The Ledger
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The modern music industry may run on subscriptions — streaming, satellite radio, Peloton, et al. — but it still depends greatly on the advertising business. Indeed, non-subscription-based streaming, along with social media and broadcast radio, continues to produce important royalties and licensing income for record labels and music publishers.
Unfortunately, 2023 was a lackluster year for advertising-based businesses, as brands held back due to economic pressures. The slowdown extended into the fourth quarter: Trade Desk, a digital advertising platform, warned in November that expectations for revenue growth in 2024 “may be premature.”
So, can people expect improvements in 2024? According to a new report by Mediaocean, the outlook is mixed: While some advertising-based businesses can expect more demand this year, others may not witness a rebound.
In November, Mediaocean surveyed nearly 1,100 marketers, ad agencies, media companies and tech platforms, among other companies, about how they expect to spend on various types of advertising in the coming year. The survey revealed that advertising dollars will continue to flee from legacy media — namely print and television — in favor of social media, digital display and video and connected TVs.
Social platforms such as TikTok top the list of predicted ad spending in 2024: 69% of respondents said they expect to increase their spend in 2024 on social media, while only 28% said they will maintain social media spending and just 3% plan to decrease spending. Social media has taken the biggest jump in the last two years. When surveyed at the end of 2021, 56% of respondents — 13 percentage points less than the latest survey — said they expected to spend more on social platforms, while the percentage of people who planned to maintain spending in 2022 was 10 percentage points higher at 38%.
Digital display and video advertising showed a similar breakdown to social media: 65% of respondents expect to increase, 30% plan to maintain and 5% expect to decrease their spending. Most respondents also expect to increase their spending for connected TV and search. These categories were little changed from the prior year.
Radio and audio advertising will fare about the same as last year: 24% of respondents expect to increase spending on radio and audio in 2024, down from 25% in 2023, while 54% of respondents plan to maintain their spending levels and 22% expect to decrease their spending. Going into 2023, 51% of respondents expected to maintain radio and audio spending and 24% planned to spend less. However, those numbers mark a distinct downward trend from 2022, when 61% of respondents said they expected to maintain radio ad spending while just 15% expected a reduction.
Given that data, radio companies that have both digital and broadcast businesses should fare better than those without a digital component – and they may already be seeing a recovery. Speaking at the Wells Fargo TMT Summit on November 29, iHeartMedia chairman and CEO Bob Pittman said the company’s digital advertising “seems to have already recovered” and that radio advertising will recover when brands see an economic recovery on the horizon. “Advertising tends to be a leading indicator,” he added. The same trend can be seen, albeit in a more negative direction, at Audacy, which faces a possible bankruptcy caused in part by lagging broadcast revenue: In the third quarter of 2023, spot and network advertising was down 8.9% year over year while digital revenue rose 3.4%.
TV advertising has taken the biggest fall over the last two years. Going into 2022, only 15% of respondents expected to spend less on local TV and 13% planned to spend less on national TV. Two years later, 33% expect to spend less on local TV and 27% expect to reduce spending on national TV.
Although audio streaming has eaten into the time people spend listening to radio, about 90% of Americans still listen to the radio each week. The same can’t be said for video, however, as video streaming has sharply reduced the audience for cable television. In the third quarter, the penetration rate of traditional pay TV — cable, telco and satellite — fell to 54.8% after those companies lost nearly 2 million subscribers, according to MoffettNathanson. That marks the lowest penetration rate since 1989.
That can be chalked up to the swift rise of video streaming platforms. In the third quarter, YouTube TV surpassed satellite company Dish Network to become the fourth-largest multi-channel video programming distributor. MoffetNathanson believes YouTube TV could surpass satellite company DirecTV for third place in less than a year.
The concert business has had a record year in 2023 — tours by Taylor Swift and Beyoncé were pop culture moments, festivals roared back to life and consumers’ splurging on tickets seemed to defy gravity. There’s likely more good news on the horizon, too. By all forecasts, next year is shaping up for continued success, even as consumers still feel pinched by inflation.
Among the big names to announce stadium tours next year are The Rolling Stones, Foo Fighters, Green Day and a pairing of Journey and Def Leppard. Chris Stapleton, Zach Bryan and Luke Combs will hit both stadiums and arenas. Drake, Bad Bunny, Thirty Seconds to Mars, Hootie & the Blowfish, New Kids on the Block, Alanis Morissette and The Trilogy Tour featuring Enrique Iglesias, Ricky Martin and Pitbull will play arenas and amphitheaters. Taylor Swift’s The Eras Tour continues in 2024, too, with 85 shows announced for Asia, Australia and North America.
Advanced ticket sales suggest consumers remain eager to see their favorite artists perform live. Through mid-October, Live Nation’s event-related deferred revenue — from ticket sales to events that had not yet occurred — was up 39% year over year, according to the company’s third-quarter earnings release.
AEG Presents, the second-largest promoter, is “feeling really positive” about 2024 tours across all venue sizes and genres, says Rich Schaefer, president of global touring. “I think people are discovering new artists and want to see big shows — and they’re willing to pay for it.” They’re buying well in advance, too: AEG put tickets on sale for 76 Zach Bryan shows in 2024 — some won’t happen until December — and has “largely sold everything out,” says Schaeffer. “That artist especially has a crazy connection with his fans. They’ve seen videos of what his shows are like, and I think everybody wants to experience it.”
