Tidal and the Evolving World of Musician Financing

Hello! Good morning, afternoon, or evening whenever you’re opening this email. No major updates or anything, just my usual request that you please forward and recommend the newsletter to folks who might be interested! Also, check out our returning newsletter sponsor, Infinite Catalog, for all your royalty accounting needs. Now, let’s get into Jack Dorsey’s beard, neobanks, and the age old practice of advances.

Jack Dorsey, founder of Square and Twitter, did his alleged friend Jay-Z a favor. Music streaming isn’t a great business—certainly not when your company barely represents 2% of the overall market—but Square decided to pony up $302 million to take Tidal off of Jay-Z’s hands. Though not the outcome that the rapper and his peers envisioned in its lofty early days, it's not a bad one considering there’s an ongoing Norwegian fraud investigation into the firm. The purchase, however, couldn’t just be framed as a couple of celebrities trading cash. No, there needed to be some kind of narrative.

Unsurprisingly, the initial pitch for Square’s vision for Tidal arrived via Twitter, where Jack Dorsey hinted that the role of Tidal could be to help artists with analytics tooling, making references to Square’s journey. (The connection between rap and Square’s Cash App is probably worth a mention.) Later in the summer, on Twitter Spaces, Dorsey and Jay-Z talked about the origins of this corporate connection and again the Dorsey said: “I’d tell you stories about our work around helping small businesses — most of the financial industry is working against them. And in conversation it just became so apparent that there were so many parallels in spirit because of what a musician and a small business is going through.”

As of Fall 2021, there’s very little to show for this collaboration, but this idea of artists as small businesses in need of financial assistance isn’t just chatter between billionaires. Especially since the arrival of the internet, there’s been an accelerating trend to isolate and atomize musicians. While many firms exist at the intersection of music, finance, and technology, a more straightforward answer to this tendency has emerged: just give the record label a data-first facelift.

Last year, Instrumental, an “A&R startup” that is partly owned by Tencent Music, announced a £10 million fund to invest in artists they discover and provide them with “marketing, playlist pitching, PR and radio plugging.” So, basically a record label. Yet, that isn’t how the money is framed; it's called the “Instrumental Music Fund,” instead of an “advance.” This aversion to traditional record industry speak, however, doesn’t define all of these companies.

Earlier this year, UnitedMasters, backed by Alphabet, Apple, and a16z, outright stated they’d provide advances of $1,000 to $1,000,000. Yet, I found the copy Music Business Worldwide used to describe the technology rather revealing (emphasis mine): “ChordCash tech engine evaluates artists’ streaming and social data to generate advance offers which – when combined with a “streamlined” verification and documentation process – leads to advance funding landing in artists’ bank accounts within days.” Of course, getting an advance faster is a good outcome for artists, but I fail to see how exactly scraping social media and streaming data advances this mission. Are major labels really slacking on pushing cash in front of desperate teenagers? That’s been their bread and butter for nearly a century.

It’s not surprising that these proposals are sought out by music distributors, (see: this paper about Tencent’s unique music distribution role in China) which are often backed by tech and venture capitalists, and pushed by Bitcoin fanatic Jack Dorsey. In the end, many of these companies are just recreating the record label setup, but they’re proposing that receiving access to data and control over one’s masters are a worthwhile tradeoff for what is still a loan on future earnings. That’s how Nerve, a “neobank” targeting musicians, is able to slip onto a site like Music Ally, when its only true selling point is allowing quick payment between artists (which presupposes all parties involved are using the app).

Overall, this is a relatively benign corner of the contemporary record industry. Tidal doesn’t have direct relationships with artists and is likely too hamstrung by its major label deals to present any unique finance options. Twitter’s recent NFT and Bitcoin tipping experiments could hint at a new direction for the company. Still, UnitedMasters and several other startups are committed to this narrative of artist empowerment through data in a way that doesn’t challenge the record industry’s traditional financial setup for artists. It’s still just a loan.

IC #4: Collaboration = Compensation

Creative collaboration used to be IRL, local, and limited; now it’s online, worldwide, and effectively unlimited, with more creators, tools, and communities collaborating in more ways than ever. Everyone can benefit so long as we make sure collaborators are compensated in an equitable, transparent, and timely manner. Friends, that’s called royalty accounting, and it doesn’t have to be hard.

