History will show that Matt Pincus is one of the most successful – if not the most successful – music industry entrepreneurs of his generation.
Even more handily for the purposes of this interview, he’s also one of the smartest.
The New York-based exec founded SONGS Music Publishing back in 2004.
With the help of partners Ron Perry and Carianne Marshall, SONGS became a pop powerhouse, with a sterling reputation for being ahead of the A&R curve.
Its signings, including Lorde, Diplo/Major Lazer and The Weeknd (Abel Tesfaye) built the reputation and value of SONGS to the point that the company eventually sold, late last year, for a reported $160m – to a fund managed by Kobalt Capital.
(Another of SONGS’ more recent signings, XXXTentacion, is currently in the upper regions of worldwide charts for tragic reasons. Pincus says the rapper’s premature death is an “extremely sad situation for everyone connected to SONGS”).
With SONGS now fully plugged-in to Kobalt’s global systems, Pincus finds himself with something he hasn’t had for a while – a bit of spare time on his hands.
Some of this spare time is being used to inject wisdom in fresh directions: Pincus was recently unveiled as a Special Advisor to Snapchat, as well as an Executive in Residence at LionTree – the media/tech investment bank which acted for SONGS during its sale.
And some of this spare time (a slight, albeit generous, portion) is being used to answer MBW’s questions – on A&R, on the SONGS sale, on Sony’s Spotify payout and on Tencent’s potential in entertainment.
Oh, and on the future of the entire music business – and everything in it…
If you were to hypothetically rethink the business you created with SONGS, which aspects would you try and replicate immediately, and which things would you not do again?
No matter what aspect of the music business you’re in, the focus should always be music and the artists who create it. That was our priority at SONGS from the beginning, and any business I started or ran in or around music would do the same thing.
Second, if you’re going to try to compete with the majors, you need to be strong where they’re not – because they’ve got scale and capital resources that you don’t.
SONGS succeeded because we attacked contemporary publishing – an area that was out of focus for the majors at the time – and we filled a vacuum that existed in A&R, and synchronization.
“If you’re going to try to compete with the majors, you need to be strong where they’re not.”
When we started, the majors were all in merger mode. They were buying and selling each other, and they took their eyes off of contemporary artists.
On the publishing side, they were dropping A&R budgets for new writers – by 40%-plus, in the last year I was at EMI. On the label side, they weren’t seeing the singles and collaboration market, because they were still making albums for artists.
SONGS won by providing a level of intimate A&R and creative service that was better than writers and artists were getting from the majors at the time. We competed where the big companies were weak.
But the modern music business is a different story?
Yes, the business is always in flux. The major labels have organized around singles, and the major publishers now have leadership focused on contemporary [artists]. So, if you’re going to differentiate yourself today, you’re not going to do it on the same factors that SONGS did.
The music companies that will succeed [in 2018] are those who can build and engage audiences in the streaming world. Going forward, the people who know how to get into the conversation, identify things that are going on in the culture, and build the creative strategy around that, are going win.
“If you’re going to differentiate yourself today, you’re not going to do it on the same factors that SONGS did.”
There are some big independent labels that have been around for a long time – Beggars Group, Ultra, Epitaph, etc. Those guys speak very well to their audiences, and have for a very long time – whether that’s dance kids, indie rock kids, metal, hardcore kids etc.
What’s the next iteration of that? The way forward is going to be speaking to a new generation of kids in a much more person-to-person manner.
The market that those audience-driven independents have occupied for so long will still be there, but the curve will be filled out by people that are marketing in a different way. Tomorrow’s artists will need a new breed of champions.
Give us an example of one thing this new breed needs to focus on.
Eighteen months ago, [the market] was all about songs, and not about artists. But there are recent signs that kids are now buying into the story around artists more than they were. Interestingly, it’s the [acts] that have the most activity outside of pure music that are getting noticed.
Either because they’re super-edgy, or because they’re super-active, artists that are particularly active on socials are gaining [traction].
“Records are breaking in new ways.”
Records are breaking in new ways – whether it’s the SoundCloud rap thing which is totally bottom up, or major label artists like Post Malone who keep peppering the market with music all the time – and I’m not sure the big companies really know what’s going on yet.
That’s an opening for independents. Go get it, kids!
I would tell a kid starting a business today to take the same ethic that SONGS did: put artists and music first and think about where you can uniquely compete with scale players. Then go figure out how to scare up a crowd.
You often hear that ‘tribes’ dedicated to certain types of artists/genres are dying. You’re saying they might be coming back?
