Losing $2m in Nigeria’s music industry

Black Summer on Netflix. S1 E8 12:00 mins

I looked up from my screen. Someone was screaming at one of my employees. Literally screaming at the top of his lungs in our open plan office. I stood up, called them in and asked what the issue was? Who the fuck did they think they were to walk in my office and speak to my employee like that? I ushered them into my office. I wasn’t angry, I was annoyed. I settled him (and his manager) down. What was the problem? At the time, we had 300 or so people in that building. Three of them worked on what was then known as “Iroking”. Long story short. He wanted access to his YouTube channel to verify the amount of money we said he was making. At the time we sent out screenshots + reports, rather than giving them direct access. Dude had <10,000 views on his videos — which he didn’t dispute. So the amount we were talking about was literally <$500. Ridiculous. But this was the example of the abuse we would endure whilst losing millions of dollars in the music business in Nigeria. I have had A-list artists literally come into the office and straight out call me a fraud and a liar. As if they had the evidence in the file and were about to expose me to the world. I have had your parents’ favourite artists sue Iroking for N200m over a revenue share dispute for sums <$5,000. The social media reason was that my organisation was arrogant and they were going to “show me”. The real reason was that they had wanted to sit down and meet with me for six months, but I was in London nursing my deeply sick wife through our last months of a terrible pregnancy, so I literally wasn’t around.

In the same year, IROKO started incubating ROK. We started a little music distribution company called Iroking. The ambition was to replicate what Spotify had started to do in Europe, but more importantly what the Saavn folks were attempting to build in India. We met Saavn at a Tiger Global internet conference in 2011 and immediately understood (at least we thought) that perhaps IROKO had a unique skill set to try this opportunity across Africa. And for Nigerian music. Alas whereas ROK has thrived into arguably one of the most valuable independent media companies in Africa, Iroking died a slow cancerous terminal death. But back then I was full of optimism.

iROKO has the most awesome team at monetizing Nigerian content online. We have built a multi-million dollar business in 2 years, distributing movies on iROKOtv. In 2013 our largest source of revenue is iROKOtv PLUS, our $5/mth subscription service. We have institutionalised managing and taking tens of thousands of payments directly from fans globally. Of the overall revenue, iROKING represents a mere 15% of our annual income, whilst at a monthly reach of 4Mn, 75% of our 6Mn unique per month reach. That for me is opportunity. Again my focus is to bridge that gap. In the end I founded iROKING. I know what it took to build the business we have today. iROKING is no longer a startup. It has recurring revenues, several hundred artist relationships and a lot of potential to live up to.
In the end the company that generates the most revenue for the industry at large will stay in the game. Those who do not, will not. It’s that simple. I like simple things. IROKOtv was built on such a mantra.

So to start off. Is Iroking dead? Yes, yup of course. It officially died as a corporate entity over a year ago 27/03/2018. Here is the notice of impending closure available for anyone who cares at Companies house UK.

See, Iroking was never a Nigerian entity. We structured it using the fuckability factor, in mind. I assumed everyone was going to try and fuck us over so ALL contracts (and disputes) were and are under UK law. Folks try to dispute their UK contracts in Nigeria but irokotv.com ltd corporate legal bench is deep with Aluko & Oyebode, Olaniwun Ajayi LP, Banwo & Ighodalo and Horizons Attorneys, some of the meanest law firms in Nigeria on standby, if they want to go down that route. We can afford to invest N10m to defend ourselves on some spurious legal case and unfortunately have had to too many times, I must add. Most artists can’t so they end up making noise on social media. In hindsight, if I am be honest with myself (and you), I think Iroking was doomed from the start. The unstructured nature of Nigeria and subsequently the music industry demonstrated why it’s sometimes impossible to create value even with the best of intentions. Or if you miraculously end up creating something, it's weirdly smaller than it should be. We thought we had a winning formula. We gathered hundreds of musicians and tried to build a structured distribution system for them, underwritten by our own money. 90% turned on us in a heartbeat when the opportunity arose. All in, Iroko lost ~$2m on our little experiment in the music sector. Others lost orders of magnitude more than that. The vast majority of this was via guaranteed revenue share agreements with musicians, sponsoring tours ($90k) and other corporate activities. Yet even though we were basically giving away money and doing all the work, we were constantly under the threat of legal action.

Let’s put this into perspective. For eight years, the Music group at IROKO (distribution across YouTube, Deezer, Spotify, Google Play, iTunes et al) never generated more than $350–400k in any year. In fact in 2018, our total music activities generated $212.9k (we have been losing artists for years). That’s gross revenue o, as 80% of that goes back to the artists. Our commission is a mere 20%. This was a distraction at best. To be honest I don’t even know why we still bother. For true context.

