Who Wins When There’s So Much Music?

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This memo is presented by State Farm.

When you start a new business, your first reaction might be to say things like “Woohoo!” or “Yessss! or “boo-yah!” But one thing to say that could be a huge help is:

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State Farm agents are small business owners too, so they know what it takes. They can help you create an insurance plan that fits your small business needs and budget. With State Farm, you can worry less about the unexpected and focus more on your business. With a State Farm agent you know someone is helping you achieve your goals.

Just say…Like a good neighbor, State Farm is there.

The “we don’t need superstars” model

In this week’s podcast episode and memo, we revisited our discussion on fragmentation in music. Tati Cirisano and I first chatted about this in 2022, but a lot has changed! Generative AI is a bigger factor in music creation, TikTok is more mature, major labels have refined their approach, and newer competitors want in. A lot has changed, so we recorded a new episode to discuss where we are today.

You can listen to us here or read below for more highlights.

In 2022, Warner Music Group’s former CEO Steve Cooper said, “In running our portfolio, what we’ve done over the last number of years is reduce our [financial] dependency on superstars.” That same year, BMG’s former CEO Hartwig Masuch said, “The extraordinary thing about our first half result is that we grew revenue 25% with virtually no hits.”

Both statements reflected today’s reality: attention is fragmented, and the business has adapted to serve it. The breakout of emerging talent like Chappell Roan, Victoria Monet, Sabrina Carpenter, and Coco Jones are examples of what success now looks like.

The model is often praised for its democratic nature. More artists get to eat when the focus is on singles and doubles instead of grand slam hits. But there are several reasons why the major labels never historically settled on the “singles and doubles” strategy.

First, it requires a higher success rate, which isn’t cheap. Hypothetically, let’s say it takes four artists at the level of Coco Jones to match the profit generated by SZA. Unfortunately, finding and developing another Coco Jones costs a lot more than one-fourth of the cost to find SZA! Both are hard. The math doesn’t work like that.

Second, the majors’ business model is built on superstars bankrolling the rest of the business. Now, there’s more pressure on the singles and doubles to keep the lights on for everyone else. Plus, the existing superstars (and even the emerging singles and doubles stars) use their leverage to command better terms from their label. It’s great for artists but it requires a shift in how the label model works.

In our recent A24 episode, we discussed the film studio’s struggles with its own “singles and doubles” approach. The percentage ROI from films like Moonlight, Hereditary, and Everything Everywhere All At Once was great, but the profit dollars generated from those smaller movies weren’t billion-dollar blockbusters, which put more pressure on each film released to be a hit. It made the underperformance of a film like Beau Is Afraid sting more. The studio doesn’t have a mega-hit like Disney’s Inside Out 2 to provide more breathing room. This is one of several reasons A24 wants to move into more commercial films.

The music business is built on a Barry Bonds level of home runs and grand slams. It develops one-in-a-generation talent who deliver a Hall of Fame-worthy career.

It’s a sharp contrast to the Ichiro Suzuki approach. The former Seattle Mariners’ outfielder was all about high batting averages and consistent singles, year after year. But it’s harder to bring the whole team home with singles. It’s not impossible, but a team full of Ichiros in the music business takes a different approach.

You can listen to the episode here or read below for more takeaways.

Music’s principal-agent problem

Taylor Swift’s direct deal with TikTok (despite her record label’s three-month dispute with the social platform) highlighted a key issue that we may see more of.

The goals of the major labels and their artists are moving further apart.

Currently, live music does a better job serving the “superfan” than recorded music. Kendrick Lamar has over 30 million Spotify followers and over 15 million YouTube subscribers, and a large portion of those are listening on free ad-supported tiers. Meanwhile, nearly 1 million tickets were sold to Kendrick’s 2022 The Big Steppers Tour for an average price of $119 per ticket. Many artists earn a majority of their revenue from live music.

But the ability to generate streams and sell concert tickets are not correlated. It’s especially true for legacy acts. Their fans don’t want to hear their new music, they want the hits. Their older fanbases don’t stream music as much as younger generations. But those fans will pay to see their favorite artists live, and those fans become less price-sensitive as they age and make more money.

This has always been true for legacy acts, but it’s starting to become true for younger artists too. Dua Lipa’s 2024 album Radical Optimism has been a commercial flop but she also just headlined Glastonbury and announced her biggest concert yet next summer for over 90,000 fans in Wembley Stadium. The recorded side of her business may wonder if she peaked with Future Nostalgia but for her live business continues to grow. Plus, she doesn’t seem too bothered if she has this much patience.

Most of the agents, promoters, and managers I talk to know that streams and socials aren’t correlated with ticket sales, but since the core product the artists perform is music, and most of that music is consumed on streaming and social platforms, it’s tough to ignore. Predicting demand will always be a bit of a gamble, but the technology keeps getting better.

Listen to the rest of the episode for more on:

– which companies have adapted best to this landscape
– how BMG, Believe, HYBE, and gamma approach this differently from the labels
– the impact of AI on this ongoing trend

Chartmetric Stat of the Week

Both CTRL and SOS have proved that streaming-era artists like SZA can release music that consistently gets played week after week. Here are a few stats about SZA’s loyal fanbase: 47% are in the United States, 4% are in Brazil, 70% are female, and 42% are ages 25-34.

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