Welcome to the latest episode of Talking Trends, the weekly podcast from Music Business Worldwide (MBW) – where we go deep behind the headlines of news stories affecting the entertainment industry. Talking Trends is supported by Voly Music.
This week on Talking Trends, MBW founder, Tim Ingham, responds to the news that Warner Music Group is co-investing in a new music acquisition fund with investment giant BlackRock.
Ingham notes 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 invited outside capital from Eldridge Industries last year in its acquisition of the Bruce Springsteen catalog.
Why are these major music companies not entirely using their own funds to make these acquisitions?
Ingham suggests that it could be because they're hedging their bets against threats to the potential future growth of the music industry.
"Demand in the music marketplace today, largely driven by these Wall Street investment banks, means that multiples being paid for music rights have infamously gone wild," notes Ingham. "This comes with risks. If the music market changes, or is hit by some kind of slowdown in growth, the prospect of getting a return on these investments can suddenly disintegrate."
Ingham highlights three key areas where the future value of music rights could be hit by a slowdown.
1) "A fear that the growth in music subscription streaming in the future might not be as sunny as some analysts estimate."
Ingham notes that Goldman Sachs is currently predicting that over 1.2 billion people will be paying for music streaming by 2030 – an optimistic forecast that makes sense from a lot of angles. Yet Ingham notes: "In 2021, Spotify saw slower global streaming subscription growth - in terms of volume – than it did in 2020. So what happens if [overall] streaming subscription growth now doesn’t meet the bright hope analysts at Goldman Sachs and elsewhere have? What if these numbers start to get downgraded as the years tick on? What happens if Gen Z, who are currently obsessed with TikTok, don’t value an all-you-can-eat streaming service menu like Spotify’s?"
2) 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?"
3) 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.