why they guarantee that nothing will happen. After reviewing many companies, the two biggest companies were AWS (Amazon Web Services) and Google. Although they had very similar prices, we have finally decided to work with Google Cloud and Google App Engine servers because we believe it can be an incentive for a possible Google buy-out. The cost is scalable and it will depend on the amount of gigabytes needed. Also, it is more likely that prices decrease as technology evolves. Server’s costs Analysing the server’s costs. Server’s costs will depend on the amount of users that be have and the content they generate. If we consider that each user will generate an average of 150MB content per year, and that each GB will have an approximate price of 0.25€ with Google, by using the sales forecast we can obtain this cost. YEAR 1 January February March April May June July August September October November December GB 125 375 876 1.878 5.008 AC GB 125 500 1.377 3.255 8.263 3.380 31 125 344 814 2.066 YEAR 2 January February March April May June July August September October November December GB 8.458 11.604 14.757 17.919 20.463 21.763 21.817 24.996 25.058 26.807 26.873 28.502 AC GB 16.721 28.325 43.082 61.001 81.464 103.227 125.044 150.040 175.098 201.904 228.777 257.279 367.990 4.180 7.081 10.770 15.250 20.366 25.807 31.261 37.510 43.774 50.476 57.194 64.320 YEAR 3 January February March April May June July August September October November December GB 28.572 29.892 29.966 35.040 35.127 41.463 47.815 54.183 54.317 54.451 54.585 54.720 AC GB 285.851 315.744 345.710 380.750 415.876 457.340 505.155 559.338 613.655 668.106 722.692 777.411 1.511.907 71.463 78.936 86.427 95.187 103.969 114.335 126.289 139.835 153.414 167.027 180.673 194.353 YEAR 4 January February March April May June July August September October November December GB 57.042 57.183 59.512 59.658 61.993 62.146 67.299 72.465 77.644 77.835 85.527 93.238 AC GB 834.454 891.637 951.148 1.010.806 1.072.799 1.134.945 1.202.244 1.274.709 1.352.353 1.430.188 1.515.716 1.608.954 3.569.989 208.613 222.909 237.787 252.702 268.200 283.736 300.561 318.677 338.088 357.547 378.929 402.238 98 We would also subcontract all the legal and accounting advice:  Temporary roles: we won’t need them all the time, the accountant just once every quarter and legal advice will be used punctually.  Many legal areas to cover: corporate, employment, tax, trademark, patent, intellectual and property. Structural Our structural costs will be all our salary costs considering the CEO, CTO, CMO, Software engineers, 3 developers (IOS, Android and Website), Graphic designer and Sales Force. We do not want to externalize the sales force because we want to have direct contact with our customers; an aspect that we consider is a “must”. 5.4 Location We will start our company in Barcelona, and after 6 months we will move to London. The reason is that here we can use a space for free. For the release in the UK, we will need to be there. In London we will rent a space that might be our own home to reduce costs during the first 6 months. Later we will move out. We estimate that our rent costs will not be higher than 4,000 euros/monthly, except the first 6 months, in which we estimate they are going to be lower. 5.5 Material utilization: permanent resources We might need computers after 12 months with:  Windows: good for developments of Android applications. Using Eclipse + SDK Android.  MacOS: good for iOS applications. Using X-Code for the programming.  Linux: for the database and server management. It can be used for Android applications too. Each employee will need 1 computer at least with an approximate cost of 2,000 euros with a 2 years amortization. After 6 months we will need high speed Internet. Optical fiber sounds like a good option. Highspeed Internet might cost around 80 euros/monthly. 99 5.6 Launch Plan-Lean Start-up Plan Launch Plan 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Finding FFF Funds IOS APP Development Database Development Beta Testing Video creation Finding investors Round 1 Website Development Beta Testing 2 Android APP Development Investment 1 Marketing Plan - User Finding investors Round 2 Investment 2 Mktg Plan - Advertiser App maintenance/updates Database Maintenance Infographies Before starting we might need some minimum funds from Family, Friends and fools.  0-3 months. Once we have them we are going to focus on starting the development of the IOS app. For that we will need the graphic designer, the IOS developer and the software engineer that also is an IOS developer. After one month of full development we are going to start testing the app with some users. No more than a 100 probably, but at the end of 3 months we would like to have tested the app with more than a 1,000 users. During this first 3 months we are going to develop along with the app, all the structure of the database.  4-6 months. We are going to develop the website for advertisers as well as the app for android. The implementation of the android app will be easier because the structure and everything will be already thought. We will have to test the website for advertisers with some industry stakeholders. Meanwhile we are going to look for investors, a money that will be mostly invested on marketing. We will also need to create advertisement videos in order to implement our marketing strategy through Youtube.  End of 6th month. We are going to give it a try to famous/important people to create expectancy.  7-12 months. We are going to launch the app in the official Apple Store and Google Play, we plan to invest most of the money from the round to get as many users as possible to at least be in the top 10 most downloaded apps in the UK. During this investment we are going to look for another round of investment in order to use it for marketing purposes, but this time, for acquiring the other customer segments: advertisers.  13-24 months. We are going to start investing to get advertisers. Our launch costs will be mostly based on salaries to develop the whole database and interface system, and marketing costs. We estimate the salaries into 210,000 € and the marketing costs of the first year, 800,000€ on users and 10,000€ on customers. We will also have company constitution fees and advisory services of no more than 10,000€ a year. Also, some exploitation costs such as the rent of the working space (500€/month the 6 first months and 4000€/month the next 6 months), some supplies estimated in 50 euros per employee, Internet connection (estimated in 100 euros per month), insurance (6000€) and servers costs (3380€). For more information about the launch cost, look at section 7.3 of this business plan. 100 6. Organization and Human Resources 6.1 Organizational structure Our organizational structure will vary depending on our needs throughout the time. From month 0 to 6, our structure will be the following: We are going to start the app 3 members that will be partners too. First of all we will need a CTO/software engineer that is also an App and website developer. Secondly, we will need a CMO to invest our marketing money wisely from start and also help us test the value propositions for the product development and the definition of the whole image. Then after that, we will hire a graphic designer and an IOS developer. All of them are going to start creating the database and the app. Once everything is thought between them after 1 month, the CEO and CMO will go to test the prototyped app or some of its features, to get real feedback from users. The graphic designer and the software engineer will start developing the structure of the website for advertisers while the IOS developer keeps writing code, then at month 3, the web developer will come in. The software engineer will try to connect the app database with