Creating Shareholder Value in the Robust Music Catalog Acquisition Market
The future of marketing music catalogs is rich with opportunities to create immense shareholder value.
Since we started writing this content series, more than $1 billion have been spent by record labels and investment companies to acquire music catalogs. Now that these acquisitions have closed, the question becomes– what now needs to be produced in order to justify this level of investment?
In looking at the music industry on the macro level, the reality of the business today is that streaming is plateauing and that the average revenue per customer is dropping, without any return to previous levels. Ad-supported media such as YouTube is quickly becoming the number one revenue source for music on the master and composition sides. Even with these opportunities, inclusive of the surge in vinyl sales, these revenue sources are still not bringing in enough growth opportunities to match the level of investment in catalog.
Veteran music executive Olivier Chastan mused on the same predicament, wondering out loud “where is the ceiling?” in the article “Song Catalogs are Selling for Big Bucks, but Will the Trend End on a Bum Note?” (Los Angeles Magazine). With this inquisitive framing, Chastan poses an astute challenge to the trajectory of continuing acquisitions while staying close to traditional marketing tactics, noting that through this playbook it’s “more about rearranging the pie slices than growing a much bigger pie.”
While labels may shift and adjust strategy, the future for music revenue is largely predicated on what the giants in technology (Apple, Google, and Amazon) will do next. With the possibility of bundling streaming services in the future, we propose to already begin looking ahead to integrating the next big tech innovations into marketing strategies for catalog assets.
As the market continues to heat up for music catalogs, the competition for these assets will continue to grow as well. The long-term return for shareholders can no longer be based on streaming.. This future has already begun to materialize, with Amazon Music recently announcing a new bundle package that offers an Unlimited subscription option that comes with up to six months of Disney+ for free (Billboard). With this trend set to continue, we can only expect further streaming revenue erosion.
As competition for assets continues to escalate, where are these future opportunities? In the technology explosion that we’re experiencing right now, much of the advancements are being driven by AI data insight. As detailed by Outside Insight’s “How AI helps Spotify win in the music streaming world,” “Spotify offers a potent example. By utilizing AI and machine learning to discover and act on sights from external data and user behavior, Spotify is then able to create options such as algorithm-generated playlists.
Technology continues to drive revenue patterns, yet most labels involved in catalog acquisition have been lacking parallelly up-to-date, advanced technology. In most cases, many of these catalogs are being acquired without a deep understanding of all of the assets, metadata, databasing, and connections to AI. Yet, the tech companies profiting off this music are incredibly sophisticated in terms of what consumers want as it relates to music.
As we unpack technology’s big bang, we wish to underscore how music is being impacted by each domain of technological advancements. Below, we present case studies in the biggest areas of potential growth for catalog:
AI
Venture Beat reports that AI was expected to be a $70 billion market in 2020, ultimately “helping reorchestrate the way audiences consume music content.” As the report goes on to detail, “one of the most effective marketing tools industry pros can utilize is the consumer data mined through AI’s machine learning.” While Spotify’s case study above provides clear evidence of this, the tools available through AI reach as well to audience engagement metrics, data filters, YouTube and recommendation engines, and automatic marketing tools. The future of music will be driven by artificial intelligence and any company that is going to be a part of the big board will have to have a robust AI team.
As recently shared by Microsoft, this perspective shines through in the launch of the 88rising project, dedicated to “bringing Asian music, art, and culture to US audiences.” By creating a never-ending remix of Warren Hue’s “Too Many Tears,” AI becomes a tool for being in dialogue with the cultures of California’s San Gabriel Valley, one of the largest Asian American communities in the US. Microsoft Custom Vision AI achieves this limitless remix by “analyzing a video feed streaming from an overlook above the San Gabriel Valley, and identifying various events in the landscape and skyline that the music track then reacts to in real time.”
Holographic Projections
While holographic projection technology offers the possibilities of yet again seeing the greats like 2PAC, Amy Winehouse, Roy Orbison, and Buddy Holly on tour again, MusicTech argues that the reach of possibilities is yet to be seen. In an interview with BASE Entertainment CEO Brian Becker, he shared that “our focus is to combine the substantial and still-growing demand for live concerts, theatricals and spectacles with the accelerating interest in virtual reality (VR), augmented reality and holographic film technology.”
Dr. Timothy Jung of Creative AR & VR Hub also weighed in, sharing that “It seems holograms will be one of the most powerful pieces of technology for the future of the live-music industry, but the quality of hologram and harmony between physical music performance is essential. It has to go beyond gimmick to survive.”
Augmented Reality
Universal Music Group reached a global deal with Snap Inc. that spans recorded music and augmented reality experiences in a “‘multifaceted’ global agreement.” Under the agreement terms, Snapchat’s Sounds tool now has access to UMG’s entire recorded music catalog on a global basis. Additionally, UMG is “developing augmented reality music Lens content featuring the company’s artists that will be regularly available in Snap’s Lens Carousel and Lens Studio, with the opportunity to feature merchandise launches and e-commerce experiences.”
