Welcome to our series on the value chain and economic potential of Africa’s music industry. Our first part identified the key players. This part explains mini industries, copyrights, revenue channels and investment potential. 

First, how does music distribution work in Africa?

Well, like it does everywhere else…

Distribution is the way that recorded music gets into the hands of consumers. Artistes/labels sign deals with distributors to give the latter the right to sell music products. The distributors collect their cut from the sales and pay the balance to the label/artist. In the past, traditional “brick and mortar” music distributors supplied physical copies to music stores. You went to these stores to buy CDs.

Now, digital distribution has disrupted that. In 2015, digital music sales surpassed physical. Today, platforms are the new stores and you can immediately access music on Spotify, Apple Music, Google Play and other major music services. Artistes make money (royalties) every time someone streams, downloads or buys their music. 

Music streaming revenue is estimated to increase at about 20% CAGR in South Africa, 30% in Kenya, and 40% in Nigeria, resulting in revenues of about $40M, $5.2M, and $17.5M respectively between 2019 – 2023.

Now, to the Mini Industries.

For theoretical purposes, there are industries within the music industry that work mutually:

  1. The Publishing Industry: This involves musical compositions from songwriters and extends to the acquisition and licensing of publishing rights. 
  1. The Recording Industry: This entails discovering and developing music talent, producing albums, promoting artists and their recordings.
  1. The Live Music Industry: everything related to concert promotion and production.

Rights

Copyright is the exclusive right, given to the creator of a creative work, to reproduce the work, usually for a limited time.

Every song you listen to is divided into two sets of copyrights – first, a “composition” which includes the lyrics and melody. Second, a “sound recording” which is the audio recording of the song. Sound recording copyrights are owned by recording artists and their record labels. Meanwhile, copyright in the composition is owned by the songwriter and the publishing company.

Revenue channels 

  1. Live performance/touring

Live performance happens in front of an audience. It can be called a concert, show, gig. Musicians perform on stage and are usually accompanied by a live band, audio equipment or both. A tour is a planned series of live performances by an artist in different locations. Tours are usually named using the name of the artiste and that of a project or song. Admission to concerts is usually exchanged for money in the form of tickets. This money is basically shared between the performing artiste, producers, promoters and venue organizers.

  1. Royalties

Royalties are simply payments that go to recording artistes, songwriters, composers, publishers and other copyright holders for the right to use their intellectual property. There are three common types of music royalties:

Mechanical royalties refer to royalties generated from the reproduction of music – physical and digital. Basically, this applies to all formats. Physical sales of CDs, digital downloads and streaming services. Mechanical royalty is paid to the recording artist, songwriter and publisher.

Performance royalties included royalties generated for the performance, recording, playing and streaming of music in public. The easiest example is radio broadcasting. Radio broadcasters are supposed to pay performance royalties to songwriters/publishers.

Synchronization royalties include royalties generated when music is “synced” with visual media. You would need to pay for a sync license to use a song in a movie, advertisement, video game or television program. This sync royalty is paid to songwriters and publishers.

  1. Advertising

Artistes often enter into brand partnerships with brands. This way, they advertise a product live, on TV or on social media. This is a useful revenue stream.

  1. Merchandising

Merchandising is simply the sale of non-music products. Artistes usually launch products – perfumes, clothing lines, make-up, t-shirts.

Investment potential 

The world’s three largest record labels, Universal Music Group, Sony Music, and Warner Music Group have all entered the African market either by signing African artists, acquiring African record labels, and/or opening offices on the continent. An interesting arrangement was made between Nigerian giants, Chocolate City and Warner Music. Music streaming platforms in Africa have been able to bag investments from venture capital firms. Record labels too. For instance, the cash injection in Mavin Records by Kupanda Holdings, a joint venture. 

Apple music is undergoing a million-dollar expansion in Africa. Africa’s largest music-streaming service, Transsion Holdings’ Boomplay, closed a series A round for $20 million last year to support expansion. These constitute proof that there’s potential in the African music industry.

However, institutional investors have not been so keen on putting their money into the music-making and creative-sharing business. In 2019, only 1.1% or $22M of total African start-up investment went to entertainment companies. The Africa Report believes that with the foundational financial and digital infrastructure to support the creative industries increasingly being put in place, now is the right time for investors to double down on Africa’s music industry.