the web, and the graphic designer will start developing the videos and the image of the company that will be needed for the launch. The CEO will need to find potential advertisers to test the website and get feedback. As well as to start negotiating with the possible partners, starting with musicbrainz.org. Also, the CEO will need to start finding funds. Lastly, the Android developer will come in, and the only job he will have to do is to implement what it is already thought and tested; he might have some help from the software engineer. At the end of the 6th month the CEO will need to prepare the whole marketing campaign and ask some opinion leaders to test the app before it is out. From month 7 to 12: The one that was software engineer with also skills to code in many languages for app and website, will became number 2 in the company, becoming CTO. Under him, he will have the web developer, android developer, IOS developer and another software engineer hired. He will also have direct influence to the graphic designer. The CEO will not give direct orders to the development team, only the CTO. All CEO decisions to the development team will need to go through the CTO, except from the graphic designer, in which the CEO might use direct orders. This new structure will be needed before the app is launched. Once it is done, the position of the CMO will be required to start implementing all the marketing campaign using and controlling the budget for the good of the startup. The CEO will have to find new investment and the designer will have to develop some more videos as well as the first infography. The CEO will also need to look for the first early-adopters advertisers. 101 From month 13 to 24 The CEO and the CMO will implement the marketing strategy to start getting more and more advertisers, by going into events and other. We will probably need to hire a new software engineer every 500,000 users. And we will need to hire sales force to attend any possible problem from advertisers (although the automated helping system). They will be in charge to also gather feedback from them in order to improve the service. We will need a new sales force every 500 advertisers. 6.2 Job descriptions CEO Role description: He will be in charge of implementing the whole business plan, by finding all the resources needed. He needs to put together a team in order to work efficiently into the same direction. He will have to ask potential users and customers to test the app in order to gain valuable feedback. He also will be in charge of all the financial aspects of the start-up, making sure the company never runs out of money and looking for new sources if needed. The CEO will have to close the deals with possible partnerships and implement the first marketing campaign concerning the users. After that, his function will be to implement the expansion plan in order to gain more advertisers and to make the company work efficiently and focused into one direction, as well as being responsible of the human resources selection. He will also be in direct charge of the sales force.  Compensation: First year 20,000€. Second year 30,000€. Third year 60,000€  Ownership: 50-55%. Rank order: 1 CTO Role description: He will be in charge of implementing all the product development by making sure that all systems and databases are perfectly connected and work efficiently. He will also be in charge to make sure developers are writing “clean code”. At first, he will start developing too, and later on he will delegate some tasks to other developers. He is also in charge of all the security of our systems and to deal with all the services needed for the entire technological infrastructure, such as contracting a hosting company, enlarging the contract if needed and so on. He will be in charge of the human resources selection from the development site with the approval of the CEO.  Compensation: First year 25,000€. Second year 35,000€. Third year 70,000€  Ownership: 30-35%. Rank order: 2 102 CMO Role description: He will mainly be in charge of investing all the marketing money wisely. He will have a huge responsibility. He will need to be an expert on online marketing, with full experience in SEM and SEO strategies. Also, he will be in charge of the image of the company. To sum up, he will be in charge of designing and creating the whole marketing campaigns as well as having some control of the sales force.  Compensation: 1st year 30,000€, 2nd year 40,000€. 3rd year 60,000€, 4th year 70,000€  Ownership: 15-20% IOS Developer Role description: He/she will be in charge of the development and maintenance of the IOS app. Implementing all the updates and making sure everything works perfect in the Appstore.  Compensation: 1st year 50,000€, 2nd year 60,000€. 3rd year 65,000€, 4th year 70,000€  Ownership: 0-5% Android Developer Role description: He/she will be in charge of the development and maintenance of the Android app. Implementing all the updates and making sure everything works perfect in the Google Play store.  Compensation: 1st year 50,000€, 2nd year 60,000€. 3rd year 65,000€, 4th year 70,000€  Ownership: 0-2.5% Website Developer Role description: He/she will be in charge of the development and maintenance of the website were advertisers will create their advertising campaigns. He will also be in charge of all the SEO strategy.  Compensation: 1st year 40,000€, 2nd year 50,000€, 3rd year: 55,000€, 4th year 60,000€  Ownership: 0-2.5% Software engineer Role description: he will work in all the management of the databases helping the CTO.  Compensation: 1st year 55,000€, 2nd year 70,000€, 3rd year 80,000€, 4th year 85,000€  Ownership: 0-2.5% Graphic designer Role description: He/she will be in charge of all the interfaces design, as well as the whole image of the start up. He/she will also we in charge of the creation of videos, image maintenance and creation of infographies.  Compensation: 2nd year 30,000€, 3rd 35,000€, 4th year 40,000€  Ownership: 0% Sales Force – Customer attention Role description: Their role is to attend the advertisers for any enquiry they might have during the creation of an advertising campaign. Also contacting them for new offers and making sure the word of mouth strategy between them works properly.  Compensation: 2nd year 20,000€, 3rd year 22,500€, 4th year 25,000€  Ownership: 0% 103 6.3 Human Resources policies Selection The CEO will have the last word in all the selection processes. However, the decision will be made together with the CTO in all the technology-related employees and CMO for some sales force and graphic designer. For example, for the selection of a 3rd software engineer, the people involved that might have an opinion between hiring or not hiring are the CEO, CTO and the oldest software engineer in the company after the CTO. Minimum requirements:  5 years experience in that specific role  Perfect level of English  Some skills: o Team work o Problem solving o Open-minded – flexibility o Creative o Capacity to assume responsibility We do not require any studies. We will value the person as itself, looking primarily into their skills, knowledge and its capacity to adapt and solve problems. Process: 1. Send CV and/or write down a letter and/or send us a video CV. 2. 4 interviews (CEO, CTO or CMO, the oldest worker in the coming position and all together) 3. 3 different problem solving designed by the oldest worker and CMO or CTO depending on the field. 4. 