🔵 Value creation versus value extraction

The core problem affecting the music industry is something we should be discussing more.

Hi there -

I few things I was reading this week crossed over on a thematic venn diagram. The first was Martin Mills’ interview for Merlin back in February, in which he talked about the issue of diverging interests within the trade body’s membership, between those he felt are creating value and those who are simply providing delivery. I suspect any Beggars Group label such as XL would be his example of the former, with (and I’m speculating here) perhaps AWAL being an example he might offer of the latter.

The other article that got me thinking was the New York Times long read entitled “How Everyone Got Lost in Netflix’s Endless Library”. Whilst the article principally focuses on Netflix, it is really a look at how the shift to streaming media has led to TV companies spending less on productions and generally feeding a sort of “good enough” mentality that means comedies, dramas, movies and more and just OK rather than being exceptional. The shows to watch aren’t bad, they just aren’t all that good either.

I couldn’t help but reflect on these points relative to Spotify and the other DSPs. I have seen accusations in the past that a key aim of Spotify is to make our tastes in music worse - to essentially train us to accept rather more bland music. It feels a little “tinfoil hat”-ish, but there is a logic there if you consider the editorial strangehold the company now has in influencing what you listen to.

If Spotify could have us accepting less interesting music, it becomes easier to provide that at scale. Equally, in time, it also means Spotify can either provide more of this music directly, or it can find cheaper, simpler means to provide that music - AI services being a logical example.

The overlap point then, is this notion that - arguably - fewer companies are existing with the intention of creating value into the economy sector in which it is placed.

To be clear, I am not suggesting that artist or label services companies do not deliver value, and honestly I feel this is a legitimate point of contention. It would be simplistic (or lazy perhaps) to argue that companies like AWAL or The Orchard do not break new artists; I think history would suggest otherwise. The success of someone like RAYE, who now releases music via The Orchard, would argue that these companies are very much still in the business of finding and signing deals with talent that provides the opportunity to break through, particularly in this case after the artist had been sidelined in her deal with a major.

Artist services companies are capable of creating value then, but I wonder if perhaps a safer statement to make is that there is more value extraction going on than there is creation, and this might lie at the heart of not just the issues around the music industry, but those in arts and culture elsewhere.

We have hit a point where there is a mass of entertainment available which, truth be told, could probably serve us all for generations to come. Just as there is more video content on YouTube than any human could watch in a lifetime, so one might argue that we have now hit a point where all the music we need to consume might already be out there.

As a consequence of this, catalogue is now a far greater share of plays compared to new, frontline music. This, to my mind, bears out this notion that if more plays come from “old” music, we have now tipped the scales such that infinitely more value is being extracted (i.e. through recycling old music) than is being created (i.e. by signing and breaking new artists). There was always a balance, but in 2024 it leans so heavily towards catalogue that frontline is starting to look more insignificant than ever.

For that reason, I can sympathise with Martin Mills’ point. I think historically we have viewed things across “indie vs major” lines; the plucky standalone businesses taking on the blue chip corporations, if you will. Increasingly though, I wonder if that is less the issue here compared to this “value creation versus value extraction” one, because this speaks to the well-being of the industry as a whole and affects everyone involved.

You can see further evidence of this issue if you look at A&R. The whole space is feeling palpably desperate in many quarters, as if A&R people simply don’t know what to sign, or where to find it. TikTok became the latest battleground, with everyone keenly trying to spot something going viral so that they might snap it up for a quick win. A success - even a single hit - ensures your job security just that bit more.

However the problem is that the batting average of TikTok-signed artists is horrifically low. Pink Pantheress might be one example, but this graph suggests even that moment might have passed:

Graph via Rostr

Everyone is drifting away from what I think is a core principle that is painfully missed most of the time: if you want to build something capable of generating serious long-term revenues, you need to invest into value creation. Furthermore, success from that value creation should then be reinvested (in part) to create even more value.

Right now, it feels like most companies are simply focusing the bulk of efforts on extracting value - including the likes of Universal. That might make for an impressive balance sheet for now, but it is also creating a time bomb for the future, as fewer artists are breaking through to the kinds of level we have seen in the past.

In discussing this with someone recently, they mentioned the concept of rentier capitalism. Put simply, a rentier is someone who earns money from capital without working. Sound familiar? One might argue that is what every music company with catalogue ownership is doing right now.

