State Champ Radio The Ledger
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Will Hipgnosis Songs Fund, a trailblazer in making music an alternative asset class in the financial world, fight to see another day? The sale of catalogs for $465 million, announced Thursday, is meant to help Hipgnosis Song Fund’s sagging share price and bring it closer to the company’s per-share net asset value (NAV). But it also intends to give investors a reason to vote for a five-year continuation in the annual meeting that’s likely to be held in October.
Given its need to shore up investor support, the catalog sale didn’t come as a surprise. Board chair Andrew Sutch said at a July 13 investor presentation that the board was pursuing options to boost shareholder value, and Hipgnosis has said that many of its largest shareholders favor share buybacks and partial debt repayment to help the struggling share price. This transaction provides the capital for those measures: Hipgnosis intends to use $180 million for share buybacks and $250 million to pay down the revolving credit facility.
Whether the deal ultimately succeeds depends on investors’ belief they are getting a good deal on the sale — the majority of which is to a sister company, the Blackstone-backed Hipgnosis Songs Capital (a joint venture with the royalty fund’s investment advisory, Hipgnosis Song Management, led by Merck Mecuriadis). Hipgnosis Songs Fund has long traded at a steep discount to its per-share NAV. That could partly be explained by higher interest rates that make the royalty fund, launched when interest rates were lower, a relatively less attractive investment to safer bonds. A larger factor could be investors’ lack of faith in NAV. Hipgnosis, which has argued the share price does not accurately reflect the value of its catalog, is now giving the market a transaction to help prove its point.
In the days following the announcement, some analysts have shown concern about the deal’s terms, transparency and related-party buyer. Investec analysts criticized the deal for valuing the assets “as being little more than the IPO price” in an investor note on Friday (Sept. 15) and stated, “there is substantial value leakage to related parties that again sadly raises significant corporate governance concerns.”
Numis predicts that Hipgnosis investors’ views will be “mixed, particularly given the Round Hill offer,” analysts wrote in a Sept. 14 investor note. In that deal, announced Sept. 8, Round Hill Music Royalty Fund — a royalty fund listed on the London Stock Exchange like Hipgnosis Songs Fund — received a buyout offer from U.S. music company Concord. Unlike the Hipgnsosis deal, Concord bid for the entire publicly traded company — at a price 11.5% below Round Hill’s net asset value. It’s a more straightforward transaction than Hipgnosis’ proposed partial catalog sale.
Numis believes that Hipgnosis’ share price’s discount to NAV “may persist for some time,” which could mean the board and the investment advisor, Hipgnosis Songs Management, “will continue to come under pressure.”
Analysts at Stifel, who have long been critical of Hipgnosis and Round Hill’s music royalty funds’ valuation methodologies, focused on the value Hipgnosis Songs Fund was extracting from Hipgnosis Songs Capital. The $465 million transaction consists of two parts. The first disposal worth $440 million, which accounts for 95% of the purchase price, is 17.5% below the fair value and 26% above the catalogs’ acquisition price.
Little is known about the smaller, second disposal that amounts to a $25 million slice of a catalog acquired from Kobalt Music in 2020 for $323 million. Hipgnosis Songs Capital is not the buyer of the second disposal.
Adding to the deal’s complexity, Hipgnosis Songs Fund is on the hook for bonuses and other payments under the original acquisition agreements; the company believes that will amount to $5.5 million, and it will be capped at $30 million. In addition, Hipgnosis Songs Capital is due royalties on the acquired catalog earned going back to Jan. 1 — about $15.3 million through Sept. 14.
“The complex nature of the deal suggests that it is hard to say the NAV has been validated,” wrote Stifel analyst Sachin Saggar.
If the share price is any gauge of investors’ initial reaction to the deal, opinions aren’t good. Shares of Hipgnosis Songs Fund dropped 6.5% on Thursday and another 7% on Friday. The 13% two-day decline eliminated nearly all of the 15.7% bump the share price received on Sept. 8 following news of Concord’s bid for Round Hill.
If investors are considering what Hipgnosis Songs Fund has left after the sale, they will find many jewels remaining in its catalog, including Neal Schon of Journey, Christine McVie and Lindsey Buckingham of Fleetwood Mac, Red Hot Chili Peppers, Tom DeLonge of Blink-182, Neil Young, Blondie, Steve Winwood, Rodney Jerkins, Chrissie Hyde of the Pretenders, RZA, Teddy Geiger and The Chainsmokers. Five of those names — Journey, Red Hot Chili Peppers, Blink-182, Fleetwood Mac and The Chainsmokers — rank in the year-to-date top 500 recording artists ranked by global on-demand audio streams, according to Luminate. Two of them, Red Hot Chili Peppers and Fleetwood Mac, are in the top 100. It’s also keeping Walter Afanasieff, co-writer of Mariah Carey’s “All I Want for Christmas Is You,” which is a No. 1 song in the United States, United Kingdom and Canada every November and December.
Hipgnosis is giving up some quality, though: The 29 catalogs in the first portfolio include 21 of 473 songs in Spotify’s Billions Club, five of Rolling Stone’s 500 Greatest Songs, and five of YouTube’s 30 most-viewed music videos. They include some older music by Barry Manilow and Rick James as well as newer artists like Poo Bear, RedOne, Martin Bresso and Colombian star Shakira, who ranks No. 55 in global audio on-demand streams. But, on average, these are younger songs with less proven royalty histories than the average song in Hipgnosis Songs Fund’s portfolio. In general, younger songs are less valuable than older, more established songs. Shareholders will vote on the sale at the annual general meeting.
The second disposal represents “non-core” assets worth $25 million that represent a small portion of the 33,000 songs acquired from Kobalt Music for $323 million in 2020. That deal also included the 18,000-song publishing catalog of Canadian music company Nettwerk. Hipgnosis Songs Fund said at the time it paid Kobalt an 18.3 times net publisher share multiple for the catalogs.