1-month trial stage, that will lead to 5-month trial stage 5. If the person has successfully passed all theses processes, we will officially hire it. Management The CEO will need to make sure everybody is fine, happy and that everyone knows what to do. Everybody in the company will have to do at least one monthly meeting with their direct superior to talk about their experience in the company as well as thinks to improve. There is going to be a white board of ideas for improving the company experience that anyone can post at any time. Ideas can be voted. Each employee will have a number and can vote for an idea. Every month there is going to be at least one team-building activity. Compensation After second year, there are going to be some variables based on objectives. But we are not going to consider them in the financial plan. 6.4 Governance structure The rank of decision will be the following: 1. Owners 2. CEO 3. CTO 4. CMO 104 7. Financial Plan 7.1 Financial hypotheses / assumptions For our financial plan, it will be useful to have a sum up of the employees salaries: YEAR 1 YEAR 2 YEAR 3 YEAR 4 CEO 20.000 30.000 60.000 100.000 From month 0 1.667 2.500 5.000 8.333 CTO 25.000 35.000 70.000 110.000 From month 0 2.083 2.917 5.833 9.167 CMO 30.000 40.000 60.000 70.000 From month 0 2.500 3.333 5.000 5.833 IOS Developer 50.000 60.000 65.000 70.000 From month 3 4.167 5.000 5.417 5.833 Android Developer 50.000 60.000 65.000 70.000 From month 6 4.167 5.000 5.417 5.833 Website Developer 40.000 50.000 55.000 60.000 From month 4 3.333 4.167 4.583 5.000 Graphic Designer 27.000 30.000 35.000 40.000 From month 1 2.250 2.500 2.917 3.333 Sales Force 0 20.000 22.500 25.000 From month 16 0 1.667 1.875 2.083 Software engineer 55.000 70.000 80.000 85.000 From month 7 4.583 5.833 6.667 7.083 Hypotheses:  We will need a sales force every 500 new clients.  We will need a software engineer every 1,000,000 users (we must point out that the Instagram users/software engineer’s ratio is even higher)  Each Employee has an average electricity and water consumption of 50€/month.  We are going to invest approximately 3,000€ on computers per employee, every two years. We are going to consider the amortization in two years.  Users will use 150MB each year to store their content in their memories.  1GB is 1000MB  The average price of a GB is about 0,25€ with Google.  We will lose 5% of our customers yearly.  The network effect is going to be about 5% yearly, but 2% of the users will stop using the app every year. Consequently, the total natural growth is 3%.  User Acquisition Cost is 2 euros  Customer Acquisition Cost is 250 euros.  We have considered a tax on benefits of 35%. 105 7.2 Pro forma income statements P&L YEAR 1 YEAR 2 YEAR 3 YEAR 4 Revenues 18.466 3.025.596 9.867.570 21.476.317 Salaries and Wages 235.583 478.333 791.875 1.154.167 CEO 20.000 30.000 60.000 100.000 CTO 25.000 35.000 70.000 110.000 CMO 30.000 40.000 60.000 70.000 IOS Developer 45.833 60.000 65.000 70.000 Android Developer 29.167 60.000 65.000 70.000 Website Developer 33.333 50.000 55.000 60.000 Graphic Designer 24.750 30.000 35.000 40.000 Sales Force 0 21.667 61.875 131.250 Software Engineer 27.500 151.667 320.000 502.917 User Acquisition Cost 800.000 3.670.000 4.000.000 5.850.000 Customer Acquisition Cost 10.000 281.750 438.250 114.250 Cost Servers 3.380 367.990 1.511.907 3.569.989 Rent 27.000 48.000 48.000 48.000 Internet + Telephone 600 1.200 1.200 1.200 Electricity+H20+Office 3.500 6.150 8.250 10.900 Advisory Services 10.000 10.000 10.000 10.000 Insurance 6.000 12.000 12.000 12.000 Amortization 0 18.000 18.000 30.000 EBIT -1.077.598 -1.867.828 3.028.088 10.675.812 interests 7.285 16.876 30.972 14.388 EBT -1.084.882 -1.884.704 2.997.116 10.661.424 Taxes (35%) 0 0 9.635 3.741.134 EAT -1.084.882 -1.884.704 2.987.480 6.920.290 AC EBT -1.084.882 -2.969.586 27.529 10.688.953 Employees 8 12 17 21 As we can see, our three biggest costs are salaries, marketing and servers. The rest of costs look meaningless compared to these ones. As it can be appreciated, the salaries of the founders start at lower point than employees. This is because they logically prefer to sacrifice part of the salary in order to have more cash to invest in marketing. As we will see in the financial analysis, this start up is mostly based on fixed costs because servers cannot really be attributed to revenues. The reason is that if the user stops using the app, its content will remain in the app, which means that we will keep paying for that too, and that user will not be bringing any revenue. To get more information about the salaries costs, look at the Human Resources plan, and to get more information about the marketing costs and the revenues, we recommend looking at the marketing plan (section 4.3). 112 Round 2 In round 2 we will need 1 million euros. We will need this amount by the 8th month of the first year, meaning that we would have from 6 to 7 months from the start. We know that it might be asking too much for an investing round with investors. We are concerned that in this stage is hard to get more than 500,000 € in Spain. That is why we are going to try to get the maximum possible amount in this stage from investors, and get another ENISA loan for the same quantity. So, at this round, we are going to get 1,000,000€ from the following sources:  500,000€ from investment rounds with Business Angels and Venture Capitalists: o We have already an interested business angel in the project: Jorge Blasco would invest at this stage or in the first round: 100k-200k  500,000€ from another ENISA public loan The loan will have the same requirements as the first one. The interest will be split into a fixed interest and a variable interest. The fixed interest will be 3.5% (0.5% of EURIBOR + 3% fixed rate), and the variable will depend mostly on ROE with a maximum of 8%. As we said before, we won’t have earnings the first two years, but from the third our earnings will boost, so we will probably have to pay 11.5% as explained before (3.5%+8%). Here the 2nd loan repayment plan: Loan 500.000 Interest 3.5% YEAR 1-YEAR 2 October January April July Interests 4.291 4.035 3.776 3.515 Loan 29.243 29.499 29.758 30.019 Fee 33.534 33.534 33.534 33.534 TOTAL 470.757 441.258 411.500 381.481 Remaining Loan 330.862 Interest 11.5% YEAR 2 - YEAR 3 October January April July Interests 3.251 5.191 8.798 7.704 Loan 30.283 32.662 37.693 38.787 Fee 33.534 37.853 46.491 46.491 TOTAL 351.198 318.536 280.843 242.056 YEAR 3 - YEAR 4 October January April July Interests 6.578 5.420 4.228 3.001 Loan 39.913 41.071 42.263 43.490 Fee 46.491 46.491 46.491 46.491 TOTAL 202.143 161.072 118.809 75.319 YEAR 4 - YEAR 5 October January April July Interests 1.739 440 Loan 44.752 30.567 Fee 46.491 31.007 TOTAL 30.567 0 113 Round 3 Round 3 would be after the first year of life. At this stage we would need 3,000,000 €. The reasons are mainly to invest on marketing expenses (same as the round 2). Here we are not going to look for investment in Spain, we will probably go outside. London or Silicon Valley might be good places where to find these quantities. We have to point out, that this start up needs this investment to spend on marketing in only 13 European countries. However, if we consider the whole world, the investment needed might be easily more than 15 million euros. After year 4, if might be interesting to think about a worldwide expansion. However, it will not be considered in this business plan. Value of the company We have used the NPV, IRR and Payback tools to value this company. To do that, we have calculated first the Free Cash Flow by adding amortization and CAPEX to our earnings. YEAR 0 YEAR 1 YEAR 2 YEAR 3 YEAR 4 EAT -1.084.882 -1.884.704 2.987.480 6.920.290 Amortization 0 18.000 18.000 30.000 CAPEX 0 -36.000 0 -60.000 Free Cash Flow -3600000 -1.084.882 -1.902.704 3.005.480 6.890.290 FCF with perpetual -3600000 -1.084.882 -1.902.704 3.005.480 122.409.942 Once we had the free cash flow we have estimated our WACC, which is the cost of opportunity of investors. We believe our start up is a risky company, and that is why we will fix our cost of opportunity to 40%. Now, what we have done is estimating