Hello, hello, I wanted to start the week by saying thank you to David Lawrey and the University of Georgia for hosting me and others at their Artists’ Rights Symposium earlier this month. If you’re interested, Billboard did a nice write-up of the event. Again, I’m always open to academic chats, discussions, and student questions! Anyway, if you enjoy this newsletter, the best way to support it is by recommending it to a friend or subscribing at this link here. Now, let’s reexamine the wacky world of music distribution.
A couple of years ago, I tracked the flow of venture capital into the music distribution business since the early 2010s; it was an effort to better understand why so many firms with similar business models flooded the market. A little later in 2021, the academics David Hesmondhalgh, Shuwen Qu, and Jian Xiao published ‘Music Streaming Platforms and Self-Releasing Musicians: the Case of China’, a paper that explored the Chinese market for “self-releasing" artists (the authors use this term to avoid the more politized "DIY" or "Independent", which I'll try and follow). The paper looked at the centralized nature of digital Chinese music distribution into only a couple of firms (Tencent and NetEase) that also provide audio-listening platforms; compared to the west where an entire market opened up solely for the purpose of getting music onto the major digital platforms. Even with that contrast, there’s an early quote that captures the business in either context: “incorporation can be understood as a process by which musical creativity that previously existed outside the system of recorded music is, under platformisation, brought within that system, with new implications for understanding the power of digital platforms.” Thus these platforms help further bring musical works that might've existed outside of the recorded music industry into its official pipes.
Nearly two years since the paper’s publication, western music distribution further consolidated (see: Sony’s purchase of AWAL); there’s growing concern about the sheer number of songs uploaded onto platforms; and increasing offerings (NFTs, video distribution, social media campaigning, etc.) for those "self-releasing" artists appear on the table. These trends point out that there may be some economic limits for firms that rely entirely only on this particular market. These factors, combined with a broader downturn in technology, only increase the drive to figure out new revenue streams. So, let’s quickly examine the wider distribution landscape.
First major labels: Universal Music Group own the newly consolidated Virgin Music Group that includes INgrooves, formally Caroline Distribution, and mTheory Artist Partnerships; Sony Music Entertainment bought The Orchard in 2015, and earlier this year completed their purchase of AWAL (despite my pleas against it), and Warner’s long stood in this space with ADA. The majors own over 80% of this market, which is worth remembering when looking at the hype attached to more venture capital-backed firms. This cohort is buttressed by independent distributors like RedEye and Tunecore. The specific roles of these companies can vary if we’re talking about digital versus physical distribution, certain territories, and a host of other factors. This is why I’ve taken such a keen interest in newer, often digitally native, distributors that are outside of “traditional” record industry deals.
A few of these firms’ names include Ditto Music, STEM, Tunecore, DistroKid, CD Baby, UnitedMasters; even TikTok via Tunecore is eyeing the space. Most of these firms were initially backed by tech venture capital firms (Ditto Music is the one obsessed with crypto) that would lean on the narrative of the music industry “post-Napture” being ready for distribution and that artists didn’t need labels anymore (Artists Without A Label…AWAL) and these more online-centered platforms could fill this void. This narrative ignored what was already being offered by both majors and independent labels, and in turn would flatten the music industry and artists' concerns with simply being heard, rather than receiving real financial and professional support to sustain their work. The mindset that said all one needed was the internet to find success seemingly ignored the fact that everyone, including artists with multi-million budgets, got access to this great democratizing force.
The "Self-Releasing" Hustle
A step back might offer a bit more clarity as to where exactly many of these artists fit into the equation. Distribution within the context of major labels, especially in an era where digital revenue dominates, is often just a way to expand one’s footprint into untapped markets via acquisitions and picking up newer acts. Over the last few years, UMG’s InGrooves stepped into Africa, the Philippines, India, and even Iceland; the same can be seen in Tunecore’s expanded reach into similar markets. This, in many ways, is a continuation of the global expansion seen through the 90s during the rise of the CDs that paralleled the consolidation of major labels with no longer regional but soon global supply chains. This contrasts with digitally focused distribution companies that instead of aiming for regional labels, seek to claim any monetizing artist, regardless of one's career aspirations.
