Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

Nick, I appreciate you hopping on and I am really excited. We run a concentrated value and special situations fund. I have been interested in Spotify for years and been in and out of them but never got fully competent in the negotiating dynamics versus labels. They also have a big competitor in Apple Music, but that is probably outside this. Now UMG is coming public and I have Spotify and the largest label out there, so I am trying to get sharper on the space because I am curious, and for potential investments. Does that all make sense?

Yes, it is all clear. I find it fascinating because I have been in the music business for more years than I care to remember. The dynamic and level of interest changed as music as an asset class. You have players in the market like Spotify and UMG and it is interesting to discuss the changing dynamics of the business actually because there are many moving parts. There is a general consensus of opinion, particularly around the UMG flotation, certainly if you go on Sachs as well, that this is a $50 billion plus company and streaming is at a tip of the iceberg. There is an element of that which is true but there are plenty of risks to face coming down the line as well, not least is the power of streaming services and, most particularly, Spotify.

Maybe I am reading into your voice too much but it sounds like you might be a little bearish on the labels. Most of the people I talk to, including me, thought that Spotify would kill them because they had the negotiating leverage, but as I have come to look at it, I almost view them as a tax on entertainment online. I look at the Peloton and TikTok revenue streams and they have all the music; you cannot get around them.

What I am bearish about is the current model as it stands right now, which is almost a legacy model which has not radically changed in terms of the relationship with talent and the royalty share for 40 years. That is where the pressure comes to bear because there is no barrier to entry to put music in the marketplace, which creates a huge opportunity for emerging artists. In fact, the fastest growing segment of the music business is independent and self-released artists by a considerable margin. More important is the leverage which successful or even middle tier artists have when it comes to renegotiation, extension of terms and resigning those artists. That is where there will be real pressure on margins.

I ran the front line labels for Terra Firma and EMI, and after the Terra Firma acquisition, Terra Firma took a view of EMI as having three distinct entities: a catalog, a front line and a services business, and catalog should be valued the same way you value a publishing asset. It is relatively stable; the margins are high and it doesn't require heavy lifting to maintain the catalog. With streaming being the dominant format today, there is no inventory issue as everything is available in the marketplace, and that is where the lion's share of the revenues are coming from. Very high margin at very little marketing cost. The older catalog offered low pay away to the artist. That is the bedrock of the business and is staying intact, albeit Sony recently announced they were writing off the debit balances of any artist signed pre 2000s. That is a good headline in the great scheme of things but not a big giveaway.

I am super interested in this. It seems all emerging artists who make a break out, eventually sign with a major label. Could you walk me through the life cycle of an artist and what the leverage points and negotiations look like?

Yes, let’s talk about emerging talent as the dynamics are interesting. It stems from the arrival of Napster on the scene and the downturn of the business. Most major labels are more risk averse about investing in unproven talent. Then measurable data became a thing in the last 10 years. In many cases, the labels are waiting to make that investment until the artist has proven traction within streaming services or press circles or an actual audience. It becomes more about check book A&R and putting the money down. There are no secrets in the music business, particularly with the three majors; everybody knows what everybody else is doing.

Universal is the most aggressive with the biggest check book and muscle. The dynamic has changed over the past decade where the royalty pay away those artists achieve is higher than it has been and is growing. This is largely due to competition and that they have proven themselves with traction and an audience. Their lawyers are getting smarter and demanding a minimum 25% royalty from Sony, Warner or UMG. That sounds low but it was 15% 10 years ago. You will also no longer get life of copyright, which is an unusual phenomenon. 10 years ago, life of copyright was sacrosanct in deals and you had to have it.

Equally, you had to sign worldwide deals. Many emerging artists simply develop traction by themselves because the labels do not pay attention unless they have done that. The level they reach through their own ability affects the type of deal they can command. This has made new artist deals more expensive. The royalty pay away is higher, the term is reduced and so is the album commitment. 10 years ago, it was normal to sign a five or six album commitment, meaning you had one album and five options to continue. Now it is four or even three, making the term labels have to exploit these copyrights much shorter. The royalties are higher and that pressure will continue to grow as more participants enter the market.

