Tuesday, December 10, 2019

Warner launches $650m fund to do battle with music’s big spenders | Music Business Worldwide

On one hand, these are heady times for major labels: MBW analysis set to be published later today (December 10) will predict that the record companies of Universal, Sony and Warner will generate a combined $14bn in 2019 – yes, that’s more than $1bn per month.

On the other hand, a new threat is growing to the dominance of the Big Three. Well-funded players like Merck Mercuriadis’s Hipgnosis and Scooter Braun’s Ithaca Holdings – not to mention the likes of Concord, Primary Wave, Downtown Music Holdings, Kobalt Capital, Round Hill and others – are snapping up impressive catalog assets for prices that the majors often appear unwilling to match.

In recent months, these non-major companies have bought recorded music and publishing assets related to the catalogs of Taylor Swift, Benny Blanco, The Chainsmokers, Whitney Houston and many more besides – while nine-figure publishing acquisitions of Imagem (by Concord), SONGS (Kobalt Capital) and Carlin (Round Hill) have rocked the global industry in the past few years.

The stakes of the modern music M&A market are certainly high: rumor has it that some music assets are now trading hands for multiples of 21 or even 22 times their annual gross profit (net publisher share).

As Hartwig Masuch, CEO of the once-rampantly acquisitive BMG, said earlier this year: “We are in the middle of a feeding frenzy which has pushed prices in some cases beyond all reason, a game BMG is unwilling to play.”

This new school of companies has mega-money at its disposal: witness Ithaca, backed by private equity giant Carlyle Group, and now-owner of both Big Machine Label Group and Atlas Publishing; or Hipgnosis, publicly traded on the London Stock Exchange, which has raised over $350m in the past six months alone; or Primary Wave, which has raised in excess of $800m across two IP Funds.

Meanwhile, the major music companies are having to factor in another, related threat; when their ownership of copyrights expires, are they or someone else more likely to acquire these assets in the aftermath?

All of this is interesting context to consider ahead of a big announcement today: private equity firm Providence Equity Partners, which has over $45bn in aggregate capital commitments, is launching a new-music focused acquisitive fund… in tandem with Warner Music Group.

The new platform, Tempo Music Investments, will seek out catalog acquisitions in both the publishing and recorded music spaces. It launches  with $650 million in equity and debt capacity, with most of the equity coming from Providence.

So why would Warner Music Group, which had $619m in cash (and equivalents) on its balance sheet at the end of September, need to raise money to buy assets?

If you’re asking MBW to guess (okay, we’re asking ourselves), it’s for two key reasons: (i) It allows Warner to play in the mountainous-multiple modern M&A space – the “feeding frenzy” Masuch referred to – without risking its own money; (ii) Because Warner will take care of administration/distribution for any publishing and/or recorded music assets acquired by the fund – building a nice piece of annual income, not to mention market share, into proceedings.

Another interesting element of today’s announcement: Tempo will enlist Influence Media Partners, a new management company, to explore investment opportunities and drive catalog performance.

Tempo already has some significant acquisitions to announce: the firm says it has bought ‘selected copyrights’ created by Grammy Award-winning songwriters Jeff Bhasker, Shane McAnally and Ben Rector. (MBW understands that the publisher share of the Bhasker catalog has gone to Tempo; his producer royalties and writer’s share may yet end up elsewhere.)

Stu Bergen, CEO, International and Global Commercial Services, Warner Music Group, said: “More than ever before, the long-lasting value of music is being recognized outside the music industry. We’ll be devoted stewards of these amazing catalogs created by songwriters and recording artists across the globe, and WMG is very happy to be partnering with Providence in this pioneering venture.”

Josh Empson, Managing Director at Providence, said, “It is a privilege to partner again with Warner Music Group. We are excited about this innovative new relationship, which combines Providence’s investment expertise in media with WMG’s distinctive skill in working with and recognizing top artists and assets in music.

“We look forward to partnering with WMG and our investment management team to support creators and build a best-in-class portfolio of music assets.”Music Business Worldwide

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