The Music Business As We Knew It Is Over And The UMG Pershing Square Deal Proves It
Probably the biggest story to hit the music news yesterday was Pershing Square Capital Management’s proposal to acquire Universal Music Group (UMG). The proposed $64 billion deal has all the earmarks of a typical hedge fund investment, with lots of talk about valuations, stock prices, buybacks, and investor premiums. There’s not much mention about the thing that actually used to be the main product of record labels, which is the artists and their music though.
The Artists Are . . . Not A Factor
If you read through all the articles about this (I did so you won’t have to, but this is a good one if you’re into numbers), there are a lot of financial details and speculation. Almost always the artists are mentioned way down near the bottom, and that’s in relation to a proposed sell-off of the Spotify stock that UMG owns (bet you didn’t know that).
The stock is estimated to be worth $3.1 billion, with about $850 million reported going to the label’s artists in what they call an “artist-centric model.” If you don’t know, that’s code for “the most popular artists get most of the money,” meaning Taylor Swift, Drake, Lady Gaga, and Bad Bunny will pick up a nice extra pay day that they don’t need.
Run Away Fast
While it’s true that UMG is the worlds largest record label with 39% of the market, if I were an artist I’d run as far away from any deal with it as fast I could (after I got any Spotify money, that is), and I’d certainly never consider the label for a new signing.
If this deal goes through, it shows beyond a shadow of a doubt that UMG’s investors and stock price are way more important than its artist or their music (and I didn’t even delve into its dubious deal with the AI music generator Udio).
A label is supposed to be your partner. You expect them to provide insight and expertise that you don’t have in order to increase your mutual success. A major label is supposed to be able to provide the marketing clout that you can’t get anywhere else.
I guess if I wanted stock or financial engineering advice, the possible new owners would be spectacular at it, but if we’re talking about music, then probably not so much. If that’s the case, why bother even considering them if you’re an artist?
I wouldn’t be surprised if UMG chooses to concentrate on catalog and shelves new music altogether if the deals closes. The MBA’s view that artsy stuff as more trouble than its worth.
The deal is not a given though, as there’s no indication that the two current major UMG investors, the French investment conglomerate Bolloré Group and the Chinese music giant Tencent, would go for the proposal. That said, the C-suite execs in those companies will probably be looking more at the $$$ and bonuses than anything else, although they’re likely not as greedy as a New York City hedge fund.
Either way, if you’re an artist, now you know exactly where you stand. You’re just a tiny spec of a line item on a balance sheet, rather than the creator of music that can move millions that you really are.
