Happy New Years folks! I’m so happy to be back to writing after doing quite a bit of reading for newsletter research. I often focus on technology companies, while ignoring the labels, so I wanted to flip that to start the year. This week I will look at Warner Music Group’s long history with much of this pulled from Stan Cornyn’s Exploding, Fortune’s Fool by Fred Goodman, How Music Got Free by Stephen Witt, and Steve Knopper’s classic Appetite for Self-Destruction. Each book is worth a read for anyone interested in the music business’s history. Now, let’s go back to the 1950s and meet the Warner brothers.
Jack Warner couldn’t leave show biz. The youngest of the Warner brothers, the Polish men who built Warner Bros. Studios, made sure to find a way to stay in the entertainment industry. The emergence of television in American homes and a 1948 Supreme Court ruling to reign in consolidated film production undercut the Hollywood business. In particular the Warner brothers and their studio. The financial distress of the film company caught the attention of Charles Allen and Serge Semenenko, two longtime financiers of the brothers and company board members, representing Allen & Company and the First National Bank of Boston. The duo wanted the aging brother out. Eventually, the three brothers agreed to a $22 million buyout, but Jack found his way back to Warner Bros. with the goal of running a record label. (The film studio held a record label decades prior but shuttered it during the Great Depression). It was the late 50s, rock music was emerging, R&B singles were buzzing out of stores, and this company arrived at the perfect time to shape the popular music business. Unfortunately for Jack Warner, he wouldn’t be around long enough to see such heights.
Hits didn’t arrive at Warner Bros. Records’ front step. Chart success took a couple years and in the meantime, the label picked up Frank Sinatra’s struggling Reprise Records in 1963 after much-belabored negotiations and a few years later the San Francisco-based Autumn Records, who held early deals with artists like the Grateful Dead and Sly Stone. Even still, Allen and Sememnenko lacked confidence in Warner Bros. They wanted Jack Warner out, and eventually he left with a $32 million goodbye and the continued promise that his family name would remain with the company. The two bankers agreed and quickly maneuvered 7 Arts, a TV syndication company, into buying Warner Bros. at a low price, then spinning the company to go public and cash out. The move worked as WB-7A in 1969, and only a few years later was purchased by Kinney National Service, a conglomerate. Now led by Steve Ross, who rose through the ranks of Kinney, Warner’s high-level corporate strategy was clear. Buy up and merge with its peers like Elktra, Asylum, and even prior to being sold to Kinney, the famed Atlantic Records, then angle for an even bigger payday.
Ross’s conglomerate record label succeeded. By the mid-70s, Warner Elektra Atlantic (WEA) saw substantial market share gains, which in an era of continuing growth could appear more important than the exact figures being brought in. It doesn’t hurt when the record label’s collective roster includes The Eagles, ABBA, Queen, Fleetwood Mac, the Rolling Stones, and the label wasn’t afraid to increase the sticker price on fast-selling items. Intense competition amongst the small record label fiefdoms fueled the company’s overall success. Unfortunately, Warner’s good times would soon hit an industry-wide skid rather soon.
The late 70s saw an industry-wide recession that cannot be simplistically blamed on the oversaturation of disco. Cornyn in Exploding suggests five points of concern to explain this downturn: 1. Record sales moving to bigger retailers that are less interested in the product and would make costly vinyl returns; 2. Radio promotional costs rising; 3. Too much artist freedom; 4. Vinyl production increased and was out of their hands; 5. Anxiety over taping creating too much free music. None of these issues were immediately addressed by Warner since most were economic shifts driven by consolidation (retail, radio) and international politics (spiking oil prices) that were well outside of their remit. Even if Warner could exert more control of retail floor space, Atari, then a little-known video game company, was keeping the company’s balance sheet in the clear. The early video game company was part of Warner Communications Inc, which was spun off by Kinney in the early 70s, and for a brief period in the early 80s sustained WCI during the record industry’s lean years, before its own industry collapsed.
Luckily for Steve Ross and Warner, the music industry was about to be given a new lease on life. Vinyl sales peaked in 1977 and cassettes were taking off, but the CD’s emergence was what made up for the ground lost in sales from aging baby boomers. The transition took a couple of years, yet while overall unit sales stalled, revenue was starting to look up, due to the higher sticker price of the CD. The 80s would be a golden time for Warner’s record labels (the roster this time included: Prince, Madonna, R.E.M.), and even on the publishing side, Warner Chappell arrived via a similar route of banker-first high dollar acquisitions. The 80s set up the 90s where even higher stakes mergers were set up but without the same positive results for Warner’s record labels.
