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Record Labels Cannot Stop Winning in 2021

Penny Fractions
Record Labels Cannot Stop Winning in 2021
By David Turner • Issue #162 • View online
Hello! Earlier this month, I began moving this newsletter over to Ghost and discovered that Ghost offers a lot more flexibility in how my writing is presented. For that reason, I will spend some more time on the migration and hope to be finished by the July 14th newsletter. One minor update is that I’ve decided to remove the outro text and the list of favorite media sources from the newsletter. That information, and more, will soon be available on the website. More to say on this new website soon, but now let’s look at an intriguing industry report. 

How Dominant Are Major Labels?
In April, I received an early draft of a report commissioned by the Canadian government to look into the economics of music streaming. The full paper is scheduled for release later this year, but there were findings on the dominance of major labels in the record industry that I felt deserved more attention. While the completed research goes deeper into specific case studies within the Canadian recorded music industry, I wanted to center its observations on major label dominance since that seemed applicable beyond the Canadian context.  
An early section of the paper caught my eye because of how it attempted to segment the record industry: 
1) lyric writers and music composers (“songwriters”); 2) publishers (agents acting on behalf of songwriters to have songs placed in different media); 3) performers (featured and non- featured); and 4) producers (usually record labels but including all those – other than performers - involved in the actual sound recording process). 
This is an astute segmentation of the industry, especially since these stakeholder groups are often conflated with each other. Per the report, nearly 70% of Canadian streaming revenue goes to record labels, 17% to performers, and less than 15% to publishers and songwriters. This shouldn’t be too shocking and is a key driver of United Kingdom-based #BrokenRecord campaign, which advocates for equitable remunerations so songwriters can get a cut on streaming. Still, the fact that nearly seven out of ten streaming dollars funnel to record labels—not artists, songwriters, or even publishers—is absurd. 
This disparity continues when examining which music is even getting the opportunity to be streamed. The report found that BMG, Sony, Warner, and Universal accounted for about 66% of the overall market share, and that number went up to nearly 75% when just looking at Canada. That suggests that not only are record labels making the vast majority of money through streaming, but a cluster of labels also are primarily seeing the benefits of this streaming boom. The paper later pushes against the suggestion that independent artists are thriving by highlighting that digital distributors are either owned by major labels (AWAL, INGrooves, The Orchard) or share ownership with streaming platforms (Distrokid). The picture painted in the report shows that these still-emerging digital businesses are consolidating, and the average artist sees few benefits from the industry’s revival.
What are Major Labels Doing Now
The dominance of major labels is not a new dynamic for record industry observers. However, the recent increase in revenue signaled to investors that the record industry is ready for primetime, so here’s a quick rundown of some high profile moves. Warner Music Group, owned by Access Industries, went public last summer and is currently valued at a little over 10% higher than its IPO price. Universal Music Group, owned by media conglomerate Vivendi, continues its slow march to an IPO. After selling 20% of the company to Tencent, the Chinese media giant; another 10% will go to Pershing Square Tontine Holdings (PSTH), a special-purpose acquisition company; and 60% of the company will go on the Amsterdam stock exchange later this year (Vivendi will hold onto the remaining 10%). Finally, Sony Music just bought AWAL for over $400 million, while its parent corporation invests hundreds of millions into Epic Games, the creator of Fortnite. The highly financialized state of the major labels even includes french independent label Believe, which just IPO’d on the Paris Euronext. This is an almost unprecedented boom time for the global record industry.
The highly concentrated nature of the industry might be easy to take as the norm, but forty years ago, there weren’t just three major labels. Entire parts of the industry could be self-sustaining without engaging much with a Polygram or EMI Records. In 2021, however, when over 80% of record industry revenue is derived from streaming and the terms of those deals are decided by three major labels, it’s hard to find space for true independence. 
This report is part of a growing wave of governments taking a closer look at the concentration of power within private industry and trying to negotiate what to do to address artists’ concerns. While we’re still waiting to get the final recommendation from the UK Parliament hearings on digital music, Kevin Brennan, a Labour MP, is proposed a bill that would require companies like Spotify to make additional payouts to artists. In Canada, there is a bill to redirect some industry profits back into Canadian industries and require company promotional channels to include a certain amount of Canadian content. (There are concerns with this proposal around implement of such regulations and the possibility to favor already established Canadian acts.) Then, in the United States, the appointment of antitrust scholar Lina Khan to the Federal Trade Commission and the introduction of several anti-monopoly bills suggest that music’s biggest players may want to keep an eye over their shoulder. Though these reforms are still in the pipeline, this offers a glimpse into what governments may pursue in the coming years.