the perpetual discounted cash flow of year 4. For that we have considered the CAGR 4-5 as our growth rate. To calculate the CAGR we did an estimation of the possible cash flows of the company if there is no more investment added for marketing. The results are the following: CAGR 4-5 year 34,37% Expected Y5 9.258.561 Year 4 6.890.290 So that is why, the perpetual discounted cash of year 4 is 122,409,942€. Once we have this information, we have calculated the NPV (discounted FCF-Investment), the IRR and Payback: Disc Cash flow 31.213.921 € NPV 27.613.921 € IRR 133% Payback 3 years WACC 40% This means that our start might have PER close to 8.67, which is a very interesting PER. We also would like to point out that payback might look high. However, this is because we do not stop investing money on growing and expanding. If we had stopped before, then probably payback 114 would be lower, but the valuation of the company would be lower too, probably. So we believe that considering this whole business plan analysis, we do not need to change anything. Cash flow analysis Here an analysis of our cash during these 4 years (€/Time): As we can be clearly seen in the graphic, the first round will be mostly invested on developing and testing our value proposition: the app and the website interface. Consequently, most of this cash will go to cover salaries. This round will be financed with 1000,000€ from FFF (families, friends and fools) and with an ENISA public loan of 100,000€. The second round of 1 million € will entirely go on marketing. This second round will be financed with 500,000€ from business angels and venture capitals; 500,000€ from ENISA loan. It will be the needed round in order to launch the start up to the market. In order to start gaining users and customers, so we can start generating revenue in the short term. All this marketing investment will be done with the objective of introducing in the UK market. We must point out that the UK is the second biggest market of Europe after Germany, so the marketing investment required will be high. The third round will be of 3 million €, entirely financed by venture capitals. The money will mostly go to invest on marketing costs and will be the key for finally establishing in the UK market. Consequently, the establishment in the UK market will let us generate positive cash that will be reinvested on marketing costs for expansion country by country, covering also the required investment to enter the German market, which will be the key to finally boost our cash flows. At the last stage will invest in France and Spain. We must note that France is the third biggest market in Europe, and Spain has also many potential users, that is why cash decreases all of a sudden that much. Thanks to our self-generated cash we will have no problem on covering the personnel costs and the servers costs, which will be the second biggest costs after the marketing expenditure. Time € 115 7.6 Analysis and financial feasibility Ratios Formulas YEAR 1 YEAR 2 YEAR 3 YEAR 4 Current Solvency Current Assets/short term liabilities 0,33 5,15 22,17 775,71 Working Capital Current Assets-short term liabilities -107.507,25 797.553,64 3.631.458,07 10.508.184,32 Debt Ratio Debts/total liabilities 10,03 0,37 0,05 0,00 Asset Turnover Sales/Assets 0,34 3,00 2,59 2,04 Debt Quality Long term debts/total debts 0,70 0,49 0,07 0,00 Margin on Sales EBIT/Sales -58,36 -0,62 0,31 0,50 ROA EBIT/Total Assets -20,06 -1,85 0,80 1,01 Leverage Total Assets/Equity -0,11 1,60 1,05 1,00 Interest effect EBT/EBIT 1,01 1,01 0,99 1,00 Tax Effect EAT/EBT 1,00 1,00 1,00 0,65 ROE BAT/Net Equity -1,81 -0,52 0,83 2,96 (NOTE: Short term liabilities can be found in the pro forma cash flow statements and are y1 – 161,213€, y2-192,235€, y3-171,576€, y4-13,564) Current solvency The optimal value is in between 1 and 2. As we can see, we are going to be very solvents from year 2. In year 1 we might have a risk of insolvency. This is because our huge amount on marketing investment that does not have yet a return; because our app does not obtain revenues if we do not have a minimum amount of users. Working Capital It should be positive all years. As we can see, we would have a negative working capital the first year. This is because of the short-term payments of the ENISA debt for the 2nd year compared to the amount of cash we might have the first year after a huge investment. We plan on getting a 3,000,000€ investment on year 2 so might have no problems on covering that. Another fact to consider is that an ENISA public loan does not require any guarantees if it cannot be given back. Debt Ratio The optimal ratio is 0.5. First year the debt ratio will be very high due because our start up will be in a technical bankruptcy situation. We will have negative equity because of our losses will be greater than our capital; consequently, assets have less value. This only a technical situation and it does not mean that we are in bankruptcy. This is because of the big amount of investment on marketing that will have its returns in the medium term but not in the short term. As it can be seen, second year the debt ratio will be re-established, and 3rd year will be almost inexistent. Debt Quality Quality of the debt the first year is perfect. Next years it gets worse because we are closer to end up the total amount of debt payment. However, next years we have much more cash to be solvent in front of this short-term debt increase. Assets turnover Our assets will be mostly cash, so this is ratio can be understood of a cash turnover. The second year is the one with strongest marketing investments. That is why the turnover is higher. Second year is also capturing the value of the invested marketing from year 1. ROE It will be negative the first two years because we will not have benefits, but later it will boost to more than 200% ROE. We must not forget that the IRR of this company is close to 133%. 116 1 2 3 4 Revenues Fixed Costs Time (Years) Margin on sales Year 1 and 2 are obviously negative due to our losses. However, the evolution of next years can be a clear symptom of scalability. This is because our costs are mostly fixed costs, which means that the more sales increase, the bigger the EBIT is. ROA Most of this assets will be cash, because we are only going to have fixed assets on computers, which will be nothing compared to the amount of cash. Consequently, this ratio can be read as a kind of a “return on cash”. As can be appreciated, this return is not positive until year 3, because the start up does not start generating enough cash with its own activity to invest in itself until late year 2, and it does not revert the situation until year 3. Leverage Totally related to the debt ratio. First year is negative due to our technical bankruptcy, second year is huge due to our big amount of investment perceived from venture capitalists in year 2 (3,000,000€) compared to the little equity we will have then, because of the losses from year 2. Interest effect As we can see the interest does not affect us more than 1%, which is a low percentage. Tax Effect Due to our accumulated losses of the first two years, we will not pay taxes until year 3, and they are going to be only applied to the accumulated profits, which will be very low because of the 2 first year losses. The tax effect stabilises in year 4, with the hypothetical tax of 35%. Breakeven point The only costs that we might be able to consider as variable are marketing costs, and only the ones related to our customers, not our users, which will be lower at an overall. This would mean that our costs are mostly fixed, although they might look to increase somehow proportionally, is only because of the huge investment of marketing during the years, but there is not an exact direct relation between sales and marketing costs, because, once we stop investing this marketing costs, our sales might maintain stable. A good argument on using the breakeven point might be the graphic that we can extract, which let’s us understand how scalable is our business: This graphic shows us that we are clearly in front of a start up case. There is not a direct relation between sales and cost, making it easily expandable around the world only with marketing costs. 