Voices Behind the Music Podcast Episode 4 Sun Jen Yung
Behind every favorite artist, song, or lyric, is a story you've never heard. Music is highly personal, and our experiences with it shape our memories, thoughts, and desires. So much goes into every note and lyric behind the scenes, which is why we’re bringing you Voices Behind the Music to share untold music business tales. Our guests range from artists, producers, and managers to tech creators and more, each sharing their unique past experiences, current projects, and visions for the future. Voices Behind The Music is presented by Feed Media Group, the leading B2B music licensing platform.
Hosted by Jeff Yasuda, CEO, Feed Media Group.
Episode 4: The intersection of Music, Tech, and Finance - with Sun Jen Yung
Sun is a Partner and Head of Digital Media at Nfluence Partners, an investment banking boutique she and her partners founded in 2018. She has a passion for the music industry and has sold music tech companies to Facebook, YouTube/Google, SESAC, SOCAN, and Spotify amongst others. Sun's experience of 30 years in investment banking includes corporate finance coverage and M&A advisory of Digital Media, Media (cable and entertainment), Internet and Software companies at Oppenheimer, TD Securities, Deutsche Bank, Lehman Brothers, and J.P. Morgan. Sun loves to row, hike, ski, run, cook, drink wine with friends, and have new adventures.
Sun: [00:00:00] With YouTube and Google, they had content ID to identify videos and music, but what they really needed then was the system to be able to legally put ads against the videos of which many of them have pieces of music. And now it is the largest streaming music platform in the world.
Jeff: Behind every favorite artist song or lyric is a story you've never heard.
In Voices Behind the Music, we go much deeper than the frontman you hear on the album or the guitarist you see on stage. People from all aspects of the music industry work together to make the business what it is and are often some of the busiest, but nicest, funniest, and smartest people out there. I'm Jeff Yasuda CEO at Feed Media Group, the creators behind the leading B2B music licensing platform. Join me as I sit down with some of my favorite voices [00:01:00] behind the music to hear their insider stories about what makes the music industry so exciting.
Okay. Today, we are going to explore the crazy intersection of music and finance. There's been a significant amount of activity in the music sector around companies raising money and getting acquired, and today we have an expert in the field, Sun Jen Yung in the house to educate us.
Sun is a partner and head of digital media influence partners and has executed on numerous transactions in the music space. She is a career investment banker, having held Managing Director roles at Headwaters, Oppenheimer, Deutsche Bank, and Lehman Brothers, to name a few. Her list of music transactions includes the sale of Lauder to Spotify, the sale of RightsID to Voble, Source Three to Facebook, Media Net to Socan, Rumble Fish to SESAC, [00:02:00] RightsFlow to Google and many, many more. But most importantly, she is a huge music fan, a wine lover and just a great, wonderful human being. Sun, welcome to the show.
Sun: Thank you for that really nice introduction, Jeff and you're right. I am very passionate about music and wine, and we share that in common.
Jeff: That's why you are near and dear to my heart. Well, for starters tell us about Influence Partners, what you do and tell us what the hell is going on in the music sector now.
Sun: Well, Influence Partners is a boutique investment bank that my partners and I started. A little over three and half years ago, even though the core team has been working together for 11 years. And we focus on the middle market, anywhere that there's the intersection of technology with parts of the economy.
To be honest, between us, COVID saw many of those trends accelerate. We do 70- [00:03:00] 80% of mergers and acquisitions advisory. More on the sell side than the buy-side, which means that we represent companies in selling to other companies, really strategics more than financial investors, like private equity firms.
And then the other 20% is buy side where we represent a larger company buying smaller targets. I lead the digital media practice. I'm also doing more and more in the consumer tech space, I believe there's a clear intersection between those two broad sectors that's occurring right now.
Jeff: Awesome. Awesome. Well, it is interesting to note, there is a lot of funding taking place. A lot of acquisitions, you know, KKR just made a large bet on Cobalt, sort of the largest indie publisher if you will. But what is going on? Why is there so much consolidation? Why is there so much interest in the music space, particularly from private equity?
