We’re living in a very interesting time in the music business. Unlike when the industry was caught off-guard by the MP3 revolution, the industry powers that be are totally on top of the one that’s happening now – streaming music – and they’re being proactive about dealing with it. Interestingly enough, they’re way ahead of the curve this time, even before the majority of the public. Let’s look at how this is playing out.
The first step in trying to take control of the situation came when the major labels pushed Spotify for an equity stake as part of the licensing deal that let it enter the US market. The labels weren’t about to lose control again like they did with iTunes a decade earlier, so this was a mandatory condition for the deal. Now with Spotify’s biggest competitor Deezer about to enter the US, you wonder whether the labels are asking for the same agreement. My guess is that they won’t get it this time, since they’re not in the same position of strength that they were even a year ago, as more deep pocketed competitors are already in the marketplace where there was no way the labels could get equity (like with the recently introduced iTunes Radio) or new ones about to be introduced (like YouTube Music which had it’s deal in place before Spotify’s).
The problem for the record labels is that they’re no longer the pinnacle of power in the music business – managers are. Modern music management now includes many of the former duties of a record label, like marketing and promotion, as part of its core offering to an artist. And with artists now capable of ably recording their own masters without a huge financial outlay, the banking services of a label are no longer needed either.
That’s why some of the recent deals involving managers are interesting, because it can put their artists into a more leveraged position with the various music tech services. There are three very recent examples.
First is the integration of Azoff Management with Madison Square Garden Company to form Azoff Madison Square Garden Entertainment as I wrote about here a few weeks ago. Irving Azoff is already one of the most powerful people in the music business, and his muscles just got larger with the addition of the venues and deep pockets of MSG. Now you have more than just a management company, as there are more services to offer and for a label to compete with, which is the whole point.
Then there’s the recent announcement that U2’s manager Paul McGinnis’ Principle Management and Madonna’s manager Guy Oseary and his Maverick management company were being bought by LiveNation in a $30 million deal that rolled them into the company’s management arm – Artist Nation. Even though both have been doing business with LiveNation for years, the company just got more powerful with the direct representation of the additional top tier talent.
Perhaps even more intriguing is the $120 million investment fund to roll up a number of management companies by Scooter Braun and his SB Projects company, who already handles the likes of Justin Bieber, Ariana Grande, Psy, The Wanted, and Cody Simpson. The coalition is said to include Drake mangers, Oliver El-Khatib Adel and “Future The Prince” Nur at October’s Very Own; Troy Carter and his Atom Factory clients John Legend (and until last week, Lady Gaga); and Jason Owen, whose Sandbox Entertainment in Nashville manages the likes of Shania Twain, Little Big Town, and Kacey Musgraves.
So why do you think this consolidation is happening? Like with most things in business, it’s about money, and the way to do that right now is to gain more leverage with digital distributors. The precedent was recently set with Taylor Swift’s Big Machine record label signing a direct deal with Clear Channel to receive royalties for airplay, something that had never happened on terrestrial radio in the US before (although artists do get paid for online radio play). Since then, Warner Music Group and Clear Channel have done a similar agreement.
Now if you’re a manger of a major act, you’re probably thinking “Why should I let the label do that deal, as I’m only going to see pennies on the dollar?” And since many of the licensing deals with the various streaming services are coming up for renewal, you’re also thinking, “I can cut a better deal if I can do it directly with the streaming service.” It’s probably a long shot for a manager with big time celebrity artist to do this, but it’s much more likely to happen if there are a number if them banded together, hence the management rollups and mergers.
It’s about to become the Wild West in the upper echelons of the music business as we’ll soon be seeing an attempt at direct deals from these larger management entities. The whole idea is to get more revenue for the client, and the best way to do that is to take the label out of the picture. Whether that will actually happen is yet to be seen, but it will make for interesting observation by industry watchers. Let the wars begin.
