#011: The Indie Music Revolution is in Danger of Destruction
“Labels sign fans, not bands” - Blasko
In the music industry over the last few years, there has been endless talk about the power shift from the major record companies to the independent labels and distributors. This excitement is for good reason. Independent artists who are completely unsigned to any label are projected to earn over $2 billion in 2020, a 32% increase over 2019 (3). This music is released by a wide array of companies, some that simply distribute the music (Tunecore, Distrokid etc) and others that incorporate some form of label services (AWAL, Empire, ONErpm etc). The revenue of artists signed to independent record labels has also seen a massive increase over the last 3-5 years. In an industry that historically allowed the Big Three Record Companies (Warner, Sony and Universal) to control 85%+ for decades, by 2019 that market share had dropped to 67.5% (4).
At the same time as the growth in market share for independent artists, the overall music industry is expanding at a growth rate that hasn’t been seen for over two decades. Goldman Sachs “anticipates global industry revenue to soar to around $140 billion by 2030, driven primarily by music streaming” — and this projection came after the recent dip due to the COVID-19 pandemic (5). For context, the current music industry is projected to generate a little over $60 billion in 2020. Between the growth of the independent music sector and the projections for a Golden Age in earnings for the music industry ahead, how can the indie music revolution possibly be in danger?
The answer is simple… the Big Three Record Companies are going to start buying independent labels and distributors like never before to regain and increase their control on the global recorded music market share. The 67.5% that is controlled by the major labels sits within three companies, while the 32.5% of revenue controlled by the independents is spread across many hundreds of companies. At the same time, Warner Music Group just went public on the New York Stock Exchange this year (2) and it seems very clear that Universal Music Group will soon follow (with some rumors that Sony might break off Sony Music to do the same) (1). One of the tried and true methods for expanding the value of a publicly traded company who has cash — and the major labels will have plenty of it between the IPOs and the growth in music streaming revenues — is through acquisitions of smaller companies in the same industry. This is what I expect will happen in the years ahead. The major labels already created distribution companies to release the music of independent artists/labels (Warner has ADA, Universal has Ingrooves and Sony has The Orchard), but these outlets typically only collect 10-15% of the gross earnings. These takeovers and buyouts will allow for the majors to control much larger percentages.
Some independent labels and distributors will scoff at these attempts and remain true to their core values that led them to start their companies. But many others — or I will argue most — will have difficulty passing on the massive checks that are put in front of them by the Big Three. If this is true, my hope would be that the major labels allow for the independent operations to remain the same and will simply collect a check for their share on the revenue splits. But needless to say, the current independent music revolution — in the truest sense of the term — is in danger of destruction in the years ahead.
(1) Aswad, J. (2020, February 13). Universal Music Group Planning IPO Within Next Three Years. Retrieved July 26, 2020, from https://variety.com/2020/music/news/universal-music-group-ipo-public-offering-vivendi-1203503339/
(2) Aswad, J. (2020, June 03). Warner Music Valued at Nearly $15 Billion After IPO. Retrieved July 26, 2020, from https://variety.com/2020/music/news/warner-music-group-ipo-initial-public-offering-pricing-1234623943/
(3) Ingham, T. (2020, July 01). A New Report Says Independent Artists Could Generate More Than $2 Billion in 2020. Retrieved July 26, 2020, from https://www.rollingstone.com/pro/features/raine-group-independent-artists-2-billion-in-2020-967138/
(4) Mulligan, M. (2020, March 05). Record label market shares 2019. Retrieved July 26, 2020, from https://musicindustryblog.wordpress.com/tag/record-label-market-shares-2019/
(5) Wang, A. (2020, May 20). Goldman Sachs Expects Global Music Revenue to Drop 25% This Year. Retrieved July 26, 2020, from https://www.rollingstone.com/pro/news/goldman-sachs-music-revenue-report-2020-1000479/
_____________________________________________________________________________________________
JAY’S SONGS OF THE WEEK
Logic - “Perfect”
Forrest. - “Never Had”
J. Cole - “Lion King On Ice”
Silver Sphere - “crowd”
24kGoldn - “Mood” (featuring Iann Dior)
