I want to pick up from where Billboard’s Cherie Hu left off in her excellent piece some time ago about the new investor craze for royalty assets, in which she brilliantly analyses the landscape and the different, at times, contradictory logics that have motivated the various players to start their fund and attract investors. Cherie Hu concluded her article with a question (which I am summarising here): what is the value of music, and what are the real motivations one can have when one decides to invest in such assets?
How do you choose the song(s) to invest in, in the the first place?
Depending on the type of copyrights you have acquired and are investing in, you have different people involved. When you break down how many people are involved in crafting a song, things can quickly get complicated. And yes, that’s even if we’re only talking about the score (music and lyrics), regardless of the performer or type of recording. A song is rarely written by a single person, actually, a Top 10 song is written on average by 9.1 people (even if it is often only performed by one).
But let’s consider it to be the trading operator’s job to negotiate and acquire these assets, so we can focus on the process of just choosing which asset to buy.
Let’s imagine we’re investing and naturally want to identify an asset (song) that will churn a good return on investment, i.e. a steady flow of revenue via multiple sources. We’re probably going to look at songs that have been worldwide hits, that still get a lot of airplay across the planet instead of just a single country (even if that country is America because artists don’t get paid when their songs are played on the radio there anyway) and a song that will also translate into a sustained and high volume of streams, while also being such a classic in the collective conscience that it will be synched to TV or film on a regular basis over the next 10 or 20 years.
To start with, there aren’t that many songs in the world that tick all these boxes. Then, even if these were all available with the trading operators, there’s a high chance that asset wouldn’t be particularly affordable. Considering trading implies people bidding for the asset, its value can fluctuate wildly and will depend on who else is involved, which you cannot predict. So, we’re talking about a lot of money upfront and a much higher risk than what we initially expected and wanted. It’s a potentially exhausting process.
It doesn’t stop there. Once you’ve acquired your asset, you have to track its performance. How do you assess that without serious music industry background and savvy as to how to place your catalogue, as well as quite a lot of time on your hands to stay uptodate on how your asset’s value is trending in the music landscape? Does it suddenly sound “old”? Are there too many similar-sounding and cheaper hits available that will depreciate the value or your asset? Is it the kind of song that music supervisors still want to use? etc…
Here is a paradox: new players are investing in immaterial assets with a long-term logic, yet trading is a business in which an asset’s value can fluctuate wildly on a very short-term basis (i.e. daily or hourly).
Is this really a good investment when you have no idea how the business works but are considering this because you initially just wanted to support an artist? (Now why does this remind me of what happened to bitcoin late adopters?…)
Are songwriters at least going to earn more?
Here’s the catch, though: songwriters cannot count on streaming revenues to make a living, albeit a decent one. Not only have the antiquated standard rates not been updated to the point successful songwriters are crying for help and saying they are now “on life support”, they’ve also been totally excluded from the streaming equity windfall.
So why is there such a discrepancy between the potentially mirific gains the new trading operators are boasting about and the impossible situation songwriters are in today?
It’s probably due to another paradox: the potential of this new business is being assessed through the prism of recorded music, specifically the major labels’ revenue. Is it any wonder when all three majors have been Spotify shareholders, sold at least part of their shares when the company went public and have all three agreed to pay their artists a share of that money? Is it any further surprise when the majors make $19 million per day in streaming?
The metrics put forward in terms of potential revenue are overly skewed towards streaming and sync, which are essentially identified to recorded music and performing artists (even if sync is beneficial to both performing artists and songwriters, not many people outside the industry know that or, for that matter, how the value of a sync is determined, all the more so if we are looking at someone with a bit of money who just likes a song and wants to become one of its shareholders).
Particularly as far as streaming is concerned, if we consider that up to 40% of internet traffic is fake, are we sure we are assessing potential value with the correct metrics or are we potentially setting ourselves up for disaster here ?
The value of these catalogues is obvious, yet we tend to forget where this value finds its source: songwriters. They need to be empowered.
