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– A quick reminder of the power of the tech biz vs the music biz –

27 juillet 2016

MBW review-1The MBW Review gives our take on some of the music biz’s biggest recent goings-on. This time, we look outside the entertainment industry to marvel at ARM – the British chipset company just acquired for $32bn by Japanese giant SoftBank. The MBW Review is supported by FUGA.


$30 billion is a monstrous amount of money.

It’s the kind of unreal figure that orbits outside the routine rigmarole of ‘business’, being more commonly linked to geopolitical upheavals like arms sales by global superpowers or mergers between actual stock exchanges.

Yet a larger figure – $2bn larger, in fact – was paid last week for a UK company, based in the pretty and historic city of Cambridge, East Anglia.

The buyer was a mammoth of the financial markets worldwide: Japanese multinational Softbank.

The target: ARM Holdings, a 25-year-old semiconductor and software design company, whose processor patents crop up in everything from smartphones to smart TVs and smart watches. Smart everything, really.

The reason Softbank was willing to pay such a gigantic sum for ARM, say analysts? Its potential to drive forward the ‘internet of things’ – a future where all physical devices, from vehicles to buildings, street lamps, home appliances and CCTV systems, ‘talk’ to one another by exchanging data.

For now, let’s leave aside ARM’s inevitable role in uniting an army of machines from a post-apocalyptic future hell-bent on destroying humanity, and instead focus on what really matters: lovely little songs.

Songs certainly matter to Softbank: not so long ago, it was very interest in acquiring a load of them.


vivendi-ord-logoThe Japanese company is believed to have tabled an $8.5bn bid for Vivendi’s Universal Music Group back in 2013 – an approach subsequently rejected by the French media empire.

Why exactly, we don’t know. But price-wise, it definitely left something to be desired.

In a 2014 report heralding the scorching potential of music copyrights, Credit Suisse gave UMG a standalone valuation of €10bn.

Last year, rebel Vivendi shareholder PSAM pretty much concurred, giving UMG a €9bn valuation.

Here comes the back-of-a-chipset maths.

  • Let’s say Credit Suisse was right, and Universal is saleable for €10bn – currently equivalent to $11bn;
  • You then go shopping for UMG’s rivals. Warner Music Group was snapped up by Len Blavatnik – a man with an eye for an asset that will yield – for $3.3bn in 2011. WMG’s added a few tasty acquisitions since then, including Parlophone Label Group for £487m in 2013 – the equivalent of around $760m at the time. It’s a rough guess, but keeping on the comfortable side of things, a $6bn valuation for WMG today seems generous;
  • To approximate the value of Sony Music, meanwhile, we’re probably best to use UMG as a ballast. Let’s remove publishing companies from both equations as Sony/ATV’s ownership structure is irritatingly complex (for now). Universal’s publishing company makes up around 15% of its revenues annually, so we should shave an approximate $1.65bn from its $11bn valuation to get a rough handle on what its recorded music business is worth – $9.3bn. UMG’s global recorded music market share last year was 33.5%, according to Music & Copyright, with Sony on 22.5%. So an $8bn valuation for Sony’s masters, once again, seems pretty generous.
  • Then we look at Sony/ATV. Estimates suggest the publishing company (including its admin agreement with EMI Music Publishing) is worth somewhere between $2bn and $2.4bn – significantly higher than a simple extrapolation of the $750m purchase price Sony/ATV recently agreed for half of its business.

ROB WELLSSo… all together, our generous valuations of the entire major music rights industry – including both recorded and publishing catalogues – comes to $27bn.

If you had ownership of the kitty Softbank used to buy ARM, that would leave you a measly $5bn in change to pick up as much of the independent sector as you could muster.

Which would be nigh on all of it.

In other words, the amount Softbank just paid for ARM would, by and large, buy you the entire history of music rights. Just like that.

Former Universal Music Group digital boss Rob Wells memorably told MBW last year:

“Startups will come and go, new models will come and go, but the one constant throughout all of that choppy water is that major labels own rights… if you own the rights, you own the keys.”

The exec (pictured) joined Crowdmix shortly afterwards – a UK tech startup which, having recently plunged into administration after burning through £14m ($21m), still appears to be fumbling for its keys.

ARM, by contrast, owns the rights to the leading chip technology of the modern age.

Aka: the keys to the world.

If nothing else, its astonishing purchase price reminds those of us guilty of referring to the major labels as ‘giants’ where the real behemoths of the tech/music fulcrum reside.

A quick reminder of the power of the tech biz vs the music biz

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