By Øyvind Torp, Research Assistant at BI:CCI and MSc in Strategic Marketing Management.
The Norwegian music industry met to Music Norways input conference 8th of April. During the conference, it became evident that industry representatives are experiencing some challenges related to music export. Among them were a lack of industry-oriented grant programs from Norwegian policy instruments and difficulties with maintaining IP-rights on Norwegian hands. These deficiencies were linked to the unpopular practice of Norwegian industry representatives giving up control and rights in order to achieve success in music export.
I will in this essay utilize knowledge from the BI:CCI reports on Creative Industries in Norway 2008-2014 and The Export Survey 2015, in order to answer the following questions: How can extended use of private capital, taking shape of investments and financial loans, contribute to export of Norwegian music? Why is use of private capital rare in the Norwegian music industry? How could access to these funds be improved?
A Positive Development from 2011
After the business model for recorded music changed in Norway from sales of physical products to digital subscription- based streaming services, the Norwegian music industry has experienced a positive development. The results from Creative Industries in Norway 2008-2014 reflects the transmission, where the music industry’s value added from 2008-2011 decreased 9 percent and then increased with 16 percent from 2011-2014. However the increase in value added were only one percent from 2013-2014 (Gran, Torp and Theie 2016). Interpretations of this development has indicated that the Norwegian music industry now is “out of the tunnel”, but the decreasing growth from 2013 might indicate that the Norwegian market for streaming services has approached a saturation point.
It is equally interesting that the Norwegian record industry has increased the marked share of Norwegian music with 20 percent from 2014-2015 to 23 percent in 2015 according to IFPI Norways annual report for 2015. Finally, Norwegian pop artists and industry representatives have paved path for Norwegian music in the global music market. The Norwegian industry is now experiencing a unique demand for both Norwegian music, creators, artists, musician and the competency the industry have gained within streaming economy.
I am writing a unique demand because markets for Norwegian music have existed for a long time abroad, but these markets have mostly been oriented around more narrow genres, such as Black metal or Nu-disco, or around spikes of particular pop groups international breakthrough (E.g. A-ha, Röyksopp and so on). Today’s demand of Norwegian music industry is of a larger calibre than before. The potential in the industry could be realized through both turnover of previously unattainable revenue streams, as well as a construction of more solid international competency within sales and marketing of Norwegian music.
Lack of private capital
Among the challenges that were discussed regarding the industry’s exploitation of its new international demand at the conference, one stood out: The industry representatives are lacking access to private capital for the companies they represent. A valuable network, promising music and a strong marketing plan does not get you far if you don’t have the financial resources to realize your goals. At the end of the day, successful music export demands extensive resources. Meanwhile, the Norwegian home market and public policy instruments for the music industry has its economic limitations for sourcing campaigns of Norwegian music abroad. This is probably old news for most of us, but that does not make it more irrelevant, especially with the new international demand for Norwegian music in mind: Lack of private capital in the music industry remains a pivotal barrier for further growth – internationally as well. This is also evident from Music Norways export survey from 2015, where lack of funding clearly stand out as the musician’s most important barrier for campaigns abroad (Gran and Torp 2016)
New private capital in the music industry would not only be beneficial due to the finances initial value. Among other advantages, the processes for obtaining private capital are known to be less bureaucratic, more flexible and adaptable to the company’s needs, which could give companies essential financial muscles when they need it. Additionally, more stringent claims for ROI could yield a positive effect on the company’s profitability, while investors could grant industry representatives access to valuable networks and resources within business development.
Descent profitability in limited companies
So, what is the reason for the petty use of private capital in the Norwegian music industry? It should in any case not be connected to the companies’ profitability, because it is just marginally lower than the general level of the Norwegian mainland economy. The Norwegian music industry’s average operating margin (measured for limited companies and similar equity based business entities) were seven percent in 2014 (Gran, Torp and Theie 2016). This measurement means that for every Norwegian crown (NOK) a limited company (or similar entity types) in the music industry traded, the company would retain seven pennies in profit – before financial costs and taxes are included. Additionally, the operating margin were nine percent on average in the Norwegian mainland economy during the same year.
Compared to other creative industries, such as the book industries (with average operating at 4 percent in 2014 for limited companies and similar entity types), the music industry fares well. Such results are important to communicate to financial institution representatives and private investors, in order to break the myth that music is solely unprofitable business.
Private capital and music industry in Norway– two separate worlds
After listening to Kai Robøles’ (General Manager, Waterfall Music) contribution and following response at the conference, one ought to presume that music industry representatives either has no contact with the players in the financial markets, or experience difficulties regarding communication with investors and creditors. In order to give music industry representatives access to private capital, this current situation requires a reduction of friction in communication between the parties. With the ongoing momentum for the Norwegian music industry in mind, it is more important than ever to map and visualize the cash flows in both the Norwegian domestic market and in essential markets abroad.
Knowledge and network with investors are necessary
Such a transparency requires three changes from the music industry:
- It is necessary with continuous production of knowledge in order to reduce the gap between the industry representative’s knowledge on the economy of their business and the investor’s presumption regarding the same matter. Investors could just not realize and understand the potentials of an investment (in e.g. an artist management agency with export potential) without a solid overview of the cash flows of their initial investment. In order to achieve such knowledge production, the music industry itself must be willing to share pivotal information with the knowledge producers, that being academia, Music Norway or Innovation Norway.
- Norwegian music industry must increase its knowledge on private capital. If the communication gap between the sides are to be reduced, both parties need to meet in the middle. Increasing investor’s knowledge about the economy of the music industry just does not make it – the music industry representatives must adapt and learn the ways of private capital as well.
- Networks between the music industry and private capital must be developed and improved.
In this matter, Music Norway together with Innovation Norway could, and should, play central parts in all points. Music Norway is an organization with a highly specialized competency within dissemination of knowledge related to music export and networking between music industry reps. in different geographical markets. On the other side, Innovation Norway possess crucial knowledge on the meeting between entrepreneurs and private capital, together with expertize on export enterprises. Innovation Norway and Music Norway have already initiated a close collaboration through their management program “Fram Musikk” and the input Margit Daams (sr. advisor Innovation Norway) delivered on Music Norways conference could only be interpreted as another invitation from Innovation Norway towards Music Norway. In this regard, the organizations already have a prosperous starting point for development of collaboration for increasing the use of private capital in Norwegian music industry.
This essay was first published on Ballade.no 9.5.2016
Gran, Anne-Britt, Øyvind Torp and Marcus Theie. 2016. Kreativ næring i Norge 2008-2014. Oslo: BI Centre for Creative Industries.
Gran, Anne-Britt and Øyvind Torp. 2016. Eksportundersøkelsen 2015. Oslo: BI Centre for Creative Industries
IFPI Norway. 2016. Musikkåret 2015. Oslo: IFPI
Illustration photo: Jennica Mae