Hello, readers! I haven’t given an overview of this newsletter in a minute, so let me do that. My name is David Turner, I used to be a full-time music journalist but now my day job is at SoundCloud. Penny Fractions began in 2017, originally looking at music streaming, and has since expanded into roughly two monthly essays on the music business. If you appreciate my work, please forward it to other prospective readers and check out our current advertiser Water and Music. (You can also email me at: firstname.lastname@example.org, if you have any thoughts or questions.) The last few issues were brief histories of Warner Music Group, Sony Music Entertainment, and Universal Music Group. This week’s subject steps out of the history books and examines the power of major labels with a keen eye towards Sony’s recent purchase of AWAL.
Earlier this month, the United Kingdom’s Competition and Markets Authority gave provisional approval of Sony’s $430 million purchase of AWAL, an independent digital music distributor. This story, like the initial opening inquiry, wasn't covered extensively outside of the music business press, but keen readers will know I’ve taken quite an interest in this ordeal. The reason, as illustrated by Music Business Worldwide’s lengthy defense of the purchase, is a potential decision to unwind the deal could cause significant ripples across the industry. Heightened regulatory scrutiny is the norm for large-scale major label purchases but one being stopped in its tracks hasn’t happened in many years. The CMA is continuing its final review of the deal but this gives a nice opportunity to see just how heavy a thumb that major labels can hold on the scale of recorded music.
Last year, I covered the role music distributors like AWAL, Distrokid, STEM, Ditto Music, etc. serve within the contemporary recorded music industry (emphasis mine): “Sony’s recent purchase of AWAL, a formally ‘independent’ music distribution company, may help explain this web. The company’s aim wasn’t sheer scale but rather more closely mimicked a record label, not unlike EMPIRE or UMG’s recently renamed Virgin Music Label & Artist Services that was once Caroline Distribution. AWAL, again financed by Google Ventures and MSD Capital, points out that these firms often function as the tech and music elite’s farm team for the major label system.” I’d like to make a slight correction that Kobalt, which bought AWAL in 2011, is who received that investment a few years later but I think it’s still worth making the connection that “Artist Without A Label” bounced from an independent distributor to a distribution company with major tech backing into minor league training ground for Sony. The journey of a brand twisting the wind of the last decade of industry technological shifts and consolidation.
After the CMA gave its preliminary ruling on the deal, MBW gave an overview of what business opportunities are available to Sony with the acquisition of AWAL. Tim Ingham wrote: “Think of AWAL’s A&R development model as an inverse triangle: it invests a little bit of money into a lot of indie artists each year (AWAL Core); then invests a bit more money in a select pool of these indie artists (AWAL+); before finally (via AWAL Recordings) investing the lion’s share of its resources to thrust just a handful of these artists towards mainstream momentum.” Before unpacking Ingham’s words, I want to put down what Margot Daly, Chair of the independent CMA Inquiry Group, said regarding the purchase: “…the deal is not likely to affect competition in a way that will reduce the choice or quality of recorded music available or increase prices.”
What I wrote last year and what Ingham wrote mirror each other in accessing what Sony’s purchase of AWAL could unlock. However, as Daly noted, the potential impacts on consumer prices or choice don't appear significant, but it does meaningfully reduce artist and worker choice. My skepticism of music distribution, as a business model, is that unless it’s operating at a massive scale, it’ll always face unshakable competition from deeper-pocketed major labels who aren’t running on a thinning pool of venture capital money. Sony’s purchase of AWAL won’t jack up the price of your Spotify subscription but it further limits the music on Spotify, or any other major streaming platform, only being distributed or signed by Sony, Warner, or Universal.
