Investing in music: Recap of our second investor trip to Nashville
Boy, do I have a terrific issue for you today.
We just wrapped up a weeklong Investor Trip to Nashville; and I can't wait to tell you about it.
This was the music adventure of a lifetime. We arrived eager to understand what's really happening in this complex industry.
We returned with industry connections, lifelong friendships, and confidence in an upcoming music investing deal we’re cooking up with our friends at JKBX. (More on that below)
So, what did we learn? What’s the real state of the industry? What are the big takeaways?
Read on, I'll tell you all about it ??
This issue is packed to the gills with info. It’s free for everyone, but probably too long for your email. Read the full issue here .
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Damn, how Nashville has changed..
I first visited Nashville back in 2006. To be honest, I didn’t love it.
While music has always been embedded into the fabric of the city, the scene back then was centered around country music — which I wasn’t a huge fan of at the time. (Admittedly, it has grown on me since then — and for millions of others too ).
But at some point over the past 20 years, amid a rapidly growing population, and claiming the title of Bachelorette Party Capital of America , Nashville transformed into something much different.
Today, Nashville is booming.
Its population has grown 3.5x faster than the national average, driven by a strong economy, the vibrant music scene, and strategic efforts to attract corporations to the area. Oracle just announced they were moving to Nashville (from Austin, no less!)
Hard to believe it's the same city: Areas like The Gulch (above) are essentially unrecognizable from how they looked 15 years ago. The "Batman Building" used to dominate the skyline. Now it's just another tower. The rapidly rising property values have led to gentrification, and Nashville's infrastructure is falling way behind .
Today, the city attracts musicians from all over the world — and not just country artists either. This is a huge rock town, with tons of great bluegrass, jazz, and soul. Hip-hop is playing catch-up, but growing strong. And even electronic is rearing its head.
Lots of cities have great nightlife, but Nashville is one of the few cities with great music nightlife and “day life.”
Performers seem to be playing everywhere, all of the time. Sidewalks, bars, restaurants, hotel lobbies, parking lots...anywhere they can get a foot in the door. Morning, noon & night.
Singer Emma White writes songs that capture the relentless music industry hustle, including the hit Ten Year Town. After being told that labels "don't want to hire women," she created her own label, Whitehouse Records.
“I love to perform live. My dreams felt too big in New York and LA. But here, I could actually make connections with people. In Nashville, it felt like there was a community. A way to work your way up.” – Emma White (@emmawhitemusic )
This is a town of hustlers.
And musicians need to hustle, because for better and worse, the music biz isn’t what it used to be.
The music business vs the music industry
About halfway through the week, (and halfway through a fiery bourbon flight at Nashville Barrel Company ) serial music founder Scott Cohen shared some honest opinions on the state of the music industry.
Scott Cohen is an opinionated man — and one whose opinions on the industry matter. After selling The Orchard to Sony, Scott became Chief Innovation Officer at Warner, and later founded JKBX.
In the late ’90s, Scott and co-founder Richard Gottehrer formed The Orchard ; the visionary company that single-handedly created the market for digital music distribution.
The Orchard was way ahead of its time. This was pre-Spotify, pre-iTunes. Heck, it was pre-Napster. At times Scott felt they were perhaps too early.
But when the iTunes Store launched in 2003, the checks started rolling in, and haven’t stopped since. In 2015 The Orchard sold to Sony for over $300m.
Scott Cohen (left) and Richard Gottehrer (right), co-founders of The Orchard. Back in 1965, Richard co-wrote a slew of hit songs, including "I Want Candy" and "I'm on Fire," which he delightfully sang for us. He later formed Sire Records, launching the careers of Blondie and Madonna. He is still actively involved with The Orchard, acting as the company's Chief Creative Officer.
Today, The Orchard lets independent artists and labels distribute and monetize their music globally.
They work with artists like Bad Bunny , and indie labels like Third Man Records , offering a comprehensive suite of monetization services, including digital and physical distribution (i.e., getting their songs on Spotify and into stores).
