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GM readers 👋,

Happy May!

It was great seeing several of you at Amplify 2026. I’ll be heading back to NYC for this year’s Music Investor Conference Friday, June 5th through Wednesday, June 10th. If you would like to discuss ways to work with Alderbrook – consulting, investing, newsletter sponsorships, and more – or simply want to grab a coffee and say hello, please let me know by sending a note here. I’ll get back to you soon!

In this month’s newsletter, Drew Thurlow is back with a timely guest post. Every generation or so, a new technology forces the music business to do something that some observers say it struggles with: change. As generative AI music usage increases, the stakes grow for the industry to get the rules of the road right. Drew lays out a concrete – but admittedly an imperfect – proposal to address AI licensing’s unique challenges. It will hopefully spark a conversation, because the architecture the industry builds right now – while deals are still being struck and courts are still deliberating – will likely shape who gets paid (and who doesn’t) for decades.

And you can learn even more about the topic of AI’s impact on music by purchasing Drew’s new book at this link!

And with that, on to the disclaimers…

Note: We write this newsletter to learn in public. This piece is for informational purposes only. None of this is tax, financial, investment, or legal advice. Do your own research!

Now, let’s get after it!

Jimmy

Does Music Need a New Royalty for the AI Era?

“I don’t know what they want from me, it’s like the more money we come across, the more problems we see.” - Notorious B.I.G.’s “Mo Money Mo Problems”

The music industry has a long history of treating every new way to monetize music as an invitation to create a new royalty.

That is the real pattern: not simply that technology changes things, but that technology creates meaningful new commercial uses for music that the existing system cannot measure, price, or administer. When that happens, pressure builds and eventually - usually late, usually with a fight - the industry creates a new royalty.

For example, this is what produced the mechanical royalty. In 1909, player pianos and piano rolls turned songs into a new kind of reproducible product. Music was drawing unprecedented crowds to bars and speakeasies, and songwriters wanted a share of those bar tabs.

It is also what produced the public performance right. In the 1930s, as radio fidelity increased, broadcasting went mainstream and opened up new commercial pathways for music. Songwriters, once again, wanted to be compensated. Congress agreed.

Thomas Edison’s gramophone eventually spawned the recorded music business and the master royalty. And in the late 1990s, we got the digital public performance royalty for sound recordings – after rights holders decided they were not going to let digital radio repeat terrestrial radio’s century-long omission of a master royalty in the United States. An omission, it is worth noting, that still has not been corrected.

Each of those royalties was created out of a specific set of technological and commercial circumstances. Each took years of fighting before coming into existence. None landed cleanly, and in fact, industry stakeholders still fight over them.

And now, we have Generative AI – a technology that could radically change how we make, consume, and monetize music.

How Big Is the AI Opportunity?

Before getting into how a new royalty should work, it is worth establishing what is on the table. The traditional music royalty pools are not small. And I believe (Drew here 👋) that the AI one may not be either.

For example, in 2024, global songwriter and publisher collections cleared €12.6 billion (~$13.6 billion), up 7.2% year over year, according to CISAC’s Global Collections Report. That number splits roughly into thirds: digital streaming and downloads at €5.1B, live and background at €3.5B, and TV and radio at €3.4B. The MLC alone distributed over $800 million in mechanical royalties in 2024 under the US blanket license. Global recorded-music sync was a $650 million business.

Compare that to where AI licensing is going. Goldman Sachs’ 2025 Music in the Air report pegs direct AI music revenues at roughly $400 million today, growing to $2.1 billion by 2030. That is a 30% CAGR, contingent on training and output rules getting clearer! AI music is currently around 0.1% of the royalty pool. That number is going up.

Goldman’s $2.1B estimate is direct AI revenue (i.e., what the AI music platforms generate). The royalty pool that flows back to rights holders is a percentage of that figure. So exactly how much of that potential revenue gets paid out is exactly what a hypothetical AI royalty framework – that I’ll propose below – would attempt to set.

In the below chart, I consider a few potential scenarios for the size of the AI pie. If the Goldman estimates play out as forecasted, we’re likely looking at a mid-hundreds-of-millions royalty pool for rights holders within five years. Run a more aggressive scenario where AI music reaches streaming scale by 2035, and the pool is multiples bigger.

Put another way: I see the AI music opportunity as a sync-sized opportunity in the worst case and a streaming-sized one in the best case. The architecture we build for it now determines who participates in it for decades to come.

Why Existing Royalty Models Break In the AI Era

Generative AI is not one use case. It is several stacked on top of each other. There is a potential transfer of value at:

• Ingestion: when music is used to initially train a model;

• Inference: when a model is prompted; and

• Output: when a model generates, references, imitates, or recommends music in ways that displace or compete with existing catalog

That is a much more complex problem than “here is a new transmission medium, decide what it pays.”

It is also why some of the early licensing deals – which rely on pro-rata streaming data to determine payouts – cannot be the long-term answer. Streaming data tells you what people listened to on Spotify last month. It does not measure training contribution. It does not capture output influence. It does not describe how music functions inside a model at all. Using pro rata streaming payouts for AI generated music is convenient, unprincipled, and maybe even lazy. Clearly, it is mismatched to the technology. As AI becomes more important to the industry, this disconnect will look even more obvious.

These pro-rata licensing deals may be necessary first steps. Along these lines, I would agree that the UMG/Udio and Warner/Suno settlements are doing the important work of establishing that this use is licensable. However, these deals and settlements are not doing the harder work of establishing how different types of use gets paid out.

Answering if vs. how are two different problems. And the second one needs a structural answer. Proxies have a way of becoming permanent, and this is one the industry should not let take hold.

Why Current Legal Disputes Will Enable a Royalty to Follow

Before getting into it, there is a fork in the road that no AI royalty conversation can skip: is training on copyrighted music fair use?

That question is being litigated right now in cases involving the major labels, publishers, and AI music companies. The answer matters enormously, because it determines whether any future royalty regime will be:

• Negotiated: Rights holders have leverage, and AI companies have to license catalogs they want. A market emerges around this behavior.

• Mandated: Courts find training is infringing, and we need a solution. This results in private agreements and/or Congress steps in with a compulsory license and a rate-setting process.

• Foreclosed: Courts find training is fair use. As a result, there is no royalty obligation outside of private agreements from AI companies that want to do the right thing or prefer to have a clean data feed.

Most of this essay assumes that the first outcome or second outcome prevails. The third one would leave rights holders with no real leverage and turn any “framework” into a polite request that Big Tech does not have to acknowledge.

However, my assumption is not guaranteed. It is one of the reasons the licensing deals being struck right now are not just about money; they are also about establishing a market practice that this use is licensable.

But Why Not Just Do Direct Deals?

It is an obvious question, especially right now. UMG settled with Udio in October 2025, agreeing to license its catalog into a new AI platform launching in 2026 - walled garden, no downloads, opt-in artist consent. Warner settled with Suno in November 2025 - “multi-million dollar” settlement, a licensing partnership, and Suno’s acquisition of Songkick thrown in for good measure. Sony is still in court, and its fair-use cases against Udio and Suno are expected to produce a pivotal ruling later this year. The Big Three have all signed deals with KLAY. ElevenLabs has locked in Merlin and Kobalt, with a 50/50 publishing/master parity split and a Most Favored Nations clause for the publisher.

Given this progress, why not just let the market handle it?

I’d argue that there are three problems with allowing direct deals between rightsholders and licensees to reign supreme.

First, direct deals concentrate. Collectives distribute. The Independent Music Publishers Forum has urged its members to reject AI deals that don’t treat recording and composition rights at parity. Meanwhile, the European Composer & Songwriter Alliance is calling for transparency in licensing agreements. This is the streaming-era complaint replayed, and structurally it is the same problem: when only the rights holders with leverage make the deals, everyone else gets a take-it-or-leave-it rate after the precedent is set.

Second, direct deals don’t solve the songwriter problem. A label can license a master. A label cannot license the underlying composition. The ElevenLabs/Kobalt 50/50 is the first deal that gets this right, and it works because the publisher had its own seat at its own table. Without a structural mechanism that forces parity, most AI deals will continue to inherit streaming’s 80/20 split and most songwriters will continue to lose.

Third, direct deals don’t measure output influence. The agreements between AI companies and the Majors cover what was ingested. They don’t touch what comes out on the other side. A song from a small independent label that demonstrably shows up in an AI generation – through melodic similarity, timbral imitation, or attribution – has no path to compensation under a model where only the Big Three’s catalogs are licensed.