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

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

Unheard Labor

The United Kingdom’s government responded to the parliamentary inquiry into the digital record business with a few major moves. They recommended the Competition and Markets Authority to look into the oligopolistic behavior of the major record labels. Three working groups will be formed to further develop recommendations that are scheduled for completion in late 2022. Though there weren’t immediate government legislative actions taken, what I’ve gathered from reading different industry group responses is that the door is still open for substantial reforms to the UK’s music industry. I await the day.

A Note of Financialization

Last week, DICE, a London-based ticketing platform, announced a $122 million raise from Softbank. (The Japanese investment firm that pockets a lotta cash from Saudi Arabia and is a big investor in tech loss-leaders like Uber and WeWork.) Only a few days later, DICE announced the purchase of Boiler Room, the venerated, live-streamed electronic music channel. The move hints at more ticketed live-streamed events, even though it remains to be seen how much demand there is for such content. (I must admit it’s increasingly difficult to take seriously the idea of live-streamed concerts sitting so neatly alongside in-person experiences since the difference in value proposition is so vast, but that’s a topic for another day.)

In other news, a new music acquisition firm just soft-launched. Pythagoras Music Fund, a Dutch firm, announced it raised some $117 million from “institutional investors and private Dutch investors,” all with the aim of trying to scoop up “local Bob Dylans,” according to their press statement. Catalog acquisition remains primarily centered in the United Kingdom and the United States, but Pythagoras, along with Kilometre Music Group in Canada, shows this practice has spread across western countries. And not to forget, the company's first purchases were of Nanada Music and Red Bullet, two Dutch music firms.

CTM Outlander, which raised a billion dollars earlier this year, bought one77 music, which includes a couple thousand song rights from blockbuster hits of the 2000s. Then, Round Hill Music purchased the “master royalty income” of the R&B group the O’Jays (if you’re interested, do check the company’s interim financial report that covers the period from August 2020 to June 2021). Several curious little nuggets to come through if you enjoy this particular section of the newsletter.

6 Links 2 Read

NMPA and Roblox reach a deal to dismiss $200m lawsuit / Warner Music Group strikes a partnership deal with Twitch - Music Ally

A curious note about both of these deals is that neither are “traditional” licensing agreements. The Roblox agreement simply walks back the National Music Publisher Association's lawsuit with the gaming company, so expect some more “strategic agreements” akin to what BMG signed earlier this year. (Or “listening parties.”) On the surface, this looks similar to the Warner and Twitch partnership, where the latter is basically providing marketing materials and access to the former’s top-tier talent. The other trend in these deals, beyond vagueness, is orienting these agreements to create opportunities for already successful artists, so this new, growing revenue stream is even more restricted than streaming revenue.

BTS, aespa… despite the Pandemic, a strong 2D strategy for Kpop idols - The Idol Cast

Kara, who helped with a bit of research for the K-Pop record label consolidation newsletter, recently translated a piece by a Japanese K-Pop content creator, DJ Utakata, which dives into the increased interest in creating cartoons and digital likenesses of K-Pop for branded deals. As the article points out, this parallels recent music collaborations with the video game industry and reflects a desire to inject major pop stars into non-music events. Again, I’d like to keep thinking of this as a way for these industries to search for more unregulated areas of potential profit as we enter a period of slowing streaming growth.

Just how difficult is it to make a sustainable living from streaming? - Water and Music (Subscription)

Cherie Hu uses the recent UK Intellectual Property Office report to explore the struggles of career sustainability for artists earning a living only via music streaming. A lotta good observations, though I’ll again mention that streaming under the pro-rata system creates a perverse system where the success of an artist is to the detriment of other artists. Just something to keep in mind when considering streaming-only incomes.

Tears in Rain: Do Androids Stream Electric Sleep? - Dada Drummer Almanach

A fascinating meditation on pernicious bad actors that benefit from the current pro-rata royalty system and how a user-centric streaming model could change this behavior.

The Shape of Web3 Music Communities: Internet Forums with a Shared Bank Account - Water and Music (Subscription)

Bas Grasmayer provides one of the more coherent explorations of how Web3, DAOs, and NFTs can provide meaningful new ways for musicians to organize themselves outside of major platforms and intellectual property holders.

The Fentanyl Crisis And The Fight For Harm Reduction In New York - Resident Advisor

A nice dive into how New York City’s electronic music scene practices safe drug usage and community care. The importance of physical training and events to help train people in harm reduction felt like a nice reminder that while there are seemingly endless digital solutions available to “fix” the music industry, there are often local, non-digital organizations that can speak to a scene's needs without needing ever-more obscure digital instrumentation.