Those big tours — and thousands of others — are counting on consumers to continue to open their wallets despite continued high prices for staples and living expenses, rising debt delinquencies and Americans’ credit card debt reaching a record level in the third quarter. The holidays are presenting mixed signals: Black Friday spending was up 2.5% compared to 2022, but numerous surveys have found consumers plan to spend less on gifts this year.
Consumers may feel beleaguered, but they continue to spend to see their favorite artists perform live. “I have weekly booking calls with the over 40 presidents around the world and we talk booking clubs up to stadiums and festivals, and we have not seen anything taper off in any sense,” said Live Nation CEO Michael Rapino during the company’s Nov. 2 earnings call. The company is “not seeing any pullback in any way” in consumer demand regardless of the region or venue size, he added.
A big question, though, is whether consumers will be in a spending mood throughout 2024. A new Goldman Sachs economic outlook report says the U.S. economy today is better than was expected a year ago, inflation will continue to subside and the likelihood of a recession in 2024 is “limited.” The latest data from the University of Michigan is encouraging: U.S. consumer sentiment soared in December and people’s expectations for year-ahead inflation dropped to 3.1% from 4.5% last month.
Whatever uncertainties exist — including falling savings rates and weakening credit conditions — have not materialized in ticket sales thus far. “We certainly see the headlines [about macroeconomic conditions], but it’s not flowing through to numbers that we can see,” Lawrence Fey, CFO of secondary ticket marketplace Vivid Seats, said during a Nov. 7 earnings call.
One could simply look at who’s touring in 2024 to get a sense of where ticket buyers are thinking. “You got The Stones going on the road in parts in North America,” says Doug Arthur of Huber Research Partners. “They’re always a pretty big draw. The Stones are pretty savvy historically about touring when they think the economics support it.”
Consumers’ willingness to spend increasing amounts on live music isn’t a new trend — although some of 2023’s record-setting box office numbers appear to be the result of music fans may be clamoring for live events in after suffering through pandemic-era restrictions. The concert industry has benefited from a lasting shift among consumers from goods to experiences over the last 10 to 15 years, says Brandon Ross, an analyst with LightShed Partners.
This year’s boffo box office numbers weren’t outliers, and Ross expects to see “outsized performance on a global basis” in 2024. “There has been a year-and-a-half long concern for a broader pullback in consumer spending,” says Ross. “I don’t think will not impact growth, but I think there’s substantial tailwind supporting this industry.”
Those tailwinds probably won’t be strong enough for next year’s touring business to duplicate 2023’s stellar growth rate — but no one seems to be expecting that. “I don’t think you’re talking about another up 30% type of year, and I don’t think [Live Nation is] talking about that either,” says Arthur. “But can the concert revenues be up high single digits between volume, fans per show, price per ticket and spending per fan? Yeah, I think that’s not unreasonable at all.”
Artists and promoters will continue to encounter high costs in 2024 — labor, catering, buses and staging are stretched thin with a high number of big tours on the road. That’ll continue to push ticket prices up. Even so, AEG hasn’t seen resistance to higher prices, says Schaefer. “There’s very few instances where we think that pricing is responsible for tickets not selling.”
Spotify’s announcement this week that it was laying off 17% of its global workforce surprised a music business enjoying a renaissance. After all, Spotify ignited the subscription-streaming boom that saved the industry. And while the companies that depend on the online advertising business go through booms and busts — think of Meta cutting 21,000 jobs since 2022 — music business jobs have been relatively safe.
Spotify’s decision to eliminate about 1,500 full-time staffers shouldn’t have come as a surprise, though. As CEO Daniel Ek put it in a letter announcing the layoffs, “Today, we still have too many people dedicated to supporting work and even doing work around the work rather than contributing to opportunities with real impact.”
Over a decade and a half, Spotify pioneered a new model for music subscriptions by prioritizing growth over profit. While on-demand video streaming services such as Netflix frequently raised prices, Spotify left most of its prices unchanged until July. Digital music platforms have a notoriously tricky path to profitability, but Spotify’s share price soared thanks to a pandemic-era boost to streaming companies as well as high expectations for its nascent podcasting business. By February 2021, as Spotify poured money into acquisitions and pricey podcasting content, the stock was trading at $364.59 per share, valuing the company at roughly $71 billion.
By 2022, however, Spotify’s investors had run out of patience. The stock was trading at $110 on June 8 when Ek and CFO Paul Vogel shared their ambitious plan at the company’s Investor Day presentation: $100 billion in annual revenue, 40% gross margins and 20% operating margins. To get there, Spotify would continue to scale its podcasting business and lean on its audio content acquisitions — The Ringer, Parcast, Megaphone and Anchor — to help the format reach larger audiences. Now, Spotify also wants to do for audiobooks what it did with podcasts: piggyback on its massive base of music listeners, develop innovative products and build a bigger market.
Podcasts and audiobooks, as well as services sold to artists and record labels like merchandise listings and Discovery Mode, are important to reaching the targets of 40% gross margin and 20% operating margin. Given the nature of licensing deals with record labels and music publishers, music margins have little room to improve. Whereas video streamers like Netflix pay fixed costs for much of their content, Spotify pays a percentage of revenue to record labels and music publishers. That means as revenue increases, so do its content costs. And that’s not likely to change. “Our strategy is not predicated on trying to extract margin by negotiating better terms with the content partners we have,” Ek said at the 2022 Investor Day.
