Len Blavatnik's recent investment in Beats Electronics' upcoming music service is making waves in the music world, and not just because the billionaire has been spending hundreds of millions of dollars in the sector.
It's also because the 55-year-old tycoon has quietly become the single most important person in a key area of the music labels' future: subscription services.
Blavatnik is a canny investor and has seen the books. He knows better than anyone what the real potential is. And he's decided to cast a thread of his vast wealth to a music service that's currently not among the clear winners in its domain.
He's also the only individual to own a major music company since his 2011 $3.3 billion acquisition of Warner Music Group (WMG). "It's making people start to wonder if music is something that should be invested in again," says Mark Mulligan, principal analyst of Midia Consulting.
Will his moves lead other investors back to betting on music again--perhaps even trigger a land grab after years of disdain?
The tussle could play out specifically in the sphere of the "middle class of music companies," Mulligan says-those that aren't currently enjoying a valuation bubble and can still be had for relatively little upfront cash.
This tier of companies is roughly defined by the fact that they're neither startups that require less than a couple of million dollars in capital nor the dominant players in their fields. For on-demand music services, the current winner is Spotify, with its pricey $3 billion valuation.
To be sure, Blavatnik also has a tiny stake in Spotify, through his ownership of WMG.
Instead of piling onto the Spotify bandwagon when it raised its latest round of $100 million last year, Blavatnik chose to sit it out, leading rounds to raise $130 million for Deezer and $60 million for Beats.
Blavatnik, who declined comment, now has bets in three on-demand music services, not just the top dog. Whether all three can profitably co-exist remains to be seen.
For Blavatnik, his small stakes in music services potentially fit into a much larger picture, one that could end up coalescing into a media megalith that operates across the entire value chain, from content creation to distribution pipes to service platforms.
Case in point: Blavatnik's Access Industries owns AINMT Holdings, a mobile data provider that operates mobile broadband Internet access in Denmark, Sweden and Norway, and has a stake in Deezer, which has licenses with content owners like WMG. Should AINMT strike a deal to launch Deezer in Scandinavia, Blavatnik would be "taking revenue out of all three stages," Mulligan says.
With insider knowledge along all links in the value chain, this could potentially help WMG, the smallest of the three major labels, overcome its size disadvantage in negotiating licensing deals.
"He's got the makings of the next-generation media powerhouse, similar to AOL, Vivendi and Bertelsmann," says Mulligan, who did consulting work with Vivendi on its strategy in the '90s, when then-CEO Jean-Marie Messier tried to transform the French water company into a media juggernaut.
Unlike Messier, who used Vivendi's resources to fund the company's acquisitions, Blavatnik is largely dipping into his own pockets, supplemented by bonds taken out by Access Industries. With his own money on the line, Blavatnik's approach has so far been more measured and focused. And without public shareholders demanding short-term gains, Blavatnik can take the long view, betting that the pieces he holds will someday fit into a much bigger and more valuable whole.