Universal Music’s stock spinoff shows that equity markets like the sound of music companies — and its stock’s performance so far raises the odds that more companies will join the growing gang of public firms that now includes WMG and three publishing companies. Here’s an informed but speculative guide to which companies are likely candidates, how the market might receive them and what issues they would face.
BMG
Revenue 602 million euros ($707 million) for the year ending Dec. 31, 2020*
EBITDA 137 million euros ($160.7 million) for the year ending Dec. 31, 2020*
Valuation $5 billion***
EBITDA multiple 30 times***
When BMG reemerged as an independent music company in 2009, even though it began with 120 master recordings held back from the sale to Sony, it initially focused on buying publishing rights, and it acquired catalogs from companies like Bug Music and Cherry Lane Music Publishing when a net publishers’ share multiple of 12 was considered aggressive. Now that multiples run from 16 up to 30 in some cases, BMG is sitting on some pretty valuable publishing copyrights. Could now be the time to cash out some of the appreciation in equity it has generated? The odds were thought to be against this, because the company is part of the German media giant Bertelsmann, which is controlled and partly owned by the Mohn family, which has been determined to keep the company private. Bertelsmann and its partner Saham did recently offer some of the stock in their jointly owned call-center business, Majorel. But BMG may not need public funding — it recently renewed its partnership with the investment company KKR to finance further acquisitions to the tune of up to a $1 billion commitment.
CONCORD
Revenue about $500 million**
EBITDA about $150 million***
Valuation about $4 billion***
EBITDA multiple about 26.7***
Like BMG, Concord has become a mini-major, a formidable publisher including the acquisitions of the Imagem and the Downtown Music publishing catalogs; a label with a catalog that includes recordings of acquired record labels like Stax, Fantasy and Rounder — plus the Kidz Bop brand. Concord takes in about $500 million annually — about $200 million a year each from recorded music and publishing, plus $100 million from a theatrical division that licenses musicals by Rodgers & Hammerstein, Andrew Lloyd Weber and others. It also signs new creators — to Concord and Loma Vista on the recorded side and to Pulse Music for publishing — and it has a growing presence in the expanding Latin business through its purchases of Fania and Musart. As of July 2020, Concord was 93% owned by the Michigan State Retirement System, which may value steady dividends to help fund as retiree benefit payouts come due, but that wouldn’t rule out an eventual public offering. Unless of course, the appreciation of Concord’s valuation, which has doubled in the last three years thanks to continuing acquisitions coupled with the music industry’s rising tide, prove to present too high of a re-investment risk. That can occur when finding an investment that can replace and match the returns of a sold holding — always a concern for giant pension funds like the Michigan State Retirement System, which has some $94 billion in investment holdings.
JIOSAAVN
No financial information is publicly available, other than a $1 billion valuation from 2018.
The 2018 merger of Jio Music (owned by India telco company Jio Platforms) with Saavn created this company, valued at $1 billion, with 100 million users. Its board has already approved a plan for a public listing, according to an April 2020 report by the Indian tech news site Inc42. “Every other streaming service has now either gone public, or is imminently going public, or is backed by the majors,” JioSaavn co-founder and executive vice chairman Paramdeep Singh told Billboard in 2019. “In order for us to continue to grow and compete, we needed some kind of competitive advantage.” (The company declined to comment further about its plans.) Global players Spotify, YouTube Music and Apple Music can play a war of attrition with local services like JioSaavn and Gaana, which is backed by Chinese tech giant Tencent. The heated competition has kept prices down, although the market is dominated by ad-supported listening. Indian-specific services have the advantage of being built for the idiosyncratic Indian market with tens of millions of tracks in 15 languages (as well as English). A spinoff could be complicated, however, because JioSaavn is to Jio Platforms what Apple Music is to Apple — a service that helps its parent company retain customers and market a broad array of products.
PRIMARY WAVE MUSIC
Revenue $135 million***
EBITDA $65 million***
Valuation $1.80 billion***
EBITDA multiple about 27.7***
Primary Wave could become the fourth independent music publisher to go public, following Hipgnosis Songs Fund, Round Hill Music and Reservoir Media. In the company’s second incarnation — an earlier one sold a big chunk of its publishing catalog to BMG — it has put together three funds focused on buying the publishing copyrights or master-recording income of iconic creators like Smokey Robinson, Stevie Nicks, Whitney Houston, Bob Marley, Olivia Newton-John, Burt Bacharach, Boston and The Four Seasons, among others. Two of those funds raised $900 million while a third fund targeted raising $700 million, some of which has already been spent on music assets, according to sources. Overall, Billboard estimates that its publishing and recorded master royalty catalog generates about $95 million in net publishers share.
A public offering would most likely offer allow its institutional investors an opportunity to cash out of the private equity funds and perhaps acquisitions made with the third fund. But any plans may wait a beat or two, however, since it’s possible the music companies in the public market have satisfied investors’ appetites for now. In the meantime, Primary Wave did a deal in June, raising $375 million from Oaktree Capital Management, with part of that funding buying an undisclosed stake in the Primary Wave platform and the remainder available to finance additional acquisitions of music and publishing assets.
SONY MUSIC GROUP and SONY MUSIC JAPAN
Revenue $6.344 billion for the year ending March 31, 2021*
EBITDA $1.6 billion for the year ending March 31, 2021**
Valuation $46.4 billion***
EBITDA multiple 29***
Sony investors must have been impressed by Vivendi’s UMG spinoff. The day before, Vivendi’s market capitalization was nearly 33.9 billion euros. On Sept. 21, when UMG spun off, Vivendi’s share price fell from 31.53 euros to 10.64 euros, but the two companies’ combined valuation was about 57 billion euros. Could Sony generate the same kind of value by spinning off its music division? It might not be so easy. In its financial statements, Sony groups together three operations — Sony Music Group, Sony Music Japan and Visual Media/Platform (which includes the company’s mobile gaming business). Sony could combine the two music operations, which include its publishing arms — the estimates above reflect what that might look like — but reorganizing their management and reporting structure could be harder. Also, the current grouping combines all three in the financial numbers presented as part of Sony Corp. so that begs the question: will a stand-alone that consists of just its music operation have financial numbers as strong as the way they are now presented in the segment that includes Visual Media/Platform? All indications are that Sony music executives today would love to have their stand-alone financial numbers compared to their major peer companies.
The valuation and revenue figures used here come from financial results, Billboard calculations extrapolated from financial results, or Billboard estimates. * indicates a number comes from financial results; ** indicates a calculation extrapolated from results; *** denotes a Billboard estimate.
This story originally appeared in the Oct. 9, 2021, issue of Billboard.
