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Wednesday, 7 February 2018

Brand Finance 500 … What’s the value of music IP?

The IPKat is happy to host the following analysis by David Serras Pereira (SPAutores) of the recent Brands Finance Global 500 2018 Report.

Here’s what David writes:

“On 2 February 2018, Brand Finance published its Brand Finance Global 500 2018, this being its annual report on the world’s most valuable brands.

Obviously, defining the concept of ‘most valuable brand’ may be open to subjective interpretations, but Brand Finance defines ‘brand’ as the “Trademark and associated IP including the word mark and trademark iconography”. It then calculates the brand value using the "Royalty Relief method" which determines the value a company would be willing to pay to license its brand as if it did not own it.

When I started analyzing this report, I looked at it through the prism of entertainment industry, particularly the music industry, and wondered how much music IP may be worth.

The value of music IP derives mostly from copyright and neighboring rights and the transactional licensing values agreed, not so much from trade marks and patents (although heavy bets on Artificial Intelligence, Virtual and Augmented Reality and Blockchain systems may change a bit this traditional vision).  So I have tried to understand where the music is in this report, if owning and licensing “music IP” is valuable for the calculations, what is it its importance and, obviously, how do we fit music into the first 10 most valuable brands, if we do (?) ... and we do!

The artists ...
Looking for the music majors

When you "talk" majors, you refer mainly to Universal, Sony, and Warner. The three are often mentioned in opposition to the small, localized and "independent" ("indie") labels. So, I went through the report searching for these three. Their value comes mostly from licensing performance, mechanical and recording rights.

Searching for Universal I found it ranked 125th (up two places from the previous year) dangerously close to Sony, now coming on the 126th place. Behind comes Warner, at a humble 154th, which is not bad position, since it has had the highest growth among the three mentioned (it was ranked, in 2017, #182).

And although this report does not distinguish the music and non-music divisions of the three majors, it is interesting to note that all the super licensing music deals accomplished in 2017 had a positive impact allowing them to rise at good pace in the ranks relying on their ‘music IP’.

The ‘non-traditional’ big players (are they not ‘industry’ now?)

It doesn't come as a surprise to see Amazon ranking 1st and throwing away to second and third places the likes of Apple and Google. The e-commerce giant’s brand value has increased by 42% and is worth US$150.8 billion. Coincidence or not, this has happened during the year in which Amazon betted heavily on it music branch, with huge growth of the number of subscribers of Amazon Prime Music and Music Unlimited, reaching the third place in the streaming services’ fierce competition for the highest number of subscribers. Now just add Amazon Alexa and Echo and you guess it ... music and entertainment really helped to achieve #1.

Facebook in 2017 also invested heavily on its global music strategy. Hiring former executives from the music business (Tamara Hrivnak), opening positions for top tier jobs in the music licensing relations with labels and collective management organization, its "own-music" projects late last year (SOUND COLLECTION), and the now announced licensing agreements for the use of music with HFA/Rumblefish, Kobalt, Global Music Rights, Universal Music Group, Sony ATV and SESAC, just put music at a central and core point of Facebook’s strategy. We will have to see what’s in 2018 for us to see.

The producer
Where we will surely see a huge growth of the music impact in the value of a business will be in relation to YouTube. For now it maintains quite an ‘average’ position, at #42. But as the report describes (despite criticism from industry and collective management organizations, and possibilities of legal reform both in the US (DMCA) and EU), it has more than doubled its brand value to US$25.9 billion, jumping up 70 places. Furthermore it has announced that it will launch a rival music service to the likes of Apple Music and Spotify in 2018, that can probably result in a higher ranking in the table by the end of next year.

And then you reach Apple, with Apple Music as the 2nd most subscribed streaming service in the world, and with the announcement that Shazam was acquired to be integrated into Apple's music business … It appears that music IP will be more and more a crucial bet for Apple, with streaming in replacement of the zombie download branch, and a bit of the renewed HomePod to spice things up.

Finding Nemo Spotify?

The #1 music service in the world, with the highest (by far) number of subscribers, with music composers and producers credits now included, with renowned playlists, and heartbreaking sequel of ‘to be or not to be IPO-able’ is not to be found on the 500 list.

The executive
We know that the heavy lawsuits now pending (Wixen Publishing and the mechanical rights’ perfect storm), the claims of using “fake artists” which in the year of “fake news” is not a good association to be having, could hurt badly the Swedish company. But although not expressly mentioned we see a flash of it. In Tencent. Yes, Tencent – a brand that ranked up to #21 and operates the most popular social platforms in China – the Chinese giant which heavily bets on music as well, gives us a little Spark of Spotify on this list. In late 2017 Spotify, Tencent Holdings Limited and its subsidiary Tencent Music Entertainment Group (TME) announced mutual and joint capital investments. TME and Spotify would acquire minority stakes in each other, with Spotify holding a minority stake in TME, and both Tencent and TME holding minority stakes in Spotify. So if not on the list this year, maybe next, for top 10?

Conclusion

Small doubts may exist that that music IP, whether in the form of revenues derived from licensing or as the ability to negotiate IP rights almost for free, has a major impact on the brand valuation of a company, and that both traditional players, along with new competitors with tremendous market power, rely on their music branches to increase the value of their brands. And you will probably see the top 10 of the next decade betting relentlessly on music as an increasingly core business.”

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