Direct deals are how this gets started. They are not how it scales, and they are not how the people who actually wrote the songs get paid. The industry knows this. We built SoundExchange and the MLC for exactly this reason. We are going to need to do it again.

A Concrete (And Imperfect) Proposal

So how do we solve this problem?

What the industry should consider is a two-tier Generative AI-specific royalty. A royalty that I am calling the “Generative Usage Royalty.” Here’s how I envision this royalty working:

Tier one: a training-rights fee. Treat the use of copyrighted recordings and compositions as training data in a similar way as the industry treats sync licensing. In other words, rights holders will be paid up front for a discrete licensable use. Pricing would be set by negotiation in the near term, and ideally by a statutory rate later under a blanket license. The license would be tied to a specific model and a specific training run, with audit rights for rights holders, and disclosure obligations for licensees about what was ingested.

These training deals would have a term (like streaming deals), and any rights holder would have the ability to negotiate or opt out at the end of the term. And while streaming deal terms can typically run three years, that time horizon is too long for the exponential developments that happen in AI. Ideally, these AI deals would be one year.

Tier two: an output royalty. A percentage of revenue derived from the AI outputs paid into a collective pool. This would be a portion of the licensee’s revenue generated from a variety of sources, including subscription fees, API revenue, generation credits for rights holders (similar to how streaming services offer free ad inventory), and B2B licensing of generated music.

This royalty set would weigh three factors: (i) detected output influence (using fingerprinting and attribution modeling), (ii) use of name-and-likeness in the prompt, and (iii) a baseline catalog share. None of those signals are perfect on their own. Together they are closer to “what value did your music actually contribute?”

Both tiers would flow through a new or designated collective rights body, similar to the MLC or SoundExchange, with separate splits for the master side and the publishing side.

This is not the only plausible design. But the two-tier structure has the right shape, because it pays for the ingestion event and it pays for the ongoing commercial use, which is roughly how the rest of the music business already works.

The Master vs. Composition Splits Problem

Here is where most royalty reforms go to die, and the AI conversation will not be different.

A Generative Usage Royalty has to attach to both the sound recording (master) and the underlying composition (publishing). The starting question is the split between them. Streaming settled, after years of fighting, on a roughly 80/20 split of the rights-holder dollar in favor of the master side. It’s worth noting that a number of publishers and songwriters have been pushing back against this split ever since.

For an AI training fee, the cleanest starting point is 50/50, because the model is ingesting both the recording and the underlying work simultaneously, and there is no reason to weigh one over the other. For the output royalty, the same logic makes sense. If you want to get even more detailed, the potential adjustments could be baked in where outputs are demonstrably more influenced by composition (melodic similarity) versus master (timbral or production similarity).

This is how sync works, and the first major AI license deal we had – ElevenLabs and Merlin/ Kobalt – does split revenue 50/50 between the master and publishing.

Songwriters and recording artists also need a defined share of each side. In my opinion, this should be distinct from what their labels and publishers receive and that share should not default to whatever their existing contracts say. (Sorry label friends, but those contracts were not written with AI in mind.)

This is the part of the argument that the labels and publishers will fight hardest, and it is the part that determines whether this framework is fair to the people who actually make the music. However, we have a precedent for this: it is not unlike how SoundExchange was set up to collect digital performance royalties, where 45% of what is collected goes directly to the featured artist. At least, it’s supposed to.

There is no avoiding this fight. There is only choosing whether to have it now, while the framework is being built, or later, after the inertia of doing nothing has hardened into precedent.

Enforcement and Measurement

A royalty system is only as good as its enforcement mechanism. This proposal has to come with an enforcement architecture, and this is where it is worth being honest about what is possible with current technology:

Training disclosure is solvable but politically hard. AI companies generally do not want to publish their training data sets; doing so creates legal exposure and potentially exposes their “secret sauce.” A workable regime would require disclosure to a trusted intermediary – the collective body, an auditor, or a regulator. Under confidentiality, rights holders would be able to verify their works’ presence or absence. We have some analogs to this in AI image generation, and book publishing. Some of these bodies have even taken action when AI companies have violated agreements.

Output similarity is solvable but technically uncertain. Audio fingerprinting works well for exact and near-exact matches but degrades quickly for stylistic similarity and determining plagiarism.

Inference-level attribution – knowing which training works contributed to a specific generation – is still mired in research. There are interesting attribution methods being discussed, but nothing ready to be deployed, at least at scale. Any honest version of this proposal punts on per-inference attribution. Instead, for now, attribution should be determined by the name-and-likeness used in a prompt plus a pool distribution.

The web3 era taught the music business that clever tech does not solve all problems. Metadata hygiene, governance, adoption, and enforcement were the hard parts then, and they are the hard parts here. The proposal above is designed to work with imperfect tech and improve as the tech improves, rather than waiting for perfect measurement that will not arrive. Again, we have never let perfect be the enemy of good in the music business.

How Does a New AI Royalty Impact Different Stakeholders?

Most of the conversation about AI royalties has focused on artists and creators. That undersells what is actually at stake to music business stakeholders. A Generative Usage Royalty rearranges incentives for almost every industry player. Some of those parties are obvious winners. Some are conflicted.

Major labels. Structural winners on the master side. They own the catalog AI models most want, users want to prompt, and a defined royalty stream means a new revenue stream to bulk up profits as streaming growth slows. But they may lose some control if a statutory rate is introduced because it sets a floor. The Majors would be unable to undercut one favored AI partner, and an output royalty paid into a collective pool means they can’t take all the upside. As a result, they’ll fight the splits-to-talent piece hardest, because that is the part that comes out of their share.

Publishers and PROs. They are the biggest structural winners. The 50/50 parity baked into a statutory framework is the thing they’ve been begging for in streaming for 15 years. Getting it written into the AI royalties from day one resets the bargaining position for everything else in music and it positions PROs as natural administrators of the new collective body.

Spotify and DSPs. Interestingly conflicted. On the one hand, AI-generated music threatens to flood the platform with content that costs DSPs nothing in royalties. On the other hand, if AI outputs trigger the output royalty when they’re streamed, DSPs end up paying for content they thought was (essentially) free. The framework protects the DSP/artist relationships at the cost of its margin on AI slop. Expect them to lobby hard for narrow definitions of “covered output.”

YouTube and TikTok. Both are already AI producers (e.g., YouTube’s Dream Track, Google’s new FlowMusic, TikTok’s various AI music experiments). For them, this is a tax on a capability they were planning to get for free. Expect resistance. But it also gives them legal cover because a defined royalty is cheaper than an enterprise-killing lawsuit, which is the calculation that likely drove the UMG/Udio and Warner/Suno settlements in the first place.

AI music companies (Suno, Udio, ElevenLabs, KLAY, etc.). Winners. A sanctioned royalty framework legitimizes these companies in the eyes of artists, the industry, and investors. Suno and Udio both settled with the Majors when given the choice between paying and fighting. Many feel these generative AI companies are illegal and unethical. A formal royalty framework would go a long way to combat those narratives.

Indie labels, indie publishers, and the long tail. The biggest winners under my proposed framework. Without it, they will likely be left to negotiate alone against AI companies that have already spent their budgets on the Big Three. This is the constituency that a Generative Usage Royalty most exists to serve. It is also the constituency, paradoxically, with the least power to push it forward.

In summary, a new royalty is not a tax on the AI industry. It is the thing that lets the AI industry exist inside a music business that does not try to sue it out of existence every six months. From my perspective, each party above has a version of this deal where they win.

What This Buys and What It Costs

A Generative Usage Royalty designed along these lines will not come easy. It would create new overhead, new disputes, and new rate-setting fights. It would require labels, publishers, PROs, AI companies, lawmakers, and creator advocates to actually sit at one table, which is not a thing the industry is famous for doing well.

What it would give back is an architecture that pays for the right thing. It would price training as the licensable event it is. It would tie ongoing payments to the actual product AI companies are selling, not to a proxy borrowed from a different business (and one increasingly dominated by those at the top). It would acknowledge that creators deserve a defined share of both sides of these new revenue streams. And it would do so in a structure that can be exported internationally, which matters because AI does not respect national borders.

Closing Thoughts

The history at the top of this essay is not as clean as the industry likes to tell it. The mechanical royalty took a Supreme Court loss, and an act of Congress. The digital public performance right exists for sound recordings only because rights holders refused, repeatedly, to be steamrolled the way they were on terrestrial radio. The terrestrial sound recording performance right still does not exist in the United States, because the broadcasters won that fight and have kept winning it.

New royalties get built when reality forces the issue and when rights holders have enough leverage to make it work. They do not get built because they are obvious or because they are necessarily fair.

