Record Labels
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New Warner Music Group (WMG) CEO Robert Kyncl didn’t take much time to make an imprint on the company. On Wednesday (March 29), fewer than three months into Kyncl’s tenure, WMG announced it would lay off 270 employees, or 4% of its workforce.
The layoffs will save the company $22 million in fiscal year 2023 ending Sept. 30, 2023, and “$50 million on an annualized run-rate basis in fiscal year 2024,” according to an SEC filing released Wednesday. That’s equal to 4.2% of WMG’s adjusted earnings before interest, taxes, depreciation and amortization in the fiscal year ended Sept. 30, 2022.
Like many other companies, WMG is becoming more mindful of its resources as the music industry tries to extend an eight-year growth spurt. Prior to announcing the layoffs, WMG said a “financial transformation program,” to roll out in fiscal 2024, is expected to produce annual savings of “$35 million to $40 million once fully implemented,” CFO Eric Levin said on the company’s Feb. 9 earnings call. Universal Music Group’s Motown Records announced layoffs in February as the label was reintegrated under Capitol Music Group. Downtown Music Holdings, Spotify and SoundCloud have also reduced their headcounts in recent months.
WMG had “to make some hard choices in order to evolve” and position the company for “long-term success,” Kyncl wrote in a memo to employees. The cuts were thoughtful and purposeful, he added, not a “blanket cost-cutting exercise.” The layoffs “should be substantially completed by the end of the next fiscal quarter” ending June 30 and will result in cash expenditures of about $46 million by the end of fiscal 2024, according to the filing.
News of WMG’s layoffs didn’t sway investors, however. WMG’s share price rose just 0.6% to $32.63 on Wednesday despite the restructuring’s ability to improve its bottom line. Year-to-date, WMG’s share price has fallen 6.8% while overall stocks have broadly rebounded from a dismal 2022. The S&P 500 is up 4.9% and the tech-heavy Nasdaq composite is up 13.9%. The New York Stock Exchange composite is down 0.4%.
While WMG will reduce headcount in some areas, the company is also building for the future — with an eye on tech. Kyncl, who quickly hired ex-YouTube executive Ariel Bardin for the newly created role of president of technology, said in his memo that WMG would be “reallocating resources towards new skills for artist and songwriter development and new tech initiatives.”
WMG expects to expand its gross margin by 50 to 100 basis points — equal to one-half to one percentage point — in fiscal year 2023. Aside from cost cuts, the nature of the changing music business helps the bottom line. WMG’s margins improve as it sells less of “margin-declining” physical product and “high-margin growing” digital business accounts for a larger share of its total revenue, Levin said at the Deutsche Bank 31st Annual Media, Internet & Telecom Conference on Feb. 28.
“We still see solid margin growth in 2023” despite declining ad-supported streaming revenues, Levin added. “When we see ad-supported start to stabilize and hopefully rebound and grow, it may create an environment for very favorable margins.”
German record label and publisher BMG had its biggest year in its 15-year history, the company reported Thursday (March 30), saying 2022 revenues were up more than 30% on strong publishing and recorded music growth and the half a billion invested in music catalogs and artists signings.
BMG reported that it generated 866 million euros ($912.6 million) in 2022 compared to 663 million euros in 2021 ($784 million). The company’s publishing division, which makes up 60% of BMG’s revenues, grew by 26% to 518 million euros ($546 million) on new hits by Bebe Rexha and Lewis Capaldi and iconic works by Blondie and Nirvana.
BMG’s recorded music business, which contributes 40% of the company’s overall revenues, grew by 38% to 348 million euros ($367 million) on collaborations from Jason Aldean and Carrie Underwood and the continued streaming strength of Rick Astley‘s “Never Gonna Give You Up.”
With financial backing from its parent company Bertelsmann and $1 billion joint investment partnership with private equity firm KKR, BMG launched an “investment offensive” in 2022, in the words of Bertelsmann. BMG spent more than 509 million euros ($536 million) signing publishing deals with artists like Elvis Costello and Halsey and acquiring 45 catalogs including rights to works by Peter Frampton, John Lee Hooker, Primal Scream and Simple Minds. In August, BMG announced it acquired the German indie label Telamo, expanding its footprint in the world’s fourth largest music market.