There are many label services operating in the market such as AWAL, Bleav, TuneCore, DistroKid and Platoon. In many circumstances an artist will potentially begin their career with a TuneCore or DistroKid which are straightforward upload services. If they are savvy enough to drive social media and know how to aggregate an audience and get traction, they will attract the attention of the majors. It also depends how savvy their managers and lawyer are to leverage that, but there is a growing movement from many independent artists to not do that deal. They prefer to retain control and 85% of the revenue share after paying distribution, as opposed to the other way round, and are happy to sacrifice the big check.

If they retain control, they still need a UMG or Sony for distribution. Would they get a management fee on top of that or am I thinking about that incorrectly?

No, because there are plenty of independent third parties in the marketplace. Distributing music is incredibly easy compared to when it was predominantly bricks and mortar.

Yes, you had to make the CDs and everything.

Not only that, you needed relationships with retail and limited inventory, as well as leverage with radio, which used to be your primary market driver. Today radio plays no part in it because it is a reactive as opposed to a proactive medium now. It is dominated by streaming and social media. The majority of releases have no physical component so distribution is overstated.

Spotify playlists are obviously driving huge hits; if you get on the country Spotify playlist it will basically make your career. When labels negotiate with Spotify, do they negotiate for spots on those automated playlists as part of that?

Spotify maintain they have a completely level playing field when it comes to editorial control, however I take that with a slight sack of salt.

I am sure UMG have people over there who have relationships with the Spotify playlist guys and can say, listen to this, I think it would be perfect for that album?

There are four majors in the industry: Sony, Warner, UMG and Merlin. Merlin is an aggregator of the larger independents, and is basically a collected bargaining organization ensuring independent artists do not get screwed and get the same royalties that major labels offer. This business was always run on relationships and if there is a new Taylor Swift or Weeknd coming on, you can use that to a certain degree to leverage a new artist into position. The main advantage of a major label is that little bit of leverage, though it is very hard to quantify.

Spotify vigorously maintain it is a level playing field. They do not care if you are an independent artist in an attic in New York City or signed to the world's biggest music company. If the editorial team get your music, the algorithm says yes and their audience responds, it succeeds. The share of listening on streaming is dropping fractionally; it’s about 66% of majors and that is down. Independents are growing significantly faster than majors as the share of overall listening on Spotify. That could be a result of there being tons more independent releases than ever before.

Why do UMG represent most of the top 10 artists each year? I know they are slightly bigger than Sony or WMG but it seems there shouldn't be a big advantage?

To be honest, it was a strategy of Lucian Grainge, who I worked for for seven years. It was very aggressive in terms of A&R. When it comes to a bidding war, nobody outbids Universal. He has a kind of Art of War mentality. It might not be the smartest deal when I crunch the numbers but I will not let Sony or Warner have it. They have doubled down a lot in terms of key A&R people. You are right, market size does not matter; when it comes to Sony, Warner and UMG, there is no leverage in terms of attracting new talent. In fact, sometimes it is a negative. Artists could feel slightly more boutique signing to Warner than with UMG.

I have worked at UMG, CMI and Sony, and if you are lucky enough to be blessed at UMG – and what I mean by that is, if you have been earmarked as the artist, the global priority – without a doubt, sign to UMG because you will have enormous resource thrown at you, and there is a very good chance you will break. If you are the other 99 out of 100, it will be a thoroughly frustrating experience. There are multiple competing front line labels within the Universal Group. Interscope-Geffen-A&M, Capitol, Universal Republic, Universal Nashville, Motown lean slightly to one genre or another to a certain extent, but by and large, they are highly competitive.

That is the way Lucian likes it. I used to run Island Records, which is part of the Universal family. We always used to joke because the enemy was not Sony or Warner, it was another Universal label. That is who you wanted to get one over and that was absolutely encouraged. To their credit, when most of the industry was having a slightly bunker mentality in terms of investing with the downturn, Universal doubled down on it.

Let me ask one high level question that just popped in my head. In the late 90s in the US, people were spending $100 per year on music whereas now it is $50. Many people believe the music spend will get back to $100, but with piracy and all you can eat streaming, will we ever get to that level?

On a per capita spend, I would be really surprised. This was a huge debate we had in the early days of streaming. Wow, this is amazing; the market is going to turn, and an avid music fan could spend upwards of £500 a year on music. Now an avid music fan spends £120 and he has everything he will ever want and need. There was a fear which was borne out in the market, you could actually see it happening. There are premium subscribers who may pay 9.99 or have a family plan with Spotify but there are also uber music fans who will potentially buy the physical release.

