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3 reasons why… Warner Music Group might be tempted to bid $1.8 billion for Believe


MBW Reacts is a collection of analytical commentaries from Music Business Worldwide written in response to main latest leisure occasions or information tales. Solely MBW+ subscribers have limitless entry to those articles. MBW Reacts is supported by JKBX, a know-how platform that gives customers entry to music royalties as an asset class.


Warner Music Group has simply three more days to make a proper/binding provide to amass Believe. After Sunday (April 7), its probability may have gone.

As you learn this, WMG’s sharpest minds are poring over “confidential” monetary data from Imagine in a closed-off ‘knowledge room’ – i.e. stuff you wouldn’t be capable of discover in public monetary reviews.

Relying on what they discover, Warner could table a bid for Imagine value EUR €17-plus per share – valuing the French firm at greater than USD $1.eight billion.

This course of is a danger for Imagine: If WMG in the end walks away from the ‘knowledge room’ unhappy – and declines to make an official strategy – the French firm may have handed over delicate materials about its enterprise to a transparent market rival.

One factor’s for positive: With or with out Imagine, organically and/or by way of acquisition, WMG chief Robert Kyncl is laser-focused on alternatives for Warner within the impartial artist/label area.

In a note to staff on the prime of this yr, Kyncl wrote that one in every of his priorities for the subsequent decade was to speculate WMG’s sources in increasing the agency’s distribution relationships, in addition to its publishing administration enterprise.

“We’re constructing scaled and extremely efficient distribution infrastructure in order that we are able to radically and effectively develop the massive ‘center class’ of artists whereas our frontline labels can stay centered on artists with the best potential,” mentioned Kyncl.

As such, if Kyncl and his group select not to desk a proposal for Imagine, WMG might search materials acquisition alternatives elsewhere, with engaging targets probably together with the likes of Downtown Music, OneRPM, SoundCloud, Stem, TooLost, and others.

The extra probably situation, although – following all of the latest fuss* – is that WMG does launch a bid for Imagine within the coming days, rivaling an present takeover proposal for the corporate from a consortium led by Imagine founder, Denis Ladegaillerie.

(* Mentioned ‘fuss’ included an intervention from the AMF, France’s equal of the SEC, to clear the trail for a possible Warner bid, following an try by Ladegaillerie’s consortium to smite any chance of WMG’s acquisition of Imagine.)

All of this will have left you questioning exactly why Warner Music Group may be mulling a $1.eight billion+ takeover provide for Imagine within the first place.

Listed here are three good causes…


1) Imagine’s sky-high revenues… and its skinny margin

The music trade has grown accustomed to referring to Bertelsmann-owned BMG because the world’s fourth-biggest music rights company.

That’s not correct: HYBE, publicly listed in Korea, posted annual income of USD $1.66 billion for 2023, considerably greater than BMG’s equal determine.

Round 1 / 4 of HYBE’s revenues come from a mix of stay live shows and artist administration; just below half of its revenues are attributed to recorded music alone.

BMG has a fairer shot, then, of being topped the world’s fourth-biggest music rights administration firm. However even this declare might face a problem in 2024 – with Imagine’s international revenues bearing down on these on the Bertelsmann agency.

In 2023, in line with financial statements, BMG posted EUR €905 million in annual revenues, up €39 million YoY. In the identical yr, Imagine posted EUR €880 million in international revenues, up €119 million YoY.

If that YoY development efficiency was repeated by each corporations in 2024, Imagine would overtake BMG in annual income phrases (see under).

(Sidenote: MBW sources counsel that Downtown Music Holdings – a much less catalog-heavy firm than BMG or Imagine – is roughly in the identical ballpark, size-wise, with circa USD $900 million in global revenues forecast on the firm in 2024.)


Imagine and BMG may scarcely be extra totally different in terms of margin, nevertheless.

In 2023, BMG – primarily because of its possession of a rights catalog – posted a 21.4% Working EBITDA margin of €194 million.

Imagine’s margin for its adjusted EBITDA in 2023 was 5.7%, equating to €50.Three million – round 1 / 4 of the scale of BMG’s equal determine. (Imagine’s adjusted EBITDA margin was up vs. the 4.6% margin it posted in 2022.)



Why would any of this be engaging to Warner Music Group?

Firstly, if WMG did purchase Imagine, the latter firm’s revenues can be transformational for Warner’s aggressive positioning.

In keeping with MBW’s calculations primarily based on public fiscal reviews, WMG generated near half the annual income of Universal Music Group in calendar 2023 throughout all operations (USD $6.30 billion for WMG vs. USD $12.02 billion for UMG).

In Recorded Music alone, Warner at present generates round USD $2 billion a yr lower than Sony‘s international music operation (see under).

The addition of Imagine’s near-$1 billion annual revenues, the overwhelming majority of that are derived from recorded music, would immediately assist Warner shorten the gulf, revenue-wise, between it and the 2 largest gamers within the international music market.