Over a year later, however, Billboard’s analysis of Spotify’s financial statements shows the company is still nowhere near its target margins. Since the first quarter of 2020, its gross profit margin has fallen between 24.1% and 28.4% while its operating profit margin has ranged from –8.8% to 3% and was below zero in 11 of 15 quarters.
Merely adding subscribers isn’t enough. (The company reported 226 million at the end of Q3 2023.) Reaching its targets requires Spotify to cut costs while investing in new growth opportunities such as podcasts and audiobooks. Ek said as much when explaining Vogel’s upcoming departure on Thursday. “I’ve talked a lot with Paul about the need to balance these two objectives carefully,” he said in a statement. “Over time, we’ve come to the conclusion that Spotify is entering a new phase and needs a CFO with a different mix of experiences.”
Spotify’s cost-cutting started in 2022 with a pause on new hires, layoffs in October and the cancellation of six live audio shows in December. This year, it laid off 6% of its global staff in January and in June merged two podcast production houses, Gimlet and Parcast, and further cut its podcast workforce by 2%. In August, it shut down Spotify Live, a short-lived live streaming app. Then on Monday, Spotify announced it would lay off 17% of its workforce. It also canceled two in-house podcasts, Heavyweight and Stolen.
As the graphs show, recent trends in Spotify’s financials made it clear larger cuts were necessary to meet the company’s ambitious targets. Personnel costs as a percentage of revenue rose from 13.8% in 2021 to 16.2% in 2022. Research and development expenses — which include some salaries — jumped from 9.4% of revenue in 2021 to 11.8% in 2022.
As Ek explained in the memo to employees, Spotify grew in 2021 and 2022 to take advantage of lower-cost capital. Today’s environment is different, however, and Ek believes Spotify’s “cost structure for where we need to be is still too big.” Indeed, Spotify’s head count steadily increased as it acquired companies, developed new formats and created product innovations that both resonated (Spotify Wrapped) and flopped (Spotify Live) with users. The number of full-time employees increased nearly 50% from 2020 to 2022.
This growth came without added efficiency, however. The revenue generated per employee peaked at 1.54 million euros ($1.66 million) in 2019 and declined to 1.4 million euros ($1.51 million) in 2022 — the lowest since 2017. The July price increase will help Spotify bring in more revenue without additional staff or resources, though the effectiveness of those increases won’t be known until Spotify releases full-year results in late January.
What’s more, Spotify’s gross profit per employee fell to a five-year low in 2022. Gross profit is what’s left after cost of sales — primarily royalties to labels and publishers — is deducted from revenue. It goes toward personnel costs, sales and marketing expenses, and general and administrative costs. But as Spotify added employees in recent years, gross profit per employee fell to 350,000 euros ($377,000) in 2022 from 391,600 euros ($421,000) in 2021.
An obvious way for Spotify to reach its target margins was to make larger cuts to its workforce and, as Ek phrased it, “become relentlessly resourceful.” Cutting 17% of its personnel costs would have resulted in savings of 323 million euros ($349 million) in 2022, based on total personnel costs of 1.9 billion euros ($2.05 billion). That savings would have halved Spotify’s 2022 operating loss of 659 million euros ($711 million).
Ultimately, the multi-billion-dollar question is simple: Can Spotify continue adding subscribers as fast as it has in previous years and develop its spoken word products into the higher-margin businesses it needs with far fewer employees? That’s the high-stakes situation the new CFO will walk into in 2024 and that will determine the company’s future from here on out.
For artists who choose not to sign with a record label, some may be independent and others will be do-it-yourself independent.
What’s the difference? Take Laufey, the Icelandic jazz artist whose latest album, Bewitched, reached No. 23 on the Billboard 200 albums chart in September. Laufey is signed to AWAL, the Sony Music-owned company that provides marketing and distribution services for independent artists. She hasn’t signed away the rights to her music, but AWAL helps promote her recordings at digital service providers and retail.
Oliver Anthony Music, on the other hand, is DIY independent. By all appearances, the “Rich Men North of Richmond” singer, whose real name is Christopher Anthony Lunsford, has left his recordings on autopilot without any kind of marketing behind them since he broke into the national consciousness in August and topped the Hot 100 for two straight weeks. Following the success of “Rich Men,” Lunsford has released more songs without the usual promotional muscle required to get new music noticed. As he told Billboard earlier this week, he manages himself and is avoiding record labels as he prepares to record an album.
He’s clearly getting some help. Lunsford has a basic but professional website and an e-commerce store that sells a handful of variations on Oliver Anthony Music hats, T-shirts, bumper stickers and beer koozies. For concerts, Anthony signed with UTA for representation and has a year of touring ahead of him, starting in February with dates in Europe and the Eastern half of the United States. He has an informal publicist who helps with media requests. And he told Billboard he has encountered “many artists,” such as country star Jamey Johnson, who have lent support and guidance.
Comparing “Rich Men” to other tracks to reach No. 1 on the Hot 100 this year, though, suggests being DIY creates some missed opportunities. Combined sales and streams of Miley Cyrus’ “Flowers,” Taylor Swift’s “Anti-Hero,” Morgan Wallen’s “Last Night” and SZA’s “Kill Bill” dropped between 17% and 55% over the 10-week period after the last date those tracks were No. 1. “Rich Men,” in contrast, dropped 83.4%. It makes sense: A major label marketing machine is better than an independent artist’s system in helping a track get hot and maintain momentum over months and years.
