Thomas Kosfeld is Chief Financial Officer of BMG. Here, in an exclusive MBW op/ed, Coesfeld argues that the right response to growing global music industry revenues is to improve services for artists and songwriters – rather than seeking money-for-no-goods for market share…
June 13, 2022 was a big day for the music industry’s finance teams. It was the day that Goldman Sachs released its revised forecast for the music industry with new figures that the recorded music market will double by the end of the decade.
At BMG, as no doubt elsewhere, internal forecasts were rapidly being upgraded. Those with long memories of seeing the eclipse of vinyl LPs sold at twice the price of compact discs could be forgiven for thinking that history was repeating itself. Happy days!
However, despite the rosy picture painted by Goldman’s forecast, there are grounds for a little modesty. Nothing in those projections suggests that the predicted growth will be in any sense due to the concerted efforts of the music companies.
They’re not based on record companies suddenly getting better at their jobs and signing more or bigger hits; They are a by-product of a fundamental shift in the way consumers consume music, driven by DSPs’ investment and innovation.
So it is worth discussing what is the correct response to this stroke of good fortune.
If the past is any guide, the default response will be to do more of the same – only more expensively – in pursuit of market share. It’s hard to argue that the battle for market share benefits artists or songwriters. History shows that it doesn’t do much for shareholders either.
Based on the old adage that the best time to fix a roof is when the sun is shining, I would argue that the real battleground should not be in market share, but in service and value addition to musicians and rights owners.
“Better aligning the interests of music companies with the artists and songwriters they serve is, I believe, the most significant transformational opportunity offered by streaming.”
Improving service levels, better aligning the interests of music companies with the artists and songwriters they serve, is, I believe, the most significant transformational opportunity offered by streaming.
The first phase of that transformation focused on fairness and transparency, the recognition that music companies’ historical relationship with musicians was unbalanced and often unfair, and that simply translating the contractual terms of the analog era to streaming was inappropriate and unsustainable.
Much of the industry now acknowledges in words if not always in practice that fairness and transparency are irreplaceable in the streaming age.
The second phase, which we are now in the middle of, is the growing understanding that music companies are now essentially businesses that serve musicians. They are no longer principals in the market. They work for the artists and songwriters who actually make the music.
Progress here is slow. Obviously the larger the company, the less eager they are to accept that their historic role as drivers of the business is over. But that is the inevitable logic of technology.
A third transformation, arising from the previous two, will focus on proactive revenue management of record and publishing rights, reducing inefficiencies in the revenue chain and maximizing income for rights owners.
A key driver for this will be the growing number of high-value catalogs held outside traditional music companies – either owned by the artists themselves or, increasingly, by investors.
“Investors who have committed literally billions of dollars to acquire music IP will not tolerate the degree of revenue leakage, multiple commissions, admin fees and slow processes still common in this business.”
Investors who have committed literally billions of dollars to acquire music IP will not tolerate a degree of revenue leakage, multiple commissions, administrative fees and grindingly slow processes in a normal business that has yet to make the leap from analog to one. The digital mindset.
This demands a focus on music industry structure and overhead on the one hand and processes on the other. It will put an increasing premium on the music industry’s most under-appreciated services – copyright, royalties, income tracking. They may not have the glamor of A&R, marketing or synch, but they will be key differentiators for years to come.
We pin our hopes on differentiation and a clear strategy rather than hoping that we can neutralize our way to growing revenue on the back of market growth. There is still a lot of work to be done.
In a recent pitch to a songwriter we reviewed a potential client’s top 30 tracks on YouTube – only three of them were properly registered and claimed by their current music publisher.
This is not an isolated case. Striking deals with digital platforms is one thing; Knowing how to successfully work with them is another thing entirely. It is these areas of revenue optimization and revenue tracking assurance where we believe the greatest opportunity lies.
We must ensure that as much top-line growth projection as possible by Goldman Sachs is captured and passed on rather than wasted on objectives such as market share that ultimately mean nothing to the musicians who pay the bills.
It’s a great way for us to repay the faith of artists, songwriters and of course shareholders who ultimately make what we all do possible.
To put it another way, if that’s not our priority, artists and songwriters and rights owners can be forgiven for asking what is the point of music companies?Global music business