From Paris, with love (and some astute market criticisms)

The music business has been forever changed these past few years by the stock exchange.

Following the likes of Spotify and Hipgnosis’ flotations, in June 2020 Warner Music Group returned to the public markets via an IPO on the NASDAQ.

And famously, last year, Universal Music Group floated in Amsterdam at a whopping USD $54 billion day-one valuation.

In some ways, though, the flotation on the Paris stock exchange of Believe has been the most interesting music IPO of all.

That’s because the majority of Believe’s business comes from servicing independent artist and label clients around the globe (including the servicing of DIY artists via TuneCore).

As such, investors in Believe aren’t directly betting on the future growth of catalogue copyrights (a la Hipgnosis or, to a degree, WMG/ UMG); they’re betting that the future of the ‘frontline’ music business will encompass a much more valuable independent sector than it does today.

And that Believe will be at the centre of it, globally. Believe’s thesis focuses on funding and servicing active artists (at all stages of their careers) in their local markets. It doesn’t – unlike the major record companies – pin its hopes on a certain percentage of these artists ‘going global’, although it’s happy when they do.


Believe’s founder, Denis Ladegaillerie, forecasts that the next 10 years of the music business will become more ‘local’ than it’s been in a long time – and that’s partly why he’s predicting that Asia (inclusive of China and India) will become the global recorded music industry’s No.1 region by 2028.

Believe saw its annual global revenues grow by over 30% in 2021, and has seen serious artist success in the past 12 months with the likes of Scriptonite (No.1 in Russia), Naps (No.1 in France), and Pamungkas (No.1 in Indonesia).

Plus, largely thanks to TuneCore, Believe says it serviced over a million artists in 2021, versus 850,000 of them in 2020.

Here, we grill Ladegaillerie on Believe’s global gameplan as a public company, his fresh enthusiasm for the UK market – and what he thinks the music business’s biggest problems are as we stand today…

Goldman Sachs just released a report that predicts a single-digit rise (+7.7%) in global recorded music industry revenues this year. How does that compare with Believe’s view of the market?

It seems very conservative.

Obviously there’s a lot of uncertainty about what’s going to happen in the second half of this year in terms of macro-economic factors, but looking at the numbers, we’re not seeing a significant slowdown in paid subscription growth in the UK or elsewhere.

We do anticipate a slowdown in the second half of the year globally. But our view is we’re still anticipating double-digit [global industry] growth annually.

There’s a lot of talk about macro-economic impact on streaming’s global growth this year. What’s your view?

What we hear from a number of conversations – and from my own intuition – is that paid music streaming subscription is more resilient to an economic downturn than video streaming subscription.

In video, people tend to subscribe to several services; in music, they only need one. We feel pretty good about the [record industry’s prospects in 2022, despite inflation].

“when people like [JPMorgan Chase CEO] Jamie Dimon are talking about an upcoming ‘economic hurricane’, it’s wise to listen.”

Where we see more question marks is around ad-supported revenues, through YouTube, TikTok and Instagram. We know historically in economic downturns advertising spend is one of the things that gets cut.

So depending on what happens in H2, we [anticipate] slower growth there.

And we’re [mindful] that this is still very early-stage [in the macroeconomic story of 2022]; when people like [JPMorgan Chase CEO] Jamie Dimon are talking about an upcoming ‘economic hurricane’, it’s wise to listen.

Goldman Sachs has you as ‘neutral’ stock, but Universal Music Group as a ‘buy’. What’s your take on that?

I think Goldman’s analysis has very specific guidelines around ‘buy’ built in.

When Lisa [Yang at Goldman Sachs] initiated a report [on Believe], I think her target price was around €19 [per share], and the Believe stock was trading at just 20% lower than this.

I really respect the work of Lisa and her team on their market projections.

From a more general view, it seems the current market values profitable companies, rather than longer-term growth, and Believe is still in a phase where we’re still investing heavily.

But what we’ve been telling investors is, we are very efficient at gaining market share, we are going to keep growing and investing in teams, investing in technology, to continue differentiating ourselves.

