Headlines abound of numerous deals in developed markets involving music copyrights, in particular publishing catalogues, being acquired by private equity firms and hedge funds for seven figure sums, and music company-related mergers and acquisitions in the nine and ten figure range. This is a trend that will continue for the foreseeable future. African music copyrights that are successful in such markets therefore have opportunities to share in the premiums being enjoyed – especially given the limited value generating opportunities in domestic markets currently.
Domestically, things are at a much earlier stage of development. We are still a way from such exciting headlines with many macro-economic variables, and developments in other sectors (telecoms in particular) having a major part to play in the Nigerian market specifically. Better opportunities are available across other African regions but, generally speaking, the populous nature of the continent does not yet present a viable enough value proposition for music copyrights – due to the aforementioned socio-economic and technological constraints of the vast majority.
It’s therefore not surprising that Africa’s most successful acts are seemingly more focused on expanding international following – through strategic relationships, funding, management and rights administration; all whilst ensuring they retain their copyrights as far as possible as the value of said copyrights increase through these activities. This explains the recent partnership between Burna Boy and Sony Music-owned Neighbouring Rights (formerly Kobalt Neighbouring Rights) (NR) – which will see NR globally administer Burna Boy’s performance copyrights (for presumably a 1-to-2-year period, initially).
This dichotomy between domestic and foreign recorded music markets, and how they fit in to local label and publishing monetisation strategies, is a topic I’ve covered before; but recent events and developments have again brought the discussion to fore. Whilst our ‘local majors’ may, understandably, have less focus on growing local revenues, metrics generated by the domestic industry are still required as the springboard for any significant foreign success.
Local Challenges
The Nigerian recorded music market has long been tipped for huge growth, expected to be driven by the usual factors: population growth; youth-skewed demographics; expected technological (infrastructure) advancements and GDP growth. However, telecoms sector regulatory changes, stagnant/declining levels of disposal income, and general economic headwinds in the country have stuttered the expected growth. Although music copyright revenues are generally seen as unaffected by the broader economy in advanced markets, this is less so the case in emerging markets.
This is what is driving the trend of Nigeria’s most successful artists focusing more of their efforts on international markets. So, whilst they may not assign much value to monetising their music copyrights locally, domestic markets still have their uses. These uses include the ‘signalling’ of the popularity and thus authenticity of the music. Local fanbases also provide important engagement metrics that help to justify foreign brand and other strategic partnerships.
Improved monetisation of copyrights in Nigeria may take a few more years, and is unfortunately tied to other variables that the music industry does not have control over. This is why our superstar artists currently perceive the local recorded music market as having little value. To others, however, the domestic market is extremely ‘undervalued’ – thereby providing opportunities for significant growth and returns with the right type of investments.
Like the rest of the globe, Nigerian artists generated the bulk of their revenues from live performances, appearances and brand partnerships. Asides a 3-year period between 2014 and 2017 – when revenues from CRBTs and CRTs had a major boom – there has historically been relatively little regard for the recorded side of the domestic music business. A lockdown-fuelled decline in live shows and brand partnership opportunities has now brought recorded music revenues into sharp focus.
This side of the business has always been crucial, however, for composers and music publishers – who only generate income from music copyrights but have not even been recognised in the industry till recently. Publishing revenues, which I have written about here, were generally subsumed within sound recording revenues and inadvertently paid to recording owners and artists. Things are changing in this regard, but what matters most is the overall value available for both sound recording owners and publishers to share. Which brings us to the question: what is the current value of recorded music revenues?
How Big is Nigerian Recorded Music Sector?
The Nigerian Recorded Music Industry Report (2015 – 2020), published by DCEM a couple of years ago, estimated that the country’s recorded music revenues would grow to reach $60m+ by this year. Of course, the report did not expect the pandemic and attendant constraints on global incomes and economies, Nigeria included; and the estimates were also based on the presumption of exponential growth in local streaming numbers with more people paying for music and paying higher rates.
