Background: The network value of Spinnin Records

I write a guest column every fortnight for This Is Our House. Using data, I provide an insight into subjects concerning DJs, events and festivals. This time I investigate the value of the network of Spinnin’ Records.

Development in digital world

Six years ago, after becoming fascinated by the developments in the digital world, I started monitoring the dance industry. I take a look at not only DJs and festivals, but I also monitor the progress of dance labels every day. How do they operate in the digital landscape?

For over 5 years, I have been collecting data about dance label Spinnin’ Records. A question which is valid for years is – what would the network of Spinnin’ Records be worth if they could activate all connections which exist in all channels? Time to investigate!

Valuation Spinnin Records 2017.001

Industry drastically changed

The music industry has drastically changed as a result of the introduction of digital means. This has created a new dynamic, new paradigms determine whether someone will be successful. One of these focusses on the application of direct digital channels. Disruption in the area of communication, marketing and sales occurs rapidly in the dance industry. The always connected reality offers greater possibilities than ever before to maintain a direct relationship with the (potential) fan base. Digital channels now form the most effective, flexible and scalable way to develop these relationships. The position in the digital ecosystem determines the success of a dance label.

To maintain this position, the industry (and therefore labels) must embrace this new paradigm. In the contact ‘old style’ the majority of organisations from the industry only focused on a few key channels they are selectively active in. The new paradigm demands a constant presence across all relevant channels. After all, the fan base – fans and customers – determines when, to what extent and in which way they look for contact.

Valuation Spinnin Records 2017.002

Ecosystem is business

In ‘EDM and the Digital Domain’ I described the ecosystem as follows. Actually the internet ecosystem is a business ecosystem, as once defined by James F. Moore in the 1990s. Moore discovered that successful companies use survival strategies which occur in natural ecosystems. In the widest sense, an internet ecosystem is often described as the total system of interaction between industry, brands, people and products. It includes all interested parties. The technical infrastructure and the functions which the network fulfils make up part of the internet ecosystem. By viewing the system as a business ecosystem, you see new value models appear in the relationships of all interested parties within the internet ecosystem.

Until now the largest value that you have as a label is most probably your brand. Your brand often (still) does not feature on your balance sheet, but represents a hidden value, often called goodwill. Goodwill is used in the financial world to indicate that part of the market value of a business that cannot directly be assigned to the assets and liabilities. It is not a particularly well-defined financial matter, which in the majority of cases is only used in an acquisition to show the added value of an company above the net assets.

From this point of view goodwill represents future revenue of organisations that are not yet valued on the balance sheet, but that already exist in the form of knowledge, clients, brands, personnel and such like. You can find this future revenue in contextual data that exists within the internet ecosystem. In the own ecosystem, your website, app, web store, social media or other service that you use.

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Spinnin’ Records valuation

So onto Spinnin’ Records. In the last 5 years the label has grown to more than 29 million potential connections. This is evident from figures from Rankingz and Fanalists. Is it now possible to calculate the potential digital assets ? In recent years I made an estimation with Pim van Berkel. In 2013, we developed an adjusted valuation model for the entertainment industry that we refined in recent years and that we used to estimate the value of the network of Spinnin’ Records.

In 2017, on the basis of the valuation model – if Spinnin’ Records is able to activate the digital connections – the digital assets from the ecosystem would be estimated to be roughly over 55 million euros. This is not a crazy number when you look at the acquisition of Hyves which had approximately 9 million unique connections. The Telegraaf Media Groep paid 43.7 million euros for it in 2010.

The long-term value of a healthy virtual social network – an own digital ecosystem within the entire digital ecosystem – of Spinnin’ Records is primarily determined by the value of the relationships. Fan relationships between fans and Spinnin’, but also the relationships of the fans with each other. 

A prerequisite of the estimated value is that Spinnin’ Records activates its connections in some way and has comprehensive insight. This actually means that Spinnin’ Records must save its fans in its database and that some form of transaction must have taken place between Spinnin’ Records and its fans.

Valuation Spinnin Records 2017.004

Notes with valuation

For Spinnin’ Records the digital assets become interesting when the label is partially, or entirely, acquired. Then a valuation of the digital network of the label will take place. To be noted, at such an acquisition not only the legal and financial aspects are considered, but also (the quality of) the data. When Spinnin’ Records has all its data ready, they become an interesting acquisition party for a major label (read: Universal, Sony or Warner).

Of note are also the artists who have contributed to the growth of the digital network of Spinnin’ Records. I ask myself which agreements they have made with Spinnin’ Records about the fan relationships. After all, their content (read: the artists’ tracks, among other things) are the glue in the digital ecosystem. Time will tell. Now we must wait for the acquisition of Spinnin’ Records.

* This column was originally published on This Is Our House

** Photo by Xolali.com

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