Hipgnosis believes the two disposals achieve multiple aims. The $465 million price tag is “the smallest possible that would provide the required capital” for share buybacks and debt repayment, the company stated in a press release. Also, the catalogs the company chose to sell leave intact “the fundamental investment case for Hipgnosis Songs Fund….by protecting the strength of the remaining portfolio.” Come October, we’ll see what investors are thinking.
As the music streaming business matures, the way people listen to music could determine how artists get paid. Sitting back and letting a streaming service choose a song will result in a lower royalty than choosing the song yourself, if this week’s news of a new streaming model is any indication.
It’s not a phobia toward algorithms that’s driving the change. Rather, the approach rewards those artists who create the most active engagement. Songs that play in the background are deemed to be less valuable.
On Tuesday, French music streamer Deezer and Universal Music Group announced a partnership to reinvent how Deezer calculates UMG’s streaming royalties. The partnership will “[reduce] the economic influence of algorithmic programming” and reward “engaging content” with greater royalties, according to the companies’ press releases.
When they say, “algorithmic programming,” they mean the streaming service’s personalized recommendations about what song will play next. That’s a more passive, lean-back approach to listening than hunting and pecking on the app’s user interface to choose a song.
At some point between the launch of internet radio platforms and the present battle for better royalties, passive listening got a bad rap. What has the world come to, some people fret, when dreaded algorithms are deciding what music gets heard? What gives an algorithm such an important role in determining how royalties will be paid?
But algorithms are a common way to stream music. When given an on-demand streaming service, people often let an algorithm do the hard work of picking the next song. A 2021 MusicWatch survey found Spotify Premium users spent 25% of their time in “lean-back” listening rather than “lean-in” listening. That figure rose to 31% for Apple Music users and 32% for Amazon Prime Music users. In all, 48% of time spent listening to music was “lean back” listening on streaming services, broadcast radio and satellite radio.
Algorithms also drive helpful products such as Spotify’s Discover Mode, a promotional tool that allows artists and labels to find new listeners in return for a lower royalty rate. It works by increasing the likelihood a song will be recommended to a listener. It’s popular, too. From the first quarter of 2021 to the first quarter of 2022, Discovery Mode had a 98% customer retention rate, Charlie Hellman, Spotify’s vp/global head of music product said during the company’s 2022 investor day presentation.
When a streaming service does personalization well, it adds great value to a listening experience. Pandora was revolutionary when it launched in 2005 because it had a spooky sense of what people wanted to hear. Its Music Genome Project, a proprietary technology that classifies recordings’ various musical traits, gave it the ability to pick the right songs based on a history of giving other songs a “thumb up” or “thumb down” vote. Pandora took away the effort in digging for songs and provided a much broader catalog than broadcast or satellite radio.
Today’s music streaming services are superior to their predecessors — and their own previous iterations — specifically because they have mastered passive listening. Consider how far Spotify has come since it was launched. Spotify used to recommend songs based on a user’s social network — kind of an “if your friend likes it, you’ll like it” approach to song-picking. But it wasn’t a good listening experience. Spotify’s decision to acquire music intelligence startup The Echo Nest in 2014 was the cornerstone for a new approach to providing a personalized listening experience.
The proliferation of smart speakers only adds to the need for algorithmic listening. About two-thirds of U.S. smart speaker owners wanted to own the devices to discover new songs, according to a 2022 Edison Research survey, and their share of time spent listening to audio through a smart speaker increased 400% over the previous five years. The joy of owning a smart speaker is allowing the device and streaming service to do all the work — it’s passive listening at its best.
Most Americans use their favorite streaming service when doing things around the home such as cleaning, relaxing, cooking, eating and entertaining guests, according to the same MusicWatch study. Most people stream music when exercising. More than half of people also use their favorite streaming service when driving, although satellite and broadcast radio were preferred in the car over streaming. Streaming service Songza, acquired by Google in 2014, was built on the premise that people chose music for moods and activities. That approach to curation has since been adopted by most — if not all — streaming services.
The UMG-Deezer partnership is evidence that background listening is on its way to getting a demotion. Deezer will remove tracks of white noise, which account for 2% of its streams, from the royalty pool. That leaves more royalties for professional artists who depend on streaming to earn a living. Throughout the year, UMG has been calling out “functional music” — a term that has come to mean low-cost or generic music built for moods or activities — and drawing a distinction between artists who draw people to streaming services and sounds that people play in the background.
Taylor Swift and Drake may rule the charts, but functional music is mainstream, too. Of U.S. music streamers who listen to playlists, many of them listen to playlists for white noise (36%), rain sounds (45%) and relaxation (61%), according to a 2023 MIDiA Research survey. In recent years, streaming services have broadened their playlists and radio stations to address the fact that consumers want a variety of sounds.
Artists with small followings will get less, too. Deezer will “boost” the royalties of “professional” artists with at least 1,000 streams per month by a minimum of 500 unique listeners. That will relegate hobbyists and artists early in their career development to a different tier. Exactly how many artists will be affected isn’t clear, but Deezer says just 2% of artists on the platform have more than 1,000 monthly unique listeners.
UMG and Deezer aren’t exactly taking an innovative stance, however. The music industry — at least in the United States — has already determined that active, on-demand listening is more valuable than passive, non-interactive listening. The Deezer-UMG partnership merely codifies for an on-demand service what is standard at internet radio. In the United States, non-interactive internet radio streams from the likes of Pandora pay 0.24 cents per ad-supported stream (and 0.3 cents per subscription streams). That’s less than any on-demand stream from a premium streaming service such as Spotify, Apple Music and YouTube Music.
In effect, a streaming service pays less for non-interactive streams because it gives the listener less value than on-demand services. To qualify for the lower royalty rate, a non-interactive streaming service cannot have the same robust features as an interactive one. At Deezer, a listener can stream any song from any artist any number of times. They can listen to playlists and build playlists, too. They can listen to songs shared by friends through SMS or social media. That’s all lean-in listening, and it’s more valuable because people will pay $11 a month to do it.