Third Man Records is part record label, part memorabilia museum, and part performance venue. It's one of the only places in the world where live performances are recorded and pressed directly to vinyl — a process known as direct-to-disc recording. Third Man was co-founded by Jack White (from The White Stripes) and Ben Blackwell (top row, second from left) who gave us a private tour.
When discussing the state of the industry, Scott said something I’ve been thinking about all week:
“There are three levels to this world: musicians, the music business, and the music industry. Anyone can be a musician. Just pick up an instrument and start playing. The music business is about having enough commercial success to make things work. It’s doing live shows, selling merchandise, and self-promoting until you’re actually making money. The music industry, on the other hand, is all business. It’s about global distribution and mass appeal. You can love the business and not the industry. It’s not for everyone. It’s a big machine.* Artists need to pick a lane. Do they want be a musician? Do they want to be in the business? Or do they want to be in the industry?”
Scott has empathy for struggling musicians — after all, The Orchard struggled for years before succeeding — but that empathy comes with a caveat:
“You should remember that, at the end of the day, music is ultimately a popularity contest. If you’re popular, you’ll make money. If you’re not popular, you won’t. It’s a tough pill to swallow, but it’s the truth. And at some point musicians need to decide what they want to do. That may not be what they want to hear. But that’s the reality.”
Music mindshare vs wallet
If there’s one big takeaway from this week, it’s that there’s an enormous disconnect between music’s mindshare, and its wallet.
Music holds a huge place in our collective consciousness, and the industry has long managed to “strike a fair bargain” between artists and consumers.
In his recent article, “How Has Music Changed Since the 1950s?”, Daniel Parrish from StatSignificant writes:
“Music exists in an attention economy that connects consumers (who have free time) to artists (who wish to occupy that free time). Musicians are perpetually fighting for consumer mind share. Spotify emphasizes its role as a democratizing force in the music industry, offering consumers limitless song selection and providing musicians with easier distribution (free from gatekeeping record labels)… Spotify and musicians exist in an unhappy marriage marked by asymmetric power dynamics.”
In other words, since the streaming era began, consumers (who have been conditioned to no longer pay for music) have been getting the better end of the deal.
It’s a $29 billion industry whose power laws mean the biggest artists in the world are doing better than ever.
But the harsh truth is that there really isn’t much cash sloshing around for everyone else.
This makes investing in music tough. It’s a “winner-take-most” industry, where 70% of the revenue flows to the top. (Remember, just three companies — Sony, Warner, and UMG — earn 70% of all music industry revenue).
This industry doesn’t have unions. It arguably doesn’t even have a middle class anymore. If you’re going to invest in this space, you want to be at the top.
Our upcoming music rights deal
With that in mind, we’re cooking up an exclusive music rights deal that you can invest in. We’re calling it the Billion Streams Collection.
The idea is simple: There are over 100 million songs on Spotify. But only 750 of them have hit the elusive billion streams mark.
This is an incredibly exclusive club (the top .00075%!) containing some of the most popular songs ever written.
When will the deal be live?
We’re in the middle of doing due diligence on this deal. Yes, even the most popular songs in the world need to be diligenced like crazy. Some of the experts featured in today’s issue will be helping us out.
Interested in joining us & owning a part of this blue-chip collection?
Apply to Altea . We’ll keep you posted.
Royalty mechanics are very messy
Kicking off the week of speakers was Amanda Denery , a veteran of the notoriously complex reporting & royalties side of the industry. (The unsexy “red-headed stepchild,” as she calls it.)
There are probably ~20 people in the world who truly understand the inner mechanics of royalty payments. With 20+ years of experience working for Big Machine Records, Sanctuary, and UMG, Amanda Denery is one of them. She's now an independent royalties consultant, currently working with JKBX on their reporting and valuations.
Amanda was analyzing royalty statements before the world went digital, and before it was cool. (Psst — it was never cool).
