MBW’s Stat Of The Week is a series in which we show why a single data point deserves the attention of the global music industry. Stat Of the Week is supported by Cinq Music Group, a technology-driven record label, distribution and rights management company.
Last year when full accounts are available, 2019, UK de facto songwriter and publisher PRO PRS For Music stated the annual cost was around 11.0% from the money it got through the door.
In the US, ASCAP, another nonprofit PRO, estimates the cost of ownership around 12% of its annual income.
ASCAP’s main competitor in the US, BMI, says that after operating expenses are paid out, “nearly” 90% of the revenue is passed on to rightsholders.
In Germany, the market-leading PRO GEMA recorded annual operating expenses of 13.4% in 2019.
These numbers – when applied to annual sales figures and run through the MBW calculator – say something important about the global music industry before the pandemic.
They tell us the following: For ASCAP, BMI, PRS For Music and GEMA alone, the cumulative operating costs of the PROs in 2019 were included conveniently north of half a billion dollars.
Songwriters and music publishers have taken up this tab.
One can only imagine how colossal that bill got when all PROs in every corner of the world paid their expenses – from offices to staff, technology, bonuses, pensions, etc.
“The cumulative operating costs of ASCAP, BMI, PRS For Music and GEMA amounted to 2019 conveniently north of half a billion dollars. “
Understandably, music rights holders have long raised sensitive questions about PRO spending and efficiency.
At the same time, the PROs have vigorously defended the amount of money burned, pointing out, among other things, the trillions of rows of data that they process annually in modern times.
However, at the center of this conversation, a storm may be brewing now, fueled by two very timely factors.
Factor 1: The new breed
In the past few years, major financial corporations have invested heavily in music rights.
To name just a few recent examples, KKR, Providence Equity Partners, Blackstone and Morgan Stanley have jointly allocated billions of dollars to purchase music rights. Everyone has a reputation for strict financial discipline.
This financial discipline is also shared by other institutional and / or public investors in new school music companies such as the Hipgnosis Songs Fund, Round Hill, Reservoir and Primary Wave. (Not to mention public investors in Warner Music Group, which went public last year, and Universal Music Group, which will go public later this year.)
“If you’re a music company and it’s not in your DNA to give money to partners, if you can avoid having the money in your pipes on the way out, it could hurt returns for well-capitalized partners.”
Hartwig Masuch, BMG (last month with MBW)
So you can bet that each of these parties is microscopically reviewing the entire value chain of their music rights investments – rooting out the waste and demanding that not a penny be spent out of place.
In this regard, KKR and Morgan Stanley are “on the same page” as the songwriters.
BMG’s Hartwig Masuch recently put it in relation to his company’s new billion dollar alliance with KKR: “If you’re a music company and it’s not in your DNA to give money to partners, if you can avoid it, if Money gets stuck in your pipes on the way out, which could wipe out the returns for well-capitalized partners. “
This is especially true for PROs when we consider the second, more depressing, factor in this new confluence of circumstances.
Factor 2: Public performance funding in publishing for 2020 has taken a serious nosedive
Songwriters and music catalog owners have already been warned to prepare for a 2020 covid-hit drop in public performance revenues.
Last October, CISAC – the trading organization that is building a global network of PROs – predicted that music royalty collections for music publishers worldwide will decrease by 20% to 35% in 2020.
This was due to international pandemic lockdowns that resulted in music catalog performance royalties in key markets with bars, restaurants, nightclubs and live concerts being closed.
In the past seven days, we’ve seen the first tangible evidence of this trend – and the early news isn’t good.
MBW’s statistics of the week: The German GEMA and the British PRS For Music stated that the revenue collections fell by double digits in 2020 (-10% for GEMA and -20% for PRS). That revenue decline in both PROS was a combined year-over-year decline of approximately $ 330 million. (That’s a decrease of € 110.5 million ($ 125 million) at GEMA and a decrease of £ 160 million ($ 205 million) at PRS.)
The German GEMA published its annual figures for 2020 today (May 4th).
They show that the total income of the PRO fell by a little more than 10% (- EUR 110.5 million) to EUR 958.8 million in the past year.
The main cause of this decline was a painful decline in “regional office collections” by 43% year-on-year – also known as license fees for the public performance of live and music recordings in Germany – to EUR 230.1 million.