In 2018, IROKO as a group generates more than $212.9k in a week.
see my fat head from all those years ago

Over 5 years ago in Dec 2013 I retook the helm (must read) of our music service Iroking after rebel employees attempted and largely succeeded to seize the business (we’re still in court). In 2013 Iroking represented 15% of IROKO’s annual revenue. In 2017 the last full year of activity it represented ~3.6% of our revenue. But in terms of legal fees and unnecessary headache, it has historically represented somewhere close to 80%. Every year, someone or other goes public with some claims that somehow Iroking (or IROKO) or more social media friendly version is JASON NJOKU has somehow defrauded them and harvested their sweat & hard work for profit. What profit mind you... The individuals, the egos and bullshit. Over time, I just stopped bothering about it. Did I think the opportunity is there? 1,000%. Do I think it is difficult? 10,000%. But I just don’t have the liver for it. Many have tried. Most of failed in some way or the other. Me? I’m just tired.

Talent Management

I rarely speak or have any relationship with talent in Nollywood. Literally other than the Hon Desmond Elliot (who is one of our longest production partners), I’m pretty confident none of them even has my number. Mrs Njoku deals with 100% of that. She told me in 2011 that when Nigerian celebrities see you too much or you’re too familiar, there is a natural likelihood that they will lose respect for you. It’s just the way the celebrity world works. I’m okay with that. The Njoku’s don’t like the glitz and glamour anyway. The result of that is that I can’t recall being disrespected or called out by talent in my almost decade in the Nollywood industry. Most people you will know or recognise in Nollywood have never actually met me. The Nigerian music industry? I have been abused countless times by musicians for a variety of reasons that literally make no sense to me. Below is a message I sent to an artist who was giving me heat last year for a <$1,000 payment. I don’t blame him, he was justifiably annoyed at IROKO as for whatever reason we were late in paying him his money. It’s his money and if that was me I would probably be annoyed too. I don’t speak to producers, but musicians and their management — when they abuse my people (which is pretty often) I just tell them to share my number so they can direct the heat my way. We are by no means perfect. The admin required to aggregate payments from different platforms for different artists and time frames means we are always late in paying. But a criminal organisation we are not. Scam artists bleeding young talent of their livelihood? Hardly. I usually forget we are in the music distribution business. We turned off the site over a year ago… Nothing happened. No one cared. If that’s not an indication that we didn’t need to exist. Well…

In 2014, the said A list artist (from above) sat in front of me, after I had paid him $70k/year (over 2 years) and stated that he hadn’t even recouped his money and accused me of stealing from him. That he was here for justice. In the end, in real time, he realised that the deceit was coming from within his team. His own people had stolen from him. I guess he never bothered to read his contract. The things I have seen.

Where are the deals?

People always ask me why Nollywood can’t be big like Nigerian music. Why it can’t be global. They are making sooo much money whilst Nollywood is struggling. I always smile. There isn’t a way anyone makes money in Nigerian entertainment that I am unaware of. It’s my business to sit around and understand the lay of the land and figure out monetisation opportunities. So I see the money. Forget the social media noise. I know people who have flown PJ a few weeks back and then needed house rent bailout money shortly after. The Nigerian music industry should be worth hundreds of millions of dollars. It’s not. Not even close. The reason? A lack of respect for the law. In 2013, after the initial abuse at the hands of the music industry had subsided, I wanted to understand what had gone wrong. It didn’t make sense to me. I had started the digitisation of the music business in Nigeria, signed the original deals with the talent, they were paid upfront, it's not like I was owing them or going out of business. Granted, I have never partied with talent. Never sat and chilled with them and discussed the finer aspects of their craft (zzZ). Perhaps I wasn’t a music man. In fact, other than the very early days, the last time I really had a conversation lasting more than 10 mins with a Nigerian musician was with MI back in 2016 when we randomly bumped into each other at JoBurg airport. What I wanted to understand from the then major Nigerian labels; I met with Efe Omorogbe (Now Muzik), Obi Asika (Storm Records), Segun Demuren (EME), Audu Maikori (Chocolate City) and Ubi Franklin (MMMG) my question was simple. Why (or how) they had stood by and allowed someone who obviously had good intentions and was actively investing in their industry, be essentially taken advantage of? I had invested and lost $2m. With the right support, I was ready to invest and if need be lose $20m. That's the kind of game we play in technology. That it was very dangerous of them to allow their artists to not only lose respect for the value of contracts, but to break them? Very dangerous and potentially fatal. Little did I know that over the following five years, pretty much every label has lost their main artists in acrimonious contract disputes. That genie is out of the bottle. No Nigerian artist really respects contracts or their labels. They are just biding their time until they blow so they can go solo. Today’s model for success in Nigerian music is performer-owner-operator of their own labels. Olamide, Flavour, Phyno etc. This isn’t by accident. It may be that A&R and the record label, as we traditionally know it, is dead in Nigeria.

Remember in July 2014, I penned this article - Music Millionaires and their angels (there is always a story behind a story when I write). It’s interesting - I was lamenting five years ago about the lack of money in Nigerian technology. Boy was I wrong. Thankfully things have exploded in such a short time. In fact, there is too much money in the early stages of tech. There are more USD millionaires in technology in Nigeria than musicians, if you ask me.

