The Goldman Sachs Communacopia conference, now in its 28th year, gives top executives at major companies the opportunity to make their case to investors — and the Goldman analysts the opportunity to keep things on the up and up. While the analysts don’t necessarily grill the executives, they don’t lob softball questions either. That was the case as Sony Music chairman Rob Stringer answered some challenging but fair questions from Goldman media equity research analyst Lisa Yang on Thursday.
Things started off in that vein when Yang asked the simple question: “How do you see industry evolving over the next five years and can this level of [double-digit revenue growth for the past three years] be sustained?”
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“That’s a half-hour answer!,” Stringer laughed, before digging in. “I’ve been through four chapters — I started at company when it was vinyl and cassettes, then it was CDs, then downloads and now streaming. And I would say this is probably one of the most exciting but also the most complex chapters. When I started, we owned manufacturing and distribution, and that brought significant profit into company. But it also maybe made us slightly myopic, because we owned everything, and maybe slightly arrogant, because we owned everything. In technology terms, [the CD boom] was really based on reproducing [music that had already been issued on vinyl], and is that really an economy? Going from downloads into streaming has made us have to change in an evolved way: We’ve had to probably more than in the last five years than in the last 35 years. And it’s okay.
“We went through a really dark time in the early 2000s — which I’m sure some people in this room think was deserved, and they might be right,” he concluded. “But I think we’ve come out of that period with an understanding of where we need to be and an identity that’s much more long-term than the previous chapter.”
Yang followed by asking what role the majors can play in sustaining the growth of the past few years, and how they can capture value for artists. “We understand where we are we are in the marketplace: We control content,” Stringer replied. “We’ve always controlled content; now we do it with a different distribution model, and we understand that the rights model has changed and we also know that we have to be more a little bit more forward-thinking in how we build our strategy, because we don’t own everything.
“In terms of how we balance it out, [dealing with] the art form is a unique skillset,” he continued. “I think some people have come into the industry from outside and tried to replicate the art-form strategy, and it’s very difficult. There’s a famous quote that it’s like selling popcorn in the cinema: It isn’t the same, because popcorn doesn’t answer back.
“But the tech platforms obviously have enormous power on a global basis, and we have to work with them as partners and we have to learn how to be partners with our artists too. I’m not sure during the first 50 years of the business we were necessarily partners with anybody, and now we are, so that’s a comfortable process for me. I come from the artistic side of the business and I learned the business side. I consider us to be partners with artists and managers, and partners with the DSPs.”
Yang also asked about the “critical value add of labels and publishers” and how that has changed and might be changing in the future, and Stringer elaborated on how the company has changed its staff to adapt.
“We’ve changed our workforce,” he replied. “In the 2000s we reduced our overhead significantly — I think that was the case at all the majors. We have way more people in creative than at any point in recorded-music history. We might have had a lot of people working with factories and pressing plants — that doesn’t really exist anymore, so we’ve swapped those people out for people with creative vision and digital vision. We have thousands of people around the world, dealing with digital technology and thousands with creative vision. Our workforce has changed dramatically since the advent of streaming and rightfully so.”
With that change in focus has come a dramatic increase in the cost of talent. “The amount of money that we have to invest in talent has gone up, and the price has gone up too,” he said. “It’s much more expensive today to sign talent than it was six months ago, it’s way more expensive than two years ago — and going back to the 2000s, it’s not even comparable. So it’s a balancing act between how much we spend on talent and how much we get back, that’s always been the adage but the mathematical formula is a little more complicated now.”
Yet the reductions made during the “dark times” have made for a stronger business, he said. “The good news is that our [profit] margins are way better when compared to the last great era of profit 20 years ago. Our margins are amazing now. It’s always a balance: revenue, profit margin, market share, all of those things are a balance act. Are we perfect? Of course not — but the margin is not an issue. We’ve seen the cost of marketing come down — marketing is more direct to consumer, and because it’s a digital landscape, we can target our consumer much more [precisely], we have a far more targeted landscape and process to work with than we did ten years ago. We have a good idea who we’re trying to market our music to.
“So the margins are the least of our worries,” he concluded. “I’d like revenue and profit to be perfect, but the margin will not go down, it will get better.”