117 8. Legal Aspects We will constitute a limited society because we want to have the property limited to us, the owners; to have full control of who gets in and out. If property is limited, then it is easier to control the dilution of shares and choose possible new owners, which will probably have a vote in the decisionmaking. We believe the relationship between the owners is important for the good and efficiency of the company. As well, we do not want to have a personal responsibility risking our own patrimony. That is why we rather prefer to create a legal person, which is the limited society. Creating an entity that protects the owner from risking its own patrimony also makes it easier for investors to come in. The company ownership from the start will be the following: CEO (50%), CTO (30%) and CMO (20%). The reason is that good CTO’s are much more demanded than CMO’s, so we would need to offer him a better incentive in order to stay. 9. Critical Risks and contingency plans The only two critical risks we might have are: changes in the protection of information laws and someone doing this start up before. Protection of information It might happen that in the future a new law protects more than ever the data of our users, if this happens, we might have trouble offering our ad-cloud matching service, which is the core of our business model. For the moment, as our company will be constituted in UK but our servers would be in the USA we had to check for the legal issues that we could face. The most important legal issue regarding data was respecting the data protection protocols in the two countries where our data will be used and analysed (UK) and stored (USA) 57 . But as we have seen, we won’t have a problem with that because USA is at least (or even more) restrictive with their data protection policies than the UK 58 Someone does it before This is “the winner takes it all” start up. Which means, that the first one to get enters this market and get the uses wins and will be very hard to beat. The reason is simple. The cost of exit for each of these users will be very high. 10. Company growth and business development strategy After year 4, we plan further expansion for the company: USA, Australia, Mexico, Brasil, Japan and South Korea. And after entering in these markets, we finally plan to expand worldwide. 57 http://ico.org.uk/for_organisations/sector_guides/~/media/documents/library/Data_Protection/Detailed_specialist_guides/outsourcing_g uide_for_smes.pdf 58 http://ico.org.uk/for_organisations/sector_guides/~/media/documents/library/Data_Protection/Practical_application/it_security_practica l_guide.ashx 118 11. Conclusions of the Business Plan I want to end this business plan by giving a general perspective of what I have learned and the difficulties I have encountered while doing it. First of all –and as we have seen in the market analysis- I got to understand that the music industry is not in its best shape nowadays, but this fact turns out to be positive as there is a huge room for improvement especially in terms of expanded products and services. I also realized that there are some countries which are more interesting than others when talking about our expansion and strategic plan. Something I found out while doing my research is how little data exist about the music industry and that most of it is contradictory, so I had to be very careful when verifying the source of this information and interpreting it. Regarding this business plan, I can clearly see that there is a real need from the two customer segment sides of this multi-sided platform: true top music fans need a place where to save their memories, get recognition and be updated; and music industry companies need a new kind of marketing chanel as they will probably turn direction to create all possible expanded products for fans and cover the 2 Bn € that Nielsen found are uncovered nowadays. Research showed me that the future of music industry would require marketing channels such as our value proposition. Thanks to research I also verified that our sales, downloads and financial worst-case scenario hypothesis are very realistic, so I can say that this project could turn into a very profitable and feasible start-up company to implement. On the other hand, the company’s growth will depend mostly on the funding we receive. This is one of the project’s crucial points. Currently there are high barriers to entry the market that makes it very difficult to start the company and to get to the music fans. The company and the app can be started and developed in Spain, but we recommend to launch POB in other European countries first, which show much more potential than the Spanish market: United Kingdom. We also think it is unlikely that the 3,000,000€ funding required for round 3 could be gotten in Spain. Ideally we would start the company and develop the app here in Spain and we plan on moving to London after the first 6 months and run it from there during the first 4 years regarded on this Business Plan. 119 12. Conclusions of the Project This final thesis has not only provided me with a deeper perspective of an industry I am passionate about but it has also taught me how is the real process that goes from having an idea to end up developing a real company based on it. Through doing this thesis I understood the essential role a Business Plan plays when thinking of starting a company –mainly to clear the entrepreneur’s mind and help him or her focus on what is important-. I have to admit doing this Business Plan has been tough. When working on your own with no guidance it is easy to lose track and doubt about your ideas as you see things are not turning out as you had initially planned. But here is a lesson I have learned during these past months: the more disciplined and hard-worker you are, the more likely it is to maintain hope in the project. There is no doubt that my passion for music and my will to enter into the music industry as a professional has encouraged me and helped me grow as an entrepreneur. I started my final thesis with no higher expectations than learning from an industry that surely I will take part of in the future. But a few months later I see things in a completely different way. Getting to know better the music industry and talk to many of its professionals –some of them startup entrepreneurs and even some business angelshas turned what it started as a university thesis into something that now seems like a good professional opportunity. The positive feedback I have received about this project from relevant people in the music industry has encouraged me a lot - even many of them asked me to further explain it to them once I finish writing this thesis-. I am very excited about the possibility of implementing this project on real life while being aware of all the difficulties I would have to face on the way to success. I feel ready to take this chance since during these years in university I have grown not only as a student but also as a “fighter” and as a person. 