‘As soon as you enter the stupid deal business, you risk all of your deals becoming stupid.’

Denis Ladegaillerie, Founder/CEO of Believe

The following interview initially appeared in Music Business UK (MBUK) – the quarterly sister publication of Music Business Worldwide (MBW) which focuses solely on the UK market.

Music Business UK is available as part of an annual subscription to MBW’s portfolio of premium physical magazines, which also include the likes of the MBW Yearbook and Music Business USA.

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It’s an intriguingly American phenomenon that the mainstream media of the United States welcomes a plethora of foreigners to criticise its country on a nightly basis.

From South Africa’s Trevor Noah to the UK’s own John Oliver and (to a cuddlier extent) James Corden, people who grew up outside the USA are being handed prized platforms to tell Uncle Sam exactly what he’s messing up.

And, you know what? God bless the States for doing it. (Also, on a related note, for booting Piers Morgan off his pedestal.)

Imagine the UK emulating such a thing. Allowing an erudite Frenchman, for example, to smartly point out the flaws and foibles of Britain, with scalpel-like precision, in the nation’s very own media.

It wouldn’t wash, right? Brits would be on the phone to OFCOM and God-Save-The-Queening before they’d finished their first pithy observation. So we here at Music Business Worldwide are hoping, that, in text form at least, you’ll entertain such a concept all the way to the end of this feature.

Denis Ladegaillerie is our erudite Frenchman; the flaws and foibles he points out belong to the UK music industry.


Whether or not you’re already leaning towards jingoistic defensiveness, you can’t deny that Ladegaillerie has the kind of global credentials that make him worth listening to.

A former lawyer who passed the New York bar in 1997, Ladegaillerie went on to run new media for Vivendi – yes, the Universal Music owner – in the United States, where as Chief Strategy and Financial Officer he managed the restructuring and development of the first digital music service (eMusic) and the first music social networking site (MP3.com).

In 2005, having returned to Paris, he founded distribution and label/artist services provider Believe which is, with no hyperbole required, simply one of the biggest companies operating in recorded music today. With over 1,200 employees, last year Believe – the owner of TuneCore, plus home to labels like All Points, Naïve and Nuclear Blast – realized around $700m in digital revenues, putting it firmly in the ‘mini major’ set of companies alongside BMG (FY2019 revenues: $674m) and Kobalt (FY2019 collections: $616m).

Considering that Believe’s average annual growth in the past three years has been 40%, you’d have expected its turnover to hit somewhere near $1 billion in 2020… before you-know-what kept us all indoors. Still, with operations in 45 countries, Believe – and Ladegaillerie – has a unique viewpoint of the independent music market across the globe.

And it’s from that viewpoint, with no little affection for the UK industry and its artists, that Ladegaillerie has some gentle suggestions to make. He notes that the UK currently contributes less than 10% of Believe’s global revenues, adding that “to be totally transparent we’ve been less successful in the UK than in other markets in building up market share”.

Don’t expect that to be the case for long: having already worked successful campaigns with domestic artists like Feeder, La Roux, Novo Amor and Gavin James (co-signed with Good Soldier), and with key new signings such as The Plug, Vistas and Nadia Rose, Believe UK is now looking for a new head of operations, to lead it into a fresh era of progress.

For Believe – and the entirety of the UK independent industry – to reach its optimum level, suggests Ladegaillerie, the British market should take a leaf out of its European neighbours’ book, and stop rushing to break global superstars. Concentrate on your own market first, suggests the exec, before cranking up your ambitions. Oh, and he kindly asks for a reduction in “stupid deals”…


How important is the UK to Believe, generally speaking?

Our team in the UK is about slightly under 40 people, and the UK weighs between five and 10% of our global [revenues]. To be fully transparent, I would say we’ve been less successful in the UK than in other markets in terms of building up market share. In France and Germany now, at least on the digital side, our market share in both territories is higher than at least one of the major record labels. But in the UK, we are less of a heavyweight.

“The UK is a market where major record labels have been able to retain more power than in other markets, and, to some extent, the indie scene is a little bit less powerful than it is in some other countries.”