They will certainly buy a concert ticket which does not impact record labels, but their music consumption from streaming to physical to live has probably increased. That will not impact the record labels per se, because that level of consumption is borne out more in streaming. The upside comes because streaming is a utility. The 450 million people streaming music is only the tip of the iceberg. There is no reason why there cannot be two billion people streaming music. They are certainly not going to be subscribers but that is where the opportunity lies, plus the fact you now have TikTok, Peloton and Snapchat in play, who now have to monetize music. I do not think it is in terms of driving, in fact it is actually the negative of driving, which is strange.

Labels are pushing hard for Spotify to increase pricing. They have experimented with that in Scandinavia around family plans to a certain degree of success, but one of the things that labels are always looking at is, you need some product differentiation in here. There is an audience who wants premium or high-definition audio, but Apple and Amazon include that. There is no differential for Spotify as there will be no price increase in that. They took a view of getting as many people into this platform as you possibly could and find other ways of upselling.

Weren't Spotify going to charge extra for Hi-Fi or whatever they call it?

They were until Amazon and Apple decided it was part of the bundle.

Let me shift slightly and talk emerging. Most people talk about Peloton and TikTok. How familiar are you with the Peloton contract? If not, we can simply go on.

I am not familiar with it but could give you my read on how these things work. Generally speaking, most of these things would be a blanket license agreement. It will be based on a portion of revenue allocated towards licensing of content music and split by market share.

Do all the labels negotiate jointly with the Peloton or how does that work?

Sony just did it and Warner were the first to close, so they negotiate individually.

Once one of them does it, the dominoes will fall quickly with the others?

Most of them have a most favored nation where there will be opportunities. It was announced within Peloton that they did a deal with UMG and this is the license agreement but we have agreed to have special UMG playlists; that is where the leverage happens.

TikTok strikes me as interesting because I am a creator. I probably monetize through advertising but the consumer isn't paying me as I'm not using the full music clip but rather grabbing what I want. How do the labels negotiate with TikTok or others?

It will be a combination of revenue share, albeit there is no direct correlation between use of music. Although several lawyers have said the value of music to TikTok is X, based on how users use it, so it will be based on an overall piece of the revenue pie. There will be a play based on how much and whose content it is, again based on the market share of the content used. Interestingly TikTok has been a driver for the music industry and has more leeway in conversations. TikTok will pay X for your primary catalog but when it comes to emerging talent, they will not pay X for it because they are too valuable a platform to break that emerging talent.

Emerging talent should be paying TikTok to go through them?

It is not that far away from that, but arguably TikTok has been the primary driver. The argument is, does it break an artist or a song? Either way, Lil Nas X was happy with it.

I agree with you; a billion streams is helpful in the long run for everyone.

One would assume that Lil Nas X was an anomaly, but it has generated multiple tracks approaching north of half a billion and he has become a brand.

I'm glad you mentioned Lil Nas X because when Old Town Road came out, he was not signed; that was completely him. It went crazy and he ended up signing. It was slightly earlier in the life cycle of these things but I would have felt Lil Nas X was in the best position ever to go completely independent if he wanted to?

You are absolutely right; he was distributed by a Swedish company called Amuse, who have an interesting model. They distribute your music for free but have the rights to go into a JV if we identify. They started negotiating this and put a million dollars on the table. Sony came in and put four million. At a certain point, money talks and Lil Nas X and his people could not look that gift horse in the mouth because they don't know when lightning will strike again.

Lil Nas X had one break out hit and got some money from it but he is a poor kid trying to make it big. UMG could say he is worth 50 million to them but there will be a bidding war. If they write a $6 million check he cannot turn it down, just like the NBA player getting drafted out of college; they never turned down the number one money.

Exactly, you are right, he was a college kid with a young manager and it was an opportunity based on one song. It was an extraordinary deal. If you look at the TikTok hits, Sony has probably been the most aggressive in terms of chasing that. They signed Lil Nas X and Arizona Zervas with Roxanne, which was big record, but stiff after that, nothing. Perhaps it is harsh to say he is done, but I could point to Lil Nas X as being by far the primary break out artist. Artists will have massive songs but there is no guarantee a career is attached to it. With the size of Old Town Road, they have recovered their $4 million.