120 Conclusiones del Plan de Negocio Me gustaría acabar este Plan de Negocio dando una perspectiva general de lo aprendido y las dificultades que se presentan para la implementación del mismo. Primero de todo, y tal y como hemos visto en el análisis de mercado, hemos podido ver que la industria de la música no se encuentra en su mejor momento. No obstante, esto resulta ser algo positivo dado que existe mucho margen de mejora, especialmente en términos de productos y servicios expandidos. También hemos podido ver que hay ciertos países que resultan mucho más interesantes que otros cuando hablamos de expansión y plan estratégico. Otro aspecto que he observado al realizar el trabajo de investigación es que hay poca información fidedigna en el mundo de la industria de la música. En muchas ocasiones, la información encontrada era contradictoria, por lo que he tenido que ir con paciencia y cuidado al tratar de verificar la fuente de información e interpretarla. Hablando estrictamente del Plan de Negocio. he podido comprobar que los auténticos top fans necesitan estar actualizados, tener un lugar donde guardar sus memorias y ser reconocidos. Por otro lado, las empresas de la industria necesitan un nuevo tipo de canal de marketing para promocionar toda su nueva gama de productos y servicios y así abarcar los 2.025 billones de € de demanda premium no cubierta. La investigación nos ha demostrado cómo, en un futuro no muy lejano, estas empresas de la industria precisarán este nuevo canal de marketing que ofrecemos en la propuesta de valor. Gracias a la investigación he podido verificar que nuestras ventas, descargas e hipótesis financieras son realistas. Por ello, puedo afirmar que este proyecto puede convertirse en una start-up implementable y muy rentable. Por otro lado, el crecimiento de la compañía dependerá casi exclusivamente de las inversiones que tengamos, que serán destinadas a marketing para conseguir usuarios y clientes. Este es uno de los puntos más cruciales que afronta la empresa y es la principal barrera de entrada al mercado que nos impedirá llegar a los fans si no tenemos éxito en nuestras rondas de financiación. La compañía y la app pueden iniciarse y desarrollarse en España, pero es recomendable lanzar primero POB en otros países europeos que tienen mucho mayor potencial que el del mercado español: Gran Bretaña será el escogido. También es poco realista pensar que podríamos obtener en España los 3,000,000€ de financiación que necesitaremos en la tercera ronda de inversión. El plan es empezar la compañía y desarrollar la app en España y tras los primeros 6 meses mudarse a Londres para dirigirla desde allí los primeros 4 años que contempla este Plan de Negocio. 121 Conclusiones del Proyecto Final de Carrera El desarrollo de este Proyecto Final de Carrera no sólo me ha proporcionado una buena perspectiva de lo que es una industria que me apasiona, me ha enseñado cómo se lleva a cabo el proceso que surge de una idea de negocio. A lo largo del proyecto, he podido comprender el rol que juega un Plan de Negocio cuando se empieza una empresa. Dicho rol consiste principalmente en facilitar al emprendedor una visión más clara del proyecto), y así ayudarle a centrarse en los aspectos más relevantes. Llevar a cabo este Plan de Negocio ha sido en ocasiones bastante duro. Cuando trabajas por tu cuenta en un sector y terreno desconocido es fácil perderse y dudar de tus ideas al ver que las cosas no salen de la manera que las habías planeado. Pero gracias a esto he podido aprender que cuanto más disciplinado y trabajador seas será mucho más fácil mantener la ilusión y las ganas en el proyecto. No tengo ninguna duda de que mi pasión por la música y mi voluntad de profesionalizarme en su industria me ha alentado y ayudado a crecer como emprendedor. Empecé el Proyecto con la idea de aprender de una industria de la que estoy seguro formaré parte en un futuro no muy lejano. Pero tras unos meses, veo las cosas de forma diferente. El conocer mejor la industria y el hablar con muchos de sus profesionales – muchos de ellos emprendedores e incluso algún business angel – ha hecho que, lo que empezó como un Proyecto Final de Carrera, se convierta en una oportunidad profesional factible y muy interesante. El buen feedback que me han dado profesionales del sector, incluso habiendo interesados en saber del proyecto una vez estuviera completamente perfilado, no ha hecho más que animarme y que empiece a considerarlo como una opción profesional a corto y medio plazo. La posibilidad de poder implementar este proyecto me entusiasma, pero también soy muy consciente de las dificultades que se presentan para hacerlo realidad y conseguir que tenga éxito. Tras estos años de preparación en la universidad, en los que he crecido tanto académicamente como personalmente, me siento preparado para afrontar esta nueva etapa con determinación, ímpetu e ilusión. 128 Finally we have added all the marketing expenditures from the different stream revenues of record label and applied the 6.7% that would represent special or premium offers marketing expenditure. N Countries P-Mktg (m €) D-Mktg (m €) PR+Sync- Mktg (m€) T – Mktg (m€) Our Potential Market (6.7% of T-Mktg), (m€) 1 Germany 111.8 36.6 12.2 160.5 10.8 2 UK 64.4 73.1 19.9 157.4 10.5 3 France 68.7 28.0 17.1 113.8 7.6 4 Italy 15.0 8.2 5.5 28.7 1.9 5 Netherlands 11.3 9.2 4.2 24.7 1.7 6 Sweden 4.6 17.3 2.2 24.1 1.6 7 Spain 8.1 5.8 4.4 18.3 1.2 8 Norway 2.8 10.3 1.8 14.9 1.0 9 Austria 8.7 3.4 2.1 14.2 1.0 10 Switzerland 7.3 5.5 1.2 13.9 0.9 11 Belgium 6.9 3.9 2.9 13.8 0.9 12 Denmark 3.2 6.7 1.8 11.7 0.8 13 Finland 4.6 2.0 - 6.6 0.4 14 Ireland 2.8 2.1 - 4.9 0.3 TOTAL 320.2 211.9 75.4 607.5 40.7 PR-Mktg stands for the amount of total marketing expenditure in physical sales of recorded music 2013, D-Mktg stands for the amount of total marketing expenditure in digital sales of recorded music 2013, PR+Sync Mktg stands for the amount of total marketing expenditure in Performing Rights and Synchronizations from recorded music in 2013 T-Mktg is the sum of P-Mktg, D-Mktg and PR+Sync Mktg The estimation of total marketing expenditure on premium/special offers from Record Labels in the 14 chosen countries of Europe is 40.7 mil €. N Promoters Ticket Sales 2012, Mil € Mktg (7.5% of ticket sales) Our potential market (6.7% of Mktg) 1 Germany 1.885 141 9,5 2 UK 797 60 4,0 3 France 639 48 3,2 4 Italy 229 17 1,2 5 Netherlands 409 31 2,1 6 Sweden 324 24 1,6 7 Spain 210 16 1,1 8 Norway 172 13 0,9 9 Austria 148 11 0,7 10 Switzerland 321 24 1,6 11 Belgium 161 12 0,8 12 Denmark 163 12 0,8 13 Finland 107 8 0,5 14 Ireland 110 8 0,6 TOTAL 5.675 426 28,5 Mktg (7.5% of ticket sales) is the amount of marketing expenditure for promoters in 2012. The estimation of total marketing expenditure on premium/special offers from promoters in the 14 chosen countries of Europe is 28,5 mil €. 129 Annex 1.5: Geographical Market Anaylisis Economical Situation N Countries POP -13 (mil)100 GDP-13 (Bn €)101 GDP-G12-13102 GDP/Capita (€) 1 Germany 81 2,727 6.1% 33,834 2 UK 64 1,902 2.1% 29,670 3 France 66 2,053 4.8% 31,107 4 Italy 60 1,554 2.9% 25,987 5 Netherlands 17 600 3.8% 35,714 6 Sweden 10 418 6.5% 43,586 7 Spain 47 1,019 2.7% 21,867 8 Norway 5 383 2.3% 75,191 9 Austria 9 312 5.2% 36,653 10 Switzerland 8 488 3.1% 60,259 11 Belgium 11 380 4.8% 33,924 12 Denmark 6 248 5.0% 44,330 13 Finland 5 193 3.9% 35,681 14 Ireland 5 163 3.4% 35,527 TOTAL 392 12,441 31,736 Information of the table: POP-13 (total population in 2013), GDP-13 (total gross domestic product in 2013), GDP-G12-13 (Gross Domestic Product Growth from 2012 to 2013), GDP/Capita (Gross Domestic Product/Population) Musical Total Expenditure Analysis per Country N Countries T-13103 (mil €) P-13 (mil €) Physical Share Physical Growth D-13 (mil €) Digital Share Digital Growth Ticket104 Sales 2012 Aprox TOTAL 1 Germany 1,024 747.4 73% 2% 215.0 21% 16% 1,885 2,909 2 UK 978 430.2 44% -11% 430.2 44% 10% 797 1,775 3 France 717 459.0 64% 5% 164.9 23% 5% 639 1,356 4 Italy 179 100.3 56% 0% 48.4 27% 11% 229 408 5 Netherlands 154 75.6 49% -20% 54.0 35% 22% 409 563 6 Sweden 146 30.6 21% -28% 102.0 70% 31% 324 470 7 Spain 113 54.3 48% -19% 33.9 30% 2% 210 323 8 Norway 90 18.9 21% -31% 60.3 67% 19% 172 262 9 Austria 90 58.4 65% 24% 19.8 22% 32% 148 238 10 Switzerland 87 48.6 56% -17% 32.1 37% 4% 321 408 11 Belgium 86 46.2 54% -21% 23.1 27% 39% 161 247 12 Denmark 71 21.4 30% -16% 39.2 55% 30% 163 234 13 Finland105 43 31.0 73% -8% 11.5 11,50% 42% 107 150 14 Ireland116 31 18.9 60% -22% 12.5 40% 2% 110 141 TOTAL 3,809 2,140.5 56% -4% 1,246.6 33% 13% 5,675 9,484 Information of the table: T-13 (total revenue from recorded music in 2013, including Performing Rights and Synchronizations of recorded music in 2013), P-13 (physical revenue from recorded music in 2013), Physical Share (physical revenue/T-13), physical growth (P-13 compared to P-12), D-13 (digital revenue from recorded music in 2013), digital share (digital revenue/T-13), digital growth (D-13 compared to D-12), Ticket Sales 2012 (total revenue from ticket sales in 2012), Aprox TOTAL is the sum of T-13 plus Ticket Sales 2012. 