"MPs and music industry bodies criticise pay of Universal head Lucian Grainge - After a bonus payment, Grainge will earn more this year than all UK songwriters did from streaming and sales in 2019": bit.ly/3bZdK9w

It's capitalism

What stuns me about this blowback is it took weeks to gain traction. Going public Universal had to put all this in its prospectus, furthermore it was reported, but if you're interested in art more than money, you missed it.

Just like you missed the memo re streaming payouts, which even the U.K. government got right, IT'S THE LABELS' FAULT!

Streaming outlets take approximately 30% of the gross, which is not that high when you consider brick and mortar retail, even YouTube ad revenue splits. But somehow Spotify, et al, are supposed to dig deeper into their pockets, cough up all their running costs and their profits and go out of business in the process. We haven't seen such malarkey since the sixties, when the hoi polloi said music should be FREE! Which music essentially was this century, until Spotify came along and monetized the infringement by providing an easier way to listen to music. People will pay for convenience. And they have, never mind the ad-supported Spotify tier.

Now the truth is major label advances pale in comparison to what they once were. When they were selling overpriced CDs in the eighties and nineties money was raining down and they didn't mind giving some of it to their guaranteed hitmakers. But now, with the slump in revenues at the beginning of this century, with so many other ways to monetize, advances have not concomitantly bounced back up. Furthermore, we don't have the guaranteed hitmakers of yore, ones who've sustained over decades. So...

It's about the money. Not only for you, but investors and Lucian Grainge.

Lucian did the unthinkable, he got the EU to allow him to buy and retain most of Capitol/EMI's assets. For years competing labels tried to buy Capitol/EMI, but they were thwarted at every turn.

And then he readied Universal for sale.

How did he do this? BY MOVING INTO THE MODERN ERA! Yes, Lucian Grainge has more foresight than seemingly ever act on his roster, save those who made tech investments earlier in this century. It's Lucian who was gung-ho about Spotify. And it saved the recorded music business. Hell, if you waited for the acts to make it happen, it wouldn't. These are the same acts who refuse to see that their cheese has been moved. The last two decades have been all about disruption, but somehow their careers can't be disrupted, meanwhile they can now record on their laptops and put their music on streaming services almost for free and promote online for free. That's the trade-off. Want to win today, embrace the new tools, the new paradigm.

So, Lucian gets Universal in shape to go public. It's not like this was privileged information, it was in the news FOR YEARS! But just like Ticketmaster takes the heat for acts, Spotify took the heat for Grainge.

And a good chunk of Lucian's compensation is a result of bonus clauses, based on the stock price. So, if someone does a good job you want to penalize them? Hell no.

But...

That's a lot of money.

But not compared to a techie. If you're not a billionaire, you don't count. At this wealth level you can't even afford a private jet, you can have a NetJet account, but only a big swinging dick can afford the largesse of a private jet. It's really a dick thing, comparing units, because most people would do better with fractional ownership. Then again, how many people in America have enough wealth to afford fractional ownership?

Now the truth is if you want to make money, don't go into the music business. The music business is to a great degree still pure thievery, but the barrier to entry is nonexistent. To be a doctor you need endless years of education. You need to be smart and do the work. Same deal with the CEO of a Fortune 500 company, there's a good chance they have an MBA. Maybe an uneducated sot can make a living in finance, but don't bet on it, it's the educated with their old boy network who make the big bucks consistently.

Yes, that's another feature of the straight world. The ability to make double digit millions year after year. That's nearly impossible to do as an artist, even the Rolling Stones can't tour every year, you've got to let the market lay fallow, to replenish demand.

Now the truth is entertainment executives have always been overpaid. It started in the movie business. But that's all smoke and mirrors. You can be in a blockbuster and the studio still says the film is unprofitable and you're not owed anything. But in music, we can now see the streams on Spotify, hard data, WHERE IS OUR MONEY?

In the hands of the major labels.

Now in truth the music business flipped thirty years ago, despite so many of today's artists not even being born then, never mind knowing the history. Tommy Mottola ushered in an era where the executive was more powerful than the act, and usually had a longer career. And the label clawed back power. They decided what could be released, it was no longer the seventies where you recorded off the radar, delivered the LP and the label had to put it out unchanged.

And if we go back to that era, Mottola put the knife in Walter Yetnikoff, who used his relationship with Peter Guber and Jon Peters, who'd hoodwinked Sony into letting them run their newly acquired Columbia Pictures, to get Sony to buy CBS Records. And when there's a sale, there's always a healthy profit. Just ask David Geffen, who made $500 million selling his label to Matsushita!

But Lucian did not own Universal. And it could have gone public without him, but it's doubtful the price would have been as high.

Which is all to say that under the rules of traditional world capital markets of the twenty first century, Lucian Grainge earned his money. He started at the bottom, he worked his way up, that's nearly impossible to do. One can say it's harder to get to where Lucian Grainge did than to become a hit artist. As far as clawing that cash back, forget about it, it's history, it's all in black and white, and it'll be forgotten, just like Clive Calder's multi-billion sale two decades ago. And just like Calder took his money and went home, eventually Lucian will be done too, like every other exec, it's only the music that remains.

