“Going up against a Spotify, I don’t think anyone wants to be doing that,” says Anthony Matchett, the new owner of Napster. Last month, the 32-year-old’s London-based music tech startup, MelodyVR, made waves by announcing a surprise $70m (£52m) reverse takeover of the music streaming pioneer of the streaming revolution. Matchett is hoping that a marriage of MelodyVR, which films and streams gigs, with the 21-year-old Napster will be music to the ears, and eyes, of fans and investors alike.
“There is something very apt about a disruptive company that works with technology like MelodyVR and the original music industry disrupter,” he says. “We see synergies for a service that combines music streaming, immersive content, live events. Something that an Apple Music, a Spotify, or any other service doesn’t provide. Everything a music fan might really want.”
For the time being, the two companies will operate separately, although Matchett doesn’t rule out a potential renaming of his AIM-listed company in line with the well-known Napster brand in future.
It is the fourth incarnation of Napster, founded in 1999 when Britney Spears and Backstreet Boys topped the charts, and it is now a relative minnow among the global music streamers. Napster, with 3 million subscribers, delivered 10.8bn streams and made $113m in revenue last year. “It is a shame, because a lot of people don’t realise they have a thriving business,” says an undeterred Matchett. “Although it is not the scale of a Spotify, it is growing and it is profitable. We are delighted to acquire it.”
Matchett is right to be confident. After more than a decade of plummeting CD sales and rampant piracy, the streaming revolution has put the music business back at the top of the charts for investors. Last year, global music sales grew for a fifth consecutive year, to $20.2bn, driven by a 23% growth in streaming (which accounted for $11.4bn of the total), having hit a low of $14bn in 2013.
Another British success is Hipgnosis, a London-listed company offering the chance to make money from the royalties of songs by artists from Beyoncé to Bon Jovi. Investors have been happy to front up more than £230m during the pandemic to allow it to continue its music catalogue-buying spree.
The music majors are also faring well. Earlier this summer, Warner Music, the world’s third largest music company and home to artists including Ed Sheeran, floated in the US, selling $1.9bn worth shares and achieving a market value of more than $12bn. Owner Len Blavatnik paid just $3.3bn for the company in 2011. And Universal Music, the biggest label home of stars including Taylor Swift, Lady Gaga and the Beatles, sold a 10% stake to Chinese tech giant Tencent that valued the business at €30bn (£26.7bn).
And while the live music industry has ground to a halt, streaming has proved to be coronavirus-proof. Spotify, the world’s largest music streaming service, reported a jump in paying subscribers of more than 27% year-on-year to 138m in the second quarter.
The lockdown has also proved to be the best thing to have happened to MelodyVR, which has raised almost $30m from investors in recent months. “I probably wouldn’t phrase it in that way, but that said, naturally, as a virtual events company, we are one business that is continuing to grow,” says Matchett. “Since the start of coronavirus, our app installs and our usage has gone through the roof. We have seen a lot more people looking for live music. Our app installs are up 1,000% since the start of quarantine. And our month-on-month usage is growing at 36%.”
As the pandemic took hold, the company set up safe studios in London and Los Angeles to enable artists to perform gigs, with fans paying to watch via its app. The gigs can also be watched on virtual reality headsets, an experience that allows fans to choose what part of the auditorium they watch the performance from. The company has had 100 artists perform virtual gigs during lockdown, including Emeli Sandé, Liam Payne, The Chainsmokers and Cypress Hill. It also has a back catalogue of gigs performed in front of live audiences. To date, the company has charged on a per-gig basis, the average price being £9.99, but is now belatedly adding a monthly subscription option, the preferred model for digital content services from Netflix and Spotify to pay-TV.
“When we launched, no one had really seen immersive or VR content and no one knew what it was worth,” says Matchett. “We didn’t want to overprice or underprice. Now we are in a place we feel confident about launching a monthly fee.”
While swallowing Napster has transformed the scale of its business, the Soho-based company has some way to go to reach profitability. Last year it made a loss of £16m and revenues plunged to £200,000, while Napster’s thin margins meant the streaming firm made just $1.8m in profits.
“[Profitability] is not something we are worried about,” says Matchett. “For a company like us, growth and investment is key, which is why we are buying Napster.”