Category: Business

Welcome to Music Business Worldwide’s weekly round-up – where we make sure you caught the five biggest stories to hit our headlines over the past seven days. MBW’s round-up is supported by Centtrip, which helps over 500 of the world’s best-selling artists maximise their income and reduce their touring costs.

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This week, Utopia Music became the latest company to significantly cut the size of its global workforce.

The acquisitive Switzerland-headquartered company confirmed to MBW that it has made a number of layoffs.

A Utopia spokesperson told us that, “Like many growth companies in today’s macroeconomic environment, Utopia is making changes to its internal structure to optimize the business”.

News of job losses at Utopia follows a wave of layoffs sweeping across the tech-leaning side of the global music business.

Also this week, Warner Music Group reported its financial results for calendar Q3 2022 (the three months to end of September).

The company told investors that it generated total revenues of USD $1.497 billion across recorded music, music publishing and other activities, up 16% YoY at constant currency.

This quarterly earnings announcement was the last in Steve Cooper‘s 11-year tenure as Chief Executive of WMG; Cooper will be succeeded in the role in the New Year by YouTube‘s Chief Business Officer, Robert Kyncyl.

Elsewhere, Universal Music Group-owned Deutsche Grammophon, which claims to be the world’s oldest record label, unveiled its own high-res classical music streaming service.

Plus, artist financing platform beatBread closed a $100 million institutional fund, while a Senate committee plans to hold a hearing to examine the US ticketing industry.

Here’s what happened this week…

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1) UTOPIA MUSIC MAKES LAYOFFS AS IT DOWNSIZES GLOBAL WORKFORCE

Utopia Music has become the latest company to significantly cut the size of its global workforce.

The acquisitive Switzerland-headquartered company has confirmed to MBW that it has made a number of layoffs.

Sources suggest these cuts have primarily come in Utopia’s central team – including some high-level executives – as well as its tech-focused workforce.

To date, Utopia’s tech employees have been tasked with building the firm’s proprietary music monitoring platform, sometimes referenced as the ‘Utopia Open Platform’ (UOP).

MBW understands that Utopia’s global team numbers 1,200 people. That figure includes both contractors and around 800 employees…

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2) WARNER MUSIC GROUP GENERATED $92M FROM ‘EMERGING PLATFORMS’ IN CALENDAR Q3 – AND OTHER TAKEAWAYS FROM STEVE COOPER’S LAST EARNINGS CALL WITH WMG

Warner Music Group‘s earnings call on Tuesday (November 22) ended on an upbeat note – and it’s easy to see why.

WMG posted revenues of $1.5 billion for the three months to end of September (up 16% YoY at constant currency), with adjusted EBITDA also up by 16% YoY.

As a result, WMG’s share price flew upward by 15% on Tuesday, as Bank Of America upgraded the firm’s stock.

Fittingly, this glowing quarterly earnings announcement was the last in Steve Cooper’s 11-year tenure as Chief Executive of WMG; Cooper will be succeeded in the role in the New Year by YouTube’s Chief Business Officer, Robert Kyncyl…

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3) UNIVERSAL JUST LAUNCHED ITS OWN STREAMING SERVICE FOR CLASSICAL MUSIC VIA DEUTSCHE GRAMMOPHON

Universal Music Group-owned Deutsche Grammophon, which claims to be the world’s oldest record label, just launched its own high-res classical music streaming service.

Called STAGE+, the service is described by Deutsche Grammophon in a press release as “ground-breaking”. The label calls it the “latest milestone in classical music’s digital development”.

According to the STAGE+ website, a subscription for the service will cost EUR €14.90 per month, or €149 per year…

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4) ARTIST FINANCING PLATFORM BEATBREAD CLOSES $100M FUND TO ‘EMPOWER INDEPENDENT ARTISTS AND LABELS’

Music funding platform beatBread has been making a lot of head-turning headlines this year.

In February, for example, the firm raised $34 million in a seed round led by Fintech-focused venture capital firm, Deciens Capital.

Over the summer, beatBread struck what it said was a “seven-figure artist financing deal” with singer-songwriter Elley Duhé – its biggest deal yet.

