After pulling out of a bid for French music group and distributor Believe in April, Warner Music Group (WMG) is shopping around for an alternative distribution company that could help it gain market share in the competitive space serving independent artists and labels — and it's hired a top music investment banker from Goldman Sachs to lead the effort.
Since taking over as CEO of WMG last year, Robert Kyncl has said the company is ready to build in-house the technology and services it believes it needs. Now he is ready to buy them too.
“As part of our mission to be a destination for artists and songwriters at every stage of development, we're expanding our lower-end services that many indie artists, labels and songwriters rely on,” Kyncl said on a conference call discussing WMG's quarterly earnings. on May 9. “We have a clear plan for growing this area of our ecosystem and are building solutions internally while remaining vigilant about [merger and acquisition] opportunities, which could accelerate our capabilities.”
On Thursday (June 6), WMG announced the hiring of Goldman Sachs' global head of investment banking music and live entertainment Michael Ryan-Southern in a newly created role of executive vp. Reporting to Kyncl, Ryan-Southern will be responsible for acquiring companies and catalogs that can enhance WMG's growth and revenue. When it officially registers in August, the first item on its shopping list will be an independent distribution company smaller in size and cost than Believe, which an inside source described as a “bolt-on” acquisition to help increase market share of WMG in its independent distribution and service business without affecting its overall profit margins.
Among the companies WMG is considering, according to sources, are top independent distributors DistroKid and CD Baby. WMG is “active in the market” but still in the exploratory stage, these sources say.
A spokesman for WMG declined to comment for this story. A spokesman for Downtown, which owns CD Baby, also declined to comment, other than to say that Downtown “is focused on continuing to grow our business and support the success of our customers.” DistroKid representatives did not immediately respond to a request for comment.
WMG approached Paris-based Believe in February with a non-binding offer to acquire it for “at least” 17 euros ($18.60) per share. He ultimately decided not to make a formal offer in April. Asked why the company did not pursue a bid for Believe, Kyncl said on the May 9 call that it backed out “for a number of reasons,” including the short time it was given to conduct due diligence.
Ryan-Southern is a former EMI publishing executive who, along with Goldman's global head of entertainment investment, Aaron Siegel, has been on some of music's biggest deals. These included New Mountain Capital's acquisition of BMI and the spinoff of Sphere Entertainment, which owns the Sphere in Las Vegas, MSG Networks and Tao Group Hospitality, from Madison Square Garden Entertainment, which owns and operates the Garden and Radio City Music Hall among other venues. in New York and Chicago. Ryan-Southern and Siegal also advised the founder/CEO of Believe Denis Ladegaillerie and its joint venture with equity funds EQT and TCV in their bid to take Believe private.
Buying or building something that WMG's independent distribution and services arm, ADA, can leverage would help the music company recruit more early-stage artists, which executives see as key to its success.
WMG started ADA in 1993, about 20 years before Sony bought a stake in The Orchard, and Universal Music Group started Caroline International as an indie label distributor that was later renamed Virgin Music Group. And although WMG was the first major company to establish a presence in the independent artist market — renting out its services to major labels in the Indies, as industry sources described it — competition in the market has grown.
UMG and Sony have invested tens of millions in recent years buying rival startups in the space. A minority shareholder since 2006, UMG acquired Ingrooves in 2019. In 2022, UMG acquired Mtheory Artist Partnerships as well as a 49% stake in [PIAS]. Sony closed its full acquisition of The Orchard in 2015 and then bought AWAL in 2022.
Orchard now holds a commanding lead in the US market with a 7.27% current market share, according to Luminate. UMG's Virgin Music Group, which includes Ingrooves, Mtheory and Virgin Music Label & Artist Services, holds around 3.42% of the current market. ODA has a current market share of 1.68%. Its biggest client, BMG, which contributes 0.94% of ADA's current stake, is ending its distribution deal.
WMG now needs to 'swirl' this part of its business to capitalize on the fast-growing independent sector, it says Fred Davispartner of The Raine Group.
“The world is now divided into three categories of artists: those signed to major labels, those signed to indie labels, and indie artists without a label,” says Davis. “Distribution Platforms Prove Viable Source of A&R for Major Labels.”
Focusing WMG A&R more on capturing opportunities, particularly in emerging genres, was one of Kyncl's top agenda items for 2024 highlighted in a New Year memo to all staff. In April, WMG's publishing division, Warner Chappell Music (WCM), partnered with ReverbNation, BandLab Technologies' leading artist services platform, to identify and sign emerging songwriters. WCM manages music rights for all users who sign up to a new program through the ReverbNation Publishing Administration, and signed songwriters gain access to WCM's services.
WMG has acquired majority stakes or entered into joint ventures with a few distribution-oriented companies in recent years – some before Kyncl joined WMG – mainly in emerging markets in the Middle East and Asia. Among them: a majority stake in Africori, Africa's leading digital music distribution, music rights management and artist development company, in January 2022. That March, it also acquired Qanawat Music, a leading distributor in the Middle East and North Africa.
Last year, WMG made two deals in India: It acquired a majority stake in Indian digital media company Divo and formed a joint venture with Sky Digital, which brings together releases from Punjabi and Hindi labels.
While WMG has made acquisitions in other geographies, rival majors have bought companies serving the US independent market. “It would make sense for [WMG] to increase its distribution with an acquisition,” says a source familiar with the company's strategy.
from our partners at https://www.billboard.com/pro/warner-music-hires-goldman-sachs-banker-search-buy-distributor/