We don’t know to what degree kids are going to pattern their social lives around music going forward. It’s not going to be the same way that it was when I was a kid, where the metal-heads sat in one place in the lunchroom, and the punk rockers sat in another place.
But I think there is some evidence that kids, at some point, buy into the story of the individuals around the music, not just the tracks.
Part of SONGS’ success was that we looked at music publishing as not just a collection of copyrights, but as a community of people whose thoughts and ideas resonated with an audience. The catalog value came after that.
Surely streaming playlists aren’t the thing that elevates the ‘artist’ from the ‘song’.
The playlist business at the streaming services looks to me a little bit more like retail marketing. [Playlists] are displaying songs, rather than creating organic demand.
As time goes on, I think the audience around music will become more stratified and more organized around channels; you’ll start to see audience creation move back down the curve towards where music is being created.
“The audience around music will become more stratified and more organized around channels.”
Look at what’s going on with artists like Tekashi69 and Trippie Redd. People are interested in the whole story around them – controversial or not – and not just in one song versus another song.
You’ve got a lot of artists telling new stories – particularly on the hip-hop side – but it will happen in other areas of music too, where you’ve got more and more artists releasing lots of material, and building a story around their own narrative.
publishing was always your main focus at SONGS. Why?
We’ve got to rewind to the time when SONGS was really investing heavily. At that point, breaking records was all about radio. And, as the market pivoted from albums towards singles, radio really gained strength.
The rhythm [radio] format, and the pop [radio] format became the predominant way that records were entering the marketplace [in the US]. And so competing in that space as a label was expensive.
Four or five years ago, breaking a single in the United States at [radio] format [cost], like, $100,000. Breaking it at pop could be $200,000 or more. And the [model of the] album float behind the lead singles is gone. So, no cushion.
“The plan for SONGS was to be in the same deal flow as the majors, but to be seen as ‘the other one’.”
How many shots can you take as an independent record label when the ones that don’t work make no revenue at all? On the publishing side, [we] could do enough publishing deals with the kind of capital base we had for that to make sense. But on the recording music side, because it took so much money to get records in radio, we knew you can’t take shot after shot there and survive.
The plan for SONGS was to be in the same deal flow as the majors, but to be seen as ‘the other one’. Historically, those companies have done very well; Island, A&M, Chrysalis, Jive, Zomba – they were all independents in the same deal flow as the majors. A white cat in a litter of black cats.
At the time we created SONGS, you could get into that position with a modest amount of capital. In the record business, it was much harder. Now, those winds may be shifting.
How significantly have those parameters on the recorded music side – the barriers to entry at US radio especially – changed? If you were to set up SONGS today, would you perhaps consider being more of a recorded music-driven organization?
Things have shifted. The distance between a record coming out and a record being ready to go to pop radio is longer than I’ve ever seen it. I think that [gap] will increase as the playlisting business really begins to mature.
That’s an area of opportunity in the recorded music space, but the companion question is how records are actually going to differentiate themselves in the marketplace.
In the primitive streaming world, a record is nothing until it’s something; then, the minute it becomes something, everybody knows about it. So, the price of finding talent skyrockets, because everyone knows when something’s about to become a hit, and it takes millions of dollars to sign these artists.
That’s a tough business for an independent company to compete in.
But, in a world where there are more channels to reach audiences with marketing-driven music – as opposed to promotion-driven music – you don’t need a gatekeeper to break a record. Maybe that’s a time when the role of the independent begins to shine.
There are some examples of companies that are starting to do a good job marketing outside of radio in certain circumstances. That could be an early sign that a new kind of independent label is going to become a real growth area going forward.
Which companies are you referring to in particular? Is AWAL one of them?
AWAL was a very smart decision for Kobalt. It puts them in the conversation around the new record business, and particularly around middle-market [artists] in the music business that could be a real next-level play.
There’s a company I particularly like called Create Music Group that is a leader in rights management, but has been doing a very good job of discovering artists on its platform and backing them.
They’re using their knowledge in the streaming world to find and break talent in a new way.
“AWAL was a very smart decision for Kobalt, and puts them in the conversation around the new record business.”
Empire’s also done a very good job of differentiating itself, in terms of bringing new talent to the marketplace in a creative way.
The idea of audience plays centered around video is an evolving space; there’s a company called 88Rising that’s geared towards an Asian demographic and doing a great job reaching kids through music here and in Asia.
I’m seeing a few other similar plays aimed at different audiences. With Spotify and other big players clearly focused on video, that could be an interesting area.
Overall, there are some signs that there’s a new energy in terms of companies that are able to create value in identifying and promoting talent outside of the [industry’s] normal channels like radio and playlist-focused distribution.
