Taylor Swift and the triumph of capital

On Sunday the news broke that celebrity manager Scooter Braun was acquiring Big Machine Label Group for north of $300m, as per Music Business World and the Wall Street Journal.

Big Machine Label, until last year, was the home of Taylor Swift. To date, she has released six records with the Nashville-based business. Other artists on its roster include Sheryl Crow and Cheap Trick.

However, Swift was not happy with the news that her masters — the original recordings of her work — were now in the hands of Braun. From her Tumblr, posted Sunday afternoon:

This is my worst-case scenario. This is what happens when you sign a deal at fifteen to someone for whom the term ‘loyalty’ is clearly just a contractual concept. And when that man says ‘Music has value’, he means its value is beholden to men who had no part in creating it.

The deal, and Swift's reaction, speaks to a few of the trends in the music industry Alphaville has been following in the past year.

The first thing to comment on is the price tag. Big Machine Label, according to the WSJ, earned about $40m in ebitda in 2018. At a $300m valuation, that's a multiple of 7.5 times. It seems like a steal for the masters of one of modern music's most successful artists, considering that Universal Music Group has been suggested to be worth anywhere between 24 to 48 times ebitda by Wall Street's finest.

The second element is how, thanks to the smooth cash flows provided by streaming, mechanical music rights are becoming increasingly appealing financial assets. In the UK, for instance, an investment trust called Hipgnosis has raised £356m with the aim of offering “pure-play exposure to songs and associated musical intellectual property rights”. Its biggest earners last year included songs by Bruno Mars and Beyoncé, according to Investment Trust Insider.

With yields collapsing on fears of a slowing global economy, don't be surprised to see some non-specialist income-hungry funds looking to do deals in this space over the next year or two.

Swift's aggressive reaction, however, is also telling of the some of the pressures now facing the traditional artist/ label relationship. Setting aside the fact that she holds a special level of contempt for Braun, the value of the deal, as she suggested, in part depends on the fact her songs resided with the label, even after she left it:

Thankfully, I am now signed to a label that believes I should own anything I create. Thankfully, I left my past in Scott’s hands and not my future. And hopefully, young artists or kids with musical dreams will read this and learn about how to better protect themselves in a negotiation. You deserve to own the art you make.

The music industry has long dined out on its hold over intellectual property. Name a famous song from the past half century, and it is likely the master recording belongs to the original label in near-perpetuity. Part of this stems, as Swift suggests, from a power asymmetry between the artists and the label at a career's beginning. Unsigned artists are often desperate to catch a break, and so, perhaps under bad advice, will sign away their rights, indefinitely, in return for the security of immediate funding and label support.

However this model is beginning to come under pressure. On the demand side, artists are becoming far cannier about the sort of deals they are signing. Conversations Alphaville has had with several senior music professionals, including managers, labels and artists, over the past year reveal a growing awareness that the risk/ reward associated with traditional record deals is still far too skewed towards the labels. Now, we've been told, artist representatives are negotiating terms where ownership of the recordings return to them after a defined period — say 10 to 20 years — rather than remaining with the business in perpetuity.

On the supply side, there's competition from the so-called “label services” businesses, like AWAL, who provide many of the traditional services — such as distribution, promotion and financial support — on far less usurious terms. And crucially, they allow artists to retain the IP.

That is, if an artist even needs the support at the beginning of their career. For instance, Billie Eilish's meteoric rise to fame off the back of a SoundCloud upload hints at the waning power of traditional marketing channels versus the virality of social media.

As we remarked in November, Swift has become a sort of voice of the voiceless in the music industry: she's secured equity distributions for lesser artists, and has now warned those at the bottom against signing their lives away.

Swift's interventions mark the beginning of a genuine realignment between labour and capital in the music industry. We've been here before during the MP3 era, however, and the labels still came out on top. This time around, perhaps it won't be so easy.

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