The Record Industry Invests in the Metaverse (Part 1)
8 min read

The Record Industry Invests in the Metaverse (Part 1)

Hello, hello! Hope folks are doing well this week. First off, this is the second issue sponsored by Infinite Catalog, and below they've got an interesting take on the rise of profit share deals (i.e., 50/50 deals) across industry sectors. Also, if any college professors would like for me to speak in their classes, please reach out. I really enjoy those opportunities, so hit me up at if interested. Otherwise, let’s jack into the metaverse.

Welcome to the Metaverse

A new internet just dropped and it’s called the metaverse. Tech marketers, excitable journalists, and billionaire CEOs have all tuned their frequencies towards the latest attempt to convince people the future will be fully subsumed by digital platforms. Ben Thompson of Stratechery noted that Microsoft made an early mention of the idea this year, and Mark Zuckerberg won’t shut up about it, whilst promoting dour conference software. Tim Sweeney, CEO of Epic Games, creator of Fortnite, is chatting about it and the rapid success of Roblox may be the root of this sudden interest. (The rise of cryptocurrency also fits into this equation.) The world’s biggest tech and video game firms are all in agreement that the metaverse is happening because they tell us it is, but this message isn’t for us.

Even though many pieces are quick to cite Neal Stephenson’s Snow Crash for birthing the term, CNN provided a rather clear appraisal of this marketing initiative (emphasis mine): “Big companies joining the discussion now may simply want to reassure investors that they won't miss out on what could be the next big thing, or that their investments in VR, which has yet to gain broad commercial appeal, will eventually pay off. And, especially in Facebook's case, playing up the long-term potential for the metaverse could be a useful way of distracting from growing scrutiny in the here and now.”

Despite the last half-decade of tech backlash, industry leaders remain ready to bet on tech as the future of basic human interactions. This is certainly a much more fun and optimistic narrative to tell investors and potential investors than one of looming governmental oversight. Distracted by the metaverse, it’s easier to ignore the Federal Trade Commission’s increased attention on Facebook or China’s low-grade reshaping of that country’s tech sector. This also helps recast the still rather limited commercial prospects of augmented and virtual reality.

While this may be a marketing ploy, it’s one the record industry is prepared to strap itself right alongside. Facebook and other tech firms may talk about AR and VR most often, but the widest and most successful implementation of those technologies is seen in video games. Second Life, World of Warcraft, or even early web games like Neopets are cited as proto-visions of Roblox without the ten-figure valuations. From Michael Jackson’s Moonwalker to the Grand Theft Auto/Tony Hawk franchise soundtracks, there was plenty of overlap between these industries well before the 2010s (not to overlook Sony’s gaming and music intermingling). However, what’s happened in the last decade is a corporate interweaving that’s found new forms. So, let’s begin in China with Tencent.

Last year, when I wrote about Tencent and its growth in the record industry, I intentionally overlooked its role in the video game industry. The simple reason is that Tencent’s reach within the video game industry is ridiculously wide. Here’s a short list, put together by PC Gamer, of companies it owns or invested in over the last decade: Riot Games (100%), Sharkmob (100%), Supercell (84%), Grinding Gears Games (80%), Epic Games (40%), Fatshark (36%), Funcom (29%), Kakao (13%), Bluehole (11%), Frontier Developments (9%), Paradox Interactive (5%), Ubisoft (5%), Activision Blizzard (5%), Platinum Games (unreported), Yager (unreported), and several small mobile gaming firms. This is why venture capitalist Matthew Ball, when spitballing about the metaverse last year, cited Tencent as a potential case study; Packy McCormick’s newsletter presented a similar case.

Still, those in the record industry are likely already familiar with how this might play out within Tencent properties. There’s Travis Scott, Marshmello, and Ariana Grande appearing in Fortnite, and League of Legends spinning up their own digital KPop group. Digital commerce sits at the heart of gaming's metaverse aspirations, where 13-year-olds and 35-year-old marketers stand side-by-side with someone’s credit card in hand to purchase digital goods. The collective post-Covid freakout that inspired a boom of livestreaming platforms and digital-first strategies is what's really behind this metaverse push. Major labels are tripping over themselves to further affirm this digital-first future because of the commercial opportunities it provides, not a desire for more collectivized ownership structures.

Last July, only a few months after Travis Scott’s digital debut in Fortnite, Sony invested $250 million into Epic Games. The investment was relatively small considering Epic’s market cap, but I found this quote from Tim Sweeney fairly telling: “Sony and Epic have both built businesses at the intersection of creativity and technology, and we share a vision of real-time 3D social experiences leading to a convergence of gaming, film, and music.” It’s not hard to see how Sony, with its vast reach across gaming, music, and film, wouldn’t want to sell overpriced digital goods to a captive audience of teenagers.

Not to be left behind, Warner Music Group also got in on the action. The company joined a $520 million investment round into the Roblox Corporation, maker of the highly popular Roblox game. Even if the deal was only for a fraction of a percent, the company also decided to put millions into Overwolf, which allows users to make video game extensions; Genies, a digital avatar firm; and Wave, which began creating digital worlds and has since pivoted to assist with avatar-based live performances. And you know who else invested in Wave? Tencent Music. These deals are contextualized in the press as relating to the metaverse, but they’re simply expanding the possibilities for closed-box digital environments while cutting out the analog firms (see: LiveNation or AEG).

