Saturday 31st January 2015
NEWS TICKER FRIDAY, JANUARY 30TH: Morningstar has moved the Morningstar Analyst Rating™ of the Fidelity Japan fund to Neutral. The fund was previously Under Review due to a change in management. Prior to being placed Under Review, the fund was rated Neutral. Management of the fund has passed to Hiroyuki Ito - a proven Japanese equity manager, says Morningstar. Ito recently joined Fidelity from Goldman Sachs, where he successfully ran a Japanese equity fund which was positively rated by Morningstar. “At Fidelity, the manager is backed by a large and reasonably experienced analyst team, who enjoy excellent access to senior company management. While we value Mr Ito’s long experience, we are mindful that he may need some further time to establish effective working relationships with the large team of analysts and develop a suitable way of utilising this valuable resource,” says the Morningstar release - The Federal Deposit Insurance Corporation (FDIC) today released a list of orders of administrative enforcement actions taken against banks and individuals in December. No administrative hearings are scheduled for February 2015. The FDIC issued a total of 53 orders and one notice. The orders included: five consent orders; 13 removal and prohibition orders; 11 section 19 orders; 15 civil money penalty; nine orders terminating consent orders and cease and desist orders; and one notice. More details are available on its website - Moody's Investors Service has completed a performance review of the UK non-conforming Residential Mortgage Backed Securities (RMBS) portfolio. The review shows that the performance of the portfolio has improved as a result of domestic recovery, increasing house prices and continued low interest-rates. Post-2009, the low interest rate environment has benefitted non-conforming borrowers, a market segment resilient to the moderate interest rate rise. Moody's also notes that UK non-conforming RMBS exposure to interest-only (IO) loans has recently diminished as the majority of such loans repaid or refinanced ahead of their maturity date - The London office of Deutsche Bank is being investigated by the Financial Conduct Authority (FCA), according to The Times newspaper. Allegedly, the bank has been placed under ‘enhanced supervision’ by the FCA amid concerns about governance and regulatory controls at the bank. The enhanced supervision order was taken out some months ago, says the report, however it has only just been made public - According to Reuters, London Stock Exchange Group will put Russell Investments on the block next month, after purchasing it last year. LSE reportedly wants $1.4bn - Legg Mason, Inc. has reported net income of $77m for Q3 fiscal 2014, compared with $4.9m in the previous quarter, and net income of $81.7m over the period. In the prior quarter, Legg Mason completed a debt refinancing that resulted in a $107.1m pre-tax charge. Adjusted income for Q3 fiscal was $113.1m compared to $40.6m in the previous quarter and $124.6m in Q3 fiscal. For the current quarter, operating revenues were $719.0m, up 2% from $703.9m in the prior quarter, and were relatively flat compared to $720.1m in Q3 fiscal. Operating expenses were $599.6m, up 5% from $573.5m in the prior quarter, and were relatively flat compared to $598.4min Q3 of fiscal 2014. Assets under management were $709.1bn as the end of December, up 4% from $679.5bn as of December 31, 2013. The Legg Mason board of directors says it has approved a new share repurchase authorisation for up to $1bn of common stock and declared a quarterly cash dividend on its common stock in the amount of $0.16 per share. - The EUR faces a couple of major releases today, says Clear Treasury LLP, and while the single currency has traded higher through the week, the prospect of €60bn per month in QE will likely keep the euro at a low ebb. The bigger picture hasn’t changed, yesterday’s run of German data was worse than expected with year on year inflation declining to -.5% (EU harmonised level). Despite the weak reading the EUR was unperturbed - The Singapore Exchange (SGX) is providing more information to companies and investors in a new comprehensive disclosure guide. Companies wanting clarity on specific principles and guidelines on corporate governance can look to the guide, which has been laid out in a question-and-answer format. SGX said listed companies are encouraged to include the new disclosure guide in their annual reports and comply with the 2012 Code of Corporate Governance, and will have to explain any deviations in their reporting collateral. - Cordea Savills on behalf of its European Commercial Fund has sold Camomile Court, 23 Camomile Street, London for £47.97mto a French pension fund, which has entrusted a real estate mandate to AXA Real Estate. The European Commercial Fund completed its initial investment phase in 2014 at total investment volume of more than €750m invested in 20 properties. Active Asset Management in order to secure a stable distribution of circa 5% a year. which has been achieved since inception of the fund is the main focus of the Fund Management now. Gerhard Lehner, head of portfolio management, Germany, at Cordea Savills says “With the sale of this property the fund is realising a value gain of more than 40%. This is the fruit of active Asset Management but does also anticipate future rental growth perspectives. For the reinvestment of the returned equity we have already identified suitable core office properties.” Meantime, Kiran Patel, chief investment officer at Cordea Savills adds: “The sale of Camomile Court adds to the £370m portfolio disposal early in the year. Together with a number of other asset sales, our total UK transaction activity since January stands at £450m. At this stage of the cycle, we believe there is merit in banking performance and taking advantage of some of the strong demand for assets in the market.” - US bourses closed higher last night thanks to much stronger Jobless Claims data (14yr low) which outweighed mixed earnings results. Overnight, Asian bourses taken positive lead from US, even as Bank of Japan data shows that inflation is still falling, consumption in shrinking and manufacturing output is just under expectations. According to Michael van Dulken at Accendo Markets, “Japan’s Nikkei [has been] helped by existing stimulus and weaker JPY. In Australia, the ASX higher as the AUD weakened following producer price inflation adding to expectations of an interest rate cut by the RBA, following other central banks recently reacting to low inflation. Chinese shares down again ahead of a manufacturing report.” - Natixis has just announced the closing of the debt financing for Seabras-1, a new subsea fiber optic cable system between the commercial and financial centers of Brazil and the United States. The global amount of debt at approximately $270m was provided on a fully-underwritten basis by Natixis -

