MUSIC, MONEY AND CREATIVITY
The global music industry is on a roll, but with billions at stake, how long can it last? In this edition of Future Vision, Juliana Koranteng, founder of JayKay Media, publisher of MediaTainment Finance (MTF) and TechMutiny, and owner of exclusive media investment database MTF Monitor offers up some cutting-edge insight into the future of music media investment.
Q. Even before launching JayKay Media, you were a contributing editor at Billboard and other publications. MTF and TechMutiny each year provides exclusive coverage of investments in, and changes or disruptions to, the international media, entertainment and creative sectors. In other words, you've spent much of the last few decades looking into the business of music. What's the attraction?
A. Music is the most accessible of all the creative intellectual properties, but it is also the one that other creative sectors, including film, TV, live entertainment, sport and advertising, cannot do without. So that's the attraction but, on the money side, investing in music at the professional end is not for the faint-hearted.
Q. There is clearly a resurgence in the global music industry. What are the top drivers from your point of view?
A. After more than a decade of being battered to death by its initial inability to grasp the long-term potential of the internet and digital media, the global recorded-music business is coming back to life. IFPI tells us it now generates more than US$19 billion a year and has reported healthy growth annually in the past four years. Streaming platforms like Spotify, Apple Music and Deezer are significant contributors to that growth. Unlike physical CD sales or digital downloads, the subscription-funded streamers appeal to a generation of fans who want easy access to music anytime. Making it affordable has also given illegal music pirates a run for their money.
Q. In fact, isn't it the internet and smartphone penetration that has been the main driver?
A. That and the emergence of a new generation of musicians who are not shy of social media. Gone are the days when bulky CDs from Western markets had to be shipped to far-flung places at great expense. Increased internet and smartphone penetration and digitally savvy artists in Asia, Africa and Latin America are giving a big fat exponential kick to the overall market.
Q. MTF Monitor, the data-gathering side of JayKay Media, collects and curates exclusive data on the investment side of the creative businesses. What is the data on music telling you?
A. To begin with––and I don't think it's any surprise––it's telling us that it's the billion-dollar media-owning conglomerates that are pouring the most money into the business. In the last decade, Vivendi stepped up to become 100% owner of the Universal Music Group; Access Industries became the owner of Warner Music Group; Sony Music Entertainment, a subsidiary of the Sony Corporation, is 100% owner of Sony/ATV Music Publishing; and then there's NASDAQ-listed SiriusXM, the largest music-radio platform in the US, now majority-owned by Liberty Media, a company that previously mainly collected cable-TV assets.
Q. So where do the majors fit in?
A. The three Majors—Universal, Warner and Sony Music––are now increasingly positioning themselves as investors answerable to shareholders and the artists they sign up. But they are facing competition from a new generation of contenders, including Bertelsmann-owned BMG and privately owned Kobalt; both are expanding vigorously through acquisitions.
Q. So how do investors see this landscape? What challenges do they seem to be grappling with the most?
A. Between 2000 and 2011, the major labels were changing hands for between US$1.5 billion and US$4 billion. Universal took over rival EMI Music in 2011 for UK£2.1bn ($2.7 billion). Today, Universal is the world's largest recorded-music company, and now that Vivendi wants to sell half, is said to be worth between US$30 billion and US$40 billion. And investors are certainly interested: after all KKR, Citigroup and Terra Firma Capital have propped up some of the major music companies during periods of crises.
Q. That's the upside. Any pesky worries on the horizon?
A. Oh yes. We're seeing private investment groups, private equity firms and venture capital companies remain wary of how to evaluate the returns on music intellectual property. And then there is one other cog in the works: the recorded music sector may now be doing well but whether anyone can afford it is another matter. An asset that cost about US$2 billion a decade ago but more than US$30 billion today makes it very, very expensive, if not too expensive for anyone to buy – apart from the deep pocketed tech giants like Google that are said to be already too powerful in media and entertainment. It's one thing to give Universal a price tag; another for a company or even a conglomerate to actually afford that price tag. Potential investors will be doing a lot of homework to forecast the possible long-term returns.
Q. The 2018 Music Modernisation Act passed in the US in December and the amended EU Copyright Directive in April appear to give independent artists a bigger slice of the pie. Streamers are not taking this well. Might other territories follow?
