How Tech Is Disrupting the Music Business
True to our mission to introduce investors to non-boring investment themes and opportunities, in this article, we will spotlight iGroove, and particularly the powerful investment opportunities emerging at the crossroads of streaming and artificial intelligence. The artist names below will sound very familiar. And if not, please take it as a much-valued conversation starter with that teenager living with you. Naturally, they will be happy to enlighten you with their musical prowess. But, at the same time, this piece will equip you with the facts to surprise them with your knowledge of the commercial realities and opportunities of pursuing one’s dream in the music business. The unexpected link between Kool Savas, Kollegah or Lo & Leduc and Switzerland The cozy Swiss town of Pfaeffikon, Schwyz, has been home to hedge funds for the better part of two decades. Some of the more excentric money managers were swept away in the wake of the global financial crisis of 2008, while other, more stable businesses opened up shop, stretching the inherently rural community’s infrastructure to its limits. There could hardly be a starker contrast to Germany’s urban music scene and stars like Kool Savas, Kollegah, Alpa Gun, or Jael. Or Switzerland’s for that matter: Household names such as Lo & Leduc, Nemo, or Florian Ast were at one time, or still are rumoured to be clients of iGroove, a Swiss Fintech company that offers musicians a better alternative to traditional music labels. While it would be a stretch to consider rural Pfaeffikon, Schwyz, a center of urban music, iGroove, one of its resident companies, is poised to become a world leader in empowering musical artists through a unique combination of innovative technology and personalized service. iGroove’s A&R Director: German Rap Mega Star Kool Savas A convergence of technologies is rebooting the music streaming sector in challenging times The fact that we are even considering music to be an attractive investment theme is anything but self-evident. According to the International Federation of the Phonographic Industry (IFPI), recording music revenues returned to growth only in 2015. Before that, the industry was in a steep decline due to internet-accelerated piracy and a corresponding decrease in physical record sales (strangely enough, vinyl LPs seem to have outlived the CD), which continues today. Many legendary bands resorted to going back on tour to compensate for lost royalties income. These live performances across the globe certainly brought us closer to the music of the past. Not thinking of the Rolling Stones, in particular, they also made us question if watching sextagenarians frantically jump around the stage had more to do with atonement for their unhealthy lifestyles and questionable decisions than with true passion for playing their old hit songs over and over again.
Thanks to the advent of music streaming services Spotify in Europe (2008), the US (2011), and Apple Music (2015), the industry reversed its slide into oblivion. At the end of 2020, industry revenues stood at USD 21.6 billion. IFPI notes that global streaming revenues grew at a 42% compound annual growth rate (CAGR) since 2015, compared to the entire recording industry’s 9%. Identifying convenience, personalization, and the global penetration of smartphones as critical drivers, Goldman Sachs already in 2017 projected global music revenues to surpass USD 35 billion by 2030. There are no indications that COVID-19 has negatively impacted streaming. On the contrary, judging from the latest RIIA music revenue statistics for the US, the average number of subscriptions grew by 15 million from 60.4 million in 2019 to 75.5 million in 2020, the biggest ever increase in a single year. The vision – building a fair trade platform for musicians Dennis Hausammann, CEO of iGroove, founded the firm in 2013 with Moris Marchionna und Géraldine Allemann. Innovation is often driven out of frustration with the status quo. Dennis originally started as a musician, successfully selling his first self-produced album on the street. The next album release was supposed to be more professional, but working with a record label left him with hardly any bottom line income. The next step for Dennis was to create his only label with some friends, only to realise that the current fixed cost base charged by the trading partners was making the whole venture unprofitable. The journey continued by going for a purely digital release of his next album. Again, most of the money stayed with the digital distribution partner in return for nothing more than making the music available online. Frustrated, Dennis decided to break from creating music to address this challenge structurally. He envisaged a shop where musicians could sell their releases and keep 92% of their revenue. That’s how iGroove was born. Quickly, the co-founders developed the possibility of selling music via text message, thus reaching additional buyers without access to a credit card. Next, iGroove became a distributor, giving their musician customers access to favorable terms in third-party shops. Subsequently, the company expanded from Switzerland into Germany and Austria and became more selective regarding the customers they took on. That allowed them to provide a more personalized and comprehensive service offering. However, a key component was still about to be addressed: advance payment to artists, allowing musicians to focus on their next project, and investing in building a successful career. For musicians, monetizing their existing and future song catalogue has been as important as never before: intense competition requires a highly structured approach to building a career and can involve significant expenses and investments for promotion, videos, and other high production value activities. iGroove – spearheading change in music distribution and monetization The addition of the financing function transforms iGroove into a Fintech that provides musicians with a better alternative to traditional music labels by offering an integrated software-enabled distribution, promotion, and advance-payment solution. In contrast to traditional music labels, iGroove employs artificial intelligence to assess, predict and monitor music revenue streams. As a result, artists receive flexible offers, where they can choose the conditions and contract duration based on machine-learning enabled offer matrices and receive advances within 48 hours. Furthermore, the platform enables full transparency of all revenues for the artists. Automation takes care of the whole monetization value chain, from predicting future revenues to calculating advance amounts and the actual payment processing. Led by an experienced team, the company has been growing fast and is profitable with a multi-year track record of high accuracy future revenue prediction for various artists. iGroove is backed by Silicon Valley investor Alex Fries through his investment vehicle Alpana Ventures. Early in 2020, the company hired German rap star Cool Savas as its Artist & Repertoire Director, effectively putting one of the most formative figures of the German music scene of the last decades in charge of its portfolio. Today, the firm has approximately 20 employees, including underwriting and quantitative experts who further develop and optimize the loan models. Contact Stableton or sign up to explore This and Other investment opportunities Stableton has teamed up with iGroove to create an opportunity for qualified investors to participate in the business model’s success. This opportunity contains aspects of a fixed-income investment backed by intellectual property rights, essentially providing three layers of protection of the invested principal. In contrast to other ways of participating in such revenue streams (e.g. publicly listed funds or traditional music companies such as the recently floated Universal Music Group), this opportunity has no market beta exposure, and therefore little or no correlation to other asset classes. Stableton is Switzerland’s leading provider for access to late-stage venture capital & pre-IPO Investments to smaller qualified investors. Our mission is to help investors get access to the otherwise secluded private investment market. With a minimum of CHF 10’000, this type of investing should be considered as part of a portfolio. This article only scratches the surface of the opportunities late-stage VC and pre-IPO investing or, in this case, this asset-backed fixed income example, present. Contact your Stableton representative now to learn more and find out about opportunities that exist right now.
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