5 observations on… Epic Games’ sale of Bandcamp to Songtradr

MBW Reacts is a sequence of analytical commentaries from Music Business Worldwide written in response to main latest leisure occasions or information tales. MBW Reacts is supported by JKBX, a know-how platform that gives shoppers entry to music royalties as an asset class.

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Songtradr bought your entire music enterprise speaking final week with the information that it’s the new owner of outstanding D2C and merch-buying platform Bandcamp.

Bandcamp was acquired by Songtradr from Epic Games, the maker of hit online game Fortnite, simply 18 months after Epic itself acquired Bandcamp.

(Epic’s divestiture of Bandcamp arrived alongside the information that the gaming large is shedding round 16% of its international workforce.)

Songtradr’s acquisition of Bandcamp – and the previous firm’s enlargement into the direct-to-consumer (D2C) market – is a serious coup for Los Angeles-headquartered Songtradr which so far has been finest recognized for its B2B music licensing operation.

Bandcamp was based in 2008, and studies to have been profitable since 2012. The corporate additionally reports that, through its platform, followers have paid artists and their labels $1.19 billion so far.

In accordance with Songtradr’s press launch asserting the brand new deal, the acquisition will “assist Bandcamp proceed to develop inside a music-first firm and allow Songtradr to develop its capabilities to assist the artist group”.

Listed here are 5 observations about what the deal means for Songtradr, Bandcamp, and different gamers within the music business…

1) Why didn’t one of many majors purchase bandcamp?

As a music retailer with what it says is a group of over 5 million artists and labels, BandCamp is a key participant within the unbiased direct-to-consumer (D2C) market.

Plus, with over a decade within the D2C enterprise, BandCamp owns a goldmine of knowledge across the shopping for developments and behaviors of ‘superfans’.

By now, common MBW readers will know of the rising significance of the ‘superfan’ – and the way necessary it’s for an artist and their staff to have the ability to promote their music on to this hyper-passionate music viewers.

One group of music distributors particularly excited by the profitable potential of ‘superfans’ within the streaming period, after all, is the three main music firms.

But for no matter cause (maybe considered one of worth?), Universal Music Group, Sony Music Group, and Warner Music Group had been evidently not interested by buying Bandcamp to spice up their D2C companies – nor their more and more giant presence on this planet of unbiased artists (through ADA, AWAL,The Orchard, Virgin Music Group and so on.).

US market monitor Luminate reported in July that ‘superfans’ in america spend 80% extra on music every month versus the common US-based music listener.

Moreover, bodily music consumers of codecs comparable to vinyl, CDs, or cassette tapes, are greater than twice as probably (+128%) to be music superfans.

Luminate additionally pointed to the expansion in Direct-to-Client (D2C) gross sales to spotlight the shopping for energy of the superfan class.

In accordance with Luminate’s Midyear report, D2C gross sales of music from artists’ shops had been up over 20% YoY in H1 2023, with D2C vinyl gross sales up 26% YoY in the identical interval, to 3.6 million copies. 

In the meantime, 1.7 million CDs had been bought through D2C within the first half of the 12 months, a rise of 15% YoY.

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The potential monetary impression of the superfan class was additionally not too long ago highlighted in Goldman Sachs‘ newest Music In The Air report,  during which the monetary large claimed that 20% of paid streaming subscribers at present may very well be categorized as ‘superfans’.

GS claimed additional that if these ‘superfans’ had been prepared to spend double what a non-superfan spends on digital music annually, it implies a $4.2 billion (presently untapped) annual income alternative for the report business. As defined in our latest analysis of Goldman’s report, that $4.2 billion determine represents a ‘Whole Addressable Market’ (TAM).

For any main participant within the enterprise of music, artists, and their followers, not making a play for Bandcamp was arguably a missed alternative.

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2) Why didn’t Spotify purchase bandcamp?

