Analysis

Warner Music Group talks startups, technology and investment


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In Music Ally’s latest analysis report, we take a look at the three major labels’ strategies around music/tech startups and investment. The full report is for Music Ally subscribers only, but you can sign up for a free trial, which includes access to the latest report. An extract from it follows, focusing on Warner Music Group.

As noted in our overview of the three majors’ strategies, WMG has a multi-faceted approach to its engagement with music startups. To find out more about the specific strategic thinking behind WMG Boost, its involvement in Techstars and to discuss some of the less obvious benefits of plugging into the startup ecosystem, Music Ally spoke to a trio of WMG’s leading lights in biz-dev.

They were: Oana Ruxandra, fresh from her promotion to lead WMG’s business development whilst also serving as executive VP of new business channels and chief acquisition officer; Jeff Bronikowski, SVP, global business development and head of new technology and innovation; and Alex Kamins, WMG’s VP, global digital business development – innovation.

All three were enthusiastic about what they saw as WMG’s nuanced, inquisitive and “lean-in” approach to engaging with the notoriously unpredictable startup world.

Music Ally: Oana, congratulations on your new job – when it comes to investing in tech music startups – WMG Boost, the Techstars involvement and other collaborations or investments in startups – from a business development perspective, what’s WMG’s strategic approach, when balancing those three areas of development?

Oana Ruxandra: I’ve been incredibly impressed with the enormous amount of proactive work that the Innovation team within my team has accomplished over the last year. The team’s focus has been on understanding the burgeoning trends within music’s future. We are focused on what comes next after all-you-can-eat streaming models and we have some amazing partners with which we are innovating.

We are also looking to invest in startups and the entrepreneurs that run them because they have the vision of the future; we are focused on deepening WMG’s roots in that community.

Of course, the goal is to, ultimately, generate value for our artists and our songwriters, and to protect our IP. That is fundamentally what we, as a team, are drivine towards across everything that we do within the innovation space:: i.e. continuing to develop and drive new sources of value for the artists that we serve.

I’m going to stay primarily quiet during this discussion; my team has my full support and will lead from here.

oana ruxandra

Music Ally: You’re dealing with a tech world where things happen very quickly. Are you looking more at long term view – the five to 10 year period, rather than shorter term?

Jeff Bronikowski: I think we’re looking at both. Techstars Music and our Boost fund are really oriented towards early-stage seed investments and it’s not likely that they would have a material impact on our business in the very short term.

But certainly over the five-year time horizon we would expect to reap some benefits from an investment made at that stage. Maybe not material revenue benefit, given the scale of our company already, but certainly they could impact the business in terms of the way we discover artists, or work with artists and creator services, or enhance our ability to connect with fans, or generate new revenue streams from new ways to interact with our content.

We really feel like we’ve benefited from the exposure to new business models, and the new areas where entrepreneurs see opportunity in music. There are thousands of entrepreneurs out there who see opportunities to make businesses, to work with artists and labels, or to work with others across the whole value chain that we’ve not [historically] entirely focused on from our “Big Company, Big Artists” perch.

We’ve had over 200 applications to our Boost fund, and Techstars music generally gets about 500 applications for each Techstars Music class. We’ve really gotten to see a broad range of the companies that are exploring interesting opportunities.

So we make seed investments… and we make larger acquisitions where we can slot them into our business in the short-to-intermediate term. That’s acquisitions like UpRoxx for creation of content and video, or our acquisition of e-commerce and merch company EMP and even an acquisition like Sodatone, which is used by our A&R team to discover artists.

Alex Kamins: I think our involvement with the startup community with programs like Techstars has been enormously beneficial for the culture of Warner Music Group. One of the main reasons we engaged in Techstars music was because we wanted to infuse the WMG culture with the entrepreneurial startup mentality – so that we could better understand what’s happening in the larger, broader digital media ecosystem.

Historically, legacy media companies follow the trends that consumers and tech companies start – and historically, legacy media companies have struggled to catch up. Infusing our corporate culture with that startup mentality has fundamentally changed the way we do business, the way we work with startups, and the types of deals we put in place.

Music Ally: The types of companies you’re involved with are multifaceted and connected to the music business in different ways – is that because you see it as much as a tech business as it is a music business?

Bronikowski: Yes it is. I spent a few years out of the music business, but what really brought me back to the music business was how intellectually stimulating it is – because there’s so much vibrancy and entrepreneurialism. I thought back to my time at Universal Music Group where we were approached by so many different companies that wanted to work with us.

