Bow down to our new music-tech overlords
The music-tech market is hotter than ever — so hot that it might be reaching a boiling point.
While music and tech have always been tightly intertwined throughout history, the concept of music-tech as a vital investment category has emerged only in the last two decades, with significant momentum bubbling up in the last five years. We can break down this evolution into three stages:
- 2005–2015: Widening the playing field. This period introduced more accessible models for music production (e.g. DAWs like GarageBand), financing (e.g. crowdfunding platforms like Kickstarter), distribution (e.g. social content apps like SoundCloud), and consumption (e.g. streaming services like Spotify) — laying the groundwork for more people than ever before to participate in the music economy, as both creators and consumers.
- 2015–2020: Turbocharging investment. This period saw a new influx of revenues and financing to support a wider playing field in the music business. 2015 in particular was a major turning point: Not only did the global recorded-music sector register annual growth for the first time in 15 years thanks to streaming, but investment in music-tech startups also doubled from the year prior, to just under $2 billion. Music rights, and the infrastructure that supported them, were seen as increasingly valuable to outside financiers — leading to a string of industry IPOs between 2018 and 2020, from music-tech companies like Spotify and Tencent Music, record labels like Warner Music Group, and catalog acquisition funds like Round Hill and Hipgnosis.
- 2020–present: Experimenting by brute force. The COVID-19 pandemic wiped out $30 billion in annual revenue from live shows, bringing a sudden, unforgiving wave of disruption to the entire music business. To cut through the noise, connect directly with fans — and, fundamentally, survive — artists and music brands embraced unprecedented levels of experimentation with new tech channels, especially in livestreaming, social audio, gaming, Web3, and generative AI. Both private and public investors poured money into music companies leveraging this digital transformation, as illustrated in major VC rounds for startups like Royal, Splice, and BandLab and IPOs from the likes of Universal Music Group, Believe, and Deezer.
As a result of these shifts, the shape of commercial power in the music business looks quite different, and much more crowded, from 20 years ago. Major music rights holders and tech companies are now expected to generate profits for a dizzying array of stakeholders sitting outside of industry borders, including banks, private equity firms, big-tech conglomerates, and sovereign wealth funds — not to mention public retail investors.
There has been no central resource tracking these macro shifts in music-tech ownership and financing over time. So, we decided to build out that resource ourselves.
The music ownership ouroboros
This diagram aims to map the macro ownership structures of the modern music business, with a focus on the growing influence of non-industry-native institutions. It is non-exhaustive and intended to serve as a launching pad for further exploration, discussion, and debate on key issues facing the industry’s future.
Over the past four years, we’ve been pulling out investment and ownership changes from press releases, company earnings reports, and stock market coverage from sites like Bloomberg, visualizing these relationships in a color-coded FigJam flowchart.
Some examples of relevant news from 2023:
- Kakao Entertainment lands $966 million from sovereign wealth funds, including Saudi Arabia’s PIF (Jan 2023)
- Songtradr acquires Bandcamp (Sep 2023)
- Morgan Stanley Invests Over $700 Million to Buy Catalogs With Kobalt (Nov 2023)
- New Mountain Capital Announces Majority Growth Investment in BMI (Nov 2023)
- STG completes acquisition of Avid Technology (Nov 2023)
- Muse Group buys Hal Leonard with backing from Francisco Partners (Dec 2023)
There’s an intentional reason why this diagram is overwhelming, at least at first glance. Media publications tend to talk about “the music industry” as a singular, homogenized entity that thinks and acts as one. In reality, the “music industry” is a complex system of many sub-industries, each with their own distinct set of business priorities and incentives. Changes in one part of this system can have significant, long-term ripple effects throughout the rest of the system, in ways that can be hard to foresee without a macro view on what’s happening. (For example: we didn’t realize until building out this diagram that Bandcamp is three degrees of separation away from Tencent Holdings, or that BlackRock is three degrees of separation away from Rotana Group, a media conglomerate owned by a Saudi Prince.)
Upon closer examination, two major meta-level patterns emerge from the diagram that speaks to the boiling point of music and tech that we are currently in. These two patterns can be defined as the globalization and financialization of power in the music industry — both stemming from the idea that the companies at the top of the music food chain may not be what we expect.