100 Population taken from the World Bank, http://data.worldbank.org/country 101 Gross Domestic Product taken from IMF (International Monetary Fund) by Google Data, https://www.google.com/publicdata/directory 102 (GDP 2013-GDP 2012)/GDP 2012 . GDP taken from IMF by Google Data, https://www.google.com/publicdata/directory 103 Page 25, The recording industry in Japan by RIAJ 2014 http://www.riaj.or.jp/e/issue/pdf/RIAJ2014E.pdf (IFPI 2014 data) 104 Page 25 of this Business Plan 105 Page 9, Música Grabada, Anuario SGAE 2013, http://www.anuariossgae.com/anuario2013/frames.html (IFPI 2012 data), performing rights and synchronizations are unknown 130 Music Industry Related to Economic Analysis N Countries POP-13 (mil) GDP / Capita (€) Industry TOTAL (mil €) Music / Capita (€) % Expenditure / annual budget 1 Germany 81 33,667 2,909 36 0.107% 2 UK 64 29,719 1,775 28 0.093% 3 France 66 31,106 1,356 21 0.066% 4 Italy 60 25,900 408 7 0.026% 5 Netherlands 17 35,294 563 33 0.094% 6 Sweden 10 41,800 470 47 0.112% 7 Spain 47 21,681 323 7 0.032% 8 Norway 5 76,600 262 52 0.068% 9 Austria 9 34,667 238 26 0.076% 10 Switzerland 8 61,000 408 51 0.084% 11 Belgium 11 34,545 247 22 0.065% 12 Denmark 6 41,333 234 39 0.094% 13 Finland 5 38,600 150 30 0.078% 14 Ireland 5 32,600 141 28 0.087% TOTAL 392 31,737 9,484 24 0.076% Information of the table: POP-13 (total population of 2013), GDP/Capita (gross domestic product/POP-13), Industry TOTAL (total recorded music revenues plus total ticket sales revenues), Music/Capita (Industry TOTAL/POP-13), and % Expenditure/annual Budget = (music/capita)/(GDP/Capita). Mobile Social Media Penetration Mobile Social Media Active users Monthly per Country 27% 47% 30% 32% 44% 48% 33% 55% 32% 35% 36% 47% 35% 42% 22 30 20 20 7,4 4,4 15 2,6 2,6 2,8 3,8 2,6 1,8 2 Germany UK France Italy Netherlands Sweden Spain Norway Austria Switzerland Belgium Denmark Finland Ireland 131 Annex 2: Marketing Annex 2.1: Downloads and sales Forecast Record Labels: N Countries PCM 106 (M €) Market Share107 (€) PUM108 (num) Record Labels ASSO Source (link to member list) 1 Germany 10,8 5.400.000 1.639.631 1.267 VUT http://vut.de/vut/vutmitgliederpublic/ 2 UK 10,5 5.250.000 1.840.266 850 AIM http://www.musicindie.com/about 3 France 7,6 3.800.000 1.372.441 74 UPFI http://www.upfi.fr/adherents/ 4 Italy 1,9 950.000 1.076.606 80 PMI http://www.pmiitalia.org/associati.php 5 Netherlands 1,7 850.000 418.815 64 STOMP http://www.stichtingomp.nl/#/ledenlijst 6 Sweden 1,6 800.000 276.163 106 SOM http://www.som.a.se/64.aspx 7 Spain 1,2 600.000 1.221.982 45 UFI http://ufimusica.com/socios/directorio/ 8 Norway 1,0 500.000 140.293 110 FONO http://www.fono.no/plateselskapene/?actio n=alfabetisk-oversikt 9 Austria 1,0 500.000 199.421 71 Extrapolated 10 Switzerland 0,9 450.000 185.873 64 Extrapolated 11 Belgium 0,9 450.000 190.164 17 BIMA http://bimabelgium.wordpress.com/membe rs-2/ 12 Denmark 0,8 400.000 150.877 70 DUP http://www.dup.nu/labels 13 Finland 0,4 200.000 113.129 49 INDIECO http://www.indieco.fi/wp/wordpress/ 14 Ireland 0,3 150.000 124.919 21 Extrapolated TOTAL 40,6 20.300.000 8.950.580 2.889 PCM stands for Potential Customer Market, Market share means the amount of PCM we will take (50% of PCM), PUM stands for Potential User Market (we pretend to take it all), Record Labels stands for the amount of record labels in that zone. Promoters: N Countries PCM 109 (m€) Market Share98 (€) PUM 110(num) Promoters Avg Spend / Promoter Avg spend / user Monthly 1 Germany 9,50 4.750.000 1.639.631 171111 27.778 0,016941481 0,00141179 2 UK 4,00 2.000.000 1.840.266 50112 40.000 0,021735988 0,001811332 3 France 3,20 1.600.000 1.372.441 76113 21.065 0,015348839 0,00127907 4 Italy 1,20 600.000 1.076.606 118114 5.085 0,00472294 0,000393578 5 Netherlands 2,10 1.050.000 418.815 5097 21.065 0,050297566 0,004191464 6 Sweden 1,60 800.000 276.163 3897 21.065 0,076278775 0,006356565 7 Spain 1,10 550.000 1.221.982 42115 13.095 0,010716392 0,000893033 8 Norway 0,90 450.000 140.293 2197 21.065 0,150152718 0,012512727 9 Austria 0,70 350.000 199.421 1797 21.065 0,105632683 0,008802724 10 Switzerland 1,60 800.000 185.873 32116 25.000 0,134500438 0,01120837 11 Belgium 0,80 400.000 190.164 1997 21.065 0,11077478 0,009231232 12 Denmark 0,80 400.000 150.877 1997 21.065 0,139619527 0,011634961 13 Finland 0,50 250.000 113.129 1297 21.065 0,186206678 0,015517223 14 Ireland 0,60 300.000 124.919 1497 21.065 0,168632276 0,01405269 TOTAL 28,6 14.300.000 8.950.580 679 PCM stands for Potential Customer Market, Market share means the amount of PCM we will take (50% of PCM), PUM stands for Potential User Market (we pretend to take it all), Promoters stands for the amount of promoters in that zone. Avg Spend / Promoter is the average amount of money a promoter is going to spend on us yearly if we have the whole country market. Avg spend / user means the value for each new user of a local market to a local promoter. 106 Section 3.3.2.3 of this Business Plan 107 Section 3.3.2.3 of this Business Plan 108 Section 3.3.1.3 of this Business Plan 109 Section 3.3.2.3 of this Business Plan 110 Section 3.3.1.3 of this Business Plan 111 http://www.bdv-online.com/mitgliedsunternehmen 112 http://www.concertpromotersassociation.co.uk/members 113 Extrapolated using the compound average between Germany, UK, Italy, Spain and Switzerland 114 http://www.assomusica.org/associati.html 115 http://www.apmusicales.com/socios/ 116 http://www.smpa.ch/de/?id=55 132 14. References Books:  Osterwalder, Alexander and Pigneur, Yves, “Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers”, Ed. Wiley John + Sons, 2010.  Rutter, Paul, “The Music Industry Handbook”, Ed. Routledge, 2011.  Byrne, David, “How Music Works”, Ed. Mcsweeneys, 2012.  