21 - 003 Digital Music Consolidators

 From the moment that music was standardised into the MP3 file format a revolution in its distribution and those businesses associated with the sale of music was inevitable. In terms of the direct distribution to consumers then streaming was to become the key technical innovation whilst Spotify was to define the new business paradigm. This has been called freemium combining the words “free” and “premium”.

https://en.wikipedia.org/wiki/Freemium

But the purpose of this post is to not look at the front end but to examine a knock on effect of this change in music listening. Suddenly the ownership of the rights to music has become profitable and is likely to only get more profitable. Some have said it is like investing in gold.

So enter Hipgnosis buying up the back catalogues and music rights of Shakira, Beyonce, Blondie and Neil Young along with many others. The Hipgnosis Songs Fund are London’s biggest music fund only established in 2018 on the back of the sudden commercial relevance of owning digital music.

https://en.wikipedia.org/wiki/Hipgnosis_Songs_Fund

There are many other small back catalogue funds now attracting investment to invest in back catalogues. The investment industry seeing this as a new way to invest in a relatively low risk business model with long term growth potential as the digitisation of music proceeds to become a global activity.

So BMG owned by the German media conglomerate Bertelsmann is buying the back catalogue of Mick Fleetwood. Whilst Primary Wave an American fund brought Ms Nicks songbook.

What it has highlighted is the fine detail in terms of types of music ownership. For example the ownership of the song itself verse the recording rights of a song. It is the recording rights that entitles the owner to a share of the royalties when a song is streamed. The song being sung is the digital artifact being sold to the consumer. The words of the song itself is a different type of copyright ownership.

The song writer may claim part of these royalties as a copyright licence covering the use of the song. The logic being it’s the ownership of words similar to a book copyright. Not the ownership of a performance. Song writer royalties have often been very poor although the owner of the song can collect royalties off other artists when it is performed by them. Often this finer legal detail was not established as thoroughly as it needed to be particularly when performers were struggling in their early careers. But the differences can now make a potential major difference in the size of your income.

Now for the biggest deal so far. Bob Dylan sold his entire catalogue of 600 songs including Blowing in the Wind and Knocking on Heaven’s Door to Universal Music in 2020. It is suggested that it was sold for more than £225m.

https://www.theguardian.com/business/2020/dec/07/bob-dylan-sells-publishing-universal-music

Although this whole back catalogue industry is now booming because of the internet as a distribution channel it is not a new industry. Michael Jackson purchased 250 Lennon-McCartney songs as part of a $47.5 deal in 1985.

Now this trend in music is likely to be followed by film and video. Photographs and paintings have consolidated but under different digital business models. In fact multimedia digital files (eg music, video, photo, image ) and compilations of these (education, learning, lifestyle ) because they are so reproducible will become the valuable digital revenue streams of the future. With digital eBooks, particularly those using the EPUB standard, becoming the go to container for much of this multimedia content.

So as a Digital Disrupter where does it leave you? If you are a specialist in any particular hobby or interest from stamps to die cast models to historical artefacts to artwork then consider how others interested may want ownership of a digital entity relating to the subject. Can you create a back catalogue of these digital entities? So will consumers pay to see or hear them? You can always adopt the freemium model which is the best way to start.

The Podcast as a medium has made things like church bells and steam train and aeroplane sounds and bird sounds saleable products. The same applies to specialist videos. Or you could just record some music creating your own music library to complete the cycle.