Inside Downtown Music’s Big Pivot

High above Broadway near the southern tip of Manhattan, perched atop what’s known as the Standard Oil Building, sits a particularly privileged slice of Old New York history. The top two floors of the 31-story structure once served as sanctuary for the Rockefeller oil tycoons: The lower has 360-degree panoramic views of New York Harbor, the Statue of Liberty and Governors Island and used to house an executive conference room; the upper, known as the Tower Club, was once home to John D. Rockefeller Jr.’s squash courts, with some ball marks still scoring the walls. In the stairwell connecting the two hangs a sign: “IF WE SEE SMOKE AROUND YOU WE’LL ASSUME YOU’RE ON FIRE AND DRENCH YOU WITH WATER.” It appears to have only recently been taped to the wall.

It’s a clear mid-June morning and the place, rather than a shrine to opulence, looks more like a construction zone amid a teardown. Sun streaming in through the bare windows illuminates stripped gray walls and exposed concrete floors, with architectural renderings and white chalk outlines hinting at what’s to come. The space is being transformed into a state-of-the-art recording studio owned by Downtown Music Holdings, the umbrella group that handles distribution, publishing administration, royalty collection, neighboring rights, and label, publishing and artist services; and houses the digital rights management platform Songtrust and recently acquired companies CD Baby, FUGA, AdRev, Soundrop and DashGo. The studio — where the former squash courts will turn into one of the few loud rooms in the city large enough to accommodate a Broadway cast or symphony orchestra — will eventually become Downtown’s latest flag planted in its New York home.

But this is just a preview. About 50 people — Downtown executives, New York municipal employees and a few members of the media — mill around, slugging coffee and taking in the views as Downtown’s chief engineer, Zach Hancock, gives tours and explains the company’s vision. “As prices have skyrocketed in historic neighborhoods where recording and music making has happened, we have lost the vast majority of venues for making music,” says Manhattan borough president Mark Levine in one of the speeches made to those assembled. “To take a space that could have been vacant for years and to turn it into this hub of creativity, it’s going to become iconic in the music industry.”

Downtown outstripped its New York roots long ago to become a global company, and now has 22 offices around the world. But its home ties run deep: Founder and chairman Justin Kalifowitz grew up delivering food from his father’s luncheonette in downtown Manhattan and co-founded advocacy group New York Is Music in 2014 to promote government support of the business and culture of music in the city and state; longtime general counsel, COO and current CEO Andrew Bergman is a product of the New York public school system and has lived in every borough but the Bronx. So, having a studio in the city — and in such an iconic location — means a lot.

“The music industry has been centered in New York for more than a hundred years, and I think a lot of people took for granted, and take for granted, the fact that it is the largest music industry in the world,” says Kalifowitz. “If you’re running a business here and you don’t invest here and you’re seeing people leave for other places, I think it’s just going to be harder — harder to run your business, harder to enjoy what you’re doing here.”

It’s ironic, in a sense, that Downtown got to this moment by divesting from the business on which it originally staked its name: owning publishing copyrights, which helped it become one of the most successful indie publishing companies of the past 15 years. But as the city, and the music business, have changed, Downtown has, too. And, over the past two years, the company has undergone its biggest transformation yet, morphing from a traditional publisher with 145,000 owned copyrights — including shares in songs such as Maroon 5’s “Moves Like Jagger,” Beyoncé’s “Halo,” Sam Smith’s “Stay With Me” and Lady Gaga’s “Shallow” (from A Star Is Born) — into a full-suite company that owns no rights and aims to help creators at all career levels navigate the music industry’s choppy waters.

But shifting from the traditional business — where ownership was king and hit songs could paper over any cracks — into a new digital world where scale and support are key isn’t easy, and the company’s current status is the culmination of a yearslong transition that’s not yet complete. In the process, Downtown found itself caught in some of the murky corners of the business that the digital revolution created, while trying to remain true to its service-minded core. The path hasn’t been linear, even if the goal is clear — and the transition is a true gamble on the future.

“I’d like Downtown to be this ubiquitous service provider that anyone could tap into, that’s best in class, that’s transparent and that’s easy to port in and out — that’s what we’re trying to build,” says Bergman. “That’s what everything that we’re doing is geared toward. So that all those services are available to you and that anyone, any company or individual, would want to work with us, because we’re filling a need that they have.”