This isn’t nearly measuring WMG in opposition to its rivals, although.

With greater market clout, WMG may considerably improve its bargaining may (and skill to extract worth) from licensing relationships.

As Robert Kyncl put it throughout an earnings call in February: “Our skill to mixture massive volumes of rights throughout Recorded Music and Publishing supplies particular person artists and songwriters with extra collective bargaining energy when coping with advanced present and new distributors and applied sciences.”

“Our skill to mixture massive volumes of rights… supplies… extra collective bargaining energy when coping with advanced present and new… applied sciences.”

Robert Kyncl, Warner Music Group, talking in February

As for Imagine’s profitability?

Warner might consider it has the infrastructure to considerably enhance the French agency’s present sub-6% adjusted EBITDA margin in two key areas:

  1. Twenty years into Imagine’s enterprise, the corporate has constructed up a considerable again catalog of music, an space of apparent experience for WMG’s international infrastructure;
  2. Imagine, like many distribution/providers corporations earlier than it, has arguably struggled (or shief away from) elevating native music stars into bankable international superstars. That’s very true in the Americas, the place Imagine generated simply 14.5% of its revenues in 2023. In distinction, Warner generates over $2.7 billion yearly simply in the USA – the place over 46% of its revenues have been created in 2023.

Talking of the worldwide alternative for Warner…


India flag
Naveed Ahmed by way of Unsplash

2) Imagine’s international footprint – particularly in India

Final yr, in an interview with Music Business Worldwide, Denis Ladegaillerie claimed that on main music streaming providers like Spotify and YouTube, Imagine was “both No.1 or No.2” by way of recorded music market share in India.

This was a well timed reminder that the three ‘main’ music corporations don’t all the time take pleasure in the identical stage of dominance in music’s fastest-growing markets as they do in music’s most established markets.

Over the previous decade, the most important single disruptor to this sample, in Asia and in Europe (ex-UK), is Imagine.


Certainly, Imagine not too long ago told its investors that in 2023 it “gained further market share in most key markets and positioned amongst High Three gamers for native acts in lots of European and Asian markets”.

Some examples:

  • Asia Pacific, when mixed with Africa, made up over 1 / 4 (26%) of Imagine’s international revenues final yr. The agency generated EUR €229 million on this area over the course of 2023, whereas opening its first-ever workplace in Japan;
  • In H2 2023, Imagine constructed further capabilities in Better China, the place Imagine corporations obtained 5 awards for Chinese language rapper Capper from NetEase Cloud Music on the NetEase Annual Music Awards;
  • In its homeland of France, Imagine says that it was the No.1 recorded music firm by way of market share for native acts in 2023, with a 29% market share of the High 200 annual tracks. Imagine additionally boasted 42 albums within the yr’s High 200 in France, in line with SNEP knowledge;
  • Imagine says it ranked 48 singles within the weekly High 100 in Germany, together with three No.1 information, in the course of the course of 2023. Imagine’s shoppers in Germany embody impartial rapper Raf Camora, probably the most streamed artist of 2023 within the nation.

The third largest area for recorded music, Asia, grew its commerce revenues by 14.9% YoY in 2023, in line with fresh IFPI figures.

In the present day, Imagine boasts a distribution/providers relationship with over 10,000 labels & artists in Asia Pacific excluding Japan.

Imagine has additionally been notably extra acquisitively aggressive in key Asian markets than Warner Music Group prior to now 5 years.

  • In 2021, Imagine – which began investing within the APAC area in 2013 – acquired a minority stake in one of many largest labels in South-East Asia: Philippines-based Viva Music and Artists Group (VMAG);
  • That USD $26 million deal was quickly adopted by the ~$15 million acquisition of a majority stake in South India-based Assume Music, a deal which itself got here two years after the 100% acquisition of Venus Music in India, since rebranded as Ishtar;
  • In 2023, Imagine acquired White Hill Music’s premium Punjabi music catalog in India, inclusive of its common YouTube channel.

Denis Ladegaillerie claims that Imagine is now in a “management place in most native markets” throughout Southeast Asia, and is “persevering with to speculate considerably on all features of our enterprise premium providers in addition to creating [TuneCore] there”.

That’s little question a sexy prospect to Warner. However for Robert Kyncl, this isn’t nearly native markets themselves; it’s additionally concerning the expertise in these markets and their potential to cross over globally.

Imagine already has one key case research in its pocket on this rating: Spanish artist Iñigo Quintero’s Si No Estás, distributed by Imagine, went to No.1 on Spotify’s international chart final yr after discovering important recognition in the USA. It’s racked up over half a billion Spotify performs to this point.

A well timed reminder: The vast majority of artists who generated over $10,000 on Spotify final yr have been based in countries where English isn’t the primary language.

As Kyncl identified at a latest Morgan Stanley occasion, artists from components of the world with comparatively low-ARPU subscription markets can take pleasure in a lot larger per-stream royalties ought to their music discover an viewers in a high-ARPU market just like the US.

