The following BIG piece is authored by an anonymous writer in the music industry.
Last December, Universal Music, the biggest music label in the world, proposed buying Downtown Music for $775 million. It’s not a massive merger in absolute dollar terms, and Downtown Music doesn’t own copyrights directly, it’s a services company that focuses on technology and distribution, running a variety of subsidiaries (Fuga, CD Baby, Songtrust, Curve, and AdRev). Nevertheless, independent artists and labels freaked out, calling it a “juggernaut” strategy, ultimately leading to an investigation announced a few week ago by the the European Competition authorities. What’s interesting about this story, from the perspective of anti-monopolists, is how music labels are mimicking a lot of the tactics used by platforms like Google to expand and fortify their businesses.
To understand why, it helps to start with the release of Drake’s 2018 album, Scorpion. According to traditional metrics, it was a smashing success. It was Drake’s eighth number one album, obliterating the one-week U.S. streaming record in only three days, and debuting at No. 1 on the Billboard 200 albums chart. But something odd happened after the release. Customers began calling Spotify and demanding refunds after a post on Reddit decried how the streaming service put Drake’s album on nearly every playlist, from “Best of British” to “Massive Dance Hits” to “Happy Pop Hits.”
“Spotify will refund this month,” went a viral post, “if you contact them about the Drake spam.” And behind the spam is a story of market power in the music industry, and a theory of why immensely popular artists like Drake get attention, and everyone else starves.
In entertainment, there’s a cliched saying that “Content is king.” Streaming isn’t quite a commodity, but there are a bunch of streaming services, from Spotify to Amazon Music to SoundCloud to Ganna. What these services need is music, and in particular, popular music to intersperse with new and different stuff. It’s not that listeners only want to hear Taylor Swift, they want a variety of content, some they know and some they don’t. If one platform has Taylor Swift and the other does not, then the Swift-less platform is at a disadvantage. To take that further, if you remove enough popular music from a platform, it dies.
And that’s where the consolidation story comes in. Over the last two decades, three companies – Warner Music Group, Sony Music Entertainment, and Universal Music Group (i.e., the major labels) – have come to dominate nearly all of recorded music. According to the FT, in 2017, those three labels, plus Merlin, a group that represents big independents, had 87% of all listening on Spotify.
Throughout much of 20th century, there was a lot of complaining about predatory record labels. One reason the record label oligopoly has met with less attention outside the industry is because of the perception that the internet killed the revenue model. And it’s sort of true, from 2000-2015, labels couldn’t find a streaming model to replace physical CDs.
But since the mid-2010s, new streaming subscription services have launched, and prices have gradually gone up. Revenue has come back, and then some. Here’s a slide from Universal Music’s investor 2024 presentation that makes the point.
From 2021-2023, the company returned a 40% average return on equity. Future growth, mostly price hikes on “superfans” on a global basis, is in the cards.
Now, this isn’t a story about bad behavior and nothing else. Some of the oligopoly market share dominance is based on the fact that these labels have been able to identify, sign, and market the best up-and-coming talent. But there are two other less savory techniques that can explain why the business, which doesn’t need to be concentrated, is nevertheless dominated by a few.
The first part of this strategy is to get to scale through acquisitions. Whenever a new label begins to grow, one of the majors typically just purchases it. As it became easier for independent artists to distribute music online, Sony bought The Orchard and AWAL, two of the largest independent distributors. Universal did much the same with their 2019 purchase of popular independent distributor INGrooves. As African music has begun to emerge on the global scene, Universal and Warner respectively purchased two of the biggest players in the region, namely Mavin and Africori. As Latin music has further cemented its popularity, Universal bought prominent label Saban Music Group. As 300 Entertainment began to be a power player in the hip-hop world, Warner bought them.
The net result is that major labels control a lot of music. And that’s actually how they market themselves to investors. Sony has spent $6 billion in M&A over the last decade, and brags about it: “We are undoubtedly the most aggressive major music group in M&A.” So does Universal Music; here’s another investor slide showing their dominance.
According to Music Business Worldwide, the majors owned over 10 million compositions in 2022. Because copyright lasts an absurdly long time, namely the life of the author plus 70 years, these compositions include everything from classics by The Beatles and Queen to current hits by Post Malone and Ariana Grande.
The second strategy is to use this scale to leverage market power to influence how radio and streaming services curate music. While the Drake example was quite brazen, most popular playlists on Spotify are dominated by artists signed to the major labels. How much of this is tied to marketing agreements? A streamer might be able get the new Taylor Swift album, but to do so, it could be required to add a certain number of songs to popular playlists, display it on the main page of the app, send push notifications about it, and put her image on playlist covers.
If labels do not receive the level of curation they are expecting, or if they don’t like something a streaming service or music company is doing, they could pull their music from the services when it’s time to renegotiate licenses. Now, there’s no definitive proof the labels have guaranteed placement, and it’s likely any agreements are heavily lawyered to escape future legal liability from claims of placement. But because of their scale, the major labels may be able to influence what music gets curated by radio, streaming, and an increasing number of platforms that rely on hit songs. And these corporations aren’t shy about how important their content is to these platforms.