The AI moment may or may not produce that leverage. The licensing deals being signed now will determine a lot of it. The court rulings on training will determine more. And the willingness of labels and publishers to share the upside with the artists and writers they represent will determine whether the framework is durable or if it is litigated apart by its own beneficiaries. We know which path we usually take in music.

A Generative Usage Royalty, structured roughly as described above, is the right solution. It will be imperfect. It will be fought over. It will be revised. That has been true of every royalty in this business. We should build it now – while it is still early – and build it with intention. Otherwise, the industry will wake up to a system congealed around bad proxies and worse precedent.

Thanks to Matt and Adam for the feedback, input, and editing!

Leveling Up’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. In addition, our work may feature entities in which Alderbrook Companies, LLC or the author has invested, has worked, and/or has provided consulting services.

📚 Music Business, Tech, and Investing Content Worth Consuming

Here is some of the best content that our team has consumed over the past month or so –

We need to rethink what ‘indie means’ (Mark Mulligan: link): “In 2025 independent labels represented, on a distribution basis, 30% of the global recorded music market. But the term independent is becoming progressively less useful…Why? Because the influx of capital into the music market has driven the rise of a new breed of commercially-focused, global scale labels…In today’s music business, data and marketing tech & resources are the superpowers. It takes scale to build powerful enough capabilities. Most smaller indies cannot afford them.”

Michael Jackson’s Catalog Is Still Setting Records In ‘Michael’ Biopic’s Third Week (Billboard: link): “For the third consecutive week, Michael Jackson obliterates his personal-best weekly streaming count as impact from Michael biopic continues to spell massive streaming returns and more chart placements for many of his best-known songs. For the May 1-7 tracking week, Jackson’s solo catalog registered 181.6 million official on-demand song streams in the United States, according to Luminate.”

As ABS Deal Reshape The Music Rights Landscape, KBRA Says It’s Rated $12.9B In Music Royalty Backed Bonds Since 2020 - But Expects Issuance To Fall 25% In 2026 (MBW: link): “KBRA expects music ABS issuance to fall by approximately 25% in 2026, dropping from over $3.3 billion in each of the past two years to slightly more than $2.5 billion – “primarily because of continued issuer consolidation.”

If You Thought The US Music Industry Was Concerned About AI, You Should Hear What They’re Saying In China (MBW: link): “The Chinese music streaming market is facing “industry chaos” due to platforms allowing masses of copyright-infringing, AI-made tracks to fill up their catalogs…[Tencent Music Entertainment’s Executive Chairman Cussion] Pang told analysts that the “proliferation of unauthorized AI-generated content… creates headwinds for our music subscription growth” and “undermines creators’ rights and dilutes the long-term value of the music ecosystem as a whole.”

🤝 Want to Work Together? Get in touch!

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Here’s what we offer music publishers, labels, tech companies, and investors:

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If you’re interested in learning more and exploring how we could work together, you can either reply directly to this email or click the link below to fill out our contact form. We’ll be back in touch soon!

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GM readers 👋,

Happy April!

I’m heading to Amplify 2026! I’ll be in NYC Wednesday May 6th through Friday May 8th. If you would like to discuss ways to work with Alderbrook – consulting, investing, newsletter sponsorships, and more – or simply want to grab a coffee and say hello, please let me know by sending a note here. I’ll get back to you soon!

Also, as a reminder, we published our first Music Market Update last month. It’s our best effort to capture key trends across public markets, private growth investments, M&A, and more. Hopefully it’s a helpful resource if you’re a founder fundraising, an investor building a thesis, an executive developing strategy, a music finance nerd, or just curious about the space. If you have any feedback on it, we would love to hear from you so that we can improve future versions.

In this month’s newsletter, we’re going to cover a much discussed topic. Is there a dislocation in the market valuation for the publicly traded Majors – Universal Music Group (“UMG”) and Warner Music Group (“WMG”)? In short, do we think they’re cheap?

To try to answer this question, we’ll explore how UMG and WMG valuations have evolved; look at how they have performed operationally over the same period; discuss potential reasons for their struggles; brainstorm ways to improve things; and consider how this situation might impact private market investment activity.

And with that, on to the disclaimers…

Note: We write this newsletter to learn in public. I currently own UMG and WMG stock, so I’m biased. This piece is for informational purposes only. None of this is tax, financial, investment, or legal advice. Do your own research!

Now, let’s get after it!

Jimmy

The Majors: Dislocation…Or Not?

“If you believe that the value of anything financial is the present value of the cash you can take out of [the business], then you need to know how much cash it is going to generate over its life…If we can’t predict the cash flows, then we can’t invest.” - Bill Ackman, Founder & CEO of Pershing Square Capital Management

It’s been a little over a year since we published our first deep dive on Universal Music Group. A lot has happened since that time.

Back then, we thought UMG looked cheap on a sum-of-the-parts basis. But we also acknowledged that the company would need to take a creative approach to investor communications, because it was navigating various music industry crosscurrents.

“For example, a greater share of revenue will likely be derived from servicing copyrights rather than owning them; gross margins may be pressured due to the shift to artist & label services and focus on merchandise and physical collectibles; and free cash flow may decline over the next few years as more capital is allocated to investments that enable UMG to execute its vision.”

In short, we believed that UMG was making smart strategic bets to meet its growth goals. But we were equally concerned that these bets would lead to a revenue mix shift that would likely negatively impact the company’s profit margins. To illustrate this dynamic, our team came up with one of our all-time favorite newsletter memes:

As it turned out, we were right to be skeptical about the impact of UMG’s strategy on its margins. As we’ll discuss shortly, UMG has successfully grown revenue but its free cash flow margins continue to decline. In fact, 2025 free cash flow (before investments) came in below 2022 levels!

A similar financial dynamic is playing out at the other publicly-traded Major. Warner Music Group is growing revenue but its free cash flow has remained relatively stagnant over the past five years.

This isn’t a great set-up in the eyes of certain public market investors, who often value mature companies – like UMG and WMG – by estimating their future cash flows (as opposed to revenue or EBITDA) and discounting those cash flows back to the present day. As a result, it’s unsurprising that both Majors’ share prices have struggled.

Since UMG’s IPO in September 2021, UMG and WMG’s share prices have declined ~21% and ~35%, respectively. Both stocks are trading near all-time lows. Meanwhile, the S&P 500 has increased 60% over the same period.

Given this underperformance, activist investors have taken notice. On April 7th, Bill Ackman’s Pershing Square proposed a merger transaction that would combine UMG with Pershing Square SPARC Holdings. As part of the proposal, Pershing Square outlined a number of reasons why it thinks UMG has underperformed and its plans to unlock “enormous shareholder value.”

In this newsletter, we’ll give our take on whether the publicly-traded Majors (i.e., UMG and WMG) are undervalued and explore some options to unlock that potential value. We’ll then wrap up by outlining how the Majors’ valuations might impact the broader music IP investment space.

But first, let’s set the foundation here and understand why some investors still believe the publicly-traded Majors’ valuations might offer compelling value today.

Why Do Some Investors Believe The Majors Are An Attractive Investment?

About a week before Pershing Square went public with its proposal, UMG reported earnings. In its earnings release, UMG’s CFO Matt Ellis expressed the company’s frustration with its current share price: “We currently see a meaningful dislocation in UMG’s market valuation.”

UMG management isn’t the only one frustrated with public market investors. Much has been written over the past couple years arguing that the public markets offer compelling risk-adjusted returns for music IP investors. Here are a couple of our (biased 😝) favorites:

• Reservoir Media: A Hidden Gem?

• Private Investors Love Music. Why Doesn’t Wall Street?

• An Open Letter to Universal Music Group and Pershing Square

• Should Warner Music Call It Quits?

From our perspective, there are three common approaches for arguing that UMG and WMG are currently undervalued:

1. The comparables multiple argument

2. The precedent transactions argument

3. The sum-of-the-parts argument

There are tradeoffs to each of these arguments, but we think that one is stronger than the others. This is important because we believe that the chosen argument informs strategy for unlocking any potential value. Before explaining our reasoning, let’s unpack each argument.

The Comparables Multiple Argument

The comparables multiple approach usually notes that the Majors’ financial metrics have been strong since going public. These investors typically cite revenue, EBITDA, and net income as their metrics of choice. This is Pershing Square’s argument for UMG.

These investors will then note that the Majors’ valuation multiples are trading near all-time lows and are trading at a discount to other “comparable” public companies.

