Schubert Music Is the Latest Publisher to Push Into Recordings

Schubert Music Europe, the holding company of Schubert Music Publishing, today announced a deal with Sony’s independent label distribution division The Orchard. Under the deal, Schubert will distribute ten new record labels. This is just the latest example of an emerging trend that MIDiA identified back in November in a report entitled ‘Music Publishing | A Full-Stack Revolution’. The concept is a simple but important one: a growing number of music publishers are using the growing flow of capital going into music publishing catalogue mergers and acquisitions (M&A) to reverse into the recordings business. It is a trend with major implications for the future of the music business. 

The rise of the full-stack music company

Historically labels and music publishers have been largely distinct entities, even though the major music companies all have both within their corporate entities. There were some good historical reasons for the divisions, but these have become progressively less relevant in today’s global music market. A wave of both new and older companies are building a whole new take on what a music company should be, acquiring catalogues across both masters and publishing, as well as other assets such as library music (e.g. Anthem / Jingle Punks / 5 Alarm Music) and distributors (e.g. Downtown Music Holdings / AVL / Fuga). The future of music companies is one of diversification and the emergence of many different types of ‘full-stack’ music companies, meaning that categorisations such as ‘label’ and ‘publisher’ are becoming much less useful.

This is the model that Schubert Music, which already has some label assets, is pursuing. As  CEO Andreas Schubert explained,we want to set new impulses and, in combination with our other services such as publishing, management and booking, be an attractive label alternative for artists from various genres”.

Getting a bigger share of revenue

Underpinning this market-level shift is a very simple but very important commercial imperative: publishers wanting a bigger share of streaming revenue. To heavily over-simplify, master recordings get around 50-55% of streaming revenue, compared to around 15% for the publishing side of the equation. This means that masters streaming revenue will grow much more than publisher streaming revenue in absolute terms. Assuming for illustrative purposes that rates do not change (though they will), a record label with the same number of rights and same market share as a music publisher will see its average streaming revenue per copyright increase by 3.5x more than a publisher in absolute revenue terms by 2026. Although the publisher’s revenue per copyright will grow at a faster rate, masters will gain more earning power. This is why publishers are building out their capabilities on the masters’ side of the equation (and I am saying ‘masters’ rather than ‘label’ as independent artists are very much part of this equation also).

Expect plenty more announcements like Schubert’s in 2020. This new decade is going to be more transformative for the structure of the music business than the last one was… and that one was pretty transformational!

How Music Publishers Are Driving a Full Stack Revolution

Music publishing catalogues are gaining momentum fast as an asset class for institutional investments, with transactions ranging from large catalogue mergers and acquisitions (M&A) through to investment vehicles for songwriters’ shares such as the Hipgnosis Fund and Royalty Exchange. Since 2010 the number of publicly announced music catalogue transactions – across recordings and publishing – totalled $6.5 billion, with a large volume of additional non-disclosed transactions. This growing influx of capital has implications far beyond publishing, however, as ambitious publishers are using the access to debt and investment to reverse into the recordings business.

Streaming the change catalyst

As with so many music market shifts, streaming is the catalyst for these changes. Streaming represented 27% of publisher revenues in 2018 and is set to near 50% by 2026. However, songwriter-related royalties – incorporating publisher and CMO payments – from streaming are less than a third of what labels get. Small-but-important increments such as the US disputed mechanical royalties rate increaseare a) difficult to push through, and b) will not get publishing royalties to parity with label royalties. This means that publishers will underperform compared to labels in the fastest-growing revenue stream. The alternative is a ‘if you can’t beat them, join them’ strategy.

BMG Music Rights and Kobalt set the precedent with label services divisions alongside their publishing businesses, enabling them to play on both sides of the streaming equation. Now a wide range of publishers, both traditional and next generation, are expanding their non-publishing businesses. – from ole/Anthem buying production music companies Jingle Punks and 5 Alarm Music, through Reservoir Music buying Chrysalis Recordsto Downtown buying CDBaby parent AVL. All have the common theme of publishers diversifying away from their core businesses to ensure they compete across a wider strand of the music business value chain.

2019.10.14_Music Publishing Blog graphic

In the traditional music business, it made sense for artists to sign their recordings to one company and their publishing to another. The next phase is the emergence of full-stack music companies that not only combine publishing and recordings but also include other assets to create agile businesses that are primed for the streaming era. Many of these are publishing companies expanding into the recordings business by leveraging the inflow of capital into publishing catalogues to fund diversification. The potential strategic benefits presented by the full-stack approach are well understood by incumbents.

