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They love artists, they’ve got money to burn, and they’re the music industry’s new obsession: Say hello to superfans.
In January alone, Warner Music Group CEO Robert Kyncl called for “stok[ing] the blue flames of superfans” and additional “direct artist-superfan products and experiences”; Universal Music Group CEO Lucian Grainge highlighted the value of “superfan experiences and products”; and Spotify hinted at future “superfan clubs” in a blog post.
The following month, leaders at Interscope and Live Nation shouted out superfans. That was all before Joon Choi, president of the Korean fan platform Weverse, one-upped everyone by telling Music Business Worldwide that “the potential for growth in the superfan business and economy is limitless.” Stoke those blue flames right, and they’ll never stop burning.
All this runaway enthusiasm about superfans “goes back to that Goldman Sachs article,” says Mike Biggane, a former UMG executive and founder of Big Effect, which is developing technology designed to help smaller artist teams. Last summer, the financial institution posited that superfans — Luminate defines this group as listeners who “engage with artists and their content in five-plus different ways” — could inject more than $4 billion into the music industry by 2030.
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Goldman’s report also noted that the music business struggles “to fully monetize its content.” Nearly everyone listens to music, but the industry’s value pales next to that of gaming, for example. Games “have been more agile in terms of innovating and adopting ways to generate new revenue streams,” says Ben Sumner, managing director at Feel for Music, which helps games and brands with music supervision.
But for labels and streaming services, collecting new revenue from superfans may be easier said than done. “People are trying to find a simple way to mine fandom,” says Mike Pelczynski, one of the architects of SoundCloud’s “fan-powered royalties,” a payout system that aligns streaming revenue more closely with fandom. “It’s good for investors to hear, but it’s not simple. Every platform is different.”
Not only that: “So much of the conversation is about how to extract more out of the superfan, which I think is a big mistake,” says Bernie Cahill, founding partner of Activist Artists Management. “If you take care of them, you will get far more value out of that relationship than you will by selling them another piece of vinyl or a T-shirt.”
Pelczynski believes that “superfans want to be closer to, and most importantly seen by, their favorite artist.” They also clearly gain from their connections with like-minded enthusiasts — working together to orchestrate fundraising campaigns to support the acts they love, for example. Luminate found that superfans are 43% more likely than the average listener to say they “like to participate in the community” that springs up around an act.
These communities are defined by artist-to-fan and fan-to-fan relationships. It’s not immediately clear where labels can squeeze in.
And it’s notable that, historically, labels actually excel at reaching passive fans. A record label is unmatched when it comes to taking a song that’s connecting with audiences in one space and making it so ubiquitous that it becomes inescapable, the kind of thing that casual listeners run into at the gym and the supermarket. “We can reach Fall Out Boy‘s superfans pretty easily,” says Jonathan Daniel, co-founder of Crush Management (FOB, Miley Cyrus, Lorde and others). “When they have a song that raises its hand above the superfans, different opportunities come for them, and that’s where you really need the label — they’re great at taking it really wide.”
What’s more, in an age of artist empowerment, it’s hard to imagine many acts ceding control of their superfan communities to record companies. “Smart artists really curate a direct connection themselves,” Cahill says — they know their diehard followers keep them afloat. (It’s jarring to hear executives say things like “fandom is the future,” as if it wasn’t also the past.)
These days, due to the fact that artists can record, distribute and market themselves all on the cheap, they usually amass a dedicated following before they even sign to a label. This tends to give them a lot of sway in contract negotiations, and as a result, 360 deals — where labels take a share of the money that artists make from touring and merchandise sales, for example — are out of favor with young managers and lawyers, limiting record companies’ ability to cash in on superfans’ passion.
Nonetheless, to the extent that labels can encourage superfans to stream more or buy additional vinyl variants, they stand to gain financially. All the major labels also own merch companies, so if they can stoke demand for t-shirts that are subsequently manufactured by their own outlets, that’s another win. And UMG recently invested in Weverse and NTWRK’s acquisition of Complex, allowing it to benefit indirectly from superfandom.
Warner has another plan altogether: In February, Kyncl said that he’s “assembled a team of incredible technology talent” to construct “an app where artists can connect directly with their superfans.” While he hasn’t shared any additional details on what this will look like, users would presumably only have access to Warner artists on a Warner superfan platform. However, most listeners probably also want to connect with some acts signed elsewhere, to the extent they even know what labels their favorite artists are signed to.