The Precedent Transactions Argument

The precedent transactions approach typically compares the Majors’ valuation multiples to historical music catalog transaction multiples. Several industry publications and analysts have observed that the Majors trade at a discount to iconic music catalogs. For example, UMG and WMG’s EV / NTM EBITDA multiple declined from ~20x+ in 2021 to ~10x at the end of March 2026.

Meanwhile, private market valuation multiples for premium music catalogs – as measured by EV / Net Publisher Share (“NPS”) or EV / Net Label Share (“NLS”) – have remained relatively stable over the past five years. The investment bank Shot Tower Capital reports that iconic catalogs typically trade for mid- to high-teen cash flow multiples, on average. In short, this approach argues that the Majors now trade at a substantial discount to private market catalogs.

The Sum-Of-The-Parts Argument

The sum-of-the-parts approach seeks to ascribe a valuation to each of the Majors’ businesses. As we discussed in our UMG deep dive, the Majors are complex in that they do far more than simply own a life of copyright catalog.

To level set, I think of the Majors’ businesses in three buckets:

i) recorded music;

ii) music publishing;

iii) other (merchandise, live music, management, etc.).

Within buckets (i) and (ii), there are catalog and frontline businesses. And then within the catalog business, there are legacy artist/songwriter deals (higher margin with longer ownership timeline) and more recent artist service like deals (lower margin with shorter or no ownership timeline).

Importantly, each business has its own unique growth, margin, and perceived stability of cash flows (i.e., valuation multiples).

The sum-of-the parts approach seeks to isolate the financial metrics of each business, apply a respective valuation multiple to each business, and then add up the valuations of each business. Once this is done, you can compare the combined valuation to the current share price. In other words, a sum-of-the-parts approach might enable the Majors to demonstrate that their shares are currently priced below the estimated value of their legacy back catalog, meaning no value is being attributed to its artist services business or other business.

Currently, it’s difficult to estimate the value of each business from publicly available information. That said, I’ve attempted to provide a rough example below of how this might work (note that this is meant to be illustrative and small tweaks to the assumptions can have a big impact on the valuation).

In other words, a sum-of-the-parts valuation approach indicates that UMG and WMG are priced below the estimated value of their recorded music back catalog alone, meaning no value is currently being attributed to their publishing, third-party distribution, merchandise, and other businesses.

What’s Holding Back This Bullish Thesis?

Pershing Square’s recent proposal laid out a number of points for how UMG can address its share price underperformance. From our perspective, some of these are more compelling than others. For example, we’d love to see a transparent capital allocation plan. However, we believe that Pershing Square’s proposal ignores the most important factor holding back UMG’s – and for that matter WMG’s – share price.

In our experience, public market investing in mature, resilient businesses is often an exercise in underwriting the free cash flow that a business will generate over time. Mathematically this is how many investors value securities (and music catalogs for that matter). They build a discounted cash flow model by forecasting free cash flow and discounting that cash flow back to the present day. Ironically, this is how Pershing Square’s founder Bill Ackman has talked about his own high-level framework for investing. When cash flows become less predictable, it becomes harder for investors to forecast them. This typically results in a lower implied valuation multiple.

We noted in our UMG piece published last year that 1) the music industry value chain has become more competitive and 2) the Majors’ strategic decisions to adapt to the new environment would likely impact their margins. Along these lines, the Majors’ business models are shifting from copyright ownership to servicing copyrights. There is also a greater focus on non-music IP revenue, such as merchandise and hospitality, which are typically lower margin.

In short, the Majors have made choices to grow their market share and accelerate their growth. However, these choices appear to have resulted in a key tradeoff: less predictable free cash flow.

For example, over the past four years, the Majors’ revenue and EBITDA has grown consistently. UMG and WMG’s revenue grew ~21% and ~13%, respectively, from 2022 to 2025. During the same period, UMG and WMG’s adjusted EBITDA increased ~32% and ~26%, respectively.

However, the Majors’ revenue and EBITDA growth has not shown any correlation to the free cash flow available for their shareholders. Over the past few years, whereas UMG and WMG’s EBITDA has grown at a high single-digit compound annual growth rate, their free cash flow (before investing activities) has declined slightly.

As a result, UMG’s free cash flow margins have shrunk from 16% to 12%. WMG’s margins have declined from 10% to 8%.

Given this dynamic, how are investors supposed to forecast the Majors’ future free cash flow with a high degree of confidence? In our opinion, this is likely the key headwind facing their stock prices today. And we were surprised that Pershing Square’s UMG presentation did not really dive into this reality or the key industry drivers causing it.

Keeping in mind the Majors’ lack of free cash flow predictability, it’s worth reconsidering each of the bull cases for the Majors:

• Comparables Multiple Argument: The Majors’ revenue and EBITDA have proven to be durable over time. However, these metrics haven’t shown a correlation to free cash flow, which we believe matters most for mature, large capitalization businesses. And the Majors’ free cash flow has not been growing like “comparable” companies, such as Netflix (“NFLX”) and Spotify (“SPOT”). Both NFLX and SPOT’s free cash flow has grown exponentially faster than revenue and EBITDA between 2022 to 2025. As a result, we don’t think this argument is particularly strong until UMG and WMG are able to improve their free cash flow growth profile in a similar way to revenue and earnings growth.

• Precedent Transactions Argument: Music catalog valuation multiples typically reflect the cash flow generated from a specific catalog. In other words, the catalog’s NPS and NLS usually reflects the cash flow available to catalogs investors / buyers. Meanwhile, EBITDA has not been a good indicator of the Majors’ free cash flow available to their shareholders over time. As a result, we don’t think that iconic catalog EV / NPS or NLS multiples are helpful comparisons to the Majors’ EV / EBITDA multiples… unless there is a catalyst that makes the corporate cash flows more closely reflect the Majors’ catalog cash flows. And this brings us to the next argument.

• Sum-of-the-Parts Argument: We think that this argument is better than the other two. It tries to look at the cash flow of each individual business rather than treating the Majors’ consolidated earnings metrics as a reflection of free cash flow. However, a sum-of-the-parts approach has its own issues. In this case, we see a couple of big ones. First, UMG and WMG don’t currently provide enough data to make this analysis straightforward for investors. Second, one or more strategic transactions could be necessary to unlock the potential unrealized value of each “part” of the consolidated business.

In summary, we think that the sum-of-the-parts valuation methodology is the most compelling argument that the Majors are likely undervalued today. As a result, we think that it’s a useful framework to consider the catalysts necessary to unlock any potential value.

What Are Some Options to Unlock Potential Value?

So how do you fix this potential valuation dislocation?

It’s worth noting that we think several of Pershing Square’s ideas for UMG make sense, including a transparent capital allocation plan, a shift from dividends to share buybacks, and potentially a higher leverage ratio.

But the proposed “valuation creation plan” doesn’t really solve the disconnect between the Majors’ earnings growth and their free cash flow stagnation. So how do the Majors get the market to agree that there is a dislocation? How can they communicate better or restructure to get more credit for the sum of their parts?

Here are a few more ideas to consider:

• Better investor communication around the decline in free cash flow margin. I’m all for Pershing Square’s better investor communication point. But we think that this communication needs to explain why free cash flow margins have declined and how this trend can either be reversed or stabilized. Yes, it will likely mean admitting that the industry is becoming more competitive, but we think that it will also likely result in building greater trust / credibility with investors.

• Improved transparency on the value of the Majors’ back catalogs. We suggested this one in our UMG piece last year. We’d like to +1 it here again. Currently, it’s difficult to estimate the value of the Majors’ catalogs from publicly available information. We think that providing enough information for investors to ascribe a valuation to these back catalogs would likely be helpful to each company’s consolidated valuation.

• Spinning out the catalog business and publicly listing this entity. Back when I was an oil and gas investment analyst, there were examples of exploration & production (“E&P”) companies that owned a large amount of royalty assets publicly listing their capital-light, high margin royalty businesses as separate entities from their capital heavy, lower margin E&P businesses. The royalty business was marketed as a dividend yield-like investment, whereas the E&P business was pitched as a more growth-like investment. The royalty business would typically get a higher multiple and could service more debt. The E&P company that “dropped down” (i.e., sold) its royalty assets to the royalty entity could do so at much higher multiples than the business had traded on a consolidated basis. The E&P company often still controlled the royalty entity but sold a non-controlling stake to public investors. Here’s a visualization of one popular E&P and royalty company organizational structure to get the wheels turning on a potential structure:

For the Majors, this could be an interesting structure. There could be a publicly-listed catalog entity – similar to the oil & gas royalty business – that trades at a higher multiple, is lower growth, pays a consistent dividend, is capable of taking on much more debt, and acquires more catalogs from both the Major and third party catalog sellers. And then there could be another entity that contains the Major’s remaining businesses, which includes frontline, artist services, merchandise, and other verticals. This entity would likely be higher growth, lower margin, capable of servicing less debt, and would have a lower multiple. We acknowledge that the Majors are massive, complex businesses. It may be complicated to spin out their back catalogs. But it’s also probably worth considering it given how poorly their stock prices have performed.

