Record Labels
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Warner Records is stepping further onto the dancefloor.
On Monday (March 13), the label announced the launch of its first-ever flagship dance label, Major Recordings. The label is led by executive Sam Mobarek, a longtime figure in the global dance music scene.
The label’s first signing, in partnership with Parlophone’s FFRR, is PARISI. The duo’s recent work includes behind-the-scenes production with Fred again.. and Swedish House Mafia and an official collaboration with Buy Now, the project from Swedish House Mafia’s Steve Angello and Sebastian Ingrosso. PARISI’s signing to Major Recording marks the launch of their artist project. (“They’re the producer’s producers,” says Mobarek.)
The launch of Major Recordings expand on Warner’s recent marquee successes in the dance realm, with label trio RÜFÜS DU SOL winning the best dance/electronic recording Grammy in 2022, producer Illenium earning a Grammy nomination that same year and David Guetta and Bebe Rexha‘s “I’m Good (Blue)” becoming a major 2022 hit, with the song reaching No. 4 on the Hot 100, where it’s currently in its 27th week.
With Major Recordings, Mobarek will take this momentum and focus it on the ground level of the dance music scene by discovering, signing and developing talent that reflects the breadth, depth, diversity and roots of the sonically sprawling genre.
“I don’t want to sign a bunch of things just because they’re going to give us streams,” she says. “I want to create something focused on community and good music.” Mobarek plans to achieve this goal by creating an artist-friendly label with personality and emotion, one that’s strongly tied to the underground, which has a strong network of artists and fans, and that’s not simply driven by bottom lines.
“Term-wise,” Mobarek says, “that means being fair and exploring how to be inventive about how we do our deals. We want everyone to make money, but because it’s dance music we’re not just gunning for hits; we’re gunning for cultural importance.” Additional signings will be announced in the coming months, with these to include both full artist signings and one-off singles, in order to create flexibility. Music signed to the label will represent the wide spectrum of dance music — a genre that offers a subgenre to fit every conceivable emotion or time of day.
“It will definitely be all over the place in that someone can come to us and be like, ‘What am I in the mood to do? Am I in the mood to sleep? Am I in the mood to rage? There’s [going to be] something here for all of those moods,” says Mobarek.
The label’s focus on authenticity aligns well for Mobarek, who’s been in dance music for nearly two decades. Her previous experience includes Ultra Music — where she led the marketing department and helped propel artists like Calvin Harris and Steve Aoki during the height of the EDM boom — the digital download store Beatport and her own marketing agency, Mob Creative, where clients included house music legend MK.
This on-the-ground experience, combined with Mobarek’s genuine love for the genre, have given her a deep understanding of sounds, trends and how to break artists and tracks not just across radio and streaming, but into the furthest corners of clubland.
“It’s not just about hiring a DJ servicing company and pushing music out via them,” Mobarek says of her strategy. “It’s about using the relationships I have with artists directly, timing things correctly, knowing who would care about [new music], knowing the difference between what Diplo’s Revolution and BPM would play [on Sirius] and which DJs are playing what.” In addition to signing acts and music, she’ll also work with Warner Music Group’s director of global strategy for electronic music, Anton Partridge, to identify dance acts signed to Warner in other territories and break them in the States.
“There’s a whole roster of Warner acts that I’ve been able to be like, ‘I know what to do with them here,” she says.
Such a nuanced understanding of the scene was key in making Mobarek the right fit for this new role. “With Major Recordings, we’re doubling down [on our strong presence in the dance music community], putting renewed energy and dedicated focus on supporting even more acts from around the world,” the label’s co-chairman & COO Tom Corson and co-chairman & CEO Aaron Bay-Schuck say in a joint statement. “Sam will be the driving force behind our success, helping us ensure that this music and these artists make a true global and cultural impact.”
“I can feel it in my stomach; we’re on the cusp of something,” Mobarek says of the energy behind dance music in the U.S. at the moment. “There are all these signs that point to it coming like [David Guetta and Bebe Rexha’s success and Skrillex, Four Tet and Fred again..’s sold out Madison Square Garden show].”
“I’m not going to try and predict what it looks like,” she continues, “but I’m going make sure people see it.”
The U.S. recorded music business posted its seventh consecutive year of growth in 2022 as the industry continues to benefit from streaming services such as Spotify, Apple Music and YouTube. After spending most of the last two decades in a painful freefall — piracy devastated CD sales and the download-driven unbundling of the album didn’t make up for it — the recorded music business has enjoyed a great run. Last year, paid subscription revenues surpassed $10 billion for the first time, according to the RIAA, and overall revenues reached $15.9 billion.
Here’s the bad news: Last year’s growth, in terms of both dollar and percentage increases, was the lowest since 2016, when the recorded music business started to recover from a 15-year downturn. Happy days may be here again, but they’re not getting happier like they were.
Total recorded music revenues grew 6.1%, but that’s about a quarter of 2021’s 23.2% gain. Paid streaming revenues improved 7.2% in 2022, a third of the 22.2% growth in 2021. It was the first time that this segment’s growth rate fell into the single digits since 2010. That year paid streaming revenues rose just 2.9% to $212 million. Over the next decade, as annual paid streaming grew to 57.8% of total recorded music revenue in 2022, the segment’s annual growth often exceeded 50% and fell below 20% only twice.
Ad-supported streaming’s revenue growth rate also fell into the single digits, also for the first time in more than a decade. Slowed by an advertising malaise that has also affected companies ranging from Alphabet to iHeartMedia, streaming services’ advertising royalties to record labels grew 5.6% compared to 44.4% in 2021 and 16.8% in 2020. In dollar terms, last year’s revenue growth was the lowest since 2015.