Many people talk about Taylor Swift's recent fight with her master after she released her version of Fearless. My general sense is, yes, that is a risk for record labels, but the artists who could do that credibly, you can count on one hand. Is that even worth discussing as a risk or is that so niche and limited to few artists?

No, it is worth discussing and I will tell you why. Taylor Swift is an anomaly, but these key artists come to the end of their life cycle, whether it's Drake or Kanye West. Generally speaking, those rights remain with the record company but what an artist can do – and this frequently happens now – is re-record their tracks but not for release because they won't be able to. Taylor Swift is slightly different because of her relationship with Big Machine and there is a clause in every recording contract called a re-release commitment, whereby you agree not to re-release a track for X number of years. There is so much money involved in licensing of masters and that is where the upside is for artists. If they own these masters, they might not be able to commercially put them in store but they can certainly use them for sync licensing.

If Coca Cola wants to do a commercial with Taylor Swift, she has those rights even though the record label owns her masters, so she goes to them and instead of releasing the UMG version, she does the Taylor Swift version?

Correct, that is exactly what it is.

Will record labels not bake that into their contracts going forward? Olivia Rodrigo is about to release her first album and the contract states she cannot re-record or grant sync rights to a similar song?

You would find that unenforceable, at the end, post term. There is less leverage in terms of the negotiation than there was before. Olivia Rodrigo was blown up, that deal was hot. Bear in mind she came out of the Disney factory.

She had a following, yes.

Any lawyer worth their salt would immediately get rid of that. Most companies, even if their deal is term plus 10 years, which is a relatively short term, figure they can pay a further advance to that 10 years to retain you, and will try put that in the contract. Nine times out of 10, a lawyer will simply take that out. That is what is happening; little bits of deal real estate are slowly being chipped away by lawyers.

Would the sync license apply to putting stuff onto a Peloton recording stream? Technically wouldn't the artist have a lot of leverage with emerging platforms? Any music that you put on a TikTok is through the sync license, right?

Well no, I don't think TikTok is but Peloton definitely are. The dispute at Peloton was a publishing dispute about a sync license because they are synchronizing music with pictures. Peloton use music to sync with a visual component and use the full track, not a 15 second blip. They won and got agreement because it is a sync license. There are two components to sync. There is a publishing right and a master right. The record companies have the master right and the publishing obviously have the publishing right. Publishers are protected in this because they publish the intellectual property of the song. It does not matter if it is a new or old version. The master is just the original master. It is not an existential crisis but it certainly is a revenue risk.

More artists coming out of contract will choose to re-record, and it depends on what their current situation is. Smart labels will give you a deal when you come out. They offer you the lion's share of income from sync licensing and save you from re-recording.

My working understanding has been that over time, as Spotify diversify into podcasts, incremental leverage is always flowing more towards them versus the labels. Do you think so much of listening is the stuff that labels already own; it is not the new stuff. Are they simply always going to be able to block Spotify from pushing independents, telling artists to go directly with Spotify? Could you also talk about the nuclear option of a label pulling their music from Spotify; is it a credible threat or how would it play out?

I do not think it is. It is a classic music industry dilemma. Since I have been in the business, the music industry has been incredibly good at handing the keys to someone else to build an incredible business. It was MTV in the 80s, iTunes in the 2000s and Spotify now. There was a golden moment where Sony, UMG, Warner and the major independents could have come together and created a streaming platform. It could have happened but it didn't. There is a techno fear within majors; they are content people, not tech people.

In the US people have been asking for over a decade why cable companies have not come together to make a streaming service, and similar to music labels, they simply lack the skills.

The short answer is that it would be such an act of self-harm for UMG to pull down its catalog. Bear in mind Spotify is 45% of their revenue. Forget about the damage to the revenue, artists would kick up a huge stink. Universal's job is to ensure their artist's music is on every available platform which legitimately pays.

Would the artists sue UMG if they unilaterally pulled like that?

They could certainly sue for loss of revenue but if UMG wanted to make a statement, they would still have to effectively pay through a notional royalty to artists who make that statement. It would be incredibly damaging to them to do that. It would also be damaging to Spotify but more damaging to Universal.

If that nuclear option is off the table, how do you stop Spotify from driving the prices down? Are there any other big levers they have to protect that?

