An Economic Theory of Everything
UMG's war with TikTok is just one battle front.
We had hoped to start this week’s newsletter with a pity quote from a famous economist that perfectly summarized an idea that we could then apply to some various goings on in the music biz. But as anyone who has ever Googled “capitalism quotes” will tell you, the dogmatic meme warfare between delusional laissez-faire libertarians and unhinged anti-neoliberal socialists makes finding something thoughtful and nuanced pretty much impossible.
Rather than being deterred (and just getting to the point), we’ve combined parts of two quotes to establish our thesis. Please note that quotation does not equal endorsement.
The first is from economist Walter E Williams who wrote, “Capitalism made it possible to become wealthy by serving your fellow man.” (full quote here). The second is by Winston Churchill, who said “The inherent vice of capitalism is the unequal sharing of blessings.” (full quote here).
Combined, this Frankenquote neatly encapsulates the various fronts on which the world’s largest music company, Universal Music Group, is currently waging multiple battles. The biggest is its ongoing dispute with TikTok over licensing the massive UMG catalog. Songs have been disappearing from the service for a few weeks, but this week marked a new phase of the dispute as songs even partially administered by Universal Music Publishing were removed from TikTok, including tunes by non-UMG artists like Taylor Swift, Beyoncé and Harry Styles.
And it’s not just other major label acts being pulled into what is turning into a World War-level conflict. Independent artists whose music is distributed by UMG-owned distributors are seeing their music ripped off TikTok — even those they were distributed by companies like InGrooves before those operations were acquired by Universal.
With all of this collateral damage, one might wonder if we should be rooting for CEO Lucien Grainge in his unilateral gambit to bring big tech to heel. The answer lies in the two sides of our quotes. Currently, it may seem like UMG is using its “unequal sharing of blessings” (ie. - market share) to force others into a quarrel they would otherwise avoid. But if Grainge succeeds in showing TikTok who’s boss, then the result could be increased wealth for his fellow man (in this case, everyone in the music ecosystem), which would be a service, indeed.
TikTok isn’t the only theater where UMG is fighting that is ripe for a critique (not a criticism) of capitalism as a whole. The fact is, Universal is making money like crazy, with revenues up 9% YoY in Q4 2023. Having that sort of money in the treasury is no doubt part of the reason why now felt like the time to go to war with TikTok. But corporate capitalism demands continued growth, which is why even amidst the gains, long-expected layoffs began at Universal yesterday, which, along with “organizational redesign” is expected to save the company $270M a year.
This obviously sucks for those let go, as well as those who remain and likely face larger workloads and lower morale. But as we’ve said in previous newsletters, this could be a rightsizing for the future, or it could just be another case of share growth through business plunder (UMG stock price has been surging since the layoffs we announced).
“It's tough to make predictions, especially about the future,” said famed 1950s New York Yankee and 20th-century wiseman Yogi Berra. And it’ll take some time to know if UMG’s maneuvering is wise or wicked. If the money gets reinvested into more opportunities for artists, that could be considered “good.” If it goes to investors, that would be considered “bad” — unless you’re an investor. But if that investor then invests the money from UMG into other music-centered businesses that create new opportunities in the future, then we’re back to “good” again.
There is no denying that inequality is a problem in the modern music business, just as it is in contemporary capitalism, overall. But what we’re seeing is that the interests of capital and labor align just as often as they are at odds. Even extremely DIY artists need some degree of corporate infrastructure to survive and thrive.
Growing up, that was the $10 Fugazi CD, self-distributed by Ian MacKaye’s Dischord label, available at regional chains like Harmony House and Tower Records that relied on selling more copies of Metallica, Michael Jackson and Garth Brooks to keep the lights on. Today, it’s the bedroom talent with the viral hit only made possible by TikTok’s global hegemony on music discovery.
You might ask, where is socialism in all of this? Great art has often come from socialist-leaning communities going back to at least the MC5. But no socialist nation has ever produced a truly healthy artistic economy. So as long as all the relevant players are playing in a capitalist system, we’re gonna stay focused on free market capitalism.
That’s not to say that the government has no role to play, especially when it comes to enforcing the property rights that make all this competition possible without resorting to (to utilize the other half of Walter E. Williams' quote), “looting, plundering and enslaving their fellow man.”
One copyright law we think should be changed is the ability of terrestrial radio to broadcast music without paying fees to the owners of the recording (songwriters do get paid). The American Music Fairness Act is working its way through Congress and would change the rules to get rightsholders paid. There is a petition circulating that endorses the new legislation that you can sign here.
Broadcasters have made the argument that radio’s ability to drive music consumption — which is surprisingly still high in 2024 — means it shouldn’t have to pay. Roughly the same argument that is being made by TikTok. The difference is that TikTok legally has to pay something, which is why the battle royale with UMG is taking place. Radio should have to live up to the same standard.
TAKEAWAYS
Salient statements from this week’s music news.
1. TuneCore Is Suing CD Baby Over Allegedly Stolen Trade Secrets
An outgoing exec set up a second set of credentials to nab confidential documents and information from Tunecore’s servers before switching jobs to CD Baby.
Takeaway: Seemingly throwing caution to the wind, Khan-Thompson allegedly used personal email credentials to access “TuneCore’s secured cloud network” between May and October of last year, viewing and/or downloading north of 50 “confidential and proprietary documents in at least 103 separate instances.”
2. AMC Theatres CEO Says Taylor Swift and Beyoncé Concert Films Are Saving the Business
AMC CEO Adam Aron attributes Q4 revenue growth of the ailing chain entirely to the release of concert films from Taylor Swift and Beyoncé.
Takeaway: ‘Taylor Swift: The Eras Tour pulled in $179.8 million domestically, becoming the highest-grossing film in North America for Q4. Meanwhile, the Beyonce concert film ‘Renaissance’ pulled in $33.8 million in December alone.
3. Daniel Ek Addresses Spotify’s Low Royalty Payments
The CEO pulled out the old professional footballer analogy an an explanation as to why so few artists make a living on Spotify.
Takeaway: As Ek goes on to explain, Spotify is putting “more and more [money] back into the music industry, and the music industry is growing” as result. Yet the paradox remains – how can Spotify be paying out billions every year, yet artists are claiming to be making no money from streaming?
“But no socialist nation has ever produced a truly healthy artistic economy” surely depends on how you define socialist nation (and indeed economy). Arguably the social democratic nations in Scandinavia (underpinned by significant public funding for the arts and for artists) have very healthy and exportable artistic economies.