Epidemic Sound, the music production company that has courted controversy over the years for the way it pays artists (not to mention questions asked over its relationship with Spotify) is getting ever closer to turning a genuine profit – but it’s not there yet.
The Stockholm-headquartered provider of royalty-free soundtracks reported a positive EBITDA for the second year in a row in 2023 – amounting to SEK 24.8 million (USD $2.34 million at the average exchange rate for 2023). That’s a nearly nine-fold increase in EBITDA compared to 2022.
However, the company’s operating profit (EBIT) continued to be in the red. At SEK -486 million (-$45.8 million), it was only a slight improvement over the previous year.
That’s despite net sales jumping 25% YoY, to SEK 1.477 billion ($139.3 million). Epidemic attributed the continuing lack of profit to “a depreciation of fixed assets,” which it calculated as having lost SEK 486 million ($45.8 million) in value over the course of the year.
Stripping out the effects of depreciation, Epidemic would have seen an operating profit of SEK 25 million ($2.36 million), the company said in its earnings report released April 10.
However, consumption of Epidemic’s content continues to soar. The company said its music received 2.5 billion plays daily on YouTube and TikTok in 2023. (In its 2022 report, it calculated 1.5 billion views daily on YouTube, not including TikTok.)
There are now 26 million videos on YouTube and TikTok videos featuring Epidemic Sound music, and the company reports that its tracks receive 40 million plays daily on music streaming platforms.
Epidemic says it has a catalog of 40,000 tracks and 90,000 sound effects, and says it’s been adding an average of 10 new tracks per day since 2021.
The appeal of Epidemic’s music can be easily understood, at least from the point of view of content creators. Epidemic offers businesses and content creators access to rights-cleared audio content they can customize however they want, making its music attractive to creators and enterprises that don’t have the resources to license more expensive, copyrighted music.
Yet its business model has, over the years, attracted plenty of criticism, from music executives complaining about Epidemic’s use of pseudonyms for its creators to musicians’ unions objecting to Epidemic’s practice of buying all the rights to composers’ and creators’ music for a flat fee.
The company has said in the past that, while it does pay a flat fee to music creators, royalties from Spotify are split 50/50 with creators all the same.
“We expect our growth to be further bolstered both by the expectation that the creator economy will almost double in size by 2027, and the fact that we are well-positioned to utilize the expanding capabilities of artificial intelligence.”
Oscar Höglund, Epidemic Sound
The company appears to be sensitive to these types of criticism, referring to its payment model as “unique and generous” in its latest annual report, and stressing the deals it has signed with prominent musicians, including one with Grammy-nominated multi-Platinum artist Jordin Sparks.
In the annual report, co-founder and CEO Oscar Höglund described Epidemic as “one of the best-positioned [companies] to explore building a system that holistically supports artists and content creators, harnessing AI’s capabilities while keeping artistic authenticity, integrity, and fair remuneration at the core.”
Indeed, AI seems to be a key part of Epidemic’s business model, with the company highlighting AI tools it has developed for its content-creator customers.
Among those tools is Soundmatch, launched in July 2023, which uses AI to analyze the images in a video and translate them into keywords for a search for music options. It then offers content creators suggestions for music from the Epidemic catalog.
The company’s annual report cited its own research showing that 93% of content creators are now using AI-powered tools in some way in their creation process.
“We expect our growth to be further bolstered both by the expectation that the creator economy will almost double in size by 2027, and the fact that we are well-positioned to utilize the expanding capabilities of artificial intelligence,” Höglund said, citing a Goldman Sachs report from 2023.
“While our AI experts are laser-focused on addressing the technical needs of content creators, we also own the world’s largest restriction-free catalog of top-quality, stem-based tracks, and have unparalleled data insight on how that music performs online.”
Epidemic got a major boost in 2021 when investment giant Blackstone joined a $450-million funding round, which valued the company at $1.4 billion. Blackstone remains a major investor, with a 17% share of Epidemic, according to the annual report.
The company’s largest investor, at 32%, is EQT, a private equity firm which is also invested in talent agency UTA and is currently part of a consortium bidding to take French digital music company Believe private.
Another major investor, at 12%, is Creandum, a Stockholm-based early-stage venture capital firm also known for investing in Spotify.
