An Indie-Loving Company May Be Music’s Next Billion-Dollar Success Story
What’s a “major” music company? It’s a question that often taxes the mind of Justin Kalifowitz, CEO and founder of Downtown Music Holdings — who has grown weary of the industry’s habit of describing Universal Music Group, Sony Music Group and Warner Music Group as three “majors.”
“Is everyone else minor?” he asks, with a pinch of scorn.
The majority of the industry looks at those three companies as juggernauts for the simple reason that they generate billions of dollars in revenue each year, dwarfing most other firms in music. But Kalifowitz, who leads Downtown’s global business from New York, wants to know why other metrics aren’t more regularly taken into account — particularly, the total number of artists with which these companies work. The majors “aren’t that big, actually” when you look through this alternative lens of roster size, says Kalifowitz.
By that same metric, coincidentally or not, Downtown is absolutely massive. And it looks poised to become the music business’s next big player.
Downtown’s independent songwriter admin service Songtrust represents, and collects money for over 2 million songs written by 300,000 independent songwriters. Putting this into perspective: Warner Chappell Music, the world’s third-biggest global music publisher (with a $643 million annual turnover) represents works by only 80,000 songwriters.
Adding to its huge presence in the indie musician space, Downtown last year paid around $200 million to acquire CD Baby, a digital distribution company that currently services some 950,000 active independent artists (and is fast closing in on a million).
“The independent artist community is literally millions of small businesses, and some medium and large businesses too,” says Kalifowitz. “Historically in the music industry, copyright owners have just serviced themselves. They didn’t think independent artists needed to be serviced at all. They just waited for them to either achieve a certain level of financial success, or to be selected by someone [bigger].”
Adds Kalifowitz: “You can’t take that approach today, when there are millions of people creating music all over the world. They’re not going to wait for the traditional music industry to organize itself and provide them the tools and resources that they need.”
The CEO’s words today follow the recent news that Downtown Music Holdings is exploring its “strategic options” — a process that could result in a full-blown sale of the company, which was founded 13 years ago. Kalifowitz is tight-lipped about said process. But with an annual turnover in the region of $500 million likely this year, and over $600 million expected in 2021, a billion-dollar valuation for Downtown does not seem a ridiculous target.
Evidently, Downtown sees a particularly prosperous future in the world of independent artists and songwriters — and has invested heavily into it. The numbers back this strategy up: Midia Research suggests that, in the recorded music industry, DIY artists generated $873 million last year, claiming a 4.1% global market share. Meanwhile, a paper from merchant bank Raine Group suggests the independent artist market could turn over $2 billion-plus across the 12 months of 2020. (Interestingly, Raine Group is now advising Downtown on its potential sale process.)
For independent songwriters, Downtown’s Songtrust offers a rare proposition: getting your publishing royalty money collected, no matter how small your following, from all corners of the world. CD Baby, working in the recorded music market, operates in a much more competitive space. Its rivals not only include the likes of TuneCore, United Masters and Distrokid, but also Universal Music Group’s DIY distribution service, Spinnup, from which over 80 artists have now officially been “upstreamed” to sign with UMG record labels.
This model — a DIY distribution platform from which an associated record label can handpick the most popular talent — is the underlying thesis behind loss-making Swedish CD Baby rival Amuse, as well as Warner Music Group’s experimental launch in the DIY distribution space, Level.
“I take issue with the premise that independent artists should only be able to avail themselves of a [distribution] service that exists solely to pluck the cream of the crop,” says Kalifowitz. Indie distribution is “a multi-billion dollar sector of the music industry — it’s a real business, and it needs to be treated as such.”
“If you’re just thinking about it as a loss leader to collect the identification of superstar artists, you’re going about it all wrong,” he adds. “You’re doing a disservice to your company, and more importantly, you’re doing a disservice to the independent artist community.”
Downtown itself has the structure and financial firepower to invest more heavily in the careers of talent that emerges from its independent DIY artist platforms. For instance, Downtown’s publishing company, run separate to Songtrust, represents over 30,000 professional songwriters, and outright owns the underlying copyrights to songs made famous by stars like Adele, Beyoncé and The Eagles.
The majority of Downtown Music Holding’s revenues, however, do not come from its own catalog, but rather from commissions paid when it acts as a service partner to other people’s copyrights — whether that’s third-party music publishers and record labels, or independent artists and songwriters. Kalifowitz says that this balance to Downtown’s business gives it a different — and in his view, more forward-thinking — mentality to the majors (sorry… I mean “majors”) who build the majority of their revenues from their owned music rights.
This is particularly true, says Kalifowitz, when it comes to a burgeoning sector of independent songwriters and artists. “If you’re operating in recorded music and music publishing, and you don’t think of the independent artist as a third pillar to the music business, you’re thinking about an old music business,” says Kalifowitz. “If you want to talk about the music business today, and certainly the music business of tomorrow, you have to recognize the independent artist.”
Tim Ingham is the founder and publisher of Music Business Worldwide, which has serviced the global industry with news, analysis, and jobs since 2015. He writes a weekly column for Rolling Stone.