He made that abundantly clear at Goldman Sachs‘ Communacopia conference in New York last Thursday (September 19), where he said: “At Sony, margin is really important and our margin [at Sony Music] is excellent. Are we perfect? Of course not, we have other areas to improve — but the margin is not an issue.”
(MBW analysis suggests that Sony Corp‘s Music operation – encompassing records, publishing and ‘Visual Media & Platform’ – posted a $1.28bn EBITDA in FY2018, which only included a few months of ownership of EMI Music Publishing.)
So, if it’s not profit margin, what does Stringer see as the biggest test of Sony’s mettle in the years ahead? Speaking with Goldman analyst Lisa Yang, he indicated that, actually, it might be artists – as in, signing enough of them, while ensuring the quality of their output remains high across the board.
“It would be obvious to anybody with common sense that we would need to up the number of tracks we potentially have ownership [on] or a partnership [with].”
Stringer pointed out that, following Sony’s completed merger with the ‘old’ BMG at the end of 2008 – the same year Spotify launched – the major record company went through some operational growing pains. As a consequence, “we didn’t sign many acts in about a three-year period”.
Stringer called Sony Corp’s decision to pay $900m for the second 50% of BMG it didn’t already own 11 years ago “a work of financial genius”, as the value of the copyrights acquired has ballooned ever since. But, said Stringer, the resultant A&R slowdown created “a gap in our artist base and our content base”, and that Sony “should have signed way more at the advent of streaming”.
Now, Stringer says he’s “tasking my executives to catch up, and sign a lot more artists without a drop in quality”.
How’s Sony going to achieve that aim? Read on for some of Stringer’s most pertinent thoughts from the Goldman interview – covering his industry competition, the potential Universal/Tencent deal, and his company’s A&R strategy for the future.
Oh, and why Stringer believes music has to maintain its premium value online – and not allow itself to become categorized alongside “two minutes of someone snoring in Lapland”…
On… Sony Music’s position in the global market versus the other majors
“We’ve been the No.2 company pretty consistently for the last 15 or 20 years. That’s where we are; it has its advantages.
“The [three major music] companies are not the same: yes, we all work in music, we all put out frontline repertoire, we’re all looking for hits… but we’re not the same in terms of structure and size. Our parent companies are very different.
“Market share can be bought for a certain price.”
“[We have] different overhead structures, numbers of people [employed], different reasons for [prioritising either market share, profit or revenues]… Market share can be bought for a certain price.”
“Parent companies differ in their philosophies and strategies. We just bought EMI Music Publishing for over $4bn so that shows you Sony [Corp’s] commitment to the music market – I don’t think they would have done it otherwise.
“The value of [EMP] is [already] probably worth more [than $4bn]; people are buying [publishing] catalogs this year at multiples of 22 to 23X [EBITDA]. I think we got a pretty good deal in EMI, from the time we signed it at the turn of the decade to now.”
“YouTube is working to get a subscription platform going – and we need them to get it going. That’s a positive arrangement, because we want that subscription model to grow.
“Having said that, it would be extremely naive of us to think we could ignore YouTube [the video service]; they’re a phenomenal global platform with huge reach in markets including many, many emerging markets.
“We don’t want to ever under-value music. I don’t want a great song to be competing with two minutes of someone snoring in Lapland… A piece of art is different to a piece of noise.”
“It’s a balance. We look at that [YouTube] arrangement in maybe a different way than we look at our arrangement with Spotify, Apple or Amazon.
“We don’t want our music to be under-sold – that’s a very important point: We don’t want to ever under-value music. I don’t want a great song to be competing with two minutes of someone snoring in Lapland; I don’t think it’s the same thing. A piece of art is different to a piece of noise.
“We make top quality visual and audio content; there’s a value to that, and people who work with us need to respect that value. It doesn’t matter across what DSP; if that respect isn’t there, the deal terms will change greatly from our end.”
“Obviously those models are interesting, they’re built on a new revenue model. I see conversations about those companies aspiring to be the ‘fourth major’ – I think they’ve got a long way to go before they can call themselves the fourth major.
“We can learn from those models; there’s a digital element to particularly the Kobalt model we can learn from. But [we’re] pretty transparent now.
“I have huge respect for most of my peers, but there isn’t going to be a fourth major any time soon. It’s not going to happen.”
“Record companies used to hide a lot of money, at the beginning of the business; it was new, people didn’t know how it all worked, and we could be somewhat covert.
“We’re not covert at all now, not to our artists in fiscal terms, and not to the business [in general], really.
“Honestly, I have huge respect for most of my peers, but there isn’t going to be a fourth major any time soon. It’s not going to happen.”