Until now, on-demand services’ standard pro-rata model hasn’t separated passive from active listening. When labels negotiated licensing deals with streaming services, they have always treated one stream the same as any other stream. A stream from a user-curated playlist is treated the same as a stream from an algorithmically created radio station. Whether the listener actively hits the play button to listen to a particular track isn’t taken into account. Right or wrong, that’s how the pie has been divvied up.
A couple of decades into the life of the pro-rata system, Deezer shows there is a greater willingness to treat active listening differently than passive listening. MIDiA Research’s Mark Mulligan called this demotion “a very welcome and long overdue move” that will “disincentivis[e] the commodification of consumption by rewarding active listening.” There’s certainly a logical argument to be made here: The artists people actively seek out arguably provide the most value — give the streaming service the most foot traffic, so to speak — while less popular artists play the important but less financially valuable role of giving breadth and depth to music catalogs.
Time will tell if and how other streaming services follow Deezer’s lead. An alternative already exists: In 2022, Warner Music Group adopted the user-centric model that SoundCloud rolled out to independent artists the prior year. That system pays royalties based on an individual subscriber’s listening rather than pooling all subscribers’ fees into a larger pool. So, a subscriber who listens to out-of-the-mainstream or independent artists is assured their money is not going to popular artists.
Over the next few years, labels and services are likely to experiment with different approaches to calculating streaming royalties. But regardless of how the dust settles, streaming services and rights holders should respect what passive listening brings to their listeners.
Streaming service Slacker is looking to become the fifth music company to go public by merging with a special purpose acquisition corporation, or SPAC — and the clock is ticking. Its owner, LiveOne, has signed a letter of intent to combine Slacker, which it estimates will have a valuation of $160 million, with Roth CH Acquisition V Co.
But like many other SPAC deals, Slacker’s merger with Roth has faced challenges. For starters, many of Roth’s shareholders have opted not to take part in the Slacker deal. Roth experienced $93 million in redemptions in the second quarter, according to its latest 10-Q filing, as shareholders opted for a $10 redemption value rather than roll the dice on a music streaming company that expects to finish 2023 with 3.75 million free and paying users. That leaves Roth with $26.4 million to contribute to Slacker once the deal is done.
To shore up support ahead of a merger, Roth entered into non-redemption agreements with shareholders representing 2 million shares. Those shareholders agreed not to redeem public shares and will receive a payment of 4 cents per share per one-month extension, according to a Roth filing with the SEC.
Starting a SPAC gives the founders a limited window to put investors’ money to good use or return the funds to shareholders. Running out of time to close a deal with Slacker, in May, Roth received shareholder approval to extend the merger deadline by up to six months. The extension ends Dec. 4 — barely more than three months away. “It seems [like a] very tight [timeline],” says Megan Penick, an attorney at Michelman & Robinson. “I mean, conceivably they could still complete it. It just seems that they must still be conducting their due diligence and coming to terms on how the deal is going to be structured.”
A SPAC effectively puts the cart before the horse: It raises money through an initial public offering (IPO) before setting about finding an appropriately sized, high-growth company to take public. (Pursuing a target before the IPO, as Digital World Acquisition Corp. did with Donald Trump’s Truth Social, is against the rules.) The target company is spared the long and costly process typically incurred when taking a company public. The SPAC founders get a stake in the post-merger company and investors benefit when the post-merger stock rises above the redemption price. The number of SPAC IPOs jumped from 55 in 2019 to 610 in 2021, according to S&P Global Market Intelligence, while money raised increased from $14 billion in 2019 to $160.8 billion in 2021.
Overall, however, SPACs have failed to live up to their lofty expectations. “Too many SPACs, not enough suitable targets,” says Penick. After 265 SPACs closed mergers in 2021, only 187 did so in 2022. And while there were 100 SPAC deals in the first half of 2023, the value of the deals amounted to just one-tenth of the deals closed in the first half of 2021, according to S&P Global.
Faced with a shortage of good candidates, many SPACs have opted to dissolve and return capital to shareholders. Music Acquisition Corporation, co-founded by former Geffen Records president Neil Jacobson, dissolved in 2022 after raising $230 million in a 2021 IPO. Liberty Media did the same with its SPAC, Liberty Media Acquisition Corp., in November, more than two months before the deadline to complete a deal or return to shareholders the $575 million it raised in an IPO. “Frankly, getting an extension wasn’t worth it, given we had nothing on the table that was attractive enough for us to take [a] look,” said Liberty Media president and CEO Greg Maffei.
Perhaps the biggest problem with SPACs is they haven’t been a good investment for the original investors. Abu Dhabi-based music streamer Anghami has fallen 91% to 89 cents since merging with Vista Media Acquisition Corp. in February 2022. French music streamer Deezer has fallen 76% to 2.06 euros since merging with IPO2 in July 2022. And New York-based publisher and label Reservoir Media has fallen 43% to $5.45 since merging with Roth CH Acquisition II — the same team behind the SPAC that intends to merge with Slacker — in July 2021. All three stocks had a $10/10 euro IPO price.
Worse yet, Alliance Entertainment ended up trading over the counter in February after a high number of redemptions left its partner SPAC, Adara Acquisition Corp, with just $1.7 million to contribute to the merged company — probably not enough to cover investment banking and legal fees for the transaction. That also left Alliance short of the New York Stock Exchange’s float requirements. “The issue of having enough market volume and enough market cap to remain a listed security is a challenge that a lot of SPACs run into,” says Michael Poster, an attorney at Michelman & Robinson. Alliance has dropped 75% to $2.02 since it merged with Adara in February.
Slacker didn’t respond to a request for comment on the deal.
How long will consumers keep spending $200 on concert tickets, $15 on a cocktail at the venue (and God knows what for parking) and $11 on a music subscription? Judging from recent comments by some executives, people may be dealing with inflation, but they will still pay to be entertained.
“After another quarter of record-breaking [gross order value], it is clear consumers continue to prioritize live events experiences,” said Vivid Seats CEO Stan Chia on the company’s Aug. 8 earnings call.
