Warner Music Group Hires Top Goldman Sachs Music Banker to Lead Distro Shopping Expedition

After taking itself out of the bidding for French music group and distributor Believe in April, Warner Music Group (WMG) is shopping for an alternative distribution company that could help it gain market share in the competitive space that serves independent creators and labels — and it’s hired a top music investment banker from Goldman Sachs to lead the effort.

Since taking over as WMG’s CEO last year, Robert Kyncl has said the company is prepared to build in-house the technology and services he thinks it needs. Now he’s ready to buy them as well.

“As part of our mission to be a destination for artists and songwriters at every stage of development, we are expanding our lower-touch services that many indie artists, labels and songwriters rely on,” Kyncl said on a conference call discussing WMG’s quarterly earnings on May 9. “We have a clear plan to develop this area of our ecosystem, and we’re building solutions in-house while staying vigilant about [merger and acquisition] opportunities, which could accelerate our capabilities.”

On Thursday (June 6), WMG announced the hire of Goldman Sachs’ global head of music & live entertainment investment banking Michael Ryan-Southern to a newly created executive vp role. Reporting to Kyncl, Ryan-Southern will be responsible for acquiring companies and catalogs that can boost WMG’s growth and revenues. When he officially joins in August, the first item on his shopping list will be an independent distribution company, smaller in size and cost than Believe, that an inside source described as a “bolt-on” acquisition to help grow WMG’s market share in the independent distribution and services business without affecting its overall profit margins.

Among the companies that WMG is eyeing, according to sources, are leading independent distributors DistroKid and CD Baby. WMG is “active in the market” but is still in the exploratory stage, those sources say.

A WMG spokesperson declined to comment for this story. A representative for Downtown, which owns CD Baby, also declined to comment, except to say that Downtown “is singularly focused on continuing to grow our business and support our clients’ success.” Representatives for DistroKid did not immediately respond to a request for comment.

WMG approached Paris-based Believe in February with a nonbinding offer to acquire it at a price of “at least” 17 euros ($18.60) per share. It ultimately decided not to submit a formal offer in April. Asked why the company did not pursue an offer for Believe, Kyncl said on the May 9 call that it backed away “for a variety of reasons,” including the brief amount of time it was given to conduct due diligence.

Ryan-Southern is a former EMI publishing executive who, along with Goldman’s global head of entertainment investment banking, Aaron Siegel, was on some of music’s biggest deals. These included New Mountain Capital’s acquisition of BMI and the spinoff of Sphere Entertainment, which owns the Sphere in Las Vegas, MSG Networks and Tao Group Hospitality, from Madison Square Garden Entertainment, which owns and operates the Garden and Radio City Music Hall among other venues in New York and Chicago. Ryan-Southern and Siegal also advised Believe founder/CEO Denis Ladegaillerie and his consortium with investment funds EQT and TCV on their effort to take Believe private.

Buying or building something that can leverage WMG’s independent distribution and services division, ADA, would help the music company recruit more early-stage artists, something its executives consider core to its success.

WMG launched ADA in 1993, roughly 20 years before Sony bought a stake in The Orchard and Universal Music Group launched Caroline International as an indie-label distributor that was later rebranded as Virgin Music Group. And though WMG was the first major to carve out a presence serving the independent artist market — renting its major-label services to indies, as industry sources have described it — competition in the market has heated up.

UMG and Sony have invested tens of millions in recent years buying rival startups in the space. A minority shareholder since 2006, UMG acquired Ingrooves in 2019. In 2022, UMG acquired Mtheory Artist Partnerships as well as a 49% stake in [PIAS]. Sony closed out its full acquisition of The Orchard in 2015 and then bought AWAL in 2022.

The Orchard now holds a commanding lead in the U.S. market with a 7.27% current market share, according to Luminate. UMG’s Virgin Music Group, which comprises Ingrooves, Mtheory and Virgin Music Label & Artist Services, holds around 3.42% of the current market. ADA has a current market share of 1.68%. Its biggest client, BMG, which contributes 0.94% to ADA’s current share, is winding down its distribution agreement.

WMG now needs to “turbocharge” this part of its business to capitalize on the fast-growing independent sector, says Fred Davis, partner at The Raine Group.

“The world now is divided into three categories of artists: those signed to major labels, those signed to indie labels and indie artists without a label,” Davis says. “Distribution platforms are proving to be a viable source of A&R for the major labels.”

Focusing WMG’s A&R more on capturing opportunities, particularly in genres that are just beginning to experience growth, was one of Kyncl’s top 2024 agenda items highlighted in a New Year’s Day note he sent to all staff. In April, WMG’s publishing division, Warner Chappell Music (WCM), partnered with ReverbNation, BandLab Technologies’ premium artist services platform, to identify and sign emerging songwriters. WCM administers music rights for any users who enroll in a new program through ReverbNation Publishing Administration, and signed songwriters gain access to WCM’s services.

WMG has acquired majority stakes or launched joint ventures with a few distribution-oriented companies in recent years — some before Kyncl joined WMG — primarily in emerging markets in the Middle East and Asia. Among them: a majority stake in Africori, the leading digital music distribution, music rights management and artist development company in Africa, in January 2022. That March, it also acquired Qanawat Music, a leading distributor in the Middle East and North Africa.

Last year, WMG did two deals in India: It acquired a majority stake in Indian digital media company Divo and formed a joint venture with Sky Digital, which aggregates releases from Punjabi and Hindi labels.

While WMG has made acquisitions in other geographical regions, rival majors have bought companies serving the U.S. market for independents. “It would make sense for [WMG] to augment its distribution with an acquisition,” says a source familiar with the company’s strategy.