The hidden trends in Warner Music Group’s IPO filing, visualized
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View this email in your browser (|ARCHIVE|) http://hotpodnews.com/presents.... The fine print of innovation in the music business. This is issue #78, published on February 14, 2020. Happy Valentine's Day! And happy belated Parasite pwnage day (https://www.cnn.com/2020/02/10/entertainment/parasite-oscars/index.html) !
Before moving on to today's stories — including my debut piece for Pigeons & Planes — I wanted to share the exciting news that I'm a featured speaker at SXSW this year!
I'll be giving a solo talk on March 18 from 2PM–3PM CST titled "How Artists Can Act Like Tech Startups in 2020 (https://schedule.sxsw.com/2020/events/PP1137833) ." In part, it'll be an early preview of the research I've been doing for my book — which will unpack the parallels between independent music careers and tech entrepreneurship, as those two worlds become more intertwined commercially and ideologically.
Holler if you'll be in town as well — would love to meet some of you in person (if I haven't already) and check out some shows!
- Cherie The hidden trends in Warner Music Group's IPO filing, visualized
Last week, Warner Music Group (WMG), one of the world’s largest music corporations, announced its plans to go public.
This isn’t WMG’s first rodeo: The company first went public on the New York Stock Exchange in 2005, but was then taken private when Access Industries acquired them for $3.3 billion in 2011. Today, the music landscape looks much different, with high catalog valuations (https://www.billboard.com/amp/articles/business/8529952/music-finance-forum-publishing-valuations-frothy-market) and rising global streaming revenues (https://www.ifpi.org/news/IFPI-GLOBAL-MUSIC-REPORT-2019) boosting investors’ confidence in the future of the industry at large.
In the days since WMG’s latest announcement, the likes of Billboard (https://www.billboard.com/articles/business/8550416/warner-music-group-ipo-valuation-share-price-analysis?curator=MusicREDEF) , Variety (https://variety.com/2020/music/news/warner-music-group-ipo-wall-street-1203501100/) and the MIDiA Research blog (https://www.midiaresearch.com/blog/wmg-to-ipo-heres-what-you-need-to-know/) have published some good analyses around WMG’s estimated valuation (between $10 billion and $16 billion, Billboard estimates) and whether the company’s stock will end up being a good investment by Wall Street standards.
I want to take a slightly different approach and focus not on WMG’s future prospects as a public company, but rather on what the company’s https://www.sec.gov/Archives/edgar/data/1319161/000119312520026877/d805716ds1.htmfiling with the Securities and Exchange Commission (SEC) reveals about the economics of major labels today.
Given that major labels and publishers are notorious for their lack of transparency, WMG’s filing offers a rare level of clarity into their internal business operations, enabling readers to fill in the gaps on questions that previously suffered from too much speculation.
How much money is WMG not just earning, but also spending, and where? How much has WMG spent on advances to artists and songwriters, and on equity investments in tech companies? What are the differences in the economics of its recording versus publishing businesses? Which are the most lucrative digital services for its catalogs? And how successfully is it diversifying beyond just recording and publishing into other kinds of revenue streams, including but not limited to touring, merchandise and artist management?
All of these questions and more can be answered by digging through the SEC filing and doing some back-of-the-napkin math, which I spent much of the last few days doing. I’ve compiled my four most interesting takeaways in an analysis below, each of which features an original visualization that I cobbled together using good ol’ Google Sheets.
Hopefully this sheds new light on WMG’s shifting economics as a major label and publisher in the streaming era, in a way that hasn’t previously been discussed. Some of these findings could also serve as helpful comparison benchmarks for other major labels — especially for rival Universal Music Group (UMG), which, as of yesterday, is planning to go public (https://www.musicbusinessworldwide.com/forget-the-3bn-tencent-acquisition-universal-is-planning-to-ipo-before-2023/) by 2023. Click here to continue reading. (https://www.patreon.com/posts/34024513) The most active VC firms in music As a writer focusing on music and tech, I've always been fascinated by the intersection of music and venture capital (https://www.billboard.com/amp/articles/business/8287427/vc-finance-veterans-music-streaming-industry-growth) , particularly as more investment dollars (https://www.billboard.com/amp/articles/business/7874124/music-tech-accelerators-streaming-investors-venture-capitalist) are flowing into music/tech companies than ever before. While the growth philosophies and success metrics behind VC are far from foolproof solutions to the myriad issues plaguing the music business, I think having more capital to experiment with is a generally positive trend in which even the most corporate music companies are taking part.
My latest members-only database is a much-belated attempt to operationalize this interest in the form of a centralized, sortable list of key startups and VC firms in the music ecosystem.