The slowdown shouldn’t catch anybody by surprise given the industry’s reliance on streaming, subscription services’ unwillingness — until recently — to raise prices and a finite number of potential customers. The problem comes down to basic math: Fees from subscription services accounted for 57.9% of recorded music revenues in 2022. At just 2.4% of total revenues, a high-growth segment like synchronization barely moves the needle despite rising 24.8% in 2022. Vinyl sales were strong once again — up 17.2% — but accounted for just 7.7% of total recorded music revenues.
Up-and-coming revenue streams such as TikTok, Facebook and Instagram are just that — not yet ready to deliver meaningful royalties despite their popularity. Their revenues are included in the ad-supported streaming bucket that increased just 5.5% in 2022. TikTok faces high expectations but large uncertainty, too, as it faces pressure from politicians at the state and federal level that could reduce its importance. In addition, the company has installed parental controls that are likely to reduce engagement and further reduce its potential value to artists and labels.
A positive trend is subscription services’ decisions to raise prices on individual and family plan tiers. In 2022, Apple Music, Amazon Music and Deezer raised prices in the U.S. Spotify has not yet announced a price hike for standard subscription plans but has hinted it will follow suit in 2023. Labels are eagerly awaiting Spotify’s move. “We are the lowest (cost) form of entertainment,” Warner Music Group CEO Robert Kyncl said Thursday. “We have the highest …engagement, highest form of affinity and lowest per-hour price. That doesn’t seem right.”
Globally, the situation looks better. The industry in China, the world’s most populous country, is flourishing thanks to streaming companies such as Tencent Music Entertainment and Cloud Music. In Japan, the world’s second-largest recorded music market, streaming revenues increased 125% in 2022, according to the RIAJ. At Spotify, which operates in 184 markets, revenue increased 21.3% in 2022 to 11.7 billion euros ($12.4 billion), with about equal growth rates from paid and ad-supported streaming. Annual revenues of two smaller streaming companies, Europe-focused Deezer and MENA-focused Anghami, grew 13% and 36%, respectively.
In the U.S., a maturing streaming business alone cannot maintain the breakneck pace of the last seven years. Labels will need more than the status quo to return to double-digit growth.
Back in 2017, at a Universal Music Latin Entertainment convention in Miami, Jesús López played the newly-released “Despacito” by Luis Fonsi and Daddy Yankee for those in attendance. “We all thought it was a hit,” says López, the chairman/CEO of Universal Music Latin America and Iberian Peninsula. “Admittedly, never what it became, but we knew it was something special.”
That evening, López also introduced two new signings: Sebastian Yatra and Karol G. The two Colombians, he said, “are the two big new artists in the company.”
It would take “Despacito” six months to make history as it soared to the top of the Billboard Hot 100, and stayed there for a then-record 16 weeks, tying the time spent by Mariah Carey and Boyz II Men’s “One Sweet Day” at No. 1 in 1995-96. (The record would eventually be broken by Lil Nas X‘s “Old Town Road.)
It took Karol G six years to make a different kind of history, as the first woman to place an all-Spanish album at No. 1 on the Billboard 200 with her latest project, Mañana Será Bonito. The set earned 94,000 equivalent album units in the U.S. in the week ending March 2, according to Luminate, its starting sum largely powered by streaming activity and with single “TQG” with fellow Colombian Shakira as one of its driving forces.
But there was no one tipping point for Mañana, or for Karol G. Rather, the success was the result of long-term planning and a series of key actions over the years, beginning with the door that “Despacito” opened, and including a steady stream of releases — four albums total; opening a 2019 arena tour for Gloria Trevi, which expanded her Mexican-American fan base; her hit “Tusa” with Nicki Minaj; and her 2021 album, KG2516.
“We haven’t stopped,” says López, who, thanks to another history-making moment, is Billboard‘s Executive of the Week.
Karol G has been on an upward trajectory that’s only accelerated the past year. Regardless, hitting No. 1 on the Billboard 200 is remarkable. Short-term, when did the road to No. 1 begin?
We began in April 2022 with Coachella. We started to have meetings to plan the launch of [new single] “Provenza,” and that’s when we began to plan the next album. I wanted February 2023, but Karol was aiming for November 2022 to coincide with the Latin Grammys. Then, between production and her tour, the date moved. Beginning in Coachella we designed a truly clear strategy to release singles one after another with a story for each single. Remember, singles now have a narrative behind them. We started climbing step by step. Clearly there was no tipping point, but rather different important moments.
Was the No. 1 a goal, and why did you see it possible?
Once we saw those first-day numbers we thought we could be No. 1, and we worked every campaign we thought could help. Initially, we were aiming to beat Bad Bunny’s numbers at that moment. If we hit 40,000 to 50,000 equivalent album units, we would place higher. Then the data started coming in. The weekend after release we knew we were in the battle for the No. 1, and by Monday I thought it would happen. My team was a little more reticent, and I was more optimistic, which is usually not the case. But I’m also more analytical and I crunched my numbers and it looked like we would be No. 1. Karol was all over it and she’d ask every day if we need more posts or more tweets. The artists and the company all came together because we knew what this meant. It was once again a very big statement for Universal Music.
Karol took up painting in the past couple of years, and the album cover, as well as the merch generated around it, uses her artwork. Was the merch important in this release?
