Not all that long ago, most serious thinking about the future of the music business involved predicting the collapse of major labels. In 2002, David Bowie said music would "become like running water" and copyright would vanish within a decade. And once music became free, who would need a company to help promote it? As recently as 2013, Radiohead frontman Thom Yorke called Spotify "the last desperate fart of a dying corpse," meaning the labels, then distributed his album Tomorrow's Modern Boxes on BitTorrent. (Remember BitTorrent?)

Investors weren't much more optimistic. In 2003, Time Warner sold its music business to a group of investors led by Edgar Bronfman Jr. for $2.6 billion, a multiple of nine times the company's EBITDA, or earnings before interest, taxes, depreciation and amortization. In 2011, Universal Music Group, under new CEO Lucian Grainge, agreed to buy EMI Music's recording business for $1.9 billion — just seven times its EBITDA — at what may well have been the bottom of the market.

That same year, Spotify launched in the United States. Within a few years, it became the water utility Bowie might have imagined, as did Apple Music and other services. As much as streaming represented an innovative new business model, though, the future didn't turn out to be quite as radical as some predicted. Most ambitious artists still make deals with labels or distributors, which license their music to companies that generate most industry revenue by charging consumers for it.

The power of streaming and its steady, scalable revenue drove the Sept. 21 spinoff of Universal Music Group by Vivendi, which as it happens was founded in 1853 as an actual water company. UMG, which went public at a value of roughly $57 billion, is the most valuable music company in history and trades for about 30 times its 2020 EBITDA. On its first day of trading, it helped boost the value of Warner Music Group, which went public last year, by 13.4%. WMG, which trades at an EBITDA multiple of 27, recently announced a deal to release the albums Bowie put out after 2002. And Tomorrow's Modern Boxes is now on Spotify.

UMG's spinoff makes it obvious that the industry has entered a new phase, which looks like a boom for the kinds of acts that do well on streaming and the labels and distributors that work with them. (What the future holds for other kinds of acts remains to be seen, as does how much publishers and songwriters will share in this prosperity.) It could further drive up the value of recording and publishing catalogs, which have already risen to unprecedented multiples, plus inspire other companies to go public.

UMG may benefit more from a boom than its competitors, since its market share is unprecedented in the modern music business, which is why investors value it at a premium. But even those competitors will now have an easier time raising capital, and much of the money that pours into the music business will help other players — acts that can negotiate bigger advances, songwriters who can get more money for their publishing rights, concert promoters that will benefit from higher artist marketing budgets.

Which also means UMG will face fierce competition — from established labels, new distributors and a variety of artist services companies. The fact is, artists of any size no longer need a label the way they once did. Streaming services and social media have lowered the cost of marketing and promotion, and some companies are even starting to offer advances against royalties and other financial services that once only labels could provide. Many artists still want a label, of course — to fund marketing or defray risk — but often only on their own terms. The competition among companies with different business models will only help them.

Two decades ago, the music business turned into a series of conflicts about whether recorded music would continue to generate significant revenue in a digital marketplace. For years it has been clear that it will, and optimism about how much keeps on rising. What still hasn't been settled entirely is how that revenue will be divided — among labels and distribution startups, but also between labels and publishers and labels and artists — and what business models will be most effective in an industry where every player has far more choice of how to structure deals, and with whom. And these conflicts — less compelling to pundits but more interesting to investors — will shape the music business of the future.

This story originally appeared in the Oct. 9, 2021, issue of Billboard.

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