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Which investment is better: Spotify, or a music festival in the Alps?

Happy Monday, and Happy Lunar New Year to those who are celebrating! :) First off, I'm excited to sha
Which investment is better: Spotify, or a music festival in the Alps?
By Cherie Hu • Issue #21 • View online
Happy Monday, and Happy Lunar New Year to those who are celebrating! :)
First off, I’m excited to share that the Water & Music community just passed 800 subscribers! Thanks so much to everyone for following and for nerding out together about all things music and tech. As always, please introduce yourself if this is your first issue!
Today’s subject line is inspired by a recent conversation I had with a partner at Edition Capital, an investment firm specializing in media and entertainment. The chat was for a feature I’m writing for Billboard about rising interest from the VC/finance world in the music business—as exemplified recently, for instance, by Avid Duggan’s move from Google Ventures to Kobalt—and what that reveals about perceptions of the music industry’s financial health.
The full piece will be online in a few weeks, but I wanted to share some tidbits from our conversation and hear what you think.
In doing research ahead of our chat, I noticed that the majority of Edition Capital’s investments to date are in live and experiential ventures. Some of its portfolio companies include Snowboxx, an annual music festival that takes place in the Swiss Alps (Fatboy Slim, Loyle Carner and Stefflon Don are among the highlights this year), and The Little Yellow Door, a secretive pop-up dining experience known for its WhatsApp-powered emoji menu.
Hot off the trails of writing an article for Forbes about investing in music royalties, I asked this partner at Edition Capital (whom I’ll call “Alex” for anonymity’s sake) why the company hadn’t poured as much money into recorded music yet. Alex told me that the firm was waiting for more convincing recorded-music models to arrive at its desk, and that the majority of offers he and his partners have evaluated to date frankly fell short.
Streaming doesn’t quite fit our risk profile,” said Alex, adding that the amount of money that major streaming services like Spotify and Pandora have lost over the years is “eye-watering.”
I was intrigued by these comments, for two reasons. Firstly, few analysts would argue that the recent growth of the music industry is “fueled by streaming.” Yet at the same time, streaming still isn’t profitable, and it seems that most investors wouldn’t dare touch it.
[In the first-ever piece I wrote for Billboard, I found that 75% of the nearly $900 million poured into music-tech companies in the first half of 2017 went to streaming services, while investment into live music properties paled in comparison. Put a magnifying glass over those streaming figures, however, and you’ll find that most of that money was actually emergency funding for Pandora and SoundCloud, and wasn’t necessarily a validation of the underlying streaming model itself.]
Secondly, Snowboxx and The Little Yellow Door arguably don’t fit the high-growth, network-driven mold that investors usually seek. Instead, those companies thrive off scarcity, exclusivity and niche tastes tied heavily to geography—defying the common Silicon Valley ideal of the completely open, democratized distribution of information.
Alex told me that Edition Capital was precisely trying to defy traditional investor logic and redefine success in entertainment by honing in on boutique event properties. Edition also tends to avoid investing in events that are purely headline-driven (i.e. they won’t invest in a big festival just because The Killers or Kendrick Lamar are headlining), as that approach often distracts from the quality and diversity of the overall customer experience as well as from the resulting profit picture. It turns out, claimed Alex, that boutique festivals often have a much better profit picture than larger ones because the former are built on more solid financial foundations.
Which investment seems more attractive to you: a major streaming service with massive scale but as-yet negative net income, or a boutique festival that is turning a profit but reaches only a few hundred people a year? Can you envision a world where the latter type of investment, rather than the former, is really what “fuels growth” in the music industry—where niche investment theses and styles are the norm? Why or why not?

The Artist as Technology, Part 1: Breaking The Adoption Cycle
Good reads
Discussing Listener Fatigue and All The Music You'll Never Experience
Obligatory potato
If you have a Netflix account and haven’t watched Chef’s Table, you are missing out on one of the most inspiring, most artfully crafted docu-series of all time. In S1E3, Argentinian celebrity chef Francis Mallmann talks about how he won the Grand Prix de l'Art de la Cuisine in 1995 by cooking nine different dishes made entirely out of potatoes for the International Academy of Gastronomy. The effort reportedly required a thousand pounds of potatoes, and Mallmann dispatched one of his associates to Peru to smuggle all those potatoes across the German border. Breaking Bad has nothing on an ambitious, starry-eyed cook.
Did you enjoy this issue?
Cherie Hu


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