Sun: Particularly when you look at the past couple [00:04:00] of years of M and A, the most transactions have occurred in the catalog space, whether it's private equity buyers or strategics, they're going out and they see the value of the copyrights in the media.
I think there's an ability to be able to get a handle on future cash flows. And there's a more predictable nature. And with COVID accelerating some of those trends in terms of consumption of music, catalogs and IP have become more and more valuable. So there doesn't seem to be any slowing down of that continued trend in mergers and acquisitions.
However, my prediction is that over the next 18 months and beyond that, you're going to start to see additional acquisitions being made by strategics in different areas of music, more on the technology side. Technology and operations.
And that I think is a very exciting [00:05:00] trend. And then the other area I think will be, and again, COVID played into this. There are a lot of really new exciting verticals for music outside of the explosion of growth just in streaming. And so some of the verticals include gaming, social, as well as fitness. And I think you're going to start to see some acquisitions in those sectors for music related companies.
Jeff: Excellent. And so let's kind of take a step back a little bit to understand. There are probably going to be a lot of music startup founders that will listen to this podcast and how can they think about valuing their company, maybe even preparing the company for a potential exit, like a sale? What sort of things do you advise startup founders and CEOs that are thinking about, "Hey, maybe it's time to have a liquidity event for my company."?
Sun: Another great question, and I don't even think we have enough time to go through everything. But I do go [00:06:00] back to one one of my go-to phrases, which is companies are ready to be bought and not sold. And as an entrepreneur, if you have the passion to start the business and build it then good things will come to you.
As opposed to, there is a pitfall where I do see entrepreneurs who say, okay, I have a great idea, but I want to build this business or build a company in order to sell it. And that is a lot harder because then can be focused on wrong things in the wrong metrics. So follow your passion.
Think about building something of value. And then you will find acquirers who want to take you off the market.
Jeff: On that note and that's great advice. Are you seeing the types of companies that are being acquired today? Is it their technology? Is it their team? Do these companies have to be profitable? What are the [00:07:00] key driving aspects of a potential target getting buyers excited?
Sun: I would say it falls along several different lines. So, profitability is not a must but it is helpful. And that goes for any acquisition, not just in music. And again I'm talking more about strategic acquirers than private equity buyers. But a strategic acquirer will have these internal meetings and they'll say, I'm just making this up. "I want to pay a hundred million dollars for this company." If it's unprofitable and they also need to invest additional money into the business to make it work, then in their mind they're thinking that they're actually spending a hundred and twenty million.
So it just takes away from money that would be put on the table for the shareholders. So profitability is not critical. Technology can be extremely valuable, but it has to be something that [00:08:00] can fit in with the existing acquired framework because if it's really interesting technology but they can't necessarily integrate it readily, then that's a challenge to that acquisition.
And the people aspect is very, very important. So for example, when YouTube and Google bought RightsFlow, as well as when Facebook bought Source Three, the people in particular I think were a value, the same thing with Spotify buying Louder.
So those were teams where those acquirers thought that they could really bring a ton of expertise and do great things within those organizations to then build out whatever systems they needed to do.
Jeff: Interestingly, music companies have had a significant challenge in the past trying to raise money. But I'm seeing a lot of music companies getting funded now. What's going on there?
Sun: I think one of the things that's happening now is that the ideas around music [00:09:00] have broadened. So I mentioned three really great growth verticals. Social, fitness, and gaming, where there are opportunities for music to really make a difference in terms of companies that are focused on those verticals. And so investors are looking at those plays, and I would add live entertainment to that too.
And they say, this is not what we typically have thought of as a music investment with all the risks where you've got a lot of players that create more of, not a monopoly, but maybe an oligopoly or however you want to term it. And so, that's created an opening of the aperture for looking at investments in music related stories.
The other part of that is that music companies have become more astute and better at their business models. So I'm seeing more companies come [00:10:00] out with business models that are subscription related, SAS related, and those types of stories across other verticals like consumer and what traditionally has been enterprise software, have given investors a lot of comfort.
