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Penny Fractions: A View of Record Industry from 10,000ft

Penny Fractions
Penny Fractions: A View of Record Industry from 10,000ft
By David Turner • Issue #150 • View online
Hello, I’m happy to close out 2020 this week folks! I’ll be taking a few weeks off to enjoy the holidays, so the next newsletter will come on January 13th. Please fill out the survey I put together if you have time. There will be some announcements at the top of next year about the future of Penny Fractions but, until then, let’s dive into the complicated web of multinational firms that make up the record industry.

A certain phrase in the record industry needs to be retired: “Major label.” In 2020 and even as far back as the 1980s the term obscures the real corporate structures of the industry after years of consolidation, stock swaps, and partnerships. Last week, I argued that the contemporary streaming era began in 2014, which was the nadir of the record industry’s revenues post-CD bubble. This week is a different lens to understand records labels and how they’re situated among larger multinational firms. Instead of being relegated to national telecommunications companies (CBS Records), they’re intermeshed with global media, telecommunications, and tech firms.
Earlier this year, I wrote about Tencent and highlighted a number of deals that the company made in late 2014: 
First up was a distribution deal with Warner Music Group; South Korea’s YG Entertainment followed next, and Sony also signed on before 2014’s close. These deals signaled that China, a country often written off by the rest of the industry due to piracy, might be open for business to international record labels. 
Tencent Holding Limited (not Tencent Music) and Warner Music Group signing a distribution deal further signaled China’s openness to the global record industry. Still, I’d like to recontextualize this deal from a slightly higher corporate level.
In May 2011, Access Industries bought Warner Music Group from a gaggle of private equity companies including Bain Capital. Yet, that wasn’t Access Industries’ only music play. The company sank $100 million into Deezer, a French music streaming platform that was partly owned by Orange, France’s largest telecommunications company. Orange, while majority-owned by public investors, has France (the country) as its primary minority owner. Thus, Deezer’s main stakeholders are Access Industries, the French state, and the investment arms of Saudi Arabian firms. But initially, Tencent’s deal was an agreement with one of the world largest record labels and a rising European streaming platform. That’s a fairly strong entry point into the global record industry. 
The second Tencent deal was with YG Entertainment, which was founded in 1996 by Yang Hyun-suk, a former member of the highly popular Korean rap group Seo Taiji and Boys. Over the decades, the company grew to be one of South Korea’s most successful record labels, signing artists like 2NE1, BlackPink, and Psy of “Gangnam Style” fame. Tencent, along with the ticketing company Weiying, invested tens of millions into YG Entertainment back in 2016, which netted Tencent 4.5% of the company. That was still less than the “investment arm” of LVMH, but enough to connect Tencent to one of South Korea’s most successful labels. If Tencent made inroads into the American, European, and South Korean record industries, there was still one major country untapped: Japan. 
Tencent’s last 2014 deal signing was with Sony. Even though the company’s undergone a number of internal shifts (as Rolling Stone covered earlier this summer), its position within the record industry holds steady. Sony’s publishing divisions are certainly ambitious as they bought out Michael Jackson estate’s share of Sony/ATV and picked up EMI Publishing for over a couple billion dollars in November 2018. And that’s actually what now provides a thread of connection between Sony and Tencent. Sony isn’t owned by any other larger firm and Sony’s investments in other music firms appear to be knock-on effects of industry consolidation rather than a concerted effort to be further connected among these firms. 
Sony, like Warner and Universal, were early investors in Spotify but sold off half of that back in 2018. Sony’s minority stake in Tencent Music is from Sony / ATV’s investment in the Chinese Music Corp, which was Kuwo and Kugou, prior to Tencent’s merger of those platforms with its own QQ Music. This gives Sony an additional way within these markets but also doesn’t portend that the company is interested in further inter-tangling with this web. This leads us to the only company that didn’t ink a Tencent deal in 2014: Universal Music Group.
The company owned by Lucian Grainge certainly is one of the more discussed parts of the Vivendi portfolio. That’s for a decent reason. UMG, the world’s largest record label, still holds investments in Spotify, and Tencent bought 10% of the company this year. Vivendi is still looking to take the record label public in 2022, so there is a prime opportunity to get in now. 