So why didn’t Spotify purchase Bandcamp? Give it some thought. Spotify might have acquired its very personal D2C merch-selling platform with a super-fan-centric userbase and built-in it immediately into Spotify for Artists.

Spotify presently gives artists the flexibility to promote their merch on their profiles through a partnership with Shopify. Artists can even list merch via Merchbar on Spotify. However Bandcamp might have provided Spotify a lot extra.

Within the press launch asserting its acquisition by Songtradr, Bandcamp is claimed to be a “music retailer and group with over 5m artists and labels”.

Spotify might have discovered rather a lot from the information across the platform’s userbase of followers, artists, and labels to tell editorial choices, R&D for brand spanking new options, to not point out giving artists a local platform to record and promote their merch.

Additionally, bear in mind – Bandcamp isn’t solely a platform the place artist sells vinyl, CDs, and T-shirts to their followers. It’s additionally technically a streaming platform, permitting customers unlimited streams of music as soon as bought. A few of that music may not be obtainable to stream on Spotify.

In buying Bandcamp, Spotify might have snapped up a distinct segment rival, acquired all of its consumer knowledge within the course of, and tapped into the more and more necessary D2C phase of the market multi function swoop.

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3. What was Epic Video games considering by shopping for a D2C music platform within the first place?

Epic Video games is excellent at making and advertising video games. So good, in reality, that it confirmed that its flagship title Fortnite counted over 350 million registered users in 2020. In 2021, that quantity jumped to 400 million.

Along with Fortnite, Epic Video games is the developer behind the Unreal Engine, a strong 3D creation device that gives photo-realistic graphics.

Round three years in the past, Epic Video games began getting a bit nearer to the music enterprise, serving as a preferred digital efficiency house for main stars, whereas its Unreal Engine platform shaped the constructing blocks for 3D music movies created by Sony Music‘s Immersive Music Studios.

Then in March 2022, Epic bought Bandcamp, asserting in an announcement on the time that BC was set to play an “necessary position” in its “imaginative and prescient to construct out a creator market ecosystem for content material, know-how, video games, artwork, music and extra”.

The information adopted Epic’s acquisition in November 2021 of Harmonix, creator of the favored Rock Band and Dance Central franchises for an undisclosed sum.

On the time, Epic hinted at bold plans in music, stating that it might collaborate intently with Harmonix “to develop musical journeys and gameplay for Fortnite” and that as it really works “to construct the metaverse”, the Harmonix staff’s “experience is required to reimagine how music is skilled, created and distributed”.

Now, simply 18 months later, Epic’s music ambitions appear to have been diminished considerably, divesting Bandcamp alongside the information of it shedding 16% of its international workforce.

In accordance with a word issued by Epic CEO Tim Sweeney final week, Epic has “been spending far more cash than we earn, investing within the subsequent evolution of Epic and rising Fortnite as a metaverse-inspired ecosystem for creators”.

Epic says that it’s going to proceed to collaborate with Bandcamp on tasks just like the curated Fortnite Radio characteristic, however past that, it’s not clear the place music suits into Epic’s technique going ahead…

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4) Tencent and SOny Company (however particularly Tencent) simply turned much more highly effective within the music enterprise…

One level talked about within the press release asserting the information of SongTradr’s Bandcamp acquisition is that, through the deal, Epic Video games simply turned an investor in Songtradr.

In accordance with the discharge, Epic “is investing in Songtradr to assist Bandcamp’s profitable integration” into the music platform’s new proprietor.

It’s value having a look at who owns Epic Video games at current to see why that’s important information in and of itself.

One important stakeholder in Epic Video games is China-headquartered know-how large Tencent Holdings, proprietor of Tencent Music Leisure.

Through a consortium it leads, Tencent is a 20% stakeholder of Common Music Group. It additionally owns stakes in Spotify and Warner Music Group and runs a JVprimarily based in Hong Kong, Liquid State, with Sony Music.

