Hello, hello. First up, on November 9th (next week!), I’ll be celebrating the 5th anniversary of this newsletter at Nowadays in New York City. Please click here and press "interested" to RSVP. If you enjoy this newsletter you can click here to subscribe at $4/month or $40/year, otherwise let’s look at how the music industry might weather a more recessionary climate.
All year recession concerns have floated across the globe. And this month, I wanted to explore how inflation, central bank interest rate increases and quantitative tightening, and sell-offs in tech stocks are further reshaping the music industry that was hit hard by the coronavirus pandemic. These next two issues will take a wider scope, starting with some music business history, looking outside of the music industry, then diving into various sectors of music. This will take on a wide scope but I wanted to begin a few decades ago and the interweaving of financial capital into a then-struggling recorded music industry.
Music’s Finance and Tech Boom
Gabriel Meier earlier this year wrote an essay titled ‘Sound Money’ that explored the depths of financialization that’s hit the music industry in the last forty years. Building upon research from my newsletter, Meier periodizes the encroachment of finance capital into the record industry from the 80s via the consolidation of the record label and publishing industry; then the post-financial crash arrival of private equity, asset managers, and investment banks into song catalogs. This framework in my view helps contextualize the moment we’re in not only in why billions of dollars have flooded the song catalog space the last couple of years but also the near complete shift of recorded music revenue coming from primarily in-industry production (physical goods) into digital assets whose commercial terms are organized by complex licensing deals, tucked away from working artists or smaller labels. So, let’s do that quick history.
During the record industry’s first major downturn in 1979, Thorn Electrical Industries Limited, a British electronics company, purchased EMI, then one of the largest record labels. Prior to this monster deal (£169 million), most big purchases were record labels buying other labels or at least firms within the entertainment industry, but Thorn’s merger with EMI saw outside capital ready to place a bet on an industry coming into its own. The next major deal occurred with Sony’s purchase of CBS Records with the assistance of a then little-known private equity firm, the Blackstone Group. After the 1987 Black Monday crash, spooked Lawrence Tische at CBS, he felt finally compelled to sell the label after years of scheming by Walter Yanikoff to escape under the thumb of CBS. As Meier notes, this arrival of financial capital would reach its zenith with the multiple private equity firms that took over Warner Music Group in 2004, resulting in massive staff layoffs and artists being dropped. (I wrote a mirror history of publishing a couple years ago.) A shift in the movement of financial capital in the music industry adjusted after the global financial crisis.
The arrival of song rights firms can in many ways be credited to the low-interest rate policy of central banks, where suddenly excess capital needed a home, and song catalogs were sold as a potentially lucrative space to go. An early strong example was the in 2009 when a Dutch pension fund (Stichting Pensioenfonds ABP) spent $200 million on the catalog of Rodgers and Hammerstein, who a decade later and after a number of catalogs mergers be able to corral a majority of songwriting revenue from Ariana Grande’s hit song “Seven Rings”. Headlines of major artists selling catalogs for eight or nine figures define this era and much of that can be credited to the record industry’s pivot over the last two decades into the arms of the technology sector.
The Recording Industry Association of America (RIAA) estimates that streaming represents over 80% of industry revenue; this decade’s IPOs of Warner and Universal Music Group both cited increased revenues from technology firms being a key to future growth, along with the international expansion of streaming. Still, the interweaving of music and technology is nothing new, after all, it is the recorded music industry. However, the current version is far more bound up in the fortunes of certain technology firms via major label licensing deals with the big four streaming platforms, or their regional equivalents. Last year China started imposing more regulations upon its tech sector, Billboard used the headline “How Tencent Music’s Problems Ripple Through the Business Worldwide”. This highlights the globalized aspect of the contemporary music industry that wasn’t even the case a decade ago before the western industry was able to fully stretch into these markets. Still, this is one example and in many ways foreshadowed the tech down that’s happened throughout 2022.
The Not-So-Subtle Market Shift
In January, Netflix announced it grew by less than Wall Street expectations which sent the stock plummeting, a feat that’d be repeated the following quarter when the company announced a true decline in users. That’s why the stock sits nearly half from its pandemic high; the company’s slightly recovered but after accepting moving into the advertisement business, making layoffs, and also slowly admitting it’s no longer growing its biggest spending markets. Meta saw its decade-plus-long narrative collapse under similar pressures. Declining users, stagnant revenue, and is also throwing billions at metaverse projects which investors aren’t that keen on with its stock at lows not seen in over five years. These early-year bad headlines have only intensified in the tech space as companies like YouTube see a contraction in their advertising business. The result of these headwinds is tech firms losing over $3 trillion worth of market cap since the top of the year.