Are you watching the rise of BTS, and that South Korean model?
It’s really interesting, for sure.
You’re going to see more international repertoire breaking in the United States. It’s been happening with UK [artists] for decades and decades, and with European acts periodically. But the fact that you now have an Asian act breaking to No.1 in the US is substantial.
“the fact that you now have an Asian act breaking to No.1 in the US is substantial.”
From an industry perspective, the Korean music business operates very differently to the United States music business.
Whether that sort of top-down setup you see at Korean music companies is going to be the predominant way that things happen in the US? I don’t know I’d go that far.
But, from a repertoire perspective, I think it’s very interesting, and quite indicative of the kind of global markets you will see increasingly going forward.
There were rumors that the bid you accepted for SONGS from Kobalt Capital wan’t the biggest amount of money that you could have taken.
Yes, that’s absolutely true.
So why did you do that deal?
There were many reasons why we decided to sell to Kobalt, and none of them were about price. First of all, I’ve known Willard [Ahdritz, pictured] for 15 years, and I’ve known Laurent Hubert for maybe a decade; they are honorable people.
I knew that, when it came to doing a deal, they were going to be straightforward, efficient, prepared, and ready to go.
SONGS is a business we built over a 14-year period – how we exited was very important to me, in terms of being able to sleep at night.
The second thing is that Kobalt has built a scale infrastructure that could minimize the cost of switching the copyrights from one place to another. I was worried about my songwriters’ money – about having problems shifting the money flow from one place to another.
“I could have sold to a major, which, as an independent, was not the preferable route.”
Kobalt has a lot of experience doing that, and they have technology that’s second-to-none. They are a safe pair of hands on the back end.
I could have sold to a major, which, as an independent, was not the preferable route, simply because we were an independent company. It felt good for our catalog to remain independent.
Last but not least, Kobalt represents global superstar talent. So, our writers would be in good company. To put them in the company of Max Martin and now Childish Gambino, and many more, made me feel this was the right fit.
We had a heart and soul in SONGS. We built it in our own image and, money aside, how and where we put our legacy became my life’s work of the company.
So, at the end of the day, I had many options; some of them were financially well north of Kobalt [‘s offer], but the deal we did felt like an elegant and an appropriate end to the story.
Do you think there will be enough growth in the music publishing market – through rising royalty rates and streaming’s trajectory – to justify the current trend for 15X-plus multiples in acquisitions?
There’s no question that, over the next, let’s say, 24 to 36 months, you’re going to see revenue expansion in music. Consumption and subscribers are both growing at a fast clip. So, you’re going to have a rising revenue environment.
Something which is often overlooked is that it’s not the same situation for publishers as it is for labels with streaming; in some ways, there’s good news and bad news for publishing.
Publishing is a regulated business; 75% of music publishing revenues are regulated. So, it’s not a revenue environment that’s purely driven by demand, and how that plays out will be a significant determinant of where music publishing revenues go.
“Not all publishing catalogs are equal.”
On the other hand, there’s been some good news lately: the recent CRB decision [pushing up US streaming revenues 44%] was good, and there’s been some talk of Consent Decree reform on the performing rights side in the United States, which could be a really positive event.
When you get into multiples, not all publishing catalogs are equal. A great catalog is a mattress made of sheets – song-by-song, cash flows stacked up.
How deep into the catalog is the revenue generated? You have to look at the depth of rights; how long is the retention period that a publisher has over a catalog?
Plus, I’m not sure that it’s clear how different [genres] of repertoire are going to be treated by the streaming market.
In these very early days, it looks like streaming is weighted to contemporary music rather than catalog. People need to pay attention to that when investing in publishing. It might turn around as streaming develops, and the audience begins to scale out.
Why is investor confidence so high in music publishing?
When I started, there were a bunch of hedge funds that were piling money into music publishing, and multiples got up to 20x. Then, all of the sudden, the economic crash happened, and people got nervous, and a whole bunch of them decided to sell to Bertelsmann.
Now, we’re entering into another period where there is a lot of dry-powder capital with lots of money chasing deals. One of the big differences is that, say, five or six years ago, in terms of music business investment, there were a couple of big bodies on the road.
“EMI Music Publishing’s sale is a very positive [financial] event.”
The Terra Firma acquisition of EMI was a very bad signal to the market. That massive overpay lost a lot of money.
Now, it’s a different story. EMI Music Publishing created a very good return to a sovereign fund in a very short period of time on a really big piece of money. That’s a very positive event.
Then, if you look at the Warner Music Group, it’s pretty clear that they’re at a big return [for Access Industries].
