The amount of money invested in new music services and companies in 2015 was nearly double that invested the year before.

Despite high-profile casualties littering the roadside, investors have not been scared off (yet) and still regard digital music as something worth backing.

While big names like SoundCloud, Shazam and Spotify might sponge up large sums of investment capital, the overall sector is incredibly diverse.

Plus, investors are now looking far beyond Silicon Valley, Silicon Roundabout in London and Berlin – with India and South Korea proving investor hotspots. Even so, investment as a whole looks set to have a bumpy 2016.

The recent publication of SoundCloud’s financials for 2014 made for uncomfortable reading. The company made a net loss of just under €40m – and that was without the royalty payment pressures facing the likes of Spotify and Deezer.

(Although that will change soon because it has deals with Universal, Sony, Merlin, PRS for Music and the NMPA already in place, with more to follow.)

The company added that it had raised $77m in 2015 and secured a credit line of €32m at the start of this year; even so, it said it required further investment in the coming 12 months to offset “material uncertainties facing the business”.

Cynics would see this as a case of throwing good money after bad (or that the economic realities are utterly stacked against success); pragmatists, however, would regard this as a necessary highlevel investment stake that is typical of the modern digital music business, pointing to the likes of Spotify and Pandora and the huge losses they continue to ratchet up.


In the last Music Ally Report, we looked at the huge number of digital music services that had roared into the market, full of vim and promising to turn things around to their advantage. Unfortunately a huge number of them hit the wall and lie in a startup boneyard.

These failures have, however, not stopped investors coming to digital music services and pumping in millions (even billions) of dollars in the hope they will fly.

Indeed, according to Music Ally analysis of the money going into music services and companies, investment in 2015 was actually double that of investment in 2014. Services may have hit the wall, but that doesn’t mean that it has totally spooked the VC horses.

If anything, they are doubling down in their investments – but investing more judiciously.

Here we look at just how much is being invested into music as well as the types of music companies who are getting the VC backing that they need to reach scale and, ideally, flip into profitability. Despite the enormous risks and licensing headaches, music remains a hot investment ticket.

Bonanza: music/tech investment nearly doubles

In 2014, Music Ally analysis reveals that just shy of $1bn ($947m) was invested into 33 different music companies (there were actually 34 separate major investments, but Shazam got two rounds of funding that year).

In 2015, that figure shot up to $1.76bn and was spread across 36 companies. Not only has the amount invested increased (dramatically) so too have the number of services successfully courting investors (although only by a handful).

While many assume that the S-companies (Spotify, Shazam and SoundCloud) would sponge up the majority of investment, the single biggest investment in 2014 was in Kobalt Music Group, which raised $140m to improve its royalty collection processes.

Kobalt Music Group

This suggests that the “old” music business of investing in and exploiting copyrights is still seen as the safest bet – albeit done in a much more efficient and transparent way in an age of data overload.

The next largest investment in 2014 happened in hardware, with Sonos (inset) raising a staggering $130m, which brought its total investment to date to $455m.

Looking at these leading investments, between them accounting for almost a third of all the money invested in 2014, it would appear on the surface that investors like the handrail of assurance that comes with betting on familiar businesses – namely royalties and audio hardware.

It could be presumed that, based on this, investors are not futurephobic but are shrewdly not jumping completely into the unknown.

Invest beyond the West

That said, the third biggest investment of 2014 was in Korean music streaming service, KKBOX – the only other single investment of that year to cross $100m. Interestingly, the next two biggest investments were in the powerhouses of K-pop – SM Entertainment and YG Entertainment.

Between them they drew in $170m – and that is in no small measure due to the growing international appeal of K-pop artists. It is also down to the fact they sit across a multitude of revenue sources – operating as labels, publishers and talent agencies as well as within event management, concert production, fashion, beauty, merchandise and more.


Between them, these two companies control the vast majority of the South Korean music industry and, because they are operational across so many areas on a 360-degree level that Western companies can only stare at in disbelief, they are seen as a solid bet.

