Trapital - the rising tide lifts (most) boats
the rising tide lifts (most) boatsbrought to you by MEP Capital Hey! On Saturday I went to a wedding in Sonoma County. A group of us talked about how Drake and Kanye West release their albums (you know, typical wedding conversations). I mentioned how Kanye experiments more with his releases, like how Kanye treated The Life of Pablo like a software product that he kept updating. I confidently said, "Drake doesn't do that." But the certified lover boy proved me wrong. Last week he altered three of the tracks on his latest album. The changes are subtle but noteworthy. And to Drake's credit, he did the same in 2018 with Scorpion. This was not his first rodeo. Learn something new every day! Before we get started, two quick things:
Today's Trapital memo is a breakdown of Universal Music Group after its public listing. New Trapital Podcast: Karl Fowlkes Entertainment attorney and NBA agent Karl Fowlkes came back on the podcast. We discussed how he got started in law, representing award-winning producers, becoming an NBA agent, NIL (name, image, and likeness) changes in the sports business, and more. Tap in on Apple Podcasts, Spotify, or watch on YouTube. On the Trapital Podcast, hip-hop's heavy hitters explore their ideas that helped them level up their game. Learn more here. Universal Music Group: post-IPO Last week, UMG's public listing was the rising tide that lifted (most) boats. UMG's stock rose 20% on IPO day—triggering a big payday for its stakeholders and competitors. Timing the market. UMG's IPO had several winners: Chinese conglomerate Tencent, aggressive investor Bill Ackman, and several UMG execs, to name a few. But the biggest winner of all may be Vivendi. In 2013, the French conglomerate turned down an $8.5 billion offer from Softbank to buy the music group. Rejecting that offer looks better and better each year. Plus, can you imagine if Softbank owned UMG for the past eight years?! Wild. UMG's IPO is a culmination of the music industry's rising trends: streaming growth, better data on music consumption, record-setting revenue in music, low-interest rates, and more music licensing deals. UMG's timing is even better than Warner Music Group's 2019 IPO. The post-pandemic music industry has accelerated faster than ever. Music is cyclical. The major record labels have had plenty of peaks and valleys in their lifetime. The markets are bullish on the music industry's future, but the bears have questioned if we're approaching another peak again soon. In my June essay, Inside Universal, Sony, and Warner’s Arms Race For Your Attention, I wrote this: UMG’s strategy works now — the company breaks revenue records every quarter —but how long will the bull market last? The company hopes that the streaming revenue growth can offset the cost to maintain its roster, but that’s a risky game. That's still true, and I would like to take it further. For UMG and its competitors, their next few years will depend on these four factors:
SPONSORED Invest in your creative vision with MEP Capital The creator economy may be booming, but going solo is still tough. Artists, writers, podcasters, and entrepreneurs all face similar challenges. You want funding. You want ownership. You want a partner that adds value. But finding all three together can be tough. MEP Capital has you covered. It invests in artists, businesses, and other content creators across entertainment. MEP Capital's goal is to offer you flexible funding to build your vision without a catch. The MEP Capital team has worked with many record labels, distributors, and management companies on their growth capital needs. Recent investments include Sound Royalties, Made In Network, and Parachute Concerts. Level up your career with MEP Capital. Learn more and reach out here. Unlocking the value within the music groupFrom Inside Universal, Sony, and Warner’s Arms Race For Your Attention (Trapital)UMG is attractive to many investors since it owns some of the more powerful individual labels. Whether an artist is signed to Interscope, Capitol, or Motown, the shareholders still win. But this is the music industry. Labels move around all the time. Future spinoffs? For instance, Republic Records has been UMG's top label for years now. It has the market share and superstars to back it up. But what if its leaders, Monte and Avery Lipman, believe they can unlock more of Republic's value as a separate entity? If the creator economy has taught us anything, it's that the most successful members of a group are subsidizing the less successful ones. On the flip side, what if UMG divests Def Jam to another entertainment company that believes it can take one of hip-hop's most storied labels to new heights? Plus, some of UMG's sub labels rely more their back catalogs than other labels do. How will that shift their value over time? These changes may seem unlikely today, but how many times has Death Row Records moved around? Weirder things have happened. Universal's model is to reap the rewards from internal competition. But as the music landscape shifts in the main areas mentioned above (emerging markets, independence, fragmentation, leadership), the desired labels may change as well. The compensation for artistsOne of the most frequent questions surrounding UMG's public listing is artist compensation. CEO Lucian Grainge and others received bonuses, but the assumption is that artists didn't receive any compensation. Artist compensation from record labels and music platforms is a never-ending debate. But this reminded me of Taylor Swift's past statements on artist compensation. Her 2018 licensing deal with Universal states that if UMG sells its Spotify shares, then artists would receive a non-recoupable distribution of that money. UMG's public listing doesn't involve Spotify, but it still resulted in a big payday for the label. Swift hasn't made any public statements, but I have to imagine that it's crossed her mind or came up in internal discussions. It's only a matter of time before a prominent UMG artist makes a statement in a social media post, song, awards speech, Clubhouse, Notes app, or some other platform. These debates may never end, but the public discourse is what leads to more flexible options that can meet each artist where they are at. Read more about Universal's public listing in Variety. Enjoy Trapital? Share it with a friend Tell them to sign up. I'll send them next Monday's memo. Copy and paste the link below to share: https://trapital.co/share-trapital Or share Trapital quick via text, email, or Twitter. Coming soon from Trapital Podcast - Steve Stoute. The UnitedMasters and Translation founder and CEO came back on the pod to talk about the latest at both of his companies, artist independence, and more. Listen to our 2020 Trapital podcast episode here. |
Key phrases
Older messages
when keeping it real goes wrong
Tuesday, September 21, 2021
Trapital Memo #57: Genius' $80M fire sale, Audius' web3 audio streaming platform, Clubhouse drama, DJ Semtex, and more!
the billion-dollar flywheel
Monday, September 13, 2021
Trapital Memo #56: Will and Jada selling Westbrook Inc?, Motown's deal with NBA YoungBoy's record label, Rick Ross interview, and more
certified sportscenter boy
Wednesday, September 8, 2021
Trapital Memo #55: Drake's CLB marketing, Jay Z-Fanatics sportsbook, The OutKast Edge follow-up, Trapital reflection
play the long game
Monday, August 30, 2021
my Trapital essay on The OutKast Edge: how slept-on trends build a following, become popular, and maintain their unique edge.
good kid, m.A.A.d memo
Tuesday, August 24, 2021
Trapital Memo #54, Kendrick Lamar's last TDE album, my interview with 24kGoldn, and the milk crate challenge.
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