Hey hey, hope folks are doing well. Brief introduction today. If you’re in New York City, Cherie Hu, founder of the research DAO Water and Music, will be speaking at Betaworks Studios (29 Little W 12th St) tonight about web3 at 6:30 pm. I’ll be there if you’d like to say hello. Otherwise, y’all know the drill, send out this newsletter to anyone who may enjoy it! Now let’s examine a peculiar year for China’s biggest music streaming platforms and their position within the global recorded music industry.
The record industry frequently positions itself as a global business. And for good reason; music exists across all cultures and can truly be found anywhere in the world. However, the recorded music business, rooted in the United States and the United Kingdom, wasn’t always. Business partnerships between CBS Records and Sony back in the 1960s, which would eventually lead to Sony Music Entertainment, show that this isn’t a new trend but decades-long industry efforts. The author Timothy D. Taylor in his book Music and Capitalism: A History of the Present spends a chapter outlining the shift in the 80s by record labels to create the term “world music” as an umbrella term to capture what was a growing market of labels plucking various regional styles for now-global audiences. 20th-century investments in international wings of major western labels, prolonged efforts to clamp down on piracy, and more recently the introduction of legalized music streaming for a mobile-first world, really helped boost up the value of these traditionally less-considered markets.
The rise of music streaming helped American major labels, and large local labels, strike the same YouTube and Spotify-esque bargain of lending out catalogs rather than needing to fully submerge themselves into each particular market. (Also, the lack of regulation has helped firms buy up or partner with larger non-western music companies; see Believe’s acquisitions across southeast Asia.) Now, across the globe, there are various streaming platforms like Kakou in South Korea, JioSaavn or Gaana in India, or Tencent Music’s KuGou Music, Kuwo Music, and QQ Music, which are often Spotify-like giants within their own domestic markets. This intermingling of global music firms is championed by industry watchers and, certainly, executives who view non-domestic streaming expansion as necessary, while western music streaming market growth stagnates.
Last March, Tencent Music saw its stock peak at $30.42 and now sits at about a sixth of that value one year later. Ironically, the company’s 2021 Q4 results showed a revenue decrease in its services offerings like live-streamed karaoke but an uptick in music streaming. This is an inverse trajectory of western music streaming platforms that often eye the ancillary revenue of Tencent Music, and even Twitch, as the ideal model to build out alternative business models not hamstrung by major labels. The potential limit for such add-ons might portend a slight rethink of some music streaming business models but that’s not why the stock collapsed. Stockholders would need to take that up with the Chinese Communist Party and ViacomCBS.
In late 2020, China began a campaign of tech regulations that created quite a bit of upheaval within the industry and its music platforms were caught in the frenzy that caused curious ripple effects across the western music industry. Stricter government oversight included eliminating certain sectors like online education, restriction on video game usage, and spooking companies' fears of publicly listing overseas causing a prolonged stock sell-off within this sector. In February, Bloomberg marked China's prolonged tech regulatory shuffle as cutting a trillion dollars of market cap off of firms like Tencent and Alibaba over the last year. These regulations didn’t spare China’s music tech sector but an American streaming business misstep would only further the pain.
In early 2021, ViacomCBS said it would sell $3 billion worth of stock to invest further in its streaming platform, Paramount+. The market didn’t like that and the stock dropped, which ended up undercutting the investment management company Archegos Capital Management’s position in ViacomCBS and a number of other Chinese tech stocks including Tencent, the parent company of Tencent Music. This reportedly caused a loss of $20 billion split among various companies (including many banks) and helped lead to a pretty rapid fall in the stocks of this sector. This ripple hit Tencent Music, which was about to really come into the ire of the Chinese regulators.
Tencent Music was forced to give up its exclusive music licenses, a far less costly measure than the originally reported idea of the company being forced to sell off multiple companies within its music business. The prolonged domestic regulatory instability hammered tech stocks, though there appears to be a softening stance by China as it’s signaled to companies that they can still go public in other countries. Regardless, Tencent Music’s plans for a Honk Kong IPO sat in limbo for most of 2021, and while eyeing its options the stock just kept tumbling. Last month, a report came out that it was still aiming for some Hong Kong listening, as the United States was potentially looking to delist certain Chinese firms. Tencent Music is the biggest Chinese music company but these unstable political times aren't isolated.
NetEase Cloud Music, a Chinese music streaming platform with a strong emphasis on social features, found itself in a similar bind. The company was ready to IPO in Hong Kong but was spooked by the regulatory climate for most of 2021. The company kept kicking the action down the road, which appeared to open up a window late last year for Sony to buy up $100 million worth of shares in the company, just further intermeshing the global recording industry. Cloud Music would complete its Hong Kong-based IPO, but facing similar headwinds as its Chinese tech peers, it currently sits at over 50% down its initial IPO price. This is again despite recent 2021 Q4 results that show decent business performance.
A smaller note but on a similar thread is that Billboard reported that Sony Music was moving its Southeast Asian offices from Hong Kong to Singapore, a trend in businesses avoiding the area as uncertainty about China’s relationship with the city remains. Meanwhile, Universal Music Group, more than any other major label, announced deal after deal in China. The other two majors and independent western labels are still doing business in China and still trying to find their lane in the market.
