As streaming services rejuvenate the music industry, Sony’s $2.3 billion deal to acquire EMI will make it the world’s top music publisher.
The well-timed purchase is one of the biggest music industry deals in years, and the first big move on the part of Sony’s new CEO, Kenichiro Yoshida, who took the top job in April. Yoshida wants to develop more stable revenue streams by buying the rights to entertainment content. The acquisition of London-based EMI Music Publishing will give Sony control of more than 2 million songs – and in total, the world’s largest catalogue of music publishing assets. A $185 million deal earlier this month to acquire a 39% stake in Peanuts Holdings, of Snoopy and Charlie Brown fame, also augmented Sony’s content offerings.
“This investment in content intellectual property is a key stepping stone for our long-term growth,” Yoshida said of the EMI deal. The rise of the internet caused the music market to contract from around 1999 to 2014, but it has started to enjoy a renaissance with the growth of paid music streaming services. “The rise in digital streaming is also expanding songwriter royalty revenues, with Sony capturing value as manager of the copyrights backed by direct deals with the likes of Spotify, Apple Music, Google Play, SoundCloud and YouTube,” said Damian Thong, an analyst with Macquarie Group. The deal values EMI at $4.75 billion including debt.
EMI currently owns 15% of the music publishing industry, according to Reuters. Adding that to the current holdings of Sony/ATV, Sony’s existing music publishing business, would make it the industry leader with a 26% market share. Sony said EMI generated $663 million in revenue for the fiscal year ending in March. Sony’s current music publishing assets contributed around $670 million. Other major players in the industry include Universal Music Group and Warner Music Group.
Sony has held a stake in EMI since 2011, but as part of the new deal, it will buy a 60% stake from the Mubadala Investment Company, a sovereign wealth fund of the government of Abu Dhabi. This will give Sony about 90% of the equity in the EMI catalogue, up from 30% currently. The remainder is held by the estate of Michael Jackson.
Building on the work of his predecessor, Kazuo Hirai, Yoshida’s strategy is to shift Sony’s focus away from consumer electronics with low margins and volatile sales cycles. His new three-year plan puts the emphasis on generating stable cash flow and attaining 2 trillion yen ($18 billion) or more in cash flow over the next three years. Sony expects much of its profits to come from image sensors, which is a major area of investment for the company as it broadens their applications into automotive.
