May 22, 2018 / 7:16 AM / a year ago

Breakingviews - Sony loudly demonstrates love of content with EMI

Sony Corp's new President and Chief Executive Officer Kenichiro Yoshida attends a news conference on their business plan at the company's headquarters in Tokyo, Japan May 22, 2018. REUTERS/Toru Hanai

HONG KONG (Reuters Breakingviews) - Sony is loudly demonstrating its love of content. On Tuesday, the Japanese electronics and entertainment group said it would buy majority control of EMI Music Publishing. Sony tightens its grip on a two-million-song catalogue spanning Queen to Kanye West - and the $4.8 billion deal leaves no room to doubt new boss Kenichiro Yoshida’s belief in the industry’s recovery.

This is an uplifting coda to the sorrowful ballad of EMI, the venerable British record label. A 2007 takeover by buyout baron Guy Hands foundered during the financial crisis and as digital piracy ran rampant. Lender Citigroup seized the asset. It sold EMI between 2011 and 2012 in two parts, separating the recorded music business from the unit holding rights to compositions and lyrics.

The latter was traded to a colourful consortium. This united Sony, then financially much weaker than it is now, with a motley group of investors including Michael Jackson’s estate; Abu Dhabi’s Mubadala; the film mogul David Geffen; private equity titans Blackstone; and Jho Low, the financier made notorious for his role in the Malaysian 1MDB fund scandal.

Now Sony is paying $1.9 billion to buyout Mubadala and various others, lifting its stake from roughly 30 percent to 90 percent. Other payouts lift the total cash outlay by a further $400 million. Including debt, Sony says this gives the target an enterprise value of $4.75 billion.

That equates to more than 19 times trailing EBITDA of $249 million, adjusted for one-offs. The multiple looks punchy, when last year media and entertainment deals averaged 14 times EBITDA, Thomson Reuters data shows.

However, the music industry is reviving nicely, thanks to Spotify, Apple Music and others. UBS forecasts sales for publishers from paid-for streaming services could go from $700 million in 2017 to $3.6 billion in 2026. That’s quite a turnaround in fortunes.

This also chimes neatly with Yoshida’s interest in intellectual property, and in stable, recurring revenue. It is a business Sony already knows intimately. And the purchase stops rivals like Warner Music expanding their own catalogues. So it’s a noisy, but not wholly off-key, move.


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