What’s Going on with All Those Music SPACs?
Hello, hello. I started this newsletter nearly five years ago and at two different points offered a paid subscription to help offset the costs of sending out emails and paying my copy editors. (I've also done ads, which truthfully I'm not keen on further pursuing.) I stopped both efforts because I never knew what to paywall and, truthfully, doing two thoroughly-researched newsletters a month can be pretty draining. Some say the third time’s the charm, so if you enjoy my work, you can support me today by either subscribing at $4 a month or $40 a year right here.
Right now, I don’t plan to offer any additional content but if you do subscribe, I have a decent number of old logo stickers I can ship your way, and I’ll certainly answer your email with even more promptness. Ultimately, I have so many things I wanna cover and discuss in this space and I’m already thinking well into 2023 for topics, so any money would only further my commitment to this project. I also know this is a pretty turbulent economic time, so I understand if you don’t want to subscribe. No worries, I won’t be going anywhere. That said, I'll be off till August 17th, and if you wanna see the rest of 2022’s schedule, look here. Now, speaking of money, let's look at a specific coronavirus pandemic-era trend financial trend: Special-Purpose Acquisition Companies, otherwise known as SPACs.
In 2020, when the coronavirus pandemic was at the forefront of global concern, a surprising number of companies were perhaps overly eager to go public. The flood of cash into regular people and corporate pockets by governments and central banks was suddenly redirected towards special-purpose acquisition companies, otherwise known as a SPAC. This method allows for capital to be raised and placed into a blank check company for the purpose of acquiring a company without going through the traditional IPO process. (Note that Spotify’s own direct public listing in 2018 was also an attempt to circumvent the regular IPO process.) Prior to 2020 there were never more than 60 SPACs in a year, and in 2020 there were over 200, and over double that in 2021. The rapid rush of SPACs appears over with similar economic (spiking inflation) and monetary (interest rate increases) forces cooling down the music catalog market I discussed last week. The music industry, especially post-CD crash, never avoids a path towards fast cash and so got very quickly caught up in the SPAC craze.
The proliferation of poorly thought-out SPACs by seemingly random companies and celebrities bled into the music industry. Suddenly there opened a brief window for smaller firms to take advantage of the sloshing money and favorable market conditions. So, we’ll take a look at the companies that successfully completed their SPAC mergers before examining those who are still waiting for that next move. The former are often minor league music firms that might’ve languished in the private market constantly needing to raise new capital; while the latter increasingly look like longshot bets that might not make sense any longer.
In mid-2021, Reservoir Media, the song rights acquisition firm, went public via a merger with Roth CH Acquisition II with a valuation of $788 million. Since then the company’s stock value only briefly in a couple of moments surpassed its initial listing value of $10 and currently sits over 30% below that. Outside of a couple of big-name deals (Tommy Boy Records), Reservoir typically isn’t spending hundreds of millions on big-name catalogs, and is consistently fairly sparse in its details about what is and isn’t being bought from artists. (The lack of details in deal announcements isn’t unique to them but certainly doesn’t inspire much confidence.) Since many of the big players in the catalog acquisition space are private firms or buried within much larger companies, Reservoir is an interesting case study to watch as time goes by. The other two major SPAC deals offer a similar window into another side of the industry.
Anghami and Deezer also went public via SPACs. The former going public was the first major Arab technology company to be on the NASDAQ, a point constantly restated in the press. Even if the company’s stock continues to struggle like most tech stocks (it’s down nearly 70% since its public listing earlier this year), the company is fairly within the nexus of major American and Middle Eastern record labels, so it should feel firm with its current market share in that region. Early financial numbers show that the company isn’t seeing a runaway success of paid subscribers, which really buoys competitors like Spotify; that should be a warning to others wanting to enter the market without the same depth of catalog or regional support. Immediate paid subscriber growth may not be on the table in the region.
Deezer, the french music streaming platform, which went public via SPAC earlier this spring. Deezer attempted to go public back in 2015 but ultimately backed out since the reliability of music streaming wasn’t yet borne out (and its financials looked awful). Ironically, even though again the press frequently touted Deezer’s “unicorn” status as being worth over a billion Euros, the company very quickly saw its price plummet once listed and is right now down over 25% from its debut. Considering that both companies operate within a niche that globally is still led by Spotify, it’ll be hard to imagine either one really bucking any trends not already reflected by the Swedish company. Deezer in particular may end up being the most curious company to follow, if only for a sense of what the market thinks about a pure music streaming firm that doesn’t quite hold global recognition.