Downtown, Round Hill, Kobalt, ole/Anthem, Primary Wave and Create Group are examples that reflect just how diverse this strategy is, with each business building very different strategic stacks. However, the unifying factor is the access to capital for music publishing companies gives them the ability to build war chests that most record labels could only dream of.

One of the most interesting permutations is the breadth of capabilities that some of these companies are building, as illustrated by the structural maps of Kobalt and Downtown. These are companies that are both built to thrive in the streaming era and to ensure that their creators can monetise across a diverse mix of otherwise fragmented income streams.

Music publishers of all kinds are expanding their reach across the music industry value chain, from artist distribution to library music and in doing so are starting a rebalancing of the music industry value chain. These are exciting times indeed.

This analysis is taken from MIDiA’s new report Music Publishing|AFull-Stack Revolution. Clients can click on the link to view the report and its dataset. The 3,000 word report contains details of 45 M&A transactions, annual M&A trends and analysis of the strategies of music publishers. 

If you are not yet a MIDiA client and would like to learn more about how to become one and how to access this report then email stephen@midiaresearch.com.

Music Sync: A Market Ripe for Change

Florence and the Machine’s performance of Jenny of Oldstones, which appeared over the closing credits of the April 21st HBO’s Game Of Thrones episode, has registered the most Shazams in 24 hours ever.The placing of a song has always had the ability to transform its fortunes, and that has never been more the case than now. The music sync market is booming, with the number of syncs higher than ever and more platforms and productions seeking new music. It is also a market with a host of structural challenges, which is the focus of MIDiA’s latest major new report on the music sync market – Music Sync Market Assessment: A Market Ripe for Change. Clients can access here and non-clients can purchase here from our report store.

We interviewed senior sync market executives of labels, publishers, sync agencies, sync tech, TV, games etc. for the report to help create the definitive take on this important but problematic sector. Here are some brief highlights of the report.

midia music sync tech landscape

The music sync market has long been a source of high-margin income for rights holders as well as a means for helping break artists, with a well-placed, successful track having the ability to transform the career of an emerging artist. The growth of channels such as games, social video, and online video (like Netflix), and the corresponding renaissance in TV drama production, have combined to create an unprecedented volume of demand for the sync marketplace. A wave of tech start-ups has followed, each trying to fix parts of an otherwise very ad hoc and relationships-based industry.

Total sync revenues grew by 11% in 2017, but remain a minority component of music publisher revenue and have even less value for labels. Despite a boom in demand, much of the opportunity remains untapped. This is largely because the sync market is a complex, interconnected web of closely guarded personal relationships that operate on tradecraft, reputation and personal connections. It is a marketplace that technology has only brushed the edges of – but when it has, the results have been mixed. For example, streaming playlists have quickly become an established tool used by music supervisors, but on the other hand, many of the new start-ups addressing the space have failed to gain meaningful traction. In part this is because it is a sector that has modest appetite for change. Indeed, with personal reputations an industry currency, and lack of pricing transparency a well-used tool for securing price premiums, there is more internal incentive to remain in stasis than to embrace innovation.

A host of technology companies have come to market attempting to improve the music sync workflow, but many require pre-cleared rights. This is something that would undoubtedly accelerate the market but that rightsholders are typically unwilling to agree to because:

  1. They need individual creator approval
  2. They do not want to cede negotiating power

The music sync market has managed to remain strong by changing far less than most other parts of the music business. However, strategic shifts by newer, large-scale buyers such as Netflix, coupled with wider technology shifts, mean that the sync market will not be able to resist change for much longer.

Micro licensing (e.g. YouTube content) represents a major opportunity, especially if Facebook manages to execute on its thus-far underwhelming social music strategy. However, that requires a technology solution (e.g. Qwire, OCL) and simply cannot work on the same highly-manual and very slow mechanisms that mainstream sync operates with. Unless a tech solution is created, it will be royalty-free music providers like Epidemic Sound that will take most of the scale opportunity.

To read much more on the music sync market, check out the report here (Clients)   (Non-clients).

Companies and brands mentioned in the report:A+G Sync, Amazon, Beggars Group, Cue Songs, DISCO, Electronic Arts, Epidemic Sound, HBO, Jingle Punks, Jukedeck, Lickd, Musicbed, Music Gateway, MXX, Netflix, OCL, Proctor and Gamble, Qwire, Reverbnation, Songtradr, Sony/ATV, Soundvault, SyncFloor, Synchtank, Tunefind, Universal Music, Warner Chappell, YouTube