The Ledger
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As the U.S. government considers banning social media app TikTok, the U.S. music industry faces a few scenarios regarding the platform that’s become a lifeline for discovering and breaking artists — and most aren’t good.
The grilling of TikTok CEO Shou Zi Chew by members of the House Energy and Commerce Committee on Thursday (March 23) had all the political theater expected from a Congressional hearing. It also had one important characteristic unusual for the United States in 2023: bi-partisan agreement. Despite Chew’s insistence that U.S. TikTok users’ data cannot be accessed from China, home of parent company Bytedance, neither Democrats nor Republicans seem intent on allowing TikTok to operate within their borders.
The showdown seemed inevitable given TikTok’s foreign entanglements and the app’s quick ascendence. The app accounted for 17% of total time spent on mobile apps globally in 2022, according to Data.ai — second behind WeChat’s 19.5% and well ahead of No. 3 YouTube’s 12.7%. Chew told lawmakers that TikTok has 150 million users in the U.S. That’s 50% more than the 100 million figure TikTok previously made public (and eMarketer’s latest estimate of 95.8 million at the end of 2022). Among U.S. Gen Z consumers aged 18 to 24, TikTok ranks No. 2 behind Instagram in monthly average users, according to Data.ai.
But the app’s fate in the United States “is on shakier ground than ever,” according to eMarketer principal analyst Jasmine Enberg. “TikTok’s decision to highlight how entrenched the app has become in US society was miscalculated,” Enberg said in a statement. “It actually strengthened U.S. lawmakers’ argument that TikTok poses a threat to both national security and young people.”
Brendan Carr, a commissioner with the Federal Communications Commission, agrees. The vocal TikTok critic told CBS News “the day could not have gone any worse for TikTok” and that Chew “completely failed” to gain “some level” of trust and credibility with members of Congress.
While a TikTok ban appears popular amongst politicians, not everybody is supportive. The Cato Institute’s Paul Matzo called a ban “a hamfisted mistake” born from “neo-Cold War paranoia.” It wouldn’t necessarily make America safer, he argued, and would amount to a bail-out for Meta, whose TikTok competitor, Instagram, has failed to win on a level playing field. The Brookings Institute’s Darrell M. West and Michaela Robison argue that a ban would open up U.S. companies in China — such as automaker Tesla — to similar scrutiny.
If a ban could withstand a legal challenge — former President Donald Trump’s attempt to ban TikTok and Chinese messaging app WeChat both failed — TikTok’s parent company, Bytedance, would be forced to sell the company. President Joe Biden’s administration has encouraged Bytedance to sell TikTok. But it wouldn’t be a straightforward process. China would “strongly oppose” a forced sale, a Ministry of Commerce spokesperson said Thursday, and TikTok is subject to Chinese law on tech exports and would require government approval.
A prompt sale of TikTok, which is reportedly valued at $60 billion, would be the best outcome for the music industry in search of new sources of streaming revenue. TikTok’s revenue rocketed from $4 billion in 2021 to $10 billion in 2022, according to reports. Research firm Omdia projects that TikTok’s ad revenue will climb to $44 billion by 2027 — presumably assuming there are no geopolitical interferences — and surpass the combined video ad revenues of Meta and YouTube. Although TikTok is not a major source of revenue for labels and publishers, rights holders expect to eventually have licensing agreements that give them a share of advertising revenue for user-generated content (like their deal with YouTube).
The current hodgepodge of bans also hurts both TikTok and the music industry. In the United States, TikTok has already been banned by some federal agencies, state and local governments and universities. Elsewhere, TikTok has been banned from the official phones of staff of the European Commission, U.K. parliament, Canadian government, Belgian government, Danish Defense Ministry and Latvian Foreign Ministry, to name a few. Fewer TikTok apps installed on fewer smartphones is twice the punishment for an app that depends on user-generated content. Lower usage means fewer people creating and viewing videos.
Perhaps the biggest question is what would happen to TikTok under new ownership. If, say, Oracle owned a stake in TikTok, as was proposed during the Trump administration, would the app continue to have the same magical recommendation algorithm that has made TikTok so irresistible and its competitors unable to keep up? New ownership would eliminate restraints on TikTok’s revenue and user growth, but if the product suffers, the music industry would be handed a less effective promotional tool and a less valuable source of revenue. The only certainty in this TikTok controversy is that such unintended consequences are guaranteed.
In the last 25 years, the music industry has evolved in huge leaps: the arrival of Napster in 1999, the launch of the iTunes music store in 2003 and YouTube’s debut in 2005 are notable, epoch-defining events. But progress often comes in a series of small steps forward.
One such small step is Spotify’s Loud & Clear, an annual report that provides some transparency into the amounts of royalties the company pays each year. The third Loud & Clear report was released March 8 to coincide with Stream On, Spotify’s live-streamed media event where a parade of executives introduced new product features and discussed the future of the world’s largest music subscription service.
Loud & Clear is helpful because it puts artist royalties in context. Any artist knows how much they earned on a streaming platform. But Loud & Clear will tell an artist how they stack up to others. It’s one thing to make $100,000 in annual royalties but another thing to know how many other artists are also making at least $100,000.
“I think it’s very important for ecosystems to have an understanding of the shape and size of how results are going for different participants so that people can understand where they are, where they stand and how the ecosystem is evolving,” says Charlie Hellman, Spotify vp, global head of music product.
And how well is the ecosystem evolving? Spotify wants to give “a million creators the opportunity” to making a living from their art — which could include both musicians and podcasters. That goal goes back to a statement by CEO Daniel Ek at its 2017 Investor Day. At the time, Spotify counted 22,000 artists as “top-tier” earners (it didn’t specify exactly how much they earned, however). Today, thanks to Loud & Clear, we can see a million creators are probably not making a living from their art. But as Spotify, and streaming in general, has grown in popularity, the number of artists making a sustainable amount — define that as you may — is slowly increasing.
There are 27,000 established artists defined as being in Spotify’s top 50,000 artists three straight years but outside of the top 500. In 2022, they earned an average of $224,000 from Spotify and averaged 1.45 million monthly listeners in 2022. So, they’re not superstars but they’re far from hobbyists. They’re also likely signed to record labels and receive only a fraction of those royalties.
