This past February, Fred Davis found himself in a familiar place: the annual pre-Grammy gala hosted by his father, storied record executive Clive Davis, at The Beverly Hilton hotel. Rake thin and nattily attired in a Paul Smith suit, Davis looks a lot like a senior record executive from the heyday of the industry when having taste in clothes was nearly as important as having taste in music. That’s not surprising, considering he literally grew up in the music business -- he remembers visits to his home by such icons as Paul Simon, Bob Dylan and Janis Joplin, as well as tagging along as a 14-year-old with his dad to the Fillmore East.
The pre-Grammy party is a tony homecoming for the former record executive and talent attorney: a chance to see lifelong friends and business acquaintances. But as people came up to say hello, Davis experienced another familiar feeling. “Everybody walks up to me,” he recalls weeks later in his Midtown Manhattan office. “Everybody gives me a hug. I know an incredible number of people in the music industry. Maybe I used to be their personal lawyer, or I was on the other side of a deal. And I promise you, nobody knows or understands what I do now.”
In fact, Davis, 59, has one of the most powerful roles in the music business: a partner since 2014 at merchant bank The Raine Group, he may be the only person with a key role in both investing and advising in the music sector. Davis has a foot in both the traditional industry and emerging platforms and technologies, and, thanks to his venture capital connections, has become music’s leading financial gatekeeper at a time when asset valuations are soaring to unprecedented heights. (Streaming’s dependably regular -- and still growing -- returns are far more attractive to outside investors than were haphazard CD sales.)
Vivendi, for instance, is shopping half of Universal Music Group, which has been valued (in its entirety) at a heady $50 billion. If the eventual sale of UMG inspires other music-asset owners to cash in before growth plateaus, Davis could find himself with even more business, given the relationships that he and his team have fostered with a global group of deep-pocketed investors that are keen to invest in the renascent music industry.
During the last 18 months, Davis and The Raine Group, which manages assets in excess of $3.3 billion, have played investment or advisory roles in $500 million worth of music deals, including, in March, the sale of CD Baby’s digital operation to Downtown Music Holdings for an estimated $230 million. In 2017, he and Raine also led the refinancing and restructuring of SoundCloud and raised $75 million for Antonio “L.A.” Reid and Charles Goldstuck’s fledgling Hitco label.
“We’re able to both take positions and advise -- although never [with] the same company,” says Davis of his highly unusual purview. “We also advise on mergers and acquisitions, and that’s where we represented CD Baby in their sale.”
Davis’ endeavors for The Raine Group -- which has worked with clients such as Japanese powerhouse SoftBank, Abu Dhabi’s Mubadala Investment Company and WME -- have placed him at the cutting edge of the industry’s search for viable models of creation and distribution as well as financial opportunities. Yet getting the senior label executives he has known his entire life to understand precisely what he does and to see that he’s still very much in the music industry remains a challenge.
“When I switched from being a lawyer to being a banker, everybody thought I’d left the music business,” he says. “I never left.”
Indeed, he says the skills he picked up as an executive vp and head of A&R at EMI Records and as the founder of entertainment and new-media law firm Davis Shapiro & Lewit have stood him in good stead as a banker. “I analyze music investment opportunities in much the same way that A&R executives analyze talent opportunities,” he says. “And we analyze advisory opportunities at Raine the way that lawyers or managers look at potential clients.”
The same week that the CD Baby sale closed, Davis was in Raine’s London office -- where he spends approximately 50% of his time -- to interface with clients and scout European opportunities. “If you look back at the last 15 years and the digital revolution, most of the innovation came out of Europe,” he says. “In the U.S., we have Apple and Pandora; Europe had Spotify, Shazam, SoundCloud, Deezer and a host of others. The business keeps taking me to Europe, because there are interesting entrepreneurs there.”
Though his wife, Rona -- a New York real-estate broker with whom he shares five children from previous marriages -- had joined him on that excursion, it was an otherwise typical week for Davis, with daytrips to Amsterdam and Stockholm to see potential clients and comb through data. “You have to meet the management and do your diligence,” he says. A member of the board of SoundCloud, Davis was back in London to attend one of its meetings via video conference. Davis also sees Asia’s burgeoning music markets as particularly fertile territory and averages four trips a year to Raine’s Shanghai office. (The firm also has offices in Mumbai, India; San Francisco; and Los Angeles.) “I don’t think anyone fully appreciates the impact that the Chinese music market will have in the West,” he says, adding that he expects that influence to be felt not just in technology but in talent. When he’s in New York, Davis can be spotted at Yankee games -- he’s a lifelong fan -- or playing tennis in East Hampton on Long Island, where he owns a home.