---

The story of Downtown begins, in a way, with the story of Gnarls Barkley.

In summer 2005, Josh Deutsch and Terence Lam started indie label Downtown Records and quickly signed and starting working the duo’s single “Crazy.” Released in March 2006, “Crazy” reached No. 2 on the Billboard Hot 100 and was nominated for record of the year at the Grammys, ultimately winning for best urban/alternative performance — and giving Downtown the type of early success indies rarely see.

It also fueled a desire to expand, and in 2007, Kalifowitz joined and founded Downtown Music Publishing. Initially, the company signed a few acts affiliated with the label — Santigold, Cold War Kids, Miike Snow’s Andrew Wyatt — along with the writers behind Miley Cyrus’ Hannah Montana album and the producers of Mims’ No. 1 hit, “This Is Why I’m Hot.” But signing writers wasn’t the company’s main focus.

“The majority of what we were doing at Downtown Music Publishing was building a global, independent music publishing company,” Kalifowitz says. “The premise really was, there needed to be a young, nimble company that thought technology-first, but also had a creative hat in the business, and a more bespoke solution would make sense.”

Over its first few years, Downtown built its publishing business traditionally: writer by writer, catalog by catalog. But several early investments and partnerships also helped it grow its administration business. Downtown was an early investor in indie publisher PULSE Music, which has writers like Starrah, Brent Faiyaz and Kehlani on its roster; it also became the U.S. administrator for Trevor Horn’s Perfect Songs, a U.K.-based publisher with hits by artists like Seal, Frankie Goes to Hollywood and Marsha Ambrosius in its catalog. Rather than rely solely on an owned, or inherited, catalog, Downtown took a partnership and investment approach early on, which gave it both insight into other businesses in its sphere and a diversified income stream.

In 2011, Downtown launched Songtrust, a tech-based global administration platform to help songwriters and producers get paid for the exploitation of their works. The service soon began cutting direct deals with collection societies — today totaling 65 deals across more than 245 countries and territories, with clients in 173 countries — that allowed its clients to receive publishing royalties directly and much quicker than traditional admin deals. “When we started Songtrust it was like, ‘How come those mid-tier artists or earlier aspirational artists can’t have access to the same kinds of service that a more prominent artist would have?’ ” says Bergman, who joined Downtown as general counsel in 2008, rose to COO in 2012 and became CEO in September 2021. “We started to build that technology out as more egalitarian, and today it is essentially the backbone for all of our publishing administration activities.”

Songtrust, in its early days, was essentially a Downtown side hustle, co-founded by Kalifowitz and Downtown’s chief strategy officer, Joe Conyers. But it would become important in the company’s evolution as the first true service-first, nonownership-based offering it launched. In 2013, Downtown sold its record label back to founders Deutsch and Lam and, the following year, forged a partnership between Songtrust and CD Baby to provide publishing administration and royalty collection in the same way that the indie distributor collected royalties on master recordings.

That deal was when “we started to deal with creators en masse, thousands of clients as opposed to dozens, and it fundamentally changed how we thought about the service we were offering,” says Kalifowitz, who transitioned from CEO to executive chairman in August 2021. “That was also somewhat of a watershed era for us; we started to really expand to other markets — we opened in the U.K., we opened in Amsterdam, we opened an L.A. office — and we picked up the rights to the John Lennon and Yoko Ono catalogs. It really very much cemented our plans of being a stand-alone business. That partnership taught us a tremendous amount about the growing artist services space.”

It also led the company to expand what it could offer creators, often through acquisitions. In 2015, Downtown introduced Neighboring Rights — public performance rights for sound recordings — through the purchase of London-based Eagle-I Music, and now represents artists like Justin Bieber, Ryan Tedder and Ella Fitzgerald in that area. The company also executed direct licensing deals with YouTube, Apple, Amazon and Pandora, and through Songtrust’s expansion, began aggressive international growth, buying local repertoire in Europe and Japan while inking admin deals for the Wu-Tang Clan, the Miles Davis and George Gershwin estates, Shaggy, Tori Amos and Big Yellow Dog Music, publishing home to Meghan Trainor and Maren Morris. In all, according to Kalifowitz, Downtown worked in some form with over 36 million songs, through distribution, administration, royalty processing or other offerings.

