Traditionally, music and other entertainment products have been owned by those that own/control the means to exploit it. The big music labels today generally began as technical and electrical equipment manufacturers, who also happened to be at the cutting edge of transformational recording and playback technology (gramophones, graphophones, phonographs, jukeboxes).
They were not involved in music making. Music was simply a way (one of a few) of selling their goods and services, through which (by happenstance) music could also be enjoyed.
Fast forward two hundred years to today’s Nigeria, and it is clear that the primary means of enjoying music is through, and involves, the technology of mobile network operators (MNO).
Of course it is now widely accepted that MNOs are the biggest ‘distributors' of music in Nigeria (and Africa as a whole), but this piece seeks to look at the possible next steps these huge companies can take in light of likely changes that are coming to the entertainment industry value chain.
The main goal of MNOs is to sell (voice call) airtime and data services. With the advent of VoIP capabilities the former is declining significantly, therefore leaving the latter (data) as the sole revenue driver of MNO business models.
Multimedia content (music included) will be the key weapon in the coming MNO “data wars” and whomever has the most sought after content shall be the last person standing in this contest.
Consequently, it can be reasonably presumed that a priority objective of the MNOs would be to secure the best content at the cheapest rate, consistently.
As it stands, MNOs (with their combined 97 million customers) are currently enjoying the favorable position they have occupied since they began exploiting music through their respective networks just under a decade ago. Their standard 60% share of gross revenues from multimedia content means that on last year’s record revenue total of N16b from music content, (according to the Agusto & Co. “Entertainment Industry Report, 2016”), the MNOs cornered almost N10b from a nascent segment of their operations that has not reached its peak in terms of ARPU potential.
However, with a number of legal actions and related PR campaigns from various quarters of the music industry the MNOs will likely have to start looking at giving up a chunk of their existing share to enable the content value chain (ie labels, aggregators, publishers) receive a more equitable share of the proceeds.
MNOs therefore either have to prepare to simply absorb the coming cuts in their revenues (a non-starter) or find ways to neutralize or mitigate against same.
It is the author’s view that the natural step for the MNOs to take would be to simply begin acquiring and creating content themselves. They are increasingly doing this in respect of VAS services generally, with more and more of these services being brought in-house (especially in light of NCC guidelines on VAS services which now make MNOs jointly liable in event of any negligence in providing said services). It would be logical for MNOs to simply integrate further backwards by doing same with the actual content itself.
The prudent course of action would be for MNOs to acquire (or purchase stakes in) certain marquee labels with a strong roster of existing stars and catalogue of hit records. However, given the fragmented and disorganized nature of our industry (primarily made up of numerous independent artists/labels) the most practical strategy would be to actually sign artists to exclusive recording contracts.
The positive effects of this strategy would be two fold. The first, and main, positive effect is that the MNOs would actually own the recordings and could thus only have to pay the artist 12-20% of revenues as sound recording royalties (a standard industry practice), which would be 14-22% less than they are paying out currently; and this is after they first recoup the expenses incurred in creating the recordings/videos. Even if one were to include publishing royalties (which, globally, range from 10 -15% of gross revenues) that would still mean that they would pay less than the 40% of gross revenues they currently part with on average. As owners of the recordings MNOs would also have the rights to license same to third parties thereby giving them new potential revenue streams. With their commercial leverage MNOs would be able to secure the most favourable terms and returns.
Furthermore, such a strategy would also eliminate MNOs increasing marketing costs for endorsements (which have not been proven to result in any net gains). Some may argue that the marketing costs MNOs incur through endorsements would simply be replaced (or even increased) by them having to spend more to market the artists they sign; for example the costs of music video productions, project promotions etc.
The counter to this argument is that MNOs can and do at least now monetize music videos as they do with music itself. Additionally they would be able to recoup a significant proportion of these costs by classifying them as an ‘advance’, thereby offsetting any of these productions costs and likely even make profit. Alternatively, these standard promotion/marketing costs can simply be absorbed in MNOs' existing marketing budgets and given their huge customer bases, they already have the requisite marketing channels and necessary scale to lower such costs.
The Nigerian music space, whilst ever growing at an exponential rate, is still trying to find its feet and create adequate structures/solutions in order for its much talked about potential to be maximized. Numerous players in the ecosystem are beginning to understand the fundamentals of the business and more crucially the importance of capitalizing on the new distribution channels provided by the MNOs with their huge customer bases.
This has (inadvertently) made the MNOs arguably the biggest and most important players in the sector, with the most transparent source of revenue. And given the increasing importance of music and other multimedia content to their respective bottom lines, one can safely expect to see the MNOs do as their predecessors did all those years ago, and begin to own (rather than license) the content that has become the primary revenue driver behind their core business; data.