Now, MBW can reveal that beatBread has big plans to accelerate its growth in the artist funding space, and it’s just closed a $100 million institutional fund with asset manager Variant Investments to do so..

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5) SENATE COMMITTEE TO HOLD TICKET INDUSTRY COMPETITION HEARING AFTER TAYLOR SWIFT TOUR SALE DRAMA

US Senators Amy Klobuchar and Mike Lee of the Senate Judiciary Subcommittee on Competition Policy, Antitrust, and Consumer Rights, confirmed on Tuesday (November 22) that they will hold a hearing to “examine” what they say is a “lack of competition in the ticketing industry”.

In a press release, they write that hearing follows the “significant service failures and delays on Ticketmaster’s website that left fans unable to purchase concert tickets”.

Klobuchar and Lee said that the hearing date and witnesses will be announced at a later date…

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MBW’s Weekly Round-Up is supported by Centtrip, which helps over 500 of the world’s best-selling artists maximise their income and reduce their touring costs.

Music Business Worldwide

In September 2020, President Xi Jinping conferred medals on the heroes of China’s battle with coronavirus and declared that its handling of the pandemic had, once again, proved the superiority of Beijing’s political system.

A little over two years later and, far from beating the pandemic, China is suffering record cases and lockdowns, its Covid-19 policy is confused and it has no clear exit path given the country’s low vaccination rates among the elderly and its healthcare vulnerabilities.

With the economic and social costs mounting from conflicting policy directives, Beijing needs to set explicit criteria for reopening based on vaccination coverage and the availability of intensive care units for treating an inevitable exit wave of cases, according to Yu Jie, a senior research fellow at Chatham House, a UK think-tank.

Ultimately, such conditions must be set, she said, “because it is no longer just a public health question, it is an economic question”.

Coronavirus vaccinations are one of Xi’s core challenges. According to the latest official data, a third of China’s 267mn people older than 60 have not received their third vaccine dose. The booster is required to attain high levels of protection against the Omicron variant.

A big problem lies in Chinese culture, which is more risk-averse than many other countries when it comes to diseases and vaccines, said Xinran Andy Chen, an analyst at China consultancy Trivium.

While a relatively high vaccine hesitancy rate among China’s elderly population predates the pandemic, the problem has been exacerbated by official messaging about the dangers of Covid over the past two-and-a-half years.

Despite the Communist party’s enormous powers of social control, ordering the elderly to vaccinate is viewed as a step too far, even for Xi, because of fears it would spark “dramatic social resistance”.

“They don’t want to force through a vaccine mandate [but] they can’t afford old people dying. So that is why stringent Covid controls are still in place,” Chen said.

This month, Xi attempted to soften zero-Covid restrictions. The State Council, China’s cabinet, reduced quarantine periods and stopped tracing of second-degree close contacts of confirmed positive cases. The moves were also aimed at easing pressure on the centralised quarantine system that is now housing more than 1mn people.

However, Ernan Cui, an analyst at Beijing research group Gavekal, said the attempt to stabilise the economy had only created “widespread policy uncertainty” and made “the pandemic even harder to control”.

A Beijing-based government adviser close to the Chinese Center for Disease Control and Prevention said the timing of “opening up” hinged on producing higher quality vaccines and making them widely available.

He pointed to more than a dozen new vaccines, including six using mRNA technology, under development. Beijing, however, cannot tolerate a death rate of 0.2 per cent for cases as seen in Taiwan and officials will not rule out a return to Shanghai-style citywide lockdowns if outbreaks are deemed out of control.

“There is no way we can open up right now,” he said.

Experts believe that the main Chinese-made vaccines provide high levels of protection from severe illness and death with three doses. But they are less effective and fade faster than the mRNA technology developed by BioNTech/Pfizer and Moderna, which are used across the west. The Chinese are also untested in the event of a huge outbreak.

Chen, of Trivium, added that the Chinese government believed the benefits of foreign-made vaccines were outweighed by the political and economic risks.

From Beijing’s point of view, “the cost of losing national pride, the cost of losing market share to a foreign competitor, is much greater than using a marginally better vaccine that is not 100 per cent effective in preventing infection”, he said.

