MBW Reacts is a series of analytical commentaries from Music Business Worldwide written in response to major recent entertainment events or news stories.
The sound of opportunity for the record business across the Middle East and North Africa (MENA) is getting louder.
The latest evidence: Universal Music Group‘s announcement yesterday (August 30) that it’s acquired Chabaka Music, a company based in the United Arab Emirates and founded in 2013 by brothers Ala’a and Tarek Makki.
Chabaka specializes in digital distribution, marketing, publishing, and artist services across the MENA region. It will now become part of UMG’s Virgin Music Group.
The deal marks UMG’s latest strategic positioning in the MENA recorded music market, following its launch in 2021 of Universal Arabic Music (UAM) in tandem with Republic Records and music biz entrepreneur, Wassim ‘SAL’ Slaiby.
The commercial potential of MENA for music rightsholders is plain to see.
According to stats published by IFPI, the Middle East and North Africa was the world’s fastest-growing market in 2021, and its third-fastest-growing in 2022.
Last year, MENA’s recorded music market grew 23.8% YoY, and represented the highest share for streaming of any region globally, at 95.5%.
But why has Universal swooped for Chabaka now – and how ferocious can we expect the music biz’s commercial activity in the MENA region to become in the months and years ahead of us?
Here are three key bits of context you need to know…
(1): Universal’s Virgin Music Group plan
In September 2022, Universal Music Group launched a new global division called Virgin Music Group (VMG) that consolidated UMG’s existing artist services businesses.
Those businesses include (i) Ingrooves, the music distribution and marketing firm acquired by UMG in 2019, and (ii) Virgin Music Label and Artist Services, which was launched by Universal in 2021.
Both became subsidiaries of the new global WMG division, alongside mtheory Artist Partnerships, which UMG ingested as part of the ‘acqui-hire’ of mtheory’s founders (JT Myers and Nat Pastor) as Co-CEOs of VMG.
“As we continue to expand our footprint in emerging territories all over the world, Chabaka represents an important creative hub in one of the world’s most promising music markets.”
JT Myers, Virgin Music Group
Many in the industry saw the launch of VMG as a commitment from Universal to make an aggressive and truly global investment into independent artist and label services for the first time – with VMG going toe-to-toe with Sony Music‘s The Orchard.
The acquisition of Chabaka Music fits with this picture.
The Orchard’s unprecedented success in Latin America (for example, via its partnership with Bad Bunny and Noah Assad’s Rimas Entertainment) has left a question mark over where in the world VMG might explore its own future opportunities for rapid growth.
VMG’s ingestion of Chabaka suggests that the Middle East is most certainly on Myers and Pastor’s radar as a market with significant potential.
JT Myers said as much in his official quote in the announcement of UMG/VMG’s Chabaka acquisition: “As we continue to expand our footprint in emerging territories all over the world, Chabaka represents an important creative hub in one of the world’s most promising music markets.”
(2): MENA is already a hotspot of global music business activity
Universal and Virgin Music Group might have sky-high ambitions in MENA, but we shouldn’t forget that the past few years have already seen rampant M&A activity in the region from various music companies.
Warner Music Group, for example, has been investing heavily in the Middle East for some time, acquiring a minority stake in Saudi Arabia’s Rotana Music in February 2021 and buying Qanawat in March last year.
“we have further ambitious growth plans in MENA, which Ahmed [Nureni] will help us deliver.”
Simon Robson, Warner Music Group
Since WMG’s investment in Rotana Music, the company – claimed to be the largest record label in the Middle East – has signed deals with Spotify and TikTok.
Warner Music Group also appointed a new boss in MENA in October last year, bringing over Qanawat’s GM, Ahmed Nureni, as the new General Manager of Warner Music Middle East.
At the time, Simon Robson, WMG’s President of International for Recorded Music, said, tellingly: “[This] is a priority market for us, highlighted by our accelerated activity in MENA in the last 18 months, but we have further ambitious growth plans, which Ahmed will help us deliver.”
In July, Sony Music also appointed new management in the Middle East, bringing in Rami Mohsen, Spotify‘s former Head of Music Middle East, North Africa & South Asia, as the new MD for Sony Music Middle East.
