Can this Swedish entrepreneur unlock $40 billion in new money for the music business?

Welcome to the latest episode of the Music Business Worldwide Podcast. The MBW Podcast is supported by Voly Music. On this episode, MBW founder Tim Ingham speaks to Ola Sars, founder and CEO of Soundtrack Your Brand.

A graduate of Harvard Business School, Ola Sars went on to become the co-founder and COO of Beats Music – the music subscription streaming service, associated with Beats By Dre headphones, that would become Apple Music.

In 2013, Sars launched Soundtrack Your Brand (then called Spotify For Business) as a JV with Spotify. The premise is simple: a music streaming service specifically made for businesses – whether multi-nationals or mom’n’pop shops.

In 2018, Sars spun the company out of that ownership structure as the independent Soundtrack Your Brand (although Spotify remains a minority investor today).

One of his key arguments: any business playing music from an individual’s Spotify account is breaking the terms and conditions of their agreement with the service.

Said businesses, according to Sars, should be paying a premium monthly fee for a streaming service that clears them to play music for their customers (and which, ideally, also recommends music designed to draw more purchase activity from consumers).

Sars calculates there are 100 million different types of public-facing businesses globally that are a target market for this kind of B2B music streaming service.

Between them, he says, they could bring in an additional $40 billion of revenue into the music industry.

Right now, Sars is some way from that kind of target: In 2022, Soundtrack Your Brand turned over 214 million SEK, which works out at just over $20 million US dollars.

However, that revenue wasn’t far away from doubling year-on-year – up 61% on 2021.

As you read this, Soundtrack Your Brand has just over 54,000 paying monthly subscribers globally.

Sars says there’s much more to come. Listen to MBW’s Podcast interview with him above, and/or read an abridged version of our discussion below…

Growth in music streaming’s trajectory, certainly in key markets, seems to be slowing down. What role can Soundtrack Your Brand play in actually amplifying the revenues of the modern industry?

From the beginning, when we started Soundtrack, it was all about the incremental opportunity of B2B, basically adding business subscriptions to the [industry revenue] mix. Nothing more complicated than that.

How it contributes is very simple: we’re charging USD $50 per month for an on-demand subscription, currently called Soundtrack Unlimited. That’s five times, or in reality 10 times, [the price] of the ARPU of consumer subscriptions – because the average monthly ARPU [of Spotify globally] is 5 bucks.

No one’s talking about the B2B market. But it’s a deeply dysfunctional market, and if we can fix it, we can unlock an incremental opportunity of $30 billion to $40 billion [a year] on top of music’s consumer markets.

Where do you get your $30 to $40 billion figure from?

That’s the retail value of B2B [streaming subscriptions], roughly, in the world. There’s around 100 million addressable ‘doors’ – meaning cafes, restaurants, receptions, gyms, etc. – around the world that are using, in traditional terms, background music.

And the average price for a background music B2B subscription, for us, is $30 per month. So just do the math: 100 million times $360 [the annual subscription cost at $30 per month]. That’s $36 billion on an annual level. And we expect ARPU to go up a little bit over the years, so it’s roughly a $40 billion addressable market.

What’s wrong with the global music industry setup when it comes to B2B licensing to date, in your view? Through PROs and CMOS, there are already global networks in place to pull out royalty money from public performance of music by businesses.

It’s not only the actual performance rights, it’s the need for a legit music service [for businesses] – meaning the source of music.

[For a business], using consumer music streaming services is not cool. It’s actually illicit; it’s against the terms or conditions [of the individual’s account], and it’s against copyright law.

“[For a business], using consumer music streaming services is not cool. It’s actually illicit; it’s against the terms or conditions [of the individual’s account], and it’s against copyright law.”

We have this problem in the industry today where two-thirds of this market – small and medium-sized businesses – are using consumer services illicitly right now, and that represents massive value destruction for all of us.

If [Soundtrack Your Brand] is charging $50 per month, and Apple or Spotify are charging, roughly $10, that’s a 5x loss for the artists at the end of the day.

I’m sat in London as we speak. If you go to a pub here to watch a Sky Sports Premier League football game, they have to have a B2B license to show it. Is there a bit of a loophole going on in music at the minute? How can the industry help you close it?

To be a bit fair, it’s fairly new… we spent three and a half years doing 16,000 licensing deals in order to move background music onto the digital value chain, meaning that we’re now directly licensed with record labels and publishers and CMOs worldwide.

It’s also new for the cafe owners, retail owners, entrepreneurs… [many of them] have no idea they basically can’t use their [personal] Spotify account. Some of them know, though: if you look at the US market, actually, awareness currently is around 1/3 of the market know that it’s illicit to use US music consumer services [in business]. And that’s improving.

But in general terms, globally, there’s no awareness or understanding because this is so new. As an industry, we need to come together and start – rather than litigating or suing small business owners – taking responsibility to try to communicate [with small businesses] initially.

“Multiple industry organizations could take on this opportunity to start increasing awareness of the fact that using a consumer music service [in business] is [not legal].”

Multiple industry organizations could take on this opportunity to start increasing awareness of the fact that using a consumer music service is [not legal]. I mean, it’s not like people are opening up cinemas using their personal Netflix accounts around the world; Hollywood has seen to it that that doesn’t happen. It’s the same thing as your analogy with Sky Sports or Fox Sports in the US or whatever.

Also, when you go watch the Premier League at the pub, the pub is paying properly for those rights because they’re obviously selling more beer when [a match is showing]. So we all need to come together to extract this value that comes from background music.

In the US, 96% of businesses are using music to increase the customer experience. The songwriter or the artist should be fairly paid if her music is being used to sell more coffee.

I was digging around on your LinkedIn and saw you posted the approximate financial performance of the Soundtrack Your Brand business over the past couple of years. You’re now in the $20 million dollar-plus annual revenue category, and also seeing a shortening of losses. What do you think the tipping point is going to be? To take a business that’s now doing tens of millions of dollars, up to the level of potential, the tens of billions, that clearly you can see around the world?

I’m betting on something that I truly believe will happen long term, like I did when I was spending a bunch of years on the consumer side of the DSP business [at Beats Music].

Soundtrack is still very small; we’ve invested a bunch of money into building a good service. You can’t even talk about these things without spending, you know, $50 or $60 million on a proper service that helps the entrepreneur, and saves time, money, and anxiety.

If you’re running a café, the last thing that you have time to do is, is actually to curate your music or think about what licensing agreements you have to have in place, and so forth.

I think we’re there now: we have a really good global service for small, medium, and big companies to really use music as a competitive edge.

“The second step is trying to get the industry – meaning primarily labels and publishers – to support us.”

The second step is trying to get the industry – meaning primarily labels and publishers – to support us. And understand that we need their help to extract this incremental value.

So trying to answer your question, [the tipping point will come] when I really get the support, from the big industry organizations and the labels and the publishers; that will be the day when this really moves from just the 10s of millions [of dollars] that you said to meaningful revenue contribution to everyone.

I really think the next era [for the music industry] is the era of monetization. I truly believe that.

I read about the new Warner Music Group CEO [Robert Kyncl], very clearly stating that he thinks music is under-monetized. I think it’s we’re speaking about that way too little. We’re really good [in the music business] at giving stuff away for free, or seeing stuff as marketing, and then it has to get monetized by Spotify or someone else. But I think the next era is the era of monetization. Because I do think people are willing to pay more for music, because it has such a significant impact on our lives. And the services are getting better and better.

What I’ve always been trying to do with this unsexy movement – digitizing background music – is to serve up additional value – maybe even to $30 billion [or more] annually level if we fix the whole market.