And I think it is because the music business is such a hustle business. There’s a number of different ways to interact with fans, or to interact with artists. There’s several different lines of business: whether it’s touring, or merch, or marketing music, exploiting music, consuming music, and platforms like Spotify… there’s just a lot of different handles to pick up in the music business.

And so we see that by the breadth of companies that we interact with – much more than you might see in the film or TV business.

Music Ally: One key area seems to be the direct-to-fan connection. Historically the connection between artist and fan has been through third parties, and a lot of your investments and collaborations could potentially open up a more direct link. Would it be fair to say that one of the dream goals is for WMG to have a more direct connection with the fans?

Bronikowski: I think throughout the labels’ histories, they’ve tried over the last decade or so to establish tighter relationships with fans through their email and CRM and through social media. But even through social media, it’s not quite as direct as you might hope for. And with our distribution partners being between us and fans, it certainly is rational for us to want to have that type of relationship.

Probably the second or third biggest category through our Boost applications is companies that want to help us foster that relationship with fans. And it’s certainly something that we’re very interested in doing.

Music Ally: The music tech space has rapidly gone through a series of giant but fundamental leaps in the past: downloads, file-sharing, streaming services, digital distribution, and so on. But the collaborations and investments you are doing are with a large number of smart-but-niche technologies. Are you looking for lots of niche ways to make connections, and not one big “unicorn” win?

Bronikowski: I think we’re looking at both. We do make acquisitions – in the case of EMP, that was a pretty significant acquisition. But we think that relatively smaller investments made early is a good way to get an inside look at how things evolve.

We don’t think that from a $250,000 investment per se we’re going to have immediate impact on our overall company. But what we learn from working closely with that company on the inside over the next year or so could help us shape our broader strategy going forward.

So that’s why we appreciate the focus on the breadth and approach with an open mind: we’re not just looking at a handful of round holes and looking for round pegs to pound into them. We’re going to keep an open mind to see how our square pegs evolve into other shapes!

Jeff Bronikowski

Music Ally: Is this process like the tech equivalent of A&R? You’re simultaneously embracing lots of start ups all over the world, seeking out potential, and then working with them to develop it. It seems like the music industry might be quite well placed to use those A&R skills, albeit in a tech environment.

Bronikowski: I would say it’s a bit like that. I mean, our A&R people try to sign artists they love – and we try to sign entrepreneurs we love. We’re also trying to invest in entrepreneurs in a way that fits an overall strategy. So I would say there are certainly some parallels.

Music Ally: How does WMG work with the startups in a day to day sense once an investment or collaboration kicks off? Is the “investment” advice, finance, or connectivity?

Kamins: It’s a little bit of everything. We mentor, we bring insights and expertise, we help to make connections and introductions with folks in our network – both inside and outside of Warner.

Where appropriate we bring to bear the IP and assets that we, and only a handful of others, have access to. This is really the benefit of being in this program: having access to the sort of experimental, flexible – and in most cases short term – licensing frameworks. For startups that need content, that’s absolutely game changing.

One of the key pillars of our approach to the startup community is our partnership with Techstars Music. We just finished the third Techstars class, but we started talking about it four and a half years ago – so we’ve been an adamant supporter of the program.

Music Ally: Can you give an example of how that would work with a startup that comes to you and says, “we’ve got this great idea but we just can’t make it public because of licensing,” – how would you respond in that sense?

Bronikowski: Our team has an orientation towards revenue generation. Our primary focus is business development. And so we’re constantly balancing companies that come in the door and have revenue, scale and audience with companies that don’t have funding or audience but is something we see and believe in.

One of the day-to-day challenges of our job is balancing that mandate to generate revenue with the 5-to-10-year vision of seeding the next wave of music and music-related startups. We spend a lot of time with founders looking at revenue models and business plans, and make sure we’re putting in place deals that are sustainable.

A short term windfall of a couple of thousand dollars is not going to meaningfully impact Warner Music Group, but putting in place a flexible enough license that creates a sustainable business will mean there’s a long-term partner for us.

Ruxandra: We’re looking to be innovative, we’re looking to be nuanced, and we’re looking to lean in: both for the benefit of our artists and also, for the benefit of the tech community.
Warner is definitely arms-open right now in terms of trying to get people involved, interested, and working with music to innovate.

Our artists are looking for innovation, the tech community is, and we are as well. So that’s the big goal here: to be creative and nuanced and to not be tied to one mandate and one model.

Music Ally: So it’s quite collaborative: you’re not just saying, “Here’s the initial license and when the initial license is up, you’ve got to pay” – you’re actually working with them to make that licensing work with your business, and their business and users too.

