Bob Valentine first joined Concord 24 years ago, in 1999, after Norman Lear’s Act III Communications bought the music firm – then called Concord Records – out of bankruptcy.
At this point in history, iTunes was still two years from launch; Daniel Ek was 16 years old, and still at school.
Concord, meanwhile, was a jazz label turning over around USD $8 million a year… not far from 100 times smaller than its annual revenue today (somewhere between $600m and $700m).
In the two-and-a-bit-decades since, Concord has spent comfortably north of $2 billion (via equity and debt capital) to build one of the modern music rights business’s most significant players. Today, it owns the rights to over a million songs/compositions, musicals, plays and recordings.
Bob Valentine has played an instrumental role at every crucial moment in Concord’s history.
Valentine worked as Concord’s Chief Financial Officer from 2005 to 2021, and then as its President for the past two years. Earlier this month, he stepped into the hot seat as Concord’s CEO, succeeding the exec he’d worked side-by-side with for the past 10 years at the company, Scott Pascucci.
Ordinarily, when an experienced fiscal specialist like Valentine (who began his career as a financial analyst at Morgan Stanley) takes over the Chief Exec reins at any company, it brings with it a mite of suspicion that said company may be ‘tidying up’ its books in order to sell.
That’s definitely not the case for Concord, says Valentine, which continues to be majority-owned by its long-term backer, State of Michigan Retirement Systems.
Valentine’s claim checks out: it’s barely been a year since Concord entered into a not-exactly-cheap process of exploring a sale (engaging Goldman Sachs as its wing-person).
That process led to a ~$5 billion takeover offer from an unnamed suitor, but this price-tag wasn’t deemed large enough for Michigan, Pasucci, and Valentine – who were looking for “extraordinary” offers only. Concord shut the process down and walked away.
Since then, Concord’s made some major M&A moves – including, last year, the eight-figure acquisition of Australia’s Native Tongue (and related expansion in Australasia), plus the ~$300m acquisition of music rights from Phil Collins and members of Genesis. (The latter was a rare thing over the past 12 months: a nine-figure artist catalog acquisition.)
Last month, Concord bulked up its frontline recorded music credentials with the announcement of a JV label, Pulse Records, with the widely respected Pulse Music Group team. (Concord become a majority owner in Pulse Music Publishing via a $100m+ deal in 2020).
The launch of Pulse Records reflects a key prong of Valentine’s future strategic plan for Concord.
With over 800,000 songs in its publishing portfolio – including the 380,000 it acquired from Imagem in 2017 via a $500m+ deal – Concord has in the past six years bolstered its recordings business (Concord Label Group) via acquisitions of storied imprints like Fania (2018), Independiente (2018), and Savoy (2017), in addition to acquiring the hip-hop-heavy frontline catalog of L.A Reid’s HitCo in 2022.
As things stand, Concord’s masters business includes ownership of more than 275,000 recordings, including tracks from 300 Grammy Award winners – plus the world’s No.1 kids’ music brand, KIDZ BOP (worldwide to date: 8 billion streams, 22.5 million album sales).
Valentine, however, senses there is a chunk more opportunity for Concord in the frontline record space; he estimates that 85% of his company’s current revenues come from catalog, rather than newly-developed, music.
Hence the launch of Pulse Records with Pulse’s co-founders, Scott Cutler and Josh Abraham – plus Pulse’s President, Ashley Calhoun. Valentine calls Pulse “ one of the leading frontline creative teams and first-class incubators for culturally relevant music”.
Pulse’s track-record in the hit-making space is already glittering – its writer signings, to pluck two examples from recent megahits, include Aldae (Flowers, Miley Cyrus; 1.3 billion Spotify streams to date), and Tyler Johnson (As It Was, Harry Styles, 2.5 billion+ Spotify streams to date).
One announcement that’s flown rather under the radar from Concord in the past year?
The bond offering it secured for a large portion of its music catalog in December, via Apollo Global Management – a process steered home by Valentine and his financial team.
As a result, Concord successfully priced $1.65 billion of senior notes. Around $1.25 billion of that figure was used to refinance Concord’s debt, but $400 million joined its cash pile.