“They made really smart deals; I think Justin Kalifowitz is still regarded as probably the smartest guy in publishing,” says one manager of the company’s success as a publisher. “They were really profitable in that sense. I don’t think they overspent for anything. Just a really smart company.”

By 2019, Downtown began to shuffle the decks. Molly Neuman — the onetime drummer for riot ­grrrl groups Bratmobile and The Frumpies who went on to various roles in the indie music community — was promoted from head of business development to president of Songtrust. She started turning the “side project” that sat “in the back of our Soho loft space, kind of in the corner, with less than 20 people” into an educational platform for music publishing at a time when the Copyright Royalty Board rate trial and the Music Modernization Act were dominating industry headlines.

“There were all these things about publishing as a required understanding starting to accelerate, while we were marketing Songtrust with education at our core,” Neuman says. “Because it’s fundamentally confusing, people don’t know why they would need it, so we kind of peeled it back as part of our strategy.”

The same year, Downtown spent around $200 million to purchase AVL Digital Group, the umbrella company that housed CD Baby, AdRev, DashGo and Soundrop, which were collectively responsible for distributing and monetizing over 10 million tracks from nearly 1 million artists. The acquisition dramatically expanded Downtown’s offerings into digital distribution (CD Baby), YouTube monetization (AdRev), social video support (Soundrop) and digital marketing and label services (DashGo) and swelled Downtown’s headcount to north of 300 employees. Less than a year later they brought on FUGA, a business-to-business tech and distribution platform for labels that gave Downtown a twin-engine service offering — one aimed at creators themselves, the other at music business clients — and doubled the size of its staff. Steadily, Downtown had begun to morph from traditional publishing toward a more services-oriented model.

The final piece of the puzzle came in April 2021, when Downtown announced it had sold its 145,000 owned copyrights to Concord in a deal worth $350 million, according to Billboard estimates. (Billboard estimated the owned catalog generated around $30 million per year; Downtown is still in the publishing administration business.) Its remaining businesses, the company said, would pull in $600 million in revenue and collections in 2021 alone. (The company declined to disclose its 2022 revenue projections, but said it is profitable.) Just as money was flooding the catalog acquisition space, Downtown was out. But it had a different vision for its future.

“[The owned catalog] was a small minority of the revenue of the company, it was a very significant cost to run, and it was a business model — the acquisition and ownership of rights — that was incongruous with a fast-growing services business,” Kalifowitz explains. “Our view was, there’s this one aspect of our business that is very crowded, has a tremendous amount of capital and is willing to accept very low returns, and it’s quite distracting to this other thing we’re doing, which is so much bigger and growing so much faster, and that we think, as a business, has a lot more potential, and as a product-market fit, there are so many more people who need what we’re building.”

In a way, Downtown was jumping from one boiling-hot segment of the business — catalog ownership — to another: distribution and services. And it was hardly alone. In the past two years, a slew of record labels — all three major groups, in addition to Republic, 300, Interscope, Capitol, Virgin and others — either started or bolstered their distribution offerings, while companies like SoundCloud, Tencent and TikTok shifted their business models toward services or added distribution capabilities.

It’s a plan with a forward-looking view of how the music business seems to be developing. In February 2021, Spotify’s global head of music, Jeremy Erlich, said that 60,000 tracks per day were uploaded to the platform, or some 1.8 million each month. (Recent reports now put that daily number at 100,000.) Earlier this year, Spotify said that in 2021 it had 72,700 DIY artists, and that 28% of artists who made more than $10,000 per year on the service alone — a total of 15,140, up 171% from 2017 — self-distributed their music to Spotify using CD Baby, TuneCore or Distrokid.

“Catalog decays over time; granted, there’s been exponential sales on a Phil Collins or a Bob Dylan, but it feels like that bubble is beginning to burst,” says one former distribution executive. “So to invest in an infrastructure that supports the emerging, new music industry, which is the DIY music industry, which in aggregate will represent more market share than the three majors combined in the future — that’s a spot I’d want to be in. And if you have a company where you have a flat fee upfront, and you don’t have to worry about if it sells, it becomes a numbers game. Some will pop and take off and you can find different ways to upstream those through administration or label services, and you can create a very robust and lucrative business.”

