Weekend Mix: Out of Tune

The best of times, the worst of times; plus, death, taxes and crypto

It is the best of times, it is the worst of times.

With apologies to Mr. Dickens, the music business today increasingly resembles a tale of two industries.

Ask any musician how the streaming economy is treating them and, if they don’t brain you with a guitar, they’ll use it to strum the blues. Both artists and songwriters have seen their earnings plummet as the business has shifted from high-margin physical media sales to low-margin streaming.

All but the biggest touring acts find themselves increasingly dependent on day jobs to pay the bills.

For the record companies, on the other hand, things have rarely been better. Having earned a whopping $33 billion valuation for its Universal Music Groups unit with the $3.3 billion sale of 10% of the operation to China’s Tencent, Vivendi Holdings revealed in its earnings report this week that it plans to cash-in further by taking the rest of the music company public with an IPO sometime between now and 2023.

That news comes just days after Warner Music Group signaled plans to cash in on soaring valuations by filing a registration statement with the SEC to sell new shares perhaps as soon as later this year.

Warner, Universal, and the third of the Big Three, Sony Music, are all coming off a year of robust growth in both revenue and earning largely due to paid streaming subscriptions.

The publishing side of the business also seems to be reaping a windfall from streaming. Publishing catalogs have reportedly been trading recently at as much as 25X trailing earnings as investors eye streaming as a source of steady, predictable returns.

Musicians tend to blame their woes on the likes of Spotify and Deezer, pointing to the microscopic per-stream royalties the streaming services pay. But clearly someone is making money from streaming, just not the artists who make it possible.

There are signs, however, that musicians are starting to shift the focus of their ire from the streaming services to artists’ ostensible corporate partners. In Germany, for instance, a minor revolt has broken out among artists and managers against the labels for “taking too much of the streaming millions”.

Artists there are demanding a new, more user-centric model for calculating payouts, which they believe would yield higher, and more direct payments to musicians than the current gross-revenue and market-share based model.

Even some former label execs, like former UMG Germany CEO Tim Renner have joined the artists’ cause, decrying what Renner called the “absurdly low participation” by artists in streaming revenue.

Just wait to peasants start setting up the guillotines.

Death, Taxes and Crypto

The IRS has lately been looking closely at the tax implications of trading in virtual currencies like Ether and Bitcoin. But in October 2019 the agency put a scare into the world of online video games that use in-game currency to buy and sell virtual goods when it appeared to include V-bucks, the currency used in the massively popular Fortnite series, along with a handful of other in-game currencies, in guidance it issued declaring “convertible virtual currencies” to be taxable.

The IRS defines a convertible virtual currency as one that has equivalent value to or acts as a substitute for fiat currency.

On Wednesday, however, the IRS backtracked, telling a tax policy conference in Washington that the inclusion of in-game currencies had been a mistake and that the guidance has been re-issued without reference to V-bucks or the other in-game coins.

The issue is a critical one to the games industry. The buying, selling and trading of in-game virtual goods is one of the main monetization pillars of free-to-play games like Fortnite. If gamers who purchased in-game currency to use in that buying and selling were required to disclose their activity on their tax forms it could dampen players’ enthusiasm for purchasing in-game goods, undercutting game publishers’ monetization strategies.

Bullet dodged, at least for now.

Short Cuts

Maxing out on streaming

As we’ve been reporting here, the major movie studios have been shifting their focus away from big theatrical releases as they look to build up their direct-to-consumer streaming services. But streaming also seems to be taking a toll on their investment in traditional pay-TV programming as well. According to a study by Ampere Analysis, only one-quarter of the programs WarnerMedia ordered in the fourth quarter were commissioned by its cable networks, compared to 90% in Q4 2018. Content for its HBO Max streaming platform, meanwhile, drew 73% of its commissioning in Q4, up from a mere 7% for streaming content in 2018.

Maxing out on TV

While the studios may be pumping money into programming for their streaming platforms, consumers are still watching a lot of old-school linear TV. According to Nielsen, Americans watched about three and a half hours of traditional TV per day in 2019, not including DVR or on-demand . That was down from three hours and 45 minutes in 2018. But it was still a lot more than the 38 minutes of streamed content they watched per day.

Get ready for the Poddies?

Forget the Grammys and the Emmys, podcasters want their own achievement awards, too. A group of leading podcast distributors, including Spotify, NPR, Wondery, and Sony Music, are forming the Podcast Academy, and is planning to hand out the first Golden Mic awards at a ceremony in Los Angeles next year.