Hello, hello from the depths of winter in New York City. This week’s newsletter is on the history of Sony, and I would again like to shout out the books I read for this knowledge: Sony by John Nathan, Hitmen by Fredric Dannen, The Economics of Music by Peter Tschmuck, and, of course, Appetite for Self-Destruction by Steve Knopper. If you enjoy this newsletter, please forward it to a friend! Now, let’s head down to Georgia.
Sony executives sought to make inroads in America. Company leadership made the voyage across the Pacific Ocean to scope out peer companies like General Electric and rub shoulders with business elites in New York City since the 1950s. A couple of decades later, as the company was continuing to expand, Akio Morita, one of the company’s co-founders, and his wife arrived at Augusta National, home of the Masters golf tournament, alongside Peter Peterson. The former head of Lehman Brothers prior to founding the Blackstone Group in the mid-80s, Peterson was one of many American executives that developed strong ties to the Moritas. This early 70s pairing would spur a decades-long connection between the two.
The 1960s were a boom time for the recorded music industry. Rock music was responsible for the industry’s new mass reach into the hearts and minds of American and British teenagers. However, CBS Records wasn’t much swayed. Columbia Records, acquired by CBS in 1938, represented much of the company’s identity, and with acts like Miles Davis, Johnny Cash, and Barbara Streisand, there wasn't a rush to chase new fads. That didn’t stop rock music’s rise and CBS after a while couldn’t retain relevance without the genre. Clive Davis changed that. The now legendary record executive took control of Columbia Records in 1967, and over the next few years signed several rock acts to the label. By 1970, CBS Records was sitting atop of the record industry dogpile.
The company’s fortune wasn’t limited to domestic sales. Harvey Schein, of CBS Records, and Norio Ohga, a top dealmaker at Sony, established CBS/Sony Records in 1968, which would quickly become the most successful venture at either company. The money pulled in by CBS/Sony would become a point of contention between the firms, as CBS tried and failed to rack in a larger share of the profits. Lingering tensions aside, the deal caught the attention of Sony leader Akio Morita, who tapped Schein to head Sony America in 1972. He oversaw the company’s western growth throughout the decade, while CBS Records was facing issues.
CBS Records experienced a long 70s. The record label was quickly overshadowed by the proud conglomerate label Warner Elektra Atlantic (WEA) in market share, largely because CBS pursued expensive singular acts instead of poaching entire labels. The label also saw the departure of its star executive Clive Davis after several early 70s scandals over payola accusations, many of which were highlighted by CBS’s own investigative journalists in a TV documentary. His absence left a label full of aging acts that were being surpassed by competitors. The late 70s recession caused by increasing oil prices and the consolidation of radio and retail hit the label hard, and unlike Warner, who were able to avoid intense layoffs due to the monster sales from the video game maker Atari, CBS Records lacked such a cushion. Two thousand employees were fired from 1979 to 1982. Luckily for the label, over in Japan, Sony was working on a product that would revive the entire industry.
Since the early 70s, Sony engineers were experimenting with digital audio, to the chagrin of analog engineers within the company; by the late 70s, numerous companies settled upon a new digital standard that emerged from Sony and the Dutch technology firm Philips: CDs. Norio Ohga in particular was excited about the impact CDs could have on the CBS/Sony Records business once there was a cheap enough mainstream player. In the midst of an industry-wide recession, record industry executives weren’t eager about this potentially capital intensive new format, but Ohga’s CBS/Sony Records was quick to release their first commercial CDs in 1982. By 1986, revenue generated by CD sales in the United States alone would reach nearly $1 billion. (Buttressed by the fact the new format nearly doubled the cost of recorded music for the consumer.)
CBS Records needed some good news. The American label wasn’t doing so hot in its home market and acts in the United Kingdom (George Michael, Sade, and The Clash) and in Japan were propping up the company. That changed with a single album. Michael Jackson, a child pop star since the early 70s, rode the high sales of his 1979 album Off The Wall into his late 1982 album Thriller, which would go on to be one of the best-selling albums of all time. Jackson, along with bigger name acts like Bruce Springsteen, helped ease CBS Records into the CD revenue boom that started in the late 80s. Unfortunately, while the label was stabilizing, its parent company was not faring quite as well.
