Interview with Steven Storch
Following is the transcript of a CFO Studio interview with financial executive, Steven Storch, CFO of Imagem Music.
Visit www.CFOstudio.com to read about this interview and to watch the entire on-camera interview.
Observations of an Entertainment Industry CFO
Host: Welcome to CFO Studio. I’m your host. We’re joined today by Steven Storch, the CFO from Imagem Music. Steven has a B.A. in Economics and an MBA both from Rutgers University. He is a licensed CPA in NY and NJ, as well as being a certified evaluation analyst. Imagem is a music publishing company, which owns the song rights to Rodgers and Hammerstein, Boosey & Hawkes, Genesis, and many others, as well as the Elvis Presley catalog. And, a few current writers include Ludacris, MIA, and John Shanks, who is the writer for Bon Jovi. Today, Steven will be speaking about Observations of an Entertainment CFO. Steven, we’re glad to have you. Hey, real quick before we get into it. There’s a difference between a record company and a music publisher. Give us a quick explanation if you could.
Storch: I think most people are familiar with the large record companies who are really in the business of selling CDs, downloads, and records. The music publisher represents the songwriters. So, our rights come from the words and the music, the actual compositions. And, what’s different about the music publishing business is that we have far more revenue outlets or revenue streams in which we participate in such that when a song is played in a TV commercial, used in a TV show, is played on the radio or a movie, as well as the purchase of a CD or download, we receive revenue for those exploitation channels. Obviously, the music publisher spends a lot of time exploiting our copyrights and monetizing our assets. At the end of the day, we work for our writers and our writers get a royalty. It’s a mutual beneficial relationship.
Host: A very broad based endeavor. I got it. So, let’s talk about some of the unique challenges that I’m sure you faced in the entertainment industry. I’m sure you faced many. Talk about a couple. I’m sure there’s a difference between working with artists in the entertainment industry versus an insurance company or a bank. You say that with such a smile. You’re happy.
Storch: Well, what I think is different about working with the entertainment and music business, in particular, is that you’re dealing with artists. You’re dealing with a lot of creative people including those who are our clients from the songwriters and the artists, people who are employed at our company, and the executives who go out and find the talent, and so forth. As a CFO, my job is to be a business partner to these guys, but it’s also to walk a fine line between the creative process, the business, and making money. At the end of the day, we’re creating songs and art, but at the same time we have to ensure that we’re also making a profit and are able to monetize the art to everybody’s benefit.
Host: Absolutely. I can picture artists coming in and really caring about the song. They’re not caring about how much or how little it costs, but there really has to be a balance for it to work.
Storch: Right. So, the successful finance people that I’ve seen in this business are able to appreciate the art and music and what we’re doing. At the end of the day, that’s what we’re selling. That’s our asset. That’s what our company is for. But the finance guy has a little bit of a different role. He has to manage and run the business and ensure that we’re meeting our strategic goals.
Host: I won’t ask you to name names. I’ll be setting you up for a funny story and there’s got to be a million of them. I can just picture it. You were the CFO of the largest music publishing company and now you’re at a small, independent one. What makes Imagem so special? What have been the effects of consolidation on the industry in general?
Storch: The industry has gone through a lot of consolidation. You can see in the news, Sony just bought EMI, Universal just merged. Yeah, the companies have become more profitable, but this business has always been about scale and size. So, what that’s also created is opportunity for the smaller guys. Bigger guys get bigger. Yes, they control more assets. Yes, they control more songs and more copyrights. They’re not necessarily able to pay the same level of attention as we are. As a smaller guy, since I’ve been at Imagem, it’s a great company because we have music of all different styles and genres. We have the same sophisticated, global infrastructure as the majors. At the same time, I tell this to writers and artists all the time, we’re able to pay far more attention to our clients who are ultimately our writers and composers, which means I’m looking at every royalty statement of our composers and writers. We’re able to develop young writers and spend a lot more attention.
Host: So, you’re really creating a partnership between you and the artist.
Storch: That’s exactly right. I think that in the larger enterprises, they are not able to spend that much time and that kind of attention. At the same time, we technologically and globally have the same footprint as the majors. So, we’re able to provide the level of service as well as the nurturing.
Host: So, you’ve really been able to manage the growth and keep it streamlined, but keep it in closeness with the artists and create that on-going relationship.
Storch: That’s why we’ve been able to sign a lot of successful writers. They’re not necessarily as comfortable or happy in the machine of these giant majors. All of our guys come from that background and have that skill set who are able to really pay more attention.
Host: That’s great. You could put your arm around the guy who is feeling a little edgy, as he may be in a larger house. He comes in and he just feels more comfortable.
Storch: When I tell these guys that I am signing everybody’s royalty check personally, it means something.
Host: So, talking about acquisitions. You’ve been involved obviously in many significant ones. Describe your approach.
Storch: The business we are in, as I mentioned before, we do require a lot of rights. We sign a lot of writers and we acquire a lot of copyrights. That’s sort of what we do. So, we have to go through a very detailed process when we are doing that. Obviously, we are looking at values and when we are signing a new writer with no track record, a lot of it goes on gut instinct on what we are going to invest. When we are buying an existing catalog of songs, we go through a very detailed, discounted cash flow, return on investment analysis to ensure and to really come up with a value
Host: So, you really do put it through a pretty strategic and succinct evaluation process.
