Thomas Coesfeld is the Chief Financial Officer of BMG. Here, in an exclusive MBW op/ed, Coesfeld argues that the right response to the global music industry’s booming revenues must be improved service for artists and songwriters – rather than a cashless pursuit of market share…

June 13, 2022 was a big day for finance teams across the music industry. It was the day Goldman Sachs released its revised forecasts for the music industry with new numbers suggesting the recorded music market will double by the end of the decade.

At BMG, as no doubt elsewhere, domestic forecasts were rapidly improving. Those with long memories who saw vinyl LPs eclipsed by compact discs selling for twice the price could be forgiven for thinking history was repeating itself. Happy days!

However, despite the rosy picture painted by Goldman’s forecasts, there is reason for some humility. Nothing in these projections suggests that the projected growth will be in any sense due to the collective efforts of the music companies themselves.

They’re not based on record companies suddenly getting better at their jobs and signing more or more hits; they are a byproduct of a fundamental shift in the way consumers choose to consume music, driven by DSP investment and innovation.

It is therefore reasonable to debate what the correct response to this stroke of luck is.

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 a battle for market share benefits either artists or songwriters. History suggests it doesn’t do much for shareholders either.

Based on the old belief 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 added value for musicians and rights owners.

“Better aligning the interests of music companies with the artists and songwriters they serve is, I believe, the single most important transformative 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 single most important transformative opportunity offered by streaming.

The first phase of that transformation focused on fairness and transparency, a recognition that the historical relationship of music companies with musicians was unbalanced and often unfair, and that simply translating the contractual terms of the analog era to broadcasting was inadequate and unsustainable.

Most of the industry has now accepted in word, if not always in deed, that fairness and transparency are non-negotiable in the broadcast age.

The second phase, which we are currently in the middle of, is the growing realization that music companies are now essentially service businesses for musicians. They are not the most market leading. They work for the artists and composers who actually make the music.

Progress here is slower. Understandably, the larger the company, the less inclined they are to accept that their historical role as business leaders is over. But this is the inevitable logic of technology.

The third transformation derived from the previous two, we believe, will focus on the active management of recorded and publishing rights revenue, minimizing inefficiencies in the revenue chain and maximizing revenue for rights owners.

The main driver for this will be the increase in the number of high-value catalogs held outside of traditional music companies – either owned by the artists themselves or, increasingly, by investors.

“Investors who have committed literally billions of dollars to buy music IP will not tolerate the rate of revenue leakage, the high commissions, admin fees and extremely slow processes still common in this business.”

Of course investors who have committed literally billions of dollars to buy music IP will not tolerate the rate of revenue leakage, heavy commissions, administration fees and extremely slow processes still common in a business that has yet to make the leap from one analog to one. digital mindset.

It requires a focus on the structures and costs of the music industry on the one hand and processes on the other. It will place an increasing premium on the music industry’s most undervalued services – royalties, royalties, revenue tracking. They may not have the glamor of A&R, marketing or sync, but they will be key differentiators in the years to come.

We would rather pin our hopes on differentiation and a clear strategy rather than simply hoping that we can achieve revenue growth based on market growth. There is still much work to be done.

In a recent presentation to a songwriter, we reviewed a potential client’s top 30 songs on YouTube – only three of which had been correctly recorded and claimed by the current music publisher.

This is not an isolated case. Striking deals with digital platforms is one thing; knowing how to work with them afterwards is something else entirely. It is these areas of revenue optimization and revenue tracking assurance where we believe the greatest opportunity lies.

We need to ensure that as much as possible of the headline growth forecast from Goldman Sachs is captured and passed on rather than wasted on targets such as market share that mean nothing to the musicians who ultimately pay the bills.

This is the best way for us to reward the trust of artists, songwriters and of course shareholders, who ultimately make the work we all do possible.

To put it another way, if that’s not our priority, artists, songwriters and rights owners could be forgiven for asking what is the point of music companies at all?The worldwide music business

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