The Music Industry’s Comeback Tour
In May 1999, the Backstreet Boys released “Millenium”, an album that would go on to break sales records in its opening week and ultimately become an all-time best-seller. Unbeknownst to the music industry at the time, a pair of young computer coders were also weeks away from launching a file-sharing application called Napster that would allow consumers to listen to music for “free”. Of course, Napster lasted only two years before being shut down by a U.S. federal judge for infringing musical copyrights, although the application would change the music business forever.
It took the music industry over 15 years to recover and adjust after Napster forced it to address the business model disruption caused by music digitization. The industry’s recovery is directly attributable to the emergence and success of music streaming platforms, which now account for more than 80% of industry revenue.
While Spotify, Apple, Amazon and other streaming services have revived the music business by conveniently delivering recorded music on-demand to consumers for a relatively low monthly subscription fee, they have also significantly changed the industry’s economics. Gone are the days where artists and labels could force the purchase of a dozen unpopular songs by attaching them to two or three bona-fide hits on an album. In the world of streaming, individual songs garner the most plays and therefore earn the lion’s share of the money. This new economic structure puts more emphasis on the creation of hit singles, shifts more value to an artist’s back-catalogue of music (as it gets more regular play) and incentivizes artists to do more touring, which has become extremely lucrative.
As an investor in both public and private markets, Bridgeport is in a unique position to holistically evaluate investment opportunities in the music business, wherever they may be found. In general, we have a positive view on investing