That means not aiming for positive free cash flow in the very short term.

You recently predicted that Asia would be the world’s No.1 recorded music territory in a few years’ time. How does that fit with the long-term strategy for Believe?

The long-term strategy for us – and this applies to the UK as well [see boxout] – is developing local artists.

We believe that over the course of the coming two decades, local artists will progressively gain a bigger share of their own markets, around the world.

In Asia right now, in most of the market, that’s already the case: In Japan, 80% or 90% of the music consumption is of local artists; in China, it’s 85%; in India, it’s above 70%.

So, for our strategy, these are great markets.

“If you then take India, China, Japan, and add Indonesia and the Philippines, [Asia will be] the largest music market in the world by 2028.”

If you then take India, China, Japan, and add Indonesia and the Philippines, you are going to have the largest music market in the world by 2028.

These are regions where local artists are going to be dominating, but where [volume of the population] is also going to drive global results. Go and look today on any of the Top 100 most-viewed videos on YouTube, and you’ll see that close to 90% of them are Indian, Indonesian, or Filipino artists, three or four of them are from LatAm, and then the rest are from the US.

The [Asian markets mentioned] have not yet reached the same level of monetization [as the UK and US] through paid subscription, but it’s going to come.

I don’t think this is something that most investors [in music] have even realised yet. People are still thinking music is an AngloAmerican world, globally, and it’s going to remain that way. I don’t think that’s the right assumption.

In terms of catalogue acquisition, as I understand it, Believe is interested in participating with certain criteria, but you’re not going to use capital from your own balance sheet to achieve that…

Correct. When we have conversations with artists who are considering selling, they tell us two things.

One, obviously they’d like a big cheque – whether that’s for tax reasons, or they’re getting older, or just want to maximize the value of their assets. And two: they want someone who cares about their catalogue and actually understands how to monetize it.

If you look at most of the catalogues right now, 90% of the monetization is coming from Spotify, YouTube, and other digital sources, and the rest is coming from branding or sync.

Our view is, we have the ability to actually monetize these catalogs to a great extent, because digital is what we do best. And many artists have been approaching us [with a view to a catalogue sale].

“I’m not copyrighting any ideas here: I think Willard [Ahdritz] at Kobalt wrote the blueprint for this, and then Merck [Mercuriadis] and Hipgnosis took it to another level. I tip my hat to both of them.”

And that’s great… except for the price of the assets! Since the Believe IPO we have raised €300 million of investment capability.

But, relative to the majors, Believe is still a small company, and our view is that paying really high multiples for catalogues – 15 times or 20 times – [isn’t] for us.

There are other ways of allocating capital that are much more efficient.

So we’ve had a number of conversations with private equity, with us telling them, ‘Hey guys, you are looking for investment returns with a cost of capital that allows you to pay 12 times, 15 times, even 20 times for assets – but we can do a great job exploiting these assets and helping you source these deals. Let’s partner.’

I’m not copyrighting any ideas here: I think Willard [Ahdritz] at Kobalt wrote the blueprint for this, and then Merck [Mercuriadis] and Hipgnosis took it to another level.

I tip my hat to both of them.

I have to ask you about Kate Bush. Warner Music doesn’t own her catalogue – she does. Are you excited by this kind of development in the marketplace?

What it demonstrates is that a lot of the big catalogues aren’t actually owned by the major record labels.

Some of the transactions we’ve seen in the past year have demonstrated that, like Bob Dylan; Sony wasn’t the owner of that catalogue, it was Bob Dylan’s and Bob Dylan sold it [publishing sold to Universal and recording rights sold to Sony].

Perhaps the biggest one of all is Queen, who own their catalogue [outside North America]. Queen then contract, every three to five years, a partner for the exploitation of various rights.

And I think that’s as it should be.

These artists need a partner to maximise these revenues through sync, or across all digital services.

And obviously, when you’re working with an [artist-owned] catalogue like Kate Bush’s, generating millions or tens of millions of dollars [annually], you don’t do that on a 50/50 revenue share basis.