Kamins: For a startup that is in the music-related space, a music license is the ultimate startup capital. Cash is fungible, and in theory, there’s ample supply of it, but our content is a scarce resource and is a catalyst for a variety of startups, so we take that responsibility very, very seriously.

We are incredibly passionate about startups and entrepreneurs. We love our jobs. We have fun doing what we’re doing, and meeting the next wave of innovators and entrepreneurs is incredibly rewarding.

Music Ally: Over the last few years there’s been a sort of virtual gold rush in blockchain startups. And looking at this year’s wave of Techstars companies there’s definitely an absence of the word “blockchain” – but it is still technology that’s going to play a fundamental role in the music business in the future. When you look at a piece of technology with a lot of hype around it, do you look at the longer term view of how it will fit into the bigger picture? Or do you want to get in quickly?

Kamins: I think there’s an old saying in Venture: “being early is the same as being wrong!” But we don’t necessarily have the same goals as a strictly financially-motivated venture capital firm, so we’re OK to be a little bit early on things. if we learn a lot from a modest investment then that’s probably a worthwhile thing.

The blockchain is certainly a fundamental technology that is going to be important across a number of different industries. One of the challenging things about blockchain and the music business is not just tracking the data, but getting good data in the beginning. That’s been a bugaboo for the industry for a long time, and I think easier tools for artists and labels and services – whether built on blockchain or not – will certainly help that.

Music Ally: With that in mind, Facebook has launched their cryptocurrency Libra and Spotify is already onboard with that. It opens up a market to 1.7 billion people without access to traditional banking – is that something which is exciting for WMG, in terms of direct payments, etc?

Bronikowski: Yes, I think it is. Anything that increases the number of people who can pay for a service – especially a digital service – is a space that we’re pretty interested in.

I think Facebook’s blockchain effort is pretty much geared around giving access to people without bank accounts and giving them a way to transact on a platform. So for Spotify, that opens up millions more paid users, and I think that’s great.

Apple will probably be attempting to do the same thing with its Apple Pay platform and I think that’s great too. Whether [cryptocurrencies like Libra] end up being the way we pay artists or whether fans can use it to direct money to artists, who knows – I think that’s a little bit further out. But when Facebook dives into something like that, it’s something worth keeping a close eye on.

Music Ally: In conclusion, in the medium-to-long term, when looking at the work WMG is doing, what would count as success, if this series of programs goes the way you hope they will?

Ruxandra: I believe we’re already successful today in this program of innovation because we are definitively in the conversation, we’re rolling up our sleeves, we’re spending time and resources, and we’re working with an enormous number of entrepreneurs to educate them and, also, to learn from them. So, I would count that as a success.

The next step is to define strategy and themes across the various buckets of tech innovation in which we are working. If we can align strategy in innovation with our artists goals and values, that is an accomplishment. But, today, WMG is part of the conversation and, we are ensuring that music is a part of the conversation, and that is a success.

Bronikowski: Another shorter term success is that we see a lot of interest and a lot of entrepreneurial energy going towards a particular area, and it piques our interest when we see that. [We then know] that’s something we need to get closer to or make an investment in, and it becomes either part of our business or a new revenue stream – or we make a larger acquisition in the space.

If it were to play out that way, we would be very happy that we had taken this lean-in approach, because it would give us an edge on our competitors and continue to position us at the forefront.

There is one sector where that is happening for us right now – I can’t mention it just yet, but it’s an area that we’re pretty excited and intrigued by.

Kamins: To build on what Oana said, we’ve been very successful at building a strong network across the VC community. I don’t think we are under any illusions that while content deals and access to artists can be game-changing for startups, they need capital to keep the lights on.

We can bring to bear assets that no one else can, but we also realise that outreach to the venture community – a community which has historically shied away from music-related startups – is one of the most important parts of our overall strategy. We have an incredibly strong network from established firms to music-specific venture funds like (John Acquviva and Richie Hawtin’s) Plus 8 Equity Partners.

So the VC community outreach is a very important part of supporting the ecosystem and making sure they understand how we’re thinking about these spaces, and that they understand our level of commitment to innovation and change.

Bronikowski: We feel like we have put a lot of time and effort into this space but that it’s really paying off. We are seeing things earlier and from a different perspective than we might have done if we weren’t so focused on leaning in.

It’s too early to assess the financial aspect but over the next few years hopefully there will a better-than-modest capital return… yet what we’ve already gained in knowledge is super-valuable.

Joe Sparrow

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