Hello, hello, hello! I wanted to kick things off with a quick plug for the podcast Money 4 Nothing, where we discussed the recent UK Parliamentary report, and Cherie Hu’s excellent music industry coverage at Water and Music, which just announced an exciting move away from Patreon. If you enjoy this newsletter, please forward and recommend it to a friend! I’m currently not asking for any money, so the best way to support this project is by sharing it with others. The next newsletter will be out on August 25th, and I’ll return to an every other week cadence in the fall. Now, let’s get into this 100+ page report on the post-digital record business.
Last month, the UK Parliament’s Digital, Culture, Media and Sport (DCMS) committee released its report on the economics of digital music. I’ve covered this inquiry a couple times this year, but here’s a very brief explainer of how we got here. After Covid-19 sent the industry into a moment of crisis, years-long frustrations with the economics of digital music (see: Thom Yorke’s comments on Spotify from 2013) bubbled over. Tom Gray of the the Ivors Academy, along with the UK Musicians’ Union and others, then began an effort to campaign for an inquiry, which ultimately led to this report. My repeated coverage of this report is fueled both by my having a relationship with some folks involved, and my own interest in seeing what government solutions might be offered to working artists. I was pleasantly surprised by the report’s recommendations, but before my praise, I want to talk again about the music piracy narrative.
Last year, when I first appeared on the podcast Money 4 Nothing, I wanted to challenge the idea of Napster taking down the record industry. My argument on the show was that this narrative conveniently ignores decades of consolidation across recordings, publishing, radio, retail, and even digital spaces. Using piracy as the trigger point for the industry’s decline provides an easy to avoid accountability for the predatory business practices that precipitated such a fall. This notion unfortunately seeped into this report. On page 7, the authors write: “Streaming services have provided a new and legitimate mode for people around the world to consume UK music and return the music industry to growth following over a decade devastated by digital piracy.”
Dr. Peter Tschmuck, an economist and author of the Music Business Research blog, posits that the United Kingdom’s record industry fell into recession in 2005, several years after music piracy reached its pop cultural zenith. He credits that recession not to piracy, but rather to the format shift from CD to digital downloads (a similar transition briefly occurred in the late 70s with the pivot from vinyl to cassette). This comparison is never made in the paper; in fact, there’s little mention of any music business history prior to the 90s.
That may be understandable for a paper on the digital side of the business, but this approach obscures what was going on with the record industry in the 90s. It was an era of labels and publishers buying each other, increased payola towards radio hits, and collusion to jack up CD prices. This obsession with the imagined golden era of the 90s can distract from the prospect of creating something new. Still, even if occasionally clouded by nostalgia, the report’s research and findings provide a rather clear vision of the contemporary record industry.
The paper begins by establishing the economic stakes of the British record industry with some particularly flashy stats: 200,000+ workers, over $7 billion in gross added value to the UK’s economy, and over $700 million in export revenues. It’s from this 10,000ft view that the paper unmasks how money is made in the 21st century and the convoluted path it takes for artists to get paid. A useful chart from CC Young & Co, a music accounting firm, shows that a performing artist might only get 16.5% of the revenue from a stream and a songwriter 10.5%, with the majority going to the record label and a smaller sum to publishers. It’s this disparity that motivates the calls for more equitable remuneration (e.g., a 50/50 split rather than this nearly 3:1 split in favor of labels and publishers). Concerns with the $9.99/month all-you-can-stream model are made obvious by the anxiety over stagnant average revenue per user (ARPU). The issue, however, is that the money isn’t going to the artists and that the pie being split needs to grow.
