The Next Bet in Music: Artist Services – The Wall Street Journal

New York-based Downtown is exiting the copyright market at a moment when investors are paying top dollar for high-profile catalog sales by Bob Dylan, Stevie Nicks and Neil Young. Its new direction is a bet that the proliferation of streaming means more artists will need help getting their music out and making money from it.

During the era of CDs and digital downloads, signing to a label was essentially the only way for an artist to have their music distributed, played on the radio and promoted. In a standard record deal, the label typically takes ownership of any music recorded by the artist in exchange for an advance and taking on the risk of signing that artist. The rise of streaming services, such as Spotify Technology SA SPOT 2.07% and Apple Inc.’s Apple AAPL -0.07% Music, has made it easier for artists to release their music as they like, with or without a label’s help.

Most global hit songs are still products of the major-label system, but scores of smaller and midsize artists are finding success—and careers—on their own. Many up-and-comers kick off their careers as independents, landing more lucrative label deals once they have gained traction on SoundCloud, Spotify, YouTube or TikTok. But even in those deals artists are demanding more, including retaining ownership over their music, further supporting Downtown’s proposition.

“The motivation to sell your rights at the onset of your career is falling out of fashion,” said Downtown founder and Chief Executive Justin Kalifowitz. “While it is true the top of the pyramid, the top 1% of creators, are selling their copyrights, the general theme of the music business today is ‘how do I own and control my music?’”

Independent artists represent the fastest-growing part of the recorded-music business. Revenue from indie labels and artists grew 27% in 2020, increasing their combined streaming market share to 31.5%, according to industry data-provider Midia Research. Artists who distributed music without any label grew 34.1% last year to become a billion-dollar market for the first time. Independent artists out-released major labels last year at a ratio of eight to one, according to a study from Spotify’s former chief economist Will Page.

All that suggests a need for servicing those artists, Mr. Kalifowitz said. “The capital coming into music hasn’t focused on this explosion in creativity and what that volume of music is doing out in this world.”

Downtown engaged merchant bank Raine Group LLC last year to explore strategic options, including a potential sale. That process helped highlight how the company’s services business is growing more than 30% a year, compared with the mid-single-digit returns typical of music IP. The business is profitable and projected to generate more than $600 million in revenue for Downtown this year, the company said.

Dozens of companies, including Tunecore Inc., Stem Disintermedia Inc., Vydia Inc. and Create Music Group Inc., are helping independent artists distribute, promote and even fund their work in the form of artist services. These offerings, which either charge a fee or a cut of royalties, but don’t take ownership of music, can be as hands-on or hands-off as artists want.

Downtown has brought several such companies under its umbrella, in recent years acquiring distributors CD Baby, Soundrop, FUGA and DashGo; music-data analytics firms AdRev and Simbals; and digital-marketing platform Found.ee. Songtrust, its music-publishing administration platform, represents more than three million songs and more than 350,000 songwriters. In all, Downtown manages more than 23 million music assets on behalf of more than one million artists and 2,500 enterprise clients globally.

It also still administers the copyright of several superstar artists, including the estate of George Gershwin, John Lennon and Yoko Ono, Miles Davis, John Prine, Wu-Tang Clan, hit producer Ryan Tedder and OneRepublic.

Write to Anne Steele at Anne.Steele@wsj.com