Commenting on that appointment, Shridhar Subramaniam, Sony Music’s President of Corporate Strategy and Market Development Asia and Middle East, said: “Rami is well-positioned to take Sony Music Middle East to new heights”.
“Rami is well-positioned to take Sony Music Middle East to new heights.”
Shridhar Subramaniam, Sony Music, speaking in July, on the hiring of Rami Mosen as Sony‘s MD for the Middle East
Elsewhere, New York-based music rights company Reservoir is making significant inroads in the Middle Eastern market.
On an earnings call earlier this year, Reservoir CEO Golnar Khosrowshahi expressed her company’s ambitious goal of becoming “the largest holder of Arabic music copyrights” in the world.
Khosrowshahi‘s comments arrived two years after Reservoir formed a joint venture with Abu Dhabi-headquartered music publisher and music rights consultancy PopArabia.
Since then, Reservoir x PopArabia have engaged in a joint M&A campaign that has included the acquisition of Egyptian label 100COPIES, as well as the acquisition of Lebanese label and music publisher Voice of Beirut.
Most recently, Reservoir struck a deal to acquire a catalog from Cairo-headquartered content production and distribution company RE Media, while acquiring the master and recording rights for the catalog of Egyptian rap duo El Sawareekh.
“With our network and ability to purchase content at attractive multiples, this region presents significant opportunity as we work to become the largest holder of Arabic music copyrights.”
Golnar Khosrowshahi, Reservoir, speaking in June
And it’s not just publicly-traded Western music companies investing heavily in MENA right now, either.
In August last year, South Korea-headquartered K-Pop specialist SM Entertainment expanded in Saudi Arabia, signing a memorandum of understanding (MOU) with the Ministry of Investment Saudi Arabia (MISA) to enter the local market and promote joint projects.
And don’t forget about gamma.
The billion-dollar-backed company, launched by Larry Jackson in March, recently expanded its own “commitment to Africa and the Middle East” with the addition of two senior music industry executives in Dubai and Lagos, following a high-profile launch in the two markets earlier this year.
As revealed by MBW, Jackson’s expansion of its operations into Africa and the Middle East is being led by music industry veteran (and former UMG exec) Sipho Dlamini, who joined gamma as President, Africa & Middle East earlier this year, alongside Naomi Campbell (named as gamma’s Special Advisor, Africa & Middle East).
(3): The future potential for MENA – and Universal’s global M&A game plan
As mentioned, the MENA region’s recorded music market is already growing at a significant clip. In fact, according to IFPI’s latest Global Music Report, MENA’s annual trade subscription streaming revenues nearly doubled between 2020 and 2022 – getting close to USD $50 million last year.
With so much investment and activity in MENA from prominent players from the global music business, the region is undoubtedly poised for even more rapid growth in the future.
Speaking on Universal Music Group’s Q2 earnings call, ahead of the announcement of the Chabaka acquisition, UMG Chairman and CEO Sir Lucian Grainge told analysts about Universal’s vision for “expanding [our] presence and accelerating [UMG’s] growth in those music markets around the world that we see as having great potential”.
“The transaction will instantly make UMG the second-largest player in one of the world’s fastest-growing music markets.”
Sir Lucian Grainge on UMG’s majority-acquisition of Thailand’s RS Group, as announced in July
Grainge added: “We are approaching this goal in three different ways. Firstly by signing and developing local artists, just as we do in more developed music markets.
“Second by partnering with local labels to produce them with global promotion, distribution and a full suite of artist services. And thirdly through M&A. That is the acquisition of local labels, catalogs, and artist services businesses.”
Grainge pointed to UMG’s recent deal to acquire a majority stake in Thailand’s RS Group in June, noting that “the transaction will instantly make UMG the second-largest player in one of the world’s fastest-growing music markets and provide UMG with the scale to make an even greater impact in Thailand and outside of it as well”.
Looking to other markets, Grainge added: “We are constantly on the lookout for similarly attractive M&A opportunities in high-growth potential markets. Whenever and wherever such an opportunity makes financial and strategic sense, we will pursue it.”
UMG just demonstrated its ambition in one such high-growth market: MENA.
