Hello, hello! I hope folks are doing well as we enter the holiday season. I wanted to make a few reading recommendations. Dave Edwards, Head of Revenue at Audiomack, started a newsletter, so give him a follow to keep the heat on him to continue exploring his thoughts. Next, I wanted to mention Dan Folwer and Bas Grasmayer, whose respective newsletters are the most clear-eyed analyses of web3/crypto and the broader record industry. Don’t always agree, but I always learn more. Okay, let’s dive into the world of you—yes, you—investing in your favorite artists’ songs.
In 2008, the buzz around owning song rights was limited. The short flash of interest around Bowie Bonds in the late 1990s had melted away and the record industry’s ongoing freefall didn’t make songs the most appealing asset class. The western music industry sat in a deep recession caused by years of consolidation (record labels, radio, and retail stores) and the new reality of cheap digital songs. SongVest was created in this unfavorable climate. The two co-founders, Sean Peace and David Prohaska, sought to create a marketplace where fans could bid on what Songvest considered a unique piece of memorabilia: a fractional share of a song.
This still emergent period of the song rights asset class helps contextualize SongVest’s initial offering. The company made commission on auctions and would administer royalty payments, so the bidder wouldn’t own the copyright nor hold sway in potential artistic and financial decisions related to these works. SongVest sales ranged from artists like Aerosmith, whose previous managers sold half of their catalog in 2002 for $15,000,000 to Mosaic Music Publishing, to The Days of Our Lives soundtrack, an odd collection of songs for nostalgic baby boomers (which might explain why auction winners would get a little placard with the purchase). Within a couple of years, Peace, alongside Reggie Calloway and Wilson Owens, sought to expand the SongVest concept and in 2011 started Royalty Exchange. The original SongVest would shutter a couple of years later.
The market for song catalogs wasn’t much healthier in the few years between the founding of SongVest and Royalty Exchange. Primary Wave, Round Hill Music, and BMG were the primary buyers, but not to the scale seen today. Still, Peace and co. were ready to try again. The business model shifted towards larger song bundles rather than leaning on superstar titles, though a glance through company press shows that bigger songs certainly didn’t hurt in getting headlines: “Coolio selling off music catalogue rights to fund career as a chef,” or “Eminem Fans Will Soon Be Able to Invest in Royalties From His Catalog.”
Royalty Exchange positioned itself within the realm of music technology, but in a rather rosy New York Times profile, it’s mentioned that the company completed eighteen sales within the first couple of years, which doesn’t signal a rapidly scaling business. Billboard observed similar financial problems but noted that the $2 million raise from Grotech Ventures could provide a bit of runway. However, after struggling to both make money and find investments, Peace sold the company in 2015, which brought in a new set of executives and team leaders. The little reporting on the turnover didn’t disclose who would lead the firm, but similar issues would continue to plague the business.
The company’s new direction appeared to involve a bit more thinking outside of the box. Royalty Flow, founded in 2017 by Royalty Exchange, paid $18.75 million to the Bass Brothers, who’ve produced on Eminem albums since 1999, with the hopes of taking this catalog public to raise money for future catalog purchases. The plan backfired when the company failed to be listed on the NASDAQ, but headlines leaned on Eminem’s name even though he wasn’t involved in the scheme. Unwelcome headlines would continue with a court case involving the sale of rapper King Lil G's rights, who was himself in a legal tangle with his former record label MIH Entertainment. Then, earlier this year, A Tribe Called Quest forced the company to clarify that NFTs sold connected to their music weren't approved by the group. The ups and downs of Royal Exchange suggest there may not be a robust market for fan ownership of music catalogs, but that hasn’t stopped others from offering their own spin on things.
In South Korea, a company named Musicow landed on a much better footing within that country’s particular music political economy. Founded in 2017, Musicow is similar to Royalty Exchange and is framed as SongVest was: a way for fans to connect more deeply to their favorite music. Where American firms struggled with funding for their niche service, Musicow received funding from Korea Growth Investment Corporation, effectively meaning the Korean government is all-in on you and your friends owning parts of song catalogs.