Last year, Music Business Worldwide noticed a cluster of Sony job listings that said the roles would be “dedicated to reimagining music through immersive media.” This was prior to Sony’s investment into Epic Games and before the sudden emergence of this new buzzword in tech and tech-adjacent industries. In the next newsletter, I’ll focus more on the financial aspects, but first I wanted to examine the press narrative and how it connects to the record industry.

Record label investment into these gaming companies is too small to hold any corporate sway. In many ways, these are simply bandwagoning moves (in case the awkward 3-D rendering of Travis Scott or Lil Nas X didn’t make it clear the record industry is ready for tech’s newest trend). Tencent, venture capitalists, and now the record industry are effectively all saying “this is the future” with their millions of dollars in an effort to make sure you know that to be true. A ticketed digital avatar concert that can take place with or without your favorite artists may be the future — or at least, it's the future being presented while touring stumbles out of the gate. This investor-led idea of the metaverse envisions a future in which every interaction is mediated via the American dollar or cryptocurrency.

Hey folks, Hunter from Infinite Catalog here again.

An industry-wide shift to simple profit-share deals - as opposed to the Kanye-tweet-worthy, 80-page-long deals of old - is underway. This “new” model has been proven in the indie community for decades (h/t 50-50 deals), and it works equally well for services like publishing, sync, distribution, management, fulfillment, etc. This means it’s now easy for the same organization to offer any/all of these services… if you can keep the money straight.

Infinite Catalog is the first account-for-anything software + service made for catalogs and artists alike, simplifying royalties so you can grow your catalog while being more transparent.

Infinite Catalog is free to try for 30 days, and Penny Fractions readers get a 30% discount off your first three months.

A Note of Financialization

Where to even begin in the world of song rights this week. According to Billboard, Olivia Rodrigo and her co-writer, Dan Nigo, will lose hundreds of thousands of dollars by adding Paramore to a writing credit on her song “good 4 u,” which is wild. 3LAU, who made headlines earlier this year for his lucrative NFT drops, is fully leaning into that space with Royal, a blockchain-based platform that’ll let fans “invest” into their favorite artists' songs. Forbes reports this will be through “autographed digital assets,” not actual publishing or recordings. Certainly worth reading the fine print on some of these announcements. Shodement, backed by Axial Capital and Sound Royalties, raised $13.7 million to offer loans for up-and-coming British musicians. The company reportedly wants to be “a music version of Blackstone in artists ‘back pockets,’” which is horrifying. There is already too much Blackstone and BlackRock in the record business.

On to this week’s acquisitions. Bill Ackman, while still under fire for his failed SPAC purchase of Universal Music Group, revealed that his firm bought another 2.9% of UMG ahead of its IPO, bringing his total to 10%. Reservoir Media, our favorite SPAC, bought the recorded music catalog of the band Alabama. Primary Wave picked up a “majority stake” in the publishing and master royalties of the Gin Blossoms. BMG reported solid financial numbers for the first half of the year and announced it has 71 catalog purchases in the works, valued at over $1.1 billion, so good to see that KKR money is being put to good use. Get ready to see the press releases start flowing out from them soon enough.

Apple buys classical music streaming service Primephonic - The Verge

The current streaming paradigm is fairly disadvantageous for classical musicians, so Apple putting some cash behind a niche app could point towards more mass-market streaming options for less-popular genres. I should hold off on making conclusions to be sure Apple will put any effort behind marketing this app. Still, it feels like a neat move.

Inside Track: Will Spotify Stay Independent — and Should It? - Billboard (Subscription)

This piece hints at a possible merger between Netflix and Spotify, which could give a bit more credence to the company’s audio-first push. However, the suggestion that Lina Khan’s watchful eye at the Federal Trade Commission could potentially threaten the acquisition makes a lotta sense, though it’s not something I’ve seen reported prior. It’d certainly be exciting to see Khan prevent such a move. Don’t let us down Lina!

How Music Streaming’s Option Anxiety Birthed Another Single-Serving Economy - New Feeling

Since the United Musicians and Allied Workers began their ‘Justice at Spotify’ campaign last year, I’ve wondered if Spotify’s impact is best understood within the cultural, rather than economic sphere. This essay shows how those two perspectives are conflated, as certain economic solutions (higher pay) don’t always address the cultural issues (gatekept playlists, rewarding passivity, etc.). That’s a conflict I think reforms to the current streaming paradigm should address.

Inside Track: NBA's Harden Loses on Social Boxing Flop; $uicideboy$'s Big $$$ Deal - Billboard (Subscription)

A hilarious chronicle of corporate mismanagement by LivexLive with the added kicker of bad celebrity investments.

Understanding Exploitation through the “Saweetie Meal” - Hood Communist

An astute analysis of the McDonalds and Saweetie collaboration, which could be mapped onto a number of recent branded celebrity deals.

Elijah Is Doling Out Music Industry Wisdom, One Post at a Time - First Floor (Subscription)

An enjoyable interview with Elijah, a co-founder of the grime label Butterz, about what he’s seen change, and not, over the last decade.