3 Major Deals Point To A Maturing, And Global, Music Startup Landscape

Dec 11, 2017
Originally published on December 11, 2017 12:59 pm

Three deals of acquisitions and investments that were rumored over the past week, and that are all now confirmed, have something in common — none of them involve companies owned by major record labels. All involve technology companies or insurrectionists to entrenched industry leaders. One noted below, Tencent, holds such power in its home country that all three major labels agreed to let it broker their deals in that country. Another, Spotify, has for better and worse come to define the modern era of music listening, helping establish new habits for music fans that have led to a strong new revenue stream for the classic music business (but not yet for Spotify itself).

All point to a music industry both in repair and reconfiguration.

SONGS And Kobalt

SONGS, a successful and scrappy independent music publishing company founded in 2004 by a former hardcore guitarist and Columbia business grad, has been acquired by another outsider-led firm, Kobalt Capital, the acquisition division of Kobalt Music Group. The price tag for SONGS wasn't disclosed, but is reported to be around $160 million.

Matt Pincus, the founder and CEO of SONGS, approached the music publishing business — the administration and exploitation of song compositions and the songwriters behind them, not recorded pieces of music — with a grassroots approach, preferring initially to signing promising artists to extensive contracts over acquiring song catalogs of known quality and revenue. The firm attracted little attention for its first several years from the established music business — no articles in the trade publication Billboard, and only a wedding notice in The New York Times. Several high-profile deals struck in the midst of heavy competition — foremost those involving Lorde, The Weeknd and Diplo, all brokered by founding A&R member and now-departing president Ron Perry, who will soon lead Columbia Records — put the company on the map around 2013.

"That the result of our work is a catalog we created writer by writer and song by song, representing a decade of popular music in all formats — including many of tomorrow's evergreens — is a testament to our approach," Pincus says, in a release on the news. Not long after, it began working with the estate of George Gershwin. (It still maintains its ground-up approach, recently signing the maligned SoundCloud rapper XXXTentacion to a global deal.)

The buyer of SONGS, Kobalt, is another (relatively) new music company emblematic of fundamental shifts and new approaches within an industry long dominated by an entrenched executive class. Its Swedish founder, Willard Ahdritz, founded the company in 2000 intending to take a strict, technological approach to the song business. The company eventually debuted a tool which allows artists, regardless of their stature, to track listening of their work worldwide — to show who is playing which song, where, in real time across 900,000 possible sources of income. It was the first to offer such granular tracking information to anyone willing to pay. (Record labels, other music publishers and label services companies all have similar tools available to their rosters, but those tools' availability and granularity vary.) Along the way to establishing his company, which has seen revenues increase while still operating at a loss, Ahdritz was often antagonistic towards his established competitors.

"It's important to remember that the [major labels] were structured to control distribution and marketing in the old world ruled by radio," he told Billboard two years ago. "Things have changed, and I expect the industry structure will change as well. It has to adapt in order to survive." As Moby, a client of the company, told The New York Times: "Kobalt is more like a tech company than a music company. As a result, no one ever told them to steal from their artists."

Apple Buys Identifier App Shazam

"I'm gonna Shazam it," is something you now hear often, usually right before someone you know starts holding a smartphone aloft, microphone skyward. Shazam's name has long held the coveted also-a-verb status, which it has earned by developing one of the most robust song-identifying technologies in the world. The company was founded in 2002 as a phone call-in service.

Now, in a deal confirmed today, Apple will own that experience. "We are thrilled that Shazam and its talented team will be joining Apple," the company wrote in a statement provided to NPR. "Apple Music and Shazam are a natural fit, sharing a passion for music discovery and delivering great music experiences to our users. We have exciting plans in store, and we look forward to combining with Shazam upon approval of today's agreement."

The sale, first reported by TechCrunch, is estimated to carry a price tag of $400 million, far less than the $1 billion it was estimated to be worth two years ago. After a shift to advertising, it claimed to have generated a profit for the first time.

Apple will likely use the company's technology to augment Apple Music, its music streaming service and the primary competitor to market leader Spotify. Even back when it was Beats Music, the platform was highly reliant on human curation, employing 100 people to create playlists for it. "Right now, there are only mathematical solutions," Beats co-founder Jimmy Iovine told a tech conference in 2013.

Spotify And Tencent

Meanwhile Spotify and Tencent, a leading Chinese media company which also brokers the major labels' fortunes in that country, announced a mutual investment late last week. While details weren't given, the deal was reportedly for 10 percent for each when the news was broken by The Wall Street Journal the week prior.

The partnership is unprecedented in the music streaming space, where more often than not — as was the case with Pandora's acquisition of Rdio — companies purchase each other wholesale. In the case of Spotify and Tencent, the latter could easily afford to purchase Spotify outright. This structure instead would ostensibly allow each to benefit from the other's specialties. Spotify is a market leader outside of China, while Tencent largely holds the keys to enter the country's digital music business.

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