In the last three years, big dollar catalog acquisitions have let a few fortunate artists cash out on a long, successful career and sell to investors backed by private equity firms and stock market investors. More recently, investors are betting that the long tail of independent music — deals of lower value but vastly greater in number — can be equally lucrative.
The latest development on that front is Utopia Music’s acquisition of Lyric Financial, a Nashville-based provider of royalty-backed cash advances, which was announced on Friday (Oct. 29). Founded in Sweden in 2016, Utopia Music paints the deal in language that typifies the next wave of financial players; according to a statement by Utopia Music founder and chairman Matthias Hjelmstedt, the company is “supercharging” the music industry through a technology platform while helping “creators and performers get paid faster” and “make a living off their art.” Terms of the deal were not disclosed.
Utopia Music’s strengths play well with Lyric Financial’s data analysis to determine the amount of financing it can provide an artist. Its core product is an online platform for creators, rights holders and collection societies that tracks global usage data and maximizes a catalog’s revenues — its tagline is “fair pay for every play.” A separate service for investors helps them value and assess risk when acquiring a recording or publishing catalog. In September, Utopia acquired artificial intelligence startup Musimap to improve recordings’ metadata — information about performers, songwriters and rights owners that requires accuracy for the parties to be paid properly.
Investors and the companies they back are increasingly funding artists who look to Chance the Rapper, who put three albums into the Billboard 200 album chart without a major label’s backing, as a blueprint for finding success while holding onto their intellectual property. In some cases, well-known artists have used their independence from the traditional major label business model as a kind of bragging right: 2 Chainz, 21 Savage, Iggy Azalea, Yo Gotti, Torey Lanez and Rich the Kid have also boasted of owning their masters on Instagram or in interviews.
Their attitudes help explain the recent entrance of Shamrock Capital into independent music. Best known for buying Taylor Swift’s Big Machine-era catalog from Scooter Braun’s SB Projects, the company announced in July that it had raised nearly $200 million for its inaugural Debt Opportunities Fund to provide loans to creators in music as well as film, TV, games and sports. The fund will be managed by Shamrock partners and other investment professionals in Los Angeles, including pension funds, foundations and financial institutions.
The practice of advancing money against future royalties is embedded within the music industry. For many labels, receiving advances was an important component in releasing albums and developing artists. The practice has extended to the streaming era, as Sony’s The Orchard, Universal Music Group’s Ingrooves and a host of independent distributors vie for labels to increase their market share. “It was really beholden to the majors to give out serious advances generally to their clients or artists, and that has really crossed over to the independent industry,” says a distribution executive.
Independent music distributors have attracted hundreds of millions of dollars in recent years. Just last week, UnitedMasters raised $50 million at a $550 million valuation in a Series C round led by Andreessen Horowitz, which followed a $50 million Series B round in March led by Apple that also included Andreessen Horowitz and Alphabet. Downtown Holdings acquired FUGA in January 2020 and CD Baby in March 2019. Believe, a Paris-based company that provides a variety of services to independent artists and labels, raised $365 million in an IPO and currently has a market capitalization of 1.73 billion euros ($2 billion).
Advances from companies such as Lyric Financial and Sound Royalties, and alternative financing from the likes of Indify and SongVest, are necessary to provide the capital required for self-funded recordings. In the past, a manager might fund an album’s release, or the artist would pay or find an investor. Autonomy aside, artists simply need funding to self-release music. One longtime industry professional says a $100,000 advance would be adequate to work an album— but can go quickly. “A good publicist is $3,000 to $5,000 a month,” they said. “It’s not unusual to spend $10,000 on online advertising. And hiring an artist services consultant can run $3,000 to $5,000 a month.”
“There are a lot of moving parts” to running a record label for an artist, adds industry veteran Fred Croshal, whose clients include Jackson Browne and Bonnie Raitt. “With the amount of music being uploaded to platforms and coming out on a daily or weekly basis, you can understand that competitiveness means you’ve got to have financial resources to make competitive assets.” If an artist’s track takes off on streaming services, they may need marketing and promotion resources faster than royalties can work their way from streaming companies into artists’ pockets, says Lyric Financial CEO Eli Ball. “It’s not like you’re putting out a record every 18 months and then following it up with a tour. Now, to keep your fans, you have to constantly engage with them.”
Today’s music business is well suited for cash advances: lenders, whether a financing provider or a digital distributor, can look at an artist’s predictable, recurring streaming royalties and model an appropriate amount of support. Lending would be drastically different if artists’ only royalties came from CD sales, which arrive in bunches and are reduced by stores’ returned goods, as well as infrequent sync licenses from placements in television shows, movies, advertisements and other visual media. But streaming royalties reduce the guesswork a lender faces regarding the amounts and timing of payments from various streaming services.