Looking at global benchmarks and making applicable adjustments, total streaming numbers in Nigeria can be liberally estimated to be up to 500b+ streams per year. This is based on an assumption 75–80 million active users listening to an average of 18 three-minute songs per day. This total active user number is based on assuming Boomplay (Nigeria’s leading DSP) has 75 million active users, with all the other DSPs active in the country (i.e. Spotify, AudioMack, Apple Music, Deezer, UduX, Mino etc) accounting for the remaining 5 million.
With average streaming royalty rates of around $0.000065/N0.03 per stream in this part of the world (a tenth of those in advance markets), that would put the potential market value for music streaming in Nigeria at almost $34m (N17b at current exchange rates). Assuming, like with the rest of the world, that streaming accounts for 60%+ of the country’s recorded music market, then the current value of Nigeria’s recorded revenues can be estimated at around $57m (~N28b), based on this best-case scenario and previous estimates.
However, using another set of data and assumptions, it is likely that the true figure is much lower. Global recorded revenue data from IFPI shows that Africa accounted for $101m of global recorded music revenues in 2019, showing an 8.4% growth in 2020, and with the North African region and South Africa collectively accounting for 86.7% of these Africa revenues. Based on the stated growth rate, African recorded music revenues would be expected to have been around $110m in 2020, with South Africa and the North African region accounting for $96m of that sum. If one presumes that the Nigerian market accounts for at least 50% of the remainder that would put its value around $7m. A huge difference from the best-case scenario.
The likely truth is that Nigeria’s total active user numbers are actually closer to 20 – 30 million across all platforms, consisting of core users that listen to music for extensive periods on a daily basis – whilst commuting, working, or relaxing. It is this core that would fit with global trends of users listening to an estimated average of 50+ three-minute songs per day on licensed DSPs. This would therefore mean around 220 billion in total annual streams in the country.
Applying the same average streaming rate, that would put the value of the local streaming market at around $15m, with the total recorded music market at $25m/N12.5b. Given the complete decline of revenues from VAS channels (which at one time were generating $20m to $30m a year just from CRBTs/CRTs) and the slow growth of streaming revenues to fill this gap, this figure can be rationalised despite its odds with prior market size and growth estimates. The CAGR projections for the industry are technically still on course, given that they can account for declines when calculating the overall average growth rate for the relevant period.
But when compared with other markets such as South Africa ($60m+), India ($200m) and Latin America ($700m+), the relatively small size of Nigeria’s music industry becomes more visible, and the need to drive its growth become clearer. Tier 1 hit recordings, that enjoy high tens of millions of local streams annually, can only expect to generate between $5k and $10k per annum in gross streaming revenues, which is a pittance given that the same number of streams would generate ten times that amount in advanced markets. Again this will ultimately require growth in local streaming users and an increase in streaming rates and other ‘fixed’ licensing rates/tariffs.
Conclusion
There is no doubt that the Nigerian recorded music industry is significantly undervalued, and undervaluation (with realistic sustainable growth prospects) equals high return opportunities with the right strategic positioning. As it stands, the logical move for our most successful homegrown artists continues to be for them to do all possible to gain a strong (US, UK) diaspora, or better still international mainstream, following.
Naturally, the domestic market plays its part in this game, by providing the necessary signals (or “proof of concept”) by leveraging local fans that generate a lot of streams even though it does not yet generate much monetary value. That signal is effectively a “validation of authenticity” – which seems to be a pre-condition for domestic artists to be accepted across international boundaries.
This international cross-over maximisation strategy brings two primary and immediate benefits: higher revenues, and foreign exchange. Nigerian music businesses can therefore increase their residual incomes whilst also hedging against domestic currency fluctuations. But ultimately, the domestic market will have a bigger monetary role to play in terms of recorded music revenues, especially now that music streaming has now seemingly reached its peak in these advanced markets. Emerging markets are the only remaining source of future growth in terms of users, and then in revenues.
In the meantime, and in the short term, foreign markets generate more recorded music revenues for local artists, composers and song writers. But the major value (and attendant returns) will still eventually come from the domestic market as more of the country’s population comes online, engages in digital economic transactions with their increased disposable income, and ultimately consume more music through paid channels.
Developed music markets may currently be the prized steed, but emerging music markets are the unicorns in waiting.