With a little help, “Rich Men” could arguably have far more sales and streams. As a DIY artist, Lunsford uses social media activity to keep listeners engaged and depends on the continued interest of journalists to keep him in the public eye. As he told Billboard this week, becoming a full-time musician means “you’re essentially a business owner and an entrepreneur and a lot of other things, too. And those are things I’m not quite used to yet.”
But Lunsford has done extremely well taking the DIY route. Billboard estimates that “Rich Men” has grossed $2 million from recorded music and publishing royalties from U.S. sales and streams since its release in August. While his weekly download sales are down sharply from their peak in August, our estimates still put the track’s royalties at an impressive $60,000 per week. And because Oliver Anthony Music is a DIY independent artist who retains the rights to his master recording and publishing, he should be pocketing nearly all that money (less any fees for distribution and publishing administration).
Besides, Lunsford seems content being a DIY artist — even if that means leaving money and celebrity on the table. There’s something to be said about saying “no” to the usual impulses to staff up and scale a business as fast as possible. Lunsford can ease into stardom at a comfortable pace rather than jump headfirst into the music business’ shark-filled waters. Read through the YouTube comments to his videos and you sense that listeners put value in Lunsford not being an industry insider — it adds to his authenticity. At the end of the day, not being too much of a business is probably good for Lunsford’s business.
Surprisingly, “Rich Men” has held up better than a couple of other No. 1s in 2023: Jason Aldean’s “Try That in a Small Town” and Jimin’s “Like Crazy.” Track sales and streams for “Try That” dropped 91.1% in the 10 weeks after it was No. 1. For “Like Crazy,” the first No. 1 for a solo member of superstar K-pop group BTS, track sales and streams dropped 92.9% over the same period. Although “Rich Men” has fallen far from its peak, its 83.4% drop in track sales and streams is considerably better than those other two hits.
There are obvious parallels between “Try That” and “Rich Men.” Both reached No. 1 because of widespread media attention. Both started conversations about social issues: race for Aldean, class for Lunsford. Both were celebrated as conservative anthems, although Anthony has distanced himself from political partisanship. Both are country tracks — Aldean’s a mainstream song built for maximum radio play, Lunsford’s a more old-fashioned slice of Appalachian roots music.
What’s more, both “Try That” and “Rich Men” did brisk business in track sales. As Billboard noted when “Rich Men” ascended the chart, artists popular with conservatives often have strong download numbers. In a typical week, the No. 1 track on the Hot 100 might sell 15,000 downloads, but when the culture wars stoke demand, the No. 1 will sell ten times that many. “Try That” sold 175,000 downloads in the week it was No. 1, while “Rich Men” averaged 132,000 weekly downloads in its two weeks atop the Hot 100.
Download buyers don’t offer the same consistency as streamers, though, and both “Rich Men” and “Try That” lost 99% of their track sales in the 10 weeks after they topped the chart. And because download sales were a big reason why those tracks reached No. 1, their total consumption (measured in both download sales and streams) dropped more than No. 1s that relied more on streaming. But heavy download sales were instrumental in getting each track to No. 1, and “Rich Men” still sells well, too: Last week, the track was the No. 41 most purchased track in the United States., according to Luminate.
Lunsford could easily ditch the DIY approach and assemble a team, but he’s in the rare position of not necessarily needing one. “Rich Men” succeeded without help from a marketing expert, social media guru or even a manager. Instead, Lunsford benefitted from an unprecedented groundswell of interest that gifted him an immense online following. His 1.15 million YouTube followers give him a similar audience as more established country musicians Kenny Chesney and Zac Brown Band, and twice as many as Grammy winner Kacey Musgraves. He has about as many Spotify followers as Bailey Zimmerman, a rising country star signed to Warner Music Nashville and Elektra Records.
When Lunsford eventually releases a new album, he won’t need many resources to instantly reach millions of fans — and he prefers it that way. “I think the most special thing about it being on the chart at all,” he told Billboard, “is that it made it to the chart without some big, corporate schmucky schmuck somewhere pumping a bunch of money into making it get there.”
Most tracks on Spotify will not be eligible to receive royalties based on the company’s proposed royalty scheme that will go into effect in 2024. That’s because a track must reach a threshold of 1,000 streams within 12 months to receive royalty payouts, according to an article this week written by Kristin Graziani, president of music distributor Stem. A source with knowledge of the plan confirmed the details to Billboard.
According to Spotify’s Loud & Clear website, 37.5 million tracks had surpassed 1,000 all-time streams as of 2022. That’s out of a catalog of 100 million tracks at the end of 2022, per Spotify’s 2022 annual report. In other words, almost two-thirds of Spotify’s catalog has never reached the 12-month minimum stream count to be eligible to receive royalties. Given that’s all-time streams since the company launched in 2008, it stands to reason that fewer yet will reach 1,000 streams within a 12-month period.
While this 1,000-stream threshold affects a large number of tracks, it doesn’t impact much of Spotify’s royalties to creators and rights holders. Implementing the threshold will shift about 0.5% of Spotify’s royalty pool to more popular tracks, a source tells Billboard. That was equal to about $46 million in royalties in 2022, based on Spotify’s $9.27 billion cost of sales that year, which represents virtually all royalty payouts.
