Hello, I have a brief but exciting announcement. Last year, I did a short advertising run with the Infinite Catalog, an excellent royalty accounting company. Today we have a new advertiser: Water and Music, a music and technology-focused research DAO. I’m excited to promote Cherie Hu, a founder I’ve known and learned quite a bit from the last few years. The sponsorship will run through the end of May.
Today’s essay on Universal Music Group, the last in this recent series on major labels, pulls from the books Appetite for Self-Destruction by Steve Knopper, Fortune’s Fool by Fred Goodman, and Vivendi: A Key Player in Global Entertainment and Media by Philippe Bouquillion. Now let’s talk about an alcohol empire heir that helped reshape the post-CD record industry.
Edgar Bronfman Jr. wanted to be in entertainment. The son of Edgar Bronfman, who helped establish the alcohol company Seagram, wasn’t interested in the mundanities of the family business. Still, Bronfman Jr. mirrored his father, who in the 1960s took a swing at the film industry. So, when Edgar Jr. was suddenly sitting upon his family company in the early 90s, he sought to avert the business away from ho-hum alcohol into the then-booming record industry.
The record business was at the apex of the CD era where the success of oft dismissed genres like country and rap helped industry revenues climb over $10 billion by the mid-1990s. MCA Records was then owned by Matsushita, a Japanese technology company that purchased the label in 1990, which stoked the increasing anti-Japanese sentiment, especially among American capitalists. In 1995, Seagram, via Bronfman, entered into the world of entertainment by shelling out $5.7 billion for 80% of MCA Records, nearly triple what Sony paid for CBS Records less than a decade prior. Bronfman proceeded to pluck Doug Morris, who was growing frustrated with constant infighting within Warner Music, to head up the new label. Bronfman now stood ready to dive into the record industry.
Before going further, MCA Records’ history offers a light blueprint for where the company would close out the 20th century. MCA Inc., formally a talent agency founded in the late 1930s, purchased Decca Records, one of the early 20th-century big-name labels, in 1962. (The non-music firm purchase of a record label mirrors Seven Arts Productions purchase of Warner five years later.) The label poached smaller labels throughout the 60s, nabbed ABC Records in 1979, and picked up GRP and Geffen Records in 1990. These acquisitions helped keep MCA Records a persistent player within major American labels even if it wasn’t on the top of the pile. However, it would be through the same methods of acquisition and astute partnerships with rising independent labels that would allow it to sit atop the industry in a number of years.
The troubled 1990 merger of Time and Warner would by the end of the 90s go on to reshape the record industry. Only a year after the purchase, Bronfman and Morris would be given the new heart of their venture. The prolonged media storm and bad publicity of gangster rap and Interscope’s Death Row Records made the executives at Time Warner feel ready to exit this seemingly never-ending public relations crisis. The solution would be to sell back the company to its founders Ted Field and Jimmy Iovine, which let MCA Records pay $200 million for 50% of the label. Later that year, MCA Records would go through a rebrand: Universal Music Group.
Two years later, Seagram would buy Polygram, bringing together the two companies' vast entertainment departments, and ironically putting David Geffen and Polygram Records under the same roof after Geffen departed from the same company. In 1998, UMG signed Cash Money Records to a $30 million distribution deal, which would pay off in the coming decades with artists like Lil Wayne, Nicki Minaj, Drake, and The Weeknd all standing under the same umbrella. Then, to kick off the new decade in 2000, Seagram orchestrated a merger between Seagram, Canal Plus, a French television station, and Vivendi, a French conglomerate dating back to the mid 19th century. Vivendi Universe was newly birthed via a stock swap in an effort according to Goodman in Fortune’s Fool to avoid taxes. The deal resulted in a French-centric, but very much globally expanded, conglomerate that would almost immediately struggle to support its massive size.
The original Time and Warner merger and the subsequent messy deal with AOL at the height of the dot com bubble showed mounting evidence that these kinds of media-heavy multinational conglomerates weren’t the best proposition. Unless you were an executive receiving a gold parachute rather than being unceremoniously fired. Vivendi pretty immediately after the deal was suddenly facing tens of billions in debt and a declining stock price. This led to the company selling off Vivendi Universal Publishing, Houghton Mifflin, and Vivendi Universal Entertainment as it tried to concentrate on its business ventures. Universal Music Group, much to the chagrin of Edward Bronfman who wanted to back his prized possession after giving it up a few years earlier in the deal to make Vivendi Universal, would not hit the chopping block. He would go on to buy Warner Music Group with a set of private equity firms, but UMG would continue cruising into the record industry’s doldrums at the front of the pack.