The database consists of three tabs: * A list of the most active venture-capital firms in music — which I define in this case as firms who have invested in three or more music-centric startups over the past few years. * A second list of less active venture-capital firms in music — i.e. those that have invested in two or fewer music-centric startups. * A music startup funding timeline for 2020, which will be updated regularly over the course of this year whenever related news is announced.
The goal here is to shed light on who exactly is providing the money to help grow music as an investment category and as a market. Often, it's outside investors with a consumer focus, not inside investors with a B2B/industry focus, who are providing that capital, which I think has a significant impact on the kinds of startups that are funded. Click here to access (members only). (https://www.patreon.com/posts/33911630) "The Life of Pablo" reinvented the album as we know it. Why has no one followed suit?
Four years ago today, Kanye West's The Life of Pablo was released to the world, and quickly reinvented our understanding of the album as a format... or so we thought.
In my debut feature for Complex / Pigeons & Planes, I dive into why virtually no major artist has followed in West's footsteps and created an album that was truly dynamic and evolving, with content updated over time on streaming platforms.
A bit of background: Historically, artists and record labels treated the album as a static collection of tracks that were complete upon release. Albums would be delivered to consumers via physical formats like vinyl LPs, cassettes, and CDs, the contents of which were fundamentally unchangeable. Even if an artist or label did want to modify an album, it would be a marketing and logistical nightmare: They would have to issue entirely new physical copies to reflect the change, then make sure that new version got out to all the fans who wanted to hear it.
Streaming hypothetically throws this nightmare out the window. Artists no longer need to commit to manufacturing tens of thousands of physical records upfront and hope that they all sell. After all, in a streaming environment, songs and albums are fundamentally just a combination of 0s and 1s that algorithms analyze and spit out as sound, to fans who pay a monthly subscription for access. Not only is the concept of “inventory” irrelevant in this world of infinite shelf space, but the cost of experimentation and modification around artwork, track order, track content, and other features of digital releases also plunges dramatically as a result.
So, why has almost no one taken advantage of this new landscape since TLOP? In my mind, this isn’t an issue of technology; it’s an issue of culture. For many artists, albums are long form manifestos that take months, or even years, to craft in a way that accurately reflects their own creative vision. Under this approach, releasing an album is almost like birthing a child: The process is intensely personal and cannot be rushed, and there’s a collective sigh of relief, awe and/or wonder among the artist, the fans, and the wider public once the album is alive in the wild.
In contrast, for artists to treat albums the same way West treated TLOP, they have to be okay with albums existing as perpetual works-in-progress that are appealing because of their unfixed nature. They have to be okay with releasing album “updates” often — monthly, or even weekly — rather than waiting several months or years to feed new content to fans, even if they feel that the update isn’t “ready enough” yet. Click here to continue reading. (https://www.complex.com/pigeons-and-planes/2020/02/album-changes-kanye-west-prototyping) Good reads
"There's nothing more exciting than finding a new idea..." (Interview with Fred Davis, Music Business Worldwide) (https://www.musicbusinessworldwide.com/fred-davis-raine-group-theres-nothing-more-exciting-than-finding-a-new-idea/) This is an excellent interview with Fred Davis — partner at The Raine Group (https://raine.com/team-member/fred-davis-2/) , a financial investment and advisory firm that's been involved in several high-profile music/tech deals over the past few years, including funding for SoundCloud and Q&A, the sale of Harry Fox Agency to SESAC and Downtown Music Holdings' acquisitions of both AVL Digital Group and FUGA. I especially like this quote: "Raising capital for entrepreneurs is just like finding money for bands. It’s about finding talent and matching it with the right capital – same skillset."
From TV to Music Mogul: How Issa Rae Is Giving Artists A Leg Up (Billboard) (https://www.billboard.com/articles/business/8550816/issa-rae-productions-raedio-company-insecure-interview) One of the most powerful things modern artists and creators can do today is monetize their process. Issa Rae has done just that with her new multifaceted music company Raedio, which spans a joint-venture label with Atlantic Records as well as separate verticals for publishing, live events and music supervision. In my mind, what Rae has done is operationalize her own music-supervision and music-discovery process with Insecure and package it in a way that can stand alone as a brand and can be transferred to other TV and film projects. Her music-supervision vertical is already working on projects for Netflix, Hulu, HBO and Starz.
