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Every Music Company is Morphing Into the Same Thing

Record labels are becoming streaming services; talent management companies are becoming record labels; distributors are having a go at becoming managers. And artists are stuck in the middle.

Rolling Stone

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Marshmello in concert at the Navy Pier, Chicago, 2018. Photo from Rmv / Shutterstock.

The music industry has longed thrived on its diversity. A rich assortment of hip-hop, rock, country, R&B, classical, indie, electronic, and a million and one subgenres in between.

“A rich assortment,” however, comprehensively fails to describe today’s most influential music companies — which are increasingly eating into one another’s core businesses in a bid to grow their prosperity. At the center of this trend are those music-streaming services “doing a Netflix,” i.e., investing money into independent artists to create their own content outside the traditional record-company structure.

In 2018, Spotify started striking direct licensing deals with individual artists, paying them label-style advance checks, and deliberately helping them avoid the need to sign with a record company. There was an economic imperative here: Spotify currently pays around 52 percent of net revenue to record labels, who then pass only a portion of this money to their signed acts. With its direct artist licensing deals, Spotify saves a smidgen of margin by paying artists a smaller portion of this net revenue, 50 percent — but musicians get to keep the lot.

This is a daring strategy, as it risks irritating Spotify’s biggest suppliers, the major record companies, but it’s not unique: Some of Spotify’s key competitors have been signing direct deals with artists for a while now — just in the peripheral vision of the mainstream U.S. music industry. Saavn (now JioSaavn) has long run an “Artist Originals” platform for emerging talent in India, recently helping to bring together Marshmello with Bollywood composer Pritam, for example. The Middle East’s biggest audio streaming service, Anghami — with more than 1 million paying subscribers — has done the same, also recently hooking up Marshmello with a famous local star in Amr Diab. (The Weeknd’s manager, Tony Sal, is a partner in Anghami’s venture.)

China’s leading streaming company, Tencent Music Entertainment, which recently floated on the New York Stock Exchange, also heavily invests in direct-signed local talent. So much so that in TME’s just-published Q4 financial results, the company partly blamed a 62.5 percent rise in “content costs” on its in-house music production investments.

Furthermore, Spotify and SoundCloud are also challenging another traditional stronghold of the record companies: distribution. Both services now offer artists the ability to upload their music direct, but also to disseminate it to an array of competitors (including Apple Music, TIDAL, etc.)

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In reaction to this encroachment into their core territory, record companies are not standing still.

Sony Music recently launched a high-res music-streaming service in Japan. Although efforts were made to assuage accusations of this being a “Spotify rival,” the fact remains: Japan’s music lovers have been slow to embrace music streaming, but it will inevitably become the market’s dominant format eventually; Sony Music clearly wants its service to be a real player in the region by the time that happens.

More generally, the major record companies — Universal Music Group, Sony Music Entertainment and Warner Music Group — are pinning their futures on the broadness of their menu of artist services, which now go way beyond record-making, distribution and marketing. You might be able to sign direct to Spotify, these companies tell artists, but can Spotify handle your global audio/visual rights, your global merchandising rights, your music publishing collections and your brand management — with expertise in each and every genre and their associated cultures?

Demonstrating this breadth of offering, Universal Music Group recently signed holistic worldwide agreements with megastars like the Rolling Stones and Elton John, covering the full gamut of each act’s income streams. The business model: We can invest huge sums in your career, because even if we lose money on your publishing, we’ll make it back on your merch; even if we lose money on your records, we’ll make it up on your branded theme parks/restaurants/headphones.

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A second potential threat to these labels comes from another direction: the managers of artists, who are increasingly behaving like record companies themselves. In the past few months alone, leading management companies like Three Six Zero (Calvin Harris, Tiësto), TaP Management (Lana Del Rey, Dua Lipa), Palm Tree (Kygo) and more have all launched their own record-label imprints.

Essentially, this is an indication of the changing economics underpinning the global music business. For decades, managers had to be happy with a 10 to 20 percent commission on an artist’s earnings. If the artist walked away, the money stopped. Record companies, meanwhile, took anything from 50 to 80 percent-plus of a track/album’s royalties for life of copyright, regardless of whether they fell out with the artist or not. (Thus why the likes of Sony are still making money from R. Kelly records despite “dropping” him from his deal.)

Today, though, thanks to streaming services, social media and online distribution tools, artists can build the first portion of their career without any record label involvement. If they have a management firm that can then further invest to accelerate their career/profile, said management firm can, potentially, become a de facto label — enjoying more financial upside from the act’s copyrights, for a longer period.

For now, the major record companies have embraced, rather than fought, this trend, typically forging joint venture deals with the managers involved (Three Six Zero and Palm Tree, for example, both have JV label deals with Sony Music).

It’s a trend that cuts both ways. For Latin superstar J Balvin, Universal Music Group acts as both record company and co-manager (alongside the widely respected Rebeca Léon). And in 2017, UMG acquired Japan’s Office Augusta, which handles everything from artist management to live show promotion for leading artists in the region.

You can perhaps see why U.K.-born distributor and services firm Ditto Music, which works with the likes of Chance the Rapper, recently launched its very own internal management company — yet another example of traditional music-industry partitions being demolished by an upstart hungry to grow its business.

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So, to recap: Streaming services are becoming distributors and, in some cases, record labels. Record labels are becoming streaming services and, in some cases, talent management companies. Talent management companies are becoming record labels, while distributors are having a go at becoming managers. (All of these companies, it appears, also want to become video and/or podcast production houses, but that’s a topic for another article.)

Some things, though, never change. In the middle of this bunfight sit the world’s most exciting artists, alongside their spend-hungry fan bases. They’re being wooed from all corners, by companies that might initially look different on paper — but who all know that, as streaming continues to explode around the world, the stakes are potentially higher than ever.

Tim Ingham is the founder and publisher of Music Business Worldwide, which has serviced the global industry with news, analysis and jobs since 2015. He writes a weekly column for “Rolling Stone.”

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This post originally appeared on Rolling Stone and was published March 22, 2019. This article is republished here with permission.

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