The other hurdle for new superfan apps, or streaming platforms trying to add new superfan features, is all the existing options: The majority of artists already try to interact with their most passionate fans on TikTok, Instagram, Discord, Reddit and more. As a result, “artists’ time is very scarce,” says Roneil Rumburg, co-founder and CEO at Audius, a blockchain-based streaming service which enabled direct payments from fans to artists last year.
If more streamers try rolling out superfan features — SoundCloud, for example, allowed acts to message their top fans last year — then artists’ time will be crunched even further, as each platform will presumably require a different approach to engagement. In fact, Kyncl used exactly this reasoning to justify Warner’s venture into platform building. Artists “don’t want to optimize just for one platform over another,” he said.
“The few companies that are trying to build their own ecosystems, I applaud it,” Pelczynski says. However, “I think it’s going to be very challenging to make something that people will be willing to spend their time on and add to their daily usual behaviors.”
Like labels, the most prominent streaming services have spent a lot of time in the past decade figuring out how to serve music up to passive fans. (Spotify once had a messaging system, but it was discontinued in 2017 due to “very low engagement.”) They have had success using various recommendation methods — editorial playlists, algorithmic playlists — to ensure that people keep listening.
But a new generation of listeners appears less interested in throwing an editorial playlist on in the background. Younger, more engaged fans like to slow down their favorite artist’s track, mash it up, or duet with it, leading to the proliferation of homemade re-works across social media platforms.
“For the first time ever, an artist can put a song out and it might be a fan-created flavor of it that connects,” says Gaurav Sharma, founder of Hook, a platform that helps rightsholders monetize user-generated remixes. “Community is being built around music on social media, and fan remixing is a way to be unique in that expression.” It may be hard for major streaming services to cater to this type of fandom, though, due to rights issues: Labels probably aren’t going to condone unauthorized remixes on prominent music streamers. (This is the problem Hook is trying to solve.)
There has also been speculation around the industry about streaming services charging superfans extra for early access to music, a tactic that calls back to the exclusive album windows of a decade ago. That said, “fans expect a LOT of value to justify a monthly fee, especially with subscription fatigue,” according to a recent (subsequently deleted) tweet from Emily White, a former Spotify and Billboard employee whose “team was exploring artist fan clubs.”
Still, despite all the potential obstacles, “We’re seeing a lot of momentum on the institutional music side to figure this out and do it quickly,” Rumburg says, before adding a note of caution: “When so many hopes and dreams get injected into one word or concept, there’s no way it ever lives up to the hype.”
Warner Music Group announced over the weekend that it has called off plans to submit a binding offer to acquire French music company Believe. The label did not elaborate on its decision, only that it was made “after careful consideration.” Believe followed up in a statement, saying it will “review the situation with all interested […]
Believe‘s board of directors on Monday (Mar. 25) asked Warner Music Group (WMG) to submit a formal bid for the French music company after stating that French financial regulators found an offer by a group that includes Believe CEO Denis Ladegaillerie violated certain securities rules. WMG said earlier this month that it approached Believe in […]
These days the music industry sometimes seems like a media business version of “Trading Places” in which every label wants to be a distributor and every distributor wants to become a label.
On March 7, Warner Music Group disclosed its interest in buying the French digital music distributor Believe, but all the label groups are focusing more on the distribution game – think Sony Music’s 2021 acquisition of AWAL and Universal Music Group’s October consolidation of Virgin Music and Ingrooves. At the same time, distributors are offering more of the services that only labels used to provide, including radio promotion and different kinds of marketing.
From the perspective of an independent creator, these two once-separate sectors have moved close enough that they’re competing – the majors are offering more flexible contracts that allow artists to keep their copyrights, while distributors are providing advances and an array of services to successful acts. For anyone who was in the industry before streaming became the standard, this seems like the music business’ Reese’s moment: You got your distribution in my label! You got your label in my distribution! To outsiders and young creators though, the distinction might not even make that much sense in the first place. Behind all the complicated corporate org charts, isn’t Sony just investing in, marketing and distributing Bad Bunny’s music (through The Orchard), just as it invests in, markets and distributes Beyoncé’s (on Columbia)?
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Sort of. Companies spend less, and make less, on the music they distribute, while acts signed to labels represent bigger bets both in terms of investment and potential upside. Distribution is steadier, while the label business involves more risk and some very profitable successes that more than make up for them. That’s not new. What is new, though, is how what was once a binary choice has become more of a question of finding the right point on a spectrum of risk and reward that has a traditional label deal at one end, distribution on the other and plenty of options in between.