Unlike pure play services like Spotify or SoundCloud, these are companies that can and do make their vast profits across a staggering number of areas.

SoundCloud itself drew in $60m in 2014, matching that received by Beats. The important issue here, however, is that Beats was plumping itself up for an acquisition that was clearly on the cards as mere months later Apple confirmed it was buying the company.

Nothing will draw investors to a service quicker than rumours of an imminent sale. (We are, of course, not suggesting at all that any unscrupulous investments were made here – just that the VC community, much like A&Rs, like to swarm around hot properties.)

2015: the year of the mega-investment

In 2015, a huge number of important things happened. Not only did the total amount invested in services double, the scale of individual investments went through the roof.

Leading the pack in 2015 was Spotify, with a staggering $526m investment. This was by far the single biggest of Spotify’s eight investment rounds since it was founded, equal to around a third of the $1.56bn the company has raised so far.

To put that in context, one service on its own accounted for more than a quarter of all major investments that year. Compared to 2014, Spotify alone attracted more investment than the four biggest investments of that year combined.


Even the second biggest financial story of last year (Dailymotion raising $244m) far outstripped the biggest investment of 2014 and was just short of the top two investments of that year combined.

(This was a slightly unusual one as Vivendi, parent company of Universal Music Group, was the key investor and took an 80% stake in the video service. We still classed this as an investment story rather than an outright acquisition one.)

India joins South Korea as hotspot

As with 2014, the biggest investments were not all around Western companies and services.

In 2015, Indian online music services Hungama and Saavn each scored $100m in investment, suggesting investors are seeing huge potential for digital music in the second most populous nation in the world.

The specifics of the Indian market and the fact that it is heavily skewed towards domestic repertoire means that the big names in digital music globally will have to think much more carefully and strategically about localisation of their content.

Mobile will also be key in this market and so simply exporting a Western model into India and crossing your fingers is a fool’s errand. That is why local services, because of their rich understanding of the specifics of the market and consumer dynamics, are at an advantage here.

SoundCloud’s outlook for 2016

SoundCloud actually drew in more investment in 2015 ($77m) than it did in 2014 ($60m), even though last year was a tough one for the company. It started the year in the crosshairs of labels like Sony and Universal when they started to publicly question the viability of the freemium route.

SoundCloud also found itself subject to repeated attacks by the independent community around royalties. The pressure was on for it to get licensing deals in place as well as a proper monetisation model – something that it is steadily moving towards.


That said, its investment in 2015 came before most of its big licensing deals (and, it is suggested, handing over of equity) with rightsholders such as Universal, Warner and PRS for Music were done. The music industry may have been noisily kicking SoundCloud’s tyres in the first half of 2015, but investors were still approaching it – and its future – with brimming confidence.

Streaming and video dominate

When breaking down the services by type, we can get a better understanding of the sorts of services and companies attracting the bulk of investment. We can also see just how varied the portfolio approach of VCs has been in recent years.

Because of the size of the Kobalt investment in 2014, that somewhat skews the chart for that year. That said, by far the biggest category to draw investment in 2014 was streaming and subscriptions (with some services also offering downloads and D2F retail options within this grouping).

At $237m, it was the single biggest investment category and accounted for about a quarter of all investment that year. Going into 2015, however, the leap in investment in this category is staggering.


Just shy of $1bn (and around half of that year’s investment) went into streaming and subscription services. Of course, the fact that Spotify scored its biggest round of investment and took over half of that category’s funding does inflate the category somewhat.

Even so, Hungama, Saavn, Guvera and SoundCloud between them drew in $377m which suggests that investors not only see Spotify (despite its losses and probably also because of the tantalising prospect of an IPO) as a good bet; they also see those services in the same sector as also capable of slipstreaming its global success or dominating in a huge market (i.e. India) that Spotify may struggle in with its current pricing model.

Perhaps the biggest leap of all between 2014 and 2015 was around video content (see chart over page). In 2014, video-centric services drew in just over $3m; last year they collectively drew in over $300m and were the second biggest investment category of the year.