Advisors who are still reading this newsletter and like these ideas enough to pitch them to the Majors, we came up with another Avengers meme:

Alternatively, if you are an executive or board member at UMG and WMG and like these ideas, we would love to help you evaluate them. To learn more about our services, you can shoot us a note here.

What Are The Implications For Music IP Investors?

Before signing off, I wanted to touch on how the Majors current valuations could potentially impact the music IP investment landscape.

If you think about private equity investing, it is often like a game of hot potato. The lower middle market private equity investor tries to acquire a business, grow it, and sell it to a middle market investor at a slightly higher multiple. The middle market investor often follows a similar playbook and tries to sell upstream to a larger PE buyer at a higher multiple still. This process can go on and on down the line with larger and larger transactions. But by the time the hot potato gets to the public markets, there is a price. In other words, public market investors are usually the end point to valuation.

From our perspective, this game of hot potato is a helpful framework to think about the music catalog fund market. Small funds typically want to accumulate a large pool of catalog assets, operationally improve them, and sell them to a larger buyer at (hopefully) a higher multiple. However, the chain is currently broken at the end point (i.e., the public markets). As we’ve discussed at length, the Majors currently trade at a significant discount to private catalog valuations.

This is important, in our opinion. We observed that there was record fundraising in the music catalog space in 2025. The implication is that as the game of hot potato moves to the end of the line, private investors might have to contemplate selling to public investors at much lower valuations. Might this then result in a cascade of lower valuations in the private markets?

Thankfully there are still other sources of liquidity for private investors, including evergreen fund structures and ABS markets, if the public markets remain unattractive for funds that need to exit. At least for now…

Regardless, if the Majors publicly listed their catalog assets and created another source of liquidity for catalog assets and funds, we think that it could go a long way to making the music IP investment market structure even healthier.

I’ll leave it there, but this is likely a topic for future exploration.

Closing Thoughts

Universal Music Group and Warner Music Group’s share prices have struggled over the past several years. The Majors’ strategy to reaccelerate growth in an evolving music streaming landscape has impacted their business models and financial pictures. While the Majors have reported EBITDA growth over time, their free cash flow margins have suffered making it increasingly difficult for investors to forecast their future cash flows.

So with these various crosscurrents can the Majors convince investors that they’re undervalued?

I still think so. But just like our last piece on UMG, it will probably require a more creative approach. Providing investors with enough data so that they can build a valuation for the Majors’ various businesses might be one idea. A more aggressive restructuring that includes a public listing of their catalog business could be another.

Again, this isn’t investment advice or a bet in favor of / against UMG and WMG’s ability to create value from here. I write these pieces to learn in public, so please reach out with alternative takes. I’m excited to follow what the Majors and their investors come up with over the next 12 to 18 months!

Thanks to Matt and Adam for the feedback, input, and editing!

Leveling Up’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. In addition, our work may feature entities in which Alderbrook Companies, LLC or the author has invested, has worked, and/or has provided consulting services.

🤝 Want to Work Together? Get in touch!

Alderbrook has helped dozens of companies create value for their stakeholders. We’d love to have the opportunity to work with you too!

Here’s what we offer music publishers, labels, tech companies, and investors:

• Growth and Strategy Consulting: Projects covering corporate & growth strategy, commercial & market analysis, stakeholder education materials, and more.

• M&A and Investment Advisory: Commercial due diligence for buyers, fundraising support for sellers, investment sourcing, valuation assessments, fractional VP of Finance / Strategy services, and more.

• Early-Stage Investing: Actively investing in start-ups, with a current focus on Pre-Seed and Seed rounds.

If you’re interested in learning more and exploring how we could work together, you can either reply directly to this email or click the link below to fill out our contact form. We’ll be back in touch soon!

Get In Touch!

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GM readers 👋,

Happy March!

We have a few exciting announcements this month, so please bear with me for a minute.

First, a couple weeks ago news broke that Reservoir Media received competing takeover proposals. With Reservoir now in play, we wanted to highlight our deep dive on the company published in October, where we contemplated this potential outcome. (This is the diplomatic way of saying we called it!) If you want to get up to speed on the situation, it may be helpful.

Second, we have a new piece of content that we’re excited to roll out. We’re calling it our Music Market Update. [Creative title I know 😝.] The report offers a snapshot into some key trends shaping the music industry across public markets, private investments, M&A, and more.

In interviews and conversations, I often hear things like:

• “The number of music catalog funds has grown significantly…I don’t know how many there are but there are a lot more now.”

• “My founder friends say that it’s harder for music tech companies to raise funding right now. Is that what you’re seeing?”

• “Music stocks are a way to get investment exposure that has a low correlation to the broader market.”

We think that these slides are cool because they quantify – and in some cases contradict – narratives that folks who follow the industry know about. If you are fundraising, developing strategy, considering an investment case, and/or just curious about the space, these slides will hopefully be helpful in painting a more accurate picture of the market as it stands today.

While we were creating this report, an interesting observation occurred to us: nobody else appears to be making this type of information easily available in this format, as far as we’re aware. The slides candidly took a loooong time to put together, so maybe that’s why 😀? Regardless, the link to access our first Music Market Update slides is in the next section.

We’d love to hear your feedback on them. Do you like them? Did we miss anything? Should we make any changes for the future? Shoot us an email or leave a note in the comments!

Finally, we are launching a paid tier. Several subscribers have asked about monetization over the years and some have even indicated that their companies would pick up the subscription cost. We haven’t seriously considered it in the past, because we have wanted to keep Leveling Up as open as possible. At the same time, our deeper research newsletters (e.g, these slides) take meaningful investments of time and talent/people to achieve the quality bar that we strive for. These things all have a cost. In addition, we believe that they often provide a good amount of value (e.g., our call on Reservoir).

That said, we still intend to publish the majority of future articles for free. If you’re a free subscriber, not much will change as it relates to the normal newsletter cadence and availability. There is simply now an option to support the band making Leveling Up possible and to receive access to future Music Market Update slides as an added benefit. Along these lines, our current plan is to make this first Music Market Update report free, and then release future market update reports like this to paid newsletter subscribers only.

We’re looking forward to seeing how this change goes; our hope is that it allows us to provide more of the deep-dive content our readers consistently ask for. So if you want to receive future paid content or support Leveling Up, you can upgrade your subscription to paid here:

Subscribe now

I hope you enjoy this piece and thanks, as always, for your support!

And with that, on to the disclaimers…

Note: We write this newsletter to learn in public. This piece is for informational purposes only. None of this is tax, financial, investment, or legal advice. Do your own research!

Now, let’s get after it!

Jimmy

Alderbrook’s Music Market Update - 4Q 2025

“You have to keep learning if you want to be a great investor. When the world changes, you must change.” - Charlie Munger

A big thank you to the contributors and editors of our 4Q 2025 Music Market Update. In particular, thanks to Matt Jacobs and Ric Funchess for all their hard work to make these insights possible. To access this report, click the DocSend link below:

CLICK THIS LINK TO ACCESS THE SLIDES

Thanks to Maxime, Matt, and Adam for the feedback, input, and editing!

Leveling Up’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. In addition, our work may feature entities in which Alderbrook Companies, LLC or the author has invested, has worked, and/or has provided consulting services.

📚 Music Business, Tech, and Investing Content Worth Consuming

Here is some of the best content that our team has consumed over the past month or so –

Scared Hitless (MBW: link): “According to my analysis of Luminate’s recently-issued annual report, 2025 brought an important milestone to the US industry: For the first time, over 75% of all annual audio streams in the States were of ‘catalog’ rather than ‘current’ music...New music is not only getting less popular as a percentage of the market. It’s getting less popular full stop.”

Ryan Tedder & David Israelite Reveal What’s Really Happening to Songwriters (Billboard: link): “[Songwriting] is a completely different industry today than it used to be. Which is why it’s so challenging to be a songwriter today…One of the biggest changes is that it used to be that if you were a songwriter that got a song on an album and the album was successful, you were going to be successful. And it didn’t matter if the one song that you contributed was the hit song from the album...Today those economics are completely different. It’s now about singles and about hits.”

