Music Execs Discuss Capital Ideas: Symposium Stresses Opportunity In Tough Times
November, 24 2001
Matthew Benz and Brian Garrity
NEW YORK - If attendees of the first Billboard Music & Money Symposium are to be believed, the money to fund new music ventures has not disappeared. It is just being distributed more selectively.
Sponsored by Prudential Securities in association with Loeb & Loeb, the event, held Nov. 13 at the St. Regis Hotel here, brought executives from across the music industry together with attorneys, accountants, bankers, and analysts to assess the current state of the music business.
There was no getting around the bad news. Piracy is rampant, the right strategy for digital music remains unclear, and worldwide music sales are falling—by 10% or more in 2001 compared with last year, according to a recent research report issued by London-based media and entertainment analysts Merrill Lynch. Such a decline, analysts say, would make 2001 the worst year in music history.
At the symposium, Harold Vogel, a longtime Wall Street entertainment-industry analyst who currently runs his own investment shop, said, "I don't believe we're going back to the good old days of rip-roaring unit volumes."
Yet most present at the St. Regis were eager to discuss the willingness that remains—on Wall Street and within the music industry itself—to raise capital, build businesses through mergers and acquisitions, and fund new ventures.
Indeed, they said, the seriousness of the problems currently facing the industry underscores the importance of delivering funding to those companies that may have the solutions.
"The greatest opportunities never happened during wonderfully robust times," said Jay Samit, EMI Recorded Music senior VP of new media, echoing the words of Billboard editor-in-chief Timothy White from the symposium's opening. Samit added, "Right now, you will get the most receptive ears ever if you have a solution to [the problem of] one billion to two billion songs a month being stolen."
Yet Clifford Friedman, senior managing director of venture-capital firm Constellation Ventures, was quick to emphasize in his keynote speech that venture capitalists' feet are planted more firmly on the ground these days, their eyes more closely trained on the bottom line. Ambitious technologies are fine, Friedman said, as long as the firms behind them can deliver quick customer adoption, revenue traction, and positive cash flow within a defined investment period.
The day of reckoning may even have come in the esoteric realm of asset securitization—the concept that famously found its first music-industry application in the 1997 "Bowie Bond" deal. Participants in a panel on the subject acknowledged that each time royalty streams are packaged into securities that investors will buy, the wheel must, to an extent, be reinvented.
Still, some foresee a potentially large market for these transactions—including Robert D'Loren, president/COO of CAK/Universal Credit, who coyly predicted in a session on the subject that there will likely emerge a firm that will make loans to small music companies and then turn around and securitize those assets in the capital markets.
At day's end, there seemed to be agreement that talent—among one's roster of artists or management team—is what has always driven the music industry. New technology, whether in the realm of engineering or finance, is meant to bridge the smaller gaps.
For all his talk of distribution "pipes" and driving synergies across multiple, various platforms, AOL Time Warner's Richard D. Parsons conceded this in his midday interview with CNN's Larry King, noting that his seemingly labyrinthine job as co-COO and head of all content boils down to managing people and money.
As for funding new ventures, ZelnickMedia's Karl Slatoff reminded symposium attendees that investors commit money on the basis of people, not ideas—and that good records, not great new technologies, fuel the business of music. "Hits," he told attendees, "cure all ills."