So if you can combine a business model that investors get comfortable with, with showing that the growth opportunity in music is not wholly dependent on, let's say the record labels and the publishers, then that peaks investor interest.
Jeff: Are you seeing a lot of movement from the labels? And even some of the rights holders that are actually making investments in the companies now.
Sun: Warner Music Group is incredibly interesting to look at. Because they now, in their business development, have a full team across different verticals that are making investments in areas where they believe there's a huge opportunity for [00:11:00] music.
And one of the best well-known examples of that new investment trend, is their investment in Roblox. Roblox being just a huge success and there are others. I just want to go back briefly to your question around investment in music related companies.
One of the other factors I think that's playing into this is there are more different types of investors out there. So there are a number of family offices who have an interest in music and they've got funds to spend. And so particularly, I would say at the early stage of music-related companies, these family offices are coming in. Some of them are making acquisitions and building around those portfolios or those platform plays.
Jeff: Actually, that's very helpful around the different types of investors that are there, and maybe you could expand on that concept from the perspective of, "Hey, I'm a startup founder, I need to raise let's say, $500 [00:12:00] 000 for my seed round."
Sun: We've got a whole range of investor relationships. Seed, that early stage is bit tricky. But there's a number of well-known incubators and seed organizations, as well as individuals with a lot of these really early stage music companies. They may know in their network some angels that just really love music and they want to go out and put money into those types of situations.
Techstars has a music incubator, which is great and there's a number of other seed organizations.
Jeff: Do you think these angel investors, do you think it's more of a passion play for them or do you think they're still very much ROI driven from a financial perspective?
Sun: I think it depends. If you get an individual angel investor and that could include more along the lines of the family offices, then oftentimes what will push them over the edge on [00:13:00] something is their passion and their ability to understand what's going on. Like for example, I'm just totally making this up, but they may have played in a band in college, or they've got a son or a daughter who is doing DJ work on the side.
But a lot of times, if you as an entrepreneur can relate to somebody's personal story, that can cause them to just whip out their checkbook and write a number that'll get you to fill out your round.
Jeff: So Sun, there've been a lot of deals that you have done. RightsFlow to Google, Source Three to Facebook, that has been in some ways behind the scenes, from the perspective of the person who uses those services, right?
The listener, the music fan may not see the immediate benefit of those particular acquisitions, but they are very, very important to the strategy of the buyer. Can you talk a little bit about why they're important and [00:14:00] why as a listener, we should care?
Sun: Sure. For example, with YouTube and Google, when that acquisition happened they had content ID to identify videos and music, but what they really needed then was the system on top of that in order to be able to legally put ads against the videos, of which many of them have pieces of music. And they weren't actually able to put any ads against videos unless they had a system in place to catch the ones that had music attached to it. And now it is the largest streaming music platform in the world.
And so that's where the RightsFlow acquisition was integral and they really still are the largest platform and the only real platform of significant scale that uses advertising in that way to monetize videos.
And with Facebook, they [00:15:00] had just signed their first blanket licensing deals with the major labels to allow the use of music again, in videos on their platform. And Source Three was very important for being able to take that team and help to build the necessary infrastructure. It's sort of like a house analogy. The plumbing and the foundation and getting a new boiler are incredibly important, but they're not necessarily the flashy sexy things to the buyer that you would see on the outside.
Jeff: So Sun, to summarize, licensing is incredibly complex. Being able to identify which piece of music, whether or not it's the song, it's the sound recording, whether or not it can or cannot be monetized with an ad, it's very, very complicated. And so this is where these technologies, essentially these acquisitions, can help create a [00:16:00] viable business model for these companies so that listeners, like all of us, can enjoy it. It's a balance. Is that a correct interpretation of what you're saying?
Sun: That's spot on. As you pointed out, licensing and rights management is really complex and in the music industry, there are a lot of regulations that govern how artists and publishers and copyright owners get paid. And so if you are a business, you need to be able to dot all the I's and cross the T's to have the systems in place, to be able to use music, to offer to consumers.