Inside Dan Sundheim’s Bets On Anthropic, OpenAI, and SpaceX (Invest Like The Best: link): “It really comes down to which companies do you think will have a moat…globally how do countries that were arbitraging labor do relative to developed economies?...There are going to be phases of this. The first phase is with software…To really think about what is going to happen, you almost have to not think like an investor. You have to think like someone who is really into science fiction.”

🤝 Want to Work Together? Get in touch!

Alderbrook has helped dozens of companies create value for their stakeholders. We’d love to have the opportunity to work with you too!

Here’s what we offer music publishers, labels, tech companies, and investors:

• Growth and Strategy Consulting: Projects covering corporate & growth strategy, commercial & market analysis, stakeholder education materials, and more.

• M&A and Investment Advisory: Commercial due diligence for buyers, fundraising support for sellers, investment sourcing, valuation assessments, fractional VP of Finance / Strategy services, and more.

• Early-Stage Investing: Actively investing in start-ups, with a current focus on Pre-Seed and Seed rounds.

If you’re interested in learning more and exploring how we could work together, you can either reply directly to this email or click the link below to fill out our contact form. We’ll be back in touch soon!

Contact Us!

📭 Share Leveling Up with a friend!

If you enjoy Leveling Up, please consider sharing it with friends and colleagues (link to share)!

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GM readers 👋,

Happy February!

First, thanks to everyone who entered our annual king cake raffle. Congrats to Nicholas N. on winning the prize!

One of my goals for writing this newsletter is to share the unique insights and earned perspectives of the people who learn by actually doing stuff in the industry.

I met Henry Hall a few years ago after we published our first SoundCloud newsletter. At the time, Henry was leading SoundCloud’s corporate development function. Since then, we’ve kept in touch about industry trends and where things might be headed. I’ve enjoyed our conversations as I always walk away learning something new.

So I asked Henry if he’d be open to sharing his career journey, his learnings in corporate development, and where he envisions SoundCloud going from his new seat leading the company’s Listener business.

Thankfully, he said yes. I hope you enjoy our conversation!

And with that, on to the disclaimers…

Note: We write this newsletter to learn in public. This piece is for informational purposes only. None of this is tax, financial, investment, or legal advice. Do your own research!

Now, let’s get after it!

Jimmy

The Future of Streaming at SoundCloud

“I’m a SoundCloud artist for sure…That’s how I found everything, and that’s how I became who I am.” - Billie Eilish

To set the scene, could you tell us a little bit about your journey in the music industry so far?

Henry: Like many of us in music, it’s a journey that started early but has been far from a straight line. I was a radio DJ in college, and interned at Columbia Records and at SiriusXM. Terrific experiences, but the writing was on the wall for the industry’s old playbooks. These were the early days of SoundCloud, and just before Spotify launched in the US. Both were fledgling platforms, and compelling in quite different ways.

SoundCloud was the Wild West, something truly democratizing and revolutionary, really born of the early internet culture. Spotify was revolutionary as a business model, an evolution of iTunes’ “world’s biggest record store in your pocket.” So I applied for every role I could find … from community manager to front desk reception. Neither one bought my philosophy thesis on “Communal Expression in Music” as relevant experience, so I hit pause on music and worked at unrelated startups to get my bearings in business. I spent a couple years in B2B SaaS in NYC, then 5 years in Taiwan and the Philippines at a company called Migo, which distributed digital content to “data-poor” consumers’ smartphones without using the internet. I always tried to wedge music into the roadmap, but movies and TV came first – that’s how we raised our Series B from Temasek, so it was the right call. That was a wild ride… and a story for another newsletter.

I moved back to NYC intent on going into music tech, spending my MBA summer on Sony Music’s Digital Strategy & Investments team to get the lay of the industry. I finally landed the SoundCloud gig a decade after my first application, and have been with the company for 5 years – first in strategy, then building our corporate development function, and now as GM of our Listener business.

What drew you to SoundCloud as a career destination? And what’s encouraged you to stick around?

Henry: The answer to both is really the same: there’s deep latent value in SoundCloud, which we’re starting to tap into but we’ve only scratched the surface. That’s what got me excited 5 years ago, and I’m excited to help bring it to fruition.

In the industry landscape, SoundCloud is a unique player because it connects artists and avid music fans directly, at scale. The DSPs don’t have direct commercial or content relationships with the artists. They are storefronts that offer goods to consumers, supplied by intermediaries (distributors or labels). If I’m a music fan listening on a DSP, there isn’t an artist “on the other side of the screen” – there’s a supply chain. Still a fantastic value proposition, but it doesn’t scratch the itch for human connection…which is what’s imbued music with its power for tens of thousands of years, and is what turns casual listening into fandom.

Just as the DSPs can’t access artists directly, the labels and distributors can’t access fans directly. They don’t have consumer relationships. Ask someone on the street what label Billie Eilish is on, or who handles Bad Bunny’s distribution, and they’ll have no idea – but they’ll be able to rattle off the names of multiple consumer platforms where you can listen to their music. (And yes, their first fans will be able to tell you they both started with a SoundCloud upload.)

SoundCloud brings both sides together, with the artists and fans in one place. Of course, social platforms do this too – but they’re in the attention industry, and so have different incentives. Artists have to compete with cat videos and beauty content for 20-second dopamine hits, and social platforms will prioritize whatever keeps the user scrolling rather than driving deeper engagement with an artist. This is getting borne out in the research, which clearly shows social virality is not actually conducive to fandom. That’s a big problem for artists who want to build careers.

So SoundCloud’s in this special position, and it lets us offer genuinely different value for artists who are trying to get heard and build real fans. When artists talk about where they built their first audience, SoundCloud often comes up. That’s not accidental.

The other side of that coin is differentiation for music fans: it’s a platform where the creator is actually “on the other side of the screen.” And not just individual artists – we have what we call “scenes,” communities of artists that emerge organically on the platform. We can identify and amplify these communities thanks to the data signals we get from artists personally using the platform – like who’s following each other, playing and liking and commenting on and reposting each other’s music, DM-ing each other, etc. Then we can introduce fans not only to individual artists, but to these scenes. Beyond this social connection angle, we’ve also built what’s just a massive differentiated catalog for fans to listen to: 500+ million tracks, with DJ sets, remixes, demos, unofficial releases from superstars, and uploads from emerging artists – most of which the DSPs don’t have.

All that to say, we have these deep structural advantages as a platform: a music-native social architecture, with 18 years’ worth of network effects and unique content. There’s more we can do to tap into these dimensions of differentiation – from a product experience point of view, and from a monetization point of view. While I can’t share exactly what’s coming down the pike, that’s what keeps me excited about the next 5 years.

How has the team thought about finding new growth opportunities vs. balancing the goal of being breakeven from a profitability standpoint?

Henry: Right now we have a lot of growth potential without risking our economics. We’ve built a model that can operate profitably through the combination of a consumer business (with a largely variable cost structure) and a “SaaS” creator-facing business (with a largely fixed cost structure). One clear path to growth is scaling this existing, sustainable model in new markets. In existing markets, we can develop new experiences that add value to our users: to give creators more tools to get heard, get fans, and get paid – and to give fans new ways to discover artists and immerse themselves in the scenes that grow on the platform.

In your new role heading up the Listener Business, I'd love to learn a little bit more about the opportunities and challenges you see over the next couple years.

Henry: For the Listener Business (or as we call it internally, the Fan Business), I’m bullish on international growth. We have a global brand, but currently monetize in 20 countries. As with all things music, monetizing the platform in new countries sounds more straightforward than it is – there’s a lot of operational complexity and problems to be solved under the hood before we can “turn on the lights” in a new market, but it’s absolutely worth it. From a Creator Business perspective it’s arguably even more interesting, as the next Bad Bunny could come from anywhere, and we’ve got the signals to identify and amplify that global talent.

On that international note, I think a real challenge for the wider industry – and I’ve been thinking about this for many years, since my days in the Philippines – is the ARPU compression as mature markets become saturated and emerging markets become DSPs’ growth stories. For us, we have plenty of headroom in mature markets, especially for our differentiated “Go” subscription. (SoundCloud has a “Go+” premium subscription tier, which gives offline and ad-free access to all the regular DSP catalog plus the hundreds of millions of tracks they don’t have, like DJ sets and remixes. The lower-priced “Go” subscription tier is more focused on that unique content, and many use it as a complement to a DSP subscription).

The bigger opportunity that we can unlock is actually ARPU expansion, across markets. Because we have the artists and the fans on the same platform, we’re in pole position to offer a marketplace for direct fan-to-creator transactions or subscriptions that go beyond streaming.