Download Upswing

Monday, 16 April 2012
Download Upswing The rapid deployment of handheld devices such as tablets and smartphones, combined with the steady growth in emerging online retail models, have helped breath life into a music business hobbled by years of sagging revenues. Has the long-suffering industry finally found its feet as a result of this technological convergence? And if the turnaround is at hand, where do investors go to rock and roll? Dave Simons reports from Boston. http://www.ftseglobalmarkets.com/

The rapid deployment of handheld devices such as tablets and smartphones, combined with the steady growth in emerging online retail models, have helped breath life into a music business hobbled by years of sagging revenues. Has the long-suffering industry finally found its feet as a result of this technological convergence? And if the turnaround is at hand, where do investors go to rock and roll? Dave Simons reports from Boston.

On paper, the ultra-exclusionary business model championed by Apple Inc—keeping competitors at arm’s length while pumping up its vast inventory of proprietary apps—should have given investors and consumers cause to reassess the way they buy music. However, on the day it launched its latest technological marvel, the new iPad third-generation tablet, shares of the Cupertino, California-based company were trading in the vicinity of $600, roughly double last summer’s stock price.

Numerous market watchers maintained a solid ‘buy’ rating, some even calling the stock ‘underpriced’ at current levels. Apple could move more than 65m iPads this year alone, according to some analysts.



In fact, the rapid deployment of handheld devices such as the iPad, combined with the steady growth of emerging digital-music models, have helped breathe life into a record industry hobbled by years of sagging revenues.

While Apple and its league-leading iTunes Music Store continues to dominate (holding down an estimated 70% of digital music sales), “all-you-can-eat” subscription services such as UK-based Spotify and France’s Deezer themselves attracted some 13m paying customers last year. This is a 60% increase over 2010, according to UK’s International Federation of the Phonographic Industry (IFPI).

Music downloading has also been helped in no small part by ‘in-the-cloud’ services; those that use a central network infrastructure, rather than a home-computer application, among them Amazon’s Cloud Drive and Apple’s newly launched iTunes Match.

All told, digital-music revenues rose 8% in 2011, according to IFPI, the first year-over-year growth increase since 2004. Providing music to users wherever and whenever they want appears to be the lynchpin going forward. By 2016, an estimated 161m subscribers worldwide are expected to access music from a mobile device, up from less than 6m in 2011. Frances Moore, chief executive for UK-based International Federation of the Phonographic Industry (IFPI), agrees that consumer choice “has been revolutionised…as new models for consuming and accessing music are rolled out in new and existing markets.”

Has the long-suffering music industry finally found its feet as a result of this technological convergence? And if the turnaround is at hand, where do investors go to rock and roll?