Back in the early 2000s, she literally pored through boxes of dot matrix printouts in order to determine how much songwriters were owed.
Since then, the technology has obviously improved, but the data is still junk. See, even today, the industry lacks any formal data standardization, which means songwriters routinely get screwed out of royalties that they’re technically owed!
Does Bernie Taupin get every penny he’s owed for co-writing Elton John songs? Yeah, probably.
Labels have no incentive to change
You may be wondering, “wouldn’t the labels help you recoup?” After all, labels are the VCs of the music industry! They’re supposed to have your back, right?
I asked this very question and got laughed at. ??
Amanda and Scott made it clear this is a legacy industry. Labels have no incentive to clean up the data, or ensure that royalty payments are divvied up properly.
As Scott puts it:
“Legacy issues are what’s holding the industry back. This industry is intentionally inefficient.”
Labels consider their data proprietary anyways, and even they don’t understand how it all works. They barely have the expertise to solve this if they wanted to (which they don’t).
“Look, royalties isn’t just finance. Royalties is a combination of accounting, finance, contracts, federal regulations, data synthesis, systems administration, and a touch of insanity. It’s incredibly complex. There’s never been anything simple about it.” – Amanda Denery
It’s getting better, slowly. Royalty management software has helped bring transparency to the market. The big example here is CounterPoint , which was developed by the father of Ben Katovsky , CEO of Hipgnosis .
And new startups like Syncopate utilize fuzzy data matching and AI analytics to help rights holders and investors retrieve what they’re owed.
Retroactive payments are real, and clawback strategies are being employed as we speak. Companies are fighting back, and winning. Just last month, Limp Bizkit frontman Fred Durst sued Universal for $200m over unpaid royalties.
Hundreds of millions of dollars are floating around in the "black box" — unidentified, unattributable, and unclaimed royalties. The Big Three are not motivated to fix the problem. But investors are. Photo from Layman Drug Company — an old Nashville pharmacy which has been repurposed into a cinematographer's recording studio.
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Innovative arbitrage opportunities
As a music rights investor, you can use this mess to your advantage. Heck, that’s exactly what the new PE firms are doing.
As ridiculous as it seems, the big catalog buyers (mostly private equity firms like KKR, Blackrock, and Apollo) are boosting returns by performing basic hygiene on catalogs they acquire.
You need to understand that these aren’t edge cases; they’re literally everywhere. The problem is endemic.
Fixing data issues immediately boosts a catalog’s value by ~5%. There are easy efficiency gains here for those who understand music’s messy data problem, and are willing to roll up their sleeves and fix it.
Dan Weisman agrees. He’s a Principal at the Nashville office of Bernstein , the juggernaut wealth management firm.
Before Bernstein, Dan spent 15 years managing artists, including 5 years at Roc Nation .
Dan Weisman has had a fascintating career .
Dan noted the efficiencies don’t stop at data cleansing.
He estimates there are ~$200m in unpaid royalties at any given time, just sitting there — and the institutions know how to get it.
If an artist does not do an audit before selling their catalog, the hidden/non-reported income is not factored into the cashflow report. So the investor effectively gets an immediate discount.
Institutions use all sorts of cheat codes to make their catalog acquisitions more efficient.
For example, Chord Music Partners , the KKR-offshoot with one of the largest music rights portfolios, raised a bunch of money to buy UMG copyrights.
By bringing these into the UMG system, they don’t have to pay 7-20% distribution fees. And with this distribution cost removed, they can get an immediate cash-on-cash return.
An under-utilized loophole..
One thing institutions have not yet perfected is the practice of landing lucrative sync deals on songs and catalogs they’ve acquired.
We all know that investment funds face strict regulations around what they can promote to the public. There are disclosure requirements, anti-manipulation rules, and all sorts of compliance laws.
But there’s really nothing stopping a music investor/fund manager from boosting the underlying songs contained within an acquired catalog.
Sure, artists, labels, and managers are already doing this. There’s an entire ecosystem built around landing sync deals (known as sync libraries ).