BMG executives said the company is on target to achieve its financial goal of generating one billion euros in revenue starting in 2024.
BMG chief executive Hartwig Masuch attributes the record-setting year for revenues to the company’s investments in technology and services to set it apart with artists and focus on “known quantities” of successful music.
“Our strategic differentiation is focusing on the repertoire that grabs more and more share from consumers, which is established repertoire, known quantities,” Masuch tells Billboard. “And in attracting artists, the focus on qualitative differentiation when it comes to accounting, servicing, our daily role, (is) a strategic differentiation between our major competitors and BMG.”
Masuch, who has led BMG since its launch in 2008, is stepping down at the end of this year, leaving the top job to his current chief financial officer, Thomas Coesfeld.
Coesfeld, who has played a key role in BMG’s catalog acquisition strategy, said the company’s investments last year will “bear fruit in the years to come.”
“Why we are focused on iconic artists is because we are firm believers in the cultural relevance — the earnings permanence,” Coesfeld says. “These returns are stable, less volatile and growing because the streaming environment is still growing a lot — less than in the last two years, but still growing. Our strategy is keep going because we are firm believers that this is the right thing to do.”
Citing a need to make “hard choices in order to evolve,” Warner Music Group chief executive Robert Kyncl announced on Wednesday a slate of cost-trimming measures that includes a 4% reduction in staff and a reallocation of resources towards tech initiatives and “new skills for artist and songwriter development.”
Kyncl, who took over as CEO earlier this year, said in a staff memo seen by Billboard that approximately 270 people will be let go and that there will also be reductions in open positions and various discretionary spending at the company to “provide us with additional flexibility for our future.”
Affected employees will hear from their managers in the next 24 hours, Kyncl said, adding that the actions are not a “blanket cost-cutting exercise” and that “every decision has been made thoughtfully by our operators around the world, who considered the specific needs, skills, and priorities of each label, division, and territory, in order to set us up for long-term success.”
Read Kyncl’s full memo below:
Hi everyone,
As I mentioned at our first All-Hands meeting last month, I’m committed to direct and honest communication with all of you. The music business is filled with new possibilities: more fans are engaging with artists and songs than ever, our reach is enormous, and new business models are constantly emerging. WMG is positioning itself for this new phase of growth at the intersection of creativity and technology.
In my discussions with our leaders across the company, many of them came to the same conclusion – that to take advantage of the opportunities ahead of us, we need to make some hard choices in order to evolve. Consistent with this direction, we’ve made the tough decision to reduce our global team by approximately 270 people, or about 4%. At the same time, we’re reallocating resources towards new skills for artist and songwriter development and new tech initiatives. We’re also reducing discretionary spending and open positions to provide us with additional flexibility for our future.
I want to be clear that this is not a blanket cost-cutting exercise. Every decision has been made thoughtfully by our operators around the world, who considered the specific needs, skills, and priorities of each label, division, and territory, in order to set us up for long-term success. The leader of your division will either be holding a town hall or sending an email to explain more about this path forward.
I’m also acutely aware of how unsettling this can be. Having to say goodbye to talented colleagues is always difficult. For those of you who will be leaving WMG, please know that we’re deeply grateful for your hard work, dedication, and all you’ve contributed to this company. In all territories, except where you are explicitly told there will be a review or consultation period, anyone affected will hear from your leaders, supervisors, or People team reps within 24 hours. I know this transition will be tough, but we’re committed to supporting you during this process.
In times of great disruption in our world and society, artists and songwriters who have something original to say, who rise to the occasion, will resonate the loudest. Equally, the rapid changes in our economy and ecosystem create the conditions and opportunities for innovation and breakthroughs. I learned when I joined WMG that this is a gritty, incredibly resourceful, and highly impactful team that I want by my side every day of the week. We deliver for our artists, songwriters, and labels with laser focus, inventiveness, and care. And now, more than ever, we need to double down on that.
I’ll have more to say about all of this at our next All-Hands meeting, including more details on our plan.
Let’s support each other with empathy and integrity as we work through this process.
Thank you,
Robert
Kakao Corp. and its subsidiary, Kakao Entertainment, increased their share of K-pop company SM Entertainment to 39.9% from 4.9% after purchasing 1.66 million shares from HYBE. That left HYBE with 54% of its shares in SM Entertainment, according to a Tuesday (March 28) regulatory filing.
