Against all predictions, music is making money again

Against all predictions, music is making money again

Anyone who predicted in 2009 that a record company would become one of the largest IPOs in Amsterdam would probably have been considered crazy. It was the eighth year in a row in which worldwide music revenues fell, partly due to the ability to copy CDs and illegally download music on a large scale. Store sales imploded; Free Record Shop divested the Northern European stores to focus on the Benelux; the beginning of the end of the CD case.

Twelve years later, the reality looks very different. The world’s largest record company Universal Music Group, which releases music by artists such as ABBA, The Beatles, Coldplay and Billie Eilish, will make its entrance on the Amsterdam stock exchange on Tuesday. Analysts overestimate each other in their expectations. While the estimated valuation in August was still at an average of 30 billion euros, that increased to 40 billion the day before the IPO.

The French media conglomerate Vivendi, currently 70 percent owner of Universal, will hold a 10 percent stake after the IPO. The rest is brought to the stock market. A consortium led by the Chinese Tencent – ​​owner of TikTok – retains 20 percent ownership. The remaining 10 percent belongs to Pershing Square, the investment company of American investor Bill Ackman. The latter definitely sees a growth market in the music industry, he said in a jubilant presentation to investors this summer: “You need food and water to survive, but then comes music.” His suggestive addition: you cannot charge royalties on food and water.


Whatever Ackman wanted to say: there is money to be made with music again. The industry has reinvented itself by turning its sales and distribution model upside down: no longer through the sale of cassettes, CDs and LPs, but through subscriptions to streaming platforms such as Spotify, Soundcloud and Deezer. Instead of a one-off 20 euros per album, consumers pay 10 euros each month for more music than they can imagine.

“For the industry, this turnaround has been contradictory, if not totally controversial,” Universal chief executive Sir Lucian Grainge said in a written response. “But by partnering with tech companies big and small, we contributed to a mass migration of consumers (…), giving us reach we had never seen before.”

Figures from the international music sector organization IFPI underline Grainge’s reading of how the industry has changed. The tipping point was in 2011, when global streaming revenues began to grow exponentially — from $0.6 billion to $4.6 billion in 2016. Last year, streaming revenue outstripped all other revenue sources combined, and total revenues are of the music industry ($21.6 billion) almost back to pre-piracy levels.

Also read: Why does the musician sell his music?

Universal Music Group (about 9,000 employees worldwide, turnover 7.4 billion euros) calls itself a media company that focuses on managing and promoting artists and their music. The scout young talent offers them the opportunity to further develop their music and eventually puts the hit-to-be on the market. In some cases, the label arranges producers, studio space and, nowadays indispensable, a manager for their social media.

A small amount at a time

In addition, the label also keeps track of the counter: every time a song by a Universal artist is played via Spotify, YouTube, TikTok or the radio, a small amount is charged. This, added to the income from streams, accounted for the lion’s share of the turnover (5 billion euros). Universal manages the rights of major artists such as The Rolling Stones, ABBA and Marco Borsato. The value of these became apparent when Bob Dylan sold the rights to his entire musical oeuvre to Universal at the end of last year. It is reported that about 300 million dollars (256 million euros) have been paid for it.

Despite the label’s services, there are regular criticisms from artists, who feel that the royalty amount they receive is very small compared to the streaming platforms and the record labels. In the United Kingdom, two organizations under the name ‘Keep Music Alive’ have been conducting a public campaign since last year to better pay musicians and songwriters. The problem for artists is that they often can’t get around Universal if they really want to break through, JP Morgan analysts note in their report: “Where the barrier to distribution has never been lower for artists, the barrier for success higher than ever. Their greatest chance of success is to work with UMG.”

Universal wants to develop new ways to generate revenue in the coming years. For example, in addition to rising streaming revenues, it expects to earn money from so-called ‘Topfans’ – music lovers who are willing to pay extra for exclusive music or special merchandise. In addition, the streaming platforms offer a growing wealth of marketing data about the popularity of artists by country.

Worldwide music

It offers the label great opportunities to market music worldwide, says CEO Sir Lucian Grainge. “High growth potential markets, especially Latin America, China, Africa, India and Southeast Asia, are increasingly contributing to revenues. As the industry grows, so does the rewards for successful artists, and as a company we believe we can massively increase the chances of artists achieving global success.”

Universal will be listed from Tuesday. The French owner Vivendi set the reference price on Monday after trading at 18.50 euros per share, which would put the total market value of the record label at 33.5 billion euros. It may be clear: video didn’t kill the radio star.

Against all predictions, music is making money again
Source link Against all predictions, music is making money again

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