By Nick Krewen
Reprinted/Re-posted with permission from FYIMusicNews.ca
In 12 short years, ole has evolved from two desks and a dream to a worldwide reality worth an estimated US $650M – US $800M as reported by Billboard, and counting; from a music publishing start-up to an organization specializing in rights management that has expanded on many fronts and directly employs over 100 people with offices in Los Angeles, Nashville, New York, London and its Toronto headquarters; and today boasting a catalogue of more than 55,000 songs, 60,000 hours of television and film music and a production library of more than 750,000 tracks.
And, according to co-founding Chairman and CEO Robert Ott, the firm is looking to double the size of the company “in three-to-five years.” That’s the forecast he told FYIMusicNews in an exclusive sit-down a few hours following his keynote Canadian Music Week interview.
“I’m very happy with the way things are going,” Ott said. “I don’t think we’ve arrived. It’s always Day One around our shop and we try to think of things that way. It’s hard not to be satisfied with the level of achievement that we’ve arrived at. But that being said, your best days are always ahead of you. That’s the way I like to think about it.”
In order to expedite those ‘best days,’ ole – which stands for ott laing enterprises, taking its first two letters from co-founders Robert Ott, the former vice-president and general manager of BMG Music Publishing Canada and Tim Laing, a former CHUM-FM afternoon host and commodity broker who passed away in 2013 – has hired RBC Capital Markets to recapitalize the business.
“Having a credit facility to the size of the one we have, which, is, in its full extent, is $600M, is like having a mortgage,” Ott explains. “In order to use the full expanse of your mortgage you need to have equity to match. It equates to the down payment, and our equity side is not the same size; so we need to amplify it in order to unlock that goodness. And that’s what we intend to do; so that’s the process we’re working on right now. And the intent of the process is not to sell the company.”
Earlier in the day, during his CMW interview and answer an audience-posed question regarding the recapitalization, Ott had addressed a report that one of ole’s biggest backers, the Ontario Teacher’s Pension Plan, was preparing to pull its support.
“It’s a mutual decision to amplify and diversify our equity,” he responded. “No one is pulling out. We have $120M right now. It’s not a sale – it’s a process and at the end, we’ll be in a circa $1B situation. With that kind of resource, we’re going to be able to do a lot of great things.”
Ott, whose company was the first Canadian music publisher to secure Bay Street investment, further elaborated on the situation with FYIMusicNews.
“I don’t think that the motivation is not wanting to continue the relationship. The motivation is to expand the equity universe inside of the company and whether they decide
to continue or not continue is up to them. I think we’ll all know the answer to all these questions when we see what potential is there.”
There’s certainly plenty of incentive to invest in ole for both old and new investors: in the information provided by ole, the gross profit or net publisher’s share is US$57M, with the average net publisher’s share and EBITDA growth rate from 2012-2016 of 40% and 47% respectively.
The EBITDA margin stands at 60%, or US$35M and the capital deployed by ole – $US540M – includes $203M equity, $212M debt and $125M internal cash, with an average annual investment of $93M from 2013 through 2016. The uncorrelated annual returns stand at 13%.
There’s also a diverse selection of business segments, ranging from publishing catalogues and TV & Film catalogues either owned, co-owned or administered, production music from Jingle Punks, Cavendish and 5 Alarm; the label services which include Anthem (Rush, Max Webster), Lighthouse, ole red dot and the recently acquired Stompin’ Tom Connors catalogue (a 360 deal that includes curating the music and personality legacy of Connors), A/V secondary rights, ole Digital, the company’s multi- channel YouTube network; Over-the-top factoring and propriety rights management technology with its in-house innovative Conductor.
Ott says ole’s expansion into additional fields has been organic, complementing a run that has been profitable every year of the company’s existence.
“We set off on a journey and you hope for great things, and then you get to those great things and then you think, well, what if you expanded this vision and amplified it even further,” he notes.
“Thankfully, we’ve achieved most of our goals from Day One. I’d like to say we’re in the 12th year of a five-year plan, so obviously it’s been very satisfying and very gratifying to watch it grow and for us to be in so many verticals, like our new multi-channel network, our new royalty and data technology, the record label, the production music business. These weren’t exactly part of the original vision.”
He’s excited about the future, especially globalization in developing markets such as China and Indonesia.