The UK is a market where major record labels have been able to retain more power than in other markets, and, to some extent, the indie scene is a little bit less powerful than it is in some other countries. In France and Germany, for example, you have a very powerful indie scene in hip-hop, which has led to the build up of a few large management companies and other large local players, all growing artists independently while [avoiding] the major record label system. In the UK, you have a system that still favours the development of artists through major record companies. UK major record labels are also very aggressive in terms of cash, leveraging advances to maintain their market share.

Believe’s target goal in the UK is to continue investing significantly and to build our team. We’re exploring M&A as well. But [in terms of acquisitions] in the UK, there’s simply no big targets available, unlike in Germany, where you have a Groove Attack [acquired by Believe in 2018], or a Nuclear Blast [also acquired by Believe in 2018], both turning over tens of millions of Euros. In the UK, besides Beggars/XL, which has built to some scale, not a lot of [independent companies] are creating a challenge [to the majors].


Behind the scenes, some major label execs speak of their concerns about overspending on artist deals. Do you anticipate that level of spend at majors in the UK will come down?

Yes, absolutely. I call that the ‘stupid deal’ part of the music business. In most territories, we tend to be in the last round of discussions [to sign] top artists.

I’ve asked my team to keep track of the level of deals and advances, and then keep track of the [subsequent] performance of those deals. Last year, across Europe, including the UK, we passed on €70 million of advances in those deals. And when we analyzed the performance of those deals afterwards, we believe 99% of them lost money. Is that part of the business taking a financial toll on the major record labels? Absolutely. And are they starting to understand that? Yes.


What do you mean?

The majors are regaining profitability on their back catalogues through streaming – they don’t have to manufacture [physical on that catalogue], and they’re still paying the same level of royalties [to catalogue artists as they did in the past]. That is then generating more cash flow, which is generating more profitability – which they are re-investing [in A&R]. Because they are private companies, their shareholders are not yet giving full attention to, ‘How are we actually doing on frontline A&R versus back catalogue?’

Warner going public is a good development for that, because it means you are going to have investors that start paying attention, and asking the difficult question: ‘What are the economics of frontline deals – and what are the long term margins of these deals as they evolve?’ The fact that Tencent has invested in Universal [will create] the same situation; a new shareholder really paying attention. I wish there had been some private equity in that [Universal/Tencent] round to bring even more rational [thinking] to how Universal approaches the market.

The management at these major companies must be starting to realize that this [level of frontline A&R spend] is not something that is sustainable in the long term. We’ve had these conversations on the board of Believe: Do we go into the ‘stupid deal’ business? And my view has always been no, because as soon as you enter the stupid deal business, you risk all of your deals becoming stupid.

At the end of the day, you then don’t have the right economics to build shareholder value. So when you want to raise money, you can’t, because investors [are looking for you] to demonstrate that shareholder value.


That’s interesting when you look at Kobalt (AWAL), and how that company says it’s now prioritising profitability. Tied up in that, you’d imagine, will be a stepping away from deals that offer a slimmer chance of a return.

Yes, and at major record labels, it’s happening on an even larger scale. Ultimately, these things always go back to normal. I tell my teams, look at what happened in the [YouTube] Multi-Channel Network, space. Five or six years ago, when YouTube started building up, a lot of people in that world were doing minimum guarantee deals, paying big advances to secure YouTube creators.

“If Believe was competing [for artist deals] on quality of service only – versus quality of service plus stupid cash – we would probably not just be growing by 40% a year, we would be growing by 60% or 70%.”

Five years later, all of those companies have disappeared. I’m hoping that major record labels are going to realise this sooner rather than later. Because if Believe was competing [for artist deals] on quality of service only – versus quality of service plus stupid cash – we would probably not just be growing by 40% a year, we would be growing by 60% or 70%. I’m hopeful, because [artists will soon start] wanting the right balance of service, with the right level of deal: ‘I’m accepting this comes with a higher rev share to my partner [than a standard distribution deal], but I want more services, and I want more investment.’

It’s probably going to take another 12/18/24 months for the situation to become normalized, because major record labels will not be able to sustain their current valuations on their current economics. It doesn’t make sense.