Yes. All that began last year with Coachella, and we started to experiment when we released [singles] “Provenza” and “Gatubela,” designing merch that would bring her fans closer. The cover of Mañana Será Bonito, for example, will be a mythical cover, and it represents Latinidad and colombianidad 100%. I love Karol’s integral approach to things. And she’s very persistent. She works each detail very thoroughly. She has her ideas, and then she truly executes them very well.
How important was TikTok in the album’s success?
It’s not essential to the album, but it is for the singles. TikTok is the new radio; it breaks songs, and that’s how we’re using it. It’s been very important in this stage for singles like “Provenza,” “Gatubela,” “Cairo,” and right now our focus is to have “TQG” break records as well. The number of creations that fans are making with the music on TikTok is astronomical. It has to do with the storyline of empowerment around the song, and the collaboration between a legend [Karol G] and a legend legend [Shakira].
Shakira is signed to Sony. Was it complex to close the collab with her?
No. Not at all. We already have rules in place amongst ourselves [labels]. When we bring two names together, we know what we have to do. If two artists want to work together, we don’t put obstacles [in the way].
Given her No. 1, I have to think some of Karol’s consumption comes from the mainstream and not necessarily from Latins. Have you been working that market as well?
Yes. Since “Tusa,” everything we do we also work on the mainstream. We have PR teams, radio teams. But overall, it’s about people communicating differently today. There are no barriers. If you sell 12,000 tickets in a city that doesn’t have a big Latin population, clearly you’re reaching non-Latins. At school, a Latin girl sits next to her non-Latin friend. And since Latin is hot right now, there’s greater consumption. But, there’s still much to do in the mainstream, and I believe her tours and endorsements, as well as this single, will allow us to continue growing that market. The single and the album are already big hits in countries like Italy and France, but we need to do more work in England, for example.
In your opinion, what’s Karol’s appeal?
She’s a mix of many things. Obviously, getting here is not just about singing well or being clever. She is, first and foremost, a workaholic, meticulous, takes care of every detail. In the urban world, she’s a woman who sings very well, and that allows her to both rap and phrase beautifully; her songs have more range. And she’s very good at grasping where she wants to be, and she’s a natural role model for women who didn’t have role models. She’s very confident in who she is and that has allowed millions of women to identify with her and feel valued. She’s the girl next door. Karol is a diamond. Really, it’s not easy to find all these qualities in a person.
How important was this No. 1? And what’s next?
I don’t want people to always think ours is the company of “Despacito” or J Balvin or “Mi Gente” or even “Macarena.” Sometimes we forget what we’ve done. This success was very important to Latin women overall, to Karol G, but also to Universal Music Latino. The point is to write the next story. And the next, next, next great one will be Feid. I think he’ll be the biggest artist of 2023.
Previous Executive of the Week: Val Pensa of RCA
LONDON – Vinyl sales generated more money for record labels and artists than CDs for the first time in more than three decades in the United Kingdom last year, helping drive a 4.7% rise in overall music revenue, according to annual figures from labels trade body BPI published Thursday (March 9).
In 2022, sales of vinyl LPs climbed 3.1% year-on-year in the U.K. to £119.5 million ($142.4 million) and now account for over half (55%) of all trade revenues from physical sales. The last time vinyl revenues eclipsed CD sales in the United Kingdom, BPI says, was in 1987 when Michael Jackson’s Bad was the year’s best-selling album and Rick Astley had the best-selling single of the year with “Never Gonna Give You Up.”
In total, 5.5 million vinyl LPs were sold in the United Kingdom last year. That marks the highest level of vinyl purchases in the country since 1990, according to BPI figures released in January measuring music consumption. The best-selling vinyl titles in the U.K. in 2022 were Taylor Swift’s Midnights, Harry Styles’ Harry’s House and Arctic Monkeys’ The Car.
Despite the ongoing vinyl revival, overall revenue from physical formats was down 10.5% to £216 million ($258 million), with CD sales slipping 24% to £89 million ($107 million).
Offsetting that decline was 6.3% year-on-year growth in streaming revenues, which climbed to £885 million ($1 billion) and accounted for 67% of U.K. recorded music revenues in 2022 — up from 66.2% the 12 months prior. Vinyl sales made up 9% of the market in terms of annual trade revenues, while CDs accounted for 7%.
Breaking down streaming revenue, paid subscriptions generated £763 million ($910 million), up 4.8% on 2021, while ad-funded revenue grew by more than a fifth (22%) to £63 million ($75 million). Digital download sales fell 17.5% to £28 million ($33 million).
Synch revenues were up even more sharply, rising 39% year-on-year to £43 million ($51 million), while public performance income spiked 23% to £143 million ($170 million).
Total U.K. recorded music sales — comprising digital and physical revenues, public performance rights and synch — climbed 4.7% to £1.32 billion ($1.57 billion) in 2022. That marks a rise of 36% over the past five years, according to BPI, as well as the eighth-consecutive year of growth.
The United Kingdom is the world’s third biggest recorded music market behind the United States and Japan with sales of just over $1.8 billion in trade value, according to IFPI’s 2022 Global Music Report. (BPI’s year-end sales figures are based on pound sterling, rather than the far stronger U.S. dollar, hence the perceived decline in overall revenues when BPI’s figures are converted into dollars at a constant currency basis).
“2022 was another great year for British music, but we must guard against any complacency in the face of growing challenges and keep promoting and protecting the value of music,” BPI chief strategy officer and interim CEO Sophie Jones said in a statement. She also called upon the U.K. music community to work together to “create the impetus” for further growth and “futureproof the success of British music in an increasingly competitive global music market.”