Like his father, who was once dubbed “The Man With the Golden Ears,” Fred Davis has built a career spotting opportunity in the music industry, but his talents are attuned to a technology-driven business where genres have blurred, borders have fallen and securing capital trumps signing the next pop star. It has also become a business in which the risks are much more prohibitive than they were 10 years ago. Davis admits, for example, that Raine’s work with SoundCloud -- which included investing $75 million in the struggling audio distribution platform -- “in a field where there were dominant music players such as Spotify and Apple, is about as high-wire as it gets.” Then again, the rewards are bigger, too.
Having a father who oversaw Columbia Records’ transformation to a modern pop and rock powerhouse and then founded Arista Records gave Davis an arguably unmatched education in and entree to the music business. His first industry job came while still at Tufts University in Boston, where he worked as Arista’s New England college rep, promoting the Grateful Dead, Patti Smith and Barry Manilow. After graduating from Fordham University School of Law, Davis joined EMI and, after rising through the ranks, left in 1994 to found his own law firm, which became Davis Shapiro & Lewit in 1997. Davis initially focused on representing artists, producers and executives. “It was essentially no different than what every other lawyer with a music practice was doing at that time,” he says. But that changed when Napster upended the entire industry. By 2004, he had begun to pivot away from representing talent and executives and toward entrepreneurs with ideas of how to fix the business. “There was a huge language gap then, between what the entrepreneur wanted to do and what the business wanted to do,” he says.
The first client to get Davis to reimagine his role in the music sector was, ironically, Napster founder Shawn Fanning, whom Davis met through the late Milt Olin, Napster’s attorney. When Fanning -- then the scourge of the industry -- launched digital registry SNOCAP in 2005, Davis helped him secure licenses from UMG and others. “I thought, ‘If I can get music licenses for Shawn Fanning, I can get them for anybody,’ ” he says with a laugh. At a moment when piracy was rapidly shrinking the music business, Davis saw a role for someone who could act as a broker between the new platforms and traditional rights holders. Before long, his client list included YouTube, Kazaa and Myspace. “The popularity of streaming opened my eyes,” he says.
In his early days of representing YouTube and Myspace, “there weren’t subscription deals; there weren’t advertising interactive deals,” he recalls. “We created new revenue models.” Davis says he gives the music business of the early 2000s “an incredible amount of credit. First, for experimenting, and second, for standing firm on the value of intellectual property rights. That has been a very difficult balance to create.” He adds, “They have only been criticized for making it so difficult.” Davis remembers when telecoms were suggesting $2 a month for all-you-can-eat music. “And the powers that be would say, ‘Led Zeppelin and The Rolling Stones and The Beatles for $2 a month? It’s just not the right value.’ ”
In 2006, while serving on the board of Stardoll, a virtual community website based in Stockholm, Davis met the company’s departing chief technology officer, Daniel Ek, who was starting Spotify with Martin Lorentzon. “I met Daniel when Spotify was literally a PowerPoint presentation,” he says.
At the time, Sweden had a growing reputation as a home base for global intellectual piracy. In addition to hosting file-sharing site The Pirate Bay, where users swapped films, music and other copyrighted media gratis, the country had an active anti-intellectual-rights political movement spearheaded by the Pirate Party and the Piratbyrån, or “Pirate Bureau,” think tank.
Ek was quick to distance himself from that populist perspective. “He had one incredibly perceptive point of view,” says Davis. “Well, he had two or three others, but one incredible one: He said very clearly that to be successful, you have to build a product that’s better than piracy. He was the only person I heard that from.”
Ek, says Davis, “felt that people would not necessarily pay for music, but for the mobility and functionality of access to music, and he made Spotify’s functionality better than anybody else’s.” Ek had built something better than piracy and, says Davis, who served as an adviser to Spotify until 2017, when he joined SoundCloud’s board of directors, “that has stuck with me for 13 years. At that time, the music business was falling off a cliff, and in every meeting, [Ek] said, ‘I know how to rebuild this business to a $50 billion industry.’ And he’s going to be right.”
Working with digital pioneers like Ek led Davis to the world of venture capital, “the fuel for progressing new ideas,” he says.
He left the law firm he had co-founded in 2010 to start a boutique investment bank, CODE Advisors, with Quincy Smith, the former head of CBS Interactive. Clients included Comcast, Twitter and Spotify, which was Davis' primary focus for much of his time there.