Artists aren’t being empowered by this trend
But here’s the thing: the artist’s consent isn’t even necessary.
This is probably what bothers me the most about this business: these funds can operate without their consent. Let’s take Eminem’s case: not only did he not consent to having parts of his royalties traded publicly, but it appears he did not have a choice in the matter and worse, his consent was not even needed.
This really reminds me of the fears EMI employees had when it was acquired by Terra Firma back in 2007. A great many employees, myself included, were dreading the end game would be to strip the company down and sell it for parts. And that’s how it feels from the moment you consider any song, to which are attached various types of royalties (recording vs. publishing, and even within publishing you have performing rights vs. mechanicals), can be traded individually and partially, by different trading companies.
Beyond the question of what value we ascribe to music is also that question of what value we ascribe to the skill of creating it, and in fine, to those who do so?
Here is yet another paradox: investing on a song-by-song basis is presented as a positive opportunity for anyone to be part of the artist’s path to success, yet it is more akin to cherry-picking the easiest parts of the itinerary without any consideration for the people creating the asset (songwriters), ignoring the rest of their work.
There is also a tangible risk of instating a hierarchical therefore asymmetrical relationship, with the investors being at the top, expecting a return on their investment. However, such results can’t ever be guaranteed for the simple reason there are so many variables on the path to success (here again, it remains to be established that investing on a song-by-song basis is wiser and less risky than other, more traditional, businesses).
What does the future hold ?
Where does this leave us from a purely business perspective? And what does this mean for the future of music creation?
We saw this happen with the songs dominating the airplay charts and it’s happening again with streaming playlists: if you want to own the rights to the songs that make it into that coveted spot, it shapes the way songs are written and they all end up sounding the same …when they’re not written by the same two people.
Because the question boils down to who will actually take the financial risk of investing in songwriters and in the long run today ?
Maybe it’s necessary to recall that music publishers have doing just that for the last hundred years or so, by offering songwriters an advance on royalties for all the songs they will write over a fixed period of time, and at times a (non recoupable) flat fee for songwriters to improve their material songwriting conditions. When you consider the length of the copyrights entrusted to publishers, we are definitely talking about a long-term investment. (I won’t enter into a debate here about whether 90 years is too long or just right, that’s another story)
There’s more: a publisher’s role isn’t just about betting on a songwriter or song and collecting their due via their collaborations with collecting societies. They also promote the songs and their songwriters via various inhouse departments, from A&R (matching Artists to Repertoire or in other words convincing a singer to sing that particular song or work with a specific songwriter on their next album) to sync to name a few.
Of course, no system is ever perfect, but it’s nevertheless important to remember that these new funds sound novel but do not reinvent the wheel, while a fairer system than already exists, in which the songwriters’ professional partners share the risk with them, as it is their job to secure placements and generate revenue that they will then share with the songwriters.
Here’s yet another paradox with the new royalty trading bodies : how do you reconcile short-term profits (a song generating a lot of revenue from the moment it is released, hoping the timespan between it being written and released is also as short as possible) with the long-term approach of not only writing a song but developing a songwriter’s skills until they’ve mastered that craft to perfection ?
The issue here is how to avoid the great divide between commercially viable and non-commercially viable music. Creativity should not be valued on the condition it can be monetised. Music should not be deemed worthy of being promoted only if it has the lowest skip rates on the song’s first 30 seconds. We should be careful not to dwarf the importance of the rich and diverse music coming from less popular musical genres or parts of the world that do not already dominate the charts. Or ‘good’ music will only mean the music that creates value for shareholders, not necessarily its creators or music fans across the world.
Yet without songwriters there is no music industry. Even if AI generated music has started to appear, the basis of songwriting is about encapsulating emotions and conveying a message from humans to other humans. That’s what the music business should be about: helping that happen. Remember the story of The Hen and The Golden Eggs? Rather than eventually kill songwriters because we take them for granted and always want more golden assets, why don’t we reverse course and save us all in the process?
from midemblog blog.midem.com/2019/03/lets-all-become-song-share-holders-or-shall-we/