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Why Record Labels Love Social Media

Penny Fractions
Why Record Labels Love Social Media
By David Turner • Issue #152 • View online
Hi everybody! Brief introduction today. I’ll be taking next week off, so the next newsletter will be back on February 3rd. If you’re curious about future newsletters, take a look at the publishing schedule here. Also, if you’re ever interested in my pithier thoughts on music business headlines, check out my Twitter page. Otherwise, let’s hop into this week’s topic: record labels, social media, and seemingly endless pits of cash. 

Last year, Rolling Stone ran a piece titled “Social Media, Not Streaming, Is the Music Industry’s Future.” In the article, Tim Ingham quotes Steve Cooper, the CEO of Warner Music Group, who said (emphasis mine): “With an expanding number of partnerships including Facebook, TikTok, and Snap, among others, social media is already a meaningful nine-figure revenue stream for us and is growing at a faster rate than subscription streaming.” The cash can’t stop and won’t stop flowing to record labels, even during a pandemic. 
Ingham’s eye caught an interesting detail from Cooper’s words. Over the last decade, the music industry’s attention centered on streaming and all of the messiness associated with that model. The constant headlines about record-breaking streaming numbers and a concerted effort to make playlists the next radio, often pushed by Spotify, have caused Apple and most other streaming platforms to mimic the playlist-first strategy. This is where conversations about the record industry and money usually start and end, and for good reason: streaming represents 80% of industry revenue. Yet, with deals still being signed with the likes of Facebook, Snapchat, and TikTok, there’s an emerging revenue pipeline and I wanted to dive a bit deeper into who is going to be set up to win within this new framework. 
Money Beyond Streaming
Back in the fall of 2016, Music Business Worldwide ran an article titled: “YouTube, Beware: Facebook is Ready To Do Some Global Music Licensing.” The story was built around Facebook hiring a “Director Of Global Music Licensing” and implied that Facebook may be looking to compete with Google in the video space. Facebook was/is certainly interested in video programming, but that did not mean that Facebook was getting ready to meaningfully challenge the long-dominant video platform. (The Verge used a similar framing here.) Instead, Facebook held up a massive neon sign alerting record labels and publishers that they were open for business.  
A year later, Facebook and Universal Music Group announced a global licensing deal, the social media company’s first, and subsequent deals followed. Tamara Hrivnak, formerly of YouTube Music, assumed the public face of these new agreements done. However, much like the deals between streaming platforms and record labels, there wasn’t much clarity around how they would pay artists, for example, when you play their songs on Instagram. In January 2018, Digital Music News reported on Facebook’s agreement with a music publisher and included a leaked copy of the deal. Independent publishers raised concerns that the deal was set at marketshare rate, which would better serve the National Music Publishers Association’s (major publishers) clients. Further information on these deals can be fairly murky and does not explain how smaller artists, who might not receive white glove promotional treatment, can also win. 
In many ways, this parallels the early deals that major labels structured with YouTube back in the mid-2000s. After the collapse of Pressplay / MusicNet, digital music’s next big moment arrived in the form of the Apple iTunes Store. Steve Jobs arrived during a period in which major record labels were divided on how to go forward with digital music. YouTube was different. 
The Google-owned platform was full of unlicensed music and needed it for its cultural service (easy access to short videos, often music), so record labels struck a deal with the company. Though certainly not universally loved, it still included record labels received a stake in YouTube as a result of the deal. This devil’s bargain became the model for MySpace Music, Spotify, and many firms after them, in which the labels would receive equity and/or a significant slice of a company’s revenue. Unfortunately (or potentially fortunately) these social media firms emerged outside of the record industry. This produced a dynamic in which Facebook and other tech companies aren’t interested in “fighting” with record labels but just want to get content on their platforms. 
After Facebook signed up a number of global labels and publishers, Snapchat and TikTok suddenly felt more pressure to pay the record industry’s established rent for catalog access. In August 2020, Warner Music Group became the first to sign a deal with Snapchat, and a few months later, TikTok signed a deal with Sony. Though not all major labels have signed deals with the two tech giants, these initial deals often set the groundwork for upcoming agreements. The record industry’s oligopoly makes the initial deal a potential template for what will be negotiated in subsequent deals.  
A New Frontier
Trends are starting to emerge from this still fresh revenue stream. The short agreements reflect the record industry’s trepidation about potentially underselling how much money can be made from these partnerships with social media companies. This can be seen in TikTok not paying out based on song plays, but rather on the number of videos created. Because all of the video content is placed into a big bucket and royalties are paid proportionally, we observe the same issue as the current pro-rata streaming model, which favors large catalog holders over smaller independent labels/artists. Record labels aren’t sure how much they should charge (or can charge) but defaulted to a metric that will favor large catalogues, thus major labels and publishers. This is a good preview of who may be concerned about future payouts in the coming years.
(This newsletter is focused on social media, but this trend is mirrored across fitness tech, virtual reality, video games, and other nooks between music and technology.) 
