The content streaming industry is fast turning into a bubble
Ever greater fortunes are changing hands for old songs and film franchises. But the good times cannot last, says Matthew Lynn.
Only a few years ago,the music industry was being written off as a relic, with the slow death of the CD destroying its financial base, and with easy pirating making it impossible for anyone to make any money. And yet in the last couple of years it has come storming back.
Last week Universal, the company that skilfully used the downturn to acquire labels such as Britain’s EMI, listed its shares in Amsterdam. Other major music companies such as Warner and Sony are doing just as well. Indeed, shares in Warner are up by more than 50% in the last year and the business is now valued at more than $20bn. At this rate the Kajagoogoo catalogue will be changing hands for a few hundred million by the end of the year.
And it’s not just the music labels. The songs themselves have become more valuable as well. Hipgnosis has built a £1.7bn company through acquiring the rights to works by 10cc, George Benson, Blondie and the Red Hot Chili Peppers along with many others. Competitors such as Round Hill Music are building just as fast. The craze has now spread to literary estates, with Netflix handing over a pricey $500m for the rights to the works of Roald Dahl. The value of creative content has suddenly exploded.
Expect the return of Miss Moneypenny
That makes some sense. The streaming market, whether it is for music or TV, has transformed the economics of catalogues. It turns out that stuff that used to languish at the back of the secondhand CD section of your local charity shop suddenly has lots of value after all.
The music industry in particular has become skilful at squeezing value out of its lists. Catalogues are endlessly split up and repackaged to push them back to the top of the playlists, and algorithms are tweaked endlessly to ensure the maximum number of plays. Payments per track from Spotify and Apple and the rest may be modest, yet when there are billions of them and you are collecting a few fractions of a cent each time, it adds up to a lot of money.
Likewise the film and TV industry has become very good at recycling characters and storylines. Disney-Plus has been turned into a huge money-spinner on the basis of the Star Wars, Marvel and Pixar franchises, and Amazon may well be hoping to match that with its purchase of MGM and its James Bond franchise. Hardcore 007 fans will be appalled, but don’t be surprised if there is a series about the teenage Bond and a romcom about Miss Moneypenny’s love life.
Yet there are two big problems with this content boom. Firstly, it has limited growth left. The last few years have seen a massive boom as paid-for streaming services moved from a niche to a mass-market product. But it is hard to see that lasting for much longer. Just about everyone who wants to has now signed up to Spotify or one of the other music services and is paying £9.99 a month for it. There are not many new customers left.
Even worse, it is hard to increase prices. We are used to the £9.99 figure, but it is difficult to see many people being persuaded to pay £14.99 next year, and £19.99 the year after that. The same is true of TV streaming. Netflix is no longer growing as quickly as it was and Disney Plus has taken a slice of its market. There are already signs the market is overcrowded – Apple has failed to make much headway with its hugely expensive streaming service.
The times they are a-changin’
Secondly, prices are soaring out of control. Record labels and the new breed of song funds are crowding into the music sector, bidding up the prices of anything that comes onto the market. Bob Dylan, as smart a manager of his own career as he is a brilliant songwriter, sold his catalogue to Universal for $300m because he may well have realised that was far more than it was really worth.
In TV, studios are wildly bidding up the prices of properties as they compete for a share of the boom. But as we know from lots of different markets, once a bandwagon gets going companies end up overpaying for everything. There is value in content, and more than there used to be – but it is also fast turning into a bubble.