But so far, investment funds haven’t really done this — and there’s no reason they couldn’t.
It’s an oddly under-utilized loophole in the music investing space. ??
The benefits of selling out
It may be hard for Gen Z to believe, but there was a time when the idea of artists “selling out” was frowned upon.
Today, that era is long gone. Now, when the music investors knock, you’d be wise to answer the door.
There are lots of reasons for songwriters to sell their catalog. But perhaps the most under-discussed reason is taxes.
Income from royalties is taxed as ordinary income. But when you sell music rights, it’s treated as a capital gain, which of course is taxed at a far lower rate.
Given that the average catalog sales price sales typically falls somewhere between 12-24x annual revenues, songwriters have a unique opportunity to cash out, diversify, and parlay their success into new ventures.
Marti Frederiksen is a perfect example of this. A singer/songwriter and producer from Los Angeles, Marti found early success and never let it go.
He’s co-written songs with some of the biggest artists in the world, including Aerosmith, Ozzy Osbourne, Buckcherry, M?tley Crüe, and Faith Hill.
(Wyatt put together this playlist of songs Marti has written and produced.)
Marti Frederiksen's songwriting credits include Jaded by Aerosmith, Dreamer by Ozzy Osbourne, and Cry by Faith Hill. He also sang the vocals for Stillwater, the fictitious band from Almost Famous. After selling his catalog, Marti purchased and renovated Nashville's famous Quad Studios.
In 2010, Marti sold the rights to his entire catalog (including songwriting and production credits) to music rights investing giant Round Hill Music .
After the sale, he and Round Hill CEO Josh Gruss bought the famous Quad Studios — essentially a large house in a residential area of Music Row — where legends like Joan Baez, and Taylor Swift have recorded.
Marti and his team renovated and expanded the facility; a massive operation hampered by covid and deadly tornadoes .
The Studio is now complete. It’s a deluxe, inviting space that continues to attract artists, including Keith Urban, Jewel, George Strait, and Toby Keith.
It was an honor to chat with Marti in the same room where Neil Young recorded Harvest Moon, and heartwarming to see a legendary studio like this get a makeover.
But from a pure ROI standpoint, the investment hasn’t been a grand slam. To be clear, it hasn’t been a bad investment. There’s still plenty of demand for the space. But the recording industry just isn’t what it used to be.
The fact is, it has become easier than ever to record music directly from your computer — especially for genres like electronic and hip hop. (Marti mentioned hip hop artists mainly seem to want to record there “for Instagram”)
Studios aren’t as lucrative as they once were. There have even been whispers of selling Quad to condo developers… (!)
Maybe Marti and his team will sell. Maybe they’ll hang onto it. Maybe someone new will buy it.
The beat goes on…
Music memorabilia is having a moment
Music memorabilia is experiencing a surge in interest, and Cristy Barber is on the frontlines of it all.
A Grammy-nominated music executive, Cristy has had a tremendous influence on the industry — particularly in reggae. She served as the President of the Marley family-owned labels , and has held senior positions at Capitol Records, Colombia Records, Island Records, and Elektra.
At Iconoclast , she specialized in acquiring and managing music catalogs, name, image, and likeness rights for legacy artists.
Today, she’s the VP of Pop Culture & Business Development at Julien’s Auctions — the entertainment & music memorabilia auction house which sold John Lennon’s guitar, Michael Jackson’s white glove , and Marilyn Monroe’s dress she wore while singing, “Happy Birthday, Mr. President.”
Nashville is chock full of museums (it has a whopping 84 of them, on par with cultural megacities like Chicago, Vienna and Rome) and Cristy works with many of the best ones.
But one particular museum she loves is the underrated Musician’s Hall of Fame and Museum (MHOF).
Unlike other music museums that solely focus on ultra-popular artists, MHOF also celebrates the producers, engineers, and session musicians who have moved the industry forward while remaining slightly behind-the-scenes.
