You don’t have to be Gordon Gekko to see how spiraling anxiety over coronavirus has already wrought damage upon global industries. The arrival of James Bond’s latest outing, No Time To Die, is being delayed by six months after its backers decided that stay-at-home corona precautions could damage its box office chances in April. Airline Flybe has sunk into administration (the UK equivalent of bankruptcy) as passenger numbers plunge. And Warner Music Group, home to artists such as Ed Sheeran, Cardi B and Neil Young, this week postponed its flotation on the US stock market after seeing the value of a swathe of multi-billion-dollar public companies pummeled by COVID-19.
The prospects for WMG’s now-delayed IPO, however, are perhaps more positive for the company’s owner, Access Industries, than they first appear.
Last week was a horror show for leading global markets: the S&P 500 (a telltale index of the USA’s biggest companies) and the UK’s FTSE 100 each tumbled 11%, in their respective worst weeks since the 2008 financial crash. In the US alone, some $6 trillion is estimated to have been wiped off public company valuations in just five days. This was all pretty terrible news for Donald Trump, as a statesman who has famously taken credit for the unblemished rise of US markets under his Presidency. Yet for Len Blavatnik, billionaire Access Industries founder and, by association, Warner Music Group’s de facto owner, there was more reason to be cheerful.
Behind that shocking headline of a $6 trillion market depletion lies the fact that simple logic has been playing out. Fears over coronavirus will, obviously enough, lead more people to stay at home (whether ‘self-isolating’ or otherwise) while resulting in a dramatic downturn in travel.
Inevitably, these macro behavior patterns will hit hardest those industries reliant on consumer footfall, in-person attendance and/or global transport — i.e. brick-and-mortar retail, live events and travel/hospitality. This helps explain why the stock price of United Airlines, for example, plummeted 21.0% — falling far faster than the market — last week (from $78.01 to $61.59 between the market close of Friday February 21 and Friday February 28). This trend could also be seen in shares of physical retail giant Costco, whose stock price was down 12.7% in the same period (down from $321.95 to $281.14).
The troubles hit certain sectors of the music industry, too: Speaking last Thursday (February 27) on a Q4 earnings call, the CEO & President of concerts giant Live Nation, Michael Rapino, said of the threat: “We assume a hotspot will flare up [in certain territories] and a show will be canceled here and there. But we’re confident, long-term, the show will happen; the revenue will flow and the fan will show up.” Such reassurances helped Live Nation’s stock recover a little last Friday but, across the working week, it still fell 18.1% ($74.19 to $60.77). And before Live Nation announced its successful Q4 earnings (including Rapino’s corona reassurances), Live Nation’s market cap actually lost over $3.5 billion across four trading days (Monday, February 24 to Thursday, February 27).
By contrast, companies reliant on entertainment content have fared much better amid the corona scare. Video gaming giant Electronic Arts (EA), for example, saw its stock fall by just 6.1% ($108.01 to $101.37) across last week’s five trading days. The biggest audio distribution company on the market, Spotify, also enjoyed a softer landing, falling a light 6.7% from $146.95 to $137.12.
WMG would be an attractive stock in normal circumstances — its recent pre-IPO filing showcased a business with a $258 million fiscal-year net profit in 2019. Now, this appears even more true: with the majority of its revenues generated by an unchanging recorded music catalog, customer spend on Warner’s content, like EA’s, should remain robust, if not actually grow, as consumers become less mobile. And although some minority Warner revenue streams are potentially exposed to the effects of coronavirus — especially the firm’s interest in live tours, plus its merchandising arm — additional key income sources, particularly the licensing of movie and TV content, may now benefit from consumer behavior in the wake of the coronavirus outbreak.
One further rosy sign for Blavatnik is currently glimmering on the London Stock Exchange. Hipgnosis Songs Fund Ltd. is a fast-growing music rights management company that has so far spent over $650 million on acquiring portions of hits made famous by the likes of Ed Sheeran, Bruno Mars, Adele, Rihanna and The Chainsmokers. In the crucible of last week’s markets disaster-storm, HSF, which has traded on the London Stock Exchange since 2018, saw its share price dip by a relatively minor 2.8% (from £108 at close on February 21, to £105 on February 28).
On Thursday this week, Hipgnosis’ market resilience was rewarded with an upgrade of its stock onto the UK’s prestigious FTSE 250 index — a basket of market-moving stocks, similar to the US’s S&P 500. In the wake of that news, Hipgnosis founder Merck Mercuriadis, clearly keeping an eye on less happy market trends, told me: “Music is evergreen and songs are one of the very few precious assets that have little or no correlation to the wider stock market. If you are having the time of your life you are celebrating with music; equally, if you are experiencing challenges, you are escaping with music. Great songs are always being consumed.”
He’s chosen his words carefully, but you see his point.
Amid the negative hysteria hitting the markets last week, Warner Music Group was probably sensible to take a breather and delay the arrival of its IPO. Now, though, those same markets are showing early signs of rebounding (the S&P 500 grew 5.9% from last week’s close to the end of Wednesday). Investors, having offloaded masses of stocks likely to be further dragged down by the effects of coronavirus, are now looking to re-invest their funds into companies who not only seem corona-protected, but might even gain from the global population’s very human reaction to a contagious health scare.
To maximize Warner Music Group’s IPO valuation, I’d expect Len Blavatnik to strike while the iron’s hot — and take his music company public sooner rather than later.
Tim Ingham is the founder and publisher of Music Business Worldwide, which has serviced the global industry with news, analysis, and jobs since 2015. He writes a weekly column for Rolling Stone.