In 2022, there were nearly 3,000 “catalog-heavy” artists that earned more than $100,000 on Spotify. Those artists earned over 80% of their streams from tracks five years old or older. Given that Spotify estimates other streaming sources account for 75% of an artists’ revenue, those artists probably earn around $400,000 a year in streaming royalties.
If streaming is going to provide a living for many musicians, the economics need to work for the independent musicians that make up a large portion of the working class. In 2022, a quarter of the 57,000 artists who earned $10,000 or more in royalties from Spotify in 2022 are self-distributed through the likes of DistroKid, TuneCore and CD Baby. That works out to nearly 15,000 artists, a 200% increase since 2017. That’s a far cry from one million. But as streaming platforms continue to grow, the number of self-distributed artists earning that amount will grow, too.
Increasingly, streaming platforms will facilitate other parts of artists’ careers, such as ticket sales and merchandise sales. Spotify lists some merchandise sales through third-party providers such as Shoptify and Merchbar. And although it hasn’t included merch sales in Loud & Clear, Hellman says, “I can imagine in future years doing more data share about that in particular. We didn’t do that this year, but it is a big strategic focus for us.”
The U.S. recorded music business posted its seventh consecutive year of growth in 2022 as the industry continues to benefit from streaming services such as Spotify, Apple Music and YouTube. After spending most of the last two decades in a painful freefall — piracy devastated CD sales and the download-driven unbundling of the album didn’t make up for it — the recorded music business has enjoyed a great run. Last year, paid subscription revenues surpassed $10 billion for the first time, according to the RIAA, and overall revenues reached $15.9 billion.
Here’s the bad news: Last year’s growth, in terms of both dollar and percentage increases, was the lowest since 2016, when the recorded music business started to recover from a 15-year downturn. Happy days may be here again, but they’re not getting happier like they were.
Total recorded music revenues grew 6.1%, but that’s about a quarter of 2021’s 23.2% gain. Paid streaming revenues improved 7.2% in 2022, a third of the 22.2% growth in 2021. It was the first time that this segment’s growth rate fell into the single digits since 2010. That year paid streaming revenues rose just 2.9% to $212 million. Over the next decade, as annual paid streaming grew to 57.8% of total recorded music revenue in 2022, the segment’s annual growth often exceeded 50% and fell below 20% only twice.
Ad-supported streaming’s revenue growth rate also fell into the single digits, also for the first time in more than a decade. Slowed by an advertising malaise that has also affected companies ranging from Alphabet to iHeartMedia, streaming services’ advertising royalties to record labels grew 5.6% compared to 44.4% in 2021 and 16.8% in 2020. In dollar terms, last year’s revenue growth was the lowest since 2015.
The slowdown shouldn’t catch anybody by surprise given the industry’s reliance on streaming, subscription services’ unwillingness — until recently — to raise prices and a finite number of potential customers. The problem comes down to basic math: Fees from subscription services accounted for 57.9% of recorded music revenues in 2022. At just 2.4% of total revenues, a high-growth segment like synchronization barely moves the needle despite rising 24.8% in 2022. Vinyl sales were strong once again — up 17.2% — but accounted for just 7.7% of total recorded music revenues.
Up-and-coming revenue streams such as TikTok, Facebook and Instagram are just that — not yet ready to deliver meaningful royalties despite their popularity. Their revenues are included in the ad-supported streaming bucket that increased just 5.5% in 2022. TikTok faces high expectations but large uncertainty, too, as it faces pressure from politicians at the state and federal level that could reduce its importance. In addition, the company has installed parental controls that are likely to reduce engagement and further reduce its potential value to artists and labels.
A positive trend is subscription services’ decisions to raise prices on individual and family plan tiers. In 2022, Apple Music, Amazon Music and Deezer raised prices in the U.S. Spotify has not yet announced a price hike for standard subscription plans but has hinted it will follow suit in 2023. Labels are eagerly awaiting Spotify’s move. “We are the lowest (cost) form of entertainment,” Warner Music Group CEO Robert Kyncl said Thursday. “We have the highest …engagement, highest form of affinity and lowest per-hour price. That doesn’t seem right.”
Globally, the situation looks better. The industry in China, the world’s most populous country, is flourishing thanks to streaming companies such as Tencent Music Entertainment and Cloud Music. In Japan, the world’s second-largest recorded music market, streaming revenues increased 125% in 2022, according to the RIAJ. At Spotify, which operates in 184 markets, revenue increased 21.3% in 2022 to 11.7 billion euros ($12.4 billion), with about equal growth rates from paid and ad-supported streaming. Annual revenues of two smaller streaming companies, Europe-focused Deezer and MENA-focused Anghami, grew 13% and 36%, respectively.
In the U.S., a maturing streaming business alone cannot maintain the breakneck pace of the last seven years. Labels will need more than the status quo to return to double-digit growth.
The areas of the audio marketplace with the highest growth rates don’t involve music or young people. As online listening growth slows and smartphone ownership is nearly ubiquitous, podcasts and audiobooks stand out in Edison Research’s The Infinite Dial 2023 report.
In 2023, weekly podcast listening reached 40% of people aged 12 to 34, up from 33% in 2022; and 39% for the 35-to-54 age group, up from 31% the year before, the report states. The 55-and-over audience remained at 14% after falling from 17% in 2021. The average U.S. podcast listener averages nine podcasts per week, with 19% listening to 11 or more.
Those growth rates contrast with slowdowns in smartphone penetration (now at 91% of the U.S. population), social media usage (flat at 82% of the population for three straight years) and monthly online audio listening (up slightly from 73% in 2022 to 75% this year).
But podcasts appear to have room for more growth. The percentage of people who listened to a podcast in the last month was 42% — 28 percentage points lower than online audio listenership.
About 183 million people — 64% of the U.S. population 12 and over — has ever listened to a podcast. That’s up from 44% of the population five years earlier and 27% a decade ago.
