Our friends at Royalty Exchange round up and analyze the top news stories of the last fortnight in music royalties.
Taylor Swift Will Keep New Album From Streaming For One Week; First Week Album Sales Projected Over 1 Million Units. (Bloomberg / Variety)
Benom’s Take: This week’s big news is the highly-anticipated Taylor Swift album, “Reputation,” released today in physical and digital formats. The Nashville star turned New York pop princess already teased the public with the release of songs like, “Look What You Made Me Do.”
But it will be another week before fans can listen on their favorite streaming service.
There are high hopes that the album will further cement Taylor’s place in the pop music genre. Given her loyal and passionate fan-base, Taylor Swift’s label and distributor project this first week of sales will reach between 1.3 million to an optimistic 2 million for physical and download units.
Of course, keeping streaming out of the equation can certainly help physical and digital album royalty margins. Even though the digital revolution is here to stay, and yes the entire market is moving to the streaming platforms, the biggest dollars are still in the physical and digital formats. In a moment, I’ll provide numbers so you can see what I mean from the songwriter and publisher perspective.
For a little historical background Swift also held back her last album, “1989,” from streaming services for a time. This resulted in over a million units sold in the first week. “1989” also went onto sell more than 7 million units, in addition to millions upon millions of paid streams.
This “withholding” strategy is something that many inside and outside of the industry may frown upon, but streaming holdouts are nothing new. The Beatles didn’t allow their catalog on streaming services until 2015, and just this year Tool finally got on board with streaming services. Besides, it’s not like you can’t get your Swift fix on Spotify. But, if there’s a new album, you’ll have to wait.
The point I’m making here is that withholding from streaming services may be a good strategy, depending on your point of view, your stature and your audience. For the Taylor Swift team, it appears to be a strategy that has worked in the past and makes perfect sense for her fan base and financial success. That doesn’t mean it will work for everyone. [READ MORE]
And now for this week’s other headlines:
Noise Grows Over Potential $3 Billion Sale of EMI Music Publishing (Music Business Worldwide)
Benom’s Take: This year is shaping up to be very active in the world of music rights sales and acquisitions. If this week’s story about the potential sale of EMI Music Publishing is true, 2017 could be a watershed year for music asset purchases.
To fully appreciate this news and the next potential sale of EMI, a little bit of historical analysis should be in order. The history of the EMI catalog over the last 10 years has been chaotic. So the news of another potential EMI sale requires us to know where we’ve been and how we got here, today.
Imagine it’s late Spring of 2007. EMI has put both of its publishing and recorded music divisions on the auction block. There were several multi-billion dollar offers, but the winner of the EMI sale was private equity firm, Terra Firma, for $6.6 Billion.
I remember a friend of mine was at the EMI offices in Los Angeles for a job interview on the day the Terra Firma offer went public. My friend said the whole office mood went from a quiet and mellow pace, to a frantic running around… basically a full-on office “freak out”. It’s all anyone could talk about, “Did you hear? What’s going to happen to our jobs?” etc.
(Of course, the fears were justified as some folks did end up losing their jobs. Unfortunately, for many employees and creators at EMI, this workforce slashing got worse when EMI was sold againin 2012.)
The 2007 purchase of EMI turned out to be a disaster for Terra Firma and its leader, Guy Hands. For a fascinating analysis on the Terra Firma-EMI disaster, see the following articles from CBS News, “Terra Firma’s Purchase of EMI Hit All The Wrong Notes” and from The Wall Street Journal, “EMI Disaster Cost Terra Firma’s Guy Hands $230 Million in Personal Wealth”. From this analysis, we now know why it was such a disaster:
- The timing of the purchase was incredibly bad. Spring 2007 was the top of the financial bubble and when the crash hit in 2008 and 2009, so did EMI’s value. It’s estimated the investors in the Terra Firma purchase lost $2.8 billion on the deal.
- EMI was overvalued, burdened with debt, and Terra Firma overpaid. Terra Firma paid an 18x multiple on EMI’s cash flow, while continuing to add more debt to the EMI balance sheet after the purchase.
- Terra Firma underestimated the challenges of owning and reviving a music company in the new digital environment. EMI sales plunged after the Terra Firma purchase, primarily due to the unstable online market and steadily dropping album sales. Due to the uncertainty of EMI’s future, notable artists such as Paul McCartney and Radiohead also left EMI’s roster of artists. And of course, wrapped up in all of that, were leadership and management problems that kept EMI from getting back on track in the day-to-day operations.
- Guy Hands personally lost $230 million because of the deal. Ouch.
All that to say, Terra Firma essentially got “buyer’s remorse” and accused its lender, Citigroup, of “misleading” and “tricking” Terra Firma into buying the debt laden and struggling EMI. Terra Firma filed suit against Citi in 2010 and the debacle continued well into the 2016. [READ MORE]
And now for this week’s other headlines:
This round-up was put together by Benom Plumb, Assistant Professor of Music Industry Studies at the University of Colorado Denver.