Storch: I am a Certified Valuation Analyst. I’m also a CPA. I utilize a lot of those disciplines. Yes, we could be looking at some amazing songs, but at the end of the day we got to make sure we’re not overpaying. We have to make sure that we are scribing the correct value to this property and are making good investments. At the end of the day, it’s about return and ensuring that we are going to get the benefit.
Host: I would think today, maybe not 50 years ago, but artists today, I think they have a little bit of focus on some money. They understand that you can’t just play and you can’t just create.
Storch: I think you are right. Our writers and artists are very knowledgeable in the business side of it where years ago, they probably were not to the same extent. It is a partnership and we all have the same goals, which is to establish the new writer and make them as successful as possible. At the end of the day, we are both partnering in that success.
Host: Absolutely. So, let’s say post acquisition. Obviously, there’s the acquisition, and then you can’t just stop there…okay we acquired you, have fun and play, and we‘ll pay. So what do you do? How do you manage that process?
Storch: That’s a good point. What’s really important is post acquisition. We buy a lot of companies, too, in addition to just song rights. There are times when we are buying actual companies. One of the things that we spend a lot of time on is the integration process and making sure that on day one we have a plan in place to integrate the businesses. It’s not just a mechanical endeavor saying “okay we are going to take this company and put it in with our company.” There’s a lot more to it. Probably most important is the people aspect.
Host: The culture.
Storch: The culture, the people, bringing the new employees on board, and making sure we all are aligned in our vision for the new business are really important. I’ve given presentations on this topic. It’s really not taught in school. How do you do this? How do you integrate businesses? I’ve learned through my own experiences, but there are some tried-and-true principles that you follow.
Storch: At the end of the day, you’ve made a set of assumptions before you’ve acquired the business. Now, you got to make sure you actually achieved those goals.
Host: Exactly right, very interesting. The business integration, obviously their publishing and exploitation of intellectual property. How does that play into all of this? You have to have monetizing strategies. How do you do that?
Storch: If you look at the music publishing industry, which is really well over 100 years old, it started at the beginning of music rolls and so forth that played on player pianos. Years ago, it was a much more passer endeavor. Customers would come to us, movie studios or TV stations and say, “we want to use your song.” Yes, we have that passive element. Music publishers now, just like any businesses, have come far more aggressive in exploiting the copyrights that we control. So, we are actively pitching and marketing our music to all the different outlets that have evolved.
Host: So the digital platform, let’s say, obviously that’s the biggest change of all.
Storch: That’s probably the most important change in the businesses is the growth in digital rights now. You’re right because new models continually pop up whether they are online, download such as an iTune, or streaming services.
Host: I can’t imagine trying to manage that. In the old days, you could call up someone and say, “Hey, so and so heard the song.” You can’t do that unless you ask us. How do you do that with digital?
Storch: You are absolutely right. We have licensing departments that spend a lot of time ensuring that our music is getting licensed to all these outlets. At the end of the day, if we are not out there, we are not monetizing the assets properly, or paying our writers, or making sure we are growing the business. So, we spend a lot of time meeting with a lot of different new technology providers and a lot of different services. And so it has become a very important part of our business.
Host: Managing that digital platform has got to be something because everybody is doing their fair share, the company, the artists. Everybody deserves what they should get for what they put into it. And taking that as a consumer is not necessarily….
Storch: You are absolutely right, and the industry has gone through a lot of issues with piracy. I would say that’s changed the music industry a lot, but now we are seeing a lot of legitimate services on the market. What once the music industry looked in a negative way, obviously at the very beginning, now we see as a growth opportunity. If you look now at some of the latest results, digital now has surpassed, it’s more than 50% of the market. CDs are far lower percentages and they’re digital now. The services are complicated and there are many different ways of getting paid such as royalties, but we got to be in that business and we pay a lot of attention to it.
Host: We have time for one more question. So, for all those youngsters out there that want to be in the entertainment industry and they have a background in finance, what advice would you give to someone that wants to be in finance and involved in the finance end of the entertainment industry?
Storch: When I started out, went to college, and I graduated, my goal wasn’t, “Hey I want to hang out in a music company and listen to music all day.” I think the important thing is really keeping your eye on what’s important, at least from a financial standpoint. Make sure that you understand the fundamentals and you get the experience. At the end of the day, I am an accountant, a finance expert, and that’s what I do.
Host: So, it’s not like on TV. There is a show on now where there is a segment of that show. They focus in on a music studio in San Francisco. I want that job.
Storch: Right. We all want that job, but in the role of CFO or financial function in a music business, you really got to walk that fine line between the creative side and finance side. The reason I think a lot of guys have been successful in this business, particularly in the finance function, is that they have a good foundation and they know the fundamentals. They stay serious and they don’t get overly caught up in the glitz.
Host: It’s been a pleasure, thanks so much for coming by.
Storch: Thanks for having me.
Host: You’ve been watching CFO Studio. I’m your host with Steven Storch. Thank you for watching and we’ll see you again soon.