What follows is a rather dense back-and-forth about whether to consider a stream a sale or a rental, which as the paper details, holds significant implications for artist compensation. The authors observe that there’s a rather clear split amongst various interest groups on the matter, with “creator unions, campaign groups and trade associations, several (non-domestic) collecting societies and several academics” favoring rental, so to set the groundwork for an equitable remuneration push, while “record labels and their trade associations” supported the categorization of streaming as a “sale” as to avoid such potential changes. (Funnily enough, the UK’s biggest publisher trade group stayed neutral.) The report is supportive of the former approach, but first considers the many sides of the argument
Slightly less fraught, the report goes on to unpack issues with industry metadata, which has only become more complex in the digital era, and calls for more transparency in royalty calculations. Both are areas that nearly everyone in the industry would like to see reformed, though what this means may be cause for disagreement. Much to my delight, there’s a rather lengthy summary of the amount of consolidation that exists within multiple sectors of the music industry, and they even include Cherie Hu’s chart showing the cross ownership of streaming platforms and major labels. This section and its eventual recommendations surprised me the most because consolidation is something that often feels left out of the conversation about why today’s artists struggle so much compared to the past. The potential economic harms of major label consolidation may be under-discussed in the context of streaming but the next section put its aim on a long time enemy of those same companies.
YouTube is no stranger to critiques from record labels, and this report is no exception. The company is practically given its own section around issues of safe harbor laws. (Regulation around user-generated content (UGC) in the US and UK does differ, so I’ll keep this rather surface level.) What’s notable is that the report both acknowledges the work YouTube’s done around this issue (Content ID), but also sees how YouTube’s lax policy around user-generated content hurts artists and distorts the overall streaming market (can the value of a stream increase if the content is freely available on YouTube?). The critiques of YouTube aren’t misplaced, as this report shows the many angles that reflect this reality.
The report’s biggest surprise came from the final recommendations. The overall stance—and perhaps this should not be surprising considering the groups that lobbied for the initial inquiry—is fairly inline with the desire of the #BrokenRecord campaign and artist advocates. The authors speak favorably about equitable remuneration and explain some legal precedent that might need to shift to make way for that. Issues around major label oligopoly and streaming service market dominance were recommended to the Competition and Markets Authority for further investigation. Should that body find potential issues with how these markets are currently operating, it would potentially prove to be a signal for greater action on the part of the government.
The paper suggests a real desire to better address issues around metadata and royalty transparency, as well as to increase the level of scrutiny on deals between major labels and streaming platforms. There’s a frustrated tone when it comes to the knowledge gaps that appear as a result of the obscure nature of these major deal negotiations. With issues around YouTube, the call is fairly clear: “Government should introduce robust and legally enforceable obligations to normalise licensing arrangements for UGC-hosting services, to address the market distortions…[it] must ensure that these obligations are proportionate so as to apply to the dominant players like YouTube but does not discourage new entrants to the market.” The report is neutral towards payment models like user-centric streaming. Instead, they call into question the deals between platforms and labels, which could prevent experimentation with newer models. The twenty-five unique recommendations, if implemented, would represent one of the biggest government-led reshuffles of an industry in living memory.
The next step for this inquiry is to hear back from the UK government. Some news coverage is a bit skeptical about how much the government will want to pick up here (I’m curious about the recommendations of the major labels to the Competition and Markets Authority). Still, the MP Kevin Brennan already announced a bill that would push for equitable remuneration, so it would appear that there are folks that want to see action regardless of the government’s stance. Major labels are also apparently ratcheting up lobbying efforts and, according to Variety, looking into their older contracts to perhaps to get in line with Sony’s recent change around recoupable royalties. (The report made this suggestion as well.) Small steps, but signs of industry reform. Still, the fact that such a report was commissioned and delivered should demonstrate that there are plenty of approaches to address industry concerns. It’s exciting to see what could be a truly global movement to reform the industry.
Several songwriter groups shared a letter with Digital Music News pushing against a call for the Copyright Royalty Board to maintain a freeze on mechanical royalties and demanding more transparency in the process. A worthy demand and one that I support, so I’ll keep an eye on what remains an under-politicized part of the record industry.