Towards the end of last year, Music Business Worldwide reported that Facebook signed a licensing agreement with the Indian label Tips. What’s fascinating about this deal is the context in which it occurred. The emergence of the Chinese and Indian music markets isn’t a new trend. These record labels, however, are not only seeing revenues arrive from streaming. They can now tap into this pool of social media cash that only recently became available. This further interconnects non-American record industries with American technology firms that even five years ago were not part of the industry at large. 
There is rightfully a lot of attention on streaming platforms and their role within the record industry, but I find that these deals could be more impactful in solidifying the music’s role within tech. If any company wants to use music there will be a gaggle of labels and publishers ready to collect their rent. This could continue to open up new lanes of revenue for artists, but with the secretive nature of these agreements, it may be a couple more years before the same level of criticism arrives. Even though streaming may be peaking, new revenue models are being established. Record labels shouldn’t cry crocodile tears when artists start to ask why they aren’t making enough money when they find virality on newer platforms. The same system is being recreated but with new company names and even more obscure ways of getting paid. The record industry never changes.
Unheard Labor
Last week, New York Governor Andrew Cuomo announced a series of concerts in the hope of reviving the state’s “arts economy,” which has experienced a significant loss during the pandemic. However, several artist groups (including Penny Fraction favorites Music Workers Alliance and the United Musicians and Allied Workers) put out an open letter in response to the proposal demanding the governor do more for working artists than organize a few big-name (Hugh Jackman?), press-worthy concerts. 
Billboard wrote a story about workers at Because Music in France confronting issues of sexual harassment at the workplace. A letter signed by a majority of the employees (directed to the company’s higher-ups) led to the removal of a marketing head, internal reforms around sexual harassment, and a potential yearly “sexual audit.” This is an impressive example of internal organizing by the employees at Because, though I am curious, as the article implies, how will these demands be solidified. 
A Note of Financialization
Over the weekend, Music Business Worldwide reported that Neil Jacobson, the former president of Geffen Records, is looking to raise $200 million on the New York Stock Exchange with his new firm: The Music Acquisition Company. What Jacobson lacks in originality, he makes up for with his plans to immediately IPO his company, which will buy up song rights and invest in music tech startups. Certainly an interesting new challenger within this increasingly bloated sphere of the record business.
The Music Acquisition Company wasn’t the only one making headlines. Primary Wave bought 50% of the publishing and master recording royalties from KT Tunstall; the company also picked up a majority share of the songwriter Jon Lind’s catalog. Bertelsmann Music Group, who were early on the trend of buying up song catalogs, bought the “royalty interest in over 300 recordings” from Mick Fleetwood, but not the actual master rights. This isn’t the type of deal a Hipgnosis or Primary Wave usually might sign, but it illustrates just how finely sliced firms are willing to get for a sliver of high profile catalog. On Martin Luther King Day, Round Hill Music announced the purchase of Collective Soul’s catalog, along with the lead singer’s future earnings. I’m curious how much they calculated the value of the band’s catalog vs. future earnings.
6 Links 2 Read
The Arts Are in Crisis. Here’s How Biden Can Help. - The New York Times (Subscription) 
Today Joe Biden will become the 46th president of the United States, and this article presents several proposals that could assist the arts. Most of these proposals are good, especially putting money behind more arts organizations at the federal level, but it’s worth noting that the writer never makes demands for Medicare for All or other universal aid programs. Considering this is an industry with extremely uneven worker protections, such demands should be part of any revisioning of the American arts. 
Even though this topic feels increasingly cyclical, this piece helps contextualize some of the alternative streaming platforms and models. Angst about music consumption habits remains an endless well. Let’s hope one day something can ease that stress. 
Unsurprisingly, iHeartMedia and Entercom are using the pandemic to accelerate laying off radio talent and outsourcing for cheaper “voice-tracking” work. This isn’t a new trend across industries (see: Former unionized grocery store workers in California being replaced with non-union, app-based workers). Though corporate radio is a struggling industry, this business practice is still disappointing and unnerving to see. 
Last week, Bloomberg walked through Spotify’s most recent history of podcasting and tried to explain how the company might reach profitability. The piece follows Spotify’s corporate line that eventually the company will be able to make enough money from podcasts to offset the money it pays music labels. Unfortunately, analysts at Citigroup threw some cold water on that thought by questioning whether Spotify’s claims will turn out to be true in the long run. I must admit, it’s nice seeing the financial world turn a bit against Spotify’s fairly thin-logic’d business model. 
Sam Backer, of the podcast Money 4 Nothing, goes into the Music Modernization Act and reveals it’s not-so-subtle bias towards entrenched music and industry players. Once again, this shows artists are on the outside of a new cash fountain.
A fascinating look at the recent trouble of Jack Ma’s Ant Group with the Chinese Communist Party. Tencent’s recent run-in with Chinese regulators offers a music industry parallel to this story and makes me wonder about China, not Tencent’s, longer-term view on the global record industry (if there is one).
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 and publishing schedule. 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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