The bulk ($244m) was down to the Vivendi/Dailymotion deal but, even so a jump from $3m to close to $60m is still significant. (It is worth noting that $57.5m was invested in Vessel which has a heavy music focus but is not exclusively musicled as it is hoping to draw some of the key vloggers from YouTube onto its platform with the promise of higher monetisation rates.)

Save the unicorn

What does all this tell us about music as an investment category? The first, and most obvious, is that 2015 was an extraordinary year for music investment.

Going back 15 years, music was perhaps seen as a toxic area, crumbling in the face of piracy and incapable of getting its digital house in order. Race forward to today and it is hugely encouraging to see that music remains an attractive category for investors.

That is down in no small part to the impact of major music services (iTunes, YouTube, Shazam, Spotify, SoundCloud and so on) in that they manage to offer new music experiences as well as get themselves in front of massive audiences.


While some investors like Index Ventures have publicly spoken about how they will not touch a music service that requires convoluted upfront licensing, the fact that Spotify, Hungama, Saavn and Guvera collectively drew in so much money last year shows this is far from a toxic or terrifying category for the investor community as a whole.

That said, some of the biggest names drawing in investment (mainly the S-companies) will have growing pressure to not just IPO but also show they can, now they are approaching scale, flip that into a viable and sustainable business.

This is essential not just for the investor community but also the music sector as a whole. It is not just music that could find the investment climate tough this year.

A survey by KPMG and CB Insights last month suggested that “unicorn” companies (those startups with billion-dollar valuations) are arguably sponging up too much of the available VC funding, resulting in venturebacked services overall seeing a 30% drop in funding (to $27.2bn) in Q4 2015.

Several financial publications have pointed to the case of Square, the debit and credit card platform for small businesses, as a sign of things to come. It set a price range in November 2015 ahead of its IPO that valued the company at $4.2bn – a 30% discount from its valuation during its previous funding round.

“A number of IPOs fell short of recent private valuations, no doubt rattling VC investor confidence,” claimed the KPMG/ CB Insights report. “An uncertain global economy, a projected slowdown in China, and expected interest rate increases following the recent increase in the US appear to be driving many VC investors to be more cautious.”

Music is a miniscule part of the overall investment sector ($1.76bn in the whole of 2015 compared to $27.2bn for all investment in just Q4) and it will be hugely affected by the storm clouds or heatwave that impact on the VC sector as a whole.

If the VC sector charges forward in confidence, music will benefit in its slipstream; if, however, it falls down a chasm, music will be dragged down – screaming – with it.

There is money here. But unless these anointed music companies go from black hole to golden goose soon, the investment tally at the end of 2016 might not be quite so impressive.

The worse case scenario here is that the doubling in investment seen between 2014 and 2015 could prove an aberration rather than a bellwether of watertight confidence in music.

Correction: In the original posting, a slip of the fingers over-exaggerated the investment in Soundtrack Your Brand: it raised $10.9m not $190.9m. The figures have been corrected accordingly.

Notes on data and analysis

We only focused on services that were exclusively music-based or heavily tilted towards music. This meant that VR, one of the boom areas of investment in the past few years, was excluded except in exceptional cases like NextVR as they were deemed to be heavily led by music.

We only included where the actual investment figure was made public. For that reason, we excluded things where an investment was made but the exact figure was not revealed.

The majority of investments are made and quoted in US dollars. There were, however, a few examples where quoted investments were in euros, sterling or Australian dollars.

For these figures, we converted the sums into US dollars. While not exactly transferable, because the deals were made in relatively recent terms this approach still gives a pretty close approximation.

It should be added that most, with the exception of the Dailymotion investment by Vivendi, were, in the grand scheme of things, small and will not skew the overall figures by any noticeable amount.

We also excluded acquisitions and mergers as they are a different type of investment (worthy, of course, of separate analysis).

For that reason, arguably the biggest deal of recent years – Apple’s $3bn purchase of Beats in May 2014 – was excluded, although an investment of $60m in early 2014 was included as that pre-dated the Apple acquisition.

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