It’s easy to understand why distributors are offering services that were once solely the domain of labels – pure online distribution has always been a low-cost commodity business, and label services offers are one way to get better margins. But what about the opposite? Why are labels getting into a lower-profit business that essentially endangers the best part of their existing business? Especially as label deals get less standard, companies make higher margins on acts that are early in their careers, before they score the success that gets them the leverage to negotiate a better deal.
Understanding why the major label groups are investing so much in a less profitable sector than the one they’re in requires seeing the issue like a media executive in the Internet Age, which is to say through the lens of disruption. This is the idea that companies which pioneer a good-enough product or service at a much lower cost will eventually challenge the market leaders – think of Netflix and cable television, for example. Although the theory isn’t as simple or as applicable as technology executives say it may well apply here: The market share of recorded music from traditional labels is slowly but steadily shrinking, in favor of distributors. The good news for the major labels is that much of that shift involves distributors they own, including The Orchard, owned by Sony, which raised its U.S. market share from 1.5% in 2021, to 7.1% in 2022, to 8.7% in 2023, according to Luminate. Much of that business comes from Bad Bunny, of course, but the company already has another bona fide Latin music superstar in Peso Pluma.
The labels basically just want to disrupt their own businesses before other companies can. If you think this kind of change is inevitable, it’s worth running toward it. (The music business has a reputation for being fearful of technology because it took so long to embrace the internet, but the business school idea of disruption doesn’t apply to pirated music; Napster wasn’t offering another product – it was offering the same product illegally.)
The second reason companies are buying distributors is, as MUSIC founder and CEO Matt Pincus recently told Billboard, “it solves a real stack problem for them.” Pincus was talking specifically about Warner, which like all label groups focuses on trying to break and market stars. A “stack” – programmer-speak for underlying technology – would let the company serve beginning creators and more emerging ones, as well as stars and a few artists that it wants to develop into stars. Warner already does this with ADA, which distributes independent labels, but ADA has tended to focus on a moderate number of mid-size indies, rather than a larger number of smaller ones.
But the most important reason labels are investing more on distribution could be the sector’s potential to serve as a kind of talent farm system. In the movies, label executives discover artists in bars or office auditions, but that hasn’t been the dominant way of doing business for a generation. These days, even beginning creators are distributing their music online, starting their careers on their own rather than trying to be discovered. Which means that by the time a major label gets interested in them, they may already have a deal. Since it’s easier to sign an artist who’s already involved with another division of the company, it makes sense to cast the biggest net possible. This is a defensive move, too: Now that Sony and Universal have big distribution businesses that can potentially serve as talent pipelines, Warner arguably needs one, too.
For that matter, the same applies to Believe. Most indie creators want to start their careers with basic distribution deals – but few of them want to stop there. Believe could be much more attractive to creators if it could offer them a place to grow to as well as services to grow into.
Believe benefitted from geographical expansion and strong streaming growth to post revenue of 880.3 million euros ($952.8 million at the average exchange rate) in 2023, up 15.7% from the prior year, the company announced Wednesday (Mar. 13). Organic growth was 14.4%, matching the guidance the company provided in October of organic growth exceeding 14%. After adjusting for foreign currency headwinds, Believe’s adjusted organic growth rate was 19.5% in 2023 and 21.8% in the fourth quarter.
The current growth rate should extend into the current year. Believe expects to achieve organic revenue growth in excess of 20% in 2024, adjusted to 18% to account for expected foreign currency headwinds. That high growth rate stems from a healthy paid streaming market and the belief that the ad-supported streaming market will rebound in the second half of the year. Believe also expects to make market share gains, especially in countries where it is not yet a top three company for local artists.
In 2023, Believe was helped by price increases at music streaming services in 2023 — Amazon Music in January, Spotify in July and Deezer in November. The company had market share gains in all key countries and with all key digital service providers, Xaiver Dumont, chief financial and operating officer, said during Wednesday’s earnings call.
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Adjusted earnings before interest, taxes, depreciation and amortization (EDITDA) of 50.3 million euros ($54.4 million) was up 45%. Adjusted EBITDA margin rose to 5.7%, surpassing guidance of at least 5.5%. Free cash flow was -3.1 million euros (-$3.4 million), although free cash flow turned positive in the second half of the year.