Yes, the primary lever they have at the moment is a non-compete, meaning that Spotify is contractually not allowed to approach artists directly. Interestingly, Spotify own DistroKid. They might have disposed of it by now, with a view of creating a direct gateway for independent artists, but that got pushed aside. They may have viewed that as too much of a hassle. I suspect the labels realized they were treading on their territory. Currently there is legislation in the existing deals which prevent Spotify from directly competing for talent and going direct to them. Having said that, Spotify have been very clear on these things. In the initial deals with Spotify and the labels, there was a minimum revenue guarantee. The labels really stuck it to Spotify, and 70% of those revenues go to the publishers and master rights holders. A minimum revenue guarantee was put into the deal. You had to hit that and if not, you still have to pay them anyway.

Each of the majors had a share of the business and it was tough for Spotify to make money but they needed to do it to get traction in the market. In fact, it was impossible to make money on that basis. Spotify's argument has always been that they pay 70% of their revenues back to rights holders, but every major music publisher and recording music company are the same company. They negotiated with those companies separately. It seems ridiculous they were beaten up by publishers about what they pay artists, where in reality it is all under Sony Music, UMG or Warner Music Group. Spotify had to diversify. The way that pay outs currently run is tied to the overall amount of music listening, in terms of the content of the rights holders. Whatever revenues Spotify drive on a month-by-month basis from music listening is divided up depending on market share. That is roughly how it works.

The emphasis on podcasting diminishes the amount of music listened to, therefore the pay away would naturally go down. UMG, Sony and Warner have all heavily invested in podcasting, which is slightly off-piste for them, but they are doing that as a form of defense. When I was at the table doing the initial deals with Sony, it was important for the music industry to have five big retail partners all with roughly the same kind of market share. You want Apple, Spotify, Amazon, Deezer and YouTube to all sit on roughly the same level playing field. There was a common view that Apple, with its deep pockets and incredible ecosystem of devices and their audience, would be the market challenger to Spotify and put them in its place, but it hasn't.

Spotify is twice the size of Apple and has maintained its growth alongside Apple. Amazon will say they do not compete with Spotify and Apple and simply deal with their Prime customers which they understand really well, but by stealth they have done very well. I believe that within three years’ time, the major's revenue will be 80% driven through streaming. That will be obviously the DSPs plus the likes of TikTok and Peloton. Spotify has only become more dominant. It is not in Spotify's interest to try and screw the majors down. Spotify would be very conscious about saying they want to make a sustainable living for millions of artists, which is basically Daniel Ek saying they do not care about majors. The fact you are complaining about your royalties because you got a shitty deal with your major is not because our pay away is so poor. In fact, what we can do is connect you direct to an audience.

We have better data than your company on who listens to and likes you and where they are. Spotify desperately need to figure out a way to increase engagement on an artist-by-artist basis as opposed to pure streaming.

The labels make the argument that, although Spotify have a lot of data, they have data on every platform and get up to the second data on TikTok, SoundCloud and other emerging services. They can grab artists who are breaking out and will notice them before anyone else does and can boost them and get them ready. Do you agree with that or is it slightly overblown because Spotify have so much data?

It is slightly overblown but they have incredibly rich data on their own content, whereas Spotify have rich data on everybody's content. If you are looking who you can market to and where the appetite for your music is, that is an incredibly powerful tool to have. You are right, they do not have up to the minute TikTok and Peloton but there are several companies who do. You pay for the premium but it is available. It is not like this is an incredibly well-kept secret. Only Spotify and other streaming services can directly say that someone who listens to The Weeknd 10 times a week, randomly also listens to this, this and this, and we can connect him with those people who listen to this, this and this. That is rich.

Are you saying the labels have great data on where an artist is streaming and if they are breaking out on TikTok, but do not have data on Nick as a customer, who listens to Taylor Swift and DMX. Spotify cannot see what Nick listens to on TikTok but know everyone he listens to, which is obviously better data because they know Nick, have his credit card information and can advertise new artists and new songs?

Yes, that is exactly what I am saying.

A small label in South Korea pulled some stuff from Spotify and all the fans and artists blamed the label and it was a disaster for them. Are you familiar with that?

I saw it but I was not familiar with the story, but it does not surprise me.

What surprises me is that Spotify is small in South Korea, but it is not a smart strategy to do that. It will be incredibly damaging. Spotify have done a massive PR exercise for the value of streaming, ensuring artists are paid fairly. Originally, that was all directed at Spotify, about how it was unsustainable, but slowly the argument shifted towards, maybe the artist's deal sucks. Spotify pays their record label who then pays them 20%. Now there is a slight change in dialog on the masters but not on the publishing side, where there is still much PR required. Spotify know they are all the same company, so it is up to them to figure out how they want to carve the money up.