This is despite the enormous economic pain. China’s growth has slowed to its lowest rates in decades while youth unemployment has risen to a record 20 per cent as relentless lockdowns sap consumer demand and hobble manufacturing.

As case numbers soar, there are increasing signs of central intervention in cities across China, meaning a return to mass testing and quarantine.

In one example, following an inspection this week of the south-western megacity of Chongqing, vice-premier Sun Chunlan, who is Xi’s top zero-Covid enforcer, ordered officials to eliminate all community transmission in eight days.

That target, a local official said, was “impossible” to meet, meaning the situation risked mirroring events in Shanghai this spring when an initial two-day lockdown persisted for two months.

Another challenge to China changing course on zero-Covid would be the government narrative. Authorities need a different message to convince a fearful public that it is possible to live with the virus.

Hu Xijin, a former editor of the Global Times, a nationalist newspaper, told the Financial Times that ordinary Chinese people were “very worried” about the risks of infection, especially the dangers to children and the elderly, as well as the threat of quarantine.

Hu, who is in quarantine himself, said state media had not intentionally run campaigns to emphasise the dangers of the virus. “I never received such instructions during my final two years as the editor-in-chief,” he said.

However, he said that after watching the handling of the pandemic in the US and much of the west — and the high death toll — many Chinese gained a strong “sense of pride” in the country’s zero-Covid response.

Liqian Ren, who manages China investments at US-based WisdomTree Asset Management, believes abandoning zero-Covid must be preceded by a stark shift in domestic messaging from the very top: Xi himself.

“The propaganda machine needs to change, to say ‘this is not a scary disease’, to say ‘we have hospitals’ and ‘this is the success of the party’,” she said.

Underscoring the shortcomings of China’s healthcare system, the Asian Development Bank last month approved a $300mn loan to improve public health services in two of China’s poorer regions. Its experts noted that the pandemic had highlighted “gaps” in the state-funded health system and shown that China’s hospitals were “particularly vulnerable to admission surges”.

Ben Cowling, a professor of epidemiology at the University of Hong Kong, said China’s healthcare system risked being overwhelmed like that of Hong Kong earlier this year if it did not follow the likes of Singapore in preparing for an exit. That would involve radically changing the zero-Covid rules so that only severe cases were hospitalised.

“In Hong Kong, there was no concrete plan for exit; even in early March of 2022 [at the height of a big outbreak], there was still isolation of very mild cases in hospital and in isolation facilities when the resources should have been saved for the more severe ones,” he said. “The preparation makes a big difference.”

Others are less pessimistic. Ryan Manuel, managing director of Bilby, a consultancy that analyses Chinese government documents, said Beijing had signalled that it would ultimately embark on a staged reopening based on the ability to parachute in medical support teams from around the nation.

While this meant that any reopening would be “piecemeal”, it also meant “there won’t be a wholesale ‘let it rip’”, Manuel said.

Additional reporting by Maiqi Ding in Beijing and Eleanor Olcott in Hong Kong

The Bank of Israel’s decision on Monday to hike the interest rate by 0.5% to 3.25% immediately translates into a rise on mortgage repayments. But on the other hand, the higher interest rate offers solid investment options, in which households can put their savings.

After more than a decade in which the zero interest offered by banks on deposits made it an almost irrelevant option, products linked to the central bank interest rate, which rise or fall according to the Bank of Israel interest rate, are suddenly back in fashion. These options are attracting more and more customers, especially at a time when the capital markets are volatile.

Israel’s banks have raised the average interest rate paid on deposits for one year from a fixed rate from only 0.27% in April, before the first interest rate hike, to 3% in October, and have managed to raise more than NIS 103 billion from the public in just the last two months. For comparison, the total of new deposits in March and April was only about NIS 45 billion.

At the same time, financial mutual funds, which by the nature of their activity are more similar to bank deposits than to managed mutual funds, or those that follow certain indexes or sectors (exchange traded funds), tripled the volume of assets they manage – from NIS 16.5 billion to more than NIS 41 billion.

To these two products can be added another type of mutual funds, those specializing in government bonds. Although they are more volatile than bank deposits or financial funds, they may also generate a higher return – and will not suffer automatic decreases in return as the Bank of Israel’s interest rate falls.