Audiobooks are also growing. The percentage of Americans who listened to an audiobook in the last year rose to 35% of the U.S. population — up from 28% a year earlier — or about 100 million people. Still, there’s lots of room for growth, and companies will likely see that percentage as an opportunity to introduce the format to new listeners.
Podcasts and audiobooks are tangentially related to music in the streaming age. Digital platforms increasingly combine music and non-music content to keep listeners engaged and make the apps more attractive to subscribers. To improve both its product and margins, Spotify has invested handsomely in podcasts — from DIY tools like Anchor and Megaphone to content creators Gimlet, Parcast and The Ringer — as well as audiobooks, through the acquisition of audiobook distribution platform Findaway.
Streaming companies tend to obsess about young consumers, but the growth opportunity appears to lie in older age groups. Edison found that 89% of the 12-34 age group listened to audio online in the previous month, up from 87% in 2022 and 86% in 2021. The 35-54 age group’s monthly listenership rate improved from 72% in 2021 to 81% in 2022 and 85% this year. The 35-54 age group’s podcast listening improved from 43% in 2022 to 51% this year — a big leap, but still below the 12-34 age group’s 55% mark.
The often overlooked 55-and-over age group has significant room to grow. Its monthly online listening rate stands at just 53%, up from 52% in 2022 and 46% in 2021. The age group is also slow to adopt podcasts. Just 21% of people 55 and over listened to podcasts in the last month. Worse yet, the 55-and-over crowd is losing enthusiasm: Its monthly podcast listening rate was 22% last year and 26% in 2021.
The other major trends found in the report reflect smartphone penetration, the prevalence of mobile broadband and the use of mobile operating systems in cars such as Apple CarPlay and Google’s Android Auto. In the last decade, the percentage of U.S. consumers who have listened to AM/FM radio in the car dropped from 84% to 73%, while CD listening declined from 63% to 29%. SiriusXM satellite radio use in the car improved from 15% to 20% over that time, while online audio jumped from 12% to 37% on the same metric.
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Ticket fees have been called everything from “exorbitant” (Sens. Richard Blumenthal and Amy Klobuchar) to “completely bats—” (Last Week Tonight with John Oliver). And they can increase the price of a concert ticket by an average of 27-31%, according to a 2017 study by the U.S. Government Accountability Office.
Unfortunately for ticket buyers, those fees aren’t going anywhere quickly. They may change or disappear completely, but consumers won’t reap any savings in the end, Live Nation CEO Michael Rapino explained during Live Nation’s fourth quarter 2022 earnings call on Thursday.
Say, for example, a venue is prohibited from charging fees on top of a ticket’s face value. “Well, then the venue would say, ‘Okay, artists, the rent isn’t $50,000 anymore. It’s $100,000,’” Rapino said.
The ticket fee is a surcharge that helps cover a venue’s costs. Rapino’s point is that the venue needs to cover its costs, so it’s going to collect money to cover them, no matter what. In a normal scenario, the consumer helps cover those costs by paying a surcharge directly to the venue.
If fees were eliminated, artists — who are the final authority on primary ticket prices — would be forced to raise them to cover the additional cost. The surcharge may have disappeared, but that cost would still exist in the form of a higher face value. Regardless of the approach, the consumer’s expense and the venue’s revenues would be unchanged.
“The true cost of going to a show and making the show happen is the full price all-in,” said Rapino. The concept is apparent to anybody who has pondered how airlines set prices. If airlines charged an all-in fee that encompassed all its costs, ticket prices would be dramatically higher. Legislation that banned fees for checked baggage could result in higher prices for everything from flight themselves to in-flight beverages. Airlines that previously allowed free carry-on bags might start imposing fees on those. They could also charge more to change your travel plans (which used to cost the consumer nothing).
Rapino acknowledged that Live Nation, which owns and operates venues, would do the same. “If tomorrow someone said, ‘You know, you can’t charge 20% service fees on your amphitheater, you have to [charge] 10%.’ Well, then the $75,000 house rent that we charge artists would be $100,000,” he said as an example. Live Nation couldn’t simply absorb the cost, he explained. Since the company requires money to pay staff and operate the venue, it would find a way to recoup the lost fees.
While what consumers pay won’t change, they may get more transparency. In the wake of Ticketmaster’s disastrous Taylor Swift Eras Tour pre-sale, President Joe Biden unveiled an initiative to limit, among other types of fees, mandatory, back-end fees that “often hide the full price” of a good or service. The White House pointed to research that found hiding the full price encourages consumers to spend more than they would have otherwise.
Live Nation has also come out publicly — and forcefully — against hidden fees. On Thursday, Rapino called numerous times for the industry to adopt all-in pricing that show the ticket buyer a single price at the beginning of the transaction. Also on Thursday, Live Nation issued a press release that encouraged lawmakers to introduce legislation that includes, among other things, mandatory all-in pricing.
The uproar against Live Nation and Ticketmaster over ticket fees is just one of many criticisms to gain momentum in recent months. Some members of Congress have called Live Nation a monopoly that limits competition in the touring business and harms consumers by charging high prices and leaving some unable to purchase tickets for in-demand concerts like Swift’s Eras tour. Many inside and outside of Washington have called for the Department of Justice to break up the company’s concert promotion and ticketing operations. On Thursday, Sens. Klobuchar and Mike Lee sent evidence of the Jan. 24 Senate hearing on the ticketing market to the Department of Justice and encouraged its antitrust division “to take action if it finds that Ticketmaster has walled itself off from competitive pressure at the expense of the industry and fans.” Others have suggested Ticketmaster improve its security practices to deal with the bot attacks that derailed Swift’s pre-sale.
Ticketmaster may be most reviled for its fees, though. And as Rapino pointed out, those aren’t going away anytime soon.
The Ledger is a weekly newsletter that covers the financial and economic side of the music business. An abridged version appears at Billboard Pro. Pro subscribers automatically receive The Ledger. Sign up here to receive the newsletter without a Pro subscription.
Keen observers noticed that last quarter Warner Music Group’s global streaming revenues were down 2.6% year over year, a rare sputter in the music industry’s main engine of growth. The company’s total revenue declined 7.8% as losses in recorded music’s physical and digital revenues couldn’t make up for publishing gains.