Major label spending is obviously a challenge to the independent sector, but is the global ambition of the average UK artist, that mentality, also a challenge?

In France, Germany and Italy, most of the large continental European countries, 70% to 75% of the market in terms of value is local artists. In the UK right now, 60% to 70% of the market is international artists, particularly from the US. This means that the opportunity for UK artists in the UK market is limited. My best advice to the UK indie sector would be pull all the levers you can to transform your market into a local-first market. That’s one of the weaknesses of the UK market today.

In order to have a powerful music industry anywhere, it’s always easier for local artists to start building their careers in their own country because it’s less expensive, and you’re likely to resonate more culturally. And then, when you are big in your own market, generating a lot of [domestic] money, you can start thinking about expanding globally and reinvesting your cash flow [into marketing and touring more abroad].

“As an indie body in the UK, I would be thinking about how I can best leverage Spotify, Apple Music, YouTube, Deezer etc. plus traditional radio, traditional media, so that we get more exposure of UK artists on local platforms, helping to build more middle class artists in the market.”

As an indie body in the UK, I would be thinking about how I can best leverage Spotify, Apple Music, YouTube, Deezer etc. plus traditional radio, traditional media, so that we get more exposure of UK artists on local platforms, helping to build more middle class artists in the market. If you want to support the buildup of local indie labels, [the UK government] must orient funding or tax credits towards that ecosystem.

I would advise the [UK industry] to lobby the Ministry Of Culture for a minimum quota of UK artists [on streaming and broadcast media], and for [the government] to financially support the production of UK artists. The rebuilding of the UK industry is about creating a very strong local market. That’s going to come from a buildup of powerful local indie labels and powerful local management companies.

And when those labels and managers are ready to take an artist global, we know they can achieve that with Believe because we have the resources and expertise, across the world, they will need. One of the difficulties of the UK market today is that it has had the extraordinary benefits of giving birth to The Beatles, Ed Sheeran, Adele and other top artists who have found huge success internationally. But we are now in a world where those successes are harder to replicate, and you certainly cannot rely on them to keep a market strong. The world is changing.


You mentioned before you were looking into M&A…

From a distribution standpoint in the UK, there are unfortunately not that many attractive targets. Our focus right now is really on companies that have successfully built services for UK artists with similar values to our own – fairness, transparency and expertise. Not many companies have achieved that. Obviously I’ve always been a great admirer of Beggars and XL; Martin Mills has always been very focused. Domino is a great company as well. I’m not sure that [either company] is looking for partners yet, but they are conversations we’d love to have.


A senior record industry executive recently suggested to me that he thought the UK industry didn’t move fast enough in terms of its artist signing frequency. And that, in the wake of Adele’s success, there’s this mentality of channelling all of a label’s resources towards a ‘priority’ new signing… and then often seeing them fail to match up to those expectations.

This is why having a service model that can adapt to every tier of artists is super important, because the new music industry is about amateur artists building up slowly, then becoming middle class artists, and then, over a 12/18/24 month period, moving into that [realm] of top local artists, and then – only then! – over the following 12 months, one in a million artists will become a global star. TuneCore is a great pipeline of sourcing artists for us.

When I hear [major labels] saying, ‘We don’t want to be a company that signs a lot of artists – we just want to sign the right ones,’ to me that’s a huge red flag, because you need to be in both models. You need to have the haute couture, super high-quality team to work with a [superstar] artist across creative, marketing, promo etc. – and that is super difficult to do. But not every artist is Ed Sheeran.

So you also need to have a model where you source many more artists, and provide them with the level of service that they need. Then, if at some point, the opportunity arises for you to build that artist globally, you have the team to take a shot at it. This is precisely what we have built at Believe.

In the old world, [labels] didn’t have much choice – putting out CDs was expensive, you had to make bets on a limited number of artists. But now technology allows you to nurture and build relationships with many more artists at the proper level, and that’s something you must leverage in your A&R. Sony and Universal have perfectly understood this; Sony with The Orchard, and then Universal with Spinnup and with the acquisition and rebuilding of Ingrooves. I’m not sure Warner has fully understood it yet. But you need to have both approaches.


