I.B. BAD: THE RISING
It’s a well-known fact that the money coming in from streaming is changing the economics and financials of the major music groups in dramatic ways. Sellers find themselves in an enviable position in the rejuvenated music business—not only unsigned artists who’ve created a buzz, but also the owners of indie pubcos, labels, song catalogs and master recordings, as valuations of their assets rocket upward. Examples: UMPG paid $30m to administer Prince’s catalog, and Downtown paid $60m for the songs of Ryan Tedder. A major pubco player recently confided that its revenues were up 30%, and one can yet again assume that this rising tide is lifting all boats. In short, the operative principle in today’s music biz is increasing value, on a grand scale.
Deep-pocketed risk-takers are ready to get into the game, while some rights owners are eager to test the market in hopes of cashing out at a sizable profit. At the top tier of this whirlwind of activity are the major music companies, whose coffers are swelling with streaming income, along with well-funded VCs and investment bankers. Even little-known Concord Bicycle—led by former Album Network tip-sheet guru Steve Smith—was able to drum up $600m to buy Imagem, causing rivals to claim it overpaid. But in doing so, the indie pubco got the treasured Rodgers & Hammerstein catalog, containing such valuable songs as “Some Enchanted Evening” from South Pacific, “Climb Ev'ry Mountain” from The Sound of Music and “Oklahoma” from the show of the same name. All of the above are drooling over certain upcoming deals, one in particular.
The biggest fish in the sea is EMI Music Publishing, which is now worth far more than the $2.2 billion a Sony/ATV-led consortium paid for it in 2011. That deal is up in late June, but a new agreement could conceivably go down before it expires. EMP isn’t a functioning pubco—its business is overseen by Sony/ATV (which takes a 15% admin fee) and chieftain Marty Bandier—but rather a treasure trove of copyrights, including the invaluable Motown catalog, as well as songs from the classic MGM and United Artists movie musicals, including “Over the Rainbow” from The Wizard of Oz, “Easter Parade,” “Singin’ in the Rain” and “Luck Be a Lady” from Guys and Dolls. Drake, Kanye West and Pharrell are among the contemporary writer/artists signed to the pubco. EMP owned an estimated 1.3m songs at the time of the 2011 deal and now has in excess of 2m, slightly more than Sony/ATV, having been given a 50/50 split on most of Sony/ATV’s new deals during the term. As a participant in these and other deals, while being buoyed by the rising tide of the overall business, EMP will only continue to increase in value as time goes on.
Sony has a 30% stake in the company. The other stakeholders are Abu Dhabi-owned Mubadala (which has a 40% piece), Blackstone, Jynwel, GSO Capital Partners, the Michael Jackson Estate and David Geffen. If there has been no new deal prior to the expiration date, Mubadala has the option of triggering the sale of EMP in its entirety, including Sony’s 30%. Given that approaching deadline, why would Sony wait for the other shoe to drop and risk losing this prize altogether? And Sony has a distinct advantage over its strategic rivals: Because of its existing stake, it would get a 30% discount on the acquisition.
Sony Corp. isn’t short on cash. The Tokyo-based company expects operating profit to hit $4.5b in its fiscal 2018, which would be its strongest showing in 20 years, as smartphone makers scoop up its image sensors as fast as the company can manufacture them.
Not surprisingly, given this windfall, Sony has recently shown a willingness to pay for value in the publishing sector; witness its $750m buyout of the Jackson Estate, which owned 50% of Sony/ATV, just 10 months ago. And on 7/21, Sony/ATV and the Estate announced that they’d extended the admin deal for Jackson’s Mijac Music, a big get for Bandier.
If EMP were sold for 15 times its NPS of around $300m, the price would be $4.5b—but according to insiders, the price tag set by Mubadala could be as high as $5.5b. Would Lucian Grainge’s UMG and/or Len Blavatnik’s WMG, each with a strong publishing division, make a move on EMP? If so, what regulatory problems might each of them face?
