Oiling the Wheels of Change


Posted: 03.08.18

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Specialist finance helps music industry sing a new tune

The digital revolution is shaping a music industry in which the creatives are increasingly in charge. As power shifts away from major music companies towards musicians and their management teams, huge opportunities are opening up for savvy performance artists who are looking to take more control over their careers and finances.

Only a generation ago, artists were wholly dependent on music companies to finance, record and promote their work – and as a result, the industry was riven with battles over control. Prince famously painted ‘Slave’ on his face in protest at his record company’s legal right to decide what to release. Happily for artists, those days are over.

Digital technologies such as streaming services and social media have allowed musicians to distribute their songs online and bypass mainstream media altogether by building a direct relationship with fans.

Never have artists had so much influence over so many followers in so many parts of the world. Drake, the Canadian rapper, reached one billion streams of Scorpion within seven days of its release – a world record for an album in its first week. He has also broken The Beatles’ record of five singles in Billboard’s Top 10 by having seven simultaneous tracks in the charts from his Scorpion album.

Instagram has also provided a platform for musicians and celebrities to extend their fan base. Selena Gomez, Beyoncé and Taylor Swift regularly top the list of most-followed accounts on Instagram; each has more than one million followers. Such audiences previously had to be built up gradually, with concert tours and old-fashioned marketing and promotion.

And the wheels of change roll on; some industry experts are predicting that Apple will stop offering downloads by the end of 2019, when streaming will finally displace the MP3.

Taylor Swift

Taylor Swift

A new creative model

As major music companies lose their dominance, big artist-management companies are stepping up to furnish acts with many of the services previously provided by the music majors. For example, management companies today often buy the distribution, licensing, marketing and manufacturing from an established music company, but keep key areas such as social-media promotion in-house. This was the model Stormzy used for his 2017 album Gang Signs & Prayer.

Under this new structure, and to extend their growing control and independence, performers and their managers need to have more say over how new tours or recordings are financed, as well as the ability to unlock value from existing assets such as their back catalogue.

This has created a significant opportunity for independent specialist finance providers such as 23 Capital to meet these needs.



Artist-friendly finance

New finance providers have two big advantages over banks and big music companies. Unlike banks, specialist financiers understand the inner workings of the music industry and so offer “informed money” that is better suited to the particular needs of artists and their managers. Moreover, unlike big record companies and publishers, such finance providers do not expect artists to sign away their entire recording and publishing rights in return for the funding they receive.

This means that artists and their managers can access lending that will allow them creative control as well as greater financial independence. 23 Capital’s deep understanding allows for more competitive lending rates than those of traditional providers, giving artists more flexibility and leverage over industry partners when buying in services.

Crucially, this alternative financing lets artists retain ownership of their master recordings and the valuable intellectual property they create.

When they borrow from 23 Capital, their loan is repaid purely from the income stream that the recordings and/or publishing royalties generate – typically nothing beyond that is required as security. Once the loan is repaid, all future income flows to the artist.



Backing for the indies

Funding new creative work is only one of the major opportunities that 23 Capital is pursuing in the music industry. It also funds the acquisition of catalogues of music rights, either to the recordings themselves or the publishing rights to the songs.

For independent record labels and music publishers looking to expand their libraries, accessing loans to fund these purchases has long been a challenge, with banks invariably reluctant to lend against intangible assets such as copyright. Those that are willing will usually offer a relatively small proportion of the sum involved – maybe 50 per cent – while demanding onerous security from the indie label or publisher.

These terms place the borrower in a terrible quandary. If royalties from the new recordings or song rights fall short of predictions, the bank might call in the security and the borrower could risk losing control of his or her company. For many, the price to pay for this kind of credit is simply too high.

By contrast, 23 Capital produces its own forecasts of the income potential of the copyright the borrower wants to buy. It does so by analysing multiple data points covering past sales and popularity, combined with decades of industry experience. On that basis, 23 Capital will often lend a higher proportion of the purchase price, typically without any additional security apart from the catalogue’s future income stream.

This makes accepting a loan much less risky for independent labels and publishers and gives them access to funding on terms that have never been available before.

As creatives achieve greater control over the way their work is made and marketed, and independent players seek to expand their libraries of songs and recordings, 23 Capital sees a major opportunity for innovative finance to make the wheels of change spin even faster.

Main Photograph Credit: The artist formerly known as Prince v Warner. Photograph Brian RasicRex Features


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