Independent No More: Sony Buys the Rest of The Orchard

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Back in 2010, Dimensional Associates acquired independent distributor The Orchard.

In 2012 Sony bought a majority of The Orchard.  An exact percentage wasn’t disclosed, but Sony was believed to have purchased about 51 percent.  Dimensional Associates owned the rest of the company.

Now, Billboard reports that Sony is paying around $200 million to buy Dimensional Associates’ stake. The deal still needs government approval, but is expected to close after March of this year.

Billboard estimates that The Orchard makes $200 million a year.

 

Nina Ulloa covers breaking news, tech, and more. Follow her on Twitter: @nine_u

Image by Dave Rutt, licensed under Creative Commons Attribution 2.0 Generic (CC BY 2.0).

9 Responses

  1. Remi Swierczek

    Déjà vu?
    In 2008 very smart men at Sony paid $260M for Gracenote music ID service. Then, looks like, they have forgotten the reason they got it for. So recently they have sold it to Tribune Media for $170M.

    This time not so smart men at Sony think that they have got for $200M control of YouTube juice extractor!

    Well, there is not much juice or fruits for music industry inside of YouTube. I predict divestment for less than $100M within five years as the industry drifts fro insanity to logic.

    Reply
  2. Sherman

    Gracenote sucked. (Or not so smart..) Based on fans inputting the data by title and artist. Then came fingerprinting, that was inaccurate, as it could not differentiate interpretations of music. New companies like cugate.com can collect emotional data, moods, actual music etc. and monitor what is played where and when on i.e. the radio (worldwide) ! That can also reveal where Youtube hijacks peoples music for advertising, or where publishers miss out on plays. That’s where Sony should have invested.
    Orchard is still on top, but how long ? That business model is outdated.

    Reply
      • Anonymous

        No Sony merged IODA with the Orchard after the full purchase then laid off 90% of the IODA staff. Let’s watch what they do next!

        Reply
  3. Musicservices4less

    So now Sony, one of the Big 3, has control of a huge portion of most established independent labels. I would guess that most of the rest of established independent labels are controlled in some fashion by the two other Big 3.

    A few interesting things stand out about this acquisition. First and most obvious, consolidation and control continues in this contracting music industry. One of the reasons is the Big 3 want to gain as much control as possible in order to have a stronger if not dominating position, when dealing with the tech distributors or in this case, sub-distributors, such as YouTube / Google, the Spotify types of the world, mobile distributors and ISPs.

    Another interesting aspect about this acquisition is the fun commentators have in trying to determine what was paid, how it was paid and what was obtained. The rumored price for the acquisition of the 49% that Sony did not already own is about $200 million dollars. We don’t know yet if that was all cash or what.

    All music related acquisitions are mainly based on a multiple of earnings either gross or net. In this case, since it is the acquisition of a share not previously owned by Sony there was probably a fixed formula in the original agreement entered into when Sony purchased it its first part the Orchard. We can only guess how that formula works. One thing we do know is that the executives at Sony came to the conclusion that this is the best time to acquire the remaining half.
    Here are just some of the factors considered in their decision making process for the acquisition occurring now as opposed to later. This is the lowest valuation point of that remaining share. That could be based on the overall state of the industry. Another could be strategic value to use when dealing with tech third parties, as mentioned above. There are other factors for sure such as tax benefit analysis and the regulatory approval process ease/difficulty.

    Most music acquisitions are based on a multiple of revenues, either gross or net. Most likely that is the starting point in the original agreement. In general, if based on gross revenues it is easier to get to an agreed purchase price. However to be more accurate it should be based on net revenues before overhead, income and taxes. Because what will eventually happen in this situation is employees will be laid off, offices closed, so that Sony can achieve more “efficiency” in operations.

    But the bottom line for all those “independent” labels and artists: welcome to your new major label deal . . . might even be your first. So now you’ve made it and can go back to creating content for the digital tech distributors.

    And don’t worry because you all are in good hands with companies that only have your best interests at heart!!! Yea, right.

    Reply
    • spasibo777

      Or it could be that Dimensional Associates, a hedge fund, decided that it was the best time to cash out. And if the deal isn’t finished, how can a final price be ultimately established?

      Reply
    • Anonny Mouse

      Orchard currently pays out me and mine 80% of gross collections, which beats any other outlet.
      As long as they keep that, they can keep our business.

      Reply
  4. Musicservices4less

    Hi spasibo77,

    I doubt knowing Sony and its executives and legal team, that after investing the huge amount of money that the decision to go ahead and tell Sony cough up the rest of the money would be with the hedge fund but then again you could be right.

    The deal is finished as between Dimensional and Sony, implementation (money and other consideration for the remainder of the company actually changing hands) is awaiting regulatory approval.

    Reply

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