A. Tech giants are not happy but both laws rightfully recognise that digital music plays a pivotal role in the billions being made by consumer tech platforms like YouTube, Facebook and other members of the Silicon Valley posse. The regulators want them to compensate the people who create and/or own the copyright to the music. But both laws have only just passed––and, of course, loopholes never really emerge until they blindside you. Other regions are definitely keeping an eye on what is happening in the US and EU before deciding whether or not to forge ahead with similar legislation.
Q. MediaTainment Finance recently worked with MIDEM, Reed MIDEM's major international music event (June 4-7, Cannes), on two major White Papers: one on the music industry in Sub-Saharan African and the other on Latin America. What were some of the more critical findings?
A. For decades, the Western music business saw Africa as a cause lost to piracy but there is big change in the air. Major record labels now understand that there is a new generation of digitally astute investors, entrepreneurs and artists in the Sub-Sahara who are not only just as savvy as their Western counterparts but intimately knowledgeable of local culture and consumer habits. As a result, a new business model that favours partnerships, rather than takeovers, has emerged. This is a much healthier approach that I think it will lead to more income and, of course, boost overall global revenues.
Q. How is Latin America different?
A. The business in Latin America has always been better structured than it has in Africa, but it has traditionally taken place within individual countries rather than the more regional approach that has long been the template for TV and film on that Continent. I believe it is only a matter of time before the Spanish-speaking territories and Portuguese-speaking Brazil join forces to coordinate the business at a pan-regional level since they already collaborate to some degree with both US Hispanic and Iberian companies.
Of course, streaming helps push the bar and as a result, global exposure to a greater variety of music is growing exponentially. It doesn't matter if you haven't heard of Nigeria's Davido and the Afrobeat genre, Asian artists like Psy and Korean boy band BTS, as well as Puerto Rico's Bad Bunny and Colombia's Bomba Estéreo. They are gaining an international audience because they are all streaming.
Q. What's all the excitement over Tik Tok about? Is it mainly for indie artists or is it something that could eventually benefit the entire industry?
A. Social media and messaging platforms are very powerful consumer communication and marketing tools. It is not surprising that another one like Tik Tok has come along to target pre-teen Gen Z fans, who see Facebook as becoming old hat and Snapchat as no longer cutting it.
With an estimated 500 million users worldwide, Tik Tok, a video-sharing app that enables its young users to create snack-sized music videos in which they are the stars, is making an impact. It is fun, and it is a great way for celebrities, including music acts, to reach teenage and young-adult fans.
But like all the latest global crazes, Tik Tok is attracting some negative attention. Regulators in countries like the US and India are concerned about privacy and potential abuse of personal data. Tik Tok has already fallen foul of the related laws and has been fined the hefty sum of almost US$6 million by US regulators for failing to block inappropriate content for kids under 13.
Launched as recently as 2016, Tik Tok is a good example of the Catch 22 of rapidly evolving technology: in the new digital world, no new-tech brand has enough time to become established before another aggressive rival comes along. This Catch 22 can be disruptive. Consumers enjoy the steadiness that comes with an established brand, including media services, especially ones that know how to stay relevant with the changing times. They would rather a Facebook stayed relevant instead of having to adopt to a new social platform every two years.
Q. Why should investors care about tech's impact on music? Tech as a tool can help or hinder the creative process. Which is it doing?
A. Let's just say that tech's role in the future of human creativity should not be dismissed by investors. As a distribution and marketing tool, digital tech has given the industry more than its money's worth. Free access to quality recording apps like SoundCloud, video platforms like YouTube, distribution and marketing services like Spotify and Apple Music, for example, has produced a generation of talented artists that in the analogue past would have remained unknown unless they had a recording contract. And some of this new generation of artists know how to use technology to reach their fans directly. Many are also entrepreneurial; they know how to sell their talent to the business on their own terms.
Q. Virtual Reality, Augmented Reality (AR) and Holograms? What's your take?
A. Exciting stuff but they are still experimental. When they eventually emerge from that cocoon stage, they can only enhance the distribution and marketing of music. I see a time when fans will one day be able to order an AR version of their favourite act to perform live in their garden or living room.
Q. What about Blockchain and AI?
A. Theoretically, Blockchain will give rights owners and creators the ability to keep track of every penny of the royalties owed them. What the actual reality will be, only time will tell. Whether AI will ever replace the role of the creative human being raises far more questions than it answers but several start-ups are looking into it. Jukedeck, AIVA, Amper Music and LifeScore are among tech companies offering AI-powered original music composition. And the end results are definitely not embarrassing. Auction house Christie's recently sold a portrait painted by AI for more than US$400,000.