Tackling fraudulent streams could have a larger impact than a minimum threshold. Spotify’s new royalty scheme also imposes financial penalties for music distributors and labels when fraudulent activity has been detected on tracks they uploaded. That should incentivize distributors to locate and remove fraudulent tracks before they can get to streaming platforms.
Various estimates put fraudulent tracks’ share of listening — at Spotify and elsewhere — at 3% to 10% of total streams. With the 2022 global streaming market valued at $17.5 billion, according to the IFPI, up to $1 billion worth of streaming royalties globally is ending up in the wrong hands. Removing those fraudulent streams from eligibility means all other tracks will receive a greater share of the royalty pool.
French music company Believe would get a “significant double-digit” percentage growth in its market share at Deezer under the company’s new artist-centric royalty scheme, Believe CEO Denis Ladegaillerie said during the company’s Oct. 24 earnings call. The bulk of that impact comes from fighting streaming fraud and abuse, said Ladegaillerie, adding that Deezer has a “much higher” level of streaming fraud and abuse than Spotify and Apple Music. In contrast, he added, changing how royalties are allocated to artists would impact an “extremely marginal” amount of royalties.
A cleaner, easier way to improve all artists’ royalties — one resisted by streaming services until recently — is to raise subscription prices. Every time a streaming service raises fees by 10% — such as Spotify going from $9.99 to $10.99 per month in the U.S. in July — the royalties earned from those subscribers increase a commensurate amount. Deezer has raised its price twice in less than two years. Amazon Music, Apple Music and YouTube Music have also raised prices in the last year.
One of the most popular albums in the United States, Taylor Swift’s 1989, is about to lose significant market share to a newer version, Swift’s re-recorded 1989 (Taylor’s Version).
It’s happened three times before. 1989 (Taylor’s Version), a re-recorded and expanded version of the nine-times platinum 2014 album, with five previously unreleased tracks, follows the insanely successful formula of the three preceding albums: Fearless, Red and Speak Now. If 1989 (Taylor’s Version) enjoys the same trajectory as its predecessors, the Big Machine-era version of 1989 will lose a majority of its weekly consumption and forever get crowded out by the more popular, Swift-endorsed re-recordings.
To understand what could happen to 1989, consider its predecessor, Red. Average weekly consumption of Red — measured in equivalent album units, which combines physical and digital album sales, track sales and streams — dropped 40% in the 12 weeks following the release of Red (Taylor’s Version), according to Billboard’s analysis of Luminate data for the United States. The original version of Speak Now took an even bigger hit, losing 59% of its average weekly consumption in the 12 weeks after the re-recordings were released. Given those two trajectories, the original version of 1989 could very well lose half its average weekly consumption.
Consumption of the original 1989, which includes Hot 100 chart-toppers “Shake It Off” and “Bad Blood,” has soared this year as Swift reached a Michael Jackson-level of media coverage. As Swift Mania heated up, thanks to her record-setting Eras Tour and steady output of new and rerecorded material, 1989’s average weekly album equivalent units (AEUs) climbed from 16,000 in January to 29,000 in May to 39,000 in August, peaking at 46,000 in the week ended Aug. 17. On the latest Billboard 200 albums chart, the original 1989 ranked No. 20 — one spot behind Speak Now (Taylor’s Version) and two spots ahead of Reputation, Swift’s final album for Big Machine.
That has been great news for Shamrock Holdings, which acquired Swift’s Big Machine master recordings in 2020 for a reported $300 million. In the year before Shamrock Holdings acquired Swift’s catalog, 1989 averaged about 10,000 AEUs per week — 70% below the current level. While Swift’s previous three albums of re-recordings ate into the Big Machine originals, 1989 was spared and got to benefit from Swift’s success — that is, until she got around to releasing her Taylor’s Version.
The original version of 1989 — Swift’s best-selling album to date — has more to lose than its predecessors: 1989 has averaged 33,000 equivalent album units over the previous 12 weeks, nearly 1.8 times more consumption than the 19,000 AEUs Speak Now averaged in the 12 weeks before Speak Now (Taylor’s Version) was released. The original versions of Fearless and Red had even less consumption in the 12 weeks before Swift’s re-recordings came out: 7,000 AEUs for Fearless and 9,000 AEUs for Red.
If 1989’s weekly AEUs drop by 50%, Billboard estimates the gross sales from purchases and streams will drop by nearly $120,000 per week — equal to more than $6 million per year. That’s gross sales, not wholesale. Shamrock pockets less than wholesale after paying royalties, distribution and manufacturing.
And if 1989 (Taylor’s Version) performs like the other three albums of re-recordings, it will far outperform Swift’s Big Machine originals. Through the first 41 weeks of 2023, the re-recordings of Fearless and Red have respectively averaged 4.8 times and 4.1 times the weekly consumption of the original albums. Speak Now (Taylor’s Version), which has just 14 weeks of sales history since its July release, currently has 5.3 times the average weekly consumption of the original.
The original version of Reputation also has a lot to lose. In the past 12 weeks, Reputation has averaged 27,000 AEUs per week. And just as 1989 consumption skyrocketed this year, Reputation’s weekly AEUs have more than doubled since January. Shamrock Holdings will enjoy those spoils, too — that is, until Reputation (Taylor’s Version) inevitably arrives.
U.S. labels and musicians have long counted on welcoming international audiences to turn home-grown successes into global stars. Just as people around the world snap up tickets for Hollywood blockbuster movies, consumers abroad have been typically eager for English-language music from the world’s leading entertainment exporter.