According to the forecast of the Bank of Israel research division and analysts’ forecasts, the interest rate will continue rising to around 3.5%-3.75%. However, next summer it is expected to start falling, and if that is the case, interest rates on fixed deposits will also start falling.

A major advantage of these last two products, investing through financial mutual funds or in bonds, is their liquidity compared with bank deposits. With mutual funds, you can give a sell order when the value is calculated according to the value of the bond, on the given trading day, (which can reflect a high or low price in relation to the price at which the bond was bought). The return, of course, will not be the same as the one promised for redemption at the end of the period, but it will not include a penalty as the banks charge when closing the deposit before the agreed date.

Who is offering the best interest rate?

As with loans and mortgages, so with bank deposits customers can choose different tracks in which they want to deposit their money. The banks offer tracks with a fixed interest rate which, despite its name, is calculated according to the interest rate of the Bank of Israel, or a track with a variable interest rate – the prime track (the Bank of Israel interest rate, plus 1.5% and less the financial margin that the bank chooses to give to its customers).

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Since the Bank of Israel interest rate began to rise in April, the banks have raised the fixed interest rate. On Monday, immediately after Bank of Israel announcement of another interest rate hike, Israel Discount Bank (TASE: DSCT) announced that it was once again raising the interest rate on deposits for a period of one year at a fixed rate to 3.75%.

At the same time, the bank is offering interest on a one-year deposit at a variable rate, which will be the same as the Bank of Israel rate: 3.25% and will be updated according to the Bank of Israel’s future interest rate changes. The bank offering the highest interest rate in the variable interest rate track is One Zero (Israel’s recently launched digital bank), which even before the last interest rate hike was offering an annual interest rate of 3.4%, and this is now expected to rise to 3.9%.

However, this is a deposit for three months to a year, and those who need more immediate access to the money will receive much lower rates on daily or monthly deposits. The rate for a bank deposit closed for up to three months, where most of the public funds are deposited, is currently only 1.05%.

In financial funds, monthly returns hover around the Bank of Israel rate, as with deposits, but higher by about 0.1%-0.2%. This is because they have an average life of up to 90 days, and can combine slightly longer makams (government bonds), as well as buy very short bonds from banks, which add additional fractions of a percentage.

Dollar funds have raised hundreds of millions this year

Dollar financial funds offer even higher returns, around 4.5%, because the interest rate in the US is higher – and they have already raised hundreds of millions of dollars from Israeli customers this year.

In a third savings product, mutual funds that invest in government bonds, a customer who closes money for three years can receive a return of 3.2%, very similar to the current interest rate. However, the advantage of this product over the other two interest-linked products is that this interest rate is guaranteed, even if the Bank of Israel decides in a few months to start cutting the interest rate. Another option is a trust fund that invests in government bonds linked to an index that protects the client from the rise in inflation, and these offer a three-year interest rate return equal to the Consumer Price Index (CPI) + 0.5%. This is a return that can protect savings because of the erosion of money in an inflationary environment.

Tel Aviv Stock Exchange EVP head of trading, derivative and indexes Yaniv Pagot says that investing in these funds has an additional advantage. “The investor can benefit beyond the returns that the bonds pay also by profiting on the capital. If the market thinks that the interest rate will fall from 3.25% today to 2%, the investor will still be able to earn annual interest of 3% plus further capital returns of an additional 3%-4% – and even reach a return of 7%.”

How much tax must be paid on profits?

A significant issue that affects these decisions on where to save money is the question of taxation, when the investment matures. While bank deposits are subject to a 15% tax on the nominal profit, both financial funds and funds that invest in bonds require payment of 25% tax, but only after nominal profit is adjusted to inflation.

Average inflation expectations in Israel over the next 12 months are estimated at 3%, so if inflation in the coming year does meet these forecasts, the investor will be liable to tax only for excess profit of over 3%. Therefore, investing in government bonds through the funds is preferable in terms of tax over direct investment in bonds, which require payment of a 15% tax on the nominal profit.

Published by Globes, Israel business news – en.globes.co.il – on November 24, 2022.

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