What revenue share basis do you work under on a deal like that – as a distribution partner to an artist-owned evergreen recording catalogue making millions of dollars per year?

People aren’t going to like me saying this, but you do it on a 90/10 or even a 95/5 basis [in favour of the artist]. That’s the reality.

If you have a catalogue that generates millions or tens of millions of dollars, you can operate that catalogue very profitably on lower levels of margin – bringing high value to the artist while also being a very profitable business.

“People aren’t going to like me saying this, but you do it on a 90/10 or even a 95/5 basis [in favour of the artist]. That’s the reality.”

Major record companies are well-positioned to keep some of these deals. But they’re not going to be able to keep them at high margins, because the nature of the service doesn’t warrant taking 50/50 or even 70/30 on these catalogue distribution deals.

Artists are going to start realising that.

And am I right in thinking that Believe worked with Queen at one point?

We worked with Queen on their music video rights – we exploited all the YouTube channels a couple of years back.

And then, ahead of the [Universal] IPO, Lucian [Grainge] decided to write a big cheque that we felt we couldn’t match!

So Queen took the rights to Universal. But I hope there will be opportunities for more conversations in the future.

Let’s talk about TuneCore: You recently announced a change in pricing that enables DIY artists to upload as many tracks as they like for $14.99 a year. Can that help you scale to catch DistroKid’s market position?

Yes, I think so. Our target is to aim for market leadership. Believe has always thought that the music market starts with developing artists, all the way up to the top artists.

We’ve seen that on TuneCore with Lauren Spencer Smith [pictured inset] and others.

“[The DIY sector] is capturing 15% to 20% of the value of [all] streams today in many markets around the world; it’s the fastest-growing segment in the music industry.”

For us, working with DIY artists is very important, and it’s a segment we believe is very valuable and will keep growing.

[The DIY sector] is capturing 15% to 20% of the value of [all] streams today in many markets around the world; it’s the fastest-growing segment in the music industry.

That’s why we have been investing in TuneCore and we will keep investing in TuneCore.

What do you make of the argument that DIY artist-uploaded songs should get a lower royalty rate on services like Spotify than major label-signed superstars, because the superstars are the ones attracting subscribers to the platforms?

I heard the expression that Rob Stringer used [to describe lesser-quality DIY-uploaded music] the other week, ‘flotsam and jetsam’. I had to look up the meaning [laughs]! It was interesting to see that comment, and then at the same time see Universal announcing that it was reducing Spinnup.

[DIY artists can no longer upload their tracks to DSPs via Spinnup; they have to be accepted / invited by the service first.] In my view, there is a lesson here: Lauren Spencer Smith signed to TuneCore, went to No.4 in the UK charts and was No.1 in four countries; LANDY in France was a TuneCore artist a year-and-a-half ago and was No.1 Billboard charted six months ago. There are many more examples.

My view is these emerging artists should get exactly the same [royalty] rate as any other artist on streaming platforms. If you’re a big artist, the argument is: ‘I am contributing subscribers and users to the services.’ Absolutely right.

“I know major record labels are pushing for lower rates for [DIY] artists, and I just don’t think it’s right; I think it’s wrong.”

But as an artist you are already extracting value out of that relationship, because often [when the] DSPs are using your image and popularity, they are buying billboards, buying digital marketing campaigns, significantly contributing to your own marketing as an artist.

That lowers your own marketing costs and, at the end of the day, increases your royalties. So if you’re an artist at the top of the industry, you are already getting more value out of the services than if you’re an emerging artist with fewer followers and streams.

When I talk to a lot of the DSPs, I ask them, ‘Do we have more fake streams through TuneCore on your platform than the major record labels?’ I get a no. ‘Do we have copyright infringement at higher rates than the major labels?’ Also a no.

So are there operational costs [to the services] that justify a different royalty treatment for [DIY] artists? No.

I know major record labels are pushing for lower rates for [DIY] artists, and I just don’t think it’s right; I think it’s wrong.