In the mid-00s, UMG dominated the recorded music space but not the publishing one. That changed when it bought BMG Music Publishing for €1.63 billion as the German conglomerate was divesting from the record industry, which allowed Universal Music Publishing Group to become the world’s largest music publisher. Then, in 2011, after EMI’s own private equity takeover disaster and aided by the global financial crisis, its recordings business was bought by UMG. The collapse of the two European major labels created the current “Big Three” major labels composed of Warner Music Group, Sony Music Entertainment, and Universal Music Group. This was the height of the iTunes and digital download era, but the framework of the post-sales record industry was already at play.
The decades-long consolidation allowed these major labels to both invest in tech firms like Spotify and dictate certain terms that these new technology firms could access music. Many credited UMG for exploiting this situation when the company announced plans to go public in 2021. Still, prior to the IPO, UMG sold 20% of itself to Tencent and another 10% to long-time hedge fund manager Bill Ackman, further gassing up the potential price of the company as it was seeing year-over-year returns on streaming growth. UMG’s IPO valued the company at over $50 billion and rewarded Lucian Grainge, the company’s CEO, with a $150 million payday, which caused many musicians and politicians in the United Kingdom to balk at such an excessive payment. However, the music business press couldn’t, and still can’t, stop lavishing praise of Grainge, as he’s become the avatar of the industry’s contemporary boom period. The Financial Times in a profile last year showed him explaining the need for tough negotiations with tech firms like Snapchat to make sure his label gets the best deals from their newly deep-pocketed partners.
The company currently sits firmly atop the record industry. Taylor Swift when free of her original record deal didn’t go independent; she went to UMG. Last year, HYBE, the entertainment firm behind BTS, entered into a “partnership” with UMG and by the end of the year, BTS jumped from Sony over to UMG after two years where the group, with help of questionable fan tactics, dominated global music charts. UMG is of course looking at projects within the “metaverse” and announced a Bored Ape Yacht Club “supergroup”, which hopefully won’t be a “thing”, but if one label is ready, it’s Universal Music Group. Bronfman when creating the label in the 90s and even in the dire 00s, correctly saw a world where music isn’t constrained to a physical format and instead everywhere would make up for then declining profits. Record execs obsess over market share during boom years and UMG is built to dictate these fluid terms.
Technological change is impacting every vertical of the music business, from recorded music to live shows and artist branding, at an increasingly rapid pace. How can music professionals keep track of these multiple parallel trends, and sift through the noise to get at the heart of what really matters and why?
Water & Music is a newsletter and research collective building the innovator’s guide to the music business. We’re on a mission to empower the industry with the knowledge, network, and skills to do more collaborative and progressive work with technology.
Join our membership today to support our work and follow our analytical discussions. Penny Fractions readers get a 30% discount for the first three months.
Last week, I got a nice email challenging a couple of points I made in my last newsletter, which I felt were worth addressing. The first was around the idea of Clive Davis introducing rock music to CBS Records. They correctly noted that the label had acts like the Byrds and Bob Dylan, and though both arrived from a folk tradition, it wouldn’t really be right to say it lacked rock prior to Davis. And the other point was on the role of rap music within Sony. I didn’t mean to imply that the genre was entirely absent from CBS Records. Columbia distributed the genre’s first mainstream label: Def Jam. I’ve really enjoyed doing these histories but could, and likely will, do more to unpack this history.
The Neil Young, Joe Rogan, and Spotify ordeal is a self-serving media circus only to the benefit of those parties involved. This spectacle didn’t cause Spotify’s stock to tumble (blame that on Netflix), Apple Music banked some easy media hits off this, and consumers are again made to think harder about their individual media consumption without any tangible call to action. Artists should and are actually fighting for legal protection to stand against tech platforms, but this media event is only obscuring, not illuminating, industry power dynamics.
