‘Independent and self-distributed artists will continue to erode the market dominance of Universal, Sony and Warner.’

Downtown Music Holdings got the entire music business talking back in March 2019 when it acquired AVL Digital Group for an estimated $200 million.

Included in AVL’s portfolio of businesses was CD Baby, AdRev, DashGo and Soundrop. In acquiring AVL, Downtown became a major new player in the battle to dominate the independent music distribution sector.

At the time, AVL’s client base included over 900,000 artists, labels and other rightsholders, and represented the largest independent sound recording catalog in the music industry.

Downtown’s acquisition of AVL’s portfolio of companies followed a year (2018) in which total revenue generated by ‘self-releasing’ independent artists was $643 million, according to figures published by Midia Research.

By 2021, that figure was estimated by Midia to have grown to $1.5 billion, up from $1.2 billion the prior year.

The year after Downtown bought AVL, Tracy Maddux, who had served as CEO of CD Baby and AVL Digital was elevated to the role of Chief Commercial Officer for Downtown.

As Chief Commercial Officer, Maddux has been tasked with overseeing Downtown’s distribution, monetization, and promotional brands, including CD Baby, AdRev, DashGo and FUGA, which Downtown acquired in January 2020.

Maddux originally joined CD Baby in 2010 and led the company’s global growth. Today, the platform is home to over 1.2 million artists and reports to have paid out over $1 billion in artist royalties since its founding in 1998.

CD Baby parent company Downtown Music Holdings got the industry talking again in April 2021, when Concord acquired its entire owned music rights catalog for $400 million.

Following the catalog sale to Concord, Downtown unveiled ‘Downtown Music Services’, with a plan to focus its operations exclusively on the music services sector from that point onward.

In November 2021, Downtown Music Holdings CEO Andrew Bergman, who assumed the Chief Executive role in September, told MBW that Downtown had “an aggressive growth plan”, adding that the firm sees “a lot of opportunities to strengthen and expand” its services through investments and acquisitions.

Over the past two and half years, Downtown has acquired the likes of music data analytics firm, Simbals, B2B distributor Fuga and digital marketing platform Found.ee.

Downtown also saw an opportunity in the independent artist advance market and invested in music funding platform beatBread, which completed a $34 million seed round in February led by Fintech-focused venture capital firm, Deciens Capital.

“We’re incredibly bullish on our own prospects for success given our repositioning as a technology services provider to the industry.”

Tracy Maddux, Downtown

Downtown’s CCO Tracy Maddux tells MBW that the company “took a small, non-control investment” in beatBread, whose platform, he adds, is “a unique marriage of data science and scalability”.

Maddux adds that the decision behind investing in beatBread was twofold: “We think very highly of [beatBread’s] management team and approach to the advance market”. He adds: “We also love that beatBread is looking to be the platform agnostic solution for independent creators.”

Commenting on Downtown’s own agnostic strategy within the independent music sector post catalog sale to Concord, Maddux tells MBW that the company is “incredibly bullish on our own prospects for success given our repositioning as a technology services provider to the industry”.

Here, Tracy Maddux discusses Downtown’s transition from rightsholder to services partner, the firm’s investment strategy, and his predictions for the independent artist sector…

You originally joined CD Baby back in 2010 and led a number of key acquisitions during that time. How has the the M&A landscape in the music and tech sector evolved since then, and how competitive is it now?

As the music industry returned to growth in the last decade, we pursued consolidation opportunities, but also added service capabilities such as rights management and marketing and promotional tools. We were able to acquire firms and technology at reasonable valuations because industry growth was modest. We also were able to add some exceptional technology development teams and innovative leaders, most of whom are still working within the enterprise today. Success in M&A is as much about people as it is technology.

“Success in M&A is as much about people as it is technology.”

Now with the industry growing more briskly, we’re definitely seeing sellers expecting growth premiums and it is driving up transaction values. It’s also more competitive now as institutional investors are making direct investments after shunning the entire sector for most of the last decade. In short, industry growth and competition from new entrants are driving up multiples.

You transitioned to the role of Chief Commercial Officer for Downtown following the company’s acquisition of AVL Digital Group in March 2019. What were your objectives going into the role?

The music industry has been transformed by technology and we need to think and act like a technology company in order to compete at scale and deliver maximum value to our clients.

“The music industry has been transformed by technology and we need to think and act like a technology company in order to compete at scale and deliver maximum value to our clients.”

This has been a focus for Downtown and is a common theme of our last three acquisitions. Fuga, Simbals and Found.ee are all technology leaders in their respective market spaces.

My objectives for the role are all about ensuring that the appropriate resources that enable organic and inorganic growth are available to our operating companies. Questions we’re always asking of ourselves: Can we build it? If so, how long will it take? Can we buy a capability and go faster?