And it's all owned by the three major labels, that's why they'll never go away, they own the history of recorded music, and they're using it as leverage. That's why they have such sway over streaming services and anybody who wants to use music in the future.

And in that history, there were a ton of flops. But some megahits, which if royalties are owed are de minimis, the rates being so low. Yes, used to be assumed that the label would screw you, and you wanted the money up front, because you knew they'd never account honestly.

And then there were reversion clauses, such that Aerosmith got back their masters and could then license and sell them again, for double digit millions.

Do I think it's fair that Lucian Grainge made more money in the year than all of the acts on his label? No. But as you can see, it's more complicated than it appears.

Also, if you're a new act, you don't have to make a deal with a major label, it's your choice.

And the major labels missed the publishing game. Hipgnosis and Primary Wave bought the greatest hits of the rock era and are using them as leverage, they own so many assets, expect the publishing share to go up. Not that the money will flow to the writer/owners, THEY SOLD OUT! You take the cash at a price. Or you could not take the cash and the asset could fall in value, that's the risk you take.

But...record labels need to pay artists more. I mean how in hell did Universal have all this money to pay Lucian Grainge in the first place? The labels have been crying in their beer for years, and in the process they lowered advances, enacted 360 deals and made even more money than they did before. The artists have leverage, but you've either got to have monster hits or the artists must band together, which they are, to attack SPOTIFY???

I mean Daniel Ek made his billions, BUT HE BUILT IT! It's not like there's a slew of overpaid people at Spotify. How can there be, having to give 70% of every dollar to rights holders? Which is why Spotify is expanding into podcasts and more, BECAUSE MUSIC DOES NOT SCALE!

So please stop beating up on streaming services, other than YouTube, which deserves the hate with its horrible, greedy splits. There's no more money to give.

But as illustrated by this Grainge payout, there's plenty more money in the coffers of the labels. But we've never figured out how to extract it. Because the label lives on, but almost all of the acts do not. And acts don't want to piss off their label, and they're afraid of organizing and wasting time and trade secrets. That's right, every musical act is competing against every other one, there's only so much money in the marketplace, the public can't afford to see EVERYONE!

So I think Lucian got paid too much. Then again, I think the entire compensation scale is way out of whack, especially if you didn't start/build the company. If it's your idea and you build it from scratch you should be entitled to big bucks, although you should pay taxes. But how can you make this much working for the man? Where is the RISK?

So Lucian Grainge is an example of this insane paradigm, but it's not only him, and he's keeping up with the Joneses, you may not live in their neighborhood but Grainge does, he wants equivalent compensation.

And, as far as big corporate paydays in recorded music to come? I don't see any, BECAUSE THERE ARE NO ASSETS FOR SALE! No record label to go public, this is a one time deal.

But all the artists, even Paul McCartney, are lining up to pile on Spotify. Demonstrating ignorance, which money and business talent runs circles around.

You're an artist, if you have success, use it.

As for the government protecting you, good luck. And the government can hurt as well as help you, you're better off working outside the world of regulation.

But that brings us back to the top. How in hell was the Universal acquisition of Capito/EMI allowed? Giving Universal untold market share and power, which believe me the company exercises.

But that's in the rearview mirror. We're going forward. Universal is no longer the only shop in town. Used to be if you weren't with a major, you couldn't get your album distributed, now ANYBODY can get their music distributed. Listened to? That's another thing. But that's where the money is, in listens, and if you retain the rights and people continue to listen you've got quite the annuity.

The major labels have less power than ever before. Radio, their ace in the hole, is at best the cherry on top in the process of making a hit. And youngsters don't even listen to terrestrial radio with all its ads in an on demand world. And as far as mainstream publicity, that's declined in power dramatically also. Today it's about a weird elixir online that you try to push into success. And most times it's based on the acceptance of the music, not hype. Word of mouth spreads the word. But no one has cracked the code yet, the signposts keep shuffling and moving.

So there's a lot of opportunity. Are you up for the risk? With the risk comes the rewards. Remember that.

And if you want to complain, be a student of the game, follow the business news, it's all there, because when you recite idiocies like Spotify needs to pay more the insiders with power just laugh at you. Really. Because you don't understand the game. Which is the first rule to playing it. But the big boys not only play it, they reinvent it. How big is your canvas, how hard are you willing to work? I'm not blaming the artists here, I'm just saying opportunities are not low hanging fruit, you've got to beat the bushes, spend years in the wilderness to make this kind of money. And be able to get along with people and play the politics. That's what Lucian Grainge did, that's why he got paid the big bucks.

--
Visit the archive: lefsetz.com/wordpress/
--
Listen to the podcast:
-iHeart: ihr.fm/2Gi5PFj
-Apple: apple.co/2ndmpvp
--
www.twitter.com/lefsetz
--
If you would like to subscribe to the LefsetzLetter,
www.lefsetz.com/lists/?p=subscribe&id=1

If you do not want to receive any more LefsetzLetters, Unsubscribe

To change your email address this link