Beyoncé and the Eve of Disruption

Many people in the music business are anxiously awaiting sales and streaming results from Beyoncé’s newest album “Renaissance,” released last week. As the Wall Street Journal reported Friday, fingers are crossed that Queen Bey can snap the recent streak of commercial and/or critical disappointments among recent releases from major artists, including Post Malone, Drake, Kendrick Lamar and even Adele, whose November release “30” fell well short of her previous record sales. Early signs were not encouraging.

The first single off the album, “Break My Soul,” was released to much fanfare and social media buzz. Flipping around the radio dial on drive from New York to Boston the week of its release, I stumbled across a discussion of near-Talmudic earnestness among a group of DJs as they debated the track’s references, influences and likely place within the Beyoncé canon. But after that initial flurry of excitement, “Break My Soul,” tailed off faster than many of her previous singles.

On Friday, Spotify announced that, like “Break My Soul,” “Renaissance” came out of the blocks strong, becoming the most streamed album on a single day by a female artist so far in 2022. We’ll have to wait to see whether the rest of the pattern holds, but first week sales fell well below her previous album, “Lemonade.”

The shortfalls may reflect, in part, normal cultural churn. Beyoncé, Drake and the others have been turning out hits for a decade or more, and their fan bases are starting to age out of the primary listening demographic. Meanwhile, a new crop of artists such, as Olivia Rodrigo, Li’l Nas X and Bad Bunny, who appeal to a younger, more active listening audience, are starting to claim their piece of the zeitgeist. Same as it ever was.

But the recent commercial sputtering of some major new releases may also reflect a more far-reaching trend within the music business. According to Luminate, which provides data for the Billboard charts, current music, defined as records released within the past 18 months, is shrinking as a percentage of sales and listening.

Luminate’s midyear report shows Total Album Consumption (TAC) for current music, a metric that combines stream counts, track downloads and physical sales, declined by 2 million units, or 1.4% in the first half of 2022 compared to the same period last year, which itself showed a decline from 2020.

According to Nielsen/MRC (as Luminate was known at the time) catalog music accounted for 66% of all streams through the first half of 2021 compared to 61% in 2020.

What accounts for the trend? No doubt part of it is due to a more crowded marketplace. With 65,000 or more new tracks being uploaded to Spotify every day, there is simply more music available to listen to, potentially diluting the valence of any one release by any one artist.

It could also reflect the efforts of a new breed of market actors such as Hipgnosis Songs Fund, Round Hill Music, Reservoir Media and others who are buying up song catalogs and then “working” those catalogs with greater focus and diligence than they were getting under previous ownership, raising their profile, boosting their plays, pushing for sync placements.

One of the biggest records of the year so far, in fact, has been Kate Bush’s “Running Up That Hill,” which was first released in 1985, thanks to a sync placement in the popular Netflix series “Stranger Things.”

But whatever the cause, the effect of the trend, should it continue, could be another wave of disruption for an industry that has only recently regained its sea legs.

The money that has poured into the music industry from outside sources over the past five years, whether into vehicles for acquiring song catalogs or into the shares of the publicly traded labels or their parent companies, has been, for the most part, chasing the old rather than the new.

Investments in song catalogs, which almost by definition are comprised of non-current music, are premised on long-term returns from the cashflow generated by proven assets, unencumbered by the speculative spending associated with traditional A&R activity.

The valuations being assigned by music companies by equities markets, are not tied to their efficiency at producing new content so much as to the size and marketability of their catalogs. Banks and other lenders increasingly look to the size and value of catalogs in determining loan amounts and rates, rather than to recent releases.

To the investor, in other words, commercial success in the music business is measured much more by effective portfolio management than by recent chart success. And, as institutional and investment capital becomes a bigger of the overall capital base of the business, its priorities will begin to influence how music companies operate and how they are structured.

Not just music

The phenomenon is not limited to music, however. It is also being reflected in the movie and television business and even the publishing industry.

The theatrical film business suffered a major blow from the pandemic-driven shuttering of movie houses, from which it is only now beginning to recover. But even before Covid-19 hit, the ground below the bijou was starting to shift.

As the major studios and distributors began to embrace proprietary direct-to-consumer streaming in pursuit of Netflix-like share-price multiples (those were the days!) they came up against new yardsticks of success not captured in the latest box-office figures. For subscription-based services, building long-term enterprise value requires retaining subscribers over time to offset the cost of recruiting them. That’s hard to do with a handful of big releases a year.

While splashy new releases may help attract new subscribers, retaining them over time requires depth and diversity of catalog. Just as in the music business, that raises questions about how and where to deploy capital. But given Wall Street’s reaction to recent earnings reports, investors may already be signaling they would like to see less investment in expensive new production and acquisitions and more focus on milking long-term value from a solid base of assets.

The publishing business, too, is having its catalog moment. Unlike the theatrical movie business, book sales, both print and e-book, spiked during the pandemic, as readers spent more time holed up at home than out and about. There are signs that the good times may be waning as the world opens up. But the increase in sales during Covid showed a notable tilt toward so-called backlist titles compared to new releases.

That trend has continued as video streaming services, podcasters and audiobook publishers increasingly mine backlists for adaptable material, putting a premium for publishers on effective management of their portfolios.

The impact of the first wave of digital disruption within the creative industries fell mainly on the operational elements of the business. The old ways of operating weren’t working any more so new ways of doing business needed to be developed. But the business itself was basically the same.

The new wave of disruption that may now be building is more likely to shake the organizational structure of the industries.

Movie studios exist to produce and release new movies. Record companies are built to be hits factories. Publishers exist to bring new books to market. And in each case, their organizational and capital structures is shaped around those respective primary goals.

Record companies invest their capital — both financial and human — into artist development and marketing; movie studios into production and distribution; publishers into manuscript acquisition and editing.

But what if those are not the right or the only goal? What if investing in those processes is not the most effective use of capital? What if investors and lenders begin to demand more productive uses for some of that capital? What would that mean for the organizational structure of record companies, studios and publishing houses?

We will on some of those questions at the upcoming 2022 RightsTech Summit September 21-22, with sessions on new ways to manage rights and royalties, new tools for bringing life to old catalogs, new content licensing models, and more.

Register today to be part of the conversation.

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