Investors, though, seem worried about the potential effects of millions of American student loan borrowers resuming payments this fall after years of pandemic-era forbearance. In over three years, the forbearance on student loan debt totaled about $185 billion that was spent elsewhere or saved, according to an estimate by Goldman Sachs. Asked by an analyst about the possibility that loan payments will put a crimp in concert spending, Live Nation president/CFO Joe Berchtold said the company doesn’t expect a problem. Live Nation’s analysis is that the positive impact of fans returning to live events after the pandemic “is about 10 times the impact of any potential headwind coming from the student loan payments needing to get made,” Berchtold said during the company’s July 27 earnings call.
Chia echoed Bechtold’s optimism. Vivid Seats sees “resiliency” in consumer demand and strong trends for live music, he said. To that point, Vivid Seats increased its guidance for 2023 for the second time this year and now expects marketplace gross order value (GOV) of $3.4 billion to $3.6 billion and revenues from $630 million to $650 million.
What’s more, Live Nation expects people won’t be shy about opening their wallets. Full-year concerts margin will increase in 2023 thanks to an “increase [in] the per-fan profitability” from on-site spending — things such as food and drink — and “containing to focus on the costs,” said Berchtold. Price-conscious consumers “are continuing to spend strongly,” he said, and Live Nation is seeing an increase in both the number of fans per show and per-head spending.
Eventbrite, which increased the mid-point of its 2023 revenue guidance from $323.5 million to $325 million, is finding people are still eager to do things in the real world after COVID-19 lockdowns moved much of their lives online. In an Aug. 3 earnings call, CEO Julia Hartz said the company’s improved outlook comes from “strong demand signals across the board, particularly for categories like music, film and media, food and drink, nightlife, performing and visual arts.” What’s more, Eventbrite is seeing “people really want to get out and connect with one another,” she added: “Singles and dating events are 50% up year over year. Independent singer-songwriter-hosted events were up 60%.”
German promoter CTS Eventim expects moderate growth in internet ticket volume and live entertainment revenue this year. And while CTS believes its future is clouded by unquantifiable effects of geopolitical security uncertainty, persistently high inflation and a potential economic stagnation or recession, the company said in its mid-year earnings report that “earnings figures should improve substantially compared with 2022.”
Consumer spending on music subscriptions also appears to be strong going into 2024. Spotify, which raised the price of its individual plan by $1 per month in the United States in July, expects to have 224 million subscribers by the end of September, after adding 15 million in the first half of the year. Its third quarter revenue guidance of 3.3 billion euros ($3.56 billion) would mark a nearly 9% gain from the prior-year period, although analysts surveyed by StreetAccount expected guidance of 3.4 billion euros ($3.67 billion). And its gross margin guidance of 26% would be a marked improvement from 25.2% and 24.1% in the first and second quarters, respectively.
While consumer spending continues unabated, brands’ spending on advertising — an important revenue stream for labels and publishers — is a different story. A soft advertising market has hurt everything from radio revenues to online advertising (though Live Nation’s advertising and sponsorship revenue has rebounded nicely from the pandemic and has seen no slowdown, according to Berchtold). iHeartMedia expects third-quarter revenue, excluding the impact of political advertising, to decline in the low-single digits, as July revenue was down about 5% year over year.
But radio advertising could rebound in the second half of the year, according to B Riley Securities analyst Daniel Day, and Cumulus Media’s better-than-expected second quarter earnings results were a positive sign. While iHeartMedia investors weren’t enthusiastic about the company’s second quarter earnings — its share price fell 17% the day earnings were announced and dropped another 6% through Thursday — the company remains optimistic. “While there was some softness in our larger advertisers, in Q2 our smaller advertisers remained resilient,” said iHeartMedia CEO Bob Pittman during the Aug. 8 earnings call. “And we saw a gradual improvement from our larger advertisers as well, which leads us to believe that we’ll continue to see improvements in the business through the remainder of the year.”
Artists have long complained that streaming pays poverty wages — fractions of a cent per stream — and increases the difficulty of sustaining a recording career through a slow trickle of royalties. Some conservative-leaning artists are proving to be an exception to the rule with fans who still buy downloads at a time when streaming dominates music consumption.
Oliver Anthony’s “Rich Men North of Richmond” became a surprise hit — and could reach No. 1 on the Hot 100 — thanks to a confluence of two factors: As we’ve seen with several other songs recently, when a song gets caught up in — or leans into — the American culture wars, conservatives often buy downloads. “Rich Men North of Richmond” was an instant success: From Aug. 10 — the day with the first sales and audio streaming activity — to Aug. 15, daily U.S. streams went from zero to nearly 700,000 in just two days, according to Luminate, while daily U.S. downloads went from zero to more than 20,000 in each of the next four days. To put that in context, in a typical week the top track on the Hot 100 might sell 15,000 downloads.
In the seven-day period ended Aug. 15, “Rich Men North of Richmond” had 11.2 million on-demand audio streams that earned him roughly $40,000, Billboard estimates. But the track amassed an impressive 117,000 track downloads that netted Anthony about $81,000 — or 65% of the royalties earned from U.S. sales and streams. And because the track is distributed by DistroKid, which charges a flat fee for distribution, and owned by Anthony, he pockets the entire amount. Although the YouTube video hosted by radiowv has 21.6 million views, Luminate shows no video streams for the recording and Billboard does not know if Anthony is earning royalties from YouTube.
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Such high download sales make “Rich Men North of Richmond” an outlier in popular music. More often than not, a No. 1 track on the Hot 100 gets most of its revenue from streaming. Download sales have fallen precipitously in recent years and accounted for just 1.1% of U.S. track equivalent albums year to date, according to Luminate. On the most recent Hot 100, for the week of Aug. 19, Morgan Wallen’s chart-topping “Last Night” generated about 80% of its revenue from 20.8 million on-demand audio streams compared to just 5% from 5,000 track downloads. When Olivia Rodrigo’s “Vampire” topped the chart for a week in July, 81% of its revenue came from 31.3 million on-demand audio streams compared to 6% from 9,000 track downloads.