On its face, a year-over-year decline in streaming revenue – the driving force behind growth at labels as well as the rise in music catalog valuations – might seem alarming. Declines are routinely seen in download and physical sales. Streaming is typically the dependable bright spot of any earnings report.
The decline was more noticeable when compared to companies that released earnings for the same quarter. Sony Music Entertainment posted strong growth in the same period. SME’s streaming revenue improved 33.2% in its recorded music division and 59.8% in its publishing division. Reservoir Media didn’t show streaming softness last quarter, either. In its recorded music division, digital revenues were up 17% year-over-year. Digital revenues in its publishing division rose 29%.
So, what happened? Some of it is due to a quirk of WMG accounting, some of it is due to WMG, and some of it is due to factors that affect the entire music business.
One factor in WMG’s weak streaming revenue was a shorter quarter: WMG’s last quarter had one fewer week than the prior-year quarter, which gave the company a tough basis for comparison even before other factors could be considered. A 14-week quarter has 7.1% more days to generate income than a 13-week one and that’s a big gap to overcome. Adjusting for that, WMG streaming revenues would have been up 5% year-over-year.
The stronger dollar — WMG’s financial statements are reported in dollars, Sony reports in yen, Universal Music Group in euros — also played a part in the decline. In WMG’s recorded music division, streaming revenues declined 4% as reported but were flat on a constant currency basis (which assumes no change in foreign exchange rates). In its publishing division, streaming revenues grew 13.2% as reported and 16.8% at constant currency.
WMG also blamed the soft streaming numbers on a new release line-up that CFO Eric Levin called “a softer, largely U.S.-based release schedule” that “could roll into our fiscal Q2. But given our release schedule as second half-oriented this year,” he added, “we do feel good about our performance of releases and strength in the second half of the year.”
Another factor was not specific to WMG: a slowing ad market. Levin called it “a dislocated ad market” and warned “the decline is getting more pronounced.” The decline in ad-supported streaming revenue isn’t a surprise. The Ledger wrote about the soft advertising market in August 2022. Spotify CFO Paul Vogel warned advertising growth in the third quarter would be “slower than we might have forecast earlier in the year.” French music company Believe said “ad-funded streaming activities should be affected by rising inflation and economic uncertainties.”
The streaming market has become bifurcated. Subscription services have fared well through the pandemic and high inflation. Advertising is more closely associated with the direction of the broader economy. Consumers are generally reluctant to cancel entertainment subscriptions, but it’s easier for brands to pull back on ad spending, hurting everything from YouTube to broadcast radio companies like iHeartMedia (and music publishers to a lesser extent). At WMG, “subscription streaming grew by high single digits” but was partially offset by a drop “in the mid-teens” in ad-supported revenue, Levin said. WMG also noticed the slowdown in brands’ spending has created “a somewhat softer market for synch.”
In the fourth quarter, Spotify’s advertising revenue rose 14% compared to an 18% improvement for subscription revenue. With the growth of Spotify’s podcasting business, not all the advertising growth could be attributed to music. Advertising growth lagged subscription growth in the third quarter by three percentage points.
The Ledger is a weekly newsletter that covers the financial and economic side of the music business. An abridged version appears at Billboard Pro. Pro subscribers automatically receive The Ledger. Sign up here to receive the newsletter without a Pro subscription.
On Feb. 1, days before the Grammy Awards, Billboard honored HYBE chairman Bang Si-hyuk with the Clive Davis Visionary Award at the annual Power 100 event for creating a company that, as Bang put it in his acceptance speech, “challenges the traditional boundaries of music and entertainment.” Fittingly, just one week later, Bang put the global music industry on notice with two major deals that further solidified HYBE’s status as more than the home of BTS and a budding empire and force in pop culture.
First, HYBE America, the U.S. division led by CEO Scooter Braun, acquired QC Media Holdings, the parent company of Atlanta-based hip-hop label Quality Control Music, home to Migos, Lil Baby, Lil Yachty, City Girls and others. Quality Control gives HYBE a hip-hop presence to complement its core K-pop acts (BTS, TOMORROW X TOGETHER) and HYBE America’s pop- and country-leaning rosters from SB Projects (Justin Bieber, Ariana Grande) and Big Machine Label Group (Tim McGraw, Thomas Rhett), respectively. The deal also further diversifies HYBE beyond K-pop and helps alleviate the loss of BTS while its members pursue solo projects and enter government-mandated military service.
Now the No. 1 K-pop music company by market capitalization ($6.5 billion), HYBE on Thursday (Feb. 9) announced it spent $334 million for a 14.8% stake in K-pop rival SM Entertainment, the company behind NCT 127 and SuperM. In buying the majority of founder Lee Soo-man‘s shares, HYBE became the top shareholder in the third-largest Korean music company. With a market capitalization of $1.85 billion, as of its closing price on Friday (Feb. 10), SM Entertainment ranks only slightly behind JYP Entertainment’s $1.9 billion and is more than double YG Entertainment’s $780 million.
Becoming SM Entertainment’s top shareholder can further HYBE’s leading position in South Korea, an increasingly important music market worth $6 billion in 2021, according to the U.S. Department of Commerce. A 15% stake doesn’t give HYBE control over SM Entertainment, but it creates opportunities to work for mutually beneficial outcomes. One could see SM Entertainment artists taking advantage of HYBE’s Weverse social media platform, for example.
The Quality Control deal was worth $300 million in cash and stock, according to HYBE’s regulatory filing. Valuing the company at a multiple of 12 times earnings before interest, taxes, depreciation and amortization — the midpoint of the 10 to 14 times enterprise value-to-EBITDA multiple typically seen in deals for similar music companies — implies Quality Control has annual EBITDA of roughly $25 million. That should provide a nice boost to HYBE’s bottom line. In 2021, HYBE had adjusted EBITDA of $232 million. Through the first nine months of 2022, HYBE’s adjusted EBITDA was $220 million. That implies Quality Control could provide HYBE with a 7.5% to 10% boost in adjusted EBITDA if it finishes 2022 by merely matching its adjusted EBITDA from the fourth quarter of 2021 — and that’s without considering any cost savings resulting from the merger.
