Podcast Summary
Combining local insights and global expertise: Having a deep understanding of an industry is crucial for making informed decisions, whether in real estate or music.
Principal Asset Management, as a real estate manager, utilizes a comprehensive perspective, combining local insights and global expertise across various sectors including public and private equity and debt. Their teams use this combined knowledge to identify the most promising investment opportunities. Damon Krakowski, a musician and writer, shares a similar curiosity about understanding the business side of music. He began writing about the industry out of necessity as a musician, and later out of personal interest. Both Principal Asset Management and Damon demonstrate the importance of having a deep understanding of the industry to make informed decisions, whether in real estate or music.
Band Galaxy 500's Contracts Up for Auction During Record Label Bankruptcy: Band Galaxy 500 fought for their rights and regained ownership of their contracts during a record label bankruptcy, highlighting the importance of self-education and persistence in the music industry.
The music industry is known for its revolving door of talent and tends to overlook explaining business matters to bands, especially those with a short tenure. Contracts, which often contain unfavorable terms, can be thrown into bankruptcy courts and treated as assets. This was the experience of the band Galaxy 500, whose contracts were up for auction during a record label bankruptcy. Despite being told they had no rights, the band's persistence and self-education led them to win back their ownership. Galaxy 500 was an influential indie band in the late 80s, known for its niche audience and lack of pop ambitions. The band's success relied on a network built by previous generations, including independent stores, college radio stations, and non-mainstream venues. This network allowed the band to reach listeners effectively, despite not being part of the major label scene.
Major labels disrupt hardcore scene in late 80s and early 90s: Majors signed bands, cherry-picked talent, offered little artistic control, and focused on commercial successes, leaving non-hit bands behind
The hardcore scene in the late 80s and early 90s played a pivotal role in opening up the music industry to new genres and bands. However, when major labels discovered this untapped market, they aggressively signed bands and cherry-picked the most promising ones, leading to the destruction of the scene. The major labels offered deals with little artistic control, turning artists into solo acts with no negotiating power. This economic model, where only hits fund the business, ultimately led to the abandonment of bands that didn't become commercial successes. The story of this band illustrates the larger trend of how major labels operated during this time, aiming for one massive winner that returns a significant investment while discarding everything else.
Historically, music industry operated under two models: major labels vs. indies: The shift to streaming may make the independent music model unsustainable, leaving smaller artists at a disadvantage
The music industry has historically operated under two distinct economic models: the major label model, which is akin to venture capitalism and focuses on producing a few massive hits, and the independent model, which resembles a small business and aims for consistent sales. The major label model's success relies on controlling distribution and promotion channels to maximize the reach of hits, while the independent model focuses on selling records for a profit. However, with the shift to streaming, the independent model may no longer be viable for recorded music as the parallel methods of distribution and reaching an audience have converged. The music industry's landscape is increasingly skewed towards megastars, leaving smaller artists struggling to thrive under the old lemonade stand model.
The rise of major labels and digital platforms changed the game for independent artists: Independent artists face challenges in distribution and sales due to the dominance of major platforms, limiting their ability to interact directly with fans and maintain unique distribution channels.
The music industry has undergone significant changes since the late 80s and early 90s, with the rise of major labels and the subsequent dominance of digital platforms. Back then, independent artists could continue their non-major label model of distribution and sales through channels like college radio and independent record stores. However, now there's no parallel network for distribution and sales, forcing artists to rely on the same channels as everyone else, such as Spotify, Apple, and Amazon. These platforms treat artists like users, with limited ways to interact, and only a few distributors have access to upload music directly. This lack of choice and distinction between content producers and consumers is a major issue for artists in the music industry today.
Spotify's Algorithms and Pay-to-Play Practices: Artists may pay lower royalties for more algorithmic promotion on Spotify, but the extent and transparency of these practices are unclear.
Spotify's algorithms, which determine what music gets promoted and played for listeners, are not transparent and may be influenced by payments from artists or record labels. This is a controversial practice, as it resembles payola, which was illegal in radio broadcasting in the past. The artists pay Spotify lower royalties in exchange for having their music promoted more frequently on the platform. Despite Spotify's denials, many in the music industry believe that playlists are for sale. This is significant for indie bands like Galaxy, who have a large catalog of music but no longer perform, as they rely on streaming platforms like Spotify for listeners and revenue. Despite having over 62 million streams of their song, the benefits to the band are limited, and the only real advantage is increased visibility through algorithmic promotion. However, the exact workings of these algorithms and the extent of pay-to-play practices remain unclear.
Spotify's Playlists: Editorial Decisions vs. Algorithmic Manipulation: Spotify's playlists are influenced by both editorial decisions and algorithmic manipulation, with artists and labels able to manipulate the algorithmic side through deals. This understanding reveals Spotify's profit sources beyond music and raises concerns about musicians' interests.
Spotify's playlists, including those that seemingly favor certain artists, are influenced not only by editorial decisions but also by algorithmic manipulation. The algorithmic side of playlist creation, which is supposedly based solely on data, can be manipulated by artists or labels who strike deals with Spotify. This manipulation, according to the speaker, is officially acknowledged by Spotify through their marketing program. This understanding sheds light on Spotify's business model, which declares a loss on music but generates profit from data, two-sided marketplace deals, and other sources unrelated to music. The speaker's perspective is that Spotify does not prioritize musicians' interests and that the industry's shift towards data-driven business models may be detrimental.
Spotify controversy highlights deeper issues in music industry: The Spotify-Joe Rogan controversy underscores concerns over artists' compensation and representation in the music industry, with Spotify's 100% capital-driven business model favoring podcasting over music streaming.
