Have Record Labels Turned Into Private Equity Firms?

According to Luminate, in 2024, 49.6% of all U.S. On-Demand Audio Streams came from songs released since 2020:

There's clearly still value in newer music. It accounts for half of the streams in the U.S. But who captures that value today is why the business has shifted for the major labels.

Today, the distribution of artists and rights holders in that 2020s bucket is the broadest it has ever been for any decade. The majors own a relatively smaller share of that music for two related reasons.

First, artists have more options than ever to release their music and build their careers. In 2024, non-major label music and artist direct accounted for 35% of global recorded music revenue.

Second, the superstar artists who drive a large share of the recent streams are more likely to own their music but license it to the record labels. The labels don't own that music.

The most streamed song of the 2020s on Spotify is Harry Styles "As It Was," (3.99 billion streams) which is under exclusive license to Columbia Records. The label still gets a cut, but Styles owns that song long-term.

And when something does take off, it's harder than ever to know which hits will endure. Since 1995, 85 songs have debuted at number 1 on the Billboard Hot 100. Half of those songs came out in the past five years! These instant top-charting debuts make it tough to distinguish between lasting hits like Taylor Swift's 2022 song "Anti-Hero," which stayed at the number 1 spot for eight weeks, and fleeting moments like Swift’s 2021 song "willow," which dropped from the top spot to #38 in its second week.

For newer music, the ownership fragmentation and volume of popular music has shifted power away from the majors and to the streaming platforms. Spotify collects rent on every stream. Spotify's share of revenue from all streams may be smaller than the respective rights holders, but it wins in volume.

That dynamic likely won't shift anytime soon, which has led the labels to shift to the reliable popular music that they can own: the proven music rights for legendary artists.

The majors are using the outside capital from private equity firms like Bain Capital, and using their resources to invest and manage the rights that are sought after.

Music from the 1980s may only account for 2.2% of all U.S. streams in 2024, but those streams are concentrated. There were fewer releases from fewer artists and the streams from those artists are easier to project given the maturity of the music.

Acquiring these assets is much closer to the business that the labels are used to. The labels will make concentrated bets in a sector with high-entry barriers that offers them full ownership opportunities of music. That's why the business thrived in the CD era. The push for music rights investments is an attempt to get back to that.

From a pure business perspective, it makes sense. The business of major record labels is at a crossroads. Bold moves needed to be made to stay strong. But from a cultural perspective, this reduction of focus on frontline music is a downside.

We've already seen a decline in artist development and A&R resources. The expectation is for newer artists to be proven before they partner with a label. The impact can inevitably lead to more uniformity among the artists who are "proven" enough to be signed. It may become more about pattern-matching and less about the unique, untraditional breakout star that's unlike anything we've seen before.

That's the Moneyball-ification of music. It's here and not going anywhere anytime soon.

Chartmetric Stat of the Week - The Songs That Endure

The Billboard Hot 100 debuts list is fascinating. The first four songs to achieve this are from 1995: Michael Jackson’s “You Are Not Alone,” Mariah Carey’s “Fantasy,” Whitney Houston’s “Exhale,” and Mariah Carey & Boyz II Men “One Sweet Day.”  All songs with staying power. The last four songs to do this are Kendrick Lamar “Squabble Up,” Travis Scott “4x4, ”Morgan Wallen and Tate McRae “What I Want, ”Sabrina Carpenter “Manchild.” It’s still early, but I bet most investors would rather own the first four songs than the last four songs (even if we revisit the last four songs in 30 years to be consistent).

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