As previously reported, British artists accounted for the top 10 biggest-selling singles in the U.K. last year (either as the lead or as a featured artist) for the first time since year-end charts were introduced more than 50 years ago. Leading the pack was Harry Styles’ “As It Was,” which topped the U.K. singles chart for 10 consecutive weeks (it also spent 15 weeks atop the Billboard Hot 100) and was streamed more than 180 million times in the country.
Joining Styles in the U.K. top 10 was Ed Sheeran, Cat Burns, Glass Animals, Lost Frequencies & Calum Scott, LF System, Sam Fender and Kate Bush, whose 1985 track “Running Up That Hill” spent three weeks at No. 1 following its high-profile Stranger Things synch; it was streamed 124 million times in her home country last year.
Styles also landed the year’s best-selling album with his third studio set, Harry’s House, making him the first artist to have both the United Kingdom’s top single and top album since Lewis Capaldi in 2019. Sheeran’s = (Equals) and Swift’s Midnights were the year’s second and third-best-selling albums.
On Thursday (March 9), the RIAA released its annual year-end report on recorded music revenues in the U.S., with an encouraging top line: In 2022, total revenue was up 6% to $15.9 billion, with paid subscription and wholesale revenues each surpassing $10 billion for the first time. That marks the seventh straight year of growth for an industry that at this point is far removed from the doldrums of the early part of the century.
In fact, the industry could credibly be a little underwhelmed by the rate of growth, as the 6% figure is the lowest percent increase across those seven years — and the only time other than pandemic-affected 2020 (+9.2%) that growth has fallen below double digits during that period. In actual figures, it’s the smallest increase ($900 million) year over year since 2016, when the business grew 11.4% and added $700 million.
There are plenty of other interesting takeaways to discern from digging through the RIAA’s report. Here are four (plus one bonus item!) that stand out.
Paid Subscriptions — Anything to Worry About?
Both the average number of paid subscribers (those subscribing to full-catalog services like Apple Music or Spotify’s paid tier) and the revenue from full-catalog paid subscriptions grew at much slower rates, both in percentage terms and in actual numbers, than in recent years. The former metric showed an increase of 8 million subscribers (9.5%; 84 million in 2021 to 92 million in 2022), while the latter metric reflected an increase of $600 million (7.2%; $8.56 billion to $9.17 billion). As with the overall growth rate for the industry, that’s the first time in several years that those figures grew by less than double-digit percentages. So, is it anything to worry about, when looking at how much growth there is left in the paid streaming business?
Not necessarily. For one thing, between 2018 and 2022, paid subscribers (up 96.2%) and revenue from full-catalog subscriptions (up 93.6%) have grown fairly in line with each other, and the revenue per subscriber has averaged $98.92 over that period of time (pandemic-affected 2020 was an outlier year, at $92.35). In 2022, the average revenue per subscriber was $99.77, which was down from $101.94 in 2021 but not out of line with the overall average.
That number should be expected to grow, given price increases by Apple Music, Amazon Music and Deezer in the past year and the increasing pressure on Spotify to boost its price higher than $9.99/month, where it has stayed since entering the U.S. in 2011. This will be something to keep an eye on as the year progresses, as strategies shift from gaining subscribers to getting more out of those who do subscribe, given that a ceiling on the number of subscribers could be coming into view (for context, the U.S. government counted 124 million households in the latest census).
Another reason for optimism: The above numbers don’t include limited-tier subscription revenue — things like Amazon Prime and fitness apps like Peloton — which crossed the $1 billion mark for the first time in 2022. Since 2020, when the pandemic led to a home fitness app craze and resulted in additional areas of limited music subscription beyond the traditional paid streaming realm, limited-tier subscription revenue has grown 47.7%. As more licensing opportunities arise, that sector should continue to contribute meaningful revenue moving forward.
Ad-Supported Streaming Takes a Hit
Ad-supported on-demand streaming revenue reached $1.8 billion in 2022, accounting for 11% of the overall revenues for the business last year. But growth was just 5.5% over 2021 — a big reality check after the category grew 46.7% in 2021 over pandemic-affected 2020 and 16.4% at the mid-year mark of 2022. Even in 2020, when the world essentially came to a standstill for several months, year-end ad-supported streaming revenues grew 16.8%, up $170 million — higher than the $95 million gain seen in 2022.
The advertising slump last year was certainly a blow to U.S. industries, with layoffs across the music and tech landscapes in particular. Many companies cited “economic headwinds” due to a combination of factors, including the war in Ukraine, rising interest rates, inflation and the threat of recession as companies scaled back spending that had ballooned coming out of the pandemic and readjusted forecasts for an uncertain future. All of that certainly played a part. But since 2018, ad-supported on-demand streaming revenue grew 137%, becoming an increasingly large part of the overall pie. In comparison, 5.5% is likely a disappointing number to many in the industry.
Vinyl, Vinyl, Vinyl
Another year, another big headline involving vinyl’s 16-year winning streak: For the first time since 1987, the number of vinyl LPs sold in the United States (41 million) surpassed the number of CDs sold in the calendar year (33 million). Vinyl sales reached $1.2 billion in 2022, up 17.2%, while CD sales plummeted once again, decreasing 17.6% to $482 million. Despite the eye-popping vinyl revenue numbers, however, actual unit sales only rose 3%, meaning that the price of vinyl is getting more expensive. In 2021, the average vinyl record cost $26.12; in 2022, that number rose to $29.65. There’s plenty to unpack there, including increased production costs and inflation.