The earnings release arrived as Believe is the subject of a bid to be taken private by a consortium led by CEO Denis Ladegaillerie and investment firms EQT X and TCV. Warner Music Group (WMG) revealed last week that it’s interested in pursuing Believe and willing to beat the consortium’s offer. Believe’s executives did not address questions about the take-private bid during Wednesday’s earnings call, however.
The publicly traded French music company’s business model is built around helping to develop artists and using digital marketing and distribution to impact local charts. That approach is increasingly relevant when any artist can go viral on social media. Case in point: Believe landed a hit in 2023 when a 2022 single, “Si No Estás’” by Iñigo Quintero, become a TikTok hit in Spain before topping charts in France, Germany, Norway, Sweden, Austria and Belgium. “These success at the top are being achieved in a wider variety of genres of music” including hip-hop, pop and metal, Ladegaillerie said during the earnings call.
Believe also landed 42 albums in the top 200 in its home country and 48 singles in the Top 100 in its second-largest market, Germany. In the United Kingdom, consumption was up 394%. In China, Believe expanded to 80 staffers in five offices that serve 300 record labels. In India, where Believe acquired White Hill Music’s catalog in December, the company had 66 songs on local charts.
Revenue in France, where Believe is in the top three recorded music companies for local artists, rose 14.9% to 147.8 million euros ($160 million). Revenue in Germany dropped 2.4% to 110.9 million euros ($120 million), while revenue in Europe, excluding France and Germany, rose 25.9% to 264.6 million euros ($286.2 million). The Americas accounted for 128.1 million euros ($138.7 million), up 17.4% on strength in Brazil and Mexico. Asia-Pacific and Africa contributed 228.9 million euros ($247.8 million), up 14.9%, with China and Japan being particularly strong. India and Southeast Asia grew at slower paces due to those regions being affected by weakness in the ad-supported streaming market.
Revenue for the company’s premium solutions division rose 15.8% to 825.1 million euros ($893.1 million), while the division’s adjusted EBITDA improved 16.8% to 118.3 million euros ($128 million). Premium solutions mainly consists of the sale, promotion, marketing and delivery of digital content for artists and labels. It also includes some physical sales, synchronization services, neighboring rights and music publishing.
In the automated solutions division, revenue increased 14.6% to 55.2 million euros ($59.7 million), and adjusted EBITDA rose 53% to 10.1 million euros ($10.9 million). The slower growth rate was expected, said Dumont, because of lower ad-supported monetization and a new TuneCore pricing structure launched in 2022 that led to lower average revenue per client and was “not yet compensated by the ramp-up in new clients.”
Ladegaillerie has formed a consortium with two of its shareholders, investment firms EQT X and TCV, to take the company private at 15 euros ($16.43) per share. That offer ran into competition last week when WMG revealed its interest in Believe and said it might be willing to pay at least 17 euros ($18.62) per share. The consortium has attempted to speed the process and waive the board’s condition that an independent expert provide a report to Believe’s ad-hoc committee on the offer’s fairness from a financial viewpoint. The parties are now waiting for French financial regulators to say if the consortium can unilaterally waive the independent expert’s report and whether WMG’s preliminary proposal prevents the waiver of the board’s condition.
In a New Year letter to staff in January, Warner Music Group CEO Robert Kyncl said the company needed to offer better services to the “middle class of artists,” an area being feverishly pursued by his major-label competitors, as well as a handful of independent distribution companies.
This week, WMG revealed it is interested in acquiring French company Believe, which owns a large label services business, digital distributor TuneCore, publishing administration service Sentric and a stable of record labels including Naïve, Nuclear Blast and Groove Attack. WMG said it is willing to pay “at least” 17 euros ($18.60) per share, a premium to the 15 euros ($16.41) per share offered by a consortium led by Believe CEO Denis Ladegaillerie and investment funds EQT and TCV. WMG’s bid values Believe at roughly 1.65 billion euros ($1.8 billion).
WMG’s interest in Believe doesn’t come as a surprise. The middle class of artists Kyncl referenced wants alternatives to traditional recording and publishing deals — and WMG needs the tools to give those artists what they want.
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While WMG can likely bring greater value to Believe’s assets as well, a Believe deal “solves a real stack problem for [WMG],” says Matt Pincus, founder and CEO of MUSIC, a venture with investment bank Liontree. A full “stack” — a tech term that refers to all the technologies and skills required for a project — would allow WMG to serve a more complete range of artists. Presently, WMG’s product offering is missing a distributor for self-published artists, says Pincus, that provides a level of artist services between a do-it-yourself distribution deal and a record label contract. That would augment WMG’s ADA, which distributes indie labels, and create a funnel to bring rising artists into WMG’s system.