Downtown’s focus has shifted from owning copyrights itself to being a partner to copyright holders as a services company. How does this transition tie into Downtown’s predictions for what the music business will look like in the future?

We believe that the value of musical works will continue to grow as the global growth in streaming continues to lead the market. That’s what’s really driving this transformation from music to music tech; tens of millions of copyrights are being added each year and the uses of the audiovisual assets are exploding. In order to be a ubiquitous provider of copyright management and promotional services, it was an essential strategy to exit the owned copyright business and focus our investment on scaled technology solutions.

What’s the future? Consumer adoption of video first services seems to be a key trend of consumption. Music is more valuable when accompanied by video because it is consumed more frequently. Also, this type of audiovisual consumption enables audience monetization.

This means as an industry we can use data and analytics to target content to relevant consumers and spur further consumption or monetization.

How do you feel Downtown is positioned in the music industry today?

We have more than 150 technologists working in the enterprise around the world. We’re also well positioned as a global player with more than a third of our total team based outside of the United States. We’re all witnessing that music is increasingly consumed locally from local artists. Having people working to promote the creators’ works in these local markets will be key to our continued growth.

How does Downtown want to be positioned in the music industry 5 years from now?

Downtown aims to the leading provider of music rights monetization services in the world. We intend to become a ubiquitous and indispensable choice for any firm or creator looking to maximize the value of their musical works.

Downtown has invested in a number of companies operating at the intersection of the music and tech businesses in recent years – What do you look for in an investment/acquisition opportunity?

We’re looking specifically for teams that are building technology enabled services. We understand that software development is a continuous process and that it’s less about the technology itself but what that technology enables and almost more importantly that the team building it that can continue to innovate. We’ve noticed over the years that it’s really hard to build sustainably productive teams.

“We’re proud of the fact that most of the developers, founders and entrepreneurs that have joined the team via acquisition over the past five years are still working at Downtown.”

When we do acquire, we want to retain the human talent within the firm for the future benefit of Downtown and its clients. We’re proud of the fact that most of the developers, founders and entrepreneurs that have joined the team via acquisition over the past five years are still working at Downtown.

There are concerns that a recession is a possibility over the next 12 months. How would a recession impact the music startup acquisitions landscape?

Economic downturns coupled with rising interest rates historically make it harder for startups to raise growth capital. Technology startup leaders are forced to spend more time raising or managing capital and less time leading innovation. We’ve already started to see promising startups raising capital in rounds at lower valuations despite growth and good prospects.

Firms going back to raise for the third or fourth time from the same sources are encountering fatigue from their investors. Seller valuation expectations are also changing, partly as a result of these factors.

We’re seeing opportunities that we passed on due to valuation concerns come back to us for a second look with lowered expectations. We’re definitely seeing a tilt from it being just a seller’s market. Still, there are players in the market with vast resources capable of paying nonsensical multiples, and we don’t see those players acting with any more discipline now.

What are your short and long term predictions for the independent artist sector?

Independent and self-distributed artists in the long run will continue to erode the market dominance of Universal, Sony and Warner. Technology is the key to distributing the ability to connect with fans around the world.

“Independent and self-distributed artists in the long run will continue to erode the market dominance of Universal, Sony and Warner.”

Local consumption of local content is a huge factor. The rapid consumer adoption of video first platforms, specifically YouTube and TikTok, but also Meta, Twitch and others, will indelibly shift power to the creator.

Competition for share of consumer time amongst those platforms will be interesting to observe. We hope that all platforms offer the same equitable pathway to monetization that YouTube is leading.

Where else are the biggest opportunities in the music business today?

There are perhaps 120 -140 million sound recordings available today at the DSPs. Fewer than 20% of those have original video featuring the performing artist. We know that video and lyrics make music more valuable because they enable additional forms of consumption.

“Driving video creation at scale and marrying all songs with enhanced metadata and with lyrics onboard will make that music more valuable. In addition to this, we’re witnessing social video enable the creation of massive artist-direct audiences. Those audiences can be further monetized for the benefit of all rightsholders in many ways pathways that are known today and not yet paved.

If you could change one thing about the music business, what would it be and why?

Standardized metadata registration across sound recordings and compositions worldwide. It’s messy out there and all rightsholders are losing out on revenue due to inconsistent use, untimely registration and a lack of adherence to standards.

This mess also opens the door for inequitable distribution of earnings and outright fraud. What would the banking industry look like if it operated this way? We’re leaning into the approach led by Verifi Media, in which Downtown has a minority investment. We’re pleased to see that at least one of the majors has also leaned in here.Music Business Worldwide