Here’s how Universal Music communicated its strategy to Wall Street, encapsulated in these three slides. The first shows how the number of platforms – all of whom rely on music suppliers – have expanded. The second illustrates an entire ecosystem of partners who need the content. And the third demonstrates that control of distribution, scale, and mergers are key vectors for the expansion of the business.
Recently, independents have actually started to challenge the oligopoly. According to MiDIA Research, independent artist streaming market share has surged in the last decade. By 2024, the amount the big three (plus Merlin) controlled on Spotify’s listening share fell from 87% to 71%. One possible consequence of this shift is that the majors worked with Spotify in 2023 to adjust their royalty model such that tracks with fewer than 1,000 yearly streams receive no royalties. Then, last year, Universal Music signed a deal with Amazon on “Streaming 2.0,” which does the same thing.
The recent spate of acquisitions and the transition to “Streaming 2.0” must be understood in this context of a competitive threat to a dominant set of firms. The goal seems to be to maintain an oligopoly, by limiting the ability of new artists who are not under the control of dominant labels to enter the market. As with any firm seeking high profit margins, higher entry barriers can be helpful.
Interestingly, Ruth Barlow, of AIM and Beggar’s Group, laid out this strategy in a criticism of the Universal Music-Downtown merger. And it sounds a lot like what Google does in advertising technology. Here’s Barlow:
One of the most alarming aspects of UMG’s acquisition strategy is the unfair competitive advantage it would gain by controlling platforms like Downtown-owned FUGA and Curve. These services handle sensitive data that inform the terms on which many of our members’ labels and artists negotiate deals with DSPs and other key commercial partners. With access to this proprietary information, simply put, UMG would be able to manipulate the market, outbid competitors and structure deals to its advantage – putting many independent businesses at a severe disadvantage.
To be clear, UMG is not the only major label engaging in these practices. The industry has long been shaped by the dominance of the few majors, all of which have played a role in reducing competition and centralising control. But UMG’s current trajectory is particularly aggressive and sets a dangerous precedent accelerating a trend for further consolidation.
In short, because the majors control so much music, they might be able dictate how music companies run their businesses, which would bring them the ability to harm smaller potential rivals. They also might have the incentive to hinder innovation in music distribution. There are always rumors that streaming platforms block or limit features based on the desires of major labels.
Until the European regulators acted, very few of these purchases received any regulatory scrutiny, even though they are all about the use of a legitimate government granted monopoly (copyright) to foster an unlawful extension of market power in distribution. This lack of scrutiny empowered the majors to keep on with their spending spree. In 2021, Sony Music head Rob Stringer told investors, “We have bought catalogs not only in the major western markets, but we’ve recently [also] bought catalogs in China and India … We have bought merchandising companies in every market in the world. We have bought management companies recently in Germany and Mexico. Our eyes are on the world … anywhere where we think there is a deal that enhances our ecosystem, we will be there.”
Hopefully, this investigation of the Downtown Music acquisition is the beginning, and not the end, of government action. Expanding the scope of music that the majors control further enhances their ability to control how the wider music industry works. And what they dictate, according to artists and companies that are not part of their universe, comes at the expense of a more open and competitive industry. Not only should the major labels be broken up into smaller constituent labels, but every purchase they make should receive regulatory scrutiny.
There’s one other legal shift we should make in the U.S. In the 1950s, Congress passed a law against “payola,” which is to say, paying bribes to radio DJs to play their record, without disclosing that they were paid. This law, however, only applies to those with broadcast licenses. In the streaming realm, there are no rules. It’s time to update ours so that the art we hear isn’t dictated by market power, but by people who love music.
After all, no one ever fell in love to the sweet sound of an intellectual property lawyer.
Thanks for reading!
And please send me tips on weird monopolies, stories I’ve missed, or comments by clicking on the title of this newsletter. And if you liked this issue of BIG, you can sign up here for more issues, a newsletter on how to restore fair commerce, innovation and democracy. And consider becoming a paying subscriber to support this work, or if you are a paying subscriber, giving a gift subscription to a friend, colleague, or family member.
cheers,
Matt Stoller
P.S. If you’re a young lawyer thinking about clerking for a judge, the two judges hearing Federal antitrust cases against Google are hiring. Clerkships are sort of hidden, they go through a database called Oscar. Here is some info to help you apply.
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Judge Leonie Brinkema of the Eastern District of Virginia (link). The deadline is June 28, 2025, for a term date of one year starting on Aug 3, 2026.
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Judge Amit Mehta of the D.C. District Court (link). The deadline to apply is Aug 29, 2025, for a term date of one year starting on Aug 3, 2026.
Also, D.C. district court judges John Bates and Ana Reyes are also accepting applications. They aren’t hearing any antitrust cases that I know of, but the D.C. district court has traditionally been the center of antitrust filings.