“My predecessors and some of my team today bought 50% of The Orchard less than 10 years ago for $30m; we bought the second half for $200m, and it’s probably worth now – and I’ll be conservative – hundreds and hundreds of millions of dollars as a section of our business.
“That was good timing; it was a necessary shift to where, as it turns out, the streaming model has gone. We have to be an aggregator for a lot more content. And The Orchard’s at the center of our strategy… with the huge number of labels [and artists] it distributes, it partially [tackles] the 40,000 tracks a day syndrome.
“Also, there is an upstream potential [for Orchard artists] with the major label structure we have. It works across two facets.”
On Tencent’s bid to own 10% of Universal via a $3bn deal, and whether that might give UMG an unfair advantage on Tencent’s music services
“I saw in [Goldman Sachs analysis] that people were rating UMG’s valuation between $20bn and $50bn; if we’re [also at a certain point] between $20bn and $50bn, we’re going to be pretty happy.
“[The Tencent/UMG deal] is good for benchmarking [Sony Music’s value], but I don’t think Sony has any desire to sell any percentage of the music group. I don’t think that’s going to happen, and I don’t think we’d have bought EMI if that was going to happen. [The Tencent/UMG price] shows the value that’s been created in the whole business in the last five years.
“I have huge respect for Universal.”
“I have huge respect for Universal – huge respect. It’s not a closed shop, but [today’s major record company heads] are all British people who’ve run major [labels]; we’ve all known each other a long time, and they’re a fantastic company.
“[Universal might] say there’s an [advantage for them via the Tencent deal] in China, but when we ask [those in control of Tencent’s streaming services], they say there isn’t. It isn’t Tencent Music buying that [UMG] share, it’s Tencent [Holdings].
“I would be hopeful there remains neutrality and there remains fair competition in China moving forward. I would be disappointed if there wasn’t.”
On… the importance of hiring skilled A&R people
“All the numbers are extremely positive in this particular era… but we also know that we have to be more a little bit more forward-thinking in how we build our strategy, because we don’t own everything, and we used to own everything. It’s a different period of time, but I feel very comfortable where we’re at.
“In terms of how we balance it out, the art is always important, and that’s a unique skillset.
“We made be weird and we may be oddball, but [the ability to deal directly with artists] is a firm skillset.”
“We made be weird and we may be oddball, but [the ability to understand artists] is a firm skillset that I believe most people couldn’t capture or replicate easily.
“There are some people who have come from outside into the industry and tried to replicate the art-form strategy, and it’s very difficult.
“There’s the famous quote that it’s like selling popcorn in the cinema: it isn’t the same, because popcorn doesn’t answer back.”
On… the price of deals and Sony Music’s profits.
“The revenue is going up in the industry; the amount of money that we have to invest in talent has gone up, but the price of doing that has gone up too.
“It’s much more expensive today to sign talent than it was six months ago, and it’s way more expensive than two years ago — and going back to the 2000s, the download era, it’s not even comparable.
“It’s a balancing act between how much we spend on talent and how much we get back; that’s always been the adage but the mathematical formula is a little bit more complicated now.
“It’s much more expensive today to sign talent than it was six months ago, and it’s way more expensive than two years ago.”
“The good news is that our [profit] margins are way better when compared to the last great era of profit 20 years ago; our margins are amazing now. Revenue, profit margin, market share, all of those things are a [balancing] act. At Sony [Corp], margin is really important and our margin is excellent. Are we perfect? Of course not, we have other areas to improve [in] — but the margin is not an issue.
“Obviously I’d like revenue and profit to be perfect, but the margin will not go down, it will get better.”
On… the potential of emerging markets
“The emerging markets opportunity is huge for the industry. We have barely scratched the surface.
“If you look at the calculations of smartphone use with music revenue built in, from where we are today at 6% to where it will be potentially in 2030, that’s going to come from emerging markets [with] huge amounts of revenue.
“We are a global company before this started, now we’re really a global company: we have A&R resources and marketing people in virtually every territory around the world.
“The emerging markets opportunity is huge. We have barely scratched the surface.”
“Every market is different and we have to be respectful of that. There’s not some blanket global domination policy; we have to be intricate in the way we look at the world.
“In India, we have to be respectful that it’s a very independent-based market where the telco companies have huge power over what people consume through their phones. We have a very good Bollywood connection [there] so we have pretty good market share.
“We supported Spotify going into India; that was not an uncomplicated negotiation, but we got it done because we understood that we needed them to have a chance of being a potential player [there].
“We are looking at every single market in different terms.”Music Business Worldwide