Cristy Barber (top, left) runs incredible music memorabilia auctions for Julien's. She has a great relationship with local museums, including MHOF, which offers a comprehensive look into the often-unsung heroes of the music industry. We got a private tour from co-founder and CEO Linda Chambers (top, right)
Cristy’s next big music memorabilia auction is Played, Worn & Torn. This two day blockbuster (Nov 20-21) will take place at MHOF and feature over 1,000 items from music’s biggest legends. Register to bid here .
(Also — If you’re in Nashville on Nov 19, Cristy is also hosting a VIP Reception at MHOF with drinks and appetizers. Reply if you’d like to attend — I’ll put you in touch.)
Hustle and technology
Working in the music industry is like an endless hustle.
Nashville isn’t a place where people kick up their feet and rest on their laurels. People don’t seem to ever retire in this town. Marti is 62 and Richard is 84. They’re both still working, even though they don’t have to. The movie never ends, it goes on and on and on…
Unlike Silicon Valley, people here seem to genuinely love what they do. They’re also a lot cooler, more authentic, and there’s less “failing upwards.”
What Silicon Valley and Nashville have in common is a bias towards technology.
Very few people understand this better than Rick Barker .
Rick was Taylor Swift’s very first manager, back when she was just 15 years old, MySpace was king of social media, and only the earliest of early Swifties had heard of her.
Rick Barker was the West Coast record promoter at Big Machine, Taylor Swift's first record label. In 2008, Taylor’s father approached Rick about becoming her manager. Although he initially declined, Rick eventually accepted the role and played a key part in propelling Swift's career.
In Taylor, Rick saw sheer hustle, authenticity, and an enormous desire to connect with fans. He set her up with MySpace. He set her up with Facebook, using a friend’s email address (remember you needed to have a university address back then!) He got her into award shows — even if she didn’t win, she appeared, and that’s what people remember.
Along the way, he watched in awe as she engaged with fans directly through social media — even as her rising popularity made her “too large” to be doing stuff like that.
Today, Rick is a paid consultant on retainer to help artists like Jordana Bryant build their business through social media & digital marketing.
He only acts as a manager on rare occasions. The problem with managing artists is that there is no money at the beginning of an artist’s career, and that’s precisely when a good manager is doing most of the work.
Rick is part of the rapidly growing music consulting & startup ecoystem. Along with startups we met like MySet and Free Market Music , a new slew of companies are helping artists bridge the gap from the “music business” to “music industry.” The goal is to give artists an edge, and in the process attempt to make the world of music just a bit fairer for everyone.
What does the future hold?
When thinking about the future of music and what it should look like, it’s hard not to think of Nashville’s own Taylor Swift.
In many ways, Taylor Swift is the perfect example of what the music business — and the music industry — is all about.
She’s a natural born singer-songwriter, an endless hustler, and authentic from the very start. She re-recorded her masters (after Big Machine sold her catalog to Scooter Braun). She pays her team well, and she has legions of adoring fans which she truly connects with and showers with love, attention, and rewards.
As Dan Runcie put it recently on the Trapital podcast :
Taylor Swift makes humongous smash hit records that say to the world, “Hey, music is something worth spending money on! It’s worth buying 8,000 million different vinyl records. It’s worth spending money on concert tickets!” People in the biz feel good about Taylor Swift because — I don’t know if it’s a tide that lifts all boats — but it does make the argument that music is worth spending money on.
Music consumers have been conditioned to think that music should be free, and the most popular artist in the world is reversing that.
That’s a really good thing.
Where to next?
This was truly the trip of a lifetime. But it won’t be the last one.
If you want to join our next one, apply to Altea .
We'll keep you posted.
Liner notes
That’s all for today!
A special thanks to everyone who joined our second investor trip, to all the speakers who made it work, and to our sponsors JKBX , Alto , and Melograno Cocktails .
Also a big thanks to:
If you’d like an introduction to anyone mentioned in this issue, reply back.
Until next time, Stefan
Consultant Resource Mobilisation and Partnerships
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