In recent years, however, U.S. pop stars have increasingly heavy competition from artists most Americans will never know. In France, the top song of 2022 was “Tout va bien” by Alonzo featuring Nino and Naps, according to French recorded music trade group SNEP. Only one foreign song, “As It Was” by Harry Styles, cracked France’s top 10. The top of the chart’s composition looked drastically different from previous years. In 2017, when Ed Sheeran’s “Shape of You” reigned supreme with French music fans, five of the country’s top 10 songs came from foreign artists. In 2012, eight of France’s top 10 songs were from foreign artists.
To Will Page, author and former chief economist at Spotify, the changing fortunes of French artists is evidence streaming and online platforms have changed the balance of power. “When the cost structure changes, local [music] bounces back,” he says. The CD era involved higher costs — mainly manufacturing and marketing — that favored international artists. Despite France’s rule that a quarter of the songs played on radio must be French, the system still tilted toward foreign artists with greater financial backing.
But with streaming and digital distribution, those costs are all but eliminated. Local artists are free to create and distribute music in far greater numbers, satiating a demand that had been unfulfilled. Consumers who previously listened to American pop stars are all too happy to stream artists singing and rapping in their native tongue. “An unregulated free market has achieved what regulation failed to do,” says Page.
In a paper titled Glocalization of Music Streaming Within and Across Europe, Page and Chris Dalla Riva, a musician who works at music tech startup Audiomack, showed France is hardly alone in this trend toward “glocalization” — local entertainment succeeding in an increasingly globalized digital economy. In other large European markets such as Italy, Poland and Sweden, consumers are also gravitating toward local artists who create music in local languages. These countries — along with Spain, the Netherlands, Germany and the U.K. — matched or reached their peak domestic share of top 10 songs in 2022. In 2012, less than a fifth of the top 10 songs in Poland, France, Netherlands and Germany were local artists. In 2022, local music’s share of the top 10 songs reached 70% in Poland, Italy and Sweden, 60% in France, 30% in the Netherlands and Spain, and 20% in Germany.
Similar results are echoed on TikTok, which has transformed how people discover music around the world. In France, Italy, Poland and Greece, 80% of TikTok’s top 10 songs of 2022 were by home grown acts. Local artists accounted for 60% of the top 10 in Spain and 50% in the U.K. Local hip-hop is especially popular on TikTok in these markets, says Paul Hourican, the platform’s global head of music operations. Drake and Eminem may have a universal appeal but don’t connect with audiences the way local musicians can. “When you think about what hip-hop is, it’s amazing beats and truth telling, and speaking their truth in local language,” says Hourican. “That seems to be really, really connecting, and kind of forwarding the culture of hip-hop into into all these markets.”
The localization shift doesn’t surprise Sylvain Delange, managing director, Asia Pacific at French music company Believe. “We knew that the market would grow domestically, and that the local music would take a bigger share of the music consumption,” he says.
“When streaming came in, there was a very natural effect that skewed consumption towards international music for the simple reason that when streaming music comes, it serves, first and foremost, the higher income, large, tier one cities that are more open to international influence,” says Delange. “So, it’s very logical that in the beginning, international music would over index on streaming platforms. But then it would progressively switch back towards a fairly natural trend — which is domestic music.”
Early on, streaming services’ curation was much more focused on English-language music, adds Dominique Casimir, chief content officer at BMG. “You couldn’t put an Italian song in the middle of that playlist, that just certainly makes no sense.” But as streaming exploded in popularity, the services hired more staff to service the local music market and put a greater emphasis on local music. With boots on the ground, streaming services created channels and playlists that focused on local repertoire, she says. “That did change massively the work we can do together with DSPs.”
Supply alone doesn’t explain the trend toward globalization, though. An additional explanation, “is generally people’s need to identify with their culture,” says Golnar Khosrowshahi, CEO of Reservoir Media. “That is driving listenership and the importance of that identification, whether it’s around the subject matter or the sound or the person. This is not new news. People identify with their culture. Their culture is important to them. Maintaining that culture is important.”
To take advantage of the forces shaping globalization, Khosrowshahi has targeted investments throughout Latin America and the Middle East. Among Reservoir Media’s recent acquisitions are the catalogs of Latin songwriter and producer Rudy Perez and, in conjunction with PopArabia, the catalogs of Egyptian company RE Media and Egyptian rap duo El Sawareekh. Additionally, in June, Reservoir Media and PopArabia formed a joint venture with Saudi Arabian hip-hop label Mashrex and acquired some of its back catalog.
“One of the reasons we’re compelled by the Middle East market and the Arabic-speaking market is because of the size of that diaspora,” says Khosrowshahi. “The geographical reach of that diaspora goes to Malaysia and Indonesia. You have substantive Arabic speaking populations, granted different dialects, but music seems to be able to transcend them a little bit.”
Through both catalog acquisitions and frontline label partnerships, companies are finding opportunities in an increasingly online global music market. Investments are now commonplace in developing markets that were previously overlooked by music companies. Believe acquired Indian music company Venus Music, partnered with Indian imprints Think Music and Panorama Music, and partnered with Viva Music and Artists Group in the Philippines. In August, Universal Music Group-owned Virgin Music Group acquired United Arab Emirates-based Chabaka. In 2022, Warner Music Group purchased a majority stake in Africori, the top digital distributor in Africa.