In late February, Russia declared war on Ukraine leading to the death of thousands of people, causing increased political instability in Europe, good disruptions, and also forcing many businesses to second guess their footprint in Russia. The music industry wasn’t immune to this, as recently as the summer of 2021 Spotify was talking about launching in Russia as part of its continued expansion plans, which it has since walked back from. That uncertainty hasn’t dissipated as the war continued, and even the recent confirmation of President Xi Jinping to the third term in China has global companies unsure about the prospects of investment long term in the country. That doesn’t mean major labels are leaving China, but some have notably moved offices to other southeast Asian countries and Spotify’s stock swap with Tencent Music certainly isn’t feeling too great.
Then on top of all of this, central banks across the world began to increase interest rates in a manner not seen in decades that’s wreaked quite a bit of havoc in places like the housing market but also in risk assets. The shift in policy was so sudden that it's worth looking back to only two years ago when the Federal Reserve in the United States said it was going to keep rates at zero, when Michael Sukin, a well establish entertainment lawyer, told Billboard “If interest rates went back up to 4%, life would change” when talking about the music publishing sector. Well as of today those rates are expected to exceed 4% by year’s end, and life indeed changed.
The ripple effects are already hitting finance and tech. Meta announced it was looking to make 10% cuts; Microsoft announced about 1,000 to be laid off in addition to limiting hiring; Google hinted at a hiring freeze but appears to still be spending; Spotify announced hiring reduction and made light layoffs in their podcast division, and Snapchat announced twenty percent cuts. In the world of venture capital some of the biggest players during the pandemic like Tiger Global and SoftBank’s Visions Fund, who also announced layoffs, are also feeling the pinch as capital steers clear of riskier assets. This is hitting large, medium, and small firms. Though cuts haven’t hit banks too hard, Goldman Sachs did a few layoffs which appeared to hit its “technology, media, and telecommunications division” according to the New York Post. The sudden shift in the outlook for major technology firms is in many ways still being processed.
The music, even as it reports solid earnings, cannot turn a complete blind eye towards the struggle of the larger technology second. 70% of recorded music revenues come from companies that spent the last fifteen years spending with reckless abandon, which is rather suddenly making an about-face shift. An example to eye would be Twitch, owned by Amazon, which is facing its own existential reckoning to become profitable and frustrating creators on its platform in the process. Still, the company must be happy to have not bent over backward during the height of the pandemic and signing deals left and right with labels and publishers that might’ve locked into a revenue-sharing agreement that doesn’t make long-term financial sense for a business where music isn’t its core. Before any more speculation let’s look at how this is already impacting vulnerable parts of the business.
Where the Recession Already Hit
Perhaps unsurprisingly the most financialized parts of the music industry aren’t weathering these early recessionary winds. During the summer, I highlighted the struggles of song catalogs right now, which may account for Billboard’s running more stories on desperate catalog sellers, and also the belabored coverage of Pink Floyd’s own struggles selling their catalog, who might’ve missed the market peak. The Hipgnosis Songs Fund is now just an outpost for our friends at the Blackstone Group, which based on the amount of extensive Financial Times reporting may not be the company’s favorite pandemic-era investment. Then BMI, the performance rights organization, in the span of a few months called off an attempt to sell after finding little buyer appetite, announced layoffs, and is now transitioning to a for-profit business model. Alongside the deflation of the song catalog space, the SPAC bubble burst, leaving The Music Acquisition Company SPAC ($200 million) and Liberty Media’s own SPAC ($575 million) to self-immolate. However, the rampant speculation wasn’t only found in inflated assets.
There also exist disasters like Pollen and Triller. Both companies, likely more we’ll see in the coming months, which raised tens of millions of dollars and beyond not having a sustainable business, also don’t appear to be much interested in paying bills to anyone. Even the music industry’s bête noire Bytedance announced $3 billion worth of stock buybacks in the summer. A potential sign the company, for potentially many of the reasons cited earlier (plus concern over Chinese investment), may not be looking at the same lofty valuation it might’ve assumed it could’ve fetched during the height of 2021. Amazon, on the heels of disappointing Q3 results, reportedly fired half of the staff of its Amp product, which was supposed to be its reimagination of radio. The intersection of music and technology isn’t faring much better than the rest of the broader tech space.