So, you have a couple of very good events on the bigger end of the scale, where people have earned a really good return on a sizeable investment in music. At the same time that you have a lot of capital in the market, looking for deals. That combination is going to create a robust dynamic. I think that will last for a while, and things are going to be expensive.
As ever, it’s about buying the right assets…
When [Stephen] Swid, [Martin] Bandier, and [Charles] Koppelman bought CBS Songs in the ’90s people thought they paid a crazy price. That was one of the best acquisitions in the history of the music business. Buy the right one!
Over a long period of time, it’s tended to be that the value of music rights rises. But you need to have the stomach for it across cycles. If you’re trying to get in and out within five or six years, I think that’s really dangerous.
Do you have any concerns or general thoughts on Sony Corporation’s two big moves in the publishing market? First, snaffling the additional 50% of Sony ATV for $750m and now, regulatory decisions notwithstanding, Sony growing its stake in EMI Music Publishing to 90% with a $2.3bn deal?
With respect to the EMI purchase, it was the natural place for that catalog to go. There was a forward matching right on deals that the [EMP-owning] consortium had and, operationally, the switching cost to anybody other than Sony would have been punitively high.
Sony was in a structurally different position than any arms-length buyer.
Spotify has reportedly started signing direct licensing deals with artists, and using some clever calculations to benefit themselves and those acts. Do you think that’s a step towards the service ‘signing’ talent?
I’m a little bit wait-and-see on this.
The recent announcement that Spotify is going to start, in effect, advancing cash [off] Spotify earnings – not crossed against non-Spotify earnings – could be a step in that direction, or it could simply just be a cash flow enhancement to artists on Spotify’s platform.
For a lot of reasons, I don’t think Spotify and Netflix are the same company. Audio streaming and video streaming are really different, and I don’t think that you’re going to see that replication of the [original programming] Netflix model in audio.
“For a lot of reasons, I don’t think Spotify and Netflix are the same company.”
One major reason for that is that the predominant model in music is everything, wherever the consumer wants it. So, music services need to have 100% of content, and artists want [their tracks] on all platforms.
It would be a really substantial paradigm shift for artists to decide that they were okay to be on one platform exclusively; in my estimation, despite a handful of one-off examples, the days where Spotify will go into full competition with Universal to sign exclusive rights to artist on a worldwide basis are not on the map right now.
Also, while Spotify is a business that has come to a considerable scale, it still has to do licensing deals with the majors. To go into full competition with their licensors right now is a big risk.
It’s certainly caused a lot of rumblings at the majors.
Over the next 24 to 36 months, you could see the tectonic plates in the music business really start to shift, and the traditional owners of music start to switch over to new hands.
Or, we could see the current owners in the majors all retrench, and go for a second stage of the rocket.
“Over the next 24 to 36 months, you could see the tectonic plates in the music business really start to shift.”
I don’t think we really know yet, even though people are watching the Spotify stock price hour-to-hour like a heart rate monitor.
I think the truth is, everybody [in music] is playing a longer game than that right now.
Are you keeping an eye on Tencent, and what it’s up to – taking its minority space in Spotify while obviously consolidating its dominance of music in China? What if Tencent now buys a minority stake in UMG, for example?
This is what I mean by ‘tectonic plates’. There’s a lot of dry-powder capital in the market at a big scale – not only from big, strategic operators like Tencent, but also sovereign wealth funds, and Softbank-type of vehicles.
Whether that results in a wave of M+A activity around music at the high end or not wil be really interesting to see.
When I worked at EMI in 2002, the iTunes download business was just coming to the fore, and everybody was saying, ‘Oh, it’s revolutionary, and everything’s going to change.’ Instead, it kind of ended up being a version 1.1 of what we had already seen in the CD business – just smaller. It didn’t fundamentally shift the way the business worked.
“we’re looking at a period where the music business… might actually, fundamentally change.”
Now, we’re looking at a period where the music business – the way that it operates, the people who own the assets, and how talent is discovered and infused in the marketplace – might actually, fundamentally change.
Barring a major event in the economy that results in a global downturn, I think this is probably the most exciting time that I can remember in the music business.
The period of time that I’m focused on is the period where the global subscriber levels are rising to their ultimate outcome. When they begin to plateau, things could get weird for repertoire owners.
Do you follow the optimism of Goldman Sachs, and its report projecting over 800m music streaming subscribers by 2030?
A lot of people assume linear growth when they look at music now. I’m skeptical of that.
Right now, subscriber levels are growing at a similar rate as consumption on the major DSPs.
What happens when subscriber additions begin to slow, and consumption explodes? That’s an existential inevitability, it’s definitely going to happen. When it does, you will have a declining penny rate environment, because it’s a fixed pot of money that is paid by streaming services to music [rights-holders].