This happens at a financial level, where streaming revenue is pooled together and split by market share with this growing number of artists slowly chipping away at the rest of the industry’s revenue. A major label might use its distribution arms to expand its market share in more niche genres of music, but digital-first distributors aren’t so picky. This is why several distribution companies trumpet the quantity (a May 2021 headline reads: ‘DistroKid Says It Distributes ’30-40%’ of All New Music’) over the quality of the music; a contrast to Sony’s AWAL or the Orchard that do find ways to champion individual acts, akin to a traditional record label. DistroKid, which received investment from Insight Partners last year valuing the company at $1.3 billion, wouldn’t be attractive to investors if it was simply stating it had a couple of well-known acts, nope. The company instead tells a story where it represents a third of all new music that’s created; a ridiculous claim paired with an equally foolish valuation.
Another trope of these firms is one of democratization and empowerment for artists. One emerging trend is around music creation tools like BandLab, a startup will say their goal “is to empower artists and democratize music”. But their basic business model is just another music distributor lowering the barrier to flood the market with milquetoast music. Yet, at the same time, there’s an increased paranoia about too much music entering platforms that makes it even harder to stand out. Lucian Grainge, the CEO of UMG, basically said the company needs to ingest less content cause fans don't want it and it costs too much money. Can't say he's wrong. And with all tech companies putting a closer eye on budgets, Grainge certainly doesn't want Spotify and its peers to feel like music is too expensive. Still, if we take BandLab and others’ thesis at face value, then why wouldn’t an artist run towards, rather than away from, a label if they need someone to help tell their story in an increasingly noisy world? The promise of democratization rings hollow when it's clear that your work is just adding up to a clogged pipeline.
Most distribution companies rely on a yearly subscription model that can range from the low-end Tunecore ($14.99) to UnitedMasters ($59.99). This results in a race to the bottom on prices that relies both on an increase in the raw number of subscribers and a competition to provide more features (playlist/radio promotion, verifications, partnerships). The perks that UnitedMasters offers are fairly vague, like “Exclusive Sync & Brand Opportunities”, and this may account for why there’s a healthy community of YouTubers and others trying to determine the best place to release one’s music. (The fact that DistroKid partnered with Republic Records shows ultimately a distro company is just another middleman between an artist and a label.) The questions around what makes a platform better or worse can vary quite a bit in terms of what an artist is looking for but the benefits each platform touts often split between a better understanding of financials (dashboards!) or promotional opportunities. The thinner the offerings feel, the more difficult it can become to understand what interest these companies service if artists aren’t satisfied and DSP aren’t interested in hosting all their files.
The contemporary position of this particular cluster of firms is hard to square. The artist that simply wants to have his or her music available on major music streaming platforms isn’t unreasonable; however, there’s little reason the desire of hobbyist musicians/semi-professionals should intersect with the economics of professionals. David Hesmondhalgh, Ellis Jones, and Andreas Rauh in their paper ‘SoundCloud and Bandcamp as Alternative Music Platforms’ talk about both companies as “producer-oriented” platforms to explain their focus on musicians uploading content, rather than listener consumption. The paper is an excellent comparison of the two companies (in case you don’t know, I do work at SoundCloud); and shows how paying for music, rather than streaming, in many ways is a more internally, and economically, coherent system. The paradigm of streaming emerged during the global financial crisis and the longer we see an era of central bank tightening, slowing tech growth, and increasingly desperate attempts to wring a few dollars from fans, the more this exposes the weak foundations of numerous business models over the last fifteen years. Music distribution just happens to fall squarely in the middle.
