The music industry is going back to basics.
In a few years, major record companies went from investing in and partnering with for-profit tech startups to pouring money into local music companies across Asia, Africa and Latin America. After a brief flirtation with NFTs and live-streaming businesses, anything resembling a modern technology seems to be out of the question, judging by the deals and partnerships they've made lately. Instead, the majors target old-school music companies that own catalogs and develop artists — and can take advantage of the majors' global network of distribution and other services.
In 2024 alone, the big three — Universal Music Group, Sony Music Entertainment and Warner Music Group — acquired or invested in 11 record labels, music catalogs and service providers in small or developing markets. The flurry of deals — there were even more in 2023 and previous years — is giving the majors more content for their ever-growing distribution pipeline and more international artists to take to Western markets.
See UMG's line-up of acquisitions and investments in 2024: the remaining stake of the European indie label group [PIAS]the remaining stake in the catalog of Thai music company RS Group, a majority stake in Nigerian record label Mavin Global and the definitive acquisition of Outdustry, a multifaceted artist and label services company focused on China, India and other high-growth emerging markets. Outdustry will be a division of Virgin Music Group, UMG's fast-growing artist services and distribution company that includes distributor Ingrooves Music Group and Integral, its former artist services arm [PIAS].
UMG, in particular, is letting the world know about its intentions. On Thursday (October 31), the CEO of UMG Lucian Grainge he devoted much of his opening earnings call to the company's efforts to expand into potentially lucrative markets that deserved little attention before legal streaming services replaced digital piracy. UMG plans to make “several other investments” before the end of the year, CFO Boyd Muir he said during the earnings call. In total, he said, investment spending in the second half of the year will be 350 to 400 million euros ($380 million to $434 million).
The focus on emerging markets and artist services is a marked change from a few years ago. When NFT prices soared and fans stayed home during the pandemic, majors invested in blockchain, virtual reality and live streaming startups. Today, as majors face slowing streaming growth in mature markets and the needs of a growing number of independent artists, they are focusing on building a global network of service providers with an eye on emerging markets.
The focus on emerging markets goes beyond acquisitions. In September, UMG launched a new company, Universal Music Group Greater Bay Area, which will be based in Shenzhen, making it “the first time a major music company has set up a division in China's Greater Bay Area, the most densely populated urban area of the world”. the company said.
Another development mentioned on UMG's earnings call was GTS, a global talent services business in Latin America. In October, GTS became a stand-alone label separate from its UMG labels. “By separating from our local labels,” Grainge explained, “GTS will now be able to offer its services to artists outside the UMG family.”
Grainge and Muir painted a picture of a global business determined to expand outside the mature markets they know best and develop a presence in high-growth markets. UMG's competitors – including independent Believe – are doing the same.
WMG has also had a busy year investing in traditional music companies. In March, WMG was purchased a stake in India's Global Music Junction (of India The Economic Times said it was a 26%) stake and launched Warner Music South Asia in April. Last year, the company took the majority stake to Divo, an Indian digital media and music company. Earlier this week, CEO Robert Kyncl said The Economic Times that China and India are the top markets for company expansion. “We're already doing great in India, but it could be a much bigger part of our story,” Kyncl told the paper.
Big companies continue to buy catalogs, of course. This year, Sony Music bought Pink FloydIts recorded music catalog (beyond merchandising and name and likeness rights) and UMG bought a minority stake in Chord Music Partners, which owns the rights to more than 60,000 songs. Expensive song catalogs give major companies rights to assets with long, productive lives. But given the sheer size of these companies, artist catalog acquisitions barely move the revenue needle. A legendary artist's catalog might cost $200 million but still bring in a steady $10 million a year—a healthy sum but a pittance for a company with annual sales of more than $12 billion.
Instead of throwing money at listings, big companies are buying entire companies and building new businesses with growth potential. As Morgan Stanley analysts wrote in an investment note on UMG on Thursday (Oct 31), the previous acquisitions had “negligible impact on revenue and little impact on earnings growth”. But going forward, it's likely to be a more important driver of revenue growth, and Morgan Stanley expects UMG's financial reports to break out their impact (eg, reported revenue vs. organic revenue).
When it comes to buying regional music labels and creating artist business services, the majors are also taking defensive measures. Independents like Believe have been investing in local markets for years. Only in 2024, Believe was purchased the remaining share of the Turkish record label DMC and acquired Music catalog and YouTube channel of the Indian label White Hill Music. Independent distributors such as UnitedMasters, Stem, Symphonic Distribution and Create Music Group have given artists a viable alternative to corporate owned systems. Big companies just change with the market.
In 2012, UMG acquired the recorded music assets of EMI Music and later sold some tracks to WMG to satisfy antitrust regulators. Opposition to greater consolidation in the US and Europe means it was probably the last acquisition of its size in those regions. (WMG's brief flirtation with buying Believe in April and May quickly drew opposition from French indie labels.) However, there is less opposition to the more gradual growth taking place elsewhere in the world. The majors continue to expand, but they're taking lots of baby steps, not single EMI-sized leaps — and they're doing it through old-fashioned music businesses.
from our partners at https://www.billboard.com/pro/why-major-labels-investing-music-companies-vs-tech-startups/