I think it might get weird at that point…
Is that necessarily bad news?
No, but I question whether the explosion in consumption will be evenly distributed around the market or not.
Look back a couple years ago: Adele comes in with an eight million-equivalent seller in a year and crowds out the whole market.
If consumption in the future is concentrated on big pop acts, they’re going to suck money out of everybody else’s pocket in a fixed revenue environment. And, so far, streaming numbers are pretty correlated with pop radio – at least in the US.
On the other hand, if companies get good at channel marketing and niche audiences start to build on streaming platforms, all the way down the spectrum, in a more efficient way, you could see that money more evenly distributed.
Anybody who owns a specific piece of repertoire today is going to see their catalog affected in ways that I don’t think are predictable. So, I don’t think you’re likely to see a linear ‘up-and-to-the-right’ pattern in the numbers over the next 12 years, despite what the bankers say.
The big question is, how many [potential] global subscribers are there? I don’t think anybody really knows the answer; but there’s a finite amount. Is it half a billion? Is it a billion? Is it 30 to 40% of mobile smartphone penetration, globally?
I don’t know, and I think that’s a really interesting thing to watch. How many subscribers – and at what price? They’re the key questions.
Not everybody going to pay $9.99, that’s for sure.
One of the things that you see right now is that consumption is massive, but it’s in places you don’t necessarily expect.
At SONGS we had a song with two billion global streams on YouTube alone, massive volume, but 8% were in the United States – and 12% were in Mexico.
Right now, in places like Mexico, and Indonesia, and the Philippines, you’re seeing massive consumption levels, on ad-supported platforms in zero-CPM environments. Basically no better than piracy.
Are the digital businesses going to figure out how to monetize advertising there? We don’t really know. But when we start reaching saturation levels on $9.99 premium subscribers, that will be a really important question.
What kind of major music company leader do you think Ron Perry is going to make at Columbia, and same with Carianne Marshall at Warner/Chappell in her COO role?
My biggest point of pride in the exit from Songs is watching Ron and Carianne get major music industry leadership positions. It defines the way this business is going to run tomorrow.
Ron is probably the best music person of his time. His A&R skills are second-to-none. He’s a phenomenal talent and I think he’s going to do a great job.
Carianne is probably the finest publisher I know. She’s young yet seasoned, and has incredible creative talents. They’re going to crush it; they are just tremendous people, and I can’t wait to see what they do in their new positions.
If I could give a magic wand, and you could change something about the music business today, what would it be, and why?
Can I first give you a wonky answer? There is no way that the music publishing industry can deliver a global license to a digital company today. It makes no sense and it drives any forward-thinking person crazy.
If a Google, Apple, Amazon, Facebook, Twitter, Snapchat, anyone, wants to get a license to use music around the world, the publishers can’t give it to them.
That is a structural flaw in the business. So, one just-add-water way to change music publishing would be to remove that friction from the market. Unfortunately, it’s complicated…
Is it, ultimately, vested territorial interest that is stopping that from happening?
There are multiple reasons why it’s the case, including some regulatory stuff, but it was a source of tremendous frustration for me at SONGS – the fact that I couldn’t deal, on a global basis, with digital businesses.
At the same time, music is more global than it’s ever been: I mean, Diplo is selling tens of thousands of tickets in Pakistan! So, it’s just out of step with how the world is working, and it’s got to change.
My other answer to the ‘magic wand’ question is this: we’re moving to a period of much more alignment of interest between artists and the companies that work with their music.
“Some of the relationship friction probably goes back to another time, and is now ready to be retired.”
When I was running SONGS, I would listen to all this animosity that was going on: about how labels are screwing artists, or how publishers didn’t account properly – all these gripes that went back decades. And they didn’t sound anything like the relationships that we had with our writers.
Some of the relationship friction probably goes back to another time, and is now ready to be retired.
As we continue to see more transparency, more professional accountability, and more capital from different places coming into the market, it’s time for everyone on the music side to put down our axes, move past the dynamics of yesterday, and figure out a way to align our interests going forward because we’re up against some pretty big interests.
With that in mind, do you have a take on the surprisingly generous way Sony Music is dealing with paying out its Spotify equity money?
Somebody retweeted that story when you guys put it out, and I laughed about the comment. It said something like, “A major does something nice… and everybody is freaking out.”
Everybody tries to read politics into anything. I don’t know Sony’s policy motivation for doing what they did.
But any time that a music company decides they’re going to distribute more money to more artists is a good day, in my book.Music Business Worldwide