Who Wants to Invest in Music These Days? Lots of People

By Glenn Peoples (@billboardglenn), Nashville

If you have read newspapers and blogs in the last few years, you know there's no money to be made in music. So why are billions being invested in music companies? Is there really that much dumb money going into the wrong industry instead of following the smart money elsewhere?

The record industry is a sinking ship, yet Warner Music Group attracted numerous bidders and EMI is likely to see similar interest. The publishing industry also faces uncertainty, but publishing assets are constantly bought and sold. Years have passed since the record label was supposed to have died, but new labels are sprouting up every week.

There's a reason for this difference between popular sentiment and reality: the music business is not a monolithic entity. Recorded music is just one segment of the industry. Live events, merchandise and publishing are also major parts of the industry. Beyond the more traditional areas of the business are artist services companies like Sonicbids, mobile app developers like Mobile Roadie, ticketing companies like Eventbrite and a slew of information-based startups like the Echo Nest that are helping build the next generation of music companies.

The truth is the music business is still a place where entrepreneurs and investors are willing to take risks. In fact, investment opportunities exist because some investors mistakenly believe all music companies face the same types of disruption.

As Brad Svrluga of High Peaks Venture Partners concedes in a post at Forbes.com, music startups that require licenses to sell downloads or stream music definitely face some tough challenges. But he saw opportunity in Pump Audio, which helped transform music licensing and was sold to Getty Images less than 18 months after High Peaks invested in the company. "If we had let the broader challenges of consumer distribution of music obscure the opportunity inherent in providing a better solution for soundtrack music to an explosion of video content for rapidly proliferating cable networks and web video businesses, we would've missed a real winner," he writes.

Like licensing, ticketing is another area ripe for disruption. High Peaks took part in the fall 2009 first-round funding of ticketing startup Ticketfly. The company announced $12 million in second-round funding last week, and other ticketing startups have received tens of millions in venture capital over the last three years. "Their plan for this year forecasts greater than 100% growth over last year," writes Svrluga. "I'll be damned if they didn't beat their Q1 number by 25%."

Investors are not even dissuaded from the traditional record industry. Warner Music Group has received three bids of $3 billion or more. The company has also received a number of bids for just one of its two divisions. Live Nation is reported to have bid on Warner's recorded music division just over a year after its merger with Ticketmaster typified the upside seen in event-oriented business models.

The key to investing in a record and publishing company is to not overpay. You see, corporate valuation is both art and science. The science is the easier part. Put numbers in a spreadsheet and arrive at a number. The art is accurately estimating the future value of a company in an era of tremendous upheaval. The art is in knowing which assumptions to build into that spreadsheet. If you guess wrong, if you overestimate the cash flows to be generated by intangible assets in the next ten or 20 years, or if you're too optimistic about the positive impact the merger will have on revenues and expenses, you can pay too much and get bogged down in debt. This was the case of the 2007 acquisition of EMI. Terra Firma simply overpaid at a time when the credit markets made possible such a leveraged buyout.

So Warner's bidders need to make sure they don't overpay. Warner is definitely a good investment at $1 billion. Even $2 billion. A $3 billion price tag offers less room for downside. But even at $3 billion, there are still a handful of bidders willing to buck conventional wisdom and risk money on a traditional music company.

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Unpaid Internships: Do They Make Sense Anymore?

 You know the drill: fetch some coffee, answer the phones, kiss some butt, and hope it all goes somewhere.  It's the unpaid internship, a well-worn rite of passage in the music industry.  But does this make sense anymore, especially with so many established companies struggling and cutting back?  And remember: there's less guarantee than ever that you'll get a gig, so can you afford that risk?
 
That was a huge question over the weekend at a conference held by the Music & Entertainment Industry Educators Association (MEIEA) in Los Angeles, one heavily attended by soon-to-be-graduating college students.

Naturally, the question came up, and most executives supported the free internship as a perfect and often necessary shoe-in.  In fact, most felt it was critical.  Keith Hatschek, currently director of Music Management at University of the Pacific, said internships easily gave candidates a clear edge - and oftentimes made the hands-down difference.  "And if you have a letter of recommendation, then you're way ahead of the competition," Hatschek relayed.  "I was an employer for 23 years, and I never hired someone because they had a 4.0 grade point."

Others successfully climbed from the intern ranks themselves, and strongly backed the idea.  "I took an internship with ASCAP after I graduated, for no credit and no money," relayed Alisha Davis, currently Associate Membership Representative for Film & TV at the company.  "I was an outstanding intern, and they did everything they could to get me a job and get me hired.  So I moved out [to LA] on Sunday, and started working on Monday."

Sounds like an easy formula, but it is really that simple anymore?  For example, is your target company hiring when you need them to be hiring?  Will they still be around in a few years?  Or, can you parlay the internship into a real gig somewhere else when it matters, especially in a shrinking industry?

Maybe these questions are easier in California, where employers are required by law to either pay an employee or give college credit.  So there's less downside, but others face more difficult questions related to their financial situations and opportunity costs.  Yet even in situations where there's no money, no credit, and difficult prospects, most interns can still walk away with some experience, a recommendation or two, and a better working knowledge of the business.  But remember: this is still a heavy investment of time and money that assumes future rewards, and a decision worth weighing carefully.

Source: Digital Music News

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Where Will IdOMusic Show Up Next?

Looking forward to the next IdOMusic Event?  Go ahead and take the initiative to let us know about music events happening in your city. If you have an event created to empower musicians we want to know! Send us information and we'll post on the site. 

In order to build up our music communities, we must continue to refine our networks daily. Send all information to Osman Bangura.

Do More, Say Less!

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Events: The Return of ATLBeatBattle

 Looking to network with some of the best producers and songwriters in the city of Atlanta? Make sure you attend The ATL BEAT BATTLE taking place Tuesday night. Please don't make excuses if music is your passion. Your network is priceless. This is a can't miss event! We will have IdOMusic® Reps in the building as well. Lets WERK!

What: Networking Event for Producers & Songwriters

When: Tuesday, April 5th

Where: The Music Room

Contact:  Jas- 404.207.6717

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