Jeff: Got it. Got it. So, do you have any additional advice for startup CEOs or music founders, how they should be thinking about their businesses?
Sun: Well, I would just say in music, partnerships and relationships are important. You are very unlikely to make traction with a corporate [00:17:00] buyer if the area that you're focusing on is not already on their strategic map and there hasn't been board discussion and decisions within the organization to move forward. So just making sure that these larger players know who you are. You want to make sure that during the diligence process that you can get enough information to the buyer that really helps the overall organization feel comfortable.
Jeff: Got it. So to paraphrase - companies aren't sold overnight. Oftentimes this is a long-term relationship building, again, building awareness. I mean, I imagine this could take several years in some cases to build a relationship where a potential buyer is comfortable with you and has a good enough relationship.
Sun: It could. I think a lot of mergers and acquisitions, or a lot of acquisitions are made where a strategic buyer has an idea that they want to buy something to fill a product or a [00:18:00] technology hole or get into a sector or expand in a sector. And so then they will have canvassed that area to figure out who the companies they want to talk to.
The other thing that can happen is if a sector or sub-sector has been heating up, and a buyer makes a move and takes one player off the market, then that could cause the other players to move on targets two and three. After three, it's a little tougher, frankly.
Jeff: Sun, all of this is incredibly helpful. I think being a founder first and foremost is very lonely, right? It's lonely at the top, as they say. And it's good to have a financial partner, like an investment banker potentially, to help them think through this so I certainly see the value.
Totally fun and sort of wacky questions here around music. What was your first album?
Sun: This is embarrassing and it completely dates me, but it was The Carpenters.[00:19:00]
Jeff: Was it a greatest hits or do you remember?
Sun: I don't remember the exact name, but I remember the cover I think. It had a Karen Carpenter, she had this dreamy look on her face and it was like a headshot from her shoulders and up. But yeah, I'm embarrassed. That was my first album.
Jeff: Most people don't know Karen Carpenter was actually an awesome drummer, and she would actually sometimes play and sing at the same time. It was wild. What about the greatest show you have seen?
Sun: The Rolling Stones in Sao Paulo, Brazil. That was many, many years ago, I lived there the first year that I was married and we went to see the show and it was amazing. So good.
Sun: Hard to beat. And I just got tickets for next year for the Red Hot Chili Peppers when they come to the New York area in August. So I'm super excited for that.
Jeff: That'll be fun.[00:20:00] And then finally, do you have any sort of star struck moment in your travels that you can share?
Sun: There are two that stand out. One was, I had been at a conference for Deutsche Bank, it was the High Yield Conference and they brought in Sheryl Crow and I was able to be right there, literally like 30 yards away from her and that was great. And then once I was on a plane with Julie Andrews and I went and said hello because I'm a huge fan. So now I'm giving out this really this impression that I love Julie Andrews and Karen Carpenter for music and it's not totally true.
Jeff: How funny.
Sun: taste isn't limited to just those two.
Jeff: It's all good. It's all good. Do you have a band that you've been listening to recently that you really like?
Sun: What I would say is, you may recall I row a lot on the water. There's no music there, but when I'm working out on the rowing machine, the [00:21:00] ERG, I have to listen to music cause otherwise I can't make myself go through it. So I'm constantly fiddling with my playlist for urging and I've resurfaced in particular, Pat Benatar's Hit Me With Your Best Shot.
Jeff: Good, a classic. Well on that note, Sun, thank you so much for joining us. It was a lot of fun. I'm a finance guy and come from that world so this speaks near and dear to my heart, and these are real challenges that founders have to be thinking about. So thank you for sharing your knowledge and hope to enjoy a glass of Vino with you again soon.
Sun: That's great. And thank you so much. It was a lot of fun .
Jeff: Thanks for listening to Voices Behind the Music, a Growth Network Podcasts production presented by Feed Media Group. We're on a mission to make it easy, fast, and legal for businesses to use music to power the most engaging customer experiences. Make sure to subscribe to the podcast wherever you get [00:22:00] yours and learn more about us at feedmediagroup.com
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