This Los Angeles Artist Is Redefining Music Merch One Handmade Sweatshirt at a Time (Vogue) (https://www.vogue.com/vogueworld/article/deaton-chris-anthony-boy-album-clothes-usb-hat-rugs) I think there's a lot of opportunity for innovation not just in the business of music merch, but also in the kinds of merch items that are offered to fans in the first place. This piece offers an interesting case study around Deaton Chris Anthony (https://www.vogue.com/vogueworld/article/deaton-chris-anthony-boy-album-clothes-usb-hat-rugs) , who not only released his debut album last year, but also literally sews together his own merch, which include "USB Hats" that literally clasp closed in the back with a USB drive that creative types can use to store their work. What's great about this approach is that there's a direct connection to Anthony's music production process as well. In his words: "I start all my music by chopping up old ideas from other people — I sample a lot of music — and I begin with that as a base, and I construct a collage of sound. I think that’s why it’s natural for me to chop up old clothes to make something new and fresh."
Drake will stream rap battles exclusively on Caffeine, a platform run by ex-Apple employees (CNN) (https://www.cnn.com/2020/02/11/tech/drake-caffeine-rap-battles-trnd/index.html) No. What I'm listening to
ICYMI: I'm doing Gary Suarez (https://twitter.com/noyokono) 's Music Writer Exercise (MWE) this month, in which every day I listen to one album I haven't heard before and then write a tweet about it.
Here are the albums I've gone through since the last newsletter: * Dominic Fike (https://open.spotify.com/artist/6USv9qhCn6zfxlBQIYJ9qs?si=1qjDp96LQhiRAtprqvPD9g) — Don't Forget About Me, Demos (https://open.spotify.com/album/05jbNkYoEQdjVDHEHtg1gY?si=noktGVj0Sai9Q6tvWs2Wbg) * Kikagaku Moyo (https://open.spotify.com/artist/0hrb5WRiNlj8vh3WnCgXFq?si=3Fn6TTqPS3CdLvy8FhWrgA) — Forest of Lost Children (https://open.spotify.com/album/6wIs5eVEdqwNtxiOSHcB9l?si=OqMh8hNyR0WRehQPR0djkA) * SASAMI (https://open.spotify.com/artist/4pdoRs7yHNXakMobf8M9Oz?si=MIt1RHLsT5yYXzRlLbY3iQ) — SASAMI (https://open.spotify.com/album/5dJhE07Jbhdg8wj3ysnT7H?si=a6YrjR62Q86PCnAUj8FphA) * SiR (https://open.spotify.com/artist/3QTDHixorJelOLxoxcjqGx?si=TrOXzBB1S82xGOMxCLPKfw) — Chasing Summer (https://open.spotify.com/album/5zUDvKAyEKkrhYLWJJWGPQ?si=mavmOer9Q5mmTMcU22CSXA) * JPEGMAFIA (https://open.spotify.com/artist/6yJ6QQ3Y5l0s0tn7b0arrO?si=kTZxPdFYQL2FKSRuoPQv3w) — All My Heroes Are Cornballs (https://open.spotify.com/album/5ilsl5R2lGACTnPZMKIp7o?si=0g6XErncRlygT0PwtyBLCA) * Rosalía (https://open.spotify.com/artist/7ltDVBr6mKbRvohxheJ9h1?si=LnXxAY_4SMaHzR9jtmzxhA) — El Mal Querer (https://open.spotify.com/album/355bjCHzRJztCzaG5Za4gq?si=rgRzjGFMRMuENJwdNWrHeQ) * Prateek Kuhad (https://open.spotify.com/artist/0tC995Rfn9k2l7nqgCZsV7?si=SYRsJOAfT-Www0ZsZ-1nzg) — In Tokens & Charms (https://open.spotify.com/album/1no8c4PYhEMGKXtGg79fMR?si=DIJsw2SDQvO7WlxNLFNIgw)
To read my tweets about them, click here (https://twitter.com/cheriehu42/status/1222926362660478978) . I'm also compiling all of these albums into a Spotify playlist, which you can stream and follow here (https://open.spotify.com/playlist/7gOMKn4lVafWyblkY0ub66?si=TxpilLuiQfyKWkTS6AST6A) . If you’d like to support even more thoughts and conversations on music and tech, I encourage you to become a paying member of the Water & Music ecosystem on Patreon (http://patreon.com/cheriehu?utm_campaign=Water%20%26%20Music&utm_medium=email&utm_source=Revue%20newsletter) .
For as little as $3/month or as much as $200+/month, you can access a wide range of perks including: * A closed, members-only Discord server, consisting of regular updates and analysis on the most important music and tech news * Exclusive essays and article previews * Updates on my book research * Monthly video hangouts with me
…and much more! Thanks so much for reading! ❤️
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