HYBE sold its 1.66 million SM shares for 248.8 billion won ($191.8 million), or 150,000 won ($115.62) per share, leaving it with an 8.8% stake in SM Entertainment. HYBE had planned to sell its entire stake, the company said in a Friday filing, but it did not offload all of its shares during Kakao’s tender offer. Now that the battle for control of SM is over, HYBE’s remaining stake in SM is worth less than its purchase price. With Kakao’s tender having expired on Sunday and SM shareholders no longer able to sell at a premium, SM’s share price dropped 15% to 91,100 ($70.23) won on Monday and improved slightly to 94,300 won ($72.70) on Tuesday.
SM Entertainment, home to such K-pop acts as NCT-127 and Red Velvet, is partnering with Kakao Corp. and Kakao Entertainment to expand globally as it reorganizes following a split with its founder, Lee Soo-man. Kakao Entertainment owns K-pop group Monsta X’s label, Starship Entertainment, as well as the Korean music streaming platform Melon.
HYBE acquired about 3.5 million SM shares from Lee at 120,000 won per share, according to a Feb. 10 regulatory filing. After flirting with a campaign to take board seats and some operational control in SM, HYBE changed course and conceded to Kakao on March 13. “Proceeding with a higher tender offer [to beat Kakao’s bid] may have in turn caused a negative impact on our shareholders and we also judged it may have further overheated the market,” HYBE said in a statement at the time. The company had hoped to acquire an additional 25% stake in SM at 120,000 won ($92.51) per share, but its tender offer fizzled and increased its stake from 14.8% to just 15.8%.
After IVE established itself as a leading girl group in the next generation of K-pop acts with three hit singles, the sextet begins the next, most international step in their career yet with the release of their next single under a brand-new label deal.
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The opening lyrics to IVE’s latest track, “Kitsch,” seems prophetic as member Wonyoung opens by singing, “It’s our time.” While the new song has all the markings of a quintessential global-pop hit to stand alongside past IVE singles “Eleven,” “Love Dive” and “After Like,” “Kitsch” crucially includes the girls’ now-signature themes and lyrics of oozing confidence and self-love.
“Even our OOTD is just so like us/ When it comes to my favorite things/ Don’t judge them,” leader Yujin sings before youngest member Leeseo ends the verse with, “I live the way I want, what more do you want/ That’s my style.”
The accompanying music video plays off the similar YOLO themes of following one’s unique path as Wonyoung sings in front of a mural of herself, and the girls ferociously and playfully dance together in front of a neon sign with the phrase: “You’re So Weird, Don’t Change.” There’s even a bit of social commentary when the camera pans to a design on one of the members’ jacket back, with details boasting the phrase “Books, not guns. Culture, not violence.”
“Kitsch” is the pre-release buzz single for the group’s forthcoming full-length album I’ve IVE dropping next month. The track comes as the first step after IVE signed a worldwide deal with Columbia Records in the States. Columbia will team with IVE’s Korean label Starship Entertainment (home to Monsta X, WJSN, CRAVITY, Jeong Sewoon, and other K-pop artists) and Kakao Entertainment America (the new, U.S.-based branch of Kakao Entertainment (the media and music-distribution subsidiary under South Korean technology company Kakao).
“We’re thrilled to be embarking on IVE’s global journey with Columbia Records, a company with a rich history in pop music,” said Joseph Chang, head of Kakao Entertainment America, in a press release. “This partnership holds significant meaning for us. By strengthening the production and distribution capabilities of our music and artists in North America, we look forward to increasing the global competitiveness of Kakao Entertainment’s music business.”
After what Kakao Entertainment describes as “IVE’s North America debut,” the company pledged overseas support for its artists careers and expanding its music business globally.
Beyond Starship, Kakao Entertainment owns and distributes music multiple K-pop labels including IST Entertainment (home to popular groups like Apink, Victon, The Boyz and Weeekly), EDAM (an agency created for solo superstar IU that recently expanded by signing WOODZ), and Antenna (the label founded by musician and TV host You Hee-yeol boasting rock bands, ballad singers, entertainment hosts and more).