In 1990, Time Inc. and Warner Communications Inc. merged together to create Time Warner. The merger brought together the publishing giant and media firm and resulted in a massive payout for the company’s executives, the lawyers that crafted the deal, and a massive pile of debt ($16 billion) for the new firm. This new debt weighed over Time Warner’s head and suddenly Warner Music started seeing a label exodus, as other labels were ready to make some more money while the industry’s revenue was going up year-over-year. Virgin Music and Island Records, both of which WEA distributed, were sold, and David Geffen handed his own label over to MCA Records. This immediately undercut the label’s market share.
After the death of Steven Ross in 1992, then the CEO of Time Warner, and after nearly 20 years of leading the industry, Warner was falling behind. A cultural backlash around rap music, in particular Ice-T’s controversial song “Cop Killer” and Death Row Records, scared the company’s board enough to have them abandon Interscope Records back to its founders Ted Field and Jimmy Iovine in early 1995. Warner’s loss would go on to help establish the dominance of Universal Music Group, who’d pick up Interscope, then still MCA Records, the following year. American music unit sales plateaued around the mid-90s, so industry revenue kept going up until 2000 on boosted CD prices while shunning away cheaper priced products (like cassettes or CD singles). Warner sat on the sidelines putting out the music that led much of the record industry’s 90s boom.
During the height of the internet bubble in 2001, AOL bought Time Warner and created an even more unstable beast than Time Warner. Music executives at Warner were desperately eyeing potential mergers with either BMG or EMI to pull them from under the weight of their new corporate overlords. However, regulatory concerns kept such mergers off the table, and instead, Edward Bronfman Jr., of the Seagram family, along with a gaggle of private equity firms (Thomas H. Lee Partners, Bain Capital, Providence Equity Partners) and other investors, helped take over the struggling label. Bronfman spent the last decade building up Universal Music Group only to see it slip through his fingers as its owners Vivendi were in a debt crisis. Warner Music provided Bronfman a new opportunity, while people were ready to write off the music industry.
The Bronfman era for Warner kicked off with a need to make massive cuts to the label’s roster and staff. Bronfman brought in Lyor Cohen, formerly of Def Jam, to make these reductions, and though these plans were already on the table prior to the purchase, Warner’s new private equity owners were fine to see them executed. And within a year, Bronfman and Cohen were rewarded with $5 million bonuses at the tradeoff of a thousand former Warner employees' jobs. After the firings and payouts, Warner treaded water while the rest of the industry was tumbling into the digital era. Goodman in Fortune’s Fool suggests that Warner recommended to Apple and Steve Jobs the $0.99 song rather than the tech leader badgering labels to this demand; Warner signed the first licensing deal with YouTube and were early experimenters with 360 deals to make sure the label wasn’t missing out on any potential revenue from an artist in these lean times. These first steps are what’s come to define the record label this century.
When the overall record industry, and global economy, was still in recession, Warner Music Group was once again about to experience a shake-up. Nearly a decade after Len Blavatnik invested $25 million into Warner back in 2003 during its private equity phase was now the new owner of the record label for $3.3 billion. The 2011 purchase was done through Access Industry, Blavatnik’s massive global conglomerate that invested in oil, chemicals, technology, and in this case entertainment. This move delisted WMG from the public stock exchange and let it ride out the next decade seeing a bottoming out of industry revenue in the mid-2010s that started to turn around with the rise of paid music streaming with Spotify and Apple Music.
Despite a global pandemic in 2020, Warner Music Group went public with a valuation of $15 billion on the strength of revenues generated not from record sales but from streaming. A definitive sign of recovery from the record industry’s near fifteen-year-long recession. Yet, a history of Warner helps better illustrate what is a “record label” in 2022. Last year, WMG made numerous investments in blockchain and video game companies including Roblox, last month it bought 300 Entertainment, and it tried multiple ventures to acquire song catalogs. Warner, like all of the major labels, is an active investor in music technology dating back to the 90s but its eye towards video games hints at the future of music licensing but also indicates that the company’s reach must dip into whatever music might be consumed next by young people, no matter where in the metaverse.
Since the 60s, the executives who’ve guided Warner Music, in its various incarnations, helped shape the media landscape to their vision. In the second half of the 20th century that meant larger and larger mergers and acquisitions until those firms were under their own weight. Thus, the new WMG that emerged in the 00s is much leaner in music but is now able to adapt and anticipate changes in the record industry. Even if it isn’t at the market share heights it used to hold, WMG is perhaps one of the most digitally inquisitive major labels. Even with a name connected to early 20th century Hollywood, the label is a beacon of the music business’s future, not past.