The reason major record labels are pushing for this is that they’ve been consistently losing market share for the past five years [due to the volume of releases coming out via DIY platforms].

They’re trying to find ways of regaining that lost market share through higher value, but I don’t think it’s the right way to do it.

You’ve been a supporter of Spotify’s Discovery Mode, which lowers royalty rates in exchange for organic-type promotion of artists who apply for it. What’s your latest view on it, and of the criticism it gets from the independent community in particular?

What I’ve been recommending to Daniel [Ek] and Spotify is for them to automate all of their media-buying tools, wherever it’s Marquee, whether it’s Ad Studio, whether it’s Spotify Discovery, and create APIs for them, so that we can use them at large scale.

I would love nothing more than to be able to invest much more money into Spotify than we do today.

“Major labels are pushing for lower rates for these artists, and I think that’s wrong.”

All of our experience shows us that the return on that investment for developing artists when using these tools is great.

When you look at the P&L of any of the major record labels, the ‘marketing and promo’ line is still one of the most significant areas of investment.

And when your audiences become digital, the best way to spend money is where the audience is already listening to music.

So, yes, we’ve been a big supporter of Spotify Discovery, because Spotify Discovery is pushing discovery of our artists to users that would not otherwise have listened to them as it supports revenue growth.

Is Spotify doing enough to keep a clear line between Discovery Mode and what was once called payola?

It’s a really good question.

And I think the way they’re framing it right now is correct: this is not guaranteeing airplay.

In our experience, Spotify Discovery puts the user at the center of the experience: [Speaking as Spotify] ‘I’m not able to guarantee anything [to the Discovery Mode artist] because I first want the user to be satisfied. If the user starts skipping a track [the platform recognizes] I shouldn’t be marketing that track.’

And then it’s about being very clear to the user that [the Discovery track] is a sponsored track.

But I think the way it is being done now aligns with how you would do traditional marketing, rather than payola.

A few people have recently raised concerns to me about the ‘blind cheques’ being paid to rightsholders from the likes of Meta/Facebook and TikTok every few years. My understanding of this is that neither platform currently pays out royalties tied to detailed reports of consumption on their platforms; they pay a lump sum that music companies accept. The worry is, that lump sum, eventually, won’t recognise how much business music has created for these platforms. What’s your view?

I’m smiling at this question a little, because we started our renegotiation with one of these platforms – a large short-form video platform – about three or four months ago, and we asked what you describe: ‘You are great, but you’ve been paying us a flat fee for our music, which is fine in the beta phase.

But now we want a rev share agreement [and associated reporting tools] like YouTube does for Content ID.’ We started that negotiation. And then [this video platform] began another negotiation, with another company, a larger music company than Believe.

And I’m told that company said to them: ‘We don’t want a rev share. We want a cheque – today.’ Then [the video platform] came back to Believe and said, ‘We’re going to pay you a cheque too.’

So the short answer to your question is, yes, I would like that, but unfortunately we are following rather than leading on that discussion.

What happens when I compare what some of these platforms are paying us versus what we should be getting? When we compare the volume of music usage to the size of cheques?

Even considering the size of the cheques we get, I don’t think they are at the right level. And we’re going to fight tooth and nail to get them to the right level.

On Meta/Facebook specifically – as far back as 2017 they were suggesting that they were going to build royalty reporting tools like YouTube’s Content ID. We’re now five years on; is there some impatience creeping in at this point?

Yes, and that is something we have expressed to them. But I would also say with Facebook and Instagram that we’ve seen a better quality of data [than from other social media services].

We’re pretty happy with that. And the level of monetisation [versus consumption] on Facebook/Instagram is aligned to what it should be when you look at usage. Plus we’re able to see reports on the usage of the tracks to [account to] artists, as we should.

This article originally appeared in the latest (Q2 2022) issue of MBW’s premium quarterly publication, Music Business UK, which is out now.

MBUK is available via an annual subscription through here.

All physical subscribers will receive a complimentary digital edition with each issue.Music Business Worldwide

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