Focusing on the UK, the local trade body, the BPI, has been one of the most vocal opponents to YouTube and its so-called ‘value gap’. What are your thoughts?

Our position on YouTube has not changed one bit: there is no ‘value gap’. Period. You can only believe there’s a value gap if you also think that YouTube is cannibalising paid subscription. But we have plenty of countries now that are moving into maturity on paid subscriptions, the UK being one of them, plus Australia and Scandinavia – and they’re all countries where YouTube exists.

We’ve done pretty significant analysis around Scandinavia, where [paid streaming] has close to 45% penetration across the markets. It’s getting to maturity. Yet [simultaneously] YouTube has kept growing in both viewership and in monetization in a way that’s very consistent with what we’re seeing in other markets. So there’s absolutely zero evidence that YouTube is cannibalizing paid streaming. YouTube monetizes two things.

“My own conclusion is that ad-supported is the best way to monetize music video at this point; people just are not willing to pay for an ‘online MTV’ like they did on cable.”

The first is official music video. No one else has demonstrated that they can monetize official music videos better than YouTube – and they’ve tried. Official music video revenues from Spotify and from Apple Music remain fairly minimal. And everyone who’s tried to build a subscription-based music video service has failed [Vessel, one much-vaunted attempt, is now shuttered, while Vevo backed out of subscription plans years ago].

My own conclusion is that ad-supported is the best way to monetize music video at this point; people just are not willing to pay for an ‘online MTV’ like they did on cable. So that’s 50% of the revenues coming from YouTube for the music industry. The other 50% are from UGC, using music like TikTok is now doing. And that business – essentially, techpowered sync licensing at scale – was not only not monetized by YouTube, it didn’t exist before YouTube.

So rather than a ‘value gap’, YouTube has actually created sources of revenues that the music industry was not capturing before.


You have chosen to stay outside Merlin and negotiate with digital services directly. Why?

Because Merlin has exceeded what should have been its normal lifetime. This is my view: Did Merlin bring value to the music industry in the UK, and globally, in the early stages? Absolutely. Five to ten years ago, indie music distribution was not structured enough and was not powerful enough to sit at the top table with YouTube, with Spotify, and extract optimum value. As demonstrated by its Spotify equity, Merlin has made a huge contribution to making sure that indies can obtain certain economic terms.

“The specific difficulty with YouTube for Merlin is that the only way you can achieve higher rev share [from that platform] is if you have a supply chain that allows you to hit certain milestones in terms of quality of content.”

But, as a distributor, the value we bring to our clients, whether artists or labels, is providing them access to the platforms at the best terms and conditions we can obtain. It’s not just about making the content available, but also ensuring that we maximize promotional opportunities, and that we maximize financial reward. So I simply don’t see how, as a distributor, you can justify giving away one of the key elements of the value you’re bringing to the ecosystem, by getting disassociated from [negotiating with] the technology platforms.

YouTube is one good example where several years ago we achieved a significant increase on the rev share, which is of huge benefit to our clients. The specific difficulty with YouTube for Merlin is that the only way you can achieve higher rev share [from that platform] is if you have a supply chain that allows you to hit certain milestones in terms of quality of content.

You have to deliver your content in a certain format and do a number of other things with regards to copyright infringement. So if you’re just negotiating [like Merlin] and you aren’t also the distributor actually providing the content, it’s very difficult for you to achieve the same results. That’s a good example of where us having [direct] control of deals creates a big benefit to our partners. And why, long term, deal-making must be reunited with distribution.

Merlin has played a great role in the past, but today I would argue Merlin actually contributes to weakening the distribution ecosystem, because the labels going through Merlin [are not also] going through a distributor like us for our services. I believe it is super important to have independent distributors serving independent artists and independent labels. I have had similar discussions with Jeremy [Sirota, Merlin CEO] on this; I have always been very transparent on this subject.


Believe UK is based at Tileyard London, located in Kings Cross, Europe’s largest community of artists, studios and businesses, all revolving around music, ideas, collaboration and creativity.Music Business Worldwide

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