Ticketmaster vs. Taylor Swift? Not quite. Ticketmaster vs. Taylor Swift fans? Maybe. Ticketmaster vs. advocacy organizations, government agencies, and general consumer frustrations? Sure, let’s do that. A four-year gap between Taylor Swift tours helped cause Ticketmaster’s website to go down due to overwhelming demand. A frustrating, though not unheard of occurrence, so I was surprised how fast the mainstream press pounced on Ticketmaster’s monopoly power over American ticketing. I’m keenly aware that a group of advocates last month demanded the Department of Justice take action on the merger of Live Nation and Ticketmaster, and it turns out the Department of Justice was already looking into the concert companies. The U.S. Senate is planning to hold a hearing on the topic, and some lawmakers penned a letter to the Federal Trade Commission asking why it wasn't enforcing a law to deal with online bots. Everyone's getting in on the action it appears. Great campaigning and press narrative building to portray Taylor Swift fans as antitrust crusaders.
My last two newsletters focused on the looming recession, so it makes sense to give a quick update. Anghami, the biggest middle eastern streaming platform, announced a 22% staff cut, which again should mention the weird Spotify acquisition rumor that was floated into the press and the fact a recent investor also saw some not-so-positive financial headlines. Though not officially announced, it was reported that Spotify made reductions to its recruitment team, perhaps a prelude to further reductions. Utopia Music, which a few months ago floated raising €300 million, reportedly let go of a number of “some high-level executives – as well as its tech-focused workforce”. No numbers were shared, though given their rapid expansion I’m curious what the company’s internal pitch for itself is at the moment. Amazon announced layoffs of over 10,000 that’d hit the Alexa division, which reportedly is a massive cash sinkhole. Then, over in China, Tencent announced a new round of layoffs in its news, gaming, and cloud divisions.
A Note of Financialization
Primary Wave bought the rights to sixty songs from the songwriting duo Shannon Rubicam and George Merrill, which includes some of Whitney Houston’s biggest songs. The company recently appeared on Billboard’s cover detailing its plan to further exploit the copyrights of the deceased singer and this purchase only further affirms such goals. The final Primary Wave note is that the company is right now being sued, along with the James Brown Estate, by David Pullman, creator of “Bowie Bonds”, due to a deal he struck with James Brown back in 1999. I am a bit curious about this lawsuit because the frequent catalog flipping could heighten concern over ownership. In less exciting news, Iggy Azalea sold her recording and publishing catalog to Domain Capital for an “eight-figure sum”; and the German band Fools Garden sold its catalog to BMG, along with the 90s dance star Haddaway.
6 Links 2 Read
Will the Recession Change Big Tech’s View on Entertainment? - Midia Research
Yes! Excited to see when people start incorporating the regulatory environment into this analysis. (See final link for more details.)
Hipgnosis: Sustainable or Momentary Music Disruptors? - Jimmy Stone
An extensive deep dive into the public finances of the Hipgnosis Songs Fund suggests the company’s aggressive growth strategy might be hitting some headwinds at the moment. A theme of 2022 is the sudden drop in interest in music catalogs compared to a year ago, but Stone’s analysis gives more clarity than what headlines might tell.
A quick profile of a Universal Music Group-backed classical music streaming service also serves as a good primer on the various niche projects that exist within this particular music genre. Even though this is a UMG project, it's interesting to follow more niche streaming products.
Typically a “news” item that consists of tweets wouldn’t deserve a mention; however, the lil rap nerds online were def correct to point out that views on Don Toliver and Roddy Ricch’s recent singles oddly spiked.
Two excellent podcasts covering the tech industry downturn and the ongoing drama at FTX, and what it might say about the draining of liquidity from crypto, and other risk assets.
Feds likely to challenge Microsoft’s $69 billion Activision takeover - Politico / Meta's Metaverse Ambitions In Jeopardy As FTC Challenges Within Unlimited Acquisition - Yahoo Finance
Even if the amounts are far apart, the Federal Trade Commission (FTC) challenging, and potentially blocking, either a $69 billion or $400 million acquisition could produce a massive ripple effect. It could signal to tech, and possibly other industries, that the government is game to challenge private sector consolidation. And if not, at the very least maybe it could produce a fun side effect like Nvidia's failed purchase of Arm hurting Softbank.