In principle, I don’t have issue with the rentier capitalism, provided it is kept in check. It always present, but as a tiny percentage of revenue.

The issue, it seems to me, is that this approach accounts for far more of the music industry’s income in 2024 than the previous system, which demanded labels reinvest back into further creating value. Hence the issues we now see: too many companies are based around extracting value and are not doing enough to reinvest that. Furthermore, they are aided by the streaming media economy which further speaks to - and rewards - that model.

With all of this in mind, it is perhaps not hard to see why the ORCA entity, which I wouldn’t call it a trade body… though in many respects, it kind of is, has come about. There is a clear idealogical difference between the companies that want to follow the model of breaking new artists and reinvesting into breaking even more of them, and the companies who perhaps place an undue reliance on simply drawing down revenue from existing catalogue or signing existing large artists for releases. ORCA appears to represent those firmly in the “value creation” camp.

Perhaps the next question then is how this might all evolve. To circle this back to the starting point, I feel this might now be a more important dividing line than simply whether companies are major labels or not. This is about how music is signed and nurtured, and unless things change - ideally sooner rather than later - it suggests a continue downward spiral in which music will simply get more and more bland, signed only to serve increasingly apathetic audiences.

We can do better than that. We have to.

Have a great weekend,

D.

🎶 listening to “Strawberry Hotel” by Underworld. They’re back, and they are NOT messing about. Honestly I feel Underworld are delivering some of their greatest works, which is no mean feat given both what has come before and the sheer time these guys have now been around. Absolutely essential listening, and I sincerely hope from here we’ll be seeing even more appreciation of these guys as the legends they most definitely are. Fine, fine work.

📺 watching “We Proved It: AI Mastering Is A Waste Of Money” by Benn Jordan on YouTube. This is a really interesting look at mastering in general - an area I’d say most consider to be something of a black art. Whilst the title suggests he’s going to fully dunk on AI mastering, the irony is that in the test towards the end of the video - spoiler alert - one AI approach winds up coming third out of ten. So hardly a comprehensive case for AI being useless in this space. On the whole though it’s just a great look at how to get into mastering, what to look out for etc. Super informative.

🤖 playing with Snapback, the new drum plugin from Cableguys and BT. Absolutely incredible system to provide drum layering with more ease than I’ve ever encountered before. At a launch price of about £25 it’s a total steal. Watch the video here for a walkthrough of how it works and therefore why it’s great.

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Stories worth reading from the Music Industry:

Suno, with a $500m valuation, has admitted training its AI on copyrighted music. It just named Timbaland as a strategic advisor.

According to Suno, in his new capacity as a strategic advisor, Timbaland will be taking an active role and will support the company with day-to-day product development and strategic creative direction “in order to ensure new generative music tools will meet the needs of both established and emerging artists”. Suno’s official announcement added that “this partnership places Timbaland on the ground floor of what has all the makings of the next music industry revolution.”

👆🏻Hot take: I really don’t understand what Timbaland has been up to of late. His Beat Club venture has largely gone nowhere whilst getting embroiled in all manner of controversy, whilst this collab smacks of “show me the money” given who the partner is. And that is before we consider how entirely contrary Suno are to… people exactly like Timbaland. Baffling in the extreme.

UnitedMasters strikes direct licensing deal with TikTok… as clock ticks down on Merlin’s agreement with ByteDance platform

TikTok has announced that it has struck a multi-year direct deal with prominent indie artist services and distribution platform UnitedMasters. One interesting aspect of this story: UnitedMasters is a Merlin member. MBW understands that UnitedMasters was licensed through Merlin until this deal. The current blanket licensing deal between social media giant TikTok and independent music licensing group Merlin officially expires exactly one week from now, on October 31.

👆🏻Hot take: when discussing this with a friend, they remarked that at the first word of TikTok attempting to break Merlin through a divide-and-conquer tactic, every other trade body, PRO etc should have stood in solidarity and downed tools. Instead, we get things like this, which entirely play into TikTok’s hands. Sad to see. Granted, Merlin has its own challenges, but even with those, aiding TikTok in sowing division to its financial gain is a huge error here.

Report predicts slowing growth for global music-merch sales

The global music-merchandise market will be worth $16.3bn a year by 2023 according to Midia Research’s latest report. But the company warns that growth in this market is slowing, and predicts that by the end of the decade its annual rise will be just 1.6%. It’s important to understand what Midia is talking about when calculating these figures however. It includes physical merch and digital merch, including in-game items, but also physical music: vinyl, CDs and cassettes.