Another notable development in the vinyl craze that has sharpened in recent years is the shifting market share among vinyl retailers. As far back as 2015, when the industry started to emerge from its nadir, the market was dominated by indie records stores (45.42%), internet/mail order sellers like Amazon (32.88%) and chain stores like Best Buy (15%), according to Luminate. By 2018, indie stores and Amazon sales had essentially settled into a market share tie — each at 41% — while the Best Buys of the world had shrunk to just north of 10%.
But beginning in 2019, a fourth player began to emerge: Mass merchant stores like Walmart and Target, which dramatically expanded their inventories. As a result, their market share went from less than 1% in 2015 — accounting for some 7,000 sales — to 10.19% in 2019 and 14.75% in 2021, with sales of 6.1 million units. While the market share economics have shifted during that time, sales have continued to increase for each sector across the board. In short, part of what has been driving the boom has been sheer visibility in some of the biggest stores in the country, which has correlated to more sales, and thus more visibility, and around and around we’ve gone. (For those curious, in 2022 indie stores accounted for 48.1% of the market, having reclaimed their dominant position as the country emerged from the pandemic.)
The Synch Explosion
In the past few years, more and more songs have caught huge waves due to synchs in popular TV shows and films. Think Kate Bush’s “Running Up That Hill” following its Stranger Things placement, The Cramps’ “Goo Goo Muck” following its Wednesday placement and Gerry Rafferty’s “Right Down The Line” from Euphoria, to name a few. That seems to have stemmed from the explosion of content, as the streaming wars in TV/film world heated up during that time — with Netflix, Disney+, Hulu, Peacock, Paramount+, Apple TV+ and the rest all throwing money around to reel in subscribers. The RIAA numbers back that up: In 2022, synch revenue grew 24.8%, from $306.5 million to $382.5 million, marking a gigantic jump. In fact, from 2020 to 2022, synch revenue jumped 44.2%, outpacing the industry at large (which was up 30.3% in that span).
Will that upward trend continue? It’s unclear. The TV/film streamers have publicly cut back their content spends in the past six months as the battle for market share and subscribers veered into profligacy and waste, while corporations looked to reel in costs amid the broader economic landscape. But it’s possible those gains are here to stay, even if they regress a bit. One music group executive recently told Billboard that in addition to the big four streamers (Spotify, Apple, Amazon and YouTube), Netflix was quickly becoming a fifth major source of revenue thanks to a combination of direct synch payments and the long tail of streams that result from a high-profile placement. That’s something to keep an eye on moving forward.
Bonus Takeaway — Ringtones!
Finally, a small bonus addition from a personal favorite aspect of the RIAA report. The mid-to-late-2000s were, of course, a time of great uncertainty and anxiety in the recorded music business, as piracy and digital music chipped away at a once-dominant physical sales format. At their height in 2007, ringtones and ringbacks were able to plug the gap to the tune of $1.1 billion, according to the RIAA. (That would be around $1.6 billion today.) So, how much money did ringtones and ringbacks generate in 2022?
$11 million!
Please, RIAA, continue printing this as a line in every report, no matter how small the figure gets. While it’s currently the smallest line item by revenue in the entire report, I cherish it more than all the others.
SEOUL — The bitter battle for control of K-pop’s fabled agency SM Entertainment has spilled out publicly like an episode of HBO’s Succession. K-pop’s largest agency, HYBE — home to boy band BTS — is pitted against the management of SM, which for years was South Korea’s dominant K-pop company. But as SM’s Lee Soo-man sided with HYBE against the company he founded, a corporate shakeup has turned into a battle royale.
SM sought to maintain its independence through a partnership with Kakao, a South Korean internet giant that has acquired several entertainment agencies. In February, Kakao said it would buy a 9.05% stake in SM against the wishes of Lee, SM’s charismatic founder and rock singer-turned-mogul, whose equity in SM allowed him to challenge the purchase in court.
About a week later, Lee — a controversial figure who helped build the K-pop business over the last three decades but has been convicted of embezzlement in the past — privately approached HYBE founder and chairman Bang Si-hyuk, offering to sell about 80% of his SM shares to HYBE, with an option to sell the remaining chunk at a later date, according to a person with direct knowledge of the matter. As a result, HYBE now has a 15.8% stake in SM, making it the company’s largest shareholder.
Since then, the companies have traded almost daily salvos.
After a March 3 provisionary injunction upheld Lee’s court challenge to the Kakao acquisition, Kakao announced it had canceled its investment in SM and launched a tender offer seeking to buy 35% of SM from minority shareholders. HYBE is now appealing to SM shareholders to back its board nominees and vision for the company. SM sees the move as a hostile takeover and is asking shareholders to appoint independent directors. The clock is ticking before a March 31 annual shareholder meeting.
Both HYBE and SM have grand ambitions to expand K-pop and take on the major labels globally. HYBE increased its revenue 125% to 1.78 billion won ($1.41 billion) from 2020 to 2022, largely by acquiring Ithaca Holdings in 2021 for $1.05 billion and giving its founder, Scooter Braun, the reins to its U.S. operations, HYBE America. In February, HYBE America made its first major move, purchasing Atlanta-based hip-hop company Quality Control Music for $300 million.
SM hopes to more than double its 2022 revenue of 850 billion won ($644 million) to 1.8 trillion won ($1.36 billion) by 2025 through a mix of partnerships and acquisitions, which include acquiring a U.S. management company and, by the second half of 2024, launching its first U.S.-based artist. “Our plan is not limited to local activities of Korean artists,” co-CEO Tak Young-jun said in a Feb. 23 video.
The company plans to spend 350 billion won ($266 million) on a music publishing company and 300 billion won ($228 million) to acquire record labels, with two-thirds of that amount ($152 million) targeting U.S. companies “with a solid local network that can support Korean artists’ global expansion and have global production capabilities in genres complementary to SM,” Lee Sung-soo, SM’s chief creative officer and co-CEO, said in the same video.