Kyncl need only look at how his competitors are serving middle-class artists. Following the rise of iTunes, some independent distributors were eventually acquired by other major labels that wanted to distribute music on a greater scale. Sony Music has The Orchard, a digital distributor acquired in 2015, and AWAL, an artist-development company acquired from Kobalt in 2022. Universal Music Group acquired digital distributor Ingrooves in 2019 and folded it into its artist- and label-services division, Virgin Music Group in 2022. TuneCore, founded in 2006 to allow artists to access a new era of digital stores and services, was acquired by Believe in 2015.
The majors’ emphasis on label services is an acknowledgement that today’s marketplace is a mix of traditional artist deals, do-it-yourself independent artists and everything in-between — distribution deals, joint ventures, licensing deals, profit-sharing arrangements and releases from independent artists backed by a major’s label services provider. Budding superstars often want independence but need the majors’ global infrastructure and expertise. “What really makes a difference in this world is to do what [CEO] Brad [Navin] and the Orchard did with the Bad Bunny record [Un Verano Sin Ti],” says Pincus. “They really helped break that record worldwide.”
Believe would also provide WMG a publishing solution for those same independent artists. “When you consider that Believe also acquired Sentric publishing, this brings together master and publishing for many of these indie artists,” says Vickie Nauman of advisory firm CrossBorderWorks. “That also opens up opportunities for new synch licensing models that otherwise fragmented rights do not allow.”
Geography is another aspect of Believe’s business that could be attractive to WMG. Although the majority of Believe’s revenue comes from Europe, it has employees in more than 50 countries and has a presence in fast-growing markets such as Indian — where it invested in two record labels, Venus and Think Music — and Indonesia. Approximately 27% of Believe’s total revenue in the first nine months of 2023 came from Asia-Pacific and Africa, a 17.4% increase from the prior-year period.
Developing markets have great potential for a couple reasons, Kyncl explained Wednesday at the Morgan Stanley Technology, Media and Telecom 2024 conference. In the Middle East, for example, markets that have young populations, an underdeveloped subscription market and lack collection societies “will see quite a lot of value appreciation.” Developing markets are increasingly becoming music exporters, and Kyncl believes that provides WMG with an arbitrage opportunity. “Let’s say if you have Indonesian content that’s traveling to America,” he said. “It’s a smart place to put money because it’s [going] from a low ARPU country to high ARPU streams [in a developed market].”
An acquisition is hardly a done deal, though. To date, WMG has only expressed an interest in Believe. WMG is playing catch-up, too: The consortium attempting to take Believe private has lined up blocks representing nearly 72% of share capital — enough to “prevent a competing bidder from acquiring control,” according to Believe’s ad-hoc committee — although WMG’s higher bid could change that. An acquisition would require regulatory approval, too, and there is likely to be pushback from music companies and trade associations such as the UK-based Association of Independent Music against further industry consolidation.
But, setting aside the potential roadblocks, WMG would be a good fit for Believe. Sony Music and UMG are both larger than WMG, already have Believe-like companies and would thus face more regulatory scrutiny. The 1.65 billion-euros ($1.8 billion) price tag is in what astronomers call the “Goldilocks zone” for habitable planets’ distance to their suns: It’s too expensive for many independent companies but affordable enough for WMG.
In January 1999, Universal Music Group laid off hundreds of employees during a wave of consolidation with PolyGram. “The biggest staff cuts were at Geffen and A&M, two Los Angeles-based labels that have been folded into Interscope Records … and at Island Records, which has been merged with Mercury,” Billboard reported at the time, predicting that the cuts would affect label rosters, with “baby bands … expected to suffer the most casualties in the shake-ups.” In an interview with The New York Times, one artist manager described the impact of the merger on his band as if “a car [got] shut off in midgear.”
Roughly 25 years later, UMG is expected to cut hundreds of jobs to create “efficiencies in other areas of the business so we can remain nimble and responsive to the dynamic market,” according to a January statement from the company. Warner Music Group has announced layoffs of more than 800 people in two rounds over the last 12 months; on Monday, WMG label Atlantic Records announced additional cuts of about two dozen employees, primarily in the radio and video departments. (Sony Music is also expected to trim staff, according to sources; a rep for Sony declined to comment.)
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These cuts herald a leaner approach to the major-label business, and some talent and their representatives are worried about how this impacts their future.