In December, Music Business Worldwide reported on Sony Music’s argument to the CMA for purchasing AWAL, which suggested the two companies aren’t competing for the same type of artists and that AWAL isn’t a financially stable company. That’s certainly concerning since AWAL was founded in 1997 and appeared to be an unsustainable business. That reality shouldn’t be understated, however, for anyone looking at the music industry job market that might hold some aversion to slotting into the major labels system, a well-known name just went off the prospective board. There is currently a bill in the New York State legislation that would update antitrust laws and state senator Michael Gianaris spoke to the issue of how consolidation hurts the job market when speaking with Matt Stoller’s BIG newsletter: “The workplace also works under the principles of competition. The worker has a choice, ‘I can go work for Company A and Company B and Company C or Company D. The more choices they have, the more power they have to demand a better salary or better benefits or whatever the case might be.” Decades of music industry consolidation have seen thousands of jobs lost and the foreclosing of options for workers in the industry to pursue their passions outside of the major label reach.
Paul Pacifico the CEO of the independent label trade organization AIM was correct to say: “Sony arguing that even a hugely successful independent like AWAL would have struggled to maintain its position alone highlights the sector’s need for better support to scale-up.” This quote is in line with AIM’s suggestion of tax breaks for their particular sector, which is a proposal for government support of independent music. I'd argue not a very imaginative one, but it shows that if Sony’s argument is correct, then the independent record industry faces real threats. Such a narrow view of competition from the CMA, and other regulators, over the last number of decades is what’s produced this rather absurd situation where recorded music is dominated by three labels. The combined market share of these firms dictates the terms that other labels, tech companies, artists, and workers in the industry must orient themselves.
Chloe Lula in Resident Advisor explored the history of industry consolidation and shrinking consumer, artist, and worker choice within recorded music when looking at the artist Four Tet’s lawsuit with his former label Domino. The piece also contains an intriguing quote from the British MP Kevin Brennan who told the reporter: “The major takeaway from the bill was that major labels need to be broken up.” Brennan is referencing a piece of legislation that didn’t make it to the House of Commons but was an early attempt to build upon last year’s parliamentary inquiry into the digital music business. His statement appears a bit bolder considering the CMA is right now investigating major labels and their impact on markets.
Trade associations like the BPI and RIAA are always quick to point out record industry revenue growth over the last few years and that it’d be unwise to upset this recovery out of a prolonged recession. They allude to the impact of piracy, how streaming helped curb piracy, and the fact there are only three major labels rather than five or six as was the case during the industry’s last peak is never discussed. In fact, the decades-long progression into this oligopoly was born through expensive executive golden parachutes, strong-arming new technology firms, massive label staff layoffs, kicking artists off labels, and degraded musician contract conditions. The possibility of a record industry where success isn’t predicated on a major label deal is entirely foreclosed. The increased scrutiny of the record label business with media spectacles like Neil Young vs. Spotify only obscures that before tech saved the record industry, major labels established what led to its own downturn. Regulators, and advocates, do need to offer a clearer vision of what a successful music industry can be, otherwise, deals like these will only continue to limit opportunities for artists, workers, and ultimately fans.
WTF is going on with Web3?
Artists and music brands have generated nearly $100 million from NFT sales in the past year. But despite this hype, the vast majority of capital is still concentrated in the top 10% of artists and collectors, and the ecosystem is still rife with scams. How can we use Web3 and crypto to foster a more sustainable and equitable industry environment for everyone involved?
Water & Music is a newsletter and research collective building the innovator’s guide to the music business. In December, we published our first, five-part treatise on the state of music and Web3, analyzing several challenges facing the future of the ecosystem from legal, marketing, and technical perspectives.
A number of interesting stories have emerged from New York state in the last couple of weeks. Thomas DiNapoli, New York’s comptroller, penned a strongly worded letter to Spotify about their support of Joe Rogan over concerns about misinformation surrounding the coronavirus. The reason for the action is that the New York state pensions are a minority shareholder of Spotify, a fact somehow completely unbeknownst to me. This statement arrived a week before the New York Times reported on Rogan allegedly receiving closer to $200 million, not $100 million, from the streaming platform.