Over the last twenty years the decline in physical sales and shift towards digital, further burdened touring to be the main source of revenue for many working artists. The coronavirus shutdown saw a massive number of people eventually leave the industry and even with the reopenings since 2021, many haven’t returned and that’s caused struggles for all involved in the live music supply chain. That, on top of artists having to cancel tours due to covid. Perhaps more than any part of the music industry, touring has felt the impact of inflation with higher gas prices, plane travel, and other goods. That’s why larger musicians (like Harry Styles) are now embarking on longer residencies that involve less touring staff and also can net higher ticket prices by only playing in top-tier markets like New York City and Los Angeles. Some of these shifts could help with the ongoing mental health stress artists are expressing in canceling touring but they're still the sustainability of touring feels increasingly precarious.
What binds these two parts of the music industry is that both reflect post-financial crisis shifts in the music industry. The extensive leaning on touring to supplement artist income was understood to be tenuous but that’s only intensified with the pandemic shutdown, and now high inflation. This is only exacerbated by the consolidation of live music venues under Live Nation, increasing rents that push out smaller spaces, and particularly right now an incentive for higher price events to make up for lost revenue in 2020 and 2021. And then for speculative outposts of the music industry, the inflated valuations of catalogs were likely going to deflate but it’s the weakness of the music tech space that’s more interesting. That so many firms exist to only be gobbled up by a bigger company and can sometimes reveal themselves to be little more than ways for big names to cash on their namesake again makes it hard to feel bad that they’re the first ones to really struggle. Next issue, I’ll explore other parts of the industry and if they’re better prepared to ride out these choppy waters.
If you’re in the United States and have federal student debt click here to apply for relief. I can only stomach so much talk of “community” and “helping artists” when an easy-to-use government program is right here, certainly helping more artists than most buzzword-filled startups. Anyway...
Music supervisors over at Netflix are looking to unionize with the International Alliance of Theatrical Stage Employees (IATSE) and YouTube music content moderators in Austin, Texas are looking to unionize with Alphabet Workers Union, which is part of the Communications Workers of America (CWA). Long shot but would love to speak to any folks part of this AWU-CWA effort if any readers know a connection. The American Economic Liberties Project sent a letter to the Department of Justice to attempt to unwind the merger of Ticketmaster and Live Nation for its monopoly of the ticketing space. Good luck with that!
A Note of Financialization
Harbourview Equity Partners appears to be picking up Hipgnosis’ old playbook of endless news announcements, so let’s check in on those. Billboard suggests the company paid $325 for SoundHouse, a firm founded in the mid-2010s that spent money picking up discounted master royalty streams, and typically avoiding publishing. They also picked up Incubus’ publishing catalog. Primary Wave paid $20 million for the complete catalog of Huey Lewis and the News. Wise Music Group bought the catalog of the Canadian songwriter Sylvia Tyson. Reservoir Media got the entire current, and future, catalog of KayGee, from Naughty by Nature; they also picked up the masters and publishing of Louis Prima, an old-school swing artist who happened to have a recent TikTok hit. Desperate trend-chasing continues to express itself in new ways.
6 Links 2 Read
The Music Industry Needs a New Format - Midia Research
Mark Mulligan suggests the increased weight of social media companies for music could open the door for a new format to be created. How exactly it would be determined, Mulligan leaves up to the industry to figure. His greater point is that blank licensing deals leave money on the table and sooner than later, the industry needs a clearer way of adjudicating this segment.
Chris Castle restates a consistent theme from his work about streaming platforms needing to directly pay featured, and non-featured performers but broadly this points out that many countries hold plenty of keys to more tightly regulate the streaming business than are being enforced right now.
Negrophilia in Club Culture - Techno Materialism
Another intense critique of dance music’s cultural relationship to black artists, but I wouldn’t mind some brighter clarity on the next steps.
It’s Official: Meta Is a Disaster - New York Magazine
Mark Zuckerberg’s billion-dollar metaverse investments continue to be a boondoggle and with the stock dropping to levels not seen since 2016, it’s harder to find anyone thrilled with the company’s vision.
As Microsoft’s $68.7bn Activision Buyout Awaits Approval, Games Giant Files Patent for AI Music Tech - Music Business Worldwide
Next year I should dive into how the music business press views the video game industry because it's constantly evoked as an under-tapped piggy bank.
The Knife At Your Throat - Brooklyn Rail
A long, critical review of American inflation, Federal Reserve policy, and the increased impact of climate change upon global politics. Expansive but fun!