Author(s): Raghu Gopal
Last week, Sony announced that it will buy a 60 percent stake in EMI Music Publishing for $2.3 billion from a group of investors. Sony already has a 30 percent stake in EMI, so when the deal completes it will own 90 percent of the company.
The acquisition also gives Sony's music catalogue a boost of more than 2 million songs including titles from artists such as Kanye West, Sam Smith and Sia, as well as work from classic artists such as Frank Sinatra, Queen and David Bowie. In total, Sony's music library will now have more than 4.5 million songs.
With this deal, Sony is hoping to take advantage of the rapid growth in music streaming through brands such as Spotify and Apple Music — subscription-based services that have helped revive the music industry. After more than a decade of sales declines as a result of MP3 downloads, the business model of the music industry shifted from ownership to unlimited leasing.
According to the International Federation of the Phonographic Industry, global recorded music revenue reached $17.3 billion during 2017, up 8 percent compared with 2016. This was the third consecutive year of growth after 15 years of declines. The rise was mainly thanks to a 41 percent year-on-year increase in streaming revenue, supported by 176 million paid subscription accounts. According to the organisation, streaming accounts for almost 40 percent of total recorded music revenue and is now the largest revenue stream, making up for losses of physical media sales and music downloads. Streaming revenue is adding consistency to an industry that has gone through a technical disruption.
Sony's deal comes after Spotify, the leading music streaming service, had a successful direct listing on the New York stock exchange, giving it a market cap of about $30 billion. Sony is a stakeholder in Spotify, currently owning around 2.5 percent of the company. The move also follows months of ambitious deals; the success of streaming services has attracted new types of investor and long-time owners are seeing this as an opportunity to cash out.
Sony, a company once known for innovative hardware such as Trinitron TVs, Aibo the robot dog and the once-ubiquitous Walkman, has slowly and successfully shifted its strategy to the soft side of the business. In fact, Sony's CEO, Kenichiro Yoshida, said that his company is looking for more content acquisitions. Just a couple of weeks ago, Sony agreed to buy a 40 percent stake in the Peanuts franchise, home of characters such as Snoopy and Charlie Brown, for $185 million.
Given the loss of much of its hardware business to companies like Samsung and Apple, it seemed for a while that Sony was a decaying giant unable to keep up with nimbler rivals. But the Japanese company has been adopting a slow-moving strategy of reinventing itself. Given that it has been reporting record profits during recent quarters, Sony has found a rhythm with its content vision.
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