CBS plunged itself into debt to avoid a hostile takeover in 1985 from Ted Turner, the CNN founder who was obsessed with owning a broadcast news network. This led to the company shedding its book and music publishing arm, CBS Songs, to make up for the money spent on anti-Turner stock buybacks. Suddenly, this put CBS Records, the country’s premier pop label, potentially on the selling block. Drexel Burnham Lambert, a financially dubious investment bank, threw an offer to CBS President Lawrence Tisch. However, Walter Yetnikoff, the president of CBS Records who helped broker the original deal that formed CBS/Sony Records in Japan, wasn’t going to let go of what he thought was rightfully his. The board of directors at CBS approved both offers, but after the ‘Black Monday’ stock market crash in late 1987, they reconsidered. Tisch agreed to sell CBS Records for $2 billion to Sony with the financial guiding hand of Peter Peterson’s Blackstone Group, in a deal that can be traced back to Morita and Peterson's meeting at Augusta National.
Yetnikoff received a handsome payday for the deal but would be out of CBS Records by 1990. Sony gave CBS Records a facelift in 1991 with a new name, Sony Music Entertainment, and promoted Tommy Mottola, who was nipping at Yetnikoff’s heels for years. The high sales of artists like New Kids on the Block and Michael Bolton, along with Mottola’s own close eye over R&B star Mariah Carey, solidified the label’s position. Massive CDs sales also helped spur the rise of Japan, which by the late 90s was comfortably the second-largest global recorded music market. Much like CBS Records in the 60s wasn’t too interested in rock, the most popular genre of the era, the same could be said of Sony and rap, which was left to the folks at Warner and Universal. Still, Sony was able to distinguish itself in the realm of publishing when it bought ATV Music from its own label signee Michael Jackson in 1995, making Sony/ATV Music the world’s biggest music publisher.
By the turn of the millennium, Sony held major label status but was starting to feel the weight of diversifying across many industries. The “technology” firm now dabbled in music, movies (Columbia Pictures), video games (Playstation), and suddenly the music side was tumbling. Increased prices for radio promotion, limited retail options, and record companies’ own hubristic move of eliminating cheaper CD product lines only compounded stagnant record sales. (Large music video budgets and excessive executive salaries also certainly didn’t help in this matter.) This repeat of the late 70s crisis saw numerous attempts at buyouts and mergers amongst majors, and some didn’t make it. Sony and BMG received regulatory blessings to merge in 2004, creating Sony BMG. This deal resulted in thousands of employee layoffs, and around the same time, Warner’s new private equity owners were overseeing a similar wave of mass firings.
Now firmly in the middle of a recession, as music sales shifted from physical to digital, Sony saw quite a bit of internal shuffling at the executive level to accommodate a changing industry. At a near industry nadir in 2012, Sony purchased EMI Publishing from the now-fallen UK major label after a disastrous private equity acquisition in 2007 and the independent music distributor the Orchard. Sony also partnered with the prominent electronic label Ultra in 2012 (which it fully bought last year), bought Ministry of Sound in 2016, and partnered with Tencent to form Liquid State in 2019 to further reach into the Chinese market. Last year, Sony purchased the distributor AWAL, which is facing regulatory scrutiny in the UK, began eyeing NFT deals, and announced a label with Anghami, one of the Middle East’s largest streaming platforms.
Sony Music Entertainment emerged during the rise of the CD onto a landscape that was in the middle of consolidation, which its arrival in many ways affirmed. Sony, like CBS, leaned heavily upon big-name acts to carry the label, and until the last ten years, wasn’t on the buying spree that defined Warner in the 70s or MCA, then Universal, in the 90s. That Sony’s biggest western artists are ones like Adele, Beyoncé, Bob Dylan, and Bruce Springsteen points towards the company’s early 20th century roots of not chasing the trends of the day and instead cultivating regal popular music figures. Even Sony’s 2021 announcement about clearing unrecouped assets on older record deals shows a light commitment to compensate for the industry’s past of treating artists poorly. The company’s expansion over the last few years, with international joint label deals and decades-long success in the UK and Japan, again echoes CBS Records. Sony, even reaching back to the days of Columbia, is a label that understands the importance of talent being able to reach across the globe.
