Physical product sale share to fall to 60%


After struggling for several years, Warner Music Thailand has introduced a new business model to cope with the plummeting sales of its physical products, but the company describes the model as only the first step in finding a definitive response to its business challenges.

Managing director Nadda Buranasiri said the firm, an affiliate of the US-based Warner Music Group, was in the process of transforming from an international music distributor into “a music marketing company”.

For the first time, the company has expanded into digital and artist management this year. Physical products are now expected to provide only 60% of this year’s revenues – down from 90% in previous years – while digital downloads are forecast to contribute 15% and artist management 25%.

With its broader portfolio, Mr Nadda predicted Warner Music Thailand would post 20% growth in revenue this year up to 240 million baht.

Warner Music Thailand’s parent company has also been transforming its business. Digital technology that facilitates downloading music from the internet, both legally and illegally, has forced music companies worldwide to look for new business models.

Global music industry sales, estimated in billions of US dollar, have picked up in the past couple of years thanks to music downloads, but not by enough to offset the fall in sales of physical products.

In Thailand, Mr Nadda estimates the market for physical products has dropped more than 20% each year over the last few years. This year, he believes the market could shrink to 3.6 billion baht. International and mainstream albums face the same fate. Only look tung or Thai country music is unaffected, he said.

“Music companies have failed with many methods to prevent consumers downloading music and it’s better to understand them – providing them with an experience and letting them download in an easy and fun way,” said Mr Nadda, who has worked with foreign music companies for more than a decade.

He added that the change in business model has also required staff to change their mindset.

“The goal was not how many copies that they could sell anymore, but it is about making consumers like music and really want to download,” he said.

Mr Nadda said in Japan and the UK, where consumers respect intellectual property rights, digital tracks have driven strong growth in the music industry.

Three months ago Warner Music Thailand launched the Sound Zero Internet radio station in a collaboration with Microsoft’s MSN. MSN’s 4.25 million users in Thailand can now experience online radio and Warner Music Thailand has gained exposure to MSN’s customers.

Mr Nadda said Sound Zero is already one of Thailand’s top five online radio stations and is generating ad revenues.

Meanwhile, Warner is able to manage on-the-ground activities for corporate clients, which have been introduced to the company by its new business model.

“Singha [Warner’s client] has appointed Sound Zero as the official online media for the Kylie Minogue concert end of this year,” said Mr Nadda.

He said he hoped digital revenues would become the company’s largest revenue source, rising from 15% currently to contribute 40% of total revenues in 2010. By then physical product sales should have shrunk to 40% of total revenues while income from artist management would provide 20%.

“Grammy and RS are also aggressively moving towards digital music this year. The income from digital is sustainable,” he said, referring to two of Thailand’s leading entertainment firms.

He said he had rejected an earlier plan to depend heavily on revenues from artist management, as income was too seasonal and finding products matching Warner’s artists could be challenging.

Warner’s artist roster currently consists of Legendary Carabao, Poo Pongsit, the Sincharoen Brothers and Peerapat, Bee, Tanewong (the former lead singers of Crescendo).

Mr Nadda said the company plans to recruit another 20 young bands, targeting musicians rather than stars of reality music contests.

Posted by: Amy Sikkes