The Services Sector Is Transforming The Future Of The Music Industry

Justin Kalifowitz, CEO, Downtown Music Holdings

The following MBW op/ed comes from Justin Kalifowitz, the CEO of Downtown Music Holdings. As Kalifowitz covers below, New York-headquartered Downtown services over a million creators, in addition to over 2,500 business/enterprise clients. It is home to Downtown Music Publishing, in addition to companies such as Songtrust, FUGA, and CD Baby.

For months on end, there has been growing interest in the underlying value of established music copyrights. And with good reason – they’re both extraordinarily resilient and increasingly scarce. But while many have attempted to analyze the industry’s future through the narrow lens of iconic artist catalog transactions, doing so obscures the significant transformation that is underway in the global mass music industry.

It’s no secret that the streaming era is completely changing the dynamics and opening up new audiences for all kinds of artists around the world, along with more tools, services, and platforms to support their endeavors. But it’s the scale and global nature of the change that many are just starting to wrap their heads around.

For proof, look no further than Spotify’s own disclosures last week that as 60,000 new tracks across more than 5,000 genres are uploaded to the service every day, they are expanding to 80 new markets in 36 languages.

“The convergence of technology, global scale, and a greater demand for a service mentality is blurring the increasingly faint lines between label and artist, between executive and creator, and between major and independent.”

The most significant distinction between now and previous periods of industry change is that technology is fundamentally altering market dynamics and the way the business of music is conducted. People are quick to point to the early 2000s as the era when technology disrupted the music industry, but that disruption was focused on circumventing business models, not offering new ones.

What we’re seeing now is an industry maturing and evolving. The convergence of technology, global scale, and a greater demand for a service mentality is blurring the increasingly faint lines between label and artist, between executive and creator, and between major and independent.

In a world where you can record, produce, distribute, promote, and monetize your works using any combination of well-established services and platforms, the historic value proposition offered by the traditional music industry is viewed through a different framework. This high-growth services sector and the businesses that harness them directly challenge the status quo.

Even amid a pandemic, artists are wasting no time putting these tools to good use: As former Spotify economist Will Page noted in his recent Financial Times byline, when looking at the volume of songs released in 2020, the ratio of artists “doing it themselves” exceeded the output of the three major labels by a ratio of 8 to 1.

With more creators making more music that reaches more people in more countries than ever before, both financial and strategic investors are taking note. In just the first two months of 2021, the music software and hardware producer Native Instruments sold a majority stake to Francisco Partners for a rumored $400M, Goldman Sachs invested $55M in Splice at a $500M valuation, and Sony announced its purchase of AWAL and Kobalt Neighbouring Rights for $430M.

“The ratio of artists “doing it themselves” exceeded the output of the three major labels by a ratio of 8 to 1 [in 2020].”

The evolution of the industry only stands to accelerate as more tools and services are made available and adopted by a broader spectrum of creators around the world.

A few weeks back, GCA Capital issued its latest quarterly trend report on the music industry, noting that the creator platforms and services sector “is a critical part of the digital music market driving the broader theme of democratization in the music industry” and is “underpinning the secular trends and growth in the market.”

Further to the point, in a research note on the music industry last September, Bank of America cited the rise in artist and label tools as a boost to self-distribution that makes the direct artist route more compelling to a broader set of higher-earning creators.

To be clear, these services don’t benefit only independent artists, but the entirety of the music ecosystem. By way of example, Downtown Music Holdings, which is a direct service provider to over 1 million creators, also has more than 2,500 business and enterprise clients. Our client base includes entrepreneurial managers, labels, publishers, and production companies of all sizes, as well as some of the largest media companies in the world. Reflecting the rich diversity of the modern music industry, our service businesses collectively support more than 23 million music assets.

We’ve been very candid at Downtown about our mission to build a more equitable global music industry, and that is the lens through which we have evaluated many of our own investments over the last 14 years. The transformative ability of music services to create a more equitable industry has been a key driver behind our strategic expansion into distribution, social video monetization and artist and label services, and growth across six continents serving clients in more than 145 countries. All of our business planning, platform development and acquisitions have been informed by the belief that providing creators and their partners with the access and tools to compete at scale is essential to leveling the playing field.

Those who are interested in the future of the global mass music industry would be wise to consider the diverse set of businesses that have quietly built up the technology, capabilities, relationships, and capacity needed to support the millions of multilingual creators and the tens of thousands of works being distributed every day.

The creativity knows no bounds, the volume is truly staggering and, collectively, they represent a tremendous opportunity for those willing to look ahead.Music Business Worldwide

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