Recession Looms Over the Music Industry (Part 2)
Hello, hello. First off, thank you so much to everyone that came out to see me, Art & Labor, Money 4 Nothing, and our many wonderful guests at Nowadays last week. Maybe we’ll do it again in five years. Seriously though, I’m so grateful to all of you readers! Now let’s pick up talking about the recession that may already be here or on the near horizon depending on your weatherman.
In the two weeks since my last newsletter, layoffs started rolling through the technology industry. On Monday, it was reported that Amazon is planning to cut 10,00 jobs; Apple and Disney announced stricter hiring freezes. Elon Musk gutted half of Twitter’s full-time staff and thousands of contractors, while advertisers flee the platform. Dapper Labs, an early NFT success story, laid off a fifth of their staff. Stripe, the online payments processing company, announced a 14% reduction and admitted to overhiring during the pandemic. This continues to show that the early impacts of this downturn are reverberating in the economy's riskiest sectors that overexpanded throughout 2020 and 2021. So, let’s now place a wider lens on the rest of the music industry.
Music Streaming Faces Headwinds
In June, the podcast Money 4 Nothing explored the possibilities of the music industry shifting in an era of higher interest rates, inflation, and money no longer being so easy to acquire. Sam Backer, one of the co-hosts, mentioned how Spotify, and its many peers, found cultural success in a post-financial crisis moment and it isn’t clear what these firms will look like as larger economic forces begin to shift. Well, now we’re seeing the whole streaming landscape, not just Spotify make those pivots.
Digital Music News reported that Deezer quietly increased its prices, which may explain why last quarter the company saw revenue increase despite a dip in subscriptions. Gaana, an Indian streaming platform, squeezed by newer competition and a similar tech downturn, shut down its advertising tier full stop. An admission that advertising in the market isn’t at this time worth the investment. Then on the smaller side, MixCloud explicitly said they are not profitable and annouced starting to charge for more creator offering in hopes of securing firmer financial footing. The inability to raise money, while also not maintaining sustainable profitability, is squeezing private firms and placing heavier internal pressure on public ones.
The big four streaming services (Apple Music, Amazon Music, Spotify, and YouTube) represent over 90% of streaming revenue, so a price uptick might slightly improve their margins but most will be funneled toward major labels. Apple Music announced a dollar increase from $9.99 to $10.99 citing the increased cost of music licensing deals. The matter-of-fact announcement gave a green light for the rest of the music industry to say it’s okay to start moving upward. Daniel Ek, over at Spotify, hinted they were happy to see someone else make that first step, which makes sense as the company is eager to find additional revenue (see: Audiobooks now, podcasts who). Meanwhile, YouTube just dropped the news it reached 80 million subscribers, a jump of 30 million in a year (!), but also didn't provide any clarity on where those subscriptions are being sourced. Meanwhile, Amazon is further expanding its Amazon Prime music offering with an expanded shuffle catalog. The increased leaning into paid subscriptions and away from advertising may be further supported by an overall dip in advertising spending at the moment, which plays into a longer-term trend in the music industry of skepticism around free streaming.
The question would be: how much more investment will these platforms get when these companies are looking a bit closer at bottom lines? (Steve Boom, Amazon's VP of Music, speaking with the Verge explicitly talked about the need to build a self-sustaining business.) The fact music streaming hasn’t proven to be a sustainable business can point to bigger questions about the overall economic model, but while smaller firms may flail for more cash, the larger ones cannot also just be written off lose right now. If streaming platforms are looking ahead to an interesting year, then it’d make sense that major labels would follow the trajectory of their main money generators. Except maybe not.
Major Labels Tailwinds?!
Universal Music Group beat expectations with their Q3 earnings explicitly citing Apple's price increase to be a sign of further confidence in this space to current and prospective investors. There is good reason for labels to be bullish here because while streaming platforms may sweat the potential customer backlash to higher prices, labels with their extensive licensing deals will only see the good side of an industry-wide push to increase prices. Though Sony and Warner Music Group don’t hold an equal market share to Universal Music Group both companies are effectively operating within similar frameworks so the success of UMG should offer a good benchmark for the two majors. Then in more regional labels from France’s Believe Music to South Korea’s SM Entertainment, both saw strong Q3 results. A close look into the numbers shows major publishers are also seeing healthy results from the growth of streaming, increased synch opportunities, and the further exploitation of copyright across various technology firms.
When I wrote about social media licensing this year, part was to highlight the opaque nature of these deals and that many appeared to just be blank checks from technology firms to labels, publishers, and their trade associations. That remains true but in a world where Twitter fired half of their company, it’s not clear any of these companies are going to be in the position to continue throwing money around so freely. Twitter might be an extreme example (that hasn’t stopped the trade press from beating this drum though); but there’s also Peloton with a shrinking user base, whose CEO said they should be done with layoffs for now…, Snapchat, who announced twenty percent layoffs to close August. These deals don’t happen overnight, so Pinterest announcing a multi-label licensing deal for its TikTok clone struck me as odd in light of recent news. Top leadership at both Warner and Universal Music Group over the last year have cited the value of these companies as new revenue lines but just as streaming platforms are feeling economic tightness that’s also shared amongst firms that correctly can say music isn’t its main business. Companies like TikTok will become key partners for the record industry whether they like it or not, but the legwork Twitch did to avoid more restrictive deals with major publishers, may become a more appealing template for tech companies that simply cannot afford to write off essentially blackmail checks to music c-suites.
