Welcome to the newest episode of Music Business Worldwide's (MBW) monthly podcast, Talking Trends, where we delve deeper into the news items that affect the entertainment industry. Voly Music is a sponsor of Talking Trends.
Tim Ingham, founder of MBW, replies to the news that Warner Music Group is co-investing in a new music acquisition fund with investment behemoth BlackRock this week on Talking Trends.
Ingham points out that this is Warner's second co-investment fund in recent years, following its Tempo Music vehicle with Providence, but also points out that Sony Music Group welcomed additional outside capital from Eldridge Industries in its $550 million purchase of the Bruce Springsteen catalog last year.
Why aren't these huge music corporations making these acquisitions totally with their own money?
It could be because they're hedging their bets against challenges to the music industry's possible future growth, according to Ingham.
"Today's music market demand, which is mostly driven by Wall Street investment banks," says Ingham, "means that multiples being paid for music licenses have gone crazy."
"There are risks involved. The chance of receiving a return on these investments could abruptly collapse if the music market changes or experiences a downturn in growth."
Ingham identifies three main areas where the majors may assume future music rights value growth will be slowed:
"There's a concern that future growth in music subscription streaming may not be as bright as some analysts predict."
According to Goldman Sachs, over 1.2 billion individuals will be paying for music streaming by 2030, an optimistic estimate that makes sense from many perspectives.
Yet, as Ingham points out, "Spotify's global streaming subscriber growth – in terms of volume – was weaker in 2021 than it was in 2020 [+25 million in 2021 against +31 million in 2020]."
Says Ingham: “When you look at the [banner copyright] investments being made in the business today, there’s definitely a question mark over whether these artists are going to be long-term mainstream propositions in non-Anglo-American markets.”
He adds: “Look at what’s happening to the charts in local markets globally: They’ve never been domestic in their tastes. MBW reported earlier this year that Italy’s entire Top 20 album and Top 10 singles in 2021 were from domestic artists. Where do Bruce Springsteen or Wiz Khalifa fit in that?”
Economic uncertainty on a macro level – and shooting interest rates in the months ahead. “Consumer prices are said to be rising by 5%, 7%, even 9% this year, while energy prices also shoot up making spending on so-called luxury goods or services like a streaming music subscription harder to justify for many people,” notes Ingham.
He adds: “Rising interest rates threaten to throw much of the borrowing and investment currently going on in music into a tailspin. Also, we don’t yet know the effect that Russia’s invasion of Ukraine is going to have on the fragility of this economic equation – but it’s hardly likely to be good news.”
