Artists have long chaffed at being part of the corporate world that the major record labels now represent. The reason why you’re an artist in the first place is to not join the game in the first place. So what could be worse than normal corporate life? Maybe if the label was owned by a private equity investor that could represent the uncertainty that comes with it, as one never knows when a division will be spun off to “increase cost efficiencies.” But what if a label is owned by a sovereign wealth fund? Would that be more or less stable for the artists? We may find out soon enough as Universal Music gets set to sell off part of its ownership to a group of investors headed up by Tencent.
Last August Tencent announced that it would purchase 10% of Universal Music with the option to up the buy to 20% by the end of the year. News about the deal has gone silent since, and details have emerged that Tencent ran into money problems and needed to bring in additional investors to close the deal.
Tencent reportedly lined up private equity firms KKR and Hellman & Friedman for financial help, but both companies eventually balked at the deal over Universal’s $33 billion valuation, and the fact that they wanted to up the deal to 30% and have more control over how Universal was run (red flag here for artists).
That idea didn’t fly, so KKR and Hellman & Friedman backed out of the deal, leaving Tencent scrambling for money to try to save it. They came up with a willing partner in GIC, Singapore’s sovereign wealth fund.
Apparently GIC wasn’t willing to put up all the remaining money to close the deal, but went to other countries to solicit participation of their wealth funds as well. Reportedly a deal is now in place with multiple investors to purchase as much as 30% of Universal Music, but the deal needs approval from the various countries first.
So Universal will sell off a chunk of the company and still keep control – for now.
The thing to remember is that Universal is owned by Vivendi, which is controlled by billionaire Vincent Bollore. This deal is a play to partially cash out while valuation of the company is high, but it also could mean that he may decide that a French water company really doesn’t need to be in the U.S. entertainment business and either sell a controlling interest and cash out completely at some time in the future.
Which brings us back to Universal’s artists. If you’re signed to a label what you want is stability. Many a career has been wrecked or detoured when the executives that believe in him or her leave and a new group is brought in that aren’t allies.
If I were an artist on the label I’d be watching this deal closely. Although things probably won’t change if it goes down, it could be a periscope into what might happen in the future, and that could make many artists uncomfortable.