While TikTok and streaming services’ international popularity have leveled the playing field for local music around the world, Delange says YouTube has been the biggest driver of this trend over the last decade. For years, a debate raged throughout Europe and the U.S. about YouTube’s “value gap,” the difference between its ad-supported royalties and per-stream payments from competing subscription services. While the West was hesitant to embrace YouTube, Asian artists and labels embraced the opportunities for promotion, marketing and monetization, says Delange. In the West, YouTube was a problematic free platform. In the East, YouTube was a free platform with a massive audience. “That was revolutionary in a market that had been decimated on the physical side,” says Delange. It’s now proving the driver for a new stage of growth in the global music market.
For as much as has been said and written about Taylor Swift in recent years, there’s a chance people have been underestimating the 33-year-old musician’s unique place in the business world.
Swift’s prowess as a recording artist and songwriter is well known. As the most popular artist in the United States across several consumption metrics, she has 11.7 million equivalent album units this year through Sept. 21 — about 70% more than the No. 2 artist, Morgan Wallen, according to Luminate. (EAUs convert streams and track sales into album units.) Swift also has the highest album sales, physical album sales, digital album sales, digital track sales, on-demand audio streams and airplay spins so far in 2023.
But in recent weeks, Swift’s status as super-celebrity became more apparent when she single-handedly brought a legion of young females into the professional football fold. Her attendance at two Kansas City Chiefs games, her undefined relationship with Chiefs player Travis Kelce and frequent pictures of her watching and celebrating from a luxury box above the playing field have done for the NFL what no amount of corporate-led marketing has been able to achieve. TV ratings for the Oct. 1 game between the Chiefs and New York Jets averaged 27 million viewers, the second-highest number for Sunday Night Football this season. More impressively, viewing among girls 12 to 17 was 53% higher than the season’s first three Sunday Night Football broadcasts. Women 18 to 24 were up 24%. Women over 35 were up 34%.
The Taylor Swift Effect created large ripples beyond TV ratings. Sales of Kelce’s Kansas City jersey spiked nearly 400% in the days following the Sept. 24 game Swift attended against the Chicago Bears. Secondary market prices for tickets to the Chiefs’ Oct. 1 game in New Jersey against the New York Jets rose 43%. U.S. Google searches for Travis Kelce jumped more than 14 times from Sept. 23 to Sept. 25 and remain more than three times greater than search traffic before the Sept. 24th game, according to Google Trends. Search traffic for the Kansas City Chiefs rose 13-fold over that three-day span.
That ability to cross over to older generations separates Swift from other Gen Z idols. “She’s the equivalent of a four-quadrant movie,” says Brad Gelfond, a former brand partnership executive at Warner Records. That’s a Hollywood term for a movie with broad appeal that attracts four demographic “quadrants” of an audience: females under 25, males under 25, females over 25 and males over 25. Swift’s place in mainstream pop culture reached a new level in 2022 when demand for tickets to The Eras Tour pre-sale effectively broke Ticketmaster’s platform. That led to a Senate hearing on Jan. 24, during which lawmakers such as 63-year-old Amy Klobuchar (D-MN) and 77-year-old Richard Blumenthal (D-CT) quoted her song lyrics, as well as a plethora of proposed Swift-themed legislation that followed.
Few artists have a similarly broad-reaching appeal. One current artist with cross-generational pull is Beyoncé, but even that comparison is limited, says Ash Stahl, CEO of Flighthouse Media, a digital media producer targeting Gen Z. While Beyoncé is pop royalty, Swift is more relatable. “I would never expect to see Beyonce on screen at an NFL game chest bumping the guy next to her,” she says. That kind of appeal is rare in Hollywood, too. “She’s up there with The Rock,” says Gelfond. That would be Dwayne Johnson, the professional wrestler-turned-actor who transformed from reliable box office draw to media mini-mogul. Johnson is co-owner of a film and TV company, Seven Bucks Productions (Skyscraper, Jungle Cruise, Fast and Furious Presents: Hobbs & Shaw), as well as co-owner of the XFL professional football league.
Among Gen Z, Swift has a sway and longevity that surpasses social media stars popular with the demographic. TikTok star Charli D’Amelio comes close, but her popularity was short-lived, says Stahl. Meanwhile, Vine and YouTube star David Dobrik “didn’t keep his hands clean,” his career tarnished following multiple accusations of sexual assault, bullying, professional negligence and cultural insensitivity against him and his collaborators. Being brand-safe is an important factor in keeping and attracting fans.
YouTuber Mr. Beast is popular among young men but lacks a female fan base, adds Stahl. “‘Mr. Beast, hold my beer,’ said Taylor Swift,” jokes Marcie Allen of MAC Consulting, who has decades of experience working with artists and brands. Aside from attracting fans from different generations, what separates Swift from Gen Z’s online stars is her ability to sell out stadiums. While live-streamer Kai Cenat is facing charges of inciting a riot in New York with a PlayStation 5 giveaway gone awry, Swift’s current tour could surpass $1 billion in ticket sales. What’s more, Swift’s tour could generate $4.6 billion in economic impact for local economies, according to research company QuestionPro. Swift versus these other Gen Z celebrities simply isn’t a close comparison.
With unrivaled popularity and cultural cachet, one must wonder what Swift is doing — or could possibly do — between album and tour cycles. “She’s positioned to be the Reese Witherspoon of music,” says Allen. Witherspoon, an actress known for such movies as Legally Blonde and Walk the Line, founded a production company, Hello Sunshine, in 2016, to give females a greater voice in Hollywood. Hello Sunshine’s predecessor, Pacific Standard, produced the film Gone Girl as well as Wild, in which Witherspoon played the starring role. It wasn’t long before the smart money caught on to Witherspoon’s desire to build a female-first media company. Candle Media, backed by investment titan Blackstone and co-founded by two former Disney executives, acquired a stake in Hello Sunshine for $900 million in 2021.
Could Swift follow Witherspoon and Johnson into building a media fortune? A clue comes from growing demand for the Taylor Swift: The Eras Tour movie. Set to open Oct. 13, it has advance ticket sales of $100 million a week before debuting in more than 8,500 theaters worldwide and is expected to top the U.S. box office. Swift is a producer of the Sam Wrench-directed film and cut a direct deal with AMC to distribute it.
Swift may be outgrowing the typical ways an artist makes money — touring, recording, writing songs, promoting products and the like. And she has proven to have a clear head for business, perhaps most notably by re-recording her Big Machine-era catalog while withholding synch opportunities for the recordings sold to Ithaca Holdings in 2019 and then to Shamrock Holdings in 2020. The move has earned her tens of millions of dollars, if not more, while padding the release schedule between new albums with fresh batches of songs and creating new moments built off the nostalgia and goodwill she’s built up. It’s all evidence that Swift doesn’t mind taking risks if she’ll reap the rewards and that she has enough brand loyalty to pull off something big. “Taylor is so far past doing a brand partnership deal,” says Allen. “She can build her own brand.”
If you’re looking for growth in the U.S. recorded music industry, there are two clear bright spots in the maturing streaming market. But they each come with caveats and considerations.
From the looks of the RIAA’s midyear report, released Monday (Sept. 18), music subscription services and synchronization royalties — two of the biggest drivers of U.S. recorded music’s gains in the first half of 2023, according to the RIAA — should continue going strong through the end of the year.
For subscriptions, revenue increased 12.4% to $4.97 billion over the first six months of the year and accounted for 84% of the industry’s $710-million year-over-year improvement. The number of subscribers grew at a slower rate, though — 6.4% to 95.8 million — which suggests a saturated market where new subscribers are becoming harder to find. (The RIAA provides the average number of subscribers during the six-month period, not the number on the final day of the period.) The fact that revenue outgrew subscribers shows that streaming companies are now finding growth through price increases instead. In 2022 and early 2023, Apple Music and Amazon Music raised prices on individual and family plans. Over that same time, the average revenue per subscriber per month increased from $8.19 in the first half of 2022 to $8.65 in the second half of 2023, according to the RIAA’s numbers.
Streaming revenue’s resilience amid price increases “actually underscores the point that music continues to be the most under-monetized form of entertainment,” says Golnar Khosrowshahi, CEO of Reservoir Media, “and can certainly withstand a price increase structure that has some rhythm to it.” Right on cue, Deezer added to a steady drumbeat of pricing updates when it announced on Thursday (Sept. 21) a second price increase in France, the United Kingdom, Spain, Italy and the Netherlands on top of hikes in 2022.
Spotify’s price increase — individual plans up $1 to $10.99 per month and family plans up $2 to $16.99 per month — was announced in July and should give a boost to streaming revenues in the second half of the year. Spotify previously stated that its limited price increases had not created a material amount of customer churn, and Deezer’s decision to again raise prices bolsters Khosrowshahi’s belief that consumers are able to withstand slightly higher prices without canceling their subscriptions.
Revenues from synchronizations — when music is licensed for audio-visual works such as advertisements, movies, TV shows and video games — grew 25.1% to $222.7 million and accounted for 6% of the $710 million of total revenue growth. Synchronizations have been on a roll since the pandemic helped create a boom in licensing opportunities. The latest mid-year improvement follows a 29.9% gain in the first half of 2022 and a 24.8% improvement in calendar year 2022.
The Writers Guild of America strike that began on May 2 hasn’t hurt synchronization revenues — yet. “I’m encouraged right now,” says Tyler Bacon, president/CEO of Position Music. “My team is busy.” So is Jedd Kantrancha, chief commercial officer of Downtown Music Publishing. Kantrancha says August was Downtown’s best month for the number of synchronizations of 2023 and its third-best month ever.
“One of the biggest things that I’m seeing is just more and more partners and people in the space who have a music budget, who want to learn and want to be educated about how to use music,” says Kantrancha. “I’m doing more uses now with people who haven’t licensed music before than I have in years. And I think that that’s definitely something that relates to the lift [in synchronization revenue] that you’re seeing. There are more people out there exploring how to license music.”
This sort of boom, however, will eventually be hampered by the strikes — it’s just a matter of when.
Many believe the lag from the start of the strike — which reduces the number of post-production opportunities to match music to film and TV shows — to a synchronization slowdown won’t be felt until early 2024. Film and TV studios have “a lot of stuff in the pipeline” that will provide synchronization opportunities through the end of the year despite the strike, says Kantrancha.
That won’t decimate the sector, though. Even after a slowdown from the strike is eventually felt, companies can shift their resources to other opportunities. “We’re highly focused on advertising, and the strike doesn’t affect that,” says Bacon. “Video games, we’re very deep in, and the strike doesn’t affect that.”
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.