Music executive Kevin Liles, who worked for Def Jam at the time, told The Wall Street Journal that Def Jam tried to offer Jay-Z a traditional signing deal, to which the rapper replied, “I own the company I rap for.”

Historically what has always been normal in the music business is that alongside the mainstream growth of new music genres (rock, reggae, hiphop, electronic dance music etc.), you would see the growth of the record labels that created the genre. When the major music companies wanted to tap into this new market, they had to buy their way in. And those were some mighty numbers.

Music M&A

Berry Gordy sells Motown Records to MCA for $61m (1988)

Geffen Records Sold in $550-Million Deal

Thorn EMI agreed to buy Virgin Music Group for $960 million

MCA Offers $200 Million to Acquire a 50% Stake in Interscope Records (Eminem / Dr Dre / 50 cent)

Universal Music Group acquired Def Jam from Russell Simmons for ~$100m

Jay Z’s Roc-A-Fella Records sold to its parent label, Island Def Jam for ~$30m

Cash Money Records signed a distribution deal with Universal Music Group which included $100 million in advances

Polygram acquires Island Records for $300m if you don’t know who Island Records is. You should. Founder Blackwell is “the single person most responsible for turning the world on to reggae music.”

Forming Island Records in Jamaica on 22 May 1959, not quite aged 22, Blackwell was among the first to record the Jamaican popular music that eventually became known as ska. Returning to Britain in 1962, he sold records from the back of his car to the Jamaican community.
Backed by Stanley Borden from RKO, Blackwell’s business and reach grew substantially, and he went on to forge the careers of Bob Marley, Grace Jones and U2 amongst many other diverse high-profile acts.

Warner Music buys Electronic Dance Music Spinnin’ Records in $100m deal . Founded by Eelko van Kooten and Roger de Graaf in 1999, Spinnin’ Records has released music from Martin Solveig, Armand van Helden, Fedde le Grand and Tiesto.

eOne Acquires Audio Network for $215m. Audio Network has over 150,000 high-quality tracks across all genres, used primarily in TV, film and advertising. The indie company represents over 1,000 artists, composers, and producers. Its clients span across TV, advertising, digital media, and enterprise industries. The 14 year old company generated $37.66m in annual revenue and $12.47m in profits.

And finally, and most recently, arguably the biggest recording artist in the world right now, Taylor Swift left the label, Big Machine, who discovered her at age 13 for Universal Music Group. She left amicably yet Big Machine music still retains her past catalogue which Universal Music Group are in talks to acquire for $300m

See. I am yet to see a deal happen in the Nigerian music space. Mavin deal could be the first step but it’s more of an investment than an actual acquisition. Will an acquisition ever happen? I sincerely doubt it. A little wooing of the artist, they break their contract and sign for a major label. If those deals were to be done, they would have been done already. Without these deals or companies created with $20m+ valuations, Nigerian music will remain small relative to its cultural impact and popularity. Platforms scale after all. People don’t.

Music for free

Spotify announced yesterday that it has just passed 100m subscribers. They by far generate more for the music industry than any other platform (YouTube included). Whereas in Africa we still live in free land and have #1 player Boomplay who just announced their $20m fund raise. Boomplay, a service founded by Transsnet — a joint venture between Chinese phone maker Transsion (Infinix / Itel / Tecno) and Chinese consumer apps giant NetEase ($38B NASDAQ listed) is definitely not a startup and my sense is between being owned and then preloaded and pushed (for free) on Africa’s largest number of devices is the reason why they have the 42m users (if you believe this number — I don’t). I’m interested in how many people are actually paying for the service. N500 ($1.81) for 500 coins. So N1 per coin. With subscription daily N49 ($0.14) / weekly N199 ($0.55) / monthly N499 ($1.80). Streaming is free but download is N20 ($0.05). I don’t believe the advertising market makes sense in Africa yet unless you’re Opera, Truecaller, Facebook or Google. I will be interested to see how this pans out. It definitely won’t fail with those billion dollar companies supporting it.

Coming full circle, it's interesting that Saavn was just acquired for $301m by Indian telecom behemoth JIO. At the time of acquisition, it had $6m in annual revenue. But not without some small drama.

In a market notoriously tough to monetise, not only in India but also in developed markets like the US and China, the valuation of the merged entity has left investment bankers and analysts, who track the sector, surprised. 
As per the terms of the deal, Reliance Industries has invested $124 million into Saavn at a pre-money valuation of $177 million, a 40–50% discount to the last round valuation, when Saavn raised $100 million in 2015. This pegs the post-money valuation of the entity at $301 million. Of the $124 million investment, $104 million is to be paid to existing investors via a buyback, according to sources, and $20 million infused into the company for operations. source

As for Iroking? Our dreams of building a massive platform were laid to rest last year. At the time we had ~1m people per month downloading licensed content. We wanted to be a platform but somehow we failed. We are okay with that. At least we tried. Failure is part of our experimental process.