The company, unlike SongVest and Royalty Exchange, is also seeing much more usage, with the latest reports indicating that over 700,000 users are on the platform. Even with less than a thousand songs up for sale, the increased traffic saw the platform pull in nearly $60 million from transactions in September. This sudden success in 2021 is leading to talks of the company going public in 2022 with a valuation of over a billion dollars. Jung Hyun-kyung, co-CEO of the company and a songwriter himself, tightly stated the company’s mission: “We aim to become a leader in Korea’s intellectual property financing business.”
Instead of the government backing firms to enable investment into song catalogs, private capital remains committed to serving what remains a nonexistent market in the United States. David Peace earlier this year announced the return of SongVest, but this time with the Securities and Exchanges Commission's (SEC) approval. While that may be good for the legal trajectory of this new venture, there’s still fairly little about this new venture that makes it more compelling than previous efforts. Peace may be spinning up his old tricks, but there are new players eyeing this space.
Emergent music NFT marketplaces are offering fairly similar products to the firms discussed above, but now with a nu-technological sheen. No placards for your wall; instead, digital wallets. Royal, founded by the electronic producer 3LAU and backed by Andressen Horowitz, might be the most talked about, but a decent number of these projects are popping up (see: Catalog, sound.xyz, etc.). While some are attempting to interweave a song’s copyright with blockchain technology, others are just spinning up their own new asset. Advocates see these increasingly financialized methods of music ownership as a means of repairing what’s described as the broken fan-to-artist relationship in the streaming era. Investors, on the other hand, likely see the chance to cut into what appears to be a booming business, which is ironically fueled by the Googles and Spotifys of the world (i.e., where most music consumption occurs). The struggles of SongVest and Royalty Exchange can offer a warning sign to investors and, more importantly, fans about what is really being put on the table here. If song catalogs were actually wise investments, why are you, and not Blackstone, Apollo Global Management, or Primary Wave, doing the investing? Fans can develop a meaningful connection with artists without weaving a financial thread into it.
The calculus of that decision is a bit different in South Korea, where there aren’t asset managers, private equity firms, and three of the biggest publishers in the world also willing to spend hundreds of millions of money to purchase and promote catalogs. Musicow, and potentially firms like it, are effectively selling the cultural investments made by the government into genres like K-Pop back to the people. It’s a more individualized form of what was suggested in the Forbes piece about cities owning music catalogs. What can a city do with a musician’s work, or a complete library of a musicians’ work, that can go beyond a small clique of people owning their favorite song? The future of this space is very much up for grabs, but I hope more thought is put into what societal purpose song catalogs can serve beyond being just another asset.
Last month, a couple of news items signaled some real progress on a few pet obsessions of this newsletter. Tidal announced that in 2022 they’ll be moving to the user-centric streaming model, not unlike my employer SoundCloud, but they appear to have agreements with most major rights holders and also teased the ability for fans to directly pay their favorite artists. I’m interested to see how all of this works in practice, but it's exciting to see another streaming platform go forward with user-centric streaming when so much industry chatter dismisses its promise.
Then, speaking of tedious industry skeptics, the music business press continues to stand up for the British Phonographic Industry (BPI) and AIM, who are getting even more nervous as Labour MP Kevin Brennan introduced a bill that brings on a number of music copyright reforms in the UK, including equitable remunerations. I’ve covered the UK hearings quite a bit, and with the recent announcement that the CMA recommended Facebook sell Giphy, I’m eager to see what happens in the music space in the next couple of years.
Now for my other obsession: China’s continued entertainment and tech reforms. Last week, the country announced that Tencent was suspended from updating its apps or even launching new ones without the approval of the state. A new set of small fines were put on Alibaba, Baidu, and, of course, Tencent by the State Administration of Market Regulation. Then, perhaps of bigger interest to music workers, the country enacted reforms to strip away fan-run celebrity accounts, set harsher guidelines for public celebrity behavior, and continue tapering down on the amount of time people can engage online with celebrities. Though much of the music industry’s interactions with Chinese firms is limited to music streaming at the moment, I’m really curious how touring and other touchpoints with western musicians will play out in the coming years. (As always, feel free to hit me up if you have deeper knowledge or insights on this topic.)