Briefly, I should mention that the speculative hope for labels outside of social media is Web3 and further international expansion. Dapper Labs, the company behind the early crypto “success” story NBA TopShot, announced layoffs. Opensea did the same back in July and continues to see its trading volume plummet even from headline-grabbing lows. Despite that, Warner Music Group announced a partnership with them back in September. Considering the ridiculous number of partnerships and investments Warner’s made in the web3 and metaverse space over the last 18 months, I wouldn’t be shocked that most go bust or see little return as the crypto winter continues and money dries up in that ecosystem. That’s where international expansion is curious because labels can more easily exact global dollars via streaming than other previously available formats, so while headlines are grabbed by these new technology deals, much more quietly, though still reported in the business press; large, not just major, labels are making sure to extend their international reach.
When looking back at the last forty years of money flowing into different parts of the music industry, it's become more curious to me in the last few months just how truly disconnected industry revenue is from music in many ways. The shift of revenue from physical to digital sales and then to streaming only further abstracts how artists make money. The sale and distribution of physical goods at a larger scale would at a certain point require a “major” label with national and eventually global distribution but if an artist wanted to more tightly control their music that was still on the table. But what’s now happened is that the primary mode of music consumption is adjudicated in private negotiations between international firms that trickles back down in what can feel like a digital-only set of options for musicians. It’s this reshuffle that’s now coming into conflict with broader economic shifts that right now that are disproportionately hitting tech that is making an interesting set of events.
Labels may not publicly speak about the health of their digital partners, but certainly, the tanking share prices of Deezer and Spotify, shouldn’t inspire confidence from their business partners from across the table. That anxiety is accelerated by the fact it’s becoming much harder in the last six months to raise money within the technology sector and valuations are being pushed down alongside that fact. This is the backdrop that Apple Music announced a pay raise with most actors within the industry eagerly awaiting others to follow suit. Record executives are increasingly paranoid over TikTok sapping precious attention from more easily monetizable modes of music consumption. The last fifteen years saw a lot of eggs placed into a single basket (streaming) and now that’s facing a real challenge, and again its major labels reaping the rewards while the artists and the platforms are left to negotiate these rougher times.
The UK Parliament's Digital, Culture, Media and Sport Committee is looking to study NFTs, which considering all of the chaos in the crypto market could be interesting to see what they say about the space. On November 1st, New York enacted a law that requires employers with more than four people to post the salary in job descriptions. Companies are already stretching the usefulness of this information with job listings with salary ranges that exceed $100,000. Hopefully, the state crack down on such silliness, because this is a great resource for workers in the state. I was curious about how well music companies are complying, which if you don’t do it you can be fined up to $250,000 for each violation. So here’s a quick rundown: Spotify: No; Amazon Music: Not Hiring in New York!; Apple Music: Some yes, some no; Warner Music Group: Yes; Live Nation: Yep; Universal Music Group: Absurd ranges! But they got em; Sony Music Entertainment: Got Em!
A Note of Financialization
A new challenger appears in the world of song assets and media investments. Domain Capital Group raised $700 million in “equity commitments” and reportedly already spent $170 million of it, perhaps that includes the joint deal they did with Sony Music for $40 million for Ashley Gorley’s catalog. Domain is based out of Atlanta, Georgia so I wouldn’t be shocked to see them lean into film with how much the state dolls out Hollywood subsidies. The only notable purchase was BMG buying a grip of song rights from the songwriter Harry Nilsson. (There was no mention if this involved Pimco or KKR’s assistance.) Then in peculiar crossover deals, Firebird Music Holdings, backed by the Raine Group, bought a “substantial” piece of Transgressive Records, as the company builds out its label and management portfolio. Then over in South Korea, the game publisher Com2uS spent $47 million on shares of SM Entertainment.
6 Links 2 Read
TikTok Pays Artists ‘Almost Nothing’ in Music Royalties – And the Industry is Losing Patience - Billboard / Labels Push for a Share of TikTok’s Advertising Revenues - Music Ally
I plan to close the year talking about TikTok and these two stories certainly will provide some much-needed context as labels begin the semi-public/private negotiations with the Chinese firm. Music Ally did make an interesting point that a healthy amount of TikTok’s revenue does come from Chinese in-app purchases. This complicates record industry narratives that the app’s success is built entirely on musicians.
Why Ingesting 100,000 Tracks a Day May Not Prove Sustainable for Spotify’s Business in the Long-Term. - Music Business Worldwide
Next month, I’m diving back into the topic of music distribution so this caught my eye. I’d argue the actual expenses, though notable, aren’t super concerning to me. Instead, the insistence on ingesting and hosting every song recorded isn’t to the benefit of platforms or listeners. Platforms are loaded with music no one wants to hear all eating into a limited pool of funds for career musicians. I’ll stop before I spoil my entire next newsletter.
Spotify Says ‘No News to Report’ on Anghami Acquisition Rumour - Music Ally
My hunch, no proof or anything, is that this rumor's origins rest more with Anghami, than Spotify. One, Spotify’s not really been one to leak out acquisition targets, and for reasons beyond me, they’re still acquiring no-name podcast apps. The other factor I do find curious is that last year Anghami got an undisclosed investment from Shuaa Capital, and they reported Q2 losses and did a few musical chairs with their board and c-suite earlier this year.
Can Primary Wave Transform Whitney Houston’s Legacy — and Her Estate’s Fortunes? - Billboard
A great history of Primary Wave, Whitney Houston, and the absurd lengths taken to squeeze every potential dollar out of musical assets. Funko dolls, but no NFTs!
Why Amazon VP Steve Boom Just Made the Entire Music Catalog Free with Prime - The Verge
A fairly in-depth interview with Steve Boom, Amazon’s VP of Music, about the history and future of the business. Amazon Music isn’t super exciting to me but it is a big four streaming platform, so always good to stay up to date.
Inflation Is Hurting Average People Right Now - Jacobin
A rebuttal against downplaying inflation without deferring to the Federal Reserve, and instead asserting this is a political problem in need of a political answer.