With more and more companies entering that business, success becomes about differentiation. “Getting your metadata out to the [digital service providers], that’s been commoditized; it’s about everything else that you do,” says Bergman of Downtown’s philosophy. “We probably have the broadest service offering already and we’re really just getting started on that front. Instead of looking to see what’s the next catalog we can buy, it’s about, what’s the next improvement in the service offering, whether that’s international expansion, or localizing the offering, or a service we don’t currently provide or an enhancement of a service we are providing? That’s how we think about the world going forward.”

Downtown has also forged relationships and partnerships across the industry spectrum. Through its various services, the company works with labels like Sub Pop (Songtrust, Neighboring Rights); Beggars, Epitaph and Domino (FUGA); artists like Phish (publishing), Maggie Lindemann (Songtrust), Lindsey Buckingham (Neighboring Rights), Cheat Codes (distribution) and Atticus Ross (publishing); and companies like Secretly Publishing (Songtrust), Symphonic Distribution (publishing for its catalog and its clients), Concord (publishing in Africa) and Hipgnosis (video monetization). What sets it apart from other services-based companies isn’t just the range of what it offers to individual creators, but to the industry at large, allowing them to plug in to its various outlets without having to go the major-label route.

“Organizations like Downtown, through services like CD Baby and FUGA and their admin business, make it possible for independent companies to grow globally without being put into that local bucket that the majors scale, but are unable to deliver the services on, because it’s a 1-inch pipe with 8 inches of water going through it,” says Allen Kovac, CEO of Better Noise Music, label home to artists like Five Finger Death Punch and AWOLnation, and a client of FUGA, Downtown Music Services and Downtown Neighboring Rights. “They offer a workaround — the ability for an indie company that may not have offices to be able to get focus from another independent company.”

Adding these capabilities through acquisitions is one matter; incorporating them into a broader company structure — one that grew fivefold in just a few years — is another. So Downtown underwent a major restructuring in the past few months, aligning itself into two distinct divisions, one business-facing, the other for creators. Neuman was promoted to chief marketing officer, in charge of spreading the gospel of what Downtown offers to the masses; FUGA chief Pieter van Rijn was named president of its new business unit, which includes FUGA, Downtown Neighboring Rights, AdRev and Downtown Music Services’ artist, label services and publishing administration units. Its remaining businesses, including CD Baby, Soundrop and DashGo, fall under its creator unit, overseen by the Downtown Holdings executive leadership team. Currently, Downtown says it works with 1.7 million creators and businesses across 30 million tracks and 14 million YouTube assets and continues to be a strategic investor, most recently in the $34 million funding round for alternative funding platform beatBread, and opened a $200 million fund intended for artist advances for the indie community in partnership with Bank of America in March.

“We have everything already there through various operating companies, and successful businesses, profitable businesses, but because of the acquisition spree that Downtown went on, there is room for opportunity to really create a few very clear business lines that determine how we’re going to go to market,” says van Rijn. “Over time, we want to be the best and most reliable and most forward-thinking service provider for the professional music industry, combining music DNA — which we all have — with technology and services. And understanding that we are a services business means you really have to understand your clients and how to develop with them, how to be innovative, but at the same time be practical about what are today’s needs of our clients.”

“Downtown was always seen as a good, have-their-sh-t-together publishing administrator: They seemed very like-minded in caring about the sector that they were in, caring about the artists and putting together an infrastructure that put the artist and the songwriter first, as opposed to an ROI,” says the label-services executive. “And it allowed the company to grow in a very fastidious, credible way.” But growth can also, in turn, reveal unexpected problems. “It’s happened so recently — the catalog sale wasn’t that long ago,” the manager says. “So I think Downtown 2.0 has a lot to prove.”

---

In just a few short years, Downtown had completely transformed its model and its staff, if not its core philosophy, from the relatively stable publishing world to the constantly evolving services realm. But such rapid growth, as well as the rapid evolution of the digital music business, isn’t always smooth — and Downtown soon ran into a particularly rough speed bump.