Right before the end of the year, Music Business Worldwide covered Sony’s response to the UK’s Competition and Markets Authority over its purchase of AWAL. Much of it can be summed up as “AWAL is unprofitable. It cannot compete with Sony. It barely provides any real value to musicians. And that’s why we, Sony, spent over $400 million on it.” I’m being glib and ultimately we’ll see in a few months the CMA’s final response.
A Note of Financialization
Last week, Cutting Edge Music Holdings announced raising $125 million from Blantyre Capital to buy film and television music rights, the firm’s decades-old niche. An interesting note is that half of Blantyre Capital’s leadership team comes from the private equity firm KKR, who’ve worked closely with BMG since the late 00s on song-right acquisitions. Then in a move that hasn’t been seen since the era of Bowie Bonds, Northleaf Capital announced selling $303.8 million of asset-backed securities from the massive catalog of Spirit Music Group, which last year it helped purchase alongside Caisse de dépôt et placement du Québec, a massive Québec pension fund. What’s old is new again in this hot market of song rights.
Recent big headline purchases included Bruce Springsteen selling his recording and songwriting rights to Sony Music Entertainment with Eldridge assisting on the publishing purchase. Warner Chappell Music announced purchasing Davie Bowie’s global publishing catalog for $250 million. Southern rockers ZZ Top sold their “entire music interest”, whatever that means, to the BMG and KKR joint venture and John Legend followed suit late last week. Then to wrap up KKR news, Nat Zilkha, a fifteen-year veteran of the company announced his departure and is looking to start his own investment vehicle for song rights, maybe he’ll hit up his former KKR colleagues at Blantyre Capital.
Now for the deals that likely didn’t make it onto your local evening news. Round Hill Royalty Fund gobbled up a “significant” share of the country songwriter Niko Moon’s publishing rights and the company also got the publishing of Nancy Wilson of the band Heart. Country appears to be heating up in the space because Concord Music Publishing bought the worldwide publishing catalog of the songwriter Andy Albert and it also includes any future works. The Christian singer, Matt Redmen, sold his publishing catalog and master royalties to Primary Wave. Reservoir Media got some of the publishing rights from Fred Parris, founder of the Five Satins. Then last but certainly not least, Tempo Music, the rather quiet joint venture between Warner Music Group and Providence Equity, picked up the publishing rights of Stefan Forrest, Morten Ristorp, and Morten Pilegaard, which will encompass the works of the band, Lukas Graham.
6 Links 2 Read
It’s fun to see an article suggesting that streaming platforms need to cost more but artists shouldn’t be gouging fans with expensive NFT projects or “collector” editions of records. The contrasting proposals imply that the primary way people pay for music should go up to support artists while also pushing back against skewing industry revenue on those compelled to spend excessive money. Also, this op-ed suggests music companies simply hire more people rather than stack increased duties on fewer workers, which is a suggestion I wish, wish, wish more companies would follow.
$STREAM Report Season 1 - Water and Music
Cherie Hu and the Water and Music research community put out five massive reports on the current state of the music NFTs and web3. Personally, I’m still diving through it, so please carve out some time to really soak it all up.
Where Do We Go From Here - Dada Drummer Almanach
Damon Krukowski looks back at the last year of the Justice at Spotify campaign by the Union of Musicians and Allied Workers and picks up on a recent World Intellectual Property Organization paper that suggested streaming platforms allocate money directly towards artists.
How TikTok Tried, and Failed, to Make NFTs With Pop Stars - Rolling Stone (Subscription)
I appreciate that Rolling Stone’s followed TikTok’s struggles to do an NFT release because often these stories are covered as press releases with little follow-up on the actual execution. Not hard to find plenty of unsold NFT projects or ones that were gobbled up by investors with close ties to the artist or platform. So, good to keep a close eye on this emerging market.
The Year in Music on TikTok 2021 - Pitchfork
Cat Zhang runs through a sea of various TikTok trends. What’s becoming clearer with TikTok is less the uniqueness of each trend but the broader sentiment of the moment. That can be seen in hyper-digital music styles of digicore or vocaloid, or even the recontextualization of pop-punk for a new generation.
These two stories examine a lawsuit brought forth by Kieran Hebdan (stage name Four Tet) against Domino Records. Hebdan claims the label is underpaying him for streams and downloads of his early 00s albums due to contracts signed before the rise of digital music consumption. Domino denied needing to pay the increased rate and escalated matters by removing those earlier albums from streaming platforms. This case is dovetailed in the United Kingdom with an ongoing political fight over digital music and this appears to be another struggle to spotlight.