But minus its powerful founder, SM doesn’t intend to take the world stage with HYBE’s help. It had envisioned Kakao as its preferred partner in a mission — dubbed “SM 3.0” — it has said it will still push forward with in order to expand outside of Korea and build outposts in Japan, Southeast Asia and the Americas.
A HYBE acquisition of a controlling interest in SM could potentially face regulatory scrutiny from South Korea’s Fair Trade Commission since it exceeds 15% of SM’s stock ownership. In 2022, HYBE was behind 26.8% of albums sold in Korea, while SM was behind 19.1%, according to Korea chart company Circle Chart.
As Lee Dominated, SM’s Luster Was Fading
Though few had predicted such a dramatic unraveling, SM was overdue for a transformation. Once the leading K-pop innovator, SM has debuted just one completely new act, Aespa, in the last five years. It continues to operate through a single pipeline with Lee at the helm of artist management and production, while rivals like HYBE and JYP Entertainment have diversified their portfolios, relying on multiple teams that produce more acts with more independence.
SM’s shares have been chronically undervalued, industry observers say, due to an arrangement where the company paid producing fees to a separate entity owned by Lee. SM paid Lee 24 billion won ($18.1 million) in 2021, equivalent to more than a quarter of SM’s operating profit that year. Even in years when SM produced a loss, Lee took home a sizable paycheck.
The board of directors, packed with Lee allies, allowed the practice to continue for years, until Align Partners Capital Management, a private equity firm, led a shareholder revolt last year. Lee, who now holds about 3% of SM shares, appears headed out the door. HYBE and SM say his role will be reduced if not completely phased out.
“It’s hard to put up a resistance in Korean culture,” Lee Changhwan, CEO of Align Partners, says about the difficulty in over-riding a founder and company’s biggest shareholder. “The governance structure has to go through fundamental changes.”
South Korean stocks are often undervalued, analysts say, since some companies can seem to be managed for the benefit of founders and families to the detriment of general shareholders. Still, in the HYBE-SM power struggle, SM shareholders appear to have won either way: The March 7 share price of 149,700 won ($113.84) is up over 116% since SM announced it would terminate Lee’s contract on Oct. 14.
A K-Pop Pioneer With A Criminal Past
The 70-year-old Lee, who founded SM in 1995, has been credited with making K-pop what it is today. Inspired by early MTV music videos and New Kids on the Block, which he watched during his master’s degree studies in California in the 1980s, he paved the way for K-pop to win overseas fans with a signature formula of visually striking performance and dance pop.
Lee crafted BoA, the female singer who SM scouted in 1998 when she was 11 years old, into the first K-pop artist to break through in the Japanese market; she went on to sell millions of singles and albums. Groups from TVXQ and Girls’ Generation to EXO and NCT have followed suit with international stardom. In 2000, SM became the first K-pop agency to list its shares publicly.
Even before PSY and BTS became global household names, Lee was lecturing publicly about K-pop conquering the world — and about a future when non-Korean singers would join the fray and be trained and managed by K-pop production teams.
Lee’s artistic vision and drive didn’t make up for the company’s corporate governance problems, however. Shareholders have in recent years slammed SM for losses from non-music businesses such as a winery and restaurants while Lee was still getting his producer’s fees. Several SM acts have seen members leave acrimoniously over what they called harsh training and “slave contracts,” resulting in government intervention, including shorter contracts for K-pop trainees and stars.
In 2002, Lee made headlines when he fled the country to escape prosecution while facing embezzlement allegations. After a brief stay on Interpol’s wanted list, he surrendered to Korean authorities and was convicted for siphoning off 1.15 billion won ($892,000 at the time) in company funds during a recapitalization round, which he used to buy shares in SM. (He served three years of probation, and in 2007 he received a presidential pardon — and then returned to the company.) SM has also paid fines for tax evasion, most recently in 2021.
In recent weeks, Lee Sung-soo, the co-CEO who is also nephew to founder Lee’s late wife, leveled a series of accusations at his uncle, which range from previously undisclosed tax evasion through a shell company based in Hong Kong to making “arbitrary” changes to SM bands’ musical direction to advance his own business interests.
While the elder Lee has not directly addressed the allegations, HYBE has responded that it was unaware of such an arrangement during the deal’s signing. In a statement to Billboard, HYBE says its SM acquisition was made “following research on the corporate fundamentals, including publicly disclosed information about SM.”
The Cadillac Three members Jaren Johnston and Neil Mason have teamed with Warner Records via a joint venture to launch the Nashville-based label War Buddha Records.
The first signing to the venture is Los Angeles-based singer-songwriter Rett Madison, who recently wrapped a run of shows with St. Paul & The Broken Bones and is slated to play during SXSW 2023.
“As artists ourselves, we created War Buddha first and foremost as a home for artists,” Johnston said via a statement. “In partnering with our longtime friend Aaron Bay-Schuck, alongside Tom Corson and the stellar Warner Records team, we saw the opportunity to mix our dirt with Warner’s power to create a venture fostering both creative expression and commercial success.”
“We want the label to offer a platform for artists with unique perspectives who fit out, not in, and feel unafraid to tell their stories unapologetically,” Mason added. “Rett is the perfect first signing for the label: an artist with the incredible ability to capture life experiences in songs that make the listener feel they are in those moments with her. We’re so grateful to Aaron and Tom for the chance to build this label together.”