In August 2022, Billboard published an investigation into MediaMuv, a company that took advantage of a loophole in YouTube’s royalty collection system to defraud artists and songwriters of $23 million in unclaimed royalties for which it did not own the rights. MediaMuv claimed these royalties between May 2017 and November 2021, when its owners were indicted by the IRS, and used AdRev to claim the money.

Investigators charged the two owners with 30 counts of conspiracy, wire fraud, money laundering and aggravated identity theft, and while neither YouTube nor AdRev were charged with wrongdoing, the story was met with incredulity by some who questioned how AdRev could allow fraud of that scale on its platform. In a plea deal, one of MediaMuv’s founders admitted to falsifying several documents submitted to AdRev “for the purpose of deceiving [them],” and sources tell Billboard that the complexity of the fabrications helped MediaMuv skate through AdRev’s regular monitoring processes.

Much of the fraud — though not all of it — took place prior to Downtown’s acquisition of AdRev, but its scale still put Downtown on the defensive. AdRev’s longtime president, Noah Becker, left the company, though Downtown said the move predated the indictment. In some respects, AdRev’s issues in this particular case reflect the increasingly complicated nature of royalty collections online, particularly on user-generated content platforms like YouTube, and point to real concern the business model presents to services-oriented companies: the sheer number of artists and copyrights companies are dealing with, and the cost-benefit analysis and likelihood of fraud that comes with that much volume.

“It’s an activity that’s growing quickly and the people who are committing the fraud are getting much more sophisticated,” says one distribution executive, who stresses it will take an industrywide campaign to shut down, or just get ahead of, the practice. “It’s not as easy to catch them anymore; their tactics are not as obvious anymore. Unfortunately, we’re playing catch-up with the technology that the people who are committing the fraud have access to, and a lot of what the aggregators do today is reactive.”

Downtown has moved to be proactive in combating this type of fraud: In April 2020, it acquired Simbals, a France-based audio fingerprinting company whose technology Downtown uses to better track its copyrights across the digital spectrum. Downtown has also developed a continuously evolving quality control program over the past several years, which is involved in both onboarding and continual checks for red flags, and in the spring implemented an assurance process to help codify that quality control process across its business units. It has internally developed tools to check for fraud patterns in streaming data prior to distribution, in-house data teams and fraud examiners to monitor for fraud patterns and third-party tools to prevent fraud at scale. (The company also notes that it began working with MediaMuv on a recommendation from YouTube, which referred it to AdRev.)

MediaMuv’s fraud, however, evaded several of those protections, while other safeguards have been strengthened since AdRev was acquired and the fraud was exposed. And it is unlikely to be the only or last issue that Downtown has to deal with in the services space, where fraud can be rampant and rights not always clear. But in a sector of the business where relationships and trust are paramount for adding and retaining clients, it’s been a tough storm to weather.

“We’re a known quantity in the business, so I think that the bulk of the industry will recognize that Downtown and its constituent businesses and people are known as ethical, well-run businesses that are all about trying to connect creators with their rightful share of the pie,” Bergman says. “That is why we exist. So I’m not naive about this sort of stuff, but I expect that our reputation for all the good work that we do — our attention to detail and all the systems and the technology that we provide to do that — will remind people that that’s what Downtown is.”

Moving forward, Downtown plans to continue to build out additional services to help clients navigate the ever-changing digital ecosystem, with social music and Web3 constantly evolving and new platforms continuously reshaping music consumption online. Predicting how the world will look in five years is not always simple, and certainly not static. But creating tools for the future — whether a simplified global publishing admin business, an all-in-one suite of services or even a new, state-of-the-art studio high above Manhattan — has always been in Downtown’s DNA.

“I’ve always believed that we were building a forever company,” says Kalifowitz. “I think the future for us is a continued streamlining of what we do and continued expansion of what we do, primarily geographically. And then continue to build out our platform. That’s critical. One of the things you learn as a service provider is that there’s no ‘build it and you’re done.’ It’s continuous improvement. So I think the future holds continuous improvement.”

This story will appear in the Nov. 5, 2022, issue of Billboard.

Related Images: