Partners at Green Square, Corporate Finance Advisors to the media and marketing sector, cast their eyes over the latest industry deals and look ahead to the next tranche of acquisitions.
Of all the established industries disrupted by the disruptive technology that is the internet, none has been more badly battered than the music business.
There’s a certain irony in this – the music biz embraced digital technology enthusiastically (as both a format in the form of CDs, and as technology, such as the use of PCM to replace analogue tape in the recording process) - and it did this early on. Yet it failed to move quickly enough, and failed to understand how the monetisation model of the industry was going to change and move with its customers.
The result has been falling CD sales, a wave of consolidations, widespread piracy, and a ceding of power to companies like Apple. There have also been a number of high-profile PR disasters (seemingly now at an end, thankfully) as the record companies attempted to criminalise a section – often completely blameless – of their customer base.
But there has been one area that has flourished – that of live music. From the 1960s until about 10 years ago, live music (in the form of concerts, tours and TV appearances) were, with a few exceptions, seen as promotional tools to help artists sell more records.
Back in 1980, at a time when their double album “The Wall” (shop price then about £8.99) was atop the charts, you could see Pink Floyd play the album at Earls Court in London for £7.50. In the autumn of 2013, you can see the band’s erstwhile leader Roger Waters play the same album at Wembley Stadium for around £85. The album, meanwhile, will still cost you about £8.
The point is that artists can no longer make decent money from producing music and thus the relationship between concerts and recordings has been reversed – the records (or CDs, or downloads) are now seen as a way of driving people to the infinitely more profitable concert experience where ticket sales and merchandising now play a big part. This is particularly true of still-active “heritage” acts such as the Rolling Stones, whose albums released in the past 25 years have had zero appeal outside their most committed followers: yet they remain the world’s biggest live draw, and that’s where they make all their money.
Thus, it is no coincidence that musicians now gig and tour more than ever before and, given the plethora of new music and the ease in which it can be accessed through the multitude of digital channels, many artists now have a much more limited window of opportunity in which to thrive. The connection that people have with music is far more powerful, passionate and personal than with any other form of entertainment or art. Brands have now recognised the opportunity to deeply engage with their target audiences, by enhancing fans’ experiences of the music that they love and, in doing so, creating meaningful relationships through the use of rich content and social media interaction.
Concert-goers are on the whole affluent and engaged (and there are a lot of them), which would make them hugely attractive for advertisers. We are also seeing an increasing shift to festival culture – whilst music is at its core, many festivals now embrace theatre, literary arts, magic, gastronomy etc (‘Wilderness’ being one such example) where brands are able to connect with their audiences in a meaningful way. Only yesterday I was at the Soho House Party – great day out supported and sponsored by a vast array of brands from food and drink companies through to American Airlines and Sky.
Despite its woes, recorded music is still worth around $16bn a year. However, the amount spent on live music is estimated at anywhere between $25bn and $30bn per annum and this excludes the sponsorship opportunities. Which is why a deal concluded late last month caught my eye. LoveLive is a leader in sourcing music content and associated services for brands, broadcasters, channels, digital platforms and labels. It specialises in access to music rights combined with digital and marketing capability to deliver music content and campaigns for its clients (who include everyone from Microsoft and HP through to Clearasil and The BRIT Awards).
It has also, via its YouTube channel, hosted live streams and exclusive content from artists including Madonna, Plan B, Rihanna, Muse and Ellie Goulding, gaining in excess of 4.5m views and 130,000 subscribers in five months. That’s pretty impressive.
More impressive still is LoveLive’s ambition – as exemplified by its acquisition (its first major buy since its foundation in 2008) of Show Cobra a fortnight ago for an undisclosed sum. Show Cobra, a US-based entertainment media business has a presence on both America’s East and West coasts (meaning it covers the twin entertainment capitals of LA and NYC).
Unless they massively overpaid or have become over-geared as a result, this is a very astute purchase for LoveLive. First of all, they have not one but two beachheads in the US, which is still the biggest music market in the world. The acquisition also enables LoveLive to expand its all-important UK partnership with Universal (the world’s biggest music company) to the US.
Second, the acquisition establishes LoveLive as the leading independent player in the region. Show Cobra’s bi-coastal presence and blue chip client base (including Porsche, Pepsi, Casio, Heineken and Converse) should give LoveLive greater scale and reach.
Third, and perhaps best of all, Show Cobra does pretty much what LoveLive does – but in different continents; and with areas of expertise and experience the acquirer doesn’t necessarily have. They also get a lot of experience: Show Cobra was founded by award-winning producer Jason Ross.
Ross, who is staying on, has a 20-year heritage in the music business, started his career as a recording artist and producer before moving into video, film and digital media. Following his work at MTV on the Emmy Award winning series Made, he founded Show Cobra as a collaborative agency focused on creating cross platform content (including, of course, and especially, music) for global audiences.
There are scores of brands with big marketing budgets desperate to get themselves in front of those global audiences in ways other than the traditional sponsorship routes; and of course there are millions of music fans hungry for content (both of events they attended, or couldn’t/didn’t), delivered conveniently and in association with brands they either approve of or see as relevant - music and festival fans are now more accepting of brand tie-ins than they were five or 10 years ago. People want to be entertained and accept brand partnerships as a necessary part of entertainment’s funding model.
I think we’re witnessing the start of something big, just as we did in the 1940s and ‘50s, when sports marketing began to take off. All the big advertising groups - IPG, WPP, Publicis and Omnicom – have a presence in sports marketing and have, by and large, profited from it. Some of them are involved in entertainment marketing as well – indeed we at Green Square advised the UK’s best-known music marketing business, FRUKT, on its sale to IPG’s Octagon. But I wonder: with so much value apparent in content and rights and the increasing ability to tie this to branding opportunities, how long will it be before one of the holding companies makes a move on the music market big time?
Tony Walford is a partner at Green Square, corporate finance advisors to the media and marketing sector.
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