Nashville natives Johnston and Mason, along with their The Cadillac Three cohort Kelby Ray, have released albums via Big Machine Records including 2016’s Bury Me in My Boots, and a pair of 2020 projects, Country Fuzz and Tabasco and Sweet Tea. As songwriters, Johnston has written songs recorded by artists including Tim McGraw (“Southern Girl”), Keith Urban and Eric Church (the duet “Raise ‘Em Up”). Mason has written songs recorded by artists including Miranda Lambert (“Old Sh*t”), and Jake Owen (“Days of Gold”).
“For as long as I have known Jaren and Neil, they have never taken a conventional path,” said Bay-Schuck, co-chairman & CEO of Warner Records, via a statement. “They’ve been fearless in their pursuit of great art, never compromising any integrity or authenticity in their approach to their own artistry or collaborations as songwriters and producers for other artists. As we continue to build the Warner Records brand as one that is always a safe and encouraging place for artists who dare to be different, take risks, and have a point of view, it made total sense to partner with War Buddha on their mission to do the same. We are very excited to welcome Rett Madison as the first artist from this partnership and we can’t wait to see what other unique and amazing talent Jaren and Neil discover.”
“I couldn’t be more thrilled to be joining the Warner Records family with War Buddha!” Madison said. “I’ve felt such genuine enthusiasm from Neil and Jaren in regards to my music and their total support of me sharing my most authentic, artistic voice feels refreshing. I can’t wait to see what we all build together.”
There are twin $10 billion milestones served up in the RIAA’s 2022 year-end report on U.S. recorded music revenues: paid subscription streaming revenue reached $10.2 billion over the course of the year; and industry revenues at wholesale reached $10.3 billion, the first time either of those markers have been crossed, the trade body reports.
Those are two headline numbers of the annual report, wherein U.S. recorded music revenues grew 6.1% at retail, from $15.0 billion in 2021 to $15.9 billion in 2022. That marks the seventh straight year of growth for the business, though the percentage of that bump is the lowest since 2015 (+0.9%), the first year that retail revenues began to rise from the industry’s 2014 nadir. (The growth that year was so small, around $65 million, that it was essentially flat for all intents and purposes.) In fact, 2022 is the only year during that time period when growth has not exceeded double digits other than 2020, when a first COVID-impacted year of uncertainty still saw a 9.2% rise in revenue.
Streaming, unsurprisingly, made up the bulk of the industry’s revenues — 84%, up a tick from 83% in 2021, adding up to $13.3 billion in 2022, up 7% from $12.4 billion the year before. Within that, the aforementioned paid streaming chunk was the largest, accounting for 77% of that total for 8% year-over-year growth, and in and of itself making up just shy of 2/3s of the industry’s overall revenues; of the overall paid streaming number, so-called “limited-tier” subscription streaming — including the likes of Amazon Prime, Pandora Plus, Peloton and other fitness or restricted streaming options — grew 18% to surpass $1 billion, coming in at $1.1 billion overall. And ad-supported streaming — like YouTube, Spotify’s free tier or revenues from TikTok — moved up 6% to $1.8 billion, making up 11% of all revenues for the year.
The average number of paid subscriptions in the U.S., meanwhile, reached 92 million, up 9.6% from the 84 million that existed in 2021. (The RIAA notes that this does not include limited-tier subscriptions, and counts “multi-user plans” as one subscription. The overall paid streaming figure of $10.2 billion includes limited-tier.) That growth, while significant given that it is higher than overall revenue growth, is down in both actual numbers and percentage growth for 2021, as was the revenue growth gleaned from paid subs, suggesting that while there’s still room to go higher and records continue to get broken, there may be a slowdown in subscriptions in the future.
Outside of those streaming figures, digital and customized radio revenue — paid out by services such as SiriusXM — inched up 2% YoY, even as SoundExchange payouts declined 3% to $959 million; those other ad-supported platforms such as SiriusXM and other internet radio services grew 28% in revenue during the year, contributing $261 million to the overall pie. That ends a few straight years of growth from SoundExchange distributions, though the overall figure of $1.2 billion from digital and customized radio in general has remained relatively flat for the past several years.
Also within the digital realm, downloads continued their stumble down the proverbial cliff, dropping 20% across the board — both for tracks and for digital albums — to total $495 million in revenue ($242 million for tracks, $214 million for albums). The RIAA notes that in 2012, digital downloads made up 43% of the overall industry’s revenue; in 2022, that number was just 3%. Factoring other formats, total digital revenue was $13.8 billion, up 6.0% from 2021, or 87% of the total business.
For the first time since 1987, vinyl LP units outsold the number of CDs, 41.3 million to 33.4 million (vinyl overtook CDs in revenue in 2020), as its year-over-year growth streak stretches to 16 years — old enough to drive. Total physical revenue was up 4% in 2022 to $1.7 billion, of which $1.2 billion came from vinyl — up 17% YoY, making up 71% of physical revenues. CD revenue, meanwhile, continued to decline despite the one-time pandemic boost of a few years ago, down 18% to $483 million in 2022. Synch revenue also grew, up 24.8% to $382.5 million.
“2022 was an impressive year of sustained ‘growth-over-growth’ more than a decade after streaming’s explosion onto the music scene,” RIAA chairman/CEO Mitch Glazier said in a statement accompanying the report. “Continuing that long run, subscription streaming revenues now make up two-thirds of the market with a robust record high $13.3 billion. This long and ongoing arc of success has only been possible thanks to the determined and creative work of record companies fighting to build a healthy streaming economy where artists and rightsholders get paid wherever and whenever their work is used.”