The recent controversy surrounding Spotify and Joe Rogan's podcast, while sparked by concerns over racist content, also highlights deeper issues related to the platform's business model and treatment of artists. The music industry's labor force, including artists, feels undervalued and unrepresented, as Spotify is a 100% capital-driven company that owns the platform outright, with no direct relationship or fair compensation for creators. The major labels, who hold ownership stakes in Spotify, have historically prioritized their own interests over those of their artists, leading to unfavorable deals and minimal royalties. Meanwhile, podcasting, which has no associated royalties, is seen as a more profitable and potentially more durable business model for Spotify due to its ability to consolidate more industry revenue at the top. This dynamic raises questions about the fairness and sustainability of the current music streaming business model and the power dynamics between corporations and artists.
Streaming services creating fake artist profiles to reduce royalty expenses: Streaming services like Spotify generate revenue by creating fake artist profiles and owning the copyright to their music, blurring the lines between real and fake artists and reducing royalty expenses.
Streaming services like Spotify are constantly seeking ways to reduce their royalty expenses. They do this by increasing the amount of music streamed, but also by creating fake artist profiles and owning the copyright to their music. These fake artists' songs are inserted into popular playlists, generating revenue for the streaming service without owing royalties to the actual artists or record labels. This practice, known as payola, is controversial and has been a long-standing issue in the music industry. Spotify argues that these songs are produced by real people, but the fact that the streaming service owns them entirely is the crux of the issue. Additionally, Spotify is investing in AI technology to create sound-alike music, further blurring the lines between real and fake artists. This not only reduces their royalty expenses but also gives them leverage against record labels.
Music Industry's Shift to Streaming: Conflicts of Interest and Inequality: The shift to streaming platforms like Spotify raises concerns about conflicts of interest, skewed royalty distribution towards major labels and popular artists, and the lack of financial sustainability for the majority of musicians.
The debate surrounding the music industry's shift to streaming platforms like Spotify raises concerns about the platform's dual role as both a distributor and a producer of content. This arrangement, as discussed, can create conflicts of interest and skew the distribution of royalties towards major labels and popular artists. The music industry veteran in this conversation highlighted the issue, expressing frustration that the mainstream press is finally acknowledging this problem. He also shared data from a union of independent musicians who argue that the streaming model does not provide a living wage for the majority of artists. Spotify, in response, claims that thousands of artists make over $50,000 a year from the platform. However, this figure falls significantly short of the company's initial mission to support 100,000 artists. These discrepancies underscore the need for further investigation into the impact of streaming on the music industry's income distribution.
The Music Industry's Struggle in the Streaming Era: Artists earn less than minimum wage on average due to label fees and limited monetization options outside of live performances, leaving many reliant on touring for income. The pandemic has worsened this issue.
The music industry's shift to streaming platforms like Spotify has resulted in artists earning significantly less than minimum wage on average. Most artists signed to labels see around 50% of their income taken by the labels, leaving them with a small fraction of the revenue. Additionally, while there are new ways for artists to promote themselves and build a fanbase online, monetization outside of live performances is limited, leaving many artists reliant on touring for income. The closure of live music due to COVID-19 has further exacerbated this issue, as it is the only significant source of monetization for many artists. Overall, the streaming era has drained the music industry, leaving artists with fewer financial opportunities than before.
The Shift in Music Industry Revenue Streams: The music industry's revenue streams have shifted from traditional methods like licensing and satellite radio royalties to streaming services like Spotify, disrupting artist income and raising concerns about fair compensation and regulation.
The music industry has undergone significant changes in recent years, leading to a loss of revenue streams for artists. Traditional methods of monetization, such as licensing music for commercial use or satellite radio royalties, have been replaced by streaming services like Spotify. Spotify's business model is unregulated, and while it may not make a profit from music, it is investing heavily in content and personalities like Joe Rogan. This shift has disrupted the music industry, with artists and musicians losing out on income streams that once provided significant revenue. The lack of transparency and regulation in the streaming industry has also raised concerns about fair compensation for artists, particularly those from marginalized backgrounds. The music industry's history of exploiting black artists adds another layer of complexity to this issue. Overall, the conversation highlights the need for greater transparency and regulation in the music industry to ensure fair compensation for artists and a sustainable business model for the future.
Impact of decline in physical record sales, CD business, and live music on the music industry: The loss of record stores and CD business, along with the recent absence of live music, has led to a shift in the music industry towards the 'hits business'. Damon Krakowski discussed this trend on Odd Lots. New podcast alert: Matt Levine and Katie Greifeld's Money Stuff podcast debuts every Friday.
Key takeaway from this episode of Odd Lots is the impact of the decline of physical record sales, CD business, and live music on the music industry, pushing it towards the "hits business." Damon Krakowski, the guest on the podcast, highlighted this trend. The loss of record stores and CD business, along with the recent absence of live music, has led to a shift in the industry. This conversation was insightful and a big thank you to Damon for joining. Additionally, we wanted to share some exciting news about a new podcast at Bloomberg. Our friend Matt Levine, from the popular Money Stuff newsletter, is teaming up with Katie Greifeld, a Bloomberg TV host, to bring the newsletter to life every Friday. They will dive into Wall Street finance and other topics that make Matt's newsletter a hit. Be sure to check out Money Stuff the podcast on Apple Podcasts, Spotify, or wherever you get your podcasts. Lastly, a reminder to follow Jill Weisenthal (@thestalwart), Tracy Alloway (@TracyAlloway), Damon Krakowski (@dada_drummer), Laura Carlson (@LauraMCarlson), Francesca Levy (@FrancescaToday), and check out all of Bloomberg's podcasts. And don't forget to take your business further with the American Express Business Gold Card, packed with benefits to help unlock more value from your business purchases.