A Note of Financialization
Money continues to flow into the world of song catalogs. Hipgnosis raised $215 million from shareholders; Shamrock Capital picked up $196 million from “leading pension funds, foundations, and financial institutions” (wonderful); and, to close the circle, Round Hill raised $86.5 million. Then, in the world of special-purpose acquisition companies (SPAC), a new challenger appears. I2PO, a French SPAC, is looking to raise $325 million to invest in “music, but also ‘streaming & distribution, media IP & services, gaming & esports, e-learning, leisure platforms.’” I won’t speculate on what they’re looking for, but I’m sure some middle managers are prepping their decks.
Now, to answer the question of where that money is going. Last week, Billboard reported that Primary Wave, a private equity-backed music rights holding founded in 2006, is now the primary owner of Prince’s estate. That wasn’t the company’s only move, however. In July, Primary Wave bought a 50% stake in the master recording rights of Chris Isaak and the publishing catalog of the producer Steve Kipner. Notably, Isaak signed to Sun Records, which Primary Wave purchased earlier this year, and he’s planning on releasing music. The private equity firm morphing into a legacy record label to reintroduce an artist whose catalog they just bought is a curious development. Concord Music Publishing bought the publishing catalog of Lori McKenna, a long time songwriter, which indicates they must be spending some of the $600 million the company raised from JP Morgan last year. Finally, the newly-public-via-SPAC firm Reservoir purchased a minority stake in Outdustry and is looking to launch a joint venture building upon the smaller firm’s work within the Chinese publishing world.
6 Links 2 Read
Are we witnessing the death of the streaming megahit? - Music Business Worldwide / The Rosy ‘Creator Economy’ Is Music’s Biggest Lie - Rolling Stone (Subscription)
Tim Ingham came out swinging last month by pointing out that total streams for hits are dipping and that the “creator” or “passion” economy may just be bullshit. Regarding the former, it’s interesting, though not unreasonable, to see that streaming peaked somewhere right before the arrival of Covid-19. His other piece put a smile on my face because I’ve long disliked Patreon and am excited that folks like Cherie Hu are leaving it behind to really take control of their businesses.
Making Sense of Metrics in the Music Industries - International Journal of Communication
Two of my favorite music researchers, Nancy Baym and David Hesmondhalgh, contributed to an eight-author paper that examines how music industry professionals think about music data. I’m generally skeptical of music data, but I hope more research is done in this area as music data informs many decisions across the industry.
TikTok Owner Shelves IPO Plans After Chinese Regulators' Warning: Report - Billboard (Subscription) / Tencent Music given 30 days to end exclusive deals with global labels in China - Music Business Worldwide
China’s current wave of tech oversight and regulations continues to affect some of the global record industry’s biggest firms. As always, I'm open to hearing from any expert in the fields of Chinese tech or music to better understand these developments
A blogger decided to really, and I mean really, dig into the math behind “Butter,” the most recent American no. 1 song by BTS. I haven’t written about Billboard’s chart shenanigans in a while, but it’s pretty clear that BTS fans are coordinating to inflate the popularity of their favorite band. While adjustments from Billboard would be reasonable, I’m a bit more interested in trying to understand what’s led to this particular style of organized engagement from fans. These are clearly very devoted people, but as the author notes, it can be disheartening to witness so much energy misplaced into free marketing efforts.
Khaaaaan! - This Machine Kills
Earlier this year, several artist advocacy groups wrote a letter of support for Lina Khan, a highly respected antitrust scholar, to be approved for the Federal Trade Commission. President Biden heeded those and many other calls, as she was appointed to chair the FTC, and quickly inspired Amazon and Facebook to call for her recusal in possible investigations into the companies. Hard to imagine higher praise. This podcast reviews Khan’s short but exciting journalistic and legal career and hints at where the FTC might go under her watch.
Who owns the night?: the complicated reality of the Night-Time Economy - DJ Magazine / Clubbing Is a Lifeline—and It’s Back - The New Yorker (Subscription)
Local government can often be antagonistic towards music communities, so I’m always curious to see how that tango goes for folks trying to build bridges (in this case, in London). Then, The New Yorker explores the early days of NYC’s electronic music scene coming back online. This is a scene I frequent so just wanted to give this nice piece a mention.