Both Spotify and UMG have $40 billion valuations on the market. Obviously, there are many things that go into that. UMG owns a third of the music industry and are coming public, meeting cash flow and are a tax on all streaming. Spotify are the biggest streamer despite being at a disadvantage to Apple because they are not freely installed in stores and have to pay to add tax. If I simply threw those two companies at you, which one would you be more interested in? I am not asking for investing advice, but they are both $40 billion which is a great match.

I would choose UMG because their catalog is so rich. The current value of music IP is a growing gold-plated asset which has not been recognized. UMG’s catalog is worth $50 billion at the current valuations being paid for catalog assets. If you did not care about the music business, you could go into UMG and entirely reorganize the business, throwing huge amounts of money away on front line music.

For UMG to protect, preserve and grow their catalog they have to figure out how to embrace new music and engage with artists in the future. Their catalog has been built over 70 years and much of it is life of copyright, which no longer happens. It is hard to replenish your catalog in the same way and it is also an expensive exercise, but the catalog is incredibly valuable. The streaming market will quadruple in five years and, if not, it will certainly grow exponentially. There is a danger with Universal, and this has happened in the past; they recently raised a staggering amount of money from their flotation and there is a deal with TenCent as well as a SPAC. They could simply throw a ton of money at new talent and hope and pray it will work.

That will not work. Instead, they can double down by figuring out what the record label of the future will look like. They must accept they are no longer in the rights ownership business but in the service business. They need to get much smarter about how they incubate and develop talent, which is how you build long-term relationships with artists. Someone needs to go in and re-imagine that business, and with their incredible catalog, I would choose Universal. Spotify have managed to maintain their leadership over Apple and Amazon, but it will be tough to continue that with the onslaught of other services coming on.

I do not disagree. I am slightly surprised, as I thought you would say Spotify. The more I research them, the more bullish I get on both. The fact Spotify have survived and thrived, despite starting from the worst position competing against Apple, tells me how good their data and execution are. Then UMG's catalog is gold-plated. I suspect a break out hit in 2015 is worth more than the same break out hit in 2005 because it will have been loaded onto many playlists and favorited by many people on Spotify. Is there any data on that or is it slightly too early to know?

It is probably too early to know. If you have data from 2005 on a single music asset then you have 16 years of valued data. The older catalog generally commands a higher multiple simply because you have the data to support this empirical evidence that this is a stable revenue. Hipgnosis was criticized and, in fact, they slightly changed their model, because they were acquiring catalog less than 10 years old, which is hard to predict where it will end up in the long term. With catalog older than 10 years you have that data and streaming. I had my business invest in emerging talent and we created a catalog and I can tell you now that you know you have two years.

You have a year of your high stream number, which then falls by up to 40% or 50%, then slowly starts to creep back up again. Over five years, you will probably find a net drop off of 25% from your peak; that is if you had a relatively successful piece of music. It then stabilizes because it finds its way onto multiple people's playlists. The longer you have it and the older the piece of music, the more evidence they have and the higher the multiple it can command.

That makes sense. If you had the number one song released in 2005 versus the one released in 2015, the latter would have longer legs because it got liked more and Spotify has more data on it.

100% correct; you have bigger streams because it came out 10 years later.

In Ackman's presentation he compared Lucian to Steve Jobs and Elon Musk. Obviously, you have a relationship with him, but is he one of the best CEOs in the world or only a good CEO? Can you scale him and if you are not comfortable, please pass?

I worked directly for Lucian for seven years and he is a very unusual character. In many respects, he is very old school music biz, which is quite a dictatorial character. I stopped working for Lucian in 2008 when I left Island Records, but if someone has said to me then that he would be where he is now, I would have said, not a hope in hell. To his credit, he is a street fighter and takes big gambles. It was an enormous gamble to acquire EMI and that was a game-changer. Lucian clearly has phenomenal instincts and is not afraid to gamble.

He is not a visionary in knowing what the music business will look like in 25 years. That applies to everybody currently sitting at the top. I know Rob Stringer and Max Lousada well. The music industry operates on the cult personality of the person sitting at the top of the tree. There is a king at the top and dukes and princes underneath. These guys are all music lifers. Lucian has been in the business for over 40 years and so has Rob Stringer, who has only been at Sony.