A Note of Financialization
Last month, Warner Music Group announced raising $535 million in debt explicitly to pick up more “music assets.” Stay tuned to see what or who ends up being picked up. Speaking of Warner, I entirely missed that the investment bank Morgan Stanley bought $105 million of the company’s shares back in September. Alex Weprin of the Hollywood Reporter posted on Twitter that Warner’s 10-K filing shows that 42% of the overall revenue came from Apple, Spotify, and YouTube. Phrased differently, Morgan Stanley invested in two of America's largest tech firms at a discount.
Now, for some post-holiday catalog purchase news. Primary Wave bought the publishing and master rights of TOTO drummer Jeff Porcaro for $30 million. So, get ready to keep hearing “Africa” till the end of this increasingly goofy historical period. The company also announced an NFT collaboration between Cypress Hill and Unblock, an NFT startup, which earlier this year was backed by—you guessed it—Primary Wave, Jay-Z, and Oaktree Capital, who bought up part of PW earlier this summer. So, the same money keeps on greasing these wheels. Reservoir Media bought “songs” from all-star R&B producer Dallas Austin. What exactly was bought is unclear, but this follows the company’s trend of being less specific than its peers. Finally, Exceleration Music, a more indie-centered player in the song rights investment space, picked up a cluster of rights from Justin Townes Earle.
6 Links 2 Read
Streaming's Endgame (Part One) - Dave Edwards
I mentioned Dave’s newsletter earlier, but his first post is a deep dive into the economics of streaming that builds upon a growing literature of information showing how artists are, and maybe more importantly, are not benefiting from music streaming. Towards the end, he stresses certain power law distribution dynamics within music, where the money funnels towards a small number of musicians. It’s an important fact to mention, especially when Spotify is executing stock buybacks while fighting against increasing songwriter pay. Excited for Dave’s follow-up to this piece and what else he’ll explore next.
Yes, from the multi-million dollar Wu-Tang album purchased by PleasrDAO, 3lau’s Royalty, and Universal Music Group’s Bored Ape Yacht Club venture, there is a clear desire by this nascent web market to glom onto the record industry. This fuels my skepticism around how much this can help artists in the long term, but with executives signing deals with these up-and-coming companies I’m sure label C-Suites across the world are excited to have a new source of income heading their way.
Plug-in Capitalism - Bellona Magazine
A fascinating essay on the digital audio workstation (DAW) space and how private equity is beginning to flatten the various tools used to create 21st-century music. I’d also encourage everyone to check out Bellona’s Patreon, as their first magazine is full of other really interesting essays.
Adele Is No. 1 With a Huge Week, but Without a Million in Sales - The New York Times
Adele’s album was obviously going to have a monster opening week, but still, it couldn’t quite hit a million sales. An artifact of the late 90s and early 00s CD bubble, it’s odd to think that this would be newsworthy nearly twenty years after the industry completely reoriented itself around extracting money from tech firms and away from physical sales. Perhaps it speaks to an industry still in a transitory phase trying its best to celebrate individual artist success when corporate success is so obscene.
The last two episodes of the podcast Money 4 Nothing feature the show’s keen, and much-needed perspective on a record industry that is undergoing some large-scale shifts. They sketch a world where music’s primary revenue comes from these massive licensing deals that, to Dave’s point above, would likely continue to benefit music’s already most successful acts.
Unfiltered Thoughts and Feels About Web 3 and Music - Lee Martin
A short but concise walk through a major artist's NFT drop. Martin’s observations highlight some user pain points and raise questions about whether this NFT was really for fans or simply crypto speculators. Though proponents see technological benefits, many people continue to experience these technologies as primarily speculative assets, and many initiatives, so far, are not interested in splitting apart these motivations.