If the price of an individual streaming subscription plan were adjusted for inflation in 2023, it would cost $13.25 instead of roughly $10 a month, Warner Music Group CEO Robert Kyncl said on Wednesday (March 8) — a statistic that doubled as a plea for streaming companies that have yet to raise fees to get in line.
While several of the big music streaming companies — including Apple, Amazon and Deezer — have raised their baseline prices recently, the biggest one of all, Spotify, has so far held off on raising the $9.99 pricetag on its U.S. premium subscription plan. Though Kyncl didn’t specifically address Spotify on Wednesday, when he spoke at the Morgan Stanley Technology, Media & Telecom Conference, he said companies that haven’t raised their prices are playing a role in the undervaluing of music.
“We are the lowest (cost) form of entertainment,” he said. “We have the highest …engagement, highest form of affinity and lowest per hour price. That doesn’t seem right. It should change in an orderly fashion.”
While Kyncl is far from an unbiased commenter on price hikes — music labels stand to gain significant revenues from DSPs raising their subscription prices — Kyncl says the 12 years he spent at YouTube has shown him companies can raise prices if they have a product consumers cherish.
“YouTube TV has grown its subscription from $35 to $70 while growing … because they have a superior product,” Kyncl said.
During the wide-ranging presentation, Kyncl also expressed empathy for executives at TikTok who are at “a company that’s kind of embattled today with lots of different institutions around the world.”
“As someone who’s kind of gone through that, it is much better to have friends and not fight a war on every flank,” he added, recalling the contentious relationship YouTube once had with the music industry.
TikTok is engaged in ongoing negotiations over remuneration to rights holders, a group that includes Warner Music Group (WMG). On Wednesday, Kyncl noted WMG is open to a friendlier dynamic with the popular music discovery tool so long as it works for “both sides.”
“That’s all I look for, fair setup on both sides and to grow a business together,” Kyncl added.
Brazilian pop star Anitta is lashing out at Warner Music, saying she regrets signing with the label and would have “auctioned off her organs” to be let out of her contract.
The artist — who had a breakout 2022 with the success of her tri-lingual album Versions of Me, a No. 1 track on the Billboard Global Ex. U.S. chart with “Envolver” and performances at Coachella and the Latin Grammy Awards — went on a Twitter tirade last week when fans prodded her to explain her tortured history with Warner.
When one fan said he wished she could be free of her contract, she responded that “if there was a fine to pay, I would have already auctioned off my organs, no matter how expensive it was to get out. But unfortunately, there isn’t. When you’re young and still don’t know a lot, you need to pay close attention to the things you sign… if you don’t, you could spend a lifetime paying for the mistake.”
A spokesperson for Warner Music declined to comment. Leila Oliveira, Warner Music Brazil’s new president, did not respond to a message from Billboard. Brandon Silverstein, Anitta’s U.S.-based manager, also did not respond to a request for comment.
Meu amor se tivesse uma multa pra pagar eu já tinha leiloado meus órgãos por mais caro q fosse pra sair fora. Mas infelizmente não tem. Qndo a gente é novo e ainda ñ sabe muito tem q prestar muita atenção nas coisas q assina…se não pode passar uma vida inteira pagando pelo erro— Anitta (@Anitta) March 2, 2023
Anitta signed with Warner Music in the U.S. in January 2020 after previously signing with Warner Music Brazil in 2013. Under the U.S. contract, she produced Versions of Me, which was executive produced by Ryan Tedder. Anitta has said she’s required to deliver two more albums for the label to satisfy the contract. (In January 2022, she signed a publishing deal with Sony Music Publishing.)
This isn’t the first time Anitta has complained about Warner. She previously swiped at the label for having to pay for music videos out of her own pocket, including for “Gata,” which she said Warner refused to produce a video for when they saw that the song’s performance on streaming platforms was falling below expectations.
“They only invest after it pays off on the internet,” Anitta said in an Instagram livestream in May. “Unfortunately, there are things I can’t get, that’s why I don’t buy millionaire cars, because when I want to do something, I pay for it.” (She says she ultimately got a sponsor to help pay for the video.)
During the same livestream, Anitta also said that Warner only invests in her work after a song goes viral on TikTok. “The label is very tied to TikTok, to what goes viral, and if they don’t get a hit right away, they say ‘later,’” she said.
Anitta’s fans have also criticized Warner for the label’s perceived treatment of the Brazilian singer, with many complaining on Twitter that Warner didn’t give her 2021 single “Girl From Rio” the marketing push it deserved by including it in playlists on streaming services. (The song, which combined bossa nova and trap with English lyrics, dropped rapidly on the charts.)
Anitta has also said that Warner initially resisted the release of “Envolver,” the single that blew up after Anitta’s butt-grinding dance in the song’s video, which she directed, became a global TikTok sensation. “[Warner] said the song wasn’t going anywhere and that I wouldn’t have the sway to release it alone [without a feature on the track],” she said during an Instagram livestream in December.
Late last year, Anitta’s fans began urging her to release a funk remix of “Practice,” which she originally recorded with A$AP Ferg and HARV, but the singer said last week that Warner wouldn’t allow her to. “When I saw that you liked [the remix version] I asked to release it, and it has been a long time,” she wrote to her fans on Twitter. “But things can only be released with their authorization.”
Since Anitta’s tirade last week, fans have organized a #FreeAnitta movement on Twitter. One fan posted a photo depicting the singer sobbing in a jail cell with the Warner Music logo on the wall behind her. Another fan asked her if her harsh comments could damage her relationship with the label.
“Is there a way it could get worse? Hahaha,” she responded.