The acquisition of Imagine would be certain that Warner is concerned with that situation much more typically than it’s at the moment.



Apart from geography, Warner Music Group is probably going excited by Imagine for its know-how.

Along with its automated service choices for impartial artists (aka TuneCore), Imagine’s central know-how platform is the pleasure of the corporate.

The French agency claims that its central tech allows it to “manage as a worldwide digital platform, which develops excessive value-added technological options for all artists, tailored to every stage of their profession”.

In flip, says Imagine, this has empowered the corporate to construct “a singular mannequin primarily based on a scalable central know-how platform via the intensive use of knowledge, which permits it to supply the identical stage of service in all geographies whereas producing economies of scale”.

That central know-how platform isn’t low cost to run, particularly for a corporation with Imagine’s margin profile: the agency’s ‘Central Platform’ prices induced a EUR €78 million drag on Imagine’s EBITDA in FY 2023 (see under).



For Robert Kyncl, nevertheless, Warner’s international scale and chunky margin will make the ingestion of those tech prices an unscary proposition, with a giant upside.

The power to reorientate Warner’s international providers providing round Imagine’s central tech – and/or studying from the efficiencies it would provide – might show to be a key attraction in merging the 2 corporations.


3) Denis Ladegaillerie… and the strategic alternative

Ought to Warner Music Group efficiently purchase Imagine, it’s going to accomplish that on the expense of a well-recognized face: Denis Ladegaillerie is main a consortium comprised of himself, EQT, and TCV, which has tabled an official bid to amass Imagine.

The concept Ladegaillerie will completely ‘lose out’ to Warner right here, although, turns into laughable while you take a look at the info.

Ladegaillerie, as issues stand, personally owns round 12.5% of Imagine. Ought to WMG pull off a ‘hostile’ acquisition of the corporate at USD $1.eight billion, Ladegaillerie’s private stake can be value $225 million.

Ladegaillerie received’t stroll away poor, then. However he’s extensively acknowledged as one of the forward-thinking, internationally-aware leaders working in music at the moment (see: Imagine’s pioneering strikes in tech and in Asia, coated above).

So if Warner was to amass Imagine, may Robert Kyncl tempt Ladegaillerie with a top-level job inside WMG?


On the one hand, Ladegaillerie may even see himself as too entrepreneurially-minded, too dedicated to the ‘non-major’ music area, to take up such a proposal.

He has, nevertheless, discovered success in company positions earlier than.

A former lawyer who handed the New York bar in 1997, Ladegaillerie went on to run new media for Vivendi – sure, the previous Universal Music Group proprietor – in the USA.

As Chief Technique and Monetary Officer at Vivendi, Ladegaillerie managed the restructuring and growth of the primary digital music service (eMusic) and the primary music social networking web site (MP3.com). He then launched Imagine in 2005.

“Over 45% of our income from YouTube is [from] user-generated content material… I don’t see any worth hole there.”

Denis Ladegaillerie going in opposition to the document trade ‘worth hole’ consensus, 2017

Additionally value contemplating: There’s some constructive private historical past between Robert Kyncl and Denis Ladegaillerie that speaks to the latter exec’s closeness to music-affiliated know-how.

Round a decade in the past, when the leaders of the recorded music trade had YouTube – and its so-called “value gap” – of their crosshairs, Ladegaillerie was a loud and proud defender of the constructive contribution that YouTube (and its UGC) was making to the music enterprise.

As Ladegaillerie told MBW seven years in the past: “Over 45% of our income from YouTube is [from] user-generated content material… I don’t see any worth hole there.”

The person in command of YouTube’s under-siege, music-biz-facing operations throughout that interval?

Robert Kyncl.


The attractiveness of Imagine for Warner and Kyncl clearly goes far past one sole government, nevertheless.

With that in thoughts, we must also talk about latest historical past, and Warner’s key rivals.

Each Sony Music Group (SMG) and Common Music Group (UMG) have made banner acquisitions within the international distribution/providers area for indie artists/labels lately: Sony with The Orchard (2015) and AWAL (2021); Common with Ingrooves (2019) and Mtheory’s providers division (2021), plus UMG’s acquisition of 49% of [PIAS] in 2022.

These acquisitions not solely strengthened the worldwide market share of Sony and UMG within the indie distribution/providers area – by way of The Orchard and Virgin Music Group, respectively – but in addition tangibly improved the know-how on the coronary heart of those choices.

Warner’s ADA was, when it launched 30 years in the past, extensively seen as a technological pioneer on the planet of majors renting out their infrastructure to independents.

Three many years is a very long time in know-how, nevertheless, and Warner’s inner indie providers providing hasn’t been augmented by way of acquisition in the identical approach as these of its fiercest rivals.

If Robert Kyncl is to satisfy his ambition of “radically and effectively rising the ‘center class’ of artists” that Warner works with, Imagine may provide a turnkey resolution.


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