This report initially caught my attention because it wasn’t making any sweeping proclamations about the record industry; it was simply trying to understand where the money is going. The answer suggested by the findings is that a majority of the money is going to record labels (mainly Sony, Warner, and Universal). Though I’m certainly critical of streaming platforms, it’s record labels, not Spotify or any other tech company, that set the primary economic terms of streaming. Hopefully this report can provide assistance and guidance for groups across the globe trying to address the many, many issues facing musicians. 
Unheard Labor
During the COVID-19 pandemic there’s been a real uptick in student protests, from the United Kingdom’s country-wide rent strikes to Columbia students’ tuition strike, reportedly one of the largest in over forty years. Such furor reached the New York City arts institution Julliard, where earlier this month students engaged in building occupations, participated in street demonstrations, and demanded a tuition freeze in response to a potential fee hike. Good luck to these students in their protest and future careers. (Here’s a link to the Socialist Penguins group, which leads many of these actions.) 
Last week, U.S. Representatives Ted Deutch and Darrel Issa introduced the American Music Fairness Act, which would require broadcasters to pay performers for songs performed on the radio, a standard practice across the globe. The National Association of Broadcasters, which represents major radio broadcasters, stood against the act and got over 130 house reps and nearly twenty senators on a non-binding resolution that would continue to shield broadcasters. Though this isn’t the first, second, third, or even fourth time such a bill has been introduced, I’ll keep an eye out to see if artists will receive this economic boost. 
A Note of Financialization
Billboard reported that the last year-plus of low interest rates helped spur investment in song rights, as institutional investors (think pension funds) needed a safe asset class to park their money. However, the article highlights that even if the Federal Reserve pushed up interest rates in a couple of years, it likely wouldn’t affect interest in song rights. The last few weeks of money raising ventures seem to back this reporting. The Hipnosis Songs Fund raked in $210 million by issuing new shares on the London Stock Exchange. Primary Wave secured $375 million by selling a minority stake to Oaktree Capital, an asset manager that controls over $150 billion. The biggest payday this month came from Shamrock Capital’s Shamrock Capital Growth Fund V that closed at reportedly $1 billion. If you don’t remember Shamrock, they purchased Taylor Swift’s catalog from Ithaca Holdings and Scooter Braun. Though not all of this money is earmarked for music, it will certainly be interesting to see where that cash flows. Now, on to what that money is being used to purchase.
Round Hill bought former indie label Triple Crown Records and master catalogs from Innovation Leisure. Primary Wave picked up a “majority stake” in the publishing catalog of Aaron Bruno of the oddly popular rock band Awolnations. Reservoir picked up the catalog of rock producer Tom Werman, adding to their soon-to-be SPAC’d catalog. The biggest purchase this month, however, came from Warner Music Group, which dropped somewhere between $100 and $150 million on french hit-maker David Guetta’s catalog
6 Links 2 Read
This month, Sony decided to waive unrecouped royalties for artists signed before 2000, a #rare uniformly positive move from a major label. Billboard reported that a couple of people suggested this was a maneuver from Sony to stand out against the sudden influx of institutional money buying up music catalogs. I’ll offer a slightly less cynical take. There are real frustrations around music’s economic model among musicians, and many industry actors can, and should, do better by the industry’s central value creators.
The Copyright Royalty Board approved new rates for webcasting payments, announcing that they would be adjusted by the Consumer Price Index to account for inflation. This is a fairly notable win for musician advocates! If you want to leave a comment for the board on unfreezing mechanical royalties, check the MTB’s post about it here
Everybody Wants Some (Hits)!! - Rolling Stone (Subscription) 
I refuse to entertain the idea that the “independent” distributor section of the record industry can meaningfully challenge major labels. (Even Fred Davis, a lead investor in SoundCloud, my current employer, states as much in this piece.) However, I do appreciate all of the small-time executives who push that narrative. Don’t stop the hustle! 
Last year, the Music Workers Alliance, a musicians’ group based in New York City, received over 5,000 signatures for a petition around fairness in digital music. One particular demand was reform around Section 512 of the 1998 Digital Millennium Copyright Act, which would overhaul the current safe harbor allowances for companies like YouTube. I mention this because YouTube’s shifted its media narrative, so now a New York Times tech columnist is writing a glowing, rather than scathing, account of the company. YouTube might be a top concern for major label executives, but its harm to the overall industry persists. 
Nightlife is a personal passion of mine, so I’ve probably kept too close an eye on New York City’s Major’sOffice of Nightlife. The office released a report summarizing its last three years of work and recommendations for what should come next in this space. You can read the full report here. I’m very interested in the suggestion of 24-hour districts, which would fulfill that tagline of “the city that never sleeps.” 
Just wanted to highlight that my friend Henderson Cole, no stranger to this newsletter, was profiled in Rolling Stone for his idea of a state-run music streaming platform. Def read about Henderson’s idea, and maybe we can start scheming for it to be created. 
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David Turner

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