Mario Draghi might not have the Nordic cool of Daniel Ek, the cigar-assisted self-assurance of Marty Bandier or the win-at-all-costs panache of Lucian Grainge.
But the music industry should be keeping a close eye on his decisions right now – because they could mean the difference between a profitable 2015, and a year to forget.
Draghi, the President of the European Central Bank, is ultimately the man responsible for the quantitative easing in the Eurozone, which has seen the value of the Euro deliberately slashed to a 12-year low against the US Dollar.
As we stand, one Euro is worth 1.09 Dollars – having rallied slightly in the past two days. Overall, though, the Euro’s value has dropped 10% against the Dollar this year alone and fallen 21% in the past 12 months (see graph).
This poses big challenges for an international business like music.
The companies worst hit will be those US-based music businesses who report their worldwide income to investors in Dollars but do a roaring trade in Europe.
Because of the imperious Dollar, if you were a US act popular in Europe, you would need to sell 21% more units today than you would have done a year ago to generate the same revenue.
This is one reason why Warner Music Group, for example, has seen such harsh differences in its reported revenues in US Dollars.
In the three months to end of 2014 (Q3), Warner posted a 1.7% rise in sales – but at constant currency, this figure would have hit 7%.
According to WMG’s last FY report, 38% of its business takes place in the US, with 62% in other territories around the world.
“The trend in the eurozone has certainly been beneficial to BMG. The US and UK are by far our biggest territories.”
Hartwig Masuch, BMG
The music businesses that stand to gain most from the weak Euro against the Dollar are those who report to investors in Euros, but do a big chunk of their businesses in the US.
Germany-based BMG is one such company, as is Spotify and French-owned Universal Music Group – which reports to its investors in Euros through Vivendi.
Unfortunately for UMG, it now does the majority of its sales in Europe – when it would see the most currency benefit from sales in the US.
“We do really good business in the US and UK – they are by far our biggest territories,” BMG CEO Hartwig Masuch told MBW.
“The trend in the Eurozone has certainly been beneficial to us – we have watched it continue to fall and there is little indication it will rise again significantly in the near future.”
Masuch agrees that private US-companies which own large Anglo-American catalogues that are disproportionately popular in Europe are the most negatively exposed to the trends.
“It will be interesting to see how their investors react in the coming months and years, and whether there are exits or changes of ownership,” he points out.
“The US labels have also long been loss leaders for some of the biggest companies in music, who generate bigger sums in Europe and across the world. That, again, is an interesting problem to solve.”
But there is better news for UK music businesses attached to any of the current crop of British stars currently big business in the US market.
To a lesser extent than the Euro, the value of the Pound has also fallen against the Dollar – down 13% in the past year.
One Pound Sterling is now worth $1.5. Again, this means that a UK-based company enjoying lucrative business in the US will be benefitting from a favourable conversion rate.
“You see artists like Ed Sheeran, Ellie Goulding, George Ezra and Sam Smith really making some noise in America at the moment, and that can only be good news when the dollar is so strong,” adds Masuch.
Another business enjoying the fruits of international currency trends is Sony Music Entertainment, which reports to its investors through Sony Corp in Japan.
Like the Euro, the strength of the Japanese Yen against the Dollar has fallen considerably in the past year, down around 20%.
As reported on MBW earlier this week, this has helped SME – which turns over billions of Dollars in the US every year – increase revenues in its first nine months of FY 2014 by 6.9% year-on-year.
SME’s Q3 revenues were up 13.1% to 163.6bn yen ($1.35bn; €1.18bn) – but this would have been up just 3% at constant currency.
[Photo: Remy Steinegger]Music Business Worldwide
