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Wall Street weighs on what music is really worth

What’s New in Universal Music Group

Bill Ackman compared it to “food and water.” “It’s as important as gas and electricity,” said Lucian Grainge, CEO of Universal Music.

This week, Wall Street gave its view on music at Universal’s initial public offering, emphasizing more pressing questions among investors over the past few years. How much is the melody really worth?

On the surface, music company valuations soar — Universal is trading at a valuation of around € 42 billion, from € 30 billion this year Tencent invested in the company to $ 8.5 billion less than a decade ago. Increasing — inseparable from rising. Of Spotify. A widely accepted explanation is that Spotify has saved the music industry.

And this is true. The invention of the app, which allows people to pay to listen to 70 million songs, has undoubtedly helped boost music revenues after more than a decade of death from piracy.

But the stock market is usually more about the future than the past. Reading the description of Wall Street’s fuzzy assessment of banks’ universality, their bullishness is associated with expected further growth. And Spotify isn’t the only future of music revenue.

In fact, when I asked if Grainge could grow further, he pointed out “a new area of ​​monetization that was previously unpredictable” rather than Spotify.

This means listening on a Peloton bike, playing in the background of videos on the YouTube Shorts platform, or playing music in the fast-growing virtual world of games, augmented reality, and online karaoke.

If you think the notion that the computer-generated avatars of your favorite musicians “playing” on TikTok are legitimate revenue drivers for a $ 50 billion company, let us know here. Already happening..

Before the Internet, music bread and butter were physically edited in the form of vinyl records, cassettes, and CDs. If some of these became popular, they made enough money to make up for thousands of other failed bets. Today, music is an intellectual property that can be milked for a variety of fast-paced uses.

Some of these monetization tools are obvious, like TikTok, which attracts billions of people as a place for ridiculous videos soundtracked to songs. Others are not very intuitive. For example, Universal is considering licensing a catalog to a treatment company that uses music to help stroke victims walk again.

Leading music companies currently know how to predict how much they will receive from Spotify in a particular quarter, even if there is fierce negotiations every few years on how to split the streaming revenue pot. This is part of the pitch to investors. Subscriptions have made music a more reliable asset class compared to the days of CDs, where sales relied on blockbusters.

However, music companies have little experience predicting revenue from social media. Last year, Warner Music CEO Steve Cooper was surprised that these were business models that “literally no one heard two years ago.”

Less than three years ago, TikTok and Facebook didn’t pay any music companies. Currently, the music industry earns $ 2 billion annually from social, fitness and gaming loyalty, according to Midia analyst Mark Mulligan, which is expected to grow in the future.

Sony Music says social, gaming and fitness currently generate $ 400 million in annual revenue, while Warner Music says loyalty revenue from these sectors will be $ 235 million annually. ..

Mulligan says Universal’s IPO would have looked more dangerous without such income. Facebook first began paying for music through a deal signed with Universal at the end of 2017. But now that competition in this sector has intensified, record executives no longer have to persuade social media companies to pay for music. “Snap, TikTok, Facebook, and [YouTube] “The shorts are all trying to kill each other,” said a label executive, adding that this was “great” for music rights.

All Universal transactions on Facebook, TikTok and YouTube Shorts will expire later this year. This is an opportunity for music companies to reset their conditions to a more generous level.

Universal Executive wants to convince investors not to buy music at the top of the market, but to get more assets to rise. The results of these deals are more likely to answer that question, rather than another huge drake album.

anna.nicolaou@ft.com

Wall Street weighs on what music is really worth Source link Wall Street weighs on what music is really worth

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