byÂ John McDuling
Investors suddenly seemÂ to thinkÂ the outlook for the music business is not as bleak as theÂ commentary surrounding itÂ suggests.
- A streaming music takeover battle, with the rapper Jay Z overcoming resistance to gain control ofÂ Swedish based Aspiro Group, which operates a relatively obscure, high-end competitor to Spotify.
- A streaming musicÂ venture capital investment, with Google Ventures, pouring money into Kobalt, a publisher hugely supportive of new, digital music models.
- An activistÂ hedge fund is pushing for a streaming music spin-off.
Letâ€™s focus on the last one. New York-based P. Schoenfeld Asset Management (PSAM) is pressing for changes at French media conglomerate Vivendi aimed at boosting the companyâ€™s share price.Â Most of PSAMâ€™sÂ suggestions are pretty boring, except for a proposal to spin off Universal Music, the worldâ€™s biggest musicÂ company, which controls more than 30% of the global recordingÂ industry.
Itâ€™s worth noting from the outset that PSAMÂ owns less than 1% of Vivendi. Itâ€™s trying to pull off a classic â€œactivistâ€ campaign (the Carl IcahnÂ way ofÂ building a stake in a company and then whining about its performance) to rally support from other shareholders for changes itÂ wants to make.Â As a result, its projections about Universalâ€™s performance are inherently biased. Yet theyâ€™reÂ still notableÂ for those interested inÂ theÂ future of the music business.
InÂ a presentation (pdf), PSAM argues that the underlying value of Universal is obscured byÂ Vivendiâ€™s conglomerate structure, and that the stock market â€œsystematically undervaluesâ€ the bump it willÂ get from subscription-based streaming music, which could be poised for a major expansion, particularly with Apple about to enter the fray.
PSAM argues there willÂ be more than 250 million streaming music subscribers globally by 2020 (that number is about 5% of theÂ predictedÂ global smartphone customer base in 2020, which PSAMÂ thinks will be 5.03 billion). These subscribers alone, it goes on to say, will generate $16.42 billion in revenueâ€”more than the entire global recorded music industry (including physical sales and downloads) isÂ expected to generate this year ($14 billion).Â Interestingly, that $16.42 billion works out to just $5.45 per month per subscriberâ€”less thanÂ the $10 a month most streaming services currently chargeâ€”which would suggest thatÂ different pricing models may take hold.
Still, investor optimism about the music industry is refreshing.Â PSAMâ€™s extremely bullish projections have the total recorded music market approaching $26 billion by 2020. Thatâ€™sÂ not quite the $38 billion it hit at its peak back in 1999,Â but itâ€™s almost double where it is today.