HYBE’s annual EBITDA puts it in a middle ground between the three majors and large independent companies. Universal Music Group’s calendar 2021 EBITDA was $2 billion (1.68 billion euros). Warner Music Group’s EBITDA for the year ended Sept. 30, 2022, was $1.2 billion. Sony Music Entertainment does not report EBITDA but paces well ahead of HYBE. After the majors, however, there’s a large gap. BMG’s 2021 EBITDA was $170 million. Hipgnosis Songs Fund posted EBITDA of $130 million in its year ended March 31, 2022. Reservoir Media’s EBITDA in the year ended March 31, 2022, was $41 million. If HYBE matches its EBITDA from the fourth quarter of 2021, it would exceed $300 million in calendar 2022. Had HYBE owned Quality Control during 2022, its EBITDA would have been in the area of $325 million (assuming $92 million in fourth-quarter 2022 EBITDA).
HYBE’s two moves this week are proof the music industry is more competitive and dynamic than some market share numbers might suggest. While the three major labels dominate the record business, independent companies — some distributed by the majors — are flourishing. HYBE certainly has its connections to the majors: Its music is distributed in the United States and other regions by UMG, it has a joint venture with UMG’s Geffen Records and many of its management clients are signed to major labels. But HYBE is ultimately independent of the majors. Based in South Korea, not London or New York, it’s a nimble outsider with a unique approach to melding music and technology.
Perhaps most important to HYBE’s continued growth — and what sets it apart from much of its competition — is how it’s going about doing it. Whereas catalog (music older than 18 months) has taken a larger share of consumption and the industry’s biggest deals and investments have involved established catalogs from Bob Dylan, Bruce Springsteen, Paul Simon, Sting and others prized as safe investments — billions of dollars are flowing into the music industry to acquire intellectual property that’s often many decades old — HYBE is paving its way through entrepreneurism of a different sort.
Like 300 Entertainment (purchased by Warner Music Group in 2021), Alamo Entertainment (purchased by Sony Music Entertainment in 2022) and LVRN (recently valued at more than $100 million), HYBE builds new artists from scratch, sets trends and influences pop culture — beyond TikTok, at that. Now, as it rapidly builds its empire, Bang, Braun and the rest of the company are starting to show what that looks like at scale.
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A youth movement of sorts hit music’s top 10 tracks in the U.S. last year, even as music consumption generally shifted toward older recordings.
The average age of a track in the top ten on-demand streaming songs in the U.S. was nearly five months younger in 2022 (346 days) than in 2021 (492 days), according to a Billboard analysis of Luminate data. In 2021, the top 10 tracks were evenly divided between current (defined by Luminate as younger than 18 months) and catalog (older than 18 months), as of Dec. 31, 2021. Glass Animals’ “Heat Waves,” released in June 2020, was No. 5 that year. The No. 1 track, Dua Lipa’s “Levitating,” was released in March 2020. The No. 10 track, The Weeknd’s “Blinding Lights,” was released in 2019.
In 2022, nine of the top 10 tracks were current releases, meaning they were less than 18 months old on Dec. 31, 2022. “Heat Waves” was the lone catalog track in the top 10. The top track, Harry Styles’ “As It Was,” was a spry 276 days old. Steve Lacy’s “Bad Habit,” the No. 9 track, was youngest at 185 days. “Levitating” still resonated with listeners but slipped to No. 20.
Outside of the top 10, however, the most popular music of the year continued to get older.
From 2021 to 2022, the average age of the top 25 on-demand tracks increased about a month and a half to 470 days old, excluding a notable outlier: Kate Bush’s 1985 recording “Running Up That Hill,” the No. 16 track of the year. Including Bush’s 13,620-day-old (as of Dec. 31, 2022) surprise hit, the average age of the top 25 tracks more than doubled.
Aging was more pronounced beyond the top 25. The average age of the top 1,000 on-demand audio streaming tracks increased from 3,287 days in 2021 to 3,462 days in 2022 — an increase of 176 days, or nearly six months. Notably, some younger catalog titles continued to defy gravity. Chris Stapleton’s 2014 track “Tennessee Whiskey” rose from No. 43 in 2021 to No. 33. Morgan Wallen’s “Whiskey Glasses,” from 2016, climbed from No. 62 to No. 32. The Neighborhood’s 2012 track “Sweater Weather,” a TikTok hit way back in Nov. 2020, improved from No. 76 to No. 34.
The aging of on-demand audio streams mirrors the continuing trend of catalog tracks accounting for a larger share of what Americans stream and purchase. According to Luminate, catalog’s share of total consumption — across all formats — climbed to 72.2% in 2022, up from 69.8% in 2021 and 65.1% in 2020.
Years ago, the line between current and catalog music meant more, since it usually followed the way stores shelved music. “That timeframe makes sense when you are talking about an artist’s typical album release cycle,” says Andy Moats, executive vp and director of music, sports and entertainment at Pinnacle Financial Partners.
In a financial sense, however, current music transitions to catalog over a long period of time. After an initial burst of earnings, music will earn less over some number of years — called “decay” — before settling at a consistent amount of annual royalties. “Most new release decay will occur in the first 36 to 48 months from release,” says Moats, and tracks typically level off and show growth from years 7 to 10.
Outliers like “Running Up That Hill” aside, increased catalog consumption stems mostly from music remaining popular beyond the 18-month mark. (Billboard wrote about the longevity of this “shallow catalog” in April 2022.) Today, catalog is as much about Fleetwood Mac’s 1977 song “Dreams” as The Weeknd’s 2020 song “Save Your Tears,” which remains popular on streaming services and was the No. 19 on-demand audio streaming track in the U.S. last year (down from No. 4 in 2021).
