In a New Year's letter to staff in January, Warner Music Group CEO Robert Kyncl he said the company needed to better serve the “middle class of artists,” an area hotly pursued by its major-label rivals, as well as some independent distribution companies.
This week, WMG revealed it is interested in acquiring French label Believe, which owns a major label services business, digital distributor TuneCore, publishing management service Sentric and a stable of labels including Naïve, Nuclear Blast and Groove Attack. WMG said it was willing to pay “at least” 17 euros ($18.60) per share, a premium to the 15 euros ($16.41) per share offered by a consortium led by Believe CEO Denis Ladegaillerie and EQT and TCV investment funds. WMG's bid values them at around 1.65 billion euros ($1.8 billion).
WMG's interest in Believe comes as no surprise. The middle class of artists Kyncl refers to want alternatives to traditional recording and publishing deals — and WMG needs the tools to give those artists what they want.
While WMG can likely bring more value to Believe's assets as well, a Believe deal “solves a real stack problem for [WMG]”, says Matt Pincus, founder and CEO of MUSIC, a venture with investment bank Liontree. A full “stack” — a tech term that refers to all the technologies and skills required for a project — would allow WMG to serve a more comprehensive range of artists. Currently, WMG's product offering lacks a distributor for self-published artists, Pincus says, which provides a level of artist service between a do-it-yourself distribution deal and a label contract. This would strengthen WMG's ADA, which distributes indie labels, and create a pipeline to bring up-and-coming artists into WMG's system.
Kyncl need only look at how his competitors are serving middle-class artists. After the rise of iTunes, some independent distributors were eventually acquired by other major companies that wanted to distribute music on a larger scale. Sony Music owns The Orchard, a digital distributor acquired in 2015, and AWAL, an artist development company acquired by Kobalt in 2022. Universal Music Group acquired digital distributor Ingrooves in 2019 and folded it into its artist services division and its label, Virgin Music Group in 2022. Founded in 2006 to enable artists to access a new era of digital stores and services, TuneCore was acquired by Believe in 2015.
The major labels' emphasis on label services is a recognition that today's market is a mix of traditional artist deals, do-it-yourself independent artists, and everything in between — distribution deals, joint ventures, licensing deals, profit-sharing deals, and releases by independent artists supported by a major label service provider. Budding superstars often want independence but need the global infrastructure and expertise of the big guys. “What really makes a difference in this world is what you do [CEO] Brad [Navin] and Orchard did with the Bad Bunny record [Un Verano Sin Ti]says Pincus. “They really helped break that world record.”
Believe would also provide WMG with a publishing solution for the same independent artists. “When you consider that Believe also acquired Sentric Publishing, that brings together masters and publishing for a lot of these indie artists,” he says. Vicky Nauman of the consulting firm CrossBorderWorks. “This also opens up opportunities for new permission synchronization models that otherwise disallow fragmented permissions.”
Geography is another aspect of Believe's business that could be attractive to WMG. Although most of Believe's revenue comes from Europe, it has employees in more than 50 countries and has a presence in fast-growing markets such as India — where it has invested in two record labels, Venus and Think Music — and Indonesia. About 27% of Believe's total revenue in the first nine months of 2023 came from Asia Pacific and Africa, up 17.4% from the year-ago period.
Developing markets have great potential for two reasons, Kyncl explained Wednesday at the Morgan Stanley Technology, Media and Telecom 2024 conference. In the Middle East, for example, markets that have young populations, an underdeveloped subscription market and a lack of collection companies “will see quite a high appreciation of the value.' Developing markets are increasingly becoming music exporters and Kyncl believes this provides WMG with an arbitrage opportunity. “Let's say you have Indonesian content traveling to America,” he said. “It's a smart place to put money because it is [going] from a low ARPU country to high ARPU streams [in a developed market].”
However, a takeover is not complete. To date, WMG has only expressed interest in Believe. WMG is also playing catch-up: The consortium trying to take Believe private has lined up blocks representing nearly 72% of the equity — enough to “prevent a rival bidder from gaining control,” according to the ad-hoc Believe committee — although WMG's higher bid could change that. A takeover would also require regulatory approval, and there is likely to be pushback from music companies and trade associations such as the UK-based Independent Music Association against further industry consolidation.
But potential roadblocks aside, WMG would be a great fit for Believe. Sony Music and UMG are both bigger than WMG, already own companies similar to Believe, and will therefore face more regulatory scrutiny. The 1.65 billion euro ($1.8 billion) price is in what astronomers call the “Goldilocks zone” for the distance of habitable planets from their sun: It's too expensive for many independent companies but affordable enough for WMG .