Hear today—gone tomorrow

Back in 1999 the record industry was sitting pretty—that year, 847m CDs were sold, according to the Record Industry Association of America (RIAA). By that time, intense consolidation from the Telecommunications Act of 1996—which enabled a handful of conglomerates to secure majority stakes in numerous media markets—had turned the airwaves into an increasingly exclusive club.

Eventually, listeners began seeking alternative sources online—some of them legit, many of them not. As faster connection speeds accelerated the trend toward peer-to-peer file sharing, recording artists began flocking to upstart venues such as MySpace, YouTube and Facebook (and, more recently, Bandcamp and Soundcloud), bypassing traditional distribution channels in the process. As the online phenomenon reached new heights, sales of physical media were suddenly in free fall; by last year, CDs hit an all-time low of 223.5m units sold.

Of course it is hardly the first time the music establishment has been forced to re-group in response to a major cultural backlash. But despite the potential to attract millions of newcomers, for years record executives have bristled at the idea of unfettered digital access, and have leaned on companies to push premium-pricing plans in an effort to optimize revenue.

However, after years of waging war over no-charge music streaming, record companies are now beginning to see the benefits of ‘freemium’ services—which, say analysts, are used by providers mainly as an acquisition strategy, roughly 15% of Spotify’s paid subscribers for instance consist of former ‘freemium’ users drawn to premium-level benefits such as higher-quality downloads and no intrusive banner advertising. Spotify chief executive officer Daniel Ek argues that his service has helped the music business enter a "golden age," as people who share music online are more likely to buy more tracks and albums.

“Even though labels worried about the impact of free Internet radio, music social networks, and other streaming services like Pandora and Spotify, it looks as if those services are having the same effect that radio did back during the height of its viability,” notes Anthony John Agnello in financial news site InvestorPlace.com. “Free Internet music broadcasts appear to be encouraging digital music sales,” he says.

Looking for a leader

The speed with which the digital-download business has evolved has turned more than a few would-be sure-shots into eventual also-rans. One notable casualty was (former) digital-music provider Napster, which went head-to-head with Apple back in 2005 on the assumption that its Napster To Go portable subscription service—which gave customers access to over a million songs for a mere $15 a month—would help revolutionise the music-listening experience.

In 2008, however, a floundering Napster was acquired by retailer Best Buy on the cheap, and last year its remaining assets were sold to rival subscription service Rhapsody. By then, Rhapsody itself was feeling the heat from new arrivals such as  Pandora. “There are a lot of bodies on the road leading to success with a digital music service,” muses Tim Schaaff, chief executive officer of Sony Network Entertainment.

As such, betting on who will be tomorrow’s music-delivery heroes is no easy task. While up-and-comers such as Spotify are certainly attractive at the moment, it’s tough to argue with the proven track records and 25% profit margins of behemoths Apple and Google. Despite the lure of all-you-can-eat plans such as Rhapsody, Apple’s iTunes ownership model shows no signs of weakening.

During the final quarter of 2011, iTunes users downloaded estimated 16bn songs, good for approximately $1.5bn in revenue. Not to be outdone by the cloud crowd, Apple now offers its ITunes Match, a service that wirelessly syncs users’ iTunes music library between Apple devices using a cloud-based personal storage locker.

The fact that Apple has managed to maintain download supremacy through the creation of must-have proprietary devices (such as the iPad, iPhone and iPod) is obviously not lost on rival Google, which has already announced its intentions to move into the hardware market.

Earlier this year, Google got the green light to acquire Motorola Mobility––part of its ongoing effort to boost production of Android-based smartphones. Currently 40% of smartphones utilise the Android operating system, the Linux-based, Google-owned rival to Apple’s iOS 5 mobile OS. Additionally, the Mountain View, California-based company is said to be developing a proprietary wireless music-streaming system for the home that can be operated from an Android-based handheld device.

In with the in-cloud

While not nearly as competitive on an earnings-per-share basis as Apple or Google, Amazon’s standing as the industry’s overall download sales king makes it a strong contender going forward. Last year, the Seattle-based online retailing giant announced the premier of its Cloud Drive, a music-backup service that allows Amazon customers to store music in the cloud, using a “digital locker” hosted on the company’s servers, with the ability to access personal libraries from any location and on any computer.