Combined with access to another $150 million secured via a revolver credit vehicle, Concord has at least $550 million in M&A firepower ready to go – and there may be plenty more where that came from.
One oft-misunderstood element of Concord’s ABS (Asset-Backed Securitization) is that the company didn’t ‘max out’ the amount it could take from the process.
Valentine explains that Concord’s ‘loan to value’ execution (i.e. LTV, not dissimilar to that you might find agree for your mortgage) in the ABS sat at 42%. A more typical music ABS might have stretched that LTV closer to 60% or 65%.
The upshot: Should Concord revisit its ABS backers and seek to extend its LTV in its bond offering, it could likely – and quickly – drum up a further $300 million-plus to buy copyrights – or companies – in today’s music marketplace by extending into a 60%+ LTV.
There’s much to ask Bob Valentine about, then, as he settles in for a chat with Music Business Worldwide – his first-ever interview as Concord’s CEO…
How planned out was your transition into CEO and Scott’s decision to leave the company?
Very. It was boring corporate succession planning at its finest [laughs]! This transition was planned for two-plus years. Myself, Scott, and the board wanted it to cause as little disruption as humanly possible to the business. The goal of my moving from CFO to President and then to CEO was to have a long timeline for the transition where there was no ‘jolt to the system’.
I’ve always thought as myself as helping to build a real music business here, because that’s what we are – not a fund, a real music business, running its own global labels, music publishing operation, theatrical licensing company, and a fledging film & TV division that happens to be backed by a pension fund.
” I’ve always thought as myself as helping to build a real music business here, because that’s what we are – not a fund, a real music business.”
My intention is to focus on the efforts of the company to be a creative force. One example of that would be the recent Pulse Records announcement. We’ve also significantly increased our investment in frontline publishing over the last three years, and were investing in theatrical rights during the worst days of Covid, under the assumption that live theatrical entertainment would eventually come back.
Finally, we are starting to get traction with our long-form narrative creative content division, Concord Orginals. Concord is not just a creature of finance and a creature of acquisition; it’s also a company that matters culturally.
Usually, when an ex-CFO takes over a company there’s a whiff of it being ‘packaged up’ for a sale process. But Concord went through that already…
Exactly. Our shareholder had the opportunity [to sell] and chose not to, as is now public knowledge. Despite there being some good proposals, as Scott put it, there just wasn’t that ‘extraordinary’ number.
There’s a lot of talk about acquisitions and M&A in music generally today. What do you expect the cadence of acquisitions to be at Concord as we move forward?
The amount of activity in the marketplace is still robust. There are still transactions happening on a daily basis. The phenomenon of artists’ IP has never been more liquid; it is now a real and proven asset class. Investment bankers are focused on it, financiers are financing it, and then there’s entities like us, that know how to buy rights, but also know how to manage them and have the relationships to do so.
It’s true, however, that there is a bit of a disconnect right now between buyers and sellers in terms of the value of the IP. We’re still coming off the peaks of the 24- or 25-time multiples [in iconic publishing catalog deals] from a couple of years ago. The interest rates today are having an impact on that.
“There is a bit of a disconnect right now between buyers and sellers in terms of the value of [music] IP.”
We also went through a phase where a lot of iconic artists were getting rights back [and selling them]; the Phil Collinses, the Stings, the Bob Dylans of the world. All of them were in a moment in their lives where they were interested in selling, and that can only happen once [for each legendary artist].
That itself drove up multiples because those kind of iconic catalogs are 100-year cash-flows. You can be pretty certain about the [revenue] numbers they will generate 40 years from now.
Is the industry waiting for interest rates to come back down?
It’s less about short-term interest rates coming down, I think, than people having visibility on what the long-term interest rates will be.
In the US right now there’s an historically large disconnect between short-term rates and the ten-year treasury which is the baseline by which people judge their cost of capital.
There’s different scenarios and if you’re wrong in your long-term forecast, if you bet on a valuation that [misjudges future interest rates], you can get really hurt. That’s causing volatility and uncertainty that is making it harder for people to connect on price.
