Music Business Finance

Author: Peter Alhadeff   •   Course Code: OMBUS-475

The music industry continues to move towards a place where the opportunity for new artists and new entrepreneurial endeavors starts with leveraging your own knowledge base. With this in mind, a hands-on understanding of finance is an essential skill for anyone looking to succeed in the music industry, whether you're an artist, manager, executive, or entrepreneur. Music Business Finance will demystify a critical area for anyone involved, or interested in being involved, in the music industry.

The course breaks finance down into three digestible components, roughly weighted equally in time spent per week: (1) determining and understanding financial calculations, both focused on the music industry in particular, as well as more general important overall business calculations, (2) money, markets, and the music business, and (3) funding music. You will learn how to access money, take advantage of micro finance opportunities, and apply financial tools to assess the financial health of your enterprise. Topics include compound interest, interest rates, capital markets, startups, stocks and IPOs, cash flow, balance sheets, price elasticity, and exit strategies. The course explores nontraditional forms of music funding, such as venture capital and crowdfunding opportunities like Kickstarter and PledgeMusic. You'll also learn about bonds, grants, business loans, financing in rounds, and much more. The goal of the course is to empower you to apply the critical tools of financial analysis to leverage talent (your own or someone else's!), assess the potential of music enterprises, and drive new music businesses.

By the end of the course, you will be able to:

  • Employ best practices and budgeting in crowdfunding
  • Understand the role of venture capital for music entrepreneurs
  • Understand the cash flow dynamics of music startups
  • Explain how to leverage the loan market for a music business
  • Define equity in a music enterprise
  • Use stock indicators to track publicly-traded music companies
  • Understand bonds and use them in the music business
  • Prepare a pitch for venture capitalists
  • Differentiate the roles of startup founders and venture capitalists
  • Apply the methodology of price elasticity to music goods
  • Understand the cash flow dynamics of music startups
  • Evaluate profit and loss statements
  • Evaluate a company's cash flow statement
  • Assess government funding and non-profit grants
  • Plan entrepreneurial exit strategies

“Peter Alhadeff is not only knowledgeable but also excellent at adapting the material to each student’s experience level and interests, so whether you’re familiar with the subject area or don’t know which way to hold a calculator, Peter will help you to get the most from the course." - student Maureen Lilla

Why should you take this course? Read an interview with course instructor Peter Alhadeff on our blog.

Lesson 1: Financial Calculations, Money Markets, and Crowdfunding

  • The Compound Interest Formula
  • Present Value
  • Useful Math
  • Money, Markets, and the Music Business
  • Investors' Perspective and Sources of Capital
  • A High-Tech Music Business Startup
  • The Power of Crowdfunding
  • Music Crowdfunding Examples
  • Crowdsourcing Risks

Lesson 2: The Compound Formula, Business Equity, and Crowdfunding II

  • Periodic Compounding
  • Future Value
  • Present Value
  • Stocks and IPOs
  • Capital Markets: Key Concepts
  • Short-Term Stock Price Fluctuations
  • IPOs
  • Jumping into the Crowdfunding Pool
  • Crowdfunding Websites

Lesson 3: Money Growth, Stock Quants, and Crowdfunding III

  • The Algebra of Interest and Time
  • Fractional Exponents and Interest Rates
  • Logs and Time Problems
  • Music and Wall Street
  • Startups
  • Return on Equity (ROE) vs. Return on Assets (ROA)
  • Buying on Margin and Selling Short
  • Launching a Successful Crowdfunding Campaign
  • Insights from Failed Crowdfunding Projects
  • Failed Crowdfunding Example

Lesson 4: Payment Streams, Bonds, and Crowdfunding IV

  • The Future Value of Payment Streams
  • Ordinary Annuity
  • Annuity Due
  • Annuity Formulas
  • Bonds and the Music Business
  • How Bonds Work
  • Par Value, Market Price, Coupon Rate, and Yield
  • Bond Metrics
  • The Bowie Bonds
  • Budgeting for a Crowdfunding Project
  • A Crowdfunding Workbook

Lesson 5: Present Value of Payment Streams Bond Yields, and Crowdfunding V

  • The Present Value of Payment Streams
  • Deriving Present Value
  • Example: Buying a House
  • Example: Victim Compensation
  • Bond Payoffs and Music Securitization
  • A Bond's Long-Term Return after Purchase
  • Promises and Perils of Music Royalty Securitization
  • Crowdfunding and the Capital Market
  • Equity Crowdfunding and Music

Lesson 6: Net Present Value, Discount Rates, and Venture Capital I

  • NPV Valuations
  • Perspectives on Venture Startups
  • Risk and Discount Rates
  • The Components of Interest and Discount Rates
  • Present Value and Discount Rates
  • Music and Venture Capital

Lesson 7: IRR, Risk vs. Return, and Venture Capital II

  • The IRR Rate
  • Interpreting the IRR
  • The Hurdle Rate and IRR
  • The Hurdle Rate or Weighted Average Cost of Capital
  • A Music PRO's Hurdle Rate
  • Hurdle Rates and Investment Decisions
  • The Market for Venture Capital
  • Venture Capital Logic
  • Interview: Jason Medelson on Venture Capital
  • The NVCA on Venture Capital