Chinese language large Tencent owns around 40% of the North Carolina-headquartered Epic via a $330m investment made in 2012.

In the meantime, in April final 12 months, Epic Video games confirmed that Japan-headquartered Sony Corporation had agreed to spend $1 billion to accumulate a further stake in its firm.

Epic Video games stated this settlement gave it a $31.5 billion post-investment fairness valuation – which means that Sony’s $1 billion funding purchased it a further slice value roughly 3.2% of Epic.

Throughout three investments over the prior three years ($250m in 2020; $200m in 2021; $1bn in 2022), Sony spent $1.45 billion shopping for fairness in Epic Video games. Because of this, at present Sony owns roughly 5.4% within the interactive leisure agency.

Sony wasn’t the one participant in Epic Video games’ funding spherical final April: KIRKBI, the family-owned holding and funding firm behind The LEGO Group, additionally acquired a ≈3.2% stake with its personal $1 billion funding. Throughout Sony and KIRKBI, then, Epic Video games raised $2 billion final April at that $31.5 billion valuation.

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5) Songtradr is now a critical B2C participant along with being a outstanding B2B participant…

Final however positively not least, is what the deal means for Songtradr’s personal positioning within the international music enterprise.

The Santa Monica-based music firm, led by CEO and founder Paul Wiltshire (pictured) has been energetic in increasing its portfolio by means of strategic acquisitions over the previous few years. However this newest deal marks a major shift in the kind of firm Songtradr has focused.

So far, Songtradr has largely been centered on increasing on this planet of B2B music platforms and providers.

Amongst Songtradr’s acquisitions over the previous few years embody B2B music company 7digital (in March), AI metadata and music search firm, Musicube in June final 12 months. Along with Musicube, Songtradr’s portfolio of music firms consists of Large Music (acquired in June 2021), Massive Sync Music (acquired in February 2019) and Music Zu (acquired in March 2021).

Different firms acquired by Songtradr embody movie, TV and gaming music knowledge platform Tunefind, and Pretzel, which supplies DMCA-proof music for Twitch and YouTube livestreamers. In September 2020, Songtradr invested $1m in music credit score useful resource Jaxsta, inks unique partnership.

Songtradr raised USD $50 million in an oversubscribed Sequence D funding spherical in June 2021, which adopted its $30m Series C round in August 2020, which, on the time, valued the corporate at $165m. The B2B music rights agency has now raised over $100m so far, valuing the corporate at over $300m. Beforehand, Songtradr raised $4 million in a Series A funding round in 2018 and $12 million in a Sequence B funding spherical in 2019.

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Songtradr’s strategic transfer into the more and more necessary direct-to-fan house guarantees to be constructive information for the precise artists who use Bandcamp.

Songtradr stated in its press launch final week that it “may also provide Bandcamp artists the flexibility and option to have their music licensed to all types of media together with content material creators, recreation and app builders and types”.

The corporate added that this “will allow artists to proceed to personal and management their music rights, and improve their incomes capability from Songtradr’s international licensing community”.

This music licensing alternative Songtradr might present Bandcamp artists might change into important.

Immediately, Songtradr focuses on licensing totally cleared music for sync to a variety of shoppers together with the likes of Disney, Netflix, Apple, Coca-Cola, Amazon, and Columbia Photos.

Songtradr can also be an Official TikTok Sound Partner, explaining on its web site that “by means of versatile month-to-month, yearly, or project-based licensing plans, we allow manufacturers and creators to develop sound-on methods for TikTok”.

With all of that in its locker, Songtradr says that it’s “the world’s largest B2B music licensing market”.

By including Bandcamp to its portfolio, Songtradr will now be capable to make huge claims about its B2C credentials, too.

JKBX (pronounced “Jukebox”) unlocks shared value from things people love by offering consumers access to music as an asset class — it calls them Royalty Shares. In short: JKBX makes it possible for you to invest in music the same way you invest in stocks and other securities.Music Enterprise Worldwide