Modern Sky x Liverpool Sound City: What’s The Story?

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Chinese music giant-in-training Modern Sky Entertainment made a curious investment last week: a significant strategic stake in the Liverpool Sound City music festival and conference.

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Modern Sky has had a monster year. They recently completed two rounds of Series A and B financing, took their flagship Strawberry Music Festival to over 12 Chinese cities, built their own music venue in Beijing (Modernsky Lab, with more planned), and took the shining lights in their music label roster to New York, Helsinki and Seattle for Modern Sky-branded showcase festivals.

These moves are mostly easy to parse – founder Shen Lihui often mentions his goal of ‘vertical integration’, with Modern Sky having a presence in every link of the Chinese music industry chain. Hence their efforts to build their own mobile ticketing platform (Pogo Live), dabble with live-streaming (“正在现场” or Zhengzai.tv) or establish podcast networks and online radio channels.

At the moment, the music industry in China (Modern Sky included) appears to be in a bullish frame of mind. There’s plenty of money floating around, and investments appear to be throwing ideas at a wall in an effort to find out what will stick. Experimentation is the name of the game right now, not financial pragmatism.

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But even then, Modern Sky’s latest move is baffling.

Liverpool Sound City is a fairly well-established music festival brand in the UK, sure, but what possible strategic interest could it have for a Chinese music company?

Liverpool Sound City started as a disaggregated urban festival centered on Liverpool’s Wolstenholme Square, and quietly built a reputation for its diverse lineup full of quirky programming choices and left-field headlining artists.

Last year, though, it decided to uproot itself from the city centre, and move out to a large open space near the Bramley Moore Docks, well outside city limits. A venue one reviewer uncharitably described as “a giant slab of concrete in the middle of nowhere.”

The quirky programming, while still evident, was largely sidelined in favour of attention-grabbing headliners and “big” sounds. A sign that it’s perhaps preparing to move into the Premier League of outdoor festivals.

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So there’s two questions here about Modern Sky’s investment:

  1. Is this a strategic stake in what the company sees as a viable, “rising” festival brand?

This is quite unlikely, as the fastest-growing festivals are probably in Asia and not in Europe, where the competition (and calendar) is extremely crowded.

But it’s possible that Modern Sky seems something in Liverpool Sound City’s transformation from local indie mainstay to big-ticket event. Festivals are not usually viable financial concerns, often wobbling on the uneasy fence between fortune and bankruptcy.

The economics of music festivals are complicated, but their sustainable success boils down to how well you monetize people on site (easier in an abandoned dock than in the city centre) and how well you differentiate from competitive offerings. Sound City appears to be poised to tackle both issues…which leads to question two.

  1. Is this just low-hanging offshoring fruit, or a genuine viable business proposition?

Colour us cynical, but a far more possible answer to why Liverpool Sound City could be as simple as “offshoring”. A plausible, low-hanging investment opportunity to take their money out of the country that also serves as an adequate showcase of Modern Sky’s international clout and influence. A “gateway investment”, if you will, that brings access and networks.

In the press release announcing the investment, Lihui says it’s “only the beginning,” and that Sound City has “a lot to teach [Modern Sky].” Let’s hope they’re fast learners.

  • The Realist

    Fosun Group who’s investment has given Modernsky the gumption for doing this buy in has done some not so pragmatic Buy In’s themselves in the past. Check out this article about the recent Billion Dollar Buy Out of Club Med.

    http://blogs.wsj.com/corporate-intelligence/2015/01/05/fosun-clinches-club-med-deal-at-a-price/

    In Feb 2015 after an ill advised bidding war, purchased the stagnant aging vacation chain at nearly double the original market price (80% premium at final purchase price). Analysts be damned. To put it into perspective that’s paying almost a billion euros for something that was valued by analysts to be worth just a bit over 500,000 million. That’s what I call a premium.

    This purchase would have only made sense if Club Med would extend into the China and grow at an astounding rate in a market that sees GDP dropping down to below or around 7 percent this year. In other words, it would have to take some China Juice and turn into the Incredible Hulk. Of course, let’s take into account that food & beverage industry in China has fallen across the board in this economic downturn in the recent year so, so I doubt that China juice is going to alter the genetics of Club Med so greatly that this doesn’t turn into a monumental financial loss for Fosun, but who knows miracles happen everyday in China.

    But what does that mean for Modernsky that their most visible sugar daddy these days is this private equity behemoth from Shanghai who buys Cirque du Soleil and Club Med?

    The investment dollars from Fosun, going to Modernsky are currently not primarily being used to create content. Good Old Days M-Sky earned their chops by having a extensive catalog of music from popular indie artists. That catalog is now aging through digital streaming has proved a income boost recently, we all know they have nothing on the majors. New releases for the most part are lackluster and poorly promoted at best. But now, M-Sky with all it’s money just seems more interested in extending Girth. More “property” more overseas “investment”, more online platforms, more international acquisitions, more vertical integration (which sounds great unless you actually have a management degree and knows that too much Vertical Integration kills). Why, because it means more overhead! More things to manage and you need an Avengers style management team for this much integration. So who’s M-Sky’s management team right now anyway?

    Yes they do have lots of property now, but unfortunately, none of their properties are dominant in the market in a highly competitive domestic environment. But instead of strengthening new properties like POGO so they do become dominant, MK’s strategy is not to be great at anything, but mediocre and omnipotent. And of course, international.

    Yet, this all works in par with Fosun’s investment strategy details with this Video from Sohu Finance.

    http://my.tv.sohu.com/us/16360791/10097940.shtml?ptag=vsogou

    For those of you who don’t speak Chinese, Fosun’s strategy in the words of their CEO is to be the most China, and take that which is really China and show it to the west so they can build trust and bring in the best of what’s from the west because they’re really China. This exchange will make China better. For people in the financial industry. . . that means Huh?????? Sorry, but that’s not a real argument for International Investment. It doesn’t target anything specific, and most importantly, if Modernsky or Fosun wanted only to learn, then to hire a consultancy to teach them how to do A B or C costs a fraction of an over-priced acquisition.

    But the Liverpool Soundcity Buy-In undoubtedly pleases the strategy of Fosun from what we can devise. How much of that is about capital outflow is still debate-able through you can be sure that the Chinese gov’t is already working on that problem. The one thing Mr. Xi hates more then Tigers is money leaving the country.

    As for all this with Modern Sky edging toward IPO, we are talking about a very obvious reverse pyramid. What does that mean, a lot of girth, but not a lot of support on the bottom. No solid income sources, or big future revenue streams unless we believe that the latest RE-TROS offering will support not only POGO, Modernsky Labs, future (post-Tuborg) Modern-Sky festivals, but also Liverpool Soundcity big festival ambitions.

    Meanwhile let’s ask, what is the “profitability” of Modernsky? Where do they make their money, how fragile is their income sources, and what is the true potential of all these new acquisitions for the future? Well, since none of us are able to look at the number we can only guess that it’s a magic number full of rainbows and gold, and indie pop hits to the moon.

  • Awesome comment – thanks!

    The Modern Sky story does appear like it is built on a foundation of sand – the proverbial hot potato where each round of investors is thankful to get their money back, everyone hoping that they can limp over the line to an IPO.

    An a-typical China story

  • WhyHighLoo

    Maybe Modsky will pull back on the international expansion like Fosun. http://www.wsj.com/articles/chinas-fosun-to-pull-back-on-foreign-buying-spree-chairman-says-1459442656

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