For international distribution outside the U.S., IVE has signed with Sony Music’s subsidiary distributor The Orchard.
IVE’s full-length album I’ve IVE (which stands for “I Have IVE,” per press release) drops on April 10 with new songs alongside “Kitsch” as well as a new single.
Check out the video for “Kitsch” below.
Scott Borchetta, founder/president/CEO of Big Machine Label Group, was involved in a car crash while racing at a Trans Am Series event at Road Atlanta on Sunday (March 26).
A statement from the label confirmed the crash and his condition but was scant on details: “Big Machine Label Group Chairman and CEO Scott Borchetta was involved in an accident yesterday, Sunday, March 26 while racing in the Trans Am Series. He was taken to the hospital to assess his injuries and is currently in stable condition. We ask everyone to please respect the Borchetta family’s privacy during this time.”
Borchetta had to be extracted from his car after the crash, which happened on lap 24. He was taken to an Atlanta hospital, according to racing website TobyChristie.com. According to the site, Borchetta, a racing enthusiast, has competed in 34 Trans Am Series events.
Borchetta owns Big Machine Racing, a NASCAR Xfinity team, which, according to its website, has seen multiple top 5 and top 10 finishes for its drivers since launching in 2021. The team logged its first win at the Texas Motor Speedway in 2022.
Big Machine was founded in 2005. Among its first successes was Taylor Swift‘s debut album, released in 2006. Its current roster includes Carly Pearce, Tim McGraw, Thomas Rhett, Chris Janson, Brantley Gilbert and Brett Young. Ithaca Holdings bought Big Machine in 2019 for around $300 million, while HYBE bought Ithaca Holdings for $1.05 billion in 2021. Borchetta has remained head of Big Machine through the transitions.
South Korea’s HYBE said Friday (March 24) it will sell its stake in SM Entertainment, officially ending a bidding war between HYBE and the South Korean tech company Kakao for control of the K-pop agency that was key to the genre’s popularity and overseas expansion in recent years.
HYBE, home of superstar boy band BTS, said in a filing it will sell its roughly 15% stake in SM for nearly 564 billion won ($435 million) to Kakao, which earlier this month announced a tender offer aimed at acquiring up to 35% of SM Entertainment’s outstanding shares.
Kakao Entertainment owns Monsta X‘s K-pop record label, Starship Entertainment, as well as the South Korean music streaming app Melon, the North America-based webtoon company Tapas Entertainment and several media production companies. It’s a subsidiary of the tech conglomerate Kakao Corp.
HYBE acquired most of its shares in SM in February from SM founder Lee Soo-man, who was recently ousted from the company after shareholders called for changes in SM’s structure. For over a decade, Lee exercised top-down control of the company he started in 1995, and shareholders had raised questions over millions of dollars he received in producer fees annually.
Lee sold his shares to HYBE in retaliation for a move by SM to issue stock to Kakao, ultimately prompting HYBE’s attempt to secure a majority stake in SM through a tender offer. HYBE relented in mid-March because, it said, outbidding Kakao could have “a negative impact on our shareholders.”
Just days after canceling the company’s bid for control of SM, HYBE founder/chairman Bang Si-hyuk reiterated his desire to expand beyond Korea in an effort to eventually compete with the three major labels – Universal Music Group, Sony Music Entertainment and Warner Music Group — on a global scale, stating the company must have a “sense of urgency” in doing so.
Bang additionally signaled a desire for outside support for K-pop companies in their attempts to rival the majors, including possibly from the South Korean government, which has helped elevate Korean companies in other industries into global players. HYBE has already made strides on that front with two U.S. acquisitions — Scooter Braun’s Ithaca Holdings and QC Media Holdings, parent company of hip-hop label Quality Control Music, which Bang said are “just the beginning” in its bid for worldwide domination.
SM and HYBE have in recent years dominated South Korean and global pop charts. Together they accounted for nearly half of all albums sold in South Korea in 2022, according to Korean chart company Circle Chart.
HYBE’s planned stock sale could net the company $87 million, the equivalent of a 25% return on its purchases of Lee’s shares one month ago, Reuters reported earlier on Friday.
Sony Music Nashville (SMN) has shuttered its Arista imprint, shifting the artist roster to SMN’s Columbia and RCA labels.