In 2014, he moved to Raine, where he works with a team that includes managing director Joe Puthenveetil and associate Rob Frech. Of the deals he has led since then, Davis says that Raine’s 2017 investment in the then-floundering SoundCloud is his biggest risk to date. In addition to leading a $170 million emergency investment round to the tune of $75 million, Davis also oversaw the installation of a new management team.
Since the refinance, SoundCloud has shown growth but hasn’t quite silenced doubters who point to YouTube’s commercial currency and popularity with young artists. Davis admits that Raine’s gamble “could backfire if SoundCloud does provide a good exit [for Raine] over the next few years,” but he also says, “We think it will be a great investment.”
In 2017, Raine also raised funds for Hitco. Despite the controversy surrounding co-founder Reid, who earlier that year had exited his job as chairman/CEO of Epic Records in the wake of a sexual harassment claim, Davis says investors saw a smart bet. “At the time, L.A. was responsible for seven of the top 10 hits on Spotify,” says Davis. “We had no issues in selecting to represent L.A. And we were successful with the fund-raise. It was not a hard sell.”
Davis also knew Reid’s partner well. Goldstuck had founded J Records with Clive Davis in 2000, and says he saw Fred and The Raine Group as the best team to find “the right investor with the right risk tolerance” for the label.
“My first professional dealings with Fred were as a lawyer, most of the time on the opposite side of the table,” says Goldstuck. “With Clive and I, you could have argued that Fred was dealing with family of sorts at that time, but he didn’t cut us any slack -- ever. He fought for his clients.”
Although Davis left behind entertainment law and the old model of the music industry years ago, he says there are still similarities between the work he did then versus now. “The entrepreneur is the equivalent of the lead singer of the band -- and personality-wise, there are a lot of similarities,” he says. “If you have your own band, you have a vision of what your product is supposed to be and how to market and promote it. The same is true for an entrepreneur. The role we play is the same, too: brokering between the idea of the visionary and the capital. When I was a music lawyer, the check-writers were record companies and publishers. In this world, the investors are more frequently financial rather than strategic; more global than domestic.” And the opportunities are ample. Says Davis: “I never had a Rolodex like this as a lawyer.”
Davis' Industry Predictions
Streaming Has A Long Way To Grow: “We have 10 to 15 years of streaming growth in front of us. It won’t start to plateau until around 2030. Variable pricing will be part of the growth: It won’t all be at $9.99, and price disaggregation will be part of that formula. No one can listen to 20 million tracks, so why would you pay for them all? I think we’re looking at 500 million customers just in the West, and it could be 1 billion in Asia.”
Watch Your Back, Spotify: “Voice-activation is a fact for 6-year-olds, and the first way they interact with music at that age is through Echo. I’d say it’s impactful in eight to 10 years.”
As Goes Streaming, So Goes The Industry: “There’ll be little in the way of further consolidation in the music business over the next few years. I predict the exact opposite. We’re going through an expansive phase. Downtown’s acquisition of CD Baby is not a consolidation -- it’s a growth.”
Music’s Future Can Be Found In China: “I don’t think anyone fully appreciates the impact that the Chinese music market will have in the West -- and that’s not just for platforms. We’re going to have a wave of C-pop acts. Plus, they are approaching music in a lot of new, interesting ways: microtransactions [and] long-form and short-form content are areas where they are going to influence us.”
It’s No Coincidence Brits Run The Majors: “In a wholly different way, we also don’t appreciate the impact of the United Kingdom on the business here. It’s not coincidental that the three U.S. majors are headed by Brits. It used to be about an artist-by-artist export, but now it is about the impact of a culture that is probably more music-related than corporate-related. And that impact and infiltration will happen through the next generation.”
Short-Form Content, Microtransactions Will Become Big Opportunities: “Short-form content is a huge frontier represented by TikTok, but I don’t think we’ve fully appreciated the value of it and what it may come to mean for music. Likewise, crowd-funding and microtransactions are new revenue streams in the West, but already very big in China. We haven’t even touched them yet by comparison, and I think that’s a very big opportunity.”
The Artist-Fan Connection Will Deepen: “Another trend I see is direct monetization. Right now, the only time the artist and fans are connected is through live concerts and ticketing, but why can’t you just subscribe to the DJ Khaled playlist? The business is going to be much more direct and personal in terms of fan-to-artist connections.”