Some people have speculated that the song’s instant success must be the result of astroturfing — the use of fake grass-roots campaigns to gain public awareness. The themes in “Rich Men North of Richmond” — it criticizes both tax-hungry politicians and poor welfare recipients — struck a chord amongst conservatives and almost overnight became a favorite of rightwing politicians, pundits and instigators such as Rep. Marjorie Taylor Green, Matt Walsh and Kari Lake. While there’s no clear evidence of such a campaign at the moment, the track’s rise was quick even by the standards of today’s internet viral hits.
What’s clearer, though, is that “Rich Men North of Richmond” has a lot in common with K-pop tracks that soar to the top of the Hot 100 because fans buy downloads with the express purpose of getting the artist a good chart position. When Jimin’s “Like Crazy” topped the Hot 100 for a week in April, 241,000 track downloads accounted for 85% of its revenue. When his BTS bandmate Jung Kook hit No.1 with “Seven” in July, 59% of its revenue came from 138,000 downloads.
Conservative music fans act like K-pop fans when it comes to supporting a song. Track purchases helped Jason Aldean’s “Try That in a Small Town” reach No. 1 on the Hot 100. In the week of Aug. 5, when the track sat atop the chart, 175,000 downloads accounted for 56% of revenue generated from streams and sales, according to Billboard’s estimate. Two weeks ago, “American Flags,” a patriotic song by rapper Tom MacDonald, sold 18,000 track downloads in the week — second only to “Try That in a Small Town” that week. The following week, the No. 11 most downloaded song was “Go Woke Go Broke” by Jokes on Woke, a country song that attacks recent villains in conservative culture such as Bud Light, CMT, Disney, Ford, Adidas and Barbie.
It’s not necessarily just fans voting with their money, though. The shopping habits of conservative-leaning music fans can help explain why Oliver, Aldean and the others have sold so many downloads. Notably, the country music market — which tends to lean conservative — was slower to adopt streaming (however, it has recently been catching up) and sees a higher-than-average level of purchases. Country music accounted for 35% of the top 100 track downloads in the week ended Aug. 10 — and six of the top 10 — while Christian/gospel accounted for 3%. Both genres have less representation on the Hot 100, which also incorporates streaming and radio spins. Country accounted for just 21% of the tracks on the current Hot 100 chart, while Christian/gospel was absent from the chart.
Whether it’s K-pop or country, songs typically can’t count on download sales alone to provide longevity on the charts. “Try That in a Small Town” sales fell 85% in a week, dropping the track from No. 1 to No. 21 on the Hot 100 in the week dated Aug. 12. Similarly, “Like Crazy” fell from No. 1 to No. 45 the week after its peak. As the culture wars quickly move onto the next issue, the lasting endurance of “Rich Men North of Richmond” depends on how many real fans Anthony has made in this time.
It didn’t take long for news of a lawsuit against Lizzo to put a dent in her sales and streaming activity. Multiple metrics — such as on-demand audio streams and Instagram followers — reveal a small but noticeable fan backlash in the week following news that the singer was sued in a Los Angeles court by three tour dancers who claimed the “Special” singer subjected them to sexual harassment and a hostile work environment.
From August 1 — the day the lawsuit became public — to August 8, Lizzo’s daily U.S. on-demand audio streams fell 21.7% while her daily U.S. track sales have declined 35%, according to Luminate.
Almost half of the decline in U.S. track sales appears to be the result of a drop-off in sales of “Pink,” Lizzo’s contribution to the Barbie: The Album soundtrack. Excluding “Pink,” Lizzo’s track sales declined 19.3% from August 1 to August 8. The decline in her on-demand audio streams excluding “Pink” was unchanged at 21.7%.
The cumulative loss over the seven-day period is relatively minor: about 6 million on-demand audio streams with a royalty value of roughly $10,000 to her record label, according to Billboard’s estimate. Smaller yet is the cumulative decline in royalties from track sales of roughly $1,000 over the same period.
The financial damage would be far greater if Lizzo’s streams and sales continue to be impacted by the controversy. The lawsuit could remain in the public spotlight for some time: The attorney representing the three plaintiffs claims to have received “at least six other inquiries” from people with similar stories regarding their employment by Lizzo. If her U.S. sales and streams continued at the current rate, the cumulative decline in U.S. royalties from streams and track sales would amount to about $89,000 over the first 30-day period and $320,000 over a 90-day, three-month period.
Although her streaming numbers dropped considerably, Lizzo lost just 0.1% of her Spotify followers, amounting to roughly 6,000 of her 5.6 million followers, in the seven days after news of the lawsuit broke. But the singer took a bigger hit on social media. In the week after the lawsuit, Lizzo’s Instagram followers fell 1.7% to 13.4 million while her TikTok followers declined 0.7% to 26.8 million, according to Chartmetric.
Social media numbers fall when services occasionally remove fake followers, but “it is highly unusual to see these simultaneous declines in follower accounts on multiple services,” says Chaz Jenkins, Chartmetric’s chief commercial officer. Artists’ followers tend to increase steadily over time. In fact, before the lawsuit, Lizzo’s Instagram never declined more than 0.1% over any seven-day period in 2023. .
Seeing some fans’ reaction to Lizzo’s lawsuit recalls how Doja Cat lost about 600,000 Instagram followers in roughly two and a half weeks, according to Chartmetric, after the rapper traded barbs with her fans. She received none of the groundswell of support that Jason Aldean experienced after CMT’s decision to pull the video for his song “Try That in a Small Town” sparked a national conversation. From July 1 to August 10, Aldean’s YouTube subscribers grew by 10.9% to 2.7 million, his Instagram followers increased 5.9% to 4.3 million and the track went to No. 1 on the Hot 100. But, as Kanye West’s rebounding music consumption suggests, listeners may not stay mad for long.