Outside the ever-confusing world of pension fund allocation, Warner Chappell joined a choir of voices including the Songwriter of North America to support increasing the rate of mechanical royalties by streaming platforms. (Would be curious if there was any historical precedent for this.) Then last to bring back to New York last week there was a rally in the capital, Albany, held by a number of groups, including the National Writers Union of which I’m a member, to pass the Freelance Isn’t Free Act. This statewide bill would help allow freelancers to hold clients accountable for unpaid work and provide real consequences for those who don’t properly pay their contractors. If you’re a New York-based freelancer and are curious about this legislation, def email because I know this is an issue that impact many workers within the music industry.
A Note of Financialization
A new month, a new firm founded with the desire to financialize music catalogs. Multimedia Music, raised $100,000,000 from the Metropolitan Partners Group and Pinnacle Bank to specifically buy up big and small screen music rights. Their first purchase came from the composer James Newton, who has done work for The Hunger Games, Emily in Paris, and many, many more films. In what’s now a fairly routine story, Sting reportedly sold all his publishing rights to Universal Music Publishing Group for $300,000,000. BMG picked up the publishing from the blues artist John Lee Hooker, and late country legend Charlie Daniels saw a third of his catalog go to Bob Frank Entertainment, through their new investment arm: Red Shark Ventures.
Universal wasn’t the only major publisher to make some noise this month. Warner Chappell announced buying up the catalog of the songwriter Jordan Reynolds and that they were forming a joint venture to help convince other songwriters to part with their works. (Does this connect with their recent statement on mechanical royalties, I do wonder...) I didn’t mention it last month but Cosmos Music Publishing, an independent Scandinavian publisher, purchased a “substantial interest” in the London-based Ace Records. I haven’t seen anything specifically citing a recent influx of cash but further consolidation of the independent publishing space is certainly within my purview.
6 Links 2 Read
Web 3.Bro with David Turner - Money 4 Nothing / Why Are So Many Billions Being Spent on Music Catalogue? - Music Ally / Episode 45 - The Idolcast
First off, thank you to everyone for inviting me to their podcasts. Next month I plan to really dive into Web3/NFTs/Crypto so Money 4 Nothing was a good warmup for some thoughts in that space; I’ll have a lot more to say about song right acquisitions soon, and I learned so much about the South Korean recorded music industry on Idolcast. It’s a lotta shows but I do think they’re all worth a listen if my newsletter isn’t enough for you.
Don’t Call It a Comeback (Yet): How 2022 Could Determine the CD’s Fate - Billboard (Subscription)
The fact that CD sales would’ve continued their downward trajectory without Adele’s 30 makes it important to stress the “Yet” in this headline. The argument presented for the CD comeback looks at upcoming deluxe editions by major artists and increased classic rock catalog offerings, which mirrors vinyl trends over the last decade. The fact CDs continue to be minimized by not being included in cars, laptops, and other places doesn’t inspire much long-term confidence in the format, but as supply chain issues continue to disrupt vinyl production, CDs may find a new, if still shrinking, niche.
The Imagined Industry - International Journal of Communications
Elena Maris examined how audiences perceive the creators of media. The study centered on a fan group attempting to revive Xena: Warrior Princess and a group of conservative mothers trying to boycott content they perceived to be immoral. That both groups perceived these companies to be motivated only by corporate profits led to many tactics that fit well within the marketing boxes of the very companies they sought to sway. Even though this wasn’t about music, this offers quality insights into how fans, and likely artists, do, or don’t, understand major companies.
This newsletter’s focus is on the business and technology side of recorded music but I do think there is a worthwhile conversation about what kinds of music are being promoted and supported with the major label system and the real-world impact it can have. This isn’t to provoke 90s censorship and fear-mongering but instead, try to listen to these children and find real ways to address these community issues.
Odd Lots, an excellent podcast by Bloomberg, dove into the brackish times for inflated tech firm valuations. Considering that the recorded music industry is now primarily generating revenue from various tech companies, some may remain sure bets (Apple, Amazon, Google) versus others (Peloton). These partnerships during more lean times might be reevaluated and refigured on both sides of the table.
Cities in China are eyeing “metaverse” investments to further digitize civic life, while at the same time leading national regulator is warning of scams. Considering the recent news on a multi-billion bitcoin hack and OpenSea phishing attack both moves might appear less contradictory than some news coverage might imply.