👆🏻Hot take: this should worry the majors with their plans to extract more value from superfans. If merch sales - which is the exact area I’d argue they will collectively be focusing on in the main - are slowing, how can this provide the revenue they’re looking for?

Instagram now lets users add songs to their Spotify playlists, taking a page from TikTok’s playbook

Instagram has rolled out a Spotify integration, enabling users to save songs they discover on the social media platform directly to their Spotify accounts. “We know that music is all around you and sometimes that means right on your social media feed. That’s why beginning today, Spotify is excited to unveil a new integration with Instagram that makes it even easier to capture and instantly add songs to Spotify from Instagram with just one simple tap,” Spotify said in a note to 9to5Mac.

👆🏻Hot take: a smart move here from Instagram, not least for the immense amount of data slurping this will now involve. (Pardon my cynicism)

Hospital Records unveils three mentorship schemes for 2025

The first scheme is a Women In Drum & Bass Production Mentorship, offering female-identifying artists regular A&R sessions, educational training and access to Hospital’s studio space. The second scheme is a New Business Development Scheme for independent music businesses, offering mentoring, education and access to partners and the studio. Finally there’s a New Artist Development Scheme, with a focus on production and a package of A&R sessions, education and studio access. Full details of the three schemes can be found here.

👆🏻Hot take: I’m including this largely to reflect that issue mentioned in the lead article, namely that some businesses are investing into the creation of value than perhaps some others.

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Notable news from the world of tech:

Enterprises still waiting for AI initiatives to pay off

Appen, an AI data services company, working with The Harris Poll queried 500 IT decision-makers across various US industries for its report, The 2024 State of AI. The results indicate that despite growing enthusiasm for AI tools for marketing, communications and manufacturing – up 17 percent from 2023 – enterprise deployments and overall ROI are down. According to Appen, the mean percent of AI projects that get deployed has fallen from 55.5 percent in 2021 to 47.4 percent in 2024, a decline of 8 percentage points. And the mean percent of deployed AI projects that have shown significant ROI has slipped from 56.7 percent to 47.3 percent.

👆🏻Hot take: the quality issue cited here is one I think doesn’t get discussed enough. Right now, the AI industry wants us to believe it should be permeating every corner of our lives. The reality is that most of it is just pure garbage with little actual benefit to people.

Juicy Licensing Deals With AI Companies Show That Publishers Don’t Actually Care About Creators

The increasing number of such licensing deals between publishers and AI companies shows that the former aren’t really too worried about the latter ingesting huge quantities of material for training their AI systems, provided they get paid. And the fact that there is no sign of this money being passed on in its entirety to the people who actually created that material, also confirms that publishers don’t really care about creators. In other words, it’s pretty much what was the status quo before generative AI came along. For doing nothing, the intermediaries are extracting money from the digital giants by invoking the creators and their copyrights. Those creators do all the work, but once again see little to no benefit from the deals that are being signed behind closed doors.

👆🏻Hot take: a reminder that music is not the only area where AI is causing all manner of issues. I still wonder why there is not more support in this space despite almost anyone in the creative industries now crying foul at AI repeatedly overstepping the mark in the area of copyright.

Radio station in Poland courts controversy with AI hosts

A Polish radio station has ditched its on-air talent for AI in what its editor-in-chief calls an experiment on the effect of AI in society, though it looks like a bid to save cash.  OFF Radio Krakow, an online and DAB+ subsidiary of the larger Radio Krakow station, announced this week that it was going all-in on AI, with new shows hosted by a trio of Gen Z AI talking heads, "Emi," "Kuba," and "Alex," all with their own biographies and personalities "created by journalists," according to the station.

👆🏻Hot take: personally I’d bet that this will only end badly, as I still feel people want connection, and AI brings anything but that.

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Looking for something else to read? Here you go:

We’re in the Golden Age of Garbage Clothing

Pilling sweaters, stretched-out socks, flimsy denim. What happened to good garments?

👆🏻Hot take: a terrific look at how fast fashion (though really, fashion in general since the 70s) has seen the quality of clothes decline - and the volume of waste stemming as a result spiral upwards.

The mates who have met for a pint every Thursday for 56 years

The friends have scarcely missed a weekly pub trip since 1968

👆🏻Hot take: if you want a cosy read about friendship, look no further.

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