The Competition and Market Authority in the United Kingdom is right now accepting comments as it does a study on various competitive, or not, parts of the “music value chain”, to use their phrasing. The UK’s examination of the record industry remains top of mind for this newsletter so if any researchers or groups reading this have something to say, please do. Last week, Warner and Universal Music Group both announced they were following Sony’s lead from last year in waving unrecouped balances. A recommendation that was made by the CMA report last year, so can’t say this inquiry isn’t already making some impact.
A Note of Financialization
The ball of music rights purchases continues to roll down the hill this week. Music Business Worldwide reported that Pimco may have made its first deal for the recording, publishing, and “name, image, and likeness” for Robbie Robertson of The Band. Kilometer Music Group, the Canadian-based acquisition firm, held true to its original mission by acquiring the rights of Canadian producer Murda Beatz. The company said and is now showing it won’t be limited to music of the north by picking up the catalog of the r&b singer Bryson Tiller. Primary Wave got a small part of Def Leppard’s publishing and masters, which Billboard’s Kristin Robinson on Twitter pointed out the band’s already sorted past of split rights. Then Primave Wave and Round Hill Music both bought different parts of the Alice in Chains catalog, honestly, I cannot imagine this wasn’t some press emails exchanged to get the news items out on the same day. Reservoir Media signed a global deal with the producer Warren “Oak” Felder that included the notable “future works” stipulation, which again shows a deal looking ahead, not just backward. The company also bought the catalog of the country songwriter Buddy Cannon.
Outside of single catalog purchases, the still relatively young Exceleration Music purchased the catalog of the venerated indie label Kill Rock Stars. KKR is looking to turn the catalog it bought from Kobalt into bonds, which again shows that Bowie Bonds were indeed too ahead of their time. Then to close Wise Music Group acquired the Italian publisher Baby Angel Music, and I’m curious if they’ve raised any notable outside money. I don’t know who, if anyone, provides additional funding to WMG but would be curious to know more if that might be the case. Though the company may still be spending the $50 million it was sitting on from previous asset sales.
6 Links 2 Read
Independent Canadian Music in the Streaming Age: The Sound from above (Critical Political Economy) and below (Ethnography of Musicians) - Popular Music and Society
This is a wonderful study. Andrew deWaard, Brian Fauteux, and Brianne Selman synthesize corporate consolidation, government withdrawal of capital to support Canadian music, and the arrival of music streaming as creating such a dire situation for working musicians. It’s great seeing such holistic accounting of the changes in the lives of working musicians.
The Sandbox: Where Digital Land and UGC Collide - Naavik
Naavik, a research consulting firm at the intersection of crypto and gaming, just released a new report on the Sandbox. The crypto-based “metaverse” company recently announced a deal with Warner Music Group that set off a number of alarm bells in my head about “investing” in digital property. And while Naavik’s full report is behind a steep $1,000 fee, the introduction that you can read above illustrates a number of early red flags about this still alpha-stage venture. Major labels are announcing so many metaverse and NFT deals but it’d be good for all involved to dive a bit deeper into what these companies are promising.
Why I Don't Believe in Music Royalty NFTs, Yet - MusicX / Unpacking Music Royalty Investment NFTs - Midia Research
Bas and Tatiana Cirisano both identify a number of key concerns with intertwining NFTs and music royalties. Neither is convinced the current proposals for these NFT projects are a strong deal for listeners and potentially unearthed a number of real legal and regulatory concerns.
Deep-Internet Bubbles: How Microgenres are Taking Over SoundCloud - No Bells
A cool investigation into the various digital subcommunities that are emerging on SoundCloud and interrogating what is or isn’t a genre. Most of these clusters might not need a real genre tag, as most emerge from the same “post-SoundCloud” rap scene that’s already got enough labels (hyperpop, digicore, plugg, etc.). Still, it’s cool seeing young musicians both running away and towards differing forms of categorizations.
Been Down So Long It Looks Like Up to Me - Brooklyn Rail
An interesting take on this confusing global economic moment where inflation is rising across the western world, supply chain issues abound but the overall economic health of countries is relatively firm. The title couldn’t be more apt as it appears the pandemic appears to have undone everyone’s internal compasses to understand these trends.
Rave's Psychedelic Resurgence - Resident Advisor
A cool essay looking at the history of psychedelics in dance music and contextualizing its recent return. Personally, I appreciated the notes about there being a rise in this particular kind of drug usage over the recent years, pre-pandemic, as a way of addressing deeper anxieties that exist among ravers. Can’t say I don’t relate.