To the experts who value music assets, the ability of a relatively young catalog to increase its market share makes it more attractive. While older songs are typically more appealing to buyers because their earnings potential is more predictable than newer songs still experiencing annual decay, the trends seen in Luminate’s data suggest there could be more deals like Hipgnosis Capital Fund’s $200 million acquisition of Justin Bieber’s songwriting catalog and recorded music royalties. Nari Matsuura, partner at Citrin Cooperman, sees the catalog trends in Luminate’s data as a good sign for relatively young music. “This suggests that the value of newer catalogs should increase since their earnings will not decline as much in the near term but will be sustained at a higher level over a longer period.”
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Music companies across the board grew revenues in 2022, fueled by global streaming growth and the return of live music. Their stock prices went in a different direction, though.
The Billboard Global Music Index, a group of 20 music-focused companies listed in five countries, declined 36.4% in 2022.
The index aggregates the market capitalizations of 20 music companies spanning record labels, music publishing, live music, streaming and broadcasting. Each company’s float — the outstanding shares — has been adjusted to remove corporate owners, executives, directors and other long-term shareholders.
Music companies weren’t the only stock losers of 2022. Markets were down across the board as interest rates rose, inflation soared and investors placed greater value on profits than growth potential. The index’s deficit was slightly bigger than that of the tech-heavy Nasdaq composite and almost double the 19.4% decline of the S&P 500. The Dow Jones Industrial Average, a collection of 30 blue-chip companies such as Johnson & Johnson and Home Depot, fell just 8.8%.
The two largest companies in the index, Universal Music Group and Warner Music Group, fared relatively well. UMG’s share price fell 9.2% and WMG’s declined 18.9%. Another label group, South Korea’s SM Entertainment, improved 3.4% — one of only two companies in the index whose share prices rose in 2022. As a group, however, record labels and publishers’ adjusted float declined 23.1%. The largest deficit of the group was 50.3% by South Korea’s HYBE, whose main artist, BTS, sent the stock spiraling by announcing a hiatus in June.
The six streaming companies’ index value declined 54.9%, the worst of the index’s four sectors. Spotify’s share price dropped 66.3% and the company dropped to the fourth-largest contributor to index value, after finishing as the top contributor at the end of 2021. The dramatic downturn wasn’t surprising given what was happening in the broader marketplace. Streaming stocks generally benefited from the early days of the pandemic as consumers listened to and viewed more content online and subscriptions spiked. But investors fled many pandemic darlings in 2022: Netflix shares fell 51.1% and Disney shares dropped 43.9%.
With a 20.9% gain in 2022, Tencent Music Entertainment was the rare company in positive territory — not that it isn’t well below its all-time high. While Spotify and other stocks started to drop in mid-December 2021 after the Federal Reserve announced it would raise interest rates in 2022, Tencent Music’s share price had nowhere to go but up. In March 2021, after Chinese regulators cracked down on Tencent Music’s exclusive licensing contracts — many other Chinese companies also came under fire for various reasons — the share price fell 58.5% over three days and another 70.9% through Dec. 20, 2021.
The smaller streaming companies, on average, fared worse than their larger competitors. Abu Dhabi-based Anghami declined 84.3% and French streamer Deezer dropped 51.4%. Both companies went public in 2022 via reverse mergers with publicly traded blank check companies (SPACs), so their annual performance is calculated using the Dec. 31, 2021, share price of the public companies they merged with. Shares of LiveOne fell 49.7%.
Streaming companies’ declines mirrored the losses of some high-profile tech stocks. Amazon, another high-flying pandemic stock, fell 49.6%. Meta sank 64.2% as the company put billions of dollars into building a metaverse that few people seemingly want to visit. Tesla fared even worse by slipping 65% as investors appeared worried that CEO Elon Musk was spending too much time mismanaging his latest acquisition, Twitter, and hurting the brand’s value amongst liberal consumers.
The index value of live music companies — Live Nation, CTS Eventim and MSG Entertainment — declined 35.9%. Even though Live Nation posted record revenues in the second and third quarters as the touring business recovered from pandemic-era lows, the company’s index value dropped 41.7% in 2022. Live Nation’s shares stumbled 10.9% over two days in November after the problematic pre-sale for Taylor Swift’s Eras Tour enraged consumers and brought the possibility of regulatory action (about half of that loss was recovered by the end of December). MSG Entertainment shares fell 36.6% while German promoter CTS Eventim fell just 7.4%.
Broadcasters’ index value declined 33.3%. Even though shares of satellite radio company SiriusXM, the largest broadcaster by market capitalization, declined just 8.0%, the two terrestrial broadcasters in the index fared much worse. IHeartMedia shares fell 70.9% and Cumulus Media dropped 44.8%.
The relatively good performance of labels and publishers — especially the larger ones — brought those eight companies’ share of the index’s value to 49.2%, up from 40.7% at the end of 2021. The six streaming companies’ share of the index value declined to 22.1% from 31.1%.
U.S.-listed companies improved their share of the index to 58.9%, up from 49.9% at the end of 2021. Some of the change can be attributed to the growth in the dollar, which reduces the value of foreign-listed companies when adjusted market capitalizations are converted to U.S. dollars. Compared to the dollar, the euro was down 5.5%, the pound sterling was down 10.4%, the Korean won was down 5.8% and the Hong Kong dollar was down 0.2% in 2022.
The Ledger is a weekly newsletter about the economics of the music business sent to Billboard Pro subscribers. An abbreviated version of the newsletter is published online.
This was a year without splashy public offerings, like Universal Music Group’s last year and Warner Music Group’s the year before. Some of the biggest rights acquisitions of all time — for Bob Dylan’s and Bruce Springsteen’s recordings and publishing, and David Bowie’s publishing took place in those years, too. And the time when the biggest companies in the business could acquire their rivals may be over for the time being as well.
Rising interest rates put a chill on the catalog acquisition market and brought down valuations, but there was no shortage of investors for a seemingly never-ending supply of creators willing to take advantage of the streaming boom to part with their catalogs. The list of deals that didn’t even make this list includes various rights for the music of The Ramones, Justin Timberlake, Keith Urban, Louis Prima, Swedish House Mafia, Future and Blake Shelton.
Only two of the last year’s top 10 deals — ranked by dollar amount — didn’t involve a catalog changing hands. One was a reverse merger that made French streaming company Deezer a publicly traded company, while he other was Spotify’s latest acquisition to further its goal of becoming a one-stop destination for audio.