Artists “are going to be upset,” says Mike Biggane, who was head of curation for Spotify, then worked at UMG as global executive vp of music strategy and tactics until last year. “The teams that artists signed up for and have been going to battle with will all be gone. That is going to impact the managers and the remaining label staff, who are already spread too thin.”
“If you’re not a multi-platinum artist, good luck,” says Allen Kovac, a longtime manager who had several acts in the UMG system during the 1999 consolidation.
A rep for UMG declined to comment. Speaking to financial analysts on Wednesday, UMG CEO Lucian Grainge said that “when it comes to supporting their rosters, [labels] will have access to our highest performing internal teams and resources to bring the new artists to even higher levels of success.”
And some executives were more sanguine about the impact of the upcoming staff cuts. Chris Anokute manages Taela, who was signed by Michelle Jubelirer before she recently left Capitol Music Group. “I’m very grateful to Michelle for signing her,” Anokute says. “Now there’s new management, and I’m excited to work with the new team to keep on developing her. I’m not worried for one second.”
Major labels have been consolidating internally for more than two decades. In 2004, Atlantic Records and Elektra Records merged as part of a Warner Music Group shake-up that included 1,000 layoffs. “Warner began cutting money-losing and under-performing artists from its merged Atlantic-Elektra label’s roster, and is preparing to let go as many as half of the label’s 170 acts,” The Washington Post reported.
Later the same year, BMG and Sony Music merged. “In each market tough decisions will have to be made about the senior executive lineup, overall staffing and artist rosters,” Billboard wrote.
While layoffs were typically followed by roster trimming in the past, history can serve only as a limited guide when assessing the latest round of cuts. “The environment today seems quite different to that of the late 1970s and early 1980s — the first time the industry experienced serious contraction — or the early 2000s,” says Adam White, a former Billboard editor-in-chief who later served as UMG vp of international communications. “During both of those time periods, industry sales slumped significantly and staff cutbacks were widespread. Isn’t that in contrast to the current environment, with revenue admittedly not growing at previous, double-digit rates — but still growing?”
Nonetheless, with leaner staffs, “you either need to spread your remaining staff more thinly or serve a smaller roster,” says Peter Sinclair, who worked at UMG for five years before founding beatBread, an artist-funding platform, in 2020.
Some major-label executives contend the staffing changes their companies are making will let them offer more resources to artists, not less. WMG CEO Robert Kyncl, for example, told staff that the cost savings from recent cuts would free up money that can be put towards “increasing funding behind artists and songwriters,” while Atlantic Music Group chairman/CEO Julie Greenwald said the company would be “bringing on new and additional skill sets in social media [and] content creation” to “help artists tell their stories.” In a memo to staff on Wednesday (Feb. 28), Grainge wrote that “our long-term growth strategy, including this organizational redesign, represents a new paradigm for artist support.”
However, many acts believe major-label staffs are already stretched perilously thin, and that layoffs will only exacerbate artists’ feelings of being underserved. “Way too many of my clients complain about what the labels aren’t doing for them,” says Todd Rubenstein, an entertainment attorney. “Even if there is a whole plan they come in with, it’s still not getting serviced.”
“I’m not anti-label; I think every single artist we have is on a major label,” adds Crush Management founder Jonathan Daniel. But “the reason I set up my company the way I did” — Crush has its own marketing and radio promotion staff — “is because labels always have too many artists for how many people work there.”
Labels are already more willing to trim their rosters than they were in the past, and A&R executives say this may have intensified independent of the recent layoff announcements, after a period of excessive signing driven by pressure to maintain market share and an abundance of viral hits on social media. “Would [layoffs] speed up the process of trimming the roster?” asks entertainment attorney Michael Sukin. “Sure, but labels don’t need an excuse.”
That said, when employees are laid off or leave to take another job, some artists will lose their internal advocates. Executives believe it’s likely that there are acts in the UMG system who won’t have their options picked up after the layoffs because no one inside the buildings will fight to keep them.
“Any artist that’s more singles-based is more of a risk on your balance sheet,” says one A&R executive-turned-manager. “They want artists that have sticky fan bases that will be there and support them when they don’t have a hit.”
This all sounds nerve wracking for artists, who are, after all, the lifeblood of record companies. In reality, though, an artist who was a label’s 40th most important act may not have been getting a ton of help anyway — as a UMG executive told The New York Times around the time of the Polygram merger, “for the [artists] we let go, they’ve probably already been dragged over the coals by a record label that can’t do the best job for them.” Nick Stern, another longtime artist manager, is fond of saying “there’s nothing better than being a top five priority at a major label, and nothing worse than being 20 to 50.”