Passman, Donald S., “All You Need to Know About the Music Business”, Ed. Penguin Publisher, 2013. Research & Database Articles:  The recording industry in Japan by RIAJ 2014 http://www.riaj.or.jp/e/issue/pdf/RIAJ2014E.pdf (IFPI 2014 data)  The recording industry in Japan by RIAJ 2006 http://www.riaj.or.jp/e/issue/pdf/RIAJ2006E.pdf (IFPI 2006 data)  Enders Analysis 2011, http://www.endersanalysis.com/content/publication/musicpublishing-2012-recovery-ahead  Nielsen Study, http://www.billboard.com/biz/articles/news/digital-and- mobile/1551730/nielsen-study-music-industry-could-add-450-million-to  Last.fm 2009, http://blog.last.fm/2009/03/24/lastfm-radio-announcement  Universals Music Group Investors’ Presentation (nov 2011), http://www.vivendi.com/wpcontent/uploads/2011/11/umg-investor-presentation-november-2011-final.pdf  Warner Music Group Q4 2012 P&L by Billboard, http://www.billboard.com/biz/articles/news/legal-and-management/1561432/updatedwarner-music-group-quarterly-revenue-profit  Revenue Analytics by Billboard http://revenueanalytics.com/wp-content/uploads/2013/11/Billboards- TICKETONOMICS.pdf  Dansk Musikstatistik 2012 by Ramboll Mgmt Consulting (paid by KODA), http://www.koda.dk/fileadmin/user_upload/docs/Musikstatistik_2012_RAMBOELL.pdf  Music Download & Streaming Royalties by TuneCore, http://www.tunecore.com/blog/2013/02/music-download-streaming-royalties-are-you- getting-your-fair-share.html  http://www.spotifyartists.com/spotify-explained/  Income streams in the Music Industry by Dina LaPolt, http://www.musicbizacademy.com/articles/dl_newmedia.htm 133  Live Nation Entertainment Annual Repor 2013, http://investors.livenationentertainment.com/files/doc_financials/2013/2013%20Annual %20Report.pdf  PRS (UK) Anual Report 2011, https://www.prsformusic.com/aboutus/corporateresources/reportsandpublications/addi nguptheindustry2011/Documents/Economic%20Insight%2011%20Dec.pdf  CAAMA Report about Music Industry in Germany, http://www.caama.org/wpcontent/uploads/German-Music-Market-Report.pdf  Música Popular, Anuario Sgae 2012, http://www.anuariossgae.com/anuario2012/frames.html  Research by Tristan Louis, Forbes: http://www.forbes.com/sites/terokuittinen/2013/08/05/number-of-app-sessions-on- google-play-growing-by-nearly-twice-as-fast-as-on-ios/  Apsalar, Forbes: http://www.forbes.com/sites/terokuittinen/2013/08/05/number-of- app-sessions-on-google-play-growing-by-nearly-twice-as-fast-as-on-ios/  “Why don’t designers take Android seriously”, Business Insider: http://www.businessinsider.com/android-is-for-poor-people-maps-2014-4  Fiksu indexes 2013-2014, http://www.fiksu.com/resources/fiksu-indexes  Nielsen Norman Group, http://www.nngroup.com/articles/how-long-do-users-stay-on-web-pages/  Youtube, TrueView Ads, https://www.youtube.com/yt/creators/ad-types.html#yt-creators-topics-about-card-1  Google Ads vs Facebook Ads, http://www.wordstream.com/articles/facebook-vs-google-display-network  Webtrends, http://f.cl.ly/items/2m1y0K2A062x0e2k442l/facebook-advertising-performance.pdf  Wordstream blog, http://www.wordstream.com/blog/ws/2014/03/17/what-is-a-good-conversion-rate  Wordstream blog, http://www.wordstream.com/articles/facebook-vs-google-display-network  Global Entertainment and Media Outlook: 2013 – 2017 by Price Waterhouse Coopers  Eurostat Official databases: http://epp.eurostat.ec.europa.eu/portal/page/portal/population/data/database  Google, Our mobile planet, http://think.withgoogle.com/mobileplanet/en/  US Census Bureau, Facebook, VKontakte, Roem.ru, http://was-sg.wascdn.net/wp-content/uploads/2014/02/Slide059.png 134  Bdv official site, Sector Studies, http://www.veranstaltungswirtschaft.de/en_sector_studies  The Music Market in Germany report by the CAAMA, http://www.caama.org/wp-content/uploads/German-Music-Market-Report.pdf  ukmusic.org provides a complete research of all the music industry in the UK, http://www.ukmusic.org/assets/general/UK_Music_infographic_The_Economic_Contributi on_of_the_UKs_Core_Music_Industry_V3.pdf  Chiffres de la Diffusion by Centre National de la chanson des variétes et du jazz, https://www.cnv.fr/sites/cnv.fr/files/documents/PDF/Ressource/stats_diffusion/CHIFFR ES_DIFF_2012_WEB_Optimise.pdf  Annuario Dello Spettacolo 2012 by SIAE, http://www.siae.it/documents/Statistica_documentazione_AnnuarioDelloSpettacolo2012_ EN.pdf  Entertainment and Media Outlook by PwC, http://read.pwc.nl/i/182229  Music Industry in Figures by the Swedish Agency for Economic and Regional Growth and Musiksverige, http://www.tillvaxtverket.se/download/18.5a5c099513972cd7fea3206d/Summary+Musi c+Industry+in+Figures.pdf  Classic Music Section of Anuario SGAE 2013 & Page 7, Popular Music Section of Anuario SGAE 2013, http://www.anuariossgae.com/anuario2013/frames.html  Musikk I tall 2012 (Music in Numbers 2012) by Ramboll Mgmt Consulting, paid by Norway’s Ministry of Culture and the Arts Council Norway, http://no.musicnorway.no/content/uploads/sites/2/2014/04/Musikk-i-tall1.pdf  Musik, AKM und Veranstalter by AKM, http://www.akm.at/Musiknutzer/Gesamtvertraege/  Live Music Report by Swiss Music Promoters Association, http://www.smpa.ch/data/File/dokumente/facts%20smpa%20de_fr_en_09_04_14.pdf  SABAM Rapport Annuel 2013, http://www.sabam.be/sites/default/files/Francais/Mainmenu/SABAM/DOWNLOAD/BROCHURE/rapport_annuel_2013.pdf  Concerts Tariff by SABAM, http://www.sabam.be/sites/default/files/Engels/Utilisateur/Musique/Tarif/De-temps- en-temps/Tarief%20ENG_af%20en%20toe_210_concerts.pdf  Dansk Musikstatistik 2012 by Ramboll Mgmt Consulting (paid by KODA), http://www.koda.dk/fileadmin/user_upload/docs/Musikstatistik_2012_RAMBOELL.pdf  Annual Report 2012, http://www.e-julkaisu.fi/teosto/vuosikertomus/2012en/pdf/teosto_vsk_eng_FINAL.pdf 135  Live music performance royalties Finland by TEOSTO, https://www.teosto.fi/sites/default/files/files/P14_Concerts_and_musicfestivals_2014(1). pdf  Standard Tariff LP by IMRO, http://www.imro.ie/wp-content/uploads/2014/04/LP-Tariff-1113-1014.pdf  Reports and Financial Statements by IMRO, http://www.imro.ie/wp-content/uploads/2012/09/imro-ar-2013-v2.pdf  Admission to cultural services (shows, cinmea, theatre), VAT Rates Applied in the Member States of the European Union, http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_work s/rates/vat_rates_en.pdf  Norway VAT Essentials by KPMG, http://www.kpmg.com/global/en/issuesandinsights/articlespublications/vat-gst- essentials/pages/norway.aspx  Switzerland VAT Essentials by KPMG, http://www.kpmg.com/global/en/issuesandinsights/articlespublications/vat-gst- essentials/pages/switzerland.aspx  Annual Report 2013 by GEMA, https://www.gema.de/fileadmin/user_upload/Presse/Publikationen/Geschaeftsbericht/a nnual_report_2013.pdf  PRS for Music 2013, http://www.prsformusic.com/SiteCollectionDocuments/About%20MCPS-PRS/financialresults/prs-for-music-financial-review-2013.pdf  2012 Annual Report 2012, http://www.sacem.fr/cms/site/en/lang/en/home/aboutsacem/documentation/the_last_report  Copyright fees per show by SIAE, http://www.siae.it/UtilizzaOpere.asp?click_level=0600.0300.0500.0100&link_page=Music a_Utilizzatori_EmittenzaRadiotelevisiva_EN.htm&level=0600.0300.0500.0100  Rendiconto di Gestione by SIAE, http://www.siae.it/documents/Siae_Documentazione_BILANCIOSIAE2012.pdf?647289  Annual Report 2012 by BUMA, https://www.bumastemra.nl/wpcontent/uploads/BumaStemra-annualreport-2012-7.pdf  2012 Annual Report by STIM, http://www.stim.se/Documents/STIM_Inlaga_2012_EN_uppslag.pdf  Anuario de la Música en Vivo 2014, APM, http://issuu.com/apm2014/docs/anuario_apm_issuu  Arsrapport 2012, http://www.tono.no/wpcontent/uploads/2014/04/TONO_%C3%85rsmelding_2012.pdf  Annual Report 2012 by AKM, http://www.akm.at/Service/Forms_and_Infos_in_English/ 136  Annual Report 2013 by SUISA, http://www.suisa.ch/fileadmin/user_upload/downloadcenter/pulikationen_allgem/SUISA _JB2013_kurz_EN.pdf  Rapport Annuel 2013 by SABAM, http://www.sabam.be/sites/default/files/Francais/Mainmenu/SABAM/DOWNLOAD/BROCHURE/rapport_annuel_2013.pdf  Annual Report by KODA, http://www.koda.dk/fileadmin/user_upload/docs/Koda_Annual_Report_2012.pdf  Annual Report by TEOSTO, http://www.ejulkaisu.fi/teosto/vuosikertomus/2012en/pdf/teosto_vsk_eng_FINAL.pdf  LP Tariff by IMRO, http://www.imro.ie/wp-content/uploads/2014/04/LP-Tariff-1113- 1014.pdf  Population taken from the World Bank, http://data.worldbank.org/country  Gross Domestic Product taken from IMF (International Monetary Fund) by Google Data, https://www.google.com/publicdata/directory  (GDP 2013-GDP 2012)/GDP 2012 . GDP taken from IMF by Google Data, https://www.google.com/publicdata/directory  Música Grabada, Anuario SGAE 2013, http://www.anuariossgae.com/anuario2013/frames.html (IFPI 2012 data), performing rights and synchronizations are unknown  http://www.bdv-online.com/mitgliedsunternehmen  http://www.concertpromotersassociation.co.uk/members  http://www.assomusica.org/associati.html  http://www.apmusicales.com/socios/  http://www.smpa.ch/de/?id=55 137