SoundCloud has always been at the forefront of developing new products that focus on the interaction between artist and fan. I’m curious how you and the team have evolved your views on building so-called “super fan” products. Any lessons learned over the past couple years?

Henry: Probably the most important insight for us has been about sequencing. Our friends at MIDiA Research have a pithy way of describing it: you need to cultivate fandom before you can harvest fandom. A lot of the “super fan” products we’ve seen in the market jump straight to the harvesting — selling products and experiences to fans. Which makes sense: it’s clear there’s a lot of demand that’s left on the table by the all-you-can-eat subscription model, so developing solutions to capture that demand is logical. All harvesting without cultivating isn’t a sustainable approach, though. And while the harvesting and the cultivating can happen in different places – and today they mostly do – having them both exist in the same place, in the same context for the fan, is really powerful. I’m most likely to buy something from my favorite artists in a place I’m already engaging with and feeling connected with them. Thus the success of the merch table at concerts.

The thing is, a lot of ingredients need to come together for a platform to both cultivate and harvest music fandom. And getting all those ingredients in place is a tall order. You need the music itself: that’s where it all starts of course. Then, to really cultivate fandom you need to give fans modes of interacting with the artist and with other fans that go beyond just listening. To enable that, you need to have a critical mass of fans and artists in the same place, so you can build that sense of relationship and connection that’s core to fandom. It also helps to have fans’ identities live on the platform in some way, because there’s an expressive aspect to fandom that goes beyond consumption; think the band posters on a dorm room wall.

Finally, after you’ve cultivated the fandom, then you need a marketplace where artists can offer products and experiences to harvest it. We’ve got really strong foundations in place for the cultivating (signature SoundCloud features like commenting, reposting, and DMing), with a lot more to come. And because we have direct artist relationships, we’ve been able to start offering artists tools to monetize and build a marketplace beyond streaming, starting with Fan Support and vinyl-on-demand.

SoundCloud has made acquisitions (e.g., Musiio, Repost Network) in addition to building new products internally. How do you think through the buy vs. build decision? Is it solely about good returns or do you have other goals too?

Henry: It really depends on the opportunity we’re considering, but typically what drives an acquisition decision is a question of speed: what evolution in our product, our capabilities, or our business models is worth accelerating from a gradual evolution to a step-function change? To answer that, we look to our competitive advantages: what could help us expand or exploit our moats?

The Musiio acquisition was a great example of putting this into practice. Their tech allowed us to understand what a track “sounds like” before any human has actually heard it. That let us expand our moats on both the fan and the creator sides.

For fans, SoundCloud has always been a place to find what’s next in music, while it’s still underground – because it’s where brand new artists come for their first upload. Typical recommendation algorithms depend on engagement signals, so you’ll literally never be recommended a track that hasn’t already been heard by at least thousands of people. Musiio changed that, letting us recommend you a track that was uploaded an hour ago and has zero plays, because we know that it “sounds like” your favorite music. That lets us take fans on SoundCloud from the cutting edge of music – what we’ve always been known for – to the true bleeding edge.

And on the other side of the coin, artists have always come to SoundCloud to get heard and to find their first fans – because it’s where avid music fans come to find those new artists. Offering artists that scaled audience with a high concentration of what I’d call “music early adopters” is a real advantage for SoundCloud. Musiio enabled us to offer artists not just a platform with that audience, but to target their highest-potential fans in that pool of millions, and virtually guarantee that the artists’ uploads will be heard by at least 100 of them.

Musiio enabled these value propositions for both sides of our userbase, expanding the differentiation SoundCloud already offered. And while we could have attempted to replicate their tech, there was no guarantee that we’d be able to achieve such performant models in X years. So that “guaranteed success” was another tailwind for the acquisition.

And when you are making acquisitions, what have been some lessons learned here about ensuring that they actually have the impact that was originally desired?

Henry: I think the biggest lesson has been to start integration planning as early as possible in the M&A process – not just during diligence, but really as diligence. SoundCloud is a complex organization, with multiple business units and an intricate technical stack. Involving the relevant stakeholders early (especially from engineering and product), to define time-bounded integration goals and identify risks – that’s crucial to achieving successful outcomes. Us corp dev folk can whiteboard all day, but if a piece of tech or a critical operating team can’t actually be integrated into our ecosystem, we’ll never realize the theoretical value of a combination.

Are there certain types of investments or acquisitions that you are most interested in pursuing -- for example: creator tools, music discovery, fan engagement, data analytics, music catalogs, etc.?

Henry: On the Creator side, we have a short-hand expression for our company-wide strategy: help Creators get heard, get fans, and get paid. We believe that if we can offer a product that delivers on each of those value props, we’ll remain a home for first-time, emerging, and professional Creators. There are many features and capabilities that can help us compete within these three propositions, and we are actively considering tuck-in acquisitions across each of them.

We’re also interested in expansion opportunities adjacent to SoundCloud’s current product offering (i.e. new value props). A Creator’s journey on SoundCloud today starts with an upload, but creative workflows start much earlier. Ideation, collaboration, production, and project organization, for instance, are all meaningful parts of the pre-upload journey, and areas we find compelling from an investment perspective.

On the Fan side, our focus is on driving deeper engagement and fostering community to continue to make our platform more vibrant. We’ll consider new investments that help us strengthen those connections.

Another trend is the growth of the artist services space. We saw the recent announcement that SoundCloud has bundled distribution fees and other services into the Artist Pro subscription. Curious to what degree you see SoundCloud's Creators business competing with artist service companies (e.g., Empire, Believe, Onerpm, etc.) over time?

Henry: We’ve actually been in artist services for some time – really since SoundCloud acquired Repost in 2019, and started offering DIY distribution. As a brand, we’re definitely still most strongly associated with direct uploads to SoundCloud, which makes sense because our on-platform tools and direct access to fans are our differentiation. We’re always working to make ours the most valuable platform to artists, but raw reach and availability across platforms is critical to helping artists get heard, get fans, and get paid (which is why we offer distribution). The recent announcement to bundle distribution fees and services into the Artist Pro subscription has put that in the spotlight, because while artists have always kept 100% of royalties earned on SoundCloud, we’re now extending that value across 60+ other platforms.

Just curious, is there anything non-SoundCloud that you're excited about in music right now? Could be an artist, company, trend.

Henry: This is admittedly niche, and SoundCloud-adjacent because of a partnership, but I’m personally excited about the “print-on-demand” vinyl advancements from a company called ElasticStage, which has developed a proprietary vinyl-printing technology to make small-batch vinyl pressing economically viable for artists of all sizes.

I’ve been collecting records for 20 years. If there’s a song or an album I love, I feel a really strong itch (some might call it a compulsion) to get a physical artifact. Vinyl’s the ultimate medium for scratching that itch because it’s literally soundwaves made into something you can hold in your hand, and keep forever. But because of traditional vinyl manufacturing’s economies of scale, printing just a handful of records for your fans has never been an option. Many years ago, I actually played with custom vinyl solutions for albums that a couple of my favorite artists just never got pressed – but they were so expensive, and never sounded quite right. This new manufacturing technology is removing this barrier for smaller, emerging artists, and as a fan I’m looking forward to seeing some of my favorite niche artists, who may just have a couple hundred fans today, be able to offer vinyl.

And last question. If anyone wants to chat with you, where should they go? What’s the best place to contact you?

Henry: My email’s henry@soundcloud.com and for anyone specifically interested in a corp dev angle, my colleague Ethan Donnelly (ethan.donnelly@soundcloud.com) is now leading our Corporate Development team.

Thanks to Matt and Adam for the feedback, input, and editing!

Leveling Up’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. In addition, our work may feature entities in which Alderbrook Companies, LLC or the author has invested, has worked, and/or has provided consulting services.

📚 Music Business, Tech, and Investing Content Worth Consuming

Here is some of the best content that our team has consumed over the past month or so –

Will.i.am on AI’s impact on music (CNBC: link): “We’re going to get to a place where live is the place to be. You can’t trust a screen in a couple years. It’s going to be indistinguishable between human music and AI music…as much as I love technology, we’re going to get to a [place] where ‘human made’ is the value.”

Ex-Spotify Senior Exec Reveals how the Music Biz Works Now in 2026 (The Manager’s Playbook: link): “[Artist development] is coming back because managers are getting label deals. [Managers are the ones breaking superstars…And you’re proving that if you actually bet on talent and you stick with it, then there’s a there there...I think the smart people are recognizing that you have to tell stories in addition to writing great songs.”