IMPALA, a trade organization for European independent labels and publishers, is calling upon the Competition and Markets Authority (CMA) to investigate Spotify’s Discovery mode over concerns about its devaluing music on the platform. This is a concern shared by folks in the United States House of Representatives, so we’ll see if this leads to anything further on the matter. Staying in the UK, Annabella Coldrick, head of the Music Managers Forum, wrote a blog post again highlighting the opaque contracts signed between major labels and companies like Facebook and Bytedance, the need for more transparency, and potential remuneration for artists producing the music that makes these multi-million deals worth signing. I’ve followed Coldrick’s lead and mentioned this many times throughout the last year, and I still think it’s a massively under-explored approach—musicians need to demand more of labels and governments. China’s government is reportedly keeping a closer eye on investments by larger tech firms like Tencent, which, as we saw last year, can create a wide ripple effect across the music industry.
A Note of Financialization
The Financial Times reported that BMG is working with Pimco Partners, an investment manager with over $2.2 trillion under its watch, to do what every major financial firm is doing now: buying up song rights. Anna Nicolaou’s piece states that while these deals might not reach the heights of BMG’s existing relationship with KKR, this further confirms the relevance of song rights as an asset class. Also, interested to see what, if any, difference between BMG’s various investment efforts.
Now, for the actual sales of those hot, hot catalogs. Bob Dylan sold his recordings to Sony for reportedly $200 million, and this even includes future recordings. Luis Fonsi sold his entire publishing catalog (writer and publisher’s share) to HarbourView Equity Partners, which is backed by Apollo Global Management (the first announced deal by the firm). Primary Wave, an elder statesman of the market, bought the music publishing catalog of Paul Rodgers, singer of the bands Bad Company and Free, for $20 million. They also spent $40 million on the “rights” of Gerry Beckley and Dewey Bunnell from London band America. Round Hill Music collected the publishing and recording masters and agreed to a “long-term administration agreement for the neighboring rights income” with David Coverdale of the band Whitesnake. Reservoir Media purchased the publishing rights of the late songwriter Fred Rister and the publishing and recording catalog of Travis Tritt, a country singer. Then, to close out catalog deals, country star Kenny Chesney sold 80% of his recorded music royalties and a gaggle of other rights to Hipgnosis and Blackstone in their first reported deal.
Finally, the last, last, last bit of news. The Wall Street Journal reported on Massarsky Consulting, the accounting firm responsible for valuing most of the companies’ catalogs mentioned in this newsletter, including Hipgnosis. They were bought by the accounting firm Citrin Cooperman, opening up a new sector for the firm, as explained on their website. Always fun to learn more about how these headline-making deals are put together.
6 Links 2 Read
Music Stocks Are Off to a Bumpy Start - Billboard (Subscription)
The sharp downturn currently experienced by American tech firms and crypto does feel like a market correction. However, the recorded music industry’s recent revival rests a lot on the largesse of tech firms willing to take on these money-losing projects. It’ll be fun to see how this shakes out, given that Netflix’s stock also tanked last week on lower than expected subscriber growth numbers.
The Money in the Metaverse - The New Yorker
A wonderful essay exploring who the metaverse is for. Hint: it’s not for you or me, but it’s certainly for our credit cards.
Audius’ Next-Generation Streaming Service Is Plagued by Piracy - Billboard (Subscribe)
The NMPA and the RIAA complaining about Audius not having an adequate process to identify copyrighted content is amusing to me. (Little about Audius excites me as a project, but the quote here really could be pulled from 1998.) Hopefully, Audius raised enough money to pay off these trade groups down the line.
What if 2022 isn’t the year of Music NFTs - The Liminal Space
Dan Fowler doesn’t make an argument against NFTs here. Instead, the piece explores a bit more deeply what is needed going forward for crypto and NFTs to make a more profound impact on the music industry. Fowler has extensive knowledge of performing rights organizations and that shines through in his thinking on this topic.
Abolish DJ Idolatry - Technomaterialism
A strong argument for reorienting electronic music’s political economy, which elevates DJs at the expense of other workers (a fact that’s become far more clear in the last two years of the pandemic).
The Race to Save Hip-Hop’s Lost Eras - Pitchfork
An interesting story highlighting the increased push by libraries and universities to archive ever-decaying pieces of rap history. Wouldn’t’ve minded a passing mention of previous generations of online archivists like Andrew Noz’s Cocaine Blunts or even the many blogs that also did similar work a decade ago, but hey, that’s me getting nostalgic there.