Music’s Celestial Jukeboxes Square Off In Germany; Next Stop Asia-Pac

The new wave of global subscription music services going global has picked Germany, perhaps Europe’s most under-developed digital music market, as its next battleground, forcing a homegrown market leader to raise new money to compete.

Spotify launched in Germany on Tuesday, Rara launched in December, Rdio launched in January, Deezer recently entered and Rhapsody is due to launch there in the next few weeks by absorbing Napster’s European subscriber base. Their moves follow the reduction in December by national royalty collector GEMA of its historically-high rates for ad-funded on-demand music streams.

Now Simfy, Germany’s native music subscription service, says it, like the others, wants to expand, and must take extra funding to grow at home and out of Europe. The outfit is taking an amount in the single-digit millions from previous investors Earlybird, Dumont, NRW.BANK and Klaus Wecken, taking its total raise up to €30 million, according to Netzwertig.

Spotify’s launch means there are now 69 legal digital music services operating in Germany. But the local market’s slow pace in the physical-to-digital journey means the prize for these new competitors could be greater there than elsewhere, if they can corner the market with the new subscription model…

Germany is simply slow-moving in terms of digital because of the legacy of CD collectors,” Enders Analysis’ Dr. Alice Enders tells paidContent. “Germany is the top CD market in Europe because the format’s decline has been much slower than in the US or UK.

“One explanation might be the absence of subscription services until May 2010, when Simfy launched. That was down to the longstanding dispute between Bitkom and GEMA over the tariff for all digital formats. iTunes is also underdeveloped in Germany.”

Spotify’s arrival has moved privately-held Simfy to disclose what it says are successful metrics – two million total users, an unspecified “very healthy percentage” paying, and a forecast of profitability in the next quarter.

For Spotify, which has been investing in global expansion, profitability is not yet in sight, and the same challenge is shared by most digital music services. But now Simfy, too, says: “Accelerated global expansion across various emerging markets is the primary target for 2012 and music discovery a clear focus.”

Enders tells paidContent: “Simfy has the advantage of being a local service featuring local music and editorial content; Spotify is a global brand. Note the importance of classical in Germany, which no-one caters to.”

GEMA’s rates discount is helping new services come to market, but Spotify would not comment when asked whether it was paying GEMA’s standard rates, suggesting its part-ownership by music labels has earned it a favourable deal just like elsewhere.

Music industry analyst Mark Mulligan tells paidContent:

“Overall, the German digital music market has underwhelmed. It also has a few well established incumbents: Musikload, iTunes and Napster.

“Digital music spend in Germany on a per internet user basis is less than half of that of the UK. Those factors combined with issues such as the need to localise language, localise catalogue, and to navigate round the issue of Deutsche Telekom’s DSL and mobile market footprint all contribute to why Germany wasn’t a priority market for Spotify.

“On the positive side, subscriptions do seem to have some appeal in Germany: Napster ended up scaling down its UK operations and refocusing on Germany because German subscription numbers were growing so much more strongly than in the UK.”

“GEMA will not be able to license the complete usage of music in Germany for international services like Spotify,” according to Mars Mertens, a music licensing expert who previously brokered digital rights for Dutch collector Buma/Stemra.

“Spotify will pay some rightsholders directly for pan-European usage, especially for the Anglo-American repertoire. Also I expect that SACEM (France’s rights agency) would like To be paid directly for the repertoire they control.”

YouTube (NSDQ: GOOG) is still refusing to pay what it considers GEMA’s excessive rates, meaning Vevo’s official music videos are not available on YouTube in Germany.

Now that record labels are convinced that music subscriptions, even when paired with a free advertising component in a freemium mix like Spotify’s, can bring new customer revenue to a download market that has slowed, the race is on amongst jukebox services, whose businesses tick on mobile access and Facebook integration, to acquire consumers around the world.

Like a game of Risk, Spotify, Rdio, Rhapsody, We7 and others are squaring off by launching in new territories including Brazil, the U.S. and Austria.

Next stop is Asia and Australasia. Spotify is preparing to launch in Australia and New Zealand, and has been building out in Singapore and Hong Kong, where we have expected its expansion since Hutchison Whampoa’s investment foundation put money in to Spotify back in 2009.

The Asia prize could be biggest of all – a combination of well-off consumers in Hong Kong and Singapore, plus a piracy-infested Chinese market ripe for legalisation.

“As for next markets, Brazil and Mexico are big ’emerging markets opportunities’,” Mulligan says. “Though each will require their own localisation strategy, with only a modest amount of shared operational resource. Canada and Australia are quick ‘next step’ wins.”

Music services in Germany: (source: IFPI)
  • 7digital
  • Akazoo
  • Amazon (NSDQ: AMZN) MP3
  • AOL (NYSE: AOL) Musik
  • Beatport
  • boomkat
  • Clipfish
  • Dance All Day
  • Deezer
  • Deluxe Music
  • digital-tunes
  • djdownload
  • djtunes
  • eMusic
  • e-Plus unlimited
  • Eventim music
  • Finetunes
  • Highresaudio
  • iMusic1
  • iTunes Germany
  • Jamba
  • JPC
  • Juke
  • juno
  • Justaloud
  • Linn Records
  • Mediamarkt
  • Medionmusic
  • MP3.Saturn
  • Musicload
  • Musicbox
  • Music Unlimited
  • MyVideo
  • Napster
  • Nokia (NYSE: NOK) Musik
  • o2 Music
  • PlayNow
  • Putpat
  • QTom
  • Rdio
  • shop2download
  • Simfy
  • soulseduction
  • Spotify
  • T-Mobile Music
  • trackitdown
  • traxsource
  • UMusic
  • Videoload
  • VidZone
  • Vodafone
  • Weltbild
  • WOM
  • Yavido
  • Zaoza
  • Zune