The business is structured on the same legacy business which I joined in the 80s. There are labels and A&R departments investing in talent. It is largely still a dark art. If you do not understand how music works, you need A&R specialists to come in and choose that talent for you. It is not data led and they all like competition. Universal, Sony and Warner have competing labels. I would argue that is not fit for purpose going forward. When labels are set up, they are dominated by A&R hubs. You needed separate radio teams to be able to work repertoire and they still have those teams but they are no longer that relevant.

You could have a very dramatic view of Universal consolidating their labels, or certainly many of the back room functions because it is unnecessary. They could double down in their absolute A&R and incubation resource and their digital platforms which would enable them to better understand their audience and how to get music to them. They could position themselves as an investor in the artist's business as opposed to being a recording music company.

We have Lucian at UMG, Steve Cooper at WMG and Rob Stringer at Sony. Ignoring their assets, which one would you most want to bet on?

I would definitely choose Lucian out of those three. We had a love-hate relationship as he is a very mercurial character. He has good instinct for hiring and spotting entrepreneurial talent within his team. Universal's US market share is comprised of many joint ventures such as Drake with Cash Money. The way that is structured is they make all the money on international sales and their margin in the States is small. That is because Lucian has been great at identifying and empowering entrepreneurial talent; way better than Sony or Warner Music Group.

We only have five minutes left but is there anything I am not thinking about or should be thinking about more or is misunderstood with these assets?

No, not specifically. If you look at UMG and Spotify, both are diverging. Spotify's goal is to become the leading audio platform, whether it is music, podcasts or news. So much of streaming is going to grow exponentially. Obviously, the value of those consumers is falling considerably and is currently at $4.20 ARPU. That will drop because most of the growth is coming from Southeast Asia and Sub-Saharan Africa, but there is still a lot of opportunity there.

Universal has a global footprint but its catalog is predominantly Anglo-American. In markets like India and China, there are huge opportunities but they do not listen to an Anglo-American repertoire. China is a 90% domestic market and India is not that far behind. Obviously, there are opportunities there and Universal is in both India and China, but they are relatively smallish players compared to TenCent, who own Universal. In India you have sizable independent players who have a considerable clout on the local market. I was talking about this with Hipgnosis.

The Hipgnosis Fund is entirely predicated in ongoing streaming growth and other platforms opening up. They may be fine but again, you have to be cautious to say where the growth is happening. It is not necessarily a hot bed of Anglo US repertoire.

That could be an opportunity for them as well. It seems like music is traveling more internationally and you are making international stars. Perhaps it is cheaper to get some K-Pop or Indian stars and turn them into global talent simply because they have that data?

Potentially but, again, it is the way you monetize artists. YouTube is, of course, by far the biggest streaming platform in the world. Two months ago, of the top 10 artists on YouTube, five were Indian, two Hispanic Latin American and one US Anglo pop artist. Until relatively recently, YouTube was considered the black sheep of the streaming family, and rightly so, because they hid behind safe harbor and paid very little. With the new YouTube premium service, they are starting to pay. The visual component is important, particularly in Latin America and Southeast Asia.

K-Pop is an anomaly. You could speak to me in two years and say I was wrong. There are massive Hindi artists who have broken out globally, but that is also an anomaly. I don't know if we will be talking about K-Pop at an international level this time next year. We publish some of the BTS stuff, which is great, but all these types of acts have a shelf life. It doesn't matter whether you are One Direction or NSYNC, they all have a shelf life, so you need another one. HYBE in South Korea have already handed off the BTS responsibility to Columbia, part of Sony in the US. They still own the act but they want Columbia to take care of it. They are now desperately trying to break an act called TXT.

They know BTS is going and are simply trying to run and claw their way to see if they can get another, so that the lightning can strike twice. I don't think will ever happen. Bear in mind, BTS were massive locally in South Korea for years before they broke outside. I think you will see enormous Chinese acts on the domestic level who might get a chance to travel. You have to look at where that streaming growth is coming from, which repertoire is growing streaming. Are the majors now in a position to exploit that? Yes, to a degree, but they need to either partner with or acquire some big local players to ensure they remain competitive.

I appreciate your time; this has been super helpful.

My pleasure, great to speak to you and have a good day.