Record Labels Are Running on Empty

The latest news is ominous

I follow music industry news the way other people read obituaries.

Those two kinds of articles have a lot in common—both death notices and music biz news deal mostly with the past. The only new thing in the story is that something was living, and now it ain’t.

Here’s an example from yesterday:

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This sounds like a happy story, no? These smart people are investing in music.

But it isn’t a happy story. They are investing in the rights to old music. They won’t spend any of that money on new music.

If you have any doubts about Warner’s priorities, here’s another headline—also from yesterday.

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If you’re looking for a clear signal from a major record label, it won’t get any clearer than this.

This is exactly what a record label does when it no longer views music as a vital creative force in the current day. This is what happens when a major label morphs into a copyright and IP management business—which can be run by a small team of lawyers and accountants.

Yes, you can make money living off the past—but not for long.

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I keep waiting to read a news story about a major label investing a billion dollars in developing new artists. But I never see that story.

I’ve written in the past about fans who prefer old music. But big record labels are even more obsessed with vintage and retro songs.

And it’s not just Warner Music. Universal Music is doing the same thing. So is Sony and Concord and other big labels.

That’s disturbing.

These are the same companies who should be creating the future of music. They should be convincing the public to listen to new songs and new artists. After all, if record labels don’t invest in the future of music, who will?

Maybe nobody.

A few years ago, investment firms started viewing old songs as investments. That didn’t work out very well. The most prominent song investment fund crashed and burned—as I predicted long in advance.

At that point, the smart money headed for the exits.

In the aftermath, the only enthusiastic buyers of old songs were the big record labels. They are the buyers of last resort.

Why do they keep buying these songs, when others are walking away from catalog deals? They do it because they need to pretend that they are still music companies.

It would hurt their corporate egos to switch to another line of business, say running garbage dumps or self-storage centers. If you are CEO of a huge legacy music company, you need to maintain the illusion that you care about songs.

But it’s all pretending. The big labels now have zero faith in new artists and new music. So that only leaves them with one option—buying more old songs from the glory days of their youth.

The only surprise in the latest news story is the involvement of Bain Capital.

I have my disagreements with Bain—in fact, I’ve had many disagreements with Bain, going back over a period of decades. (That’s a very long, sordid story, and I’m not telling it here.) But, for all their faults, they are smart operators and rarely make stupid moves.

So why are they investing in music right now?

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If you love music, you ought to be scared by this.

Finance firms have different agendas. Some make money on good news. Others make money on bad news. When they arrive at your workplace, you need to be able to tell them apart.

That’s especially true of private equity funds. Many are experts at getting rich from struggling or dying industries.

That’s why private equity funds started buying local newspapers after the collapse of print media. They didn’t want to manage these periodicals for growth—they are specialists in squeezing cash from businesses in decline.

Your local newspaper was struggling, but still had some residual value—especially if a new owner could reduce staff and eliminate costs. And that’s what private equity firms do very well.

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Now let me share a brief story. It’s relevant to the topic at hand

I once knew a man who was Chief Financial Officer of a billion dollar business. He was always working with bankers and investors, trying to find cash to support growth—and it was never easy.

Money doesn’t grow on trees, even on Wall Street. Successful companies still have to work hard to secure financing.

But one day, his business ran into huge problems. Sales started falling. New products were duds. Everything was collapsing. And the story got covered in the financial press.

Can you guess what happened next?

Here’s what he told me:

After everything went bad, I started getting phone calls from private equity firms. I got five different firms calling me in a single day. The next day, another three private equity groups phoned.

They all wanted to get involved in my business.

What a crazy world this is. When we were doing well, they never contacted me. But now that we’re struggling and desperate, they get excited about doing a deal.

I share that story for what it’s worth.

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I fear something similar will soon happen to many music companies. It probably has already started.

That’s why I’m uneasy when Bain Capital gets warm and cozy with record labels. I’ve seen this horror movie too many times before.

I warned about this in October 2023:

When private equity firms knock on your door, it’s a sign that you’re already half dead. These folks actually enjoy picking on carcasses….Guess what’s next on their list? Expect to see these tough hombres play a bigger role in all aspects of the music business over the next decade.

If you’re a longtime reader of The Honest Broker, you’re already prepared for this. For example, in 2022, I predicted the following about the huge Hipgnosis song catalog:

Don’t be surprised if the folks at [private equity group] Blackstone end up owning all those songs. But if it happens, they will probably acquire the music at a sharp discount to what those songs were worth just a few months ago.

And that’s precisely what happened exactly one year later.

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The fact that Concord was the other bidder makes perfect sense. Concord—which started life as an indie jazz record label launched by a car salesman—is now one of those music industry dinosaurs obsessed with old songs.

Hey, it’s better than going back to running a Ford dealership in Concord, California.

But there’s one advantage to selling cars, instead of music. It’s easy to tell when you are running on empty.

You just need to look at the gas gauge.

The music industry thinks it is fueling up when it buys these old song. But they are fooling themselves. This trip will take them, sooner or later, to the junkyard, where they’ll sit alongside all those rusting Oldsmobiles and Pintos.

Old songs are a depleting asset. Their value drops to zero when copyrights expire—but they start losing value long before that happens.

Most songs on the charts possess a half-life of a few months. Others keep generating cash for a few years—but usually less each year. A few continue to earn for decades. But don’t let that fool you.

The current demand for old song catalogs is only justified because Hollywood likes to feature vintage pop and rock songs in TV shows and movies. But how long will that last?

For more than twenty years now, I’ve been hearing old rock tunes over the closing credits of HBO, Netflix and other offerings. But those old rock anthems are now a tired cliché.

You’ve seen it a hundred times. TV characters are in a defiant mood, and jump into their cars. They’re on a mission! And that’s when a 50-year-old rock classic starts playing in the background.

The rock song symbolizes defiance—in case you haven’t guessed that.

But this trope is so moldy now, that viewers will soon start mocking it. Even David Chase (who started this whole trend with The Sopranos) eventually saw the absurdity of the rock song as symbol, and turned it into brilliant parody.

Check out this scene.

Also consider the final scene of The Sopranos. Chase needed a rock song playing in the background—because, hey, that was his trademark—but he picked the tune his creative team hated most.

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He already knew that this trope was tired, and self-parody was the right choice.

Seth Rogen’s new TV series The Studio also makes fun of Hollywood filmmakers who license expensive rock songs. At one point, a director requests $800,000 to license the Rolling Stones’ song “You Can’t Always Get What You Want.” It so laughable and pathetic, but then at the end of the episode, Rogen uses that exact song.

Rogen later explained that it didn’t really cost $800,000 to license the track. But some songs do cost that much. Right now, Hollywood is willing to pay. But if they are already mocking the practice in public, how much longer can this trend last?

If show runners start embracing original music again, those catalogs of old songs will erode in value substantially. That could happen any day now.

And even under the best circumstances, these licensing windfalls will diminish. Hollywood is filming fewer new films and series—the number of scripted shows started shrinking two years ago.

So the owners of these catalogs, like Mick Jagger, won’t always get what they want from licensing deals.

Time is not on their side. No it ain’t.

The solution for the big legacy music companies is obvious—return to their original mission of supporting new artists and new music. Face the future, not the past.

They should do this out of self interest. They can’t build a lasting empire on secondhand songs. Old songs, like your dad’s Oldsmobile, eventually get sold for scrap (or in private equity deals).

But they should also build a future for us—all the people who love music and care about the culture. If the major labels refuse to support the music ecosystem, we will need to look elsewhere.

Some of us have already started doing that.