And while artists who got dropped by a major label in 1999 didn’t have many ways to get their music heard around the world, that’s not the case in today’s digital industry. Song creation, distribution and marketing are now all far more affordable. “As the majors’ gatekeeping role shrinks, artists have more options, more leverage, more control and more creative freedom,” Sinclair says. “If you’re an artist and you get dropped by the majors, I’d recommend you take it for what it is: an opportunity.”
When Biggane left UMG last year, he started Big Effect, a company developing technology designed for smaller artist teams to release products and manage catalog effectively. He predicts an “exodus of talent on both sides — people working in the industry trying to provide services and artists looking for services.”
“They’re all going to come out in the independent market,” Biggane says, “and try to find each other.”
Additional reporting by Kristin Robinson
The buzzword from music company CEOs so far in 2024? Superfans.
Already this year, the heads of Warner Music Group, Universal Music Group, Spotify and Live Nation have announced an intention to lean into better serving superfans of artists, with new initiatives and already one investment deal on the table. And today (Feb. 27), at the Web Summit conference in Doha, Qatar, WMG CEO Robert Kyncl announced that Warner would be building a new platform aimed at better connecting its artists with their biggest fans.
“Something we’re working on at Warner are these direct to superfan experiences,” Kyncl said, speaking on stage alongside newly-signed Warner artist Nora Fatehi. “I’ve assembled a team of incredible technology talent who are working on an app where artists can connect directly with their superfans, who are generally the people that consume the most and spend the most… and we’re focused on making sure that artists get data on these superfans.”
Kyncl hinted at the new platform, which is still early in development, in his New Year’s note to staff in January, where he said, “We need to develop our direct artist-superfan products and experiences,” adding that some things were already in the works. “Both artists and superfans want deeper relationships, and it’s an area that’s relatively untapped and under-monetized,” he said.
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The details of Warner’s app are still vague, though a source said more information should be coming in the next few weeks, and Kyncl mentioned something rolling out later this year. But already there are apps and platforms, such as WeVerse and Stationhead, that have done significant work in capturing the superfan community, connecting artists — including some of Warner’s biggest artists — directly with their biggest fans.
Other companies have hinted at the beginnings of their own strategies. Last week, Universal announced an investment in Complex and NTWRK, following the latter’s acquisition of the former from Buzzfeed, aimed at connecting artists with an online shopping option for fans; that came a month after UMG chairman/CEO Lucian Grainge’s own New Year’s memo to staff, in which he said, “The next focus of our strategy will be to grow the pie for all artists, by strengthening the artist-fan relationship through superfan experiences and products,” pointing to discussions with platform partners and in-house partnerships. In January, Spotify CEO Daniel Ek hinted at the creation of “superfan clubs” when mentioning new products. And last week, Live Nation execs talked about revamping the superfan experience for concerts, in a bet that it will drive more revenue.
While Kyncl didn’t specify what Warner has in the works, or how it will connect artists to fans, he underlined the need for the app to be available across platforms. “Artists want to work with every single platform… they don’t want to optimize just for one platform over another,” he said. “So a solution like this for superfans has to be a cross-platform solution. We, as a record label, are in a perfect position to do that because we work with all of the platforms. Historically, we haven’t had the technology talent to do this, but now we do… it’s an exciting piece of work that will launch later this year.”
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Warner Music Group announced that they were going to commence layoffs within the next few weeks amid a pivot away from digital media.
On Wednesday (February 7), Warner Music CEO Robert Kyncl sent out a memo to the staff informing them that the company was going to lay off 10% of its staff, or 600 people in the weeks ahead. The announcement comes a day before the release of the company’s earnings report on Thursday (February 8). The digital media division will be the hardest hit, with Uproxx, HipHopDX, IMGN, and Interval Presents as Warner Music seeks to “double down on core business.”
“These are dynamic platforms, but they operate outside our core responsibilities to our roster,” Kyncl said in the memo. It is believed that HipHopDX and Uproxx will be sold off to potential buyers, while the podcast brand Interval Presents and social media publisher IMGN will be wound down. “This is a pivotal moment in the evolution of this great company,” Kyncl continued. “We’ve already begun to inform many of the impacted employees, and the vast majority will be notified by the end of September 2024.” He wrote that in knowing that the news is “unsettling,” that “Warner Music would be “moving as thoughtfully and respectfully as possible, so you have the critical information you need, and we’ll support you through this transition.”