Old Dominion and Megan Moroney move to Columbia while Nate Smith goes to RCA. The other artists on Arista — including Brooks & Dunn, Ryan Hurd, Seaforth, Morgan Wade and Adam Doleac — will be reassigned when they have projects headed to radio. No acts are being dropped. Country Aircheck broke the news of Sony dissolving Arista Thursday morning (March 23).
In an exclusive interview, SMN CEO/chairman Randy Goodman tells Billboard the move was to realign better with radio’s needs.
“RCA, Columbia and Arista are really imprint names that we use for three different promotion teams because that gives you multiple calendars. We’re now targeting our approach to radio to be more strategic,” Goodman says.
That means bringing songs to radio that already have a story in terms of fan engagement and at digital service providers, so they don’t “languish in overnights” at radio, he continued. “What we said to radio is, ‘Give us dayparts immediately,’ and if it works, great. If it doesn’t, then we’ll move on because we’re going to be moving on things quicker in the DSP landscape as well. So based upon our more targeted approach, we just felt like this was a more efficient way to do it.”
Goodman has been vocal about the tremendous amount of time, expense and manpower it takes for songs to climb the country airplay chart, with some tunes taking as long as 52 weeks to reach No. 1.
“That’s not a model that is an efficient or effective artist development model and so we thought, ‘How do we approach this with a better model in mind?’” he says. “Let’s not go to radio until we know we’ve got something that we can go to the major chains with and show them there is momentum and there is a reason other than us just saying, ‘We want you to play it.’”
Goodman stressed that SMN will not be sending fewer songs to radio and that the realignment strengthens Columbia and RCA by increasing the number of regionals on each team by one.
In the restructuring, Arista’s senior director of promotion and artist development, Lyndsay Church, has left the company. Ali O’Connell, director of promotion and artist development, is moving to RCA, as is specialist/promotion & artist development Amy Menz. Nicole Walden, former RCA specialist/promotion & artist development, moves to the national team. Lisa Owen, also an Arista director of promotion and artist development, shifts to Columbia.
Steve Hodges, SMN executive vp of promotion and artist development, called the managers of the artists on Arista’s roster on Wednesday to give them the news. In addition to his other duties, Hodges has been running Arista Nashvhille since Chris Schuler left his post as vp of promotion at the imprint in November after a seven-month stint at the label.
The moves come as SMN is having a banner year at radio. So far in 2023, Smith’s “Whiskey On You,” Kane Brown and Katelyn Brown’s “Thank God,” and Luke Combs’ “Going, Going, Gone,” have reached the top of Billboard’s Country Airplay chart, with both “Whiskey” and “Going” spending two weeks at the summit.
Goodman adds that the move is really business as usual. “Our job is artist development, our job is to break new artists, our job is to expand careers of the artists that have already broken through,” Goodman says. “And so, in this new world as things continue to change, we’re constantly evaluating what’s the best way to do that.”
The move comes a week after Miranda Lambert announced she was leaving SMN, her home for 20 years. Goodman declined to comment on her departure other than to “wish her well.”
The Nettwerk Music Group has recapitalized, bringing in a new investor in the form of Flexpoint Asset Opportunity Fund II and additional funding from existing investors Beedie Capital and Vistara Growth. Flexpoint Asset Opportunity Fund II is a buyout fund managed by Flexpoint Ford, a private equity firm with approximately $7.8 billion of assets under management. Terms of the funding weren’t disclosed.
“The capital from Flexpoint will enable Nettwerk to invest in artists and make music catalogue acquisitions that will benefit from the fast-growing independent sector of the music industry,” Nettwerk CEO and co-founder Terry McBride said in a statement. “We’re excited to partner with Flexpoint as we continue to execute on our vision of connecting artists with their fans globally.”
Nettwerk describes itself as a full-service artist development and music intellectual property brand builder with a history spanning nearly 40 years. Its current roster includes Passenger, Syml, Banners, the Album Leaf, Matt Maltese, Wild Rivers and Wrabel among many others.
“Nettwerk has been at the forefront of the evolution in the independent music sector building a compelling catalogue of music by offering white-glove services and growth opportunities to independent artists traditionally reserved for superstars,” Flexpoint managing director Mike Morris said in a statement. “We believe Terry and the team are well positioned to prosper in the rapidly evolving music industry and are excited to help the team execute their vision.”