GEMA compensated for part of this deficit by increasing the “remuneration rights” by EUR 97.7 million year-on-year. However, this was mainly due to a one-off payment for retrospective license fees from the central office for private dubbing rights. It will not be repeated this year.
All other important collection categories for GEMA – including radio and online collections – fell year-on-year in Germany in 2020.
According to GEMA boss Dr. Harald Heker could now be worse news for music rights holders on the way: “All in all, we ended the crisis year 2020 satisfactorily for GEMA. However, this cannot hide the fact that the situation remains extremely tense.
“The pandemic will currently significantly reduce GEMA’s payments  and probably in the coming too  Year. For many music makers there will be an enormous financial drought. “
“The pandemic will significantly reduce GEMA’s payments this year and probably also in the coming year.”
DR. Harald Heker, GEMA
Holders of music rights with eagle eyes could see in the table above that GEMA’s expenditures in 2020 during the 2020 pandemic fell by EUR 11.4 million compared to the previous year, while PRO’s income fell by EUR 110.5 million are.
As a result, GEMA’s operating cost margin increased significantly – from 13.4% of sales in 2019 to 14.9% in 2020, as the total cost margin was limited to 15.9%.
Dr. Harald Heker (annual salary: € 691,000 in 2019) is now under pressure to achieve more efficiency and lower costs at GEMA in view of the “financial drought” he has forecast for 2021.
Another important set of financial results from the PRO world came from the UK’s PRS For Music last week.
They showed that Worldwide sales by PRS For Music were down 19.7% in 2020 compared to 2019 – a decrease of £ 159.9m to £ 650.5m.
Income from live performance of music at PRS declined 79% year over year to just £ 11.3 million in 2020.
“Worldwide sales achieved by PRS For Music in 2020 decreased by 19.7% compared to 2019.”
Like GEMA, PRS For Music gave an early warning shot around 2021, which says: “[M]All royalties paid out last year were collected before the initial lockdown, meaning music makers will feel a sharp drop in income through 2021 and beyond Distributions [in the current year] expected to fall by at least 10%. ”
(PRS payouts, rather than its collections, actually increased slightly in 2020, but would have benefited from a delay in payouts from royalties made outside of Covid-enforced lockdowns.)
Given our headline above, here is a particularly interesting statistic from PRS: The PRO says its net cost “excluding charitable donations and subsidies” in 2020 was down £ 12.1 million, or 13.8%, than it was tightened his belt during the year the pandemic.
The problem? That’s £ 147.8 million less than a year-over-year decrease that PRS saw in total royalties (- £ 159.9 million).
In other words, just like with GEMA, PRS’s 2020 cost reduction will not appear to be enough to stop the rising operating cost margin (as a percentage of sales).
“The dramatic slump [PRS’s] Last year’s earnings will be reflected in declining distributions over the course of 2021. “
Andrea c. Martin, PRS for music
This is not the kind of statistic that will please music’s newest and richest institutional investors. And that is what PRS For Music CEO Andrea C. Martin will have to deal with over the next 12 months.
(Martin’s salary is unknown for the time being: PRS’s last annual report to UK Companies House merely stated that the company’s “highest paid director” earned £ 991,000 in 2019. This was Martin’s predecessor, Robert Ashcroft, at PRS that year Filing also indicates that Ashcroft was paid a sum of £ 294,000 “for compensation for loss of office”.)
In October last year, Guy Moot, CEO and Co-Chairman of Warner Chappell Music, told MBW about the expected impact of the pandemic on publishers’ performance royalties: “I don’t think collecting societies should be the first to sing the blues here .
“Some are good, some are not so good. Some feel like allies and partners, others are inefficient, clinging to money, and charging high commission rates. “
Moot will certainly not be alone in this view – both in the music industry and across Wall Street as a whole.
At PRS For Music, Andrea Martin told her constituents to prepare for a “challenging” year, “as last year’s dramatic drop in sales will translate into declining payouts over the course of 2021”.
However, the review of spending on non-profit PROs in major music markets – whether PRS, GEMA, ASCAP, BMI or beyond – will definitely not decrease in 2021.
In fact, a fever could be unlucky.
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