Concord sells asset-backed securities ($1.8 billion)
This month, Concord priced the biggest music-related asset-backed securitization in history: $1.8 billion of senior notes backed by a diversified catalog of music publishing and recorded music rights valued at $4.1 billion. Apollo’s Capital Solutions business structured the transaction and formed an investor syndicate led by Apollo-managed funds. JP Morgan was the co-structuring agent. Music-backed securitization was made famous in 1997 with $55 million of asset-backed securities, commonly referred to as Bowie Bonds, supported by royalties from Bowie’s recorded music catalog. Concord’s offering was significantly larger and diverse than Bowie’s: The catalog behind Concord’s bonds includes compositions and recordings by Phil Collins, Creedence Clearwater Revival, Daft Punk, Miles Davis, Imagine Dragons, Pink Floyd, Cyndi Lauper, Little Richard and James Taylor.
Brookfield Asset Management Invests in Primary Wave ($1.7 billion)
The biggest music industry deal of the year by dollar amount was something of a surprise. The 100-year-old Canadian asset manager Brookfield’s decision to put $1.7 billion into Primary Wave, an active buyer of music rights for nearly 17 years, came during a lull in the market. Rising interest rates were making music rights a less attractive investment, headline-grabbing acquisitions had slowed since the Fed began hiking rates in March and possible changes to tax treatment of catalog sales in 2022 culminated a busy 2021. Brookfield wasn’t discouraged by market forces, though. The two companies spent six months hashing out a deal, Brookfield managing partner Angelo Rufino told Billboard. Brookfield was attracted to Primary Wave’s model of employing marketing and branding experts to build the value of its acquisitions. He called Primary Wave CEO Larry Mestel “the best I’ve ever seen at leveraging brand extensions to supercharge the growth of these assets.”
Kobalt sells majority interest to Francisco Partners ($750 million)
Kobalt has been selling off assets left and right in recent years. It sold its two investment funds that owned music assets — one went to Hipgnosis Song Management for $323 million in 2020, the other to KKR and Dundee Partners for $1.1 billion in 2021 (which resulted in the Chord Music Partners bond offering this year, see below) — and Sony Music purchased Kobalt’s independent distributor and label services provider, AWAL, as well as its neighboring rights business. These moves allowed Kobalt to pay off its debt and finish 2021 with $315 million in cash. This year, Kobalt sold a piece of itself when tech-focused investment firm Francisco Partners, along with Dundee Partners and Matt Pincus’ MUSIC, bought a majority stake in the company for $750 million.
KKR sells asset-backed security ($732.5 million)
The technical sounding Hi-Fi Music IP Issuer II L.P., Series 2022-1, was a bond offering by Chord Music Partners in February, backed by a music catalog valued at $1.13 billion. What the bond lacked in curb appeal it made up for in sheer dollar volume after raising $732.5 million for Chord Music Partners, a venture of KKR Credit Advisors and Dundee Partners. The music publishing catalog behind Hi-Fi Music offering — about 62,000 titles in all — was purchased from Kobalt three months earlier. The According to a report by ratings agency KBRA, the Hi-Fi offering is backed by over 65,000 compositions and master recordings and related assets and includes artists and songwriters such as The Weeknd, Maroon 5, Childish Gambino, Dua Lipa, Mumford & Sons and Stevie Nicks.
Concord acquires Genesis, Phil Collins and Mike + The Mechanics rights ($335 million to $375 million)
Phil Collins’ and Genesis’s The Last Domino tour, which concluded at London’s O2 Arena in March, was a reminder of how beloved the 71-year-old Collins remains 47 years after he took over vocal duties when original Genesis singer Peter Gabriel departed in 1975. In that warm afterglow, Concord acquired the recording catalogs and music publishing rights of Collins, as well as Tony Banks and Mike Rutherford for the years they were in Genesis and Mike + The Mechanics, for something in the range of $335 million to $375 million. (Former Genesis members Peter Gabriel and Steve Hackett did not participate in the deal.) Collins’ solo material, focused on a string of four multi-platinum albums from 1981 to 1989, has 403 million streams in the U.S. this year (through Dec. 8), according to Luminate. In addition, Collins’ catalog has nearly 311,000 airplay spins this year. The acquisition includes Collins’ signature solo hit “In The Air Tonight,” from the 1981 album Face Value, that counts for more than a quarter of his year-to-date on-demand streams, and “That’s All,” a No.6 hit on the Hot 100 from the 1983 album Genesis. “Everyone at Concord feels the weight of the cultural significance of this remarkable collection of works,” Concord president Bob Valentine said when the deal was announced.
Sting sells entire publishing catalog to Universal Music Group ($360 million)
Universal Music Group isn’t the most active buyer of music catalogs, but it makes a splash when it decides to pull the trigger. In 2020, it purchased Bob Dylan’s publishing catalog for an estimated $400 million. In February, UMG acquired Sting’s entire publishing catalog, including his compositions with The Police (Sting was the sole songwriter of the group’s most popular songs, such as “Roxanne,” “Every Breath You Take,” “Message in a Bottle,” “Every Little Thing She Does is Magic”) as well as his solo material (“Fields of Gold,” “Englishman in New York,” “Shape of My Heart,” “If You Love Somebody Set Them Free”). Because UMG already has the master recordings to both the Police and Sting’s solo releases, buying the publishing catalog brings both rights under one roof. That should facilitate licensing and enhance UMG’s ability to generate income from the catalog. Billboard believes Sting’s representatives were shopping the catalog with a $360 million price tag, making the deal the largest for a single artist in 2022. Across both the Police and Sting’s solo releases, the catalog generated 469 million on-demand streams in the U.S. in 2022 (through Dec. 8), according to Luminate.