Billboard covered how Chinese tech stock struggles made an impact on the American music industry, saying: “When Chinese antitrust regulators sneeze, the music business catches a cold.” The volatility is worth highlighting because Tencent owns 20% of Universal Music Group, Tencent Music did a 10% stock swap with Spotify, and Sony owns $100 million in shares of NetEast Cloud Music. This doesn’t even get into the many joint partnerships and connections between major labels and various streaming platforms. A slight update on that quote from Billboard might want to include bad financial reports from Netflix and Facebook, global instability turning into Russia’s war on Ukraine, prolonged uncertainty with inflation, and persistent government regulation also causing ever-heightened uncertainty in the market. These recent ups and downs are notable in showing that the more interconnected the music industry is, the larger the impact of certain domestic, and international, politics can hold.
So your song goes viral. Now what?
The goalposts of music marketing are constantly shifting, and present stubborn challenges when it comes to building long-term careers. For every viral TikTok success, there are dozens of other stories of artists who failed to convert that hype into a sustainable fan base. What tools and mindsets can the industry adopt to close this gap between short-term and long-term value?
Water & Music is a newsletter and research collective building the innovator’s guide to the music business. We’ve published several evergreen, deep-dive articles on music marketing across various distribution channels, from Web3 onboarding strategies to TikTok marketing misconceptions and the power of K-pop fan armies.
Spain announced a 400 Euro voucher for kids to spend on music to make up for the spending drop-off seen in 2020. If this existed before in Spain or exists in other countries, I would certainly be curious to know. In Sweden, the Swedish Musician union is asking for an investigation into the Spotify “fake artist” allegation, which probably should be framed as the company populating its playlists with underpaid musicians.
Back in the US, Elizabeth Warren and Mondaire Jones announced a piece of legislation to help strengthen antitrust law and empower the Federal Trade Commission and the Department of Justice. Bloomberg reported that the Paracast Union, a podcast production company bought by Spotify, is on the verge of a strike as its workers continue to bargain their first contract. Then, to close out what is probably some of the best news I’ve featured in this section: last week, the Copyright Royalty Board ruled it would seek out a new rate for mechanical royalties rather than keep the mid-2000s established $.091 rate for physical sales. This can be credited to many artist advocates, keen-eyed music lawyers, and folks like Chris Castle at Music Technology Policy for keeping on this issue. Hopefully, this signals a change in the CRB becoming more responsive not just to those expensive lobbyists but also to the actual artists impacted by these policies.
A Note of Financialization
Blame, or thank (?), the Grammys but this was a light week of news in the world of catalog purchases. Midia Research published a report showing a 180% increase from 2020 to 2021 in money spent on music catalogs. Billboard’s reporting stresses that this research is likely underreporting the number of sales because of how much of this stuff never makes the news. I’m excited to see some more real research into this topic. Now for actual deals: Swedish House Mafia sold their masters and publishing to Pophouse, a Swedish media company from Björn Ulvaeus of ABBA. The group is also entering a “joint venture” with the company, even though, as always, likely no one, even though signing the deal, knows what that means.
6 Links 2 Read
2021 Study of the economic impacts of music streaming on the Canadian music industry - Canadian Heritage
Last year, I wrote about an excellent report on the Canadian music industry and it was finally published. This pairs nicely with the paper ‘Independent Canadian Music in the Streaming Age: The Sound from above (Critical Political Economy) and below (Ethnography of Musicians)’ which I’ve mentioned before, given that both offer a fairly comprehensive understanding of the Canadian record industry and how it’s changed over the last couple decades.
Flooding the Zone - Data Drummer Almanach
Damon goes deep into the vague numbers attached to Spotify’s latest press effort to say that the platform is good for professional musicians. Streaming metrics are used in such bizarre ways by folks in the music industry, but Spotify’s data presentation is always the most gauche.
With $10 Trillion in Assets, BlackRock Has Set a New Benchmark for Corporate Power - Jacobin
Asset managers are interested in music. See Blackrock’s deal with Primary Wave back in 2017 or more recently Pimco’s deal with BMG. So I thought I'd return the interest.
The essence of place - duck discourse
My coworker Jameson Orvis wrote a piece unpacking the reasoning of digital mapping and how it relates to streaming platform playlist production. This really made clear just how much we’ve lost either from local music journalists, DJs, zines, and record shops in terms of infrastructure to give context to the music.
Remember Spotify’s fake artists? They’re still going strong – and still attracting scandal. / An MBW reader just blew open the Spotify fake artists story. Here’s what they have to say. - Music Business Worldwide
The Spotify “fake artist” story cannot end as people express collective anxiety knowing the company is intentionally underpaying artists to populate playlists. This story does put a smile on my face since it's partly the inspiration for this newsletter. Also, as the second MBW piece lays out, there are numerous ways to register the impact of fake artists but both DSPs and major labels are clearly eyeing new opportunities as they may arise, which should be doubly a concern for musicians.
To Have No Juice - Scare Objects
My central tension with many web3 music initiatives is that the trademark tech rhetoric around disruption isn’t matched by the scope of projects. This essay illustrates my skepticism of these efforts both being limited by the necessity of major label approval, but also that accepting that path towards acceptance basically limits the scope of one’s start-up. This isn’t to chastise smaller companies but just observing that reality’s divergence from rhetoric is helpful to contextualize their efforts.