Trapital - new kid on the block

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new kid on the block

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Hey! Congrats to Angel Reese and the LSU Tigers. Really fun tournament. I’m rooting for UConn tonight. I was at UConn’s 1999 championship parade in Hartford, CT. One of the players threw a t-shirt into the crowd. I caught it, but then some grown adult snatched it out of my hand! That parade was fun but I’m still bitter about the t-shirt.

Anyways, today’s memo is about HYBE. The company has made big moves and wants to take on the major record labels. I break down what that could look like. Let’s dive in.

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the HYBE opportunity

HYBE has been making moves in 2023. The global entertainment company has won deals and lost them, but the message is clear: CEO Jiwon Park wants his company to “stand shoulder-to-shoulder with the world’s major record labels.”

Its strategy is a test of how far capital and relationships can go to achieve that goal. It hopes that the impact of HYBE America CEO Scooter Braun, its newly acquired Quality Control Music, and nearly $700 million in cash can help acquire the assets to make moves. Scooter has often been compared to his mentor, David Geffen. This is an opportunity to bring that vision together.

Becoming a major label competitor is the goal for HYBE, but is that the right goal?

owning IP beyond music rights and record labels

The big question mark for HYBE is its flagship group, BTS, which is on hiatus until 2025 due to mandatory military service. Some of the #BTSArmy may still be around by then, but expecting the K-pop group to reach its peak-pandemic heights may be a stretch. Attention is never promised in the microwave era of entertainment, especially given the genre’s recent decline.

There are fewer question marks around Quality Control Music, one of hip-hop’s most popular labels. The pressure is always on to land the next big star though. The label went from Migos to Lil’ Baby as its flagship act and will need him to keep making records that top the charts (and stay there), like 2022’s It’s Only Me.

But QC’s goals may also signal the best path forward for HYBE overall. The Atlanta-based company has ambitions in sports and Hollywood. In this sense, it’s less like Def Jam and more like Roc Nation. If the company’s impact is measured on traditional record label metrics, like market share, it likely wouldn’t compare. Music Business Worldwide puts HYBE’s 2022 revenue ($1.376 billion) at 24% of Warner Music Group’s that same year, so there’s still a gap. Other HYBE goals include its plan to develop a U.S.-based girl pop group, and to do more in Latin music.

There’s more opportunity to succeed with a broader focus on IP, not just music copyrights. This is especially true in hip-hop, where the album releases may over-index on streaming, but under-index on multimedia monetization given its cultural impact.

offering something new

Independent labels and artist direct releases are the largest growing segment for recorded music market share, reaching over $10 billion in revenue and 34.6% market share in 2022.

What does the power law distribution look like for indie artists? Despite the major label’s complaints about “whale sounds” racking up streaming there are real, successful artists behind that independent number, and not all of them are signed.

The primary complaint I hear from successful indie artists is that they don’t get the same looks as signed artists whom they outearn by two to three times. The indie artists value the exposure boost but feel like the major label cost of business is too high. Can HYBE solve this challenge?

Roc Nation does this to an extent with its management deals with several legacy artists in hip-hop and R&B. It brings them into their orbit. What could that look like for HYBE and Quality Control?

This could be an opportunity to meet HYBE’s goals of a multi-label approach. The benefit of starting from the ground up is creating distinct brands with each label serving a different purpose.

Four years ago, I drew a chart when Roc Nation restructured. Roc Nation Records, Meek Mill’s Dream Chasers, and Equity Distribution were all under the same umbrella and could potentially serve each stage of artist development.

The plan didn’t quite come to fruition since Dream Chasers is no longer affiliated with Roc Nation, but I’m still waiting for a label to do this. Sony has a similar structure in place with The Orchard, AWAL, and other divisions that feed into Sony’s flagship labels like Columbia Records, but others can do it too.

Given HYBE’s acquisition goals and boatloads of cash, there are opportunities to acquire any non-copyright assets too, like a music distribution service or a niche streaming service. Gamma, another new company led by former Apple Music exec Larry Jackson, acquired distribution service Vydia, and collaborated with Snoop Dogg to exclusively release the Death Row Records catalog he owns on TikTok one week before its wide re-release. I can’t speak to the impact without seeing the data, but it was a unique approach.

Trying to compete shoulder-to-shoulder with the major labels by doing the same things they do probably won’t work. At best, it may make your company a good acquisition target for them. The past five years of music industry mergers and acquisitions are companies that aimed to “disrupt the system” and “be the alternative,” only to get acquired by that system.

HYBE has more resources than most though. Owning IP, beyond just music copyrights, is likely the way to go. As the year continues, we’ll likely see a few more big splashes.

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