MBW Reacts is a series of analytical commentary written by Music Business Worldwide in response to recent major entertainment events or news reports. Only MBW+ subscribers have unlimited access to these articles. The following article originally appeared in the latest MBW+ audits emails monthly, Issued exclusively to MBW+ subscribers.
Six months ago, in this column, I layout Why I believe we have a good chance of seeing large-scale (perhaps over $1 billion) acquisitions in this space Independent distribution and service space this year.
The companies I recommend are most likely to execute this acquisition: Warner Music GroupUnder the leadership of a still relatively new CEO, Robert Kinkel.
After this column was published, Warner Start sniffing around believeThink potential US$1.8 billion Final bid for the French company Walking away. believe Not considered a desirable M&A target Warner – but I still think we’ll see from WMG We will make progress in this area in the coming months.
In addition to the fact that there are several key reasons Kenl has previously expressed a desire to accelerate Warner’s presence in “middle class” Independent artist.
First, Warner will be keen to close the size gap with its two biggest rivals. In the 2023 calendar, Warner Music Group produced $6.3 billion In terms of income; according to MBW calculations, sony produced $9.3 billion (from recorded music and publishing, plus related revenue streams), while Universal Music Group generates $12 billion.
Sony, in particular, has benefited from some game-changing inorganic growth over the past decade (via acquisitions start, EMI Music Publishing Company, orchard, free sounds ETC. Following EMI Music’s huge acquisition in 2012/2013, its biggest rival spent less during the same decade (Age) and Parlophone tag group (WMG).
Another key driver Warner Music Group greedy Interested in the modern independent distribution sector? The changing face of the music industry.
The new statistics come from bright, published last month, tells the story. In the first half of 2024, U.S. independent distribution companies handled:
- 62.1% Number of tracks played between 1 million and 10 million times for on-demand audio streaming services;
- 37.4% Number of tracks played between Ten million and 50000000 Second-rate;
- 22.1% Number of tracks played between 50000000 and 100000000 Second-rate;
- and 13.6% Number of tracks played between 100000000 and 500 million Second-rate.
exist everyone Within these categories, the independent (i.e. non-primary issuing) sector Increased market share Compared to the second half of 2023.
The majors haven’t lost much sleep in the high-end market: 43 of 46 Tracks streamed 1 billion+ Number of times in the U.S. in the first half of 2024 brightdistributed through one of Warner, Sony and Universal.
In fact, the top three audio streaming hits in the U.S. in the first half of 2024 are Benson Boone’s beautiful things, Zach Bryan and Kacey Musgraves i remember everythingand teddy swimming out of control – all released on one WMG label, Warner Recordsled by Aaron Beschuk and Tom Corson.
Nonetheless, according to bright (see above), the independently released track claims 9.9% These tracks have been streamed more than 500 million times One each in the United States in the first half of 2024.
That’s from 7.1% Market share of non-major sectors at the same level (market share of played tracks) 500m+ times) in the second half of 2023.
In other words: around one tenth drama tracks that achieved success 500m+ code stream U.S. pop music in the first half of 2024 no Released by a major record label.
(A factor worth mentioning in this story is: Bertelsmann’s bone cement Recorded music streaming distribution was withdrawn from Warner’s ADA late last year; it is now distributed directly to Youtube and Spotify.)
Therefore, if Warner not interested believemight it pounce on something else?
maybe not. During WMG’s first-quarter earnings call in May, Robert Kenl Showing that, after “believing” in the legend, Warner Might choose to build (rather than buy) to advance a business working with independent artists. (Kyncl’s original words are: “[We]Solutions are being built internally while remaining alert to M&A opportunities.)
Senior Warner sources told me that in any case Kenkel’s Next, executives will focus on protecting WMG’s profit margin Avoid dilution from any large acquisitions.
for this reason, Kenl Instead, a strategy of rounding up smaller independent film companies may be chosen – continuing a global program that has seen Warner acquire (or purchase) African companies Africanthe Middle East Kanawatand Brazil’s your music the past two years. (Regarding margins, Warner/Kyncl may consider believable Adjusted annual EBITDA margin for 2023 is 5.7% too low while considering acquiring the French company.
Anyway, I still predict Warner A large independent distribution acquisition will take place sometime in 2024. regulatory freedom do this vs do this sony and common, each of them could come under scrutiny from competition regulators for purchases above a certain size. (See: UK CMA lets Sony in its start Purchase in 2021 before finalizing transaction.
Please also remember Robert Kinkel Just hired Michael Ryan Suthern from Goldman Sachs As his global head of acquisitions, he was formally mandated to “strengthen” WMG’s M&A efforts.
a potential future target Warner yes downtown music holdingswhich operates both publishing and recorded music services divisions and also owns CD baby, FUGA, and royalty platform curve.
A global “pure” service company (i.e. does not own copyright), city center understood as generating surrounding $900 Annual total revenue of millions; advertising billboard According to reports, around US$130 million The annual funding ultimately becomes net income for the city center, providing $40 million Annual EBITDA.
city center employment approx. 600 employees around the world—approximately one-third of Believe’s workforce, 1,919 by the end of 2023, according to financial documents. (One could argue here that its structure enables it to accelerate future growth and global exploitation of the copyright.)
beside city centeryou can also expect the names of many other US indie players to cross over Robert Kinkel’s Desks for this summer, including empire (Currently enjoying global fame with Shaboozey) bar songs), Create a music group (its valuation reaches $1 billion), so lost, United Masters, and Dry.
and Kenkel’s Keen to avoid unduly diluting Warner’s profits through mergers and acquisitions, another potential target could be a speed. ONErpm is a profitable independent recorded music company operating in 40 markets with nine-figure revenues and 550 employees. Notably, the company continues to 100% owned By its founder, Emmanuel Zuzi.
“I’m trying to achieve a three-year trajectory, which is growth,” Zunz told the MBW Podcast last month. [ONErpm] go through 50% or 60% By the end of 2026.
“If I achieve these goals, this company will very very profitable“.global music business