Beedie Capital managing director David Bell added, “The team at Nettwerk are differentiated leaders in a complex industry, and we are excited to support them through continued execution of their unique, artist-centric strategy.”
Artisan served as buyside financial advisor and Latham & Watkins and Bennett Jones served as legal counsel to Flexpoint. Cooley and Morgan Daniels Slager served as legal counsel to Nettwerk.
Universal Music Group, the country’s biggest record label, has recently taken steps to rein in the costs of radio campaigns, multiple sources tell Billboard. The move comes at a time when there is debate around the music industry about the most effective methods of spending marketing dollars and promoting a record, and traditional outlets — airplay, late-night television appearances, and even prominent playlisting on streaming services — don’t always drive engagement.
As many radio formats focused on new music are struggling, more label executives say it’s an open question whether paying big money for airplay is worth it. “The math is just not working,” according to one major label promotions executive outside of the UMG system.
Record companies have long supplemented their in-house radio departments with help from contractors, known as independent promoters. Working multiple songs in multiple formats across hundreds of stations around the country requires a lot of staff and local relationships. Indie promoters often cultivate those relationships with specific stations by region or format. Some operate on a retainer basis, charging a set amount for the duration of a promotional campaign. Others charge for each add they obtain for a song on station playlists, with costs ranging from a few hundred dollars to several thousand.
When it comes to the latter model, the world’s leading record company wants to limit the cost of adds, according to four veteran promotions executives. A rep for UMG declined to comment.
“It’s common knowledge Universal has drawn back” from spending as much on radio promotion, says Joey Carvello, a veteran who previously worked in-house for major labels and as an independent. “It’s a hot topic,” adds Daniel Glass, founder of Glassnote Records, who notes that Universal’s new approach was “being spoken about everywhere” at an industry event earlier this year in Los Angeles.
Major labels have attempted to limit the cost of radio campaigns multiple times over the years. More than four decades ago, Billboard’s Nov. 8, 1980 issue reported that labels in the Warner Music Group system were looking to “realize as much as $3 [million] to $6 million a year in savings by dropping their outside promotion help.” Today, a label aiming to get to the top of the mainstream R&B/hip-hop airplay chart is going to need to budget more than $100,000, executives say; in some cases, a pop campaign can cost over $300,000.
Past efforts by the majors to curb promotion costs were often undone by the necessity of radio exposure. The key difference nowadays is streaming’s ability to mint major artists with little or no radio play. Take 23-year-old rapper Youngboy Never Broke Again: Only Drake and Taylor Swift earned more streams in 2022, according to Luminate, but Youngboy has only ever cracked Billboard‘s all-genre Radio Songs chart once — as a featured act.
Streaming now accounts for 84% of U.S. music industry revenues, according to the RIAA’s 2022 year-end report. And it’s not always clear, even to the people in radio, that airplay drives more streams.
A 2021 report by the market research company MusicWatch found that streaming and listening on social media accounted for 46% of survey respondents’ weekly listening, while AM/FM radio accounted for 16%. A survey by MIDiA Research last year found that YouTube was the leading source of music discovery. And for the all-important Gen Z, TikTok was in second place.
MusicWatch’s study also indicated that streaming dominated lean-in listening — YouTube, Spotify, Apple Music, and Amazon Music accounted for 56% of this activity, as compared to 13% for broadcast radio. That’s important because lean-in listeners are likely to be more active fans, who might be inclined to buy tickets or vinyl or sweatshirts from an artist they love.
In this environment, a major-label radio promotion executive complained last year that the cost of airplay may not make economic sense. He recalls needing to spend $3,000 to get a song into rotation in a small city. That airplay would need to drive around a million streams in that area alone “to justify that expense,” he said. The city’s population was less than 150,000 people.
Of course, not everyone in the music industry feels the same. “At the end of the day, radio makes pop stars,” Carvello says. And Midia’s survey found that, outside of Gen Z, radio was the number two source of music discovery after YouTube.
Glassnote — the independent label home to Phoenix and Mumford & Sons — has no plans to change its radio strategy, according to Glass: “Independent promotion has been very important to the growth of Glassnote over the years. We’re not going to change our loyalty.”