With Taylor Swift’s re-recorded version of Speak Now topping the Billboard 200 albums chart and achieving the biggest week of 2023, the singer has pitted her new versions against the original versions she released through Big Machine Label Group in 2010. That could be seen as another blow for Shamrock Capital, which purchased Swift’s Big Machine catalog in 2020. But if Swift thought her re-recordings would erode the performance of the Big Machine originals, she was wrong — for the most part. The original versions owned by Shamrock did well through 2022 and haven’t shown much clear evidence of attrition until 2023, according to Billboard’s analysis of Luminate sales and streaming data in the United States.
Through 2022, Swift’s Big Machine catalog has performed roughly in line with industry trends. Take Swift’s 2008 album Fearless, for example: It generated on-demand audio streams of 230.5 million in 2019 and 345.3 million in 2022 — an increase of 49.8% over three years. Had the album’s streams grown in line with the industry’s annual growth in on-demand audio streams — 48.3% from 2019 to 2022 —Fearless would have had 341.9 million on-demand audio streams. That’s only a 1% variation.
The original version of Swift’s 2012 album Red did even better than Fearless, generating 283.5 million on-demand audio streams in 2019 and 484.7 million on-demand audio streams in 2022, about 19% greater than what would be expected. Had the album’s streams grown in line with the industry’s annual growth in on-demand audio streams — 17.3% in 2020, 12.7% in 2021 and 12.2% in 2022 — Red would have had 420.6 million on-demand audio streams.
At the same time, Swift’s re-recordings have done phenomenally well. Since the beginning of 2021, the three Taylor’s Version albums have accounted for 3.88 billion on-demand audio streams to the original versions’ 2.86 billion on-demand audio streams. The actual numbers are even more skewed in the Taylor’s Versions’ favor since the re-recordings of Speak Now were released on July 7 of this year and have a brief streaming history. Since 2021, Red (Taylor’s Version) has generated 2.6 times more on-demand audio streams than the original version, while Fearless (Taylor’s Version) has about 1.9 times as many on-demand audio streams.
All the work Swift did to promote her re-recordings, as well as the success of her Republic Records albums and her current U.S. tour, may have also helped sales of the original Big Machine catalog. The original version of Red has sold more albums — 26,000 — through week 28 of 2023 than in all of 2022 and is already close to surpassing sales numbers for calendar years 2019, 2020 and 2021. Speak Now has also surpassed last year’s album sales and is on track to beat annual sales from 2019 to 2021.
Of course, Shamrock does not enjoy the spoils of the three albums of re-recordings. Through week 28 of this year, Speak Now (Taylor’s Version), Fearless (Taylor’s Version) and Red (Taylor’s Version) have sold 2.23 million units in the United States. But these couldn’t be considered sales that were lost to Shamrock. Whether or not Swift re-recorded the three albums, Shamrock would benefit only from the sales of the original versions. And so far, it doesn’t appear the Taylor’s Version albums are crowding those out.
Streaming is a different story, though. There is some evidence that the Taylor’s Version reissues have led to a decline in streams for the original Big Machine albums. In the 18 weeks before the release of Red (Taylor’s Version) on Nov. 11, 2021, the original version averaged 9.7 million on-demand audio streams per week. In the 18 weeks after Red (Taylor’s Version) was released, the original version’s weekly on-demand audio streams declined 41% to 5.7 million.
And despite putting up decent streaming numbers through 2022, the original versions of Fearless and Red have underperformed expectations in 2023. The overall market’s on-demand audio streams grew 13.5% in the first 28 weeks of 2023. Had Fearless matched the market’s growth, the album would have generated about 296 million streams through week 28. Instead, the original version of Fearless had roughly 162 million streams — more than 45% below expectations. Red performed better but was also off the market’s pace. Through week 28, the original version of Red had 181.6 million on-demand audio streams — about 14% below expectations.
While the original versions have held up fairly well in purchases and, until this year, on-demand audio streams, the biggest loss is probably the lack of synch opportunities. Swift’s re-recordings have been used in a Match.com ad in 2020 (“Love Story [Taylor’s Version]”), the movie Spirit Untamed in 2021 (“Wildest Dreams [Taylor’s Version]”) and the movie DC League of Super-Pets in 2022 (“Bad Blood [Taylor’s Version], the only song from the album 1989 that has so far been re-recorded).
Ultimately, however, Swift’s re-recordings may be more responsible for her consumption boom than the original Big Machine versions. Swift’s annual on-demand audio streams more than doubled between 2019 and 2022 — from 3.12 billion to 7.85 billion. If she continues her current pace, her on-demand audio streams will increase more than 74% in 2023. The re-recordings have added to the deafening buzz around her Republic Records albums. The Big Machine originals are merely along for the ride.
Shamrock did not respond to Billboard’s request for comment on this story.
As 2023 heads into summer, multiple signs point to a healthy and growing live music business for the rest of the year. In recent weeks, executives from the publicly traded concert promotion and ticketing companies have signaled that surging consumer demand won’t slow down, and there will be enough tours to satiate music fans’ appetite for live events.
Demand has been strong “and is showing no signs of letting up,” said Live Nation CEO Michael Rapino during the company’s May 4 earnings call. Live Nation expects to sell more than 600 million tickets in 2023, up from 550 million in 2022. To date, the concert promoter has sold more than 100 million tickets to Live Nation events, a 20% increase from the prior-year period, and expects to host a record number of fans in 2023.
Vivid Seats, the publicly traded secondary ticketing marketplace, shares Live Nation’s sentiment. “Consumers continued to crave live experiences in the first quarter,” said CEO Stan Chia during a May 9 earnings call, “and we believe this trend will continue for many years.” Vivid Seats does business primarily in the U.S. while German promoter and ticketing provider CTS Eventim focuses on Europe. “Both in Germany and internationally, we are pursuing organic growth and anticipate that our business performance will continue on its successful course,” said CTS Eventim CEO Klaus-Peter Schulenberg in the quarterly results released May 24 that reiterated the positive outlook in its 2022 annual report of “moderately higher earnings” for the live entertainment segment 2023.