1. Globalization of power
What isn’t discussed as much — but is happening in parallel with equal if not greater force, is the shift in corporate music-industry power dynamics away from the Western hemisphere, and towards Asia and the Middle East.
More specifically, music-industry capital flows are now inseparable from both Chinese and Saudi money. While these markets may not be churning out global hits on the surface, their governments and tech conglomerates are financially participating in the behind-the-scenes operations that make those hits possible.
The two main players to watch are:
- Chinese conglomerate Tencent Holdings, which owns equity stakes in Universal Music Group, Warner Music Group, Spotify, and Epic Games. Tencent Holdings owns Tencent Music — the biggest music-tech company in China, with over 100 million paying subscribers (out of around 600 million total monthly active users) across their streaming and social karaoke apps — as well as WeChat, a social media and mobile payments app with over 1 billion monthly active users. Notably, the Chinese government is also a new stakeholder in a domestic subsidiary of Tencent.
- The Saudi government’s sovereign wealth fund, known as the Public Investment Fund (PIF), which owns equity in Live Nation and Korean media conglomerate Kakao Entertainment. The PIF is currently the third-largest shareholder in Live Nation, behind media conglomerate Liberty Media and investment advisory firm Vanguard Group. Kakao owns KakaoTalk, the top messaging app in Korea, as well as Melon, one of the country’s top music-streaming services. (Separately, the Saudi Arabian media company Rotana Group, owned by Saudi prince Al Waleed bin Talal, also has a stake in the French streaming service Deezer.)
The motivations for Tencent and the Saudi PIF to invest in the world’s biggest music companies are both commercial and political. A tech conglomerate like Tencent could benefit from direct access to intellectual property and talent via its equity relationships with major labels — combining music creation, marketing, distribution and consumption into one business, as competitors like ByteDance (which owns TikTok) have already accomplished.
Politically, entertainment is a central pillar of the Saudi government’s future plans. In 2016, the government introduced their Vision 2030 plan, with the goal of reducing their reliance on crude oil and positioning Saudi Arabia as a more diversified economic and cultural force on the world stage. Notably, the plan includes an Events Investment Fund (EIF), which hopes to build 30 local venues and have events contribute 10% of the country’s annual GDP by 2030 — making the Live Nation investment a no-brainer.
At large, the emergence of China and Saudi Arabia as new epicenters for the music industry could affect everything from the kinds of artists who gain global popularity, to the decision-making processes and content policies within major music corporations.
In fact, the music industry would do well to interpret these investments not just as new sources of capital, but as tools for increasing the soft power and improving the global image of the countries involved. This will inevitably lead to tensions around competing economic interests and political values — as we’ve seen play out in broader entertainment cases like the Saudi government ordering Netflix to remove “un-Islamic” (read: pro-LGBTQ) content, or multiple countries around the world advocating for a TikTok ban due to user privacy concerns.
Music is a cultural product, and what is acceptable and celebrated in one culture may be controversial or outright offensive in another. Now, many of these conflicting cultures are implicated in deals at the upper echelons of the music business. One has to wonder whether the music companies that are eating up Chinese and Saudi money in particular are prepared to grapple with the sociopolitical scrutiny that will follow.
2. Financialization of power
Given that so many major music rights holders and tech platforms today are owned by publicly-traded companies, are planning to IPO, or are owned by a private-equity firm, institutional finance now undeniably sits at the top of the music-industry food chain. As the Financial Times notes: “Blackstone now earns money every time Justin Timberlake’s ‘SexyBack’ plays in a shopping mall.”
In turn, financial markets are increasingly influencing the music industry’s commercial practices and structures — a process often referred to as simply “financialization.”
The financialization of music is clearest, and best documented, in the world of catalog sales. We now live in a world where it is commonplace for legacy artists to sell the rights to their music for lump sums, and for rights owners and finance firms to trade songs and their associated royalties with each other as if they were stocks or real estate.*
Importantly, though, the impact of financialization extends far beyond catalogs; as the ouroboros diagram suggests, it now permeates throughout all verticals of the music business. A few examples:
- Performing rights organizations (PROs). With BMI’s impending sale to New Mountain Capital, there are now two PROs owned by private-equity firms (the other is SESAC, which sold to Blackstone in 2017). Press releases around both acquisitions pointed to the same growth opportunities for PROs, including growing royalty collections through licensing deals with a wider variety of platforms; streamlining royalty admin infrastructure; and acquiring companies that can facilitate more service offerings and international partnerships. Critically, Blackstone also owns stakes in music rights companies like Hipgnosis and eOne Music, which points to a flywheel effect: As performance royalty collection processes improve, overall revenue for legacy catalogs could grow over time and be received more quickly, driving more value for their private-equity owners.