What was the thinking behind the bond offering with Apollo, and why was it the right time to do it?
We had always believed that an ABS structure for financing copyrights was the best capital structure for catalogs like ours. It provides a low cost of capital, and you ally yourself with long-horizon financing – the type of capital that Concord has been financed with for the past 15 years.
The challenge is you need to do a tremendous amount of education in the marketplace on how music works, in order to create enough demand for an ABS. And credit where credit’s due, a big reason why we were able to do [the ABS] was because others did it first: KKR did it with their portfolio, Blackstone did it with SESAC and Hipgnosis, and a few others as well – they did a lot of the market education.
“We had always believed that an ABS structure for financing copyrights was the best capital structure for catalogs like ours.”
The last piece of it was to get [Concord’s ABS] to a size that was much much, much greater than anything done before. Because we have a million copyrights in our catalog, it was a quantum difference from what’s been done in the past.
Apollo said, look, we believe that demand’s out there and we will prove it by agreeing to buy a significant amount of the overall [ABS] from the get-go. And that gave others, in my view, the comfort that meant we ended up with an extraordinarily large ABS.
Are there still nine-figure catalog acquisition opportunities presenting themselves in the marketplace? It seems like it’s mainly sub-$50 million deals that are getting done right now.
That’s true. But yes, there are still opportunities in the marketplace for sizeable acquisitions. I can’t name names, but there are portfolios of assets that are being marketed [in the nine-figure range] that would be of interest to us at the right price.
“If you’re an artist or songwriter thinking of selling your life’s work, you’re doing the calculation: Do I want to wait and see what happens with interest rates? Or is there, for whatever reason, a clock running down on your time for an exit?”
As I said earlier, there’s basically a pricing issue going on right now [in the shadow of macro-economic conditions]. If you’re an artist or songwriter thinking of selling your life’s work, you’re doing the calculation: Do I want to wait and see what happens with interest rates? Or is there, for whatever reason, a clock running down on your time for an exit?
Talking of clocks running down, I’ve heard a few murmurs that some of the private-equity-backed funds in the marketplace that have hoovered up catalogs in the past few years are still looking to sell. There may be a roll-up opportunity out there for the right cash-rich buyer…
[Laughs] We shall see!
I can say that Concord really doesn’t need to do any deals for scale anymore, but if a certain catalog or opportunity is of such significant quality or fills a gap we don’t feel we have covered we’ll potentially be interested. But we’re in no hurry to buy things just for the sake of growing.
You’ve been distributed by Universal Music Group on the recorded music side for a long time now – since 2004. How happy are you with that relationship today, and could you ever see it changing?
Concord would not be what it is without Universal. That’s a flat-out fact. We have strong personal relationships with their entire management team; we respect them, and they respect us. The nature of the relationship goes both ways.
“We’re a very happy partner of a company run by exceptional leadership.”
Could that ever change? I mean, one should never foreclose on business relationships potentially changing over time. But right now, our relationship is extremely good, and we’re a very happy partner of a company run by exceptional leadership.
Before we spoke I was glancing through the latest Goldman Sachs numbers – which point to a bright future for music. Are you generally optimistic about the future earnings potential of music rights, especially when it comes to the idea of regular streaming price increases?
I am, especially as [YoY increases in recorded music growth] settle down following the rapid growth we saw during the Covid pandemic [therefore making 2022 vs. 2021 a more difficult comparison].
I’m hopeful like many others that the industry can reach a place of being more sophisticated on pricing. But generally I think if you look at the spectrum of value you get for $10.99 a month from [your preference of music service] it’s extraordinary – you have nearly every song ever created.
“I’m hopeful like many others that the industry can reach a place of being more sophisticated on pricing.”
If the economy does slope into a recession, and people start doing the calculus on how much they’re paying for various subscriptions in their household, I think music will be very far down the list of things they would ever get rid of.
I was confident of that at $9.99 a month, I’m confident of it at $10.99, and I would be confident of it at $11.99, $12.99, and $13.99, too.Music Business Worldwide