HarbourView Equity Partners acquires SoundHouse ($325 million)
HarborView Equity Partners burst onto the music business scene in 2021, led by founder and CEO Sherrese Clark Soares, an alum of Morgan Stanley and Providence Equity Partners-backed Tempo Music, and $1 billion backing by Apollo Global Management. Among its initial deals were the publishing catalog of Latin star Luis Fonsi that includes a share of the global hit “Despascito,” the master recording income of country star Brad Paisley, the publishing catalog of country group Lady A and the publishing catalog of Dre & Vidal, the songwriting and production duo who has worked with Alicia Keys, Justin Bieber and Mary J. Blige. HarborView’s biggest-single acquisition is an unknown name with considerable star-power: SoundHouse, the owner of about 20 master recording catalogs and the assets of indie contemporary Christian label InPop. That gave HarborView the rights to some master recordings by the likes of Tech N9ne, Trey Songz, George Jones, Whiskey Myers and Tenth Avenue North. Billboard estimates the deal was worth about $325 million. SoundHouse’s 2021 income was said to be about $24 million.
Sony Music acquired Som Livre ($255 million)
Brazil’s largest domestic record label hit the market as its parent company, Grupo Globo, went through organization restructuring. Announced in 2021, Sony Music’s acquisition Som Livre was finalized in Feb. 2022 after Brazilian regulators said there would be “low market concentration and low barriers to entry” from the merger, despite Sony already having the top record label market share in Brazil and Som Livre being third behind Universal Music Brasil. Som Livre is home to more than 80 artists, including sertanejo act Jorge & Mateus, forró star Wesley Safadão and rising stars like Israel & Rodolffo. Domestic music accounts for 70% of total music consumption in Brazil, the world’s 11th largest recorded music market in 2021, according to the IFPI.
Sony Music acquired Bob Dylan’s recorded music catalog ($200 million)
Thirteen months after Universal Music Group acquired Bob Dylan’s songwriting catalog, Sony Music picked up the bard’s recorded music catalog. Sony has not disclosed the terms of the transaction, but Billboard estimates the catalog generates roughly $16 million per year globally and is worth $200 million or more. The catalog covers all of Dylan’s recordings — 39 studio albums and 16 compilations in the Bootleg series — as well as unreleased material that could be released on future collections. (Separately, Primary Wave acquired Dylan’s share of the master and neighboring rights royalties from the Traveling Wilburys supergroup.) It makes sense that Dylan’s recordings ended up with Sony. The artist spent almost his entire career at Columbia Records, save two albums, Planet Waves and Before the Flood, both released by David Geffen’s Asylum Records in 1974 but distributed by Sony for decades. Dylan’s catalog amassed 313.5 million on-demand streams in 2022 (through Dec. 8), according to Luminate, and provides Sony with ample opportunities for licensing for film, television and advertisements (Airbnb used his track “Shelter From The Storm” from 1975’s Blood on the Tracks in a television ad this year). He used his return to Columbia in 1974 to gain ownership of his recordings, according to Dylan: A Biography by Bob Spitz.
Universal Music Group acquires Neil Diamond Catalog ($145 million)
In February, Universal Music Group announced a deal to acquire Neil Diamond’s song and master recording catalogs, reuniting Diamond’s non-UMG work with music released through UMG’s MCA Records during the artist’s successful 1968 to 1972 streak. Diamond’s catalog includes “Sweet Caroline,” “Cracklin Rosie” and “Forever iIn Blue Jeans.” His songwriting catalog includes compositions for other artists that reached No. 1 on the Billboard Hot 100 chart: “I’m a Believer” by The Monkees (1966); “You Don’t Bring Me Flowers” by Barbra Streisand (1978, co-written with Alan and Marilyn Bergman); and “Red, Red Wine” by UB40 (1988). Additionally, the recording of “Girl, You’ll Be a Woman Soon” by Urge Overkill has an indelible place in pop culture for its use in Quentin Tarantino’s 1994 movie Pulp Fiction. The trove of material included 110 unreleased tracks, an unreleased album and archival video. The deal also includes the rights to release any future music by Diamond should he return to the studio. Billboard estimates the deal was worth about $145 million.
Deezer’s reverse merger with SPAC I2PO ($143 million)
Deezer was one of two music companies to go public in 2022 through a reverse merger with a special purpose acquisition company (SPAC) in April before the SPAC craze fizzled in the second half of the year. (The other was Anghami, an Abu Dhabi-based streaming service. A third, wholesale distribution giant Alliance Entertainment, plans to complete a reverse merger with Adara Acquisition Corp.) The reverse merger with French company I2PO, which traded on the Euronext Paris exchange, provided Deezer with 135 million euros and valued Deezer at 1.08 billion euros ($1.17 billion at the time). The money came through a PIPE (private investment in public equity) subscribed by most of Deezer’s existing shareholders, including Access Industries, Universal Music Group, Warner Music Group, French telecom company Orange, Kingdom Holdings, Eurazeo and Xavier Niel. After investors poured money into blank check companies in 2020 and 2021 in pursuit of companies to take public, SPAC deals are increasingly rare these days. Among the many SPACs to end their search and return funds to shareholders are Music Acquisition Corp, which raised $230 million in Feb. 2021, and Liberty Media’s $575 million Liberty Media Acquisition Corporation.
Spotify acquired audiobook distributor Findaway ($122 million)
Findaway was neither Spotify’s priciest acquisition — it paid more for podcast companies The Ringer and Gimlet and tech platforms Anchor and Megaphone — nor was it the splashiest deal the music streaming giant has made in its roughly 15-year history. But buying the Ohio-based audiobook distributor was a pivotal moment in the company’s years-long transition from a music platform to a broader audio platform. With its share price down 68.1% year to date and investors anxious for profits, Spotify is betting that being a single destination for all things audio is a better strategy than focusing solely on music. The more ways Spotify can keep people listening, the idea goes, the longer consumers will engage with the platform , which in turn will funnels more people from the free version to the subscription service. Plus, audiobook margins are about double what Spotify gets for licensing music. Audiobooks also fit neatly with Spotify’s ongoing battle with Apple over the latter’s 30% share of in-app purchases and subscription revenue. Spotify CEO Daniel Ek’s PR push in recent months has been aided — and overshadowed — by new Twitter CEO Elon Musk’s public takedown of Apple over the same in-app fees.