I shouldn’t exclude Liberty Media, which holds stakes in JioSaavn, SiriusXM, Pandora, Live Nation, etc. I wrote about them earlier this year and believe that they should face the same scrutiny of antitrust, but they portend a different vision of music consolidation than what is seen in the above. Also, Reliance Jio, the owner of JioSaavn, got a $5.7 billion investment from Facebook, so in a way, this operates as another wing of interlocked global media firms.  
This year, a major theme of the newsletter has been trying to chronicle music firm consolidation, the rise of private equity in music, and how the “record” part of the “record industry” is of increasingly-diminished importance. Earlier this year, Grace Blakeley in Novara Media wrote about how the trajectory of the coronavirus back then was going to only lead to further concentration of major companies. Months later, the continued mega purchases of Salesforce acquiring Slack, Penguin picking up Simon & Schuster, and within music, the hundreds of millions being spent on purchasing music catalogs from financially stressed musicians, shows us that the acceleration of consolidation hasn’t stopped. 
This is why I started off this week with a critique of the term “major label”. The shared ownership of Deezer, Tencent Music, Spotify, UMG, Sony Music, and Warner Music Group didn’t exist in the early 80s or even during the CD-induced heights of the late 90s. Over forty years ago major labels existed but they weren’t all caught up in an ever more complicated system of cross-ownership. Rather, eyes should be set on Access Industries (Warner), Vivendi (UMG), Sony (Sony Music Group), Tencent Holding Limited (Tencent), and Liberty Media (SiriusXM, Pandora, Live Nation). It’s at this level where music’s role is better contextualized as one part of an extensive portfolio that is looking to see massive returns in the coming years. Revenues are tied to further connecting record labels with tech firms, like TikTok, and signing deals with Facebook to help offset a looming slow down in streaming growth. The future of the record industry is on path for more global interweaving and if artists wonder why their voices aren’t heard this would be a good place to start looking.
Corrections
In last week’s newsletter, I made reference to the Tom Petty album Damn the Torpedoes being the one that was delayed because of a disagreement with MCA Records. A reader pointed out what I meant to say was Hard Promises. My bad! 
Unheard Labor
On Friday, the Ringer, Paracast, and Gimlet Unions, all represented by the Writers Guild of America East, held a two-hour work stoppage as they continued to bargain with Spotify. What was fun about this work stoppage is that they held a Twitch stream rally where over six-hundred people were watching at certain points. Definitely a uniquely digital labor action in this time of coronavirus.
A Note of Financialization
Over the last week, Downtown Music Publishing purchased the catalog of the prolific songwriter Chris Braide; while Reservoir, founded in 2007 by the daughter of Canadian billionaire Hassan Khosrowshahi, collected the catalog of Bob Crewe, who wrote for Frankie Valli and the Four Seasons. Then on Monday, Primary Wave Music bought shares of Leo Sayer’s catalog and master recordings. Just another normal week of the classic rock canon being absorbed by financial interests. 
6 Links 2 Read
These are stories that center on California fighting to help artists and musicians but illustrate that in the United States there still must be more money devoted to the arts right because the normal systems of support aren’t doing enough right now. 
These stories are essentially press releases but any specific country performance numbers shared by a major streaming platform are always somewhat intriguing. What’s interesting here is that Spotify is championing the success of its free service in India, while Deezer is pointing towards its connection with a major Mexican television company. A contrast of the two methods shows that firms can establish growth in a new market, not through “innovation” or having the best product, but by leveraging some form of market power. 
A great roaming conversation about TikTok that both looks at the platform’s uniqueness and its swift turn to commercialization. 
The topic of gaming and music can still feel a bit gimmicky at times but I do wonder its role once live events return, after this health crisis. Certainly, new doors may open but again this feels like an opportunity for already successful, rather than emerging artists. 
A rather extensive breakdown of the live music industry’s crushing year. 
Increased American government scrutiny of tech platforms continues to expand. This can be added to the pile of stories that show the government attempting to wrap its head around contemporary tech platforms and decide whether reforms, breakups, or larger changes should be made.  
Blog Roll
The Penny Fractions newsletter arrives every Wednesday morning (EST). You can support via Patreon or follow on Twitter. If curious, here is the newsletter’s budget sheet. The artwork is produced by graphic designer Kurt Woerpel, and the newsletter is copy edited by Mariana Carvalho, with additional support from Taylor Curry. My current job is Program Manager at SoundCloud, so all thoughts here represent me, not my employer. Any comments or concerns can be sent to pennyfractions@gmail.com.
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David Turner

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