If the companies that did go public via SPAC were already a bit on the music industry’s periphery that may explain the ones that still have yet to go through the process. The Liberty Media Acquisition Company raised $575 million in early 2021 with its Formula One group, which caught the attention of the music press because of Liberty Media’s previous investments in SiriusXM and Live Nation. The SPAC merger would need to be completed by January 2023, but so far there’s been few hints at what it may be beyond a brief news report about a failed attempt to buy the football club Chelsea, which sounded a bit like a longshot. Another SPAC waiting in the winds is Neil Jacobson’s perfectly named The Music Acquisition Company, which Hits Daily Double said it was gonna look at “investments in audio, tech, social media and consumer-based companies.” So basically any potential company ever mentioned in Billboard could be on the list. However, that we’re almost three-quarters of the way till the company needs to merge without a potential suitor, would maybe say the market isn’t quite looking as hot as it did back in early 2021. A fact that I don’t think is too surprising because I’d be hard-pressed to name a mid-sized music company that would be primed to go public in the latter half of 2022.
What made me so curious about this particular segment of the SPAC market is that it doesn’t look all that different from the broader SPAC space. However, the press coverage, if one can call reprinting press releases as press, was fairly breathless. Seeing the rather sudden shift in market sentiment with many of these projects may be why some of these SPACs remain without a proper merger prospect and others like Deezer flopped as soon as hitting the market. Again I return the RIAA revenue chart when adjusted for inflation that shows recorded music revenue still nowhere near its late 90s boom era. And that much of the hype and attention with music’s current moment is rooted in an economic and monetary moment that appears to be slipping away from us.
Meta announced that it would be shifting over to a revenue split model for advertisements against properly licensed music. This came on the heels of Epidemic Sound, the company that provides the discounted “fake artists” for Spotify playlists, filing a $142 million lawsuit against Meta for copyright infringement. Soon after Kobalt pulled 700,000 songs from Facebook and Instagram due to their licensing deal expiring. Whether these public news drops helped push the company in this direction or if this was basically another way for the record labels to further ding TikTok, which doesn’t have a revenue sharing agreement, time will tell. So, while in theory, this should be better for artists to be paid by the tech giant; I can’t help but feel this just further legitimizes major labels and publishers, not artists, as the arbiter of how these platforms compensate artists.
A Note of Financialization
Even if certain companies are cooling on music catalog purchases, BMG can’t. The Financial Times reported that the company is still primed and ready to spend a billion dollars on catalog, which the last couple of weeks included the Scottish band Simple Minds and the French musician Jean-Michel Jarre. Mojo Music & Media, keen on investing in country songwriters, purchased the songwriting and co-publishing rights of Sharon Vaugh which spans over twenty years of her career from the late 1970s to the mid-2000s.
6 Links 2 Read
Changing Streaming’s Royalty Model Will Unlock a New Music Economy - Midia Research
In case readers don’t know, over at my day job (SoundCloud) I helped us work together with Midia to put out this report on fan-powered royalties, the economic model our company debuted based on the user-centric streaming model. I’m proud of the report Midia released and the work everyone at the company did to see it through.
Why Some Nashville Artists Are Giving Songwriters a Cut of Their Master Royalties - Billboard (Subscription)
A nice spotlight is shown on country artists looking out for songwriters by splitting the revenue pie of music more towards their favor. Even as the Copyright Royalty Board leans more towards the side of songwriters, small efforts like this are still nice to see.
So…How Much Did TikTok Actually Pay the Music Industry from Its $4BN in Revenues Last Year? - Music Business Worldwide
Major labels are upset with TikTok because deals they signed with the company may not be enough to their advantage. The world’s smallest violin is being played, especially since the blanket deals TikTok got basically were unaccountable checks directly to labels and their trade associations with actual musicians again left outside the equation. And somehow this is TikTok’s fault, sure.
The New Numbers on Music Consumption Are Very Ugly - The Honest Broker
Every headline about old music outpacing new music feels misplaced. There is an argument that post-pandemic albums and singles are lingering more on the charts; however, I’d wager that streaming’s primary demographic of aging millennials leaning into “catalog” listening may be a key factor in this trend, rather than a crisis for new musicians. (Again when “catalog” can include music released in 2020, I’d wager the term may need a bit of rethinking.)
What is a Stream, Anyway? - Dada Drummer Almanach
A cunning post by Damon Krukowski about the absurd attempts by nearly every actor in the music industry to ill-define a music stream with the hope of avoiding regulatory oversight.
K-Pop Histories Beyond BTS (Featuring The Idolcast) - Money 4 Nothing
Two of my favorite critical music podcasts come together for an excellent primer on the K-Pop industry that centers both South Korean political history and the influence of genres like J-Pop, which are often ignored by western press.