I spent much of last week at Americanafest, which like all conferences means having the same conversation over and over with people from the music business. It’s more enjoyable than it sounds! Great week overall, a law client - Red Clay Strays - won the coveted Emerging Artist award, a passion project of yore that we signed to Rounder - Sierra Ferrell - won the two big awards, Best Album and Artist of the Year. I sat on a panel with some of the smartest people I know to talk about threats and opportunities in generative AI for music. Anyone who reads this Substack knows where I stand with that topic, and it warms my heart to know that people who care about art and artists agree there’s a fight ahead.
These functions always get me thinking about the state of the industry. It’s such a chaotic time of picking through the wreckage of the old industry in search of clues about the future. Most people who share my passion for the Artist Business agree that in many ways it’s a glorious time for artists. Those of us with the privilege to work with career artists are constantly reappraising the best ways to manage risk and maintain creative autonomy while navigating the thorny intersection of art and commerce. Artists make money all sorts of ways, with the primary focus remaining with the most lucrative revenue streams: touring and merchandising. The door to those opportunities is through releasing and marketing music, meaning songs and recordings are essential to an artist’s successful career. That’s the part of the business - music copyrights - that’s changed the most in the consumption model. I’m talking about intellectual property, rights in the “entertainment products” we “consume.”
Value in Music
There are many intellectual property laws that factor into an artist’s career. My focus for this post is copyright, specifically copyright in sound recordings. Copyright also protects songs, known legally as “musical works” and other creative assets and “expressions” and those have slightly different rules and business cultures in our industry, but it’s all related. If you’re a non-musician please keep track of this important fact: a song and a recording of the song are two different copyrights. The songwriter licenses the recording artist to record the song, in exchange for a royalty. The rate for that royalty is established by federal copyright law. Sorry for that boring tangent - my real focus is the value in the copyright associated with an artist’s sound recordings, their albums, singles, EPs, tracks, remixes, collabs, productions, etc.
Last I read, Spotify had over 100 million unique tracks on its platform. The VAST majority of those tracks have few or even no streams, and no market value as an asset. They don’t make money - especially now that Spotify doesn’t pay rightsholders without 1,000 streams. Some of the tracks, in contrast, have tens or hundreds of millions of streams and are potentially worth millions of dollars of market value as an asset. Determining the valuation for tracks that are in this asset class is simpler than ever, assuming you accept that we’ve reached a point of relative stability in the “consumption model,” i.e. on demand streaming. I’m not sure what the proportion of tracks with market value versus tracks without market value, but it’s safe to say the tracks with asset value make up less than 1% of the total catalogue on Spotify. As in all facets of life, everyone wants to be in the 1%. Or, more likely, the 0.01%.
Two Sides of the Record Business
As long as I’ve been in the music industry, record labels have “front line” operations that develop talent and “catalogue” operations that exploit and monetize recordings that are more than a few years old. The frontline develops artist assets so that they’ll make lots of money once those assets have value. Catalogue seeks to build value in catalogue assets, but most of the development happens on the front line. Frontline development - A&R and marketing focused on artist development - is risky and expensive. But it’s necessary if the value of the catalogue depends on the success of the frontline operation. Major labels have robust catalogues because they’ve had frontline operations feeding the beast for many decades - their investments have paid off. To be clear, major label catalogues consist of mostly dead weight; however, that’s less of an issue in the consumption model when nothing ever really goes “out of print.” Labels are loathe to let any catalogue asset revert because, well, you never know. Hey, I might have a song go viral on Tik Tok tomorrow and have a hit record just because I have music on DSPs. It could happen to anyone at any time. That’s brand new and kinda nuts...and a good reason to keep making music.
The way I see it, the Artist Business has become similarly bifurcated. Music copyrights have recently become an attractive asset class within specialty markets for institutional investors. They used to be considered high risk/high reward; but now even the most traditional, risk averse investor could see the stability in the model. That’s one part of the business - think of it as catalogue. The other part is artist development, the “frontline,” the Wild West of today’s business. The game is developing artists’ careers, partly so that the artist can some day participate in the “music as an attractive asset class” part of the business. I don’t claim that most artists think of it this way as they grind it out. But as they build consumption in their catalogue, they are building value in their copyrights. Eventually they’ll reach a level of consistent popularity where an investor would want to buy in. Whether or not they actually participate is another matter - success happens when they achieve that sort of value in the music.