The concert business is meeting — and perhaps surpassing — some lofty expectations. In 2022, as the concert business exited the pandemic, the widespread belief was that pent-up demand for in-person experiences would drive the concert business beyond pre-pandemic levels. That turned out to be true. Concert promoter Live Nation posted record revenue of $6.2 billion in the third quarter that was 67% above the same period in 2019. What’s more, the volume of fans returning to concert venues was augmented by an unmatched willingness to absorb higher prices. Frenzied demand — and sky-high prices on the secondary market — for tours by Taylor Swift, Beyonce and Bruce Springsteen have showed A-list artists have yet to find their ceiling on prices.
Concert promoters have posted strong quarterly earnings that fit their narratives. Live Nation’s first-quarter revenue was up 71% to $3.1 billion. CTS Eventim’s online ticket sales increased 58% to 18 million as consolidated revenue improved 163% to 366.2 million euros ($393 million). At Vivid Seats, which also does business in major sports such as baseball and basketball, first quarter revenue grew 23.2% to $161 million and adjusted earnings before interest, taxes, depreciation and amortization doubled to $42.4 million.
Investors absorb past earnings history while figuring out what to expect in the future, and according to JP Morgan analyst David Karnovky they often ask two questions about Live Nation: First, is there enough supply to meet growing, healthy demand? Yes, Live Nation president and CFO Joe Berchtold said at JP Morgan’s Global Technology, Media and Communications conference on Tuesday. That’s because global streaming platforms such as Spotify and social media apps like Instagram and TikTok allow artists to build global followings in ways that weren’t previously possible, he explained. K-pop and other up-and-coming genres of music “that maybe once were regional are now going global,” he said, and artists that used to sell out mid-sized venues are now selling out stadiums. “So, you’re seeing that supply continue to build.”
The second thing investors want to know is how demand will respond during a softer economy. Live Nation closely follows the indicators — such as on-sales show closings — Berchtold said, “but we’re not seeing anything that gives us pause.” Separately, Berchtold noted that Live Nation’s research indicates getting back to concerts are one of fans’ top priorities after the pandemic and will be “one of the last things they’re going to cut back on.”
Vivid Seats CFO Lawrence Fey also addressed the possibility of an economic downturn — a scenario becoming increasingly likely in the U.S. should Congress fail to find a compromise to raise the debt ceiling by early June. “[T]here’s a lot of chatter and concern out there” that demand will weaken “in the not-too-distant future,” said Fey, “but it continues to be the case that we’re seeing very robust demand across our event categories [and] across price points.” Beyond the consistently strong demand, Vivid Seats has “been pleasantly surprised by the supply calendar,” particularly a concert schedule that includes recently announced tours by Drake and Aerosmith, he added, “and [that] gives us optimism.”
A couple of years after the COVID-19 pandemic took radio listeners out of their vehicles and a recession caused an advertising slowdown, the radio industry is experiencing another decline. That has complicated the financial position of Audacy, the second-largest radio company in the United States and a major player in the podcast market.
Warning lights appeared again last week when the company revealed in its May 10th 10-Q filing that “current macroeconomic conditions” such as rising inflation and interest rates and lower advertising revenue “have created, and may continue to create, significant uncertainty in operations.” Those factors “have had, and are expected to continue to have, a material adverse effect” on Audacy’s forecasted revenue, which is “unlikely to be sufficient” to maintain compliance of the financial debt covenants its lenders impose to ensure it can make its interest payments. As a result, Audacy explained, the company could default on its debt — which could then cause that debt to become immediately payable.
On Tuesday (May 16), a week after the March 10 filing, the New York Stock Exchange (NYSE) decided to halt trading of Audacy’s shares in order to delist the company. It was an expected move. Audacy, which changed its name from Entercom in March 2021, last traded at $0.09 per share — down nearly 63% year-to-date — before trading on the NYSE was halted. The NYSE, which has rules to maintain minimum share prices, issued a warning to Audacy on July 31 because its average closing price over a consecutive-day trading period was below $1. Audacy last closed above $1 per share on July 5, 2022 — meaning it remained below $1 for 218 consecutive trading days.
Investors have lost some faith in radio companies’ stocks as advertising growth weakened in 2022. Year-to-date, shares of iHeartMedia, the nation’s largest radio company, have fallen 55.3%. Likewise, shares of Cumulus Media, the third-largest radio company, are down 47.5%. Market conditions appear to be improving, however. iHeartMedia expects its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to improve throughout 2023, CEO Bob Pittman said during the company’s May 2 earnings call. “And if this advertising market recovery trend continues in 2024,” Pittman added, “we expect to resume our growth trajectory that was interrupted by this period of advertising softness.”
The advertising market is part of Audacy’s problem, but it’s not the entire problem, according to Craig Huber, media analyst at Huber Research Partners. “The number one issue is too much debt in a secular declining industry,” says Huber. Audacy acquired most of its $1.9 billion of long-term debt from its 2017 merger with CBS Radio. That deal increased Audacy’s revenue more than four-fold, from $367 million in 2016 to $1.7 billion in 2018, but also increased its debt from $468 million at the end of 2016 to $1.86 billion at the end of 2017.
The debt has been a drag on Audacy’s cash flow. In 2022, Audacy’s net interest expense was $107.5 million — about 8.6% of the company’s annual revenue of $1.25 billion. After paying interest to service its debt, Audacy’s free cash flow in 2022 was -$31.8 million. “They haven’t done enough to take out costs” to achieve positive free cash flow, says Huber, and revenue hasn’t met the company’s own expectations.
When the merger with CBS Radio was announced in 2017, the combined companies had adjusted EBITDA of $500 million, including “expected transaction synergies,” according to the press release. In 2022, adjusted EBITDA was just $138 million. Even though Audacy was in compliance with its debt covenants on March 31, the company has expressed concern about its ability “to continue as a going concern” over the next 12 months.
Audacy operates in a difficult business that’s losing listening time as people change their listening habits and migrate to streaming platforms. Although Audacy, like iHeartMedia and Cumulus, has invested in digital platforms — it acquired podcasting companies Pineapple Street and Cadence13 in 2019 and was the No. 8 podcasting network in Q3 and Q4, according to Edison Research — revenue fell about 14% between 2018, the first full year after the CBS Radio merger, and 2022.