Providing a more practical means of accessing users’ personal media libraries appears to be at the heart of Amazon’s cloud-based model, notes Frank Gillett, vice president and principal analyst for Forrester Research, called the move a “first salvo in a series of steps that will lead Amazon to compete directly for the primary computing platform for individuals, as an online platform, as a device operating system, and as a maker of branded tablets,” says Gillett.

In-the-cloud music plans, which typically offer users the choice of a free, advertising-supported plan, or a premium paid-for option, are fast becoming the medium of choice on the increasingly crowded digital-music frontlines. Compared to portable subscription plans of the past that only worked with a limited number of devices, emerging cloud providers have addressed compatibility issues by allowing users to access music through apps on smartphones and other connected devices. “This has vastly improved the quality and level of the consumer experience,” notes IFPI.

Live streaming music

One of the more visible cloud-based proponents of late has been Spotify, which allows users to live-stream music from the vast libraries of companies such as Sony, EMI and Universal. Like rival Rhapsody, Spotify users rent their music on a monthly basis by accessing tracks through an internet connection; premium members may also listen offline by downloading and storing music to a smart phone or similar portable device.

Where iTunes currently charges $1.29 to own a single track, Spotify users who don’t mind viewing the occasional banner ad may stream tracks free of charge (or pay $15 a month for music without any advertising).

Debuting in the states last summer, Spotify has since signed up some 2m US users, more than a quarter of which are paid subscribers. Spotify also became the first subscription service that enabled users to share personal playlists through a Facebook link, thereby turning conventional music streaming into a social experience. “Spotify has always had a keen sense of how to coexist in the broader ecosystem, rather than try to do everything itself,” says digital-media analyst Mark Mulligan. By integrating with Facebook, Spotify has found a way to simply the learning curve for its new users, suggests Mulligan.

Also joining the ranks of the cloud crowd is Sony Corp and its Music Unlimited Powered by Qriocity service, which links content across Sony-manufactured devices such as its Playstation 3 as well as Android-equipped smartphones. Google too has unveiled its own Google Music streaming/storage service that will allow users to access online music from a variety of devices, and share music through a social network (Google’s own Google+).

Equally important in the resurgence of the music trade has been the ramp-up in smartphone and tablet sales. In areas with higher-than-normal handheld uptake, subscription plans have fared unusually well. In Spotify’s native country, Sweden, for instance, subscription services accounted for some 84% of digital revenues through the end of last year.

Manufacturers of connected devices will continue to expand their reach, say experts, with sales of tablet computers expected to set the pace over the next several years. Research firm Gartner estimates that tablet revenue could reach $326m by 2015, led by Apple, which has shipped an estimated 55m iPads since the product’s debut two years ago. Meanwhile, sales of smartphones grew by 47% during Q4 of last year, reaching 149m units sold, according to Gartner. Apple’s iPhone accounts for nearly one-fourth of global smartphone sales, says Gartner, which expects smartphones to eclipse desktop computer sales over the neat term.

Own or access, or both?

As downloads continue to displace tangible media such as CDs and vinyl albums, for many the term digital has become synonymous with “disposable”—and for those users, subscription services that allow access rather than ownership remains the most logical choice. For that matter, it is the model that would appear to give iTunes a real run for its money.

Rather than battle for digital supremacy, however, subscription and ownership plans have managed to achieve profitability independent of one another. “The fact that these two models of consumption can co-exist speaks volumes about the future,” says Rob Wells, president, global digital business, Universal Music Group. “In fact, we have really only scratched the surface of digital music in the last decade—now we are starting the real mining, and on a global scale,” he says.

The bottom line: analysts and music executives alike believe that the current uptick in digital music sales is sustainable, and that the recent numbers reveal an industry on the cusp of a rebound. “We are still seeing healthy growth in the market for digital-music downloads,” observes Russ Crupnick, senior vice president of industry analysis at NPD Group.

Adds Stephen Bryan, executive vice president, digital strategy and business development, Warner Music Group, “There’s a race among the services to go global and plant the flag in new territories, and we’re seeing services that are generating revenues and growth. There is high engagement with these services. Consumers love them and spend hours using them.”

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