Lesson 8: Business Loans, Investment Multiples, and Venture Capital III

  • Installment Loans and Open-Ended Credit
  • Interest and Principal
  • Sinking the Principal and Balloon Payments
  • Refinancing
  • Installment Add-On Loans that Don't Recognize the Time-Value of Money
  • Investment Multiples
  • Founders and VCs in the Round
  • Founder and Investor Goals
  • Contractual Terms
  • Term Sheets

Lesson 9: Owners' Shares, Price Elasticity, and Venture Capital IV

  • The Capitalization Table
  • Owner's Share by Rounds
  • Price Per Share and New Stock
  • Second Round of Stock Issue
  • The Employee Option Pool
  • Demand Analytics
  • Price Elasticity of Demand (PED)
  • Cash Flow Dynamics of Financing in Rounds
  • A Typical J-Curve
  • Early-Stage Investors and the J-Curve

Lesson 10: Accounting Profit, Variable Pricing, and Venture Capital V

  • The Income Statement
  • Case Study: Sirius XM
  • Profits and Gross Margin
  • Gross Margins: Tech Startups vs. The Entertainment Industry
  • Demand Analytics and Sellers' Revenue
  • Unit Price Elasticity: A Target Point
  • Silicon Valley and the Original Venture Capitalists
  • Chuck Eesley on Venture Capital
  • A Startup's Value and Ownership

Lesson 11: Assets and Liabilities, Business Reports, and Venture Capital VI

  • The Balance Sheet
  • Sirius XM's Working Capital and Book Value
  • The 10-K and Company Research
  • Research on Private and Public Companies
  • Getting Out There
  • The Pitch

Lesson 12: Cash Flow, Off-Beat Funding, and Early Exits

  • Cash Flow and Free Cash Flow
  • Public Money, Libraries, and Grants
  • The Small Business Administration (SBA)
  • Off-Beat Funding and Grants
  • Cashing Out
  • Typical Exit Vehicles
  • Proving the Value of a Startup for an Early Exit

Peter Alhadeff

Author & Instructor

Peter Alhadeff, D.Phil., is a distinguished Oxford economist and historian who has a made his own unique and successful career in the US music business. He has published and been engaged by the National Academy of Recording Arts and Sciences, the Harvard Berkman Center, the Latin Grammy, the Interamerican Bank at the Di Tella Institute in Buenos Aires, and the Business and Economics Society International, for which he delivered the keynote address on the state of the music trade in Athens, Greece.

Peter is a pioneering educator with a practical bend. As a professor and founding faculty of Music Business/Management at Berklee, he taught the first ever courses in math, music economics and statistics, and, ten years ago, HTML and Javascript. He works closely with his students, as well as faculty from inside and outside the college to produce The Music Business Journal at www.thembj.org. Digital Music News identified him as one of the most important attendees at Midem, Cannes, 2012.

Alhadeff is past chair of the Music Entertainment and Educators' Association's international conference and founded the monthly trade Recording En Español and its successor Músico Pro, passing the editorial baton to his students. He has built a prolific writing record of more than one hundred music business articles that he says is fed by his experience in the classroom.

Peter is currently developing Music Business Finance, a new online course that will likely stretch the traditional learning boundaries for musicians and anyone interested in business. It is full of current interest topics, has cutting-edge math explanations and applications, and covers the new guise of money in music, including crowdfunding and venture capital.


Luiz Augusto Buff De Souza E Silva

Instructor

Luiz Augusto Buff de Souza e Silva is a Brazilian lawyer, with a masters degree in Entertainment, Media and Intellectual Property Law from UCLA School of Law, and a degree in Music Business and Management from Berklee College of Music. Luiz developed experience in the music industry both as a musician, and also working at companies such as Warner Bros. Studios, Ted Kurland Associates, Soundtrack Group, and consulting firm Digital Cowboys. Luiz was a Research Collaborator in the development of the Music Business Finance course and also co-wrote the article "Budgeting for Crowdfunding Rewards" with prof. Peter Alhadeff, published in the Music & Entertainment Industry Educators Association (MEIEA) Journal.

Prerequisites

Completion of Applied Mathematics for Musicians and Music Business Trends and Strategies, or equivalent knowledge and experience is required. 


Required Textbooks

Guide to Money and Investing by Virginia and Kenneth Morris, McGraw-Hill

Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist by Brad Feld and Jason Mendelson, Wiley


Software Requirements

  • Microsoft Excel or OpenOffice

Mac Users

  • OS X 10.9 Mavericks or higher (click here for system requirements)
  • Latest version of Google Chrome

Windows Users

  • Windows 7 or higher (click here for system requirements)
  • Latest version of Google Chrome

Hardware Requirements

  • Scientific or Financial Calculator
  • 2 GB RAM (4 GB recommended)
  • 500 MB hard drive space
  • Speakers or headphones
  • Webcam
  • Internet connection with at least 4 Mbps download speed (http://www.speedtest.net to verify or download the Speedtest by Ookla app from your mobile app store)

Comments

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  • Level
  • Duration
    12 weeks
  • 3-Credit Tuition
    $1,479
  • or
  • Non-Credit Tuition
    $1,229

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