“There’s always been some good measure of creative collaboration between Bollywood and Hollywood and China and the rest of the world in terms of cultural exchange, but there hasn’t really been any kind of a copyright regime or an intellectual property protection regime,” said Ott. “That is beginning to shift mostly because of business platforms, like telcos and business platforms that are merging and want to use content, and require that framework in order to do it across borders.
“So the business environment is beginning to shape intellectual property protection a bit. That’s a very encouraging sign. It’s a very small part of our business today, but we’re very hopeful that that cultural exchange will grow into a business exchange.”
Here are some other thoughts and observations Robert Ott had during the interview:
On income generation:
“There’s not a weak spot in our business. Certainly, the digital streaming and the new digital platforms are generating a lot of income increases and that is very, very promising. Even while that’s going on, the traditional revenue streams don’t seem to be abating.
“This is very good news, other than physical CDs, which we’ve all seen diminishing to some degree, but it’s all been more than met by increases on the other side. It looks very encouraging right now.”
Regarding the pending Copyright Board of Canada review:
“I would hope that we could get to a process that moves in some measure quicker to address the fact that the market that we’re now living in in the modern era moves very quickly.
“We need to be able to adapt our legislation in step with that and not behind it. As through the consultations on Canadian content, ole submitted a brief on this to the government and we’re very hopeful that, in making their decisions about how to reformat Canadian content rules, that they’ll be cognizant of the fact that we have a market about ten times the size of Canada sitting just below us here, and that that comes with requisite marketing spend and marketing momentum, and that Canadian content needs to be preserved and elevated.”
On negotiating better rates with streaming services.
“Well, I think publishers have to get better at negotiating their deals. I think we could do a better job as a community and industry to get better deals and insist on value for our works and our creators. And I think that’s job number one.
“The other thing is business models tend to mature over time. At first, some of these technologies were very new and nobody really knew how to assess the economics. And now it’s becoming a bit more obvious, and things become more obvious and better formed I’m sure that the royalty rates will get better because it will become obvious that creators are not getting the kind of value that they should for their songs and compositions. And we’re part of making sure that happens.
“I feel, so far it’s generally been additive for our business, and we’re going to make that a better story by negotiating better rates.”
On Conductor, ole’s proprietary royalty collecting instrument:
“Our company has 60% margins, which tells you that we actually know how to do something really well. What we’re doing really well and efficiently is collecting royalties from around the world.
“It’s fantastic for clients because it means that you’re able to do a great job for them and that you have the staying power to continue doing that job for years because we’re in the long term game here.
“We developed our Conductor technology in-house starting in 2011.
“We realized that we weren’t going to be able to address the tsunami of data that we were facing and be able to make sense of it – and collaborate with other data providers – unless we automated.”
“It has a different viewpoint on music royalties: it comes from more of a data-handling perspective than being strictly a royalty tool, so it’s really built for all data and any data. In that way, it creates a standard in the world of no standard, so it’s a very powerful tool for us in getting our clients’ money paid from every part of the world and getting paid accurately.
“I think the conforming aspect of it is fairly unique. One of the issues with data is there is so much of it now and it’s all in different formats. This lack of a coherent format is problematic, so what our tool can do is conform the viewpoint to a single coherent data set.
“That’s a very powerful difference. There’s also a component called Conductor Co-Lab, which allows us to collaborate without seeing one another’s data, which assists in dealing with non-disclosure agreements and various issues surrounding privacy. So this is the other major building block of this technology.”
On future expansion:
“We’re in the rights management business, so anything that makes sense to us in adjacent spaces in rights management might be on the table, so for example, buying audio-visual catalogues, film and television catalogues – that next step, potentially. We also want to grow the label and artist development initiatives in the label, and that probably means buying more master catalogues, buying more labels. We’re very inquisitive and we intend to continue to be.”
ole’s most popular copyright:
“Some of our biggest copyrights are things themes from kid shows – themes, like the ‘Theme from Arthur’ and ‘Franklin’ and songs that you wouldn’t think that off the top of
your head would be big pop hits. But these are hits that are under the radar that every child and every adult by proximity end up knowing and singing every day.
“We’re in thousands and millions of living rooms every day with these songs, and every year they’re among our top earners. Of course, we have great pop and country songs also, everything from ‘Black Velvet’ to Eric Church’s ‘Springsteen’ to ‘Mirrors’ by Timbaland and Justin Timberlake: it’s across the board.”