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Tying together Taylor Swift, Spotify artist uploads and Vivendi’s hunt for a UMG investor

Updated: Jul 4, 2019


As you’ll know by now, Taylor Swift is most definitely not happy about the planned sale of her former label Big Machine to music mega manager Scooter Braun.


Justifiably less noticed in the news was this week’s decision by Spotify to shut down its beta whereby artists could upload their music directly to the streaming service without having to go through a third party distributor or label.


And rumbling along all year and probably for some time still to come in the background is French media giant Vivendi’s search for an investor in its Universal Music Group unit, the biggest label in the world.


While all these news stories are completely independent of each other, they are all linked in how they illustrate an enduring reality of the music business that never goes away, despite the accelerating technological winds sweeping through it. And it’s this - the balance between commercial risk and commercial reward when it comes to music artists.


The unbreakable risk/reward/artist circle


Starting with Taylor Swift, the exact details of who said what to whom when, what new commercial relationship between Taylor and Big Machine was seriously viable for each party and so forth may never be known. But we don’t need to know any of that to understand that the forces driving each side of this story are nothing new.


The traditional model of a record label deal for new artists has for a long time been some variation of the label makes an offer in return for exclusive rights to that artist’s recordings, probably for life of copyright. The label will invest money and expertise in making that artist and their recordings as successful as possible, most likely paying a royalty on profitable sales. The exact details change over time, such as royalty rates, but that’s the basic form of your ‘standard’ record deal as it’s been for years.


The basis of this form of contract is copyright law itself - copyright is intellectual property, and so whoever pays for it, owns it, just like any other property. So the label pays for the recordings, and they get to own them.


Compare the different stories of two of the biggest bands of the 1960s - The Beatles and The Dave Clark Five. Both were released through EMI and saw enormous record sales. The Beatles signed a traditional deal with EMI so the label kept ownership of those recordings and still does (through its owner today Universal). Dave Clark however paid for his recordings himself and only licensed them to EMI.


As those licenses began to expire in the 1970s the rights returned to Dave and he kept them close, which is why you can’t buy most of their back catalogue on CD and never could. A lot finally made it to iTunes and only now has some Dave Clark Five music started to dribble onto streaming services. Whether or not Mr Clark has made the best decisions in terms of promoting his legacy is neither here nor there, he went into his music career right from the start owning all rights, which is why today he can do what he likes.


Unlike Taylor Swift and her recording rights. Along with many many other superstar artists. Sometimes if artists have long careers at the top with the same label they can negotiate a reversion of rights at some point if the label wants to keep them on board enough. But for artists that have a few blockbuster hits and then fade, they’re probably out of luck.


Most recordings aren’t worth anything as they aren’t successful, but for that tiny minority that are, they are worth a fortune. And if they came out of this traditional model, it’s the label that owns them outright.


For the artist who of course actually made the recordings, this unsurprisingly sticks in the throat. Big time. I made the music, it’s my name on them and me the fans are buying, but I don’t own it? Even when I’ve paid back the money I was advanced many times over? How is that right? Says the artist to themselves and very likely lots of other people and journalists.


The label’s retort is that nobody knew who the artist was before they came along. They had to spend real hard cash and the skills of their expert employees to give the artist the platform they needed to excel. This is their due reward.


And like all good arguments that run forever, they’re both right. The alternative is for artists to pay for the recordings themselves, as Dave Clark did. We’re seeing growth in this with the boom in label services deals where artists pay a fee to labels for the services they want - marketing, distribution, whatever, but don’t give up ownership. This isn’t new because the underlying copyright concept isn’t new. If you want to earn the maximum commercial reward from music, you have to take maximum commercial risk. If you don’t, you won’t.


The beta doesn’t go on


Which brings us to Spotify and their recently discontinued artist upload feature. As is well known Spotify has to pay the bulk of its revenue through to music rights holders (aka the ones who took the commercial risk and/or bought the rights off whoever did in in the first place).


So the idea of letting artists come to Spotify directly was understandably very appealing to them. They just have to facilitate the distribution of the music, which is easy as that’s what they do, and that’s about it. As and when the next Taylor Swift emerges, it’s just them and the artist together without anyone else to worry about.


Except a) they’ll still have a rights holder to deal with, it’ll just be the artist. And b) big superstar artists aren’t just one in a million, they are literally one in many many millions. So for Spotify while the idea of direct artist uploads is no doubt conceptually very attractive to them, in reality is it worth the hassle and the no-margin business of working with millions and millions of artists and tracks for the possibility that one of them might break through and then be just another rights holder they have to negotiate with? No.


Especially as superstars don’t just happen, even with amazing music. That’s just the start. It takes lots of work by lots of people from labels, management etc to get there. And if lightning does strike and an artist joins the stratosphere, well as Taylor Swift illustrates so well, they’re human beings with their own minds and views. Frequently very strong views and opinions. Especially when it comes to their music and their careers.


And if you don’t need to get involved in all that, why give yourself the bother? Just leave it to the people who have no choice, the record labels.


For record labels dealing with artists and taking on the commercial risk aren’t just issues to manage, they are their very raison d’etre. That’s what they’re for!


Which is why I’m not surprised that Vivendi’s search for a strategic investor in Universal is still ongoing after almost a year.


When big labels come up for sale these days there’s often a flurry of speculation about who might buy them, often featuring a roll call of tech companies and music services. But almost every time they go to another record company - EMI went to Universal, Parlophone went to Warner, BMG went to Sony, and even further back - Interscope went to Universal, Virgin went to EMI, Geffen went to Universal and so on.


Obviously not every record label is bought by another. And most relevant here Big Machine of course wasn’t. But Scooter Braun is very much a record industry insider who understands intimately the rules of the game.


And those rules are that a record label is in the two entwined worlds of the risk business and the artist business and the best people at managing and navigating that are those already doing it. If you’re Apple or Amazon say, yes music drives a lot of your business, but do you really need to get into the business of trying to spot new talent and then managing your relationship with them when they make it? Far easier to just leave that to the people who have no choice in the matter, the labels, and pay them for the music rights you need.


Whether or not Taylor Swift has been wronged or not, the tension between successful artists and those who invested in their career, who took the commercial risk at the start is baked into the system. Spotify dipped their toes into it and are thinking again. And while Vivendi will I’m sure find strategic investor or investors to partner with UMG given how commercially successful and dominant it is, navigating the risks, rewards and superstar artists of the music business is definitely a taste you need to acquire to fully appreciate.