Virtual Reality
Epic Games, the creator of Fortnite, announced a partnership with Island Records UK to create an “interactive music experience” featuring the alt pop band easy life and a virtual recreation of London’s O2 Arena– all to take life within the Fortnite Creative geography. The virtual concert marks a first for Fortnite, in which festivalgoers can “virtually visit six areas, each inspired by a track from the band’s debut album life’s a beach, which entered the UK Album Chart at №2 last month.”
Mbryonic has also shared a curated list of the best VR music experiences. The list shows that heavy hitters such as The Weeknd, Harmonix, SquarePusher, and Intone are all trying their hand at creating immersive experiences in competition for captivating audiences, whether it’s offering 360 degree visuals, music visualizers, and guitar motion trackers.
NFT
NFT, or Non Fungible Tokens, exist to authenticate the ownership of digital assets. NFTs continue to expand rapidly in value, with platforms such as Ditto’s Opulous and Bitski raising multi-million dollar funding rounds.
The NFT space also affords its share of controversies; as Music Business Worldwide reports, Roc-A-Fella Records, founded by Jay-Z, recently sued co-founder Damon Dash for “allegedly planning to sell a share of Jay-Z’s debut album Reasonable Doubt as an NFT.”
5G
All of the above options can now happen as propelled by the accessibility of 5G technology. At a pace 50–100 times faster than 4G and with download speeds as high as 100 GB per second, tech resources can now run with no delay between command on one end, and the network on the other end.
5G becomes a resource for facilitating audiences having access to anything that they wish to experience. As digital and physical environments merge and intersect, one can just as easily visit a Celia Cruz concert in Bogotá, as well as to have the agency to dictate where the concert goes.
Making the case for building a brand
Though there are a vast menu of options of technological integrations on the table, at the end of the day, the only way to produce the maximum shareholder value is through an audience’s connection to the brand. Valuations today are instead based on treating catalog acquisitions as commodities, without fully understanding the brand value.
Catalog acquisitions being leveraged to their full potential makes way for the greatest space of opportunity, as many catalogs are acquired without a full understanding of the depth of connection that can be fostered through the label brands, catalog artists, and catalog releases. This space of opportunity makes way for innovations in creating the master brand based on the actual value, the emotional connections, and the user experience across multiple platforms, which ultimately differentiates and sustains them.
In his course on brand strategy, Scott Gallagher defines a brand as “The collective feelings/beliefs/perceptions of all relevant individuals who interact with the organization, product or service. They exist in the hearts and minds of consumers and are difficult to objectively value.”
As the field continues to grow with new players, as well as the current giants, what we do know is that in the consumers’ mind, not one of these companies owns a brand. Today, there is very little point of differentiation or awareness. Most companies that have built strong brands have done so by understanding how they are different, relevant and can sustain this over a long period of time. We believe the same will be true with the future of the music industry.
To create a brand strategy, you have to first understand your brand essence, and then have a deep understanding of what your consumers are aspiring to with having music a part of their life. If your brand was a person, how would you describe them? What is your brand symbol? What are your brand attributes? And how are you going to own the brand internally, especially in today’s music catalog companies that are growing fast, in which employees from multiple companies are coming together. What are the shared values, and what point of the relationship are you going to focus on (pre-experience, experience, post-experience).
In confronting the challenge of how to develop a strong brand strategy and brand architecture, the question then becomes how to own multiple label brands and artist brands and still create a sustainable brand that brings enormous shareholder value. The choice between delineating a master brand, sub-brands, endorsed brands, and invisible brands all comes down to resources. Many companies don’t have the resources required, both capital and human resources, to grow a substantial number of sub-brands, endorsed brands, or invisible brands, leaving the master brand the most viable strategic option. And because of the pace of acquisitions, most of these companies are experiencing brand chaos right now.
As this cycle slows, the winners will be differentiated by owning a strong brand.
Infopesa, a strong catalog brand case study
In closing, we offer a case study to illustrate the successes still possible in this space. Infopesa, founded in the 1970s by Alberto Maravi, became home to a recording studio, record label, vinyl plant, and vinyl store. Beginning in Perú, the label went on to introduce the world to variations of Peruvian cumbia, salsa, and boleros.
Today, Infopesa is run by Alberto’s son, Juan Ricardo Maravi, who realized the true value of the company and began to rebuild the brand globally in the new digital world. He and his team have embarked on remastering more than 1,000 titles, issuing limited vinyl releases, and creating a community of fans on social media, all while publishing new releases, videos, and artwork– all the while telling a compelling story. Juan Ricardo has kept consistent with Infopesa’s original brand attributes, offering up the feeling for fans to be a part of a wider family, while also creating a value that is much higher than simply the value of its assets.
The music industry now has choices to make at a crossroads– to be dragged into following the currents of technology led by giants like Apple and Google. Or, to determine how to be best ahead of the game, and to take advantage of both traditional and emerging revenue streams. When being dragged into these currents, the return is pennies on the dollar. When deciding to move to the flow of innovation and creation, it becomes possible to get a bigger piece of the pie. Only then does the pie get even bigger.
Written by Sara Skolnick and Michael Rucker.
Skolnick is a creative strategist with more than 10 years of experience at the intersection of music and technology. She is the founder of the record label APOCALIPSIS.
Rucker is a Managing Partner at Pinal Group and was the former Chief Marketing Officer at Fania Records. He has more than 15 years of experience in the marketing of music catalogs.
