Peter Kafka

Recent Posts by Peter Kafka

Why Is Google Putting Money Into a Music Label?

Hip-Hop Summit Action Network's Fifth Annual Action Awards

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Google already runs the world’s biggest music service. Soon it’s going to own a little bit of the music business, too.

Emphasis on little. Google is providing a sliver of financing for a new label that will be run by veteran music executive Lyor Cohen. People familiar with the transaction say Google should end up putting a mere $5 million into the new venture.

For perspective: In the first nine months of this year, in addition to the $1 billion it spent on Waze, Google shelled out $369 million to buy 20 companies. That’s an average of $18 million per acquisition. More perspective: Google booked profits of $3 billion last quarter.

A formal announcement about the deal, first reported by the New York Post, should come in the next week or so. Up until a year ago, Cohen ran Warner Music Group’s recorded music division; prior to that, he was best known for his role in building and selling Def Jam, the legendary hip-hop label.

It’s one of a series of content plays by a company that used to work hard to avoid owning content: In recent years, Google has bought the Zagat and Frommer’s guidebooks; put money into Machinima, the YouTube network for gamers, and Vevo, the YouTube-hosted music channel; and provided seed funding to 100 YouTube producers.

All of those deals had at least some logic to them, but the Cohen deal is a bit of head-scratcher.

People familiar with the deal say the money is coming out of Google’s corporate coffers, and not from its venture arm, and that YouTube content head Robert Kyncl was a key driver in getting it done.

It’s hard to figure out what Google gets out of its investment, since it won’t have control of the company. Music is of some importance to Google’s Android unit, and it’s crucial for YouTube, which acts as the world’s most popular free music service. But it’s not like the workings of that business are a mystery to Kyncl and the rest of Google, which now employs several music-industry veterans.

And, even if Google ended up with a larger stake in Cohen’s company, I don’t see the upside of the company controlling a label. It already has enormous clout with the industry — note the upcoming YouTube subscription music service, and the first-ever YouTube Music Awards next month — so there’s no need to buy itself a seat at the table. It’s already there.

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