The memo also contained numbers from the earnings report showing that Warner Music feels they’re making the decisions from a stronger position. “So, as part of that plan, we’ll be realizing approximately $200 million in annualized cost savings by the end of September 2025. The majority of these savings will be reinvested, putting more money behind the music,” Knycl wrote, pointing to an 11% revenue growth for the final quarter of 2023. The other preliminary data released showed a rise in net income of $193 million versus $124 million in the quarter at that time last year.
The news of the layoffs does come at an uncertain time for the music and media industry which has suffered some similar stunning cuts. Earlier this month, Condé Nast announced that Pitchfork would be folded into GQ Magazine, and Sports Illustrated announced recently that they had laid off most of its staff. The Sports Illustrated Union and the NewsGuild of New York are currently suing the sports periodical’s parent company, The Arena Group.
Warner Music Group (WMG) revenue reached a record $1.75 billion from October through December, the company announced Wednesday (Feb. 7). That’s up 17.5% from the prior-year quarter (up 15.9% at constant currency), as both the recorded music and publishing divisions posted their best-ever quarterly revenues.
With Spotify and other streaming services having raised prices in 2023, WMG’s digital revenue increased 16% and streaming revenue grew 16.6%. The company also posted gains in physical sales, licensing revenue and music publishing performance royalties, though the company saw declines in recorded music artist services and expanded rights revenue. Net income rose 55.6% to $193 million and operating income improved 33.6% to $354 million.
“These results reflect the impact of our chart-topping artists, hit-making songwriters, iconic catalog, and laser focus on execution by all our teams,” CEO Robert Kyncl said in a statement. “As we deliver our plan to accelerate our growth, we are becoming more efficient, increasing operating leverage, and freeing up more funds to invest in music and tech, which in turn will drive further sustainable growth.”
Moments after WMG released the quarter’s results — an earnings call will take place Thursday morning (Feb. 8) — news broke that the company will eliminate its staff by 10%, primarily through the sale of owned and operated media companies such as Uproxx and HipHopDX. The company will also eliminate its in-house ad sales function and plans to wind down its podcasting brand, The Interval, as well as social media publisher IMGN. The reductions will free up $200 million in cost savings that can be reinvested elsewhere, Kyncl wrote in a memo to staff obtained by Billboard.
WMG shares were up 6.4% to $36.19 in after-hours trading following the late afternoon release of earnings results and staff reductions.
Excluding three extraordinary items, WMG’s revenue growth was 12.1% (10.6% at constant currency). A previously disclosed licensing agreement extension for an artist’s catalog added $68 million of revenue and a digital licensing agreement renewal added $27 million to the quarter. The termination of a distribution agreement with BMG resulted in $13 million less revenue than the prior-year quarter.
Recorded music revenue improved 16.6% to $1.45 billion on the success of Zach Bryan, Bruno Mars, the Barbie soundtrack and Jack Harlow, whose track “Lovin on Me” first reached No. 1 on the Billboard Hot 100 singles chart in December and recently spent its fourth non-consecutive week atop the chart dated Feb. 3. The segment’s digital revenue grew 13.1% to $908 million while physical revenue climbed 15.8% to $154 million. Licensing revenue jumped 84.5% to $179 million.
Music publishing revenue grew 21.6% (19.7% at constant currency) to $304 million thanks to a 32.2% improvement in streaming revenue and a 31.5% gain in digital revenue. Mechanical royalties — which are tied to downloads and physical purchases — rose 7.1% to $15 million. Publishing’s synch revenue was flat at $39 million as lower commercial licensing activity in the United States was offset by the timing of some legal settlements.
WMG’s margins improved nearly across the board in the quarter. Company-wide, the company’s operating margin rose 2.5 percentage points to 20.3% and its adjusted operating income before depreciation and amortization (OIBDA) margin rose 3.3 percentage points to 25.8% (and was flat excluding BMG’s termination, the license extension and digital license renewal). Recorded music’s adjusted OIBDA margin rose 4.4 percentage points to 28.5% and its operating margin improved 3.1 percentage points to 25.9%. The publishing division’s operating margin rose 1.1 percentage points to 20.7% while its adjusted OIBDA margin declined 0.5 percentage points to 28.3%, due primarily to the impact of exchange rates.