With no way around the soft advertising market, Audacy has started cutting costs and selling non-core assets. The company expects its costs will decline 4%, or $35 million, in the last three quarters of 2023, chairman/president/CEO David Field said during the May 10 earnings call. He also said the company raised $17 million in the first quarter from sales of broadcast towers and expects to close on the sale of two stations for $15.5 million in the second or third quarter.
As for Audacy’s stock, trading volume will decrease now that it’s been delisted. Since it started selling only over the counter (through a broker-deal, not on an exchange), the share price has fallen: On Wednesday, Audacy shares declined nearly 24% to $0.04, and they ended the week at $0.06.
The company will now take steps to get back to the NYSE. “While we are disappointed by the NYSE’s decision, we are hopeful we will find our way back to the exchange later this year as we execute our action plans which include a reverse stock split to satisfy NYSE rules, the continued execution of our liability management plans and working with our financial advisors to refinance our debt,” Field said in a May 16 press release. Shareholders will vote on the reverse stock split at the annual meeting on May 24. By working with the factors it can control, Audacy can soften the impact of the broader market conditions it cannot control.
Even if classical music made up just 1% of U.S. music consumption in 2022, according to Luminate, Apple’s new streaming service dedicated to the genre could mean big things for the subscription market.
Global recorded music revenues rose for the eighth straight year in 2022 — but markets are maturing, and the once high-flying growth rate fell to single digits. That doesn’t mean the music subscription business is getting stale, though. In fact, there are plenty of new ideas and much-needed innovations that can help push the streaming market forward.
The latest, and one of the best, examples of how the music business can build a better mousetrap is Apple Music Classical. Apple wanted to better serve classical music fans but realized the best path was to break away from the Apple Music subscription app that works fine for every other genre. So, it built Apple Music Classical, a standalone app for Apple’s iOS devices — the Android app will arrive later — that launched on Tuesday to some rave reviews (GQ called it “a ton of fun”).
Classical music has always been a second-class citizen in digital music because of the way its metadata — information about the recording — is organized. For most genres, describing music by artist, track and album is an adequate way to organize a massive number of recordings. Download stores and streaming services are built around this classification system. But since the advent of iTunes and download purchases, people have recognized that classical music doesn’t fit well in the standard metadata system. In classical music, music is better organized by such categories as conductor, orchestra and movement. This could help explain why classical music accounted for 2.7% of U.S. digital album sales but just 0.8% of on-demand streams in the U.S. last year, according to Luminate.
“It’s the works-based nature of classical,” says Dart Music founder Chris McMurtry, now a vp at Pex, a digital music rights company. “That’s why Apple had to build a separate app.” McMurtry addressed that problem at Dart Music, a digital distributor that focused on classical music and built a database with metadata fields better suited for the genre.
Apple wasn’t the first company to see an opportunity in classical music. Dart Music launched in 2015 to tackle the metadata angle (its assets were acquired in 2017 by Haawk), and classical-focused streaming isn’t new, either. Idagio debuted in 2015. Primephonic launched in 2019 and was acquired by Apple in 2021. Universal Music Group’s Deutsche Grammophon imprint debuted its own service, Stage+, in 2022.
But Apple’s entry into the classical music streaming market could be the most impactful to date. Apple has billions of customers around the globe and an increasingly successful services business that includes the Apple Music subscription app and Apple TV+, a streaming video-on-demand platform. Those cloud-based services, combined with Apple’s bread-and-butter business of selling smartphones and laptops, give the company the resources and marketing might to activate a passionate group of music aficionados that has been underserved by streaming platforms better suited for rock, pop and hip-hop.
“It exceeded my expectations,” says McMurtry, who looked up well-known names and obscure composers to appreciate the app’s level of detail. He says he was impressed by the depth of metadata — the producers, engineers, mixers, other contributors, year of the recording and even the composers’ birth and death years. “It’s a very educational experience.”
If Apple Music Classical can hook McMurtry, maybe it can lure more people into the music subscription market. In 2022, there were 92 million subscribers to streaming services such as Spotify, Apple Music and YouTube Music, according to the RIAA. In total, 214 million Americans — 75% of the population 12 and older — streamed music in the past month, according to a January 2023 survey by Edison Research. Younger consumers were far more likely to stream music than older listeners, however, with 53% of people over the age of 55 having done so compared to 89% of 12-to-34-year-olds and 85% of 35-to-54-year-olds. A good classical music app can help narrow that sizable gap, attract more subscribers and generate more subscription revenue.
Going after classical music fans makes financial sense, too. For starters, they’re plentiful, says Russ Crupnick, partner at market research firm MusicWatch. “By comparison, they are somewhat larger than the entire population of vinyl buyers,” he says. As older consumers, they can afford a standalone classical music app: Crupnick says classical music fans’ mean income is 35% higher than average. They’re also twice as likely to purchase expensive, audiophile stereo equipment. When asked if obtaining the highest-quality sound format is important, 64% of classical music fans said yes, and 54% are willing to pay more to get it. Fortunately for them, Apple Music Classical is free of charge to Apple Music subscribers. “It will be interesting to see whether Apple eventually adds fees to monetize the service, or subsidizes it as they have higher resolution audio,” says Crupnick.
There’s great potential outside of the United States, too. Apple Music Classical will eventually be available in three strong markets for classical music: Japan, China and South Korea. In China, the fifth-largest recorded music market in 2022, according to the IFPI, classical music has been a phenomenon since the Cultural Revolution. Gramophone magazine described it as a “gargantuan market for the consumption of recorded classical music even if only as a study aid or as a residue of having Mozart and Beethoven sonatas tinkling through the family home.”
The digital market has performed incredibly well without a mass appeal offering tailored for classical music fans. Record labels generated $16.9 billion from streaming in 2022 while mostly ignoring an important subset of the market. With Apple Music Classical, Idagio and Stage+ super-serving classical music fans, there’s potential to do better.