Why the music industry needs to learn to live with AI (MIDiA: link): “While licensing disputes roll on, gen AI has learned from the best chord progressions, vocal performances, arrangements, etc., that music has to offer and – crucially – what consumers do with that. The constraint on quality was always going to be computation technique, not innate capability. Industry stakeholders can make the AI slop argument, and music critics can claim that they can identify even the best AI songs as not being made by humans. But that misses the point. AI is for the masses, both on the creation side and the consumption side. Tracks on Suno can sound convincing enough to the average listener. AI artists like Sienna Rose command millions of Spotify listeners, while earlier this month ‘Jag vet, du är inte min’ hit the top of the Swedish charts only to be banned for being AI. AI is not going to replace human content, but it will increasingly displace it.”

Ben Thompson from Stratechery on AI ads, the end of SaaS, and the future of media (Cheeky Pint: link): “Spotify is arguably the best bundle on the internet. But the reason why they were able to assemble the bundle is because they only need to negotiate with four entities. And so it’s interesting because on one hand that limits Spotify’s upside because those entities are able to negotiate such a large share of Spotify’s revenue. On the other hand, that’s also why Spotify was possible because they only need to negotiate with four.”

🤝 Want to Work Together? Get in touch!

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Here’s what we offer music publishers, labels, tech companies, and investors:

• Growth and Strategy Consulting: Projects covering corporate & growth strategy, commercial & market analysis, stakeholder education materials, and more.

• M&A and Investment Advisory: Commercial due diligence for buyers, fundraising support for sellers, investment sourcing, valuation assessments, fractional VP of Finance / Strategy services, and more.

• Early-Stage Investing: Actively investing in start-ups, with a current focus on Pre-Seed and Seed rounds.

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GM readers 👋,

Happy New Year!

It’s Mardi Gras season in my hometown of New Orleans. So, it’s time for our annual tradition of offering a free Gambino’s Bakery King Cake to one subscriber. Fill out this form with your name and email if you’re interested. We’ll randomly draw a winner on February 17th. To participate, the only rules are that you have to be a subscriber to this newsletter and located in the United States (for shipping reasons).

Before diving into this month’s piece, I wanted to flag one important music IP lawsuit ruling in January. The US Court of Appeals for the Fifth Circuit upheld a lower court decision allowing songwriter Cyril Vetter to take back full global control of the song Double Shot (Of My Baby’s Love). I’ll be following this appeals process closely because its outcome will have important implications for music catalog underwriting assumptions going forward.

In this month’s newsletter, Drew Thurlow takes time away from his new book launch (preorder at this link!) to write a timely guest post. Drew shares his perspective on how music streaming services need to evolve their content upload policies. With ~100,000 new music tracks uploaded to platforms each day – a problem that has been exacerbated as AI tools make it easier to create music – Drew argues that the current system is no longer sustainable and looks at how non-music UGC platforms have approached similar issues. I hope you enjoy it!

And with that, on to the disclaimers…

Note: We write this newsletter to learn in public. This piece is for informational purposes only. None of this is tax, financial, investment, or legal advice. Do your own research!

Now, let’s get after it!

Jimmy

🤝 Want to Work Together? Get in touch!

Alderbrook has helped dozens of companies create value for their stakeholders. We’d love to have the opportunity to work with you too!

Here’s what we offer music publishers, labels, tech companies, and investors:

• Growth and Strategy Consulting: Projects covering corporate & growth strategy, commercial & market analysis, stakeholder education materials, and more.

• M&A and Investment Advisory: Commercial due diligence for buyers, fundraising support for sellers, investment sourcing, valuation assessments, fractional VP of Finance / Strategy services, and more.

• Early-Stage Investing: Actively investing in start-ups, with a current focus on Pre-Seed and Seed rounds.

If you’re interested in learning more and exploring how we could work together, you can either reply directly to this email or click the link below to fill out our contact form. We’ll be back in touch soon!

Contact Us

The Realities of Music Streaming in the Age of Excess

“If it keeps on raining, the levee’s going to break. When the levee breaks, I’ll have no place to stay.” - Led Zeppelin on When The Levee Breaks

When I (Drew here 👋) was Director of Industry Relations for Pandora ten years ago, we had a large chunk of the entire history of Western recorded music in our catalog. Back then, that totaled about 30 million songs, give or take a few million.

It was a huge challenge managing that much music - not only storing and categorizing it, but also curating it. How could we serve the right song, to the right person, at the right time? There were so many options…tens of millions of them, in fact.

Fast forward to today and the problem has only gotten harder. While exact numbers are impossible to know and differ slightly by DSP, the bulk of Western musical output now sits around 253 million songs, according to entertainment data and analytics company Luminate. That’s over a 7x increase in eight years!

What is driving this exponential increase in uploads to music streaming platforms? Leading music DSPs such as Spotify and Apple Music have historically taken a more open approach to uploading content than other creator platforms, but can that continue indefinitely?

The Evolution of Music Creation and Distribution

The Internet and software tools have made several positive impacts on the music industry.

Consider the pre-Internet CD era. An aspiring independent artist would first need to find a recording studio and a team of local audio experts to collaborate on a project. Recording a full album at studio quality could cost tens of thousands of dollars at a minimum. Once finished with mastering, they would need to come up with the money to manufacture CDs. Then would come the really hard part: distribution. Sure, CDs could be sold directly to fans at concerts. But to reach a larger audience, unsigned artists would need to somehow convince record stores to give them shelf space, so that listeners had a chance to discover their work.

Fast forward to today. The music creation process and global distribution has been fundamentally democratized.

Along these lines, Digital Audio Workstations (“DAWs”) have fundamentally made it easier to create new music. DAWs helped lower several barriers – cost, geography, time – to creation. New AI tools, like Suno and Udio, allow anyone to make new music with a simple text prompt. Reports differ on how much fully Gen AI repertoire has made it on to streaming platforms; Deezer puts it at about a third of all new music.

Meanwhile, the emergence of digital distributors and music streaming platforms allow anyone to upload their music to a platform with a global audience at a low cost. At the dawn of the digital music era, the gates swung open. Distributors emerged by the dozen - Spotify lists more than 70 approved independent distribution companies - and DSPs took in almost any piece of music. It was hailed as a democratization of musical creativity. "A select few no longer control the music industry - it's powered by the people," The Rolling Stone Culture Council said at the time. And while CD stores can only hold so much inventory given physical space constraints, streaming platforms with digital files stored in a cloud can scale almost indefinitely.

Notwithstanding the above benefits for aspiring artists, there are tradeoffs. Unsurprisingly, if it’s easier to create music and distribute it, there becomes an ever larger music library. The same dynamic that democratized music has also flooded the system.

Bigger Isn’t Better

Streaming platforms’ policy of being free and open has also created several cultural, operational, and economic challenges for artists, fans, and streaming platforms.

For artists, major issues include:

• Harder discovery. With so much content to wade through and black-box algorithms dictating which songs get surfaced, it is more difficult than ever for independent or emerging artists to break through the noise. Algorithm-driven listening focuses on what users already like, leaving out unproven music and leading to less consumption diversity.

• The content treadmill can result in burnout. Given how difficult discovery has become, artists feel pressure to release music more frequently. Spotify CEO Daniel Ek has even said that it is “not enough” for artists to release music “every three to four years.” The hamster wheel of creating more and more music and social media content just to build and maintain a fanbase has led many creators to experience “digital burnout”.

• A compensation structure that fails most artists. The vast majority of artists on streaming platforms aren’t earning a living wage. SoundCloud CEO Eliah Seton has been outspoken about this topic, “Streaming is not enough for artists…80 million tracks making less than five bucks, 46 million tracks making nothing. Those numbers have only grown in a generative AI world.”

For fans, major issues include:

• A worse user experience. For every brilliant bedroom producer, there are thousands of tracks that are half-finished, poorly recorded, or simply uninteresting. AI has now joined the party by giving everyone the ability to generate something that sounds like music in seconds: full songs, fake artists, half-baked mashups of existing styles. But music-shaped noise is still noise. What’s more – many of these songs are barely even listened to. Luminate found that 88% of tracks (~29 million tracks) were played less than 1,000 times or less. Meanwhile, data from streaming service Deezer indicates that 4 out of 5 tracks uploaded are never played. Several paying Spotify users have voiced their frustration on Reddit, pointing out that many Spotify playlists are recommending a significant amount of AI music without crediting it as such. The data is clear: AI slop, human slop, consumers are telling us over and over that they either aren’t listening to it or want more transparency around it.

For streaming platforms, like Spotify and SoundