The Ledger
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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.
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.”