A company like Concord, my former employer and Sierra’s record company and publisher, is an industry leader and innovator in the music assets business. They’ve grown exponentially in a couple decades by investing traditional capital in music assets, generally focusing on catalogue acquisiton over frontline. Now they are a multi-billion dollar company with many of the most valuable “evergreen” copyrights in existence, meaning the shit you hear all the time whether you like it or not. Though modest in size compared to the catalogue business, they also have an active frontline business, which includes Rounder Records. Rounder was a catalogue acquisition, as was Fantasy, Sugar Hill, Vanguard, Wind-Up, and many other iconic labels. In addition to the catalogue that includes Alison Krauss, J.D. Crowe & the New South, George Thorogood and many other evergreens, Concord owns the brand. They’ve decided to keep the brand active in the form of a frontline operation, which during my tenure as President signed Sierra Ferrell.
Traditionally, the reason a company like Concord - or any major label - would maintain a frontline operation is ostensibly to build future catalogue. This strategy is becoming more and more challenging in today’s business. Artists are holding out for licensing deals, where the artist owns the recordings and record company holds an exclusive license of the rights. Under a license, the artist benefits from the value of the asset once the license term ends. This is why, as an attorney, it’s so important to counsel artists to consider all of the possible paths to commercial development. If an artist signs a record deal - particularly one where the label owns the master - their commercial success ultimately could benefit the company more than the artist. A label deal has to be very attractive, especially in a business where an artist can succeed while remaining completely independent.
The new reality is that even obscure artists can extract significant value from their music assets - IF they build an audience. If even one track builds consistent consumption on digital platforms into the hundreds of thousands per day, you can find a buyer. There are SO many investment funds and private investors looking to acquire copyrights the way Concord substantially built its business - through acquisition. Once an artist who owns their copyrights has a number of tracks with hundreds or even tens of millions of streams, they may be able to sell their copyrights or portions thereof for millions of dollars. It depends on the unique analysis, but those sorts of deals are very common these days. The point is, if I don’t counsel my clients about the real or potential monetary value of their assets, then I’m not doing my job. The other part of the equation is counseling clients on how to remain as independent as possible in order to fully enjoy the value of the assets later on. It should be obvious that if an investor is willing to pay millions for a bundle of music rights, there are good reasons to hold on to those assets if possible. It’s great to have options.
An Example: The Queen
After her Americana award sweep last week, Sierra is the reigning Queen of Americana. Culturally as well as commercially, she’s like Lucinda Williams in her late 90s peak. I’ll bet someone out there will destroy that comparison with data, but in terms of ticket sales, critical praise, and general profile, it feels about right to me. That’s really satisfying, because that is the exact mission of Rounder during my time at the label: to identify and sign young roots artists to develop into culturally important and commercially successful career artists. That’s a version of what all frontline labels seek to do, and the result is the parent company owns or has rights in culturally and - most importantly - economically valuable assets. Sierra is one of the greatest artist development success stories in recent years.
Rounder and Concord had a lot to do with Sierra’s development, having signed her in relative obscurity and provided brilliant creative direction through Gary Paczosa’s A&R and production. The heaviest lifting, however, was done by Sierra herself. She is so incredibly talented, it’s mind-boggling to think she was out there busking for a decade before she had a real audience. Obviously Rounder needed an artist like Sierra, but also Sierra needed a partner like Rounder…or something just like what Rounder had to offer. Consider another scenario, a hypothetical where Sierra achieved the same development result without a label. Imagine she owned her masters outright with complete independence.
If an artist at Sierra’s level owned and controlled everything, she could literally cash out and retire and live very well the rest of their life, never work another day. If a fully independent artist at that level wanted to sign a multi-album record deal that included catalogue, it would be a massive deal, eight figures. This is why a popular independent artist such as Charley Crockett is unlikely to sign a record deal. He has an audience, he has a valuable catalogue. At this point, what would a big label do for him that he can’t do for himself? He’s a successful country music star who has never really needed country radio, just like Sierra.
This is the pressure labels are under these days. If a client of mine is considering signing with any label, I’ll make sure they know every other option available to achieve their goals. I’ll make sure they weigh their options, especially the options that allow them to own their work. It used to be an artist needed a label’s investment, resources, and infrastructure to become successful, but no more. Increasingly, record labels have to overpay and accept tight margins to sign the best talent because there are so many other ways to do artist development. The exception, in my opinion, is when an artist’s goal is to be a massive global superstar. That takes enormous investment and vast resources. A huge global touring, merchandise, sponsorship, endorsement, and multimedia career makes it easier to feel OK about not owning copyrights. It’s always case by case, but the incentives for maintaining ownership are increasing as the business continues to evolve in the artists’ favor.
What a terrific overview of the music business today --- if I were a musician, this newsletter would seal the deal on having you as my lawyer! The publishing industry relies on their backlist in the same way. Meanwhile, self-published authors are challenging the traditional way that books get discovered & marketed. Technology -- both in production and in marketing -- has put power in the hands of artists, and it's up to publishers and labels to figure out what role they can play in the 21st century. Awesome read!