- Creator tools. The music creator tools market currently serves 76 million users and is projected to generate $10 billion in annual revenue by 2030 — a nearly 70% increase in value from 2022, according to MIDiA Research. Much of this growth is anticipated to come from trends like generative AI simplifying the creative process, previously fragmented tools merging to create more cohesive workflows, and more fans subsequently becoming casual music creators (a segment that MIDiA calls “consumer-creators”). No wonder media conglomerates and private equity firms are pouring so much money into music creator tools as their next major growth opportunity. The biggest players to watch here are Francisco Partners, which owns Kobalt and Native Instruments and has equity stakes in Muse Group and Eventbrite; Goldman Sachs, who is the lead investor in the latest funding rounds for Splice and Fever; and Caldecott Music Group, which owns several creator-oriented companies like BandLab and ReverbNation (and whose CEO, Meng Ru Kuok, is a member of Malaysia’s richest family).
While not currently represented in the ouroboros diagram, it could even be argued that the recent Web3 music hype cycle — especially platforms that use NFTs to distribute fractional ownership and revenue-sharing around music assets, like Royal and anotherblock — has been an attempt to apply financialization to the independent music sector.
The primary argument in favor of financializing music is that more capital can help drive more innovation and operational improvements across the board. It’s not inherently bad that financial markets see music as commercially valuable; whether you’re an artist releasing your first album or a major corporation trying to execute on a new strategy, money is often the primary limiting factor to bringing ambitious ideas to life. The positive ripple effects of financialization could include more investments in music startups, more resources for international expansion to meet an increasingly global consumer base, and much-needed efficiencies in areas like music rights administration.
On the flipside, the short-term, profit-driven motives of finance are arguably misaligned with the long-term mindsets that drive real impact in music. Pressures to deliver shareholder returns could actually discourage investment in untested, experimental ideas — instead directing capital towards initiatives that are commercially safe and squeeze out maximum revenue, at the expense of artist wellbeing and long-term industry health. Private equity firms in particular often encourage company consolidation as a tool for streamlining operations and reducing fragmentation in a given industry, which could stifle competition and lead to terms that are both less transparent and less favorable for artists and rights holders.
We’re seeing these dynamics play out in real time in the media publishing world: Private equity firms are gutting reporting and editing teams at local newspapers, while major publishers like BuzzFeed, CNET, G/O Media, and Sports Illustrated are churning out AI-generated articles in the same breath that they are laying off staff.
A similar risk lies ahead for the music industry — especially for the sole reason the industry exists in the first place, namely the music creators themselves. The tools and revenues that these creators lean on to express themselves and nurture their careers are increasingly in the hands of stakeholders who, commercially speaking, are playing an entirely different game.
*A side note on catalog: Multiple sources suggest that catalog acquisitions could slow down significantly in 2024, with power shifting back from institutional finance to traditional music rights holders (i.e. record labels and publishers).
The Financial Times reported that in the wake of rising interest rates and falling catalog prices, major private equity investors including Blackstone, KKR, and Apollo are slowing down or pausing their catalog purchases, and reconsidering their music investment strategies altogether. Separately, Shot Tower Capital’s annual report on music catalog sales noted that “strategic buyers” (i.e. more traditional music companies like labels, publishers, and distributors) were outpacing “financial buyers” (i.e. investors focused purely on buying catalogs to generate returns, like Hipgnosis and Round Hill) in their catalog acquisitions — and could be better-positioned for long-term success, given they already have the infrastructure to manage rights and secure hands-on placements and partnerships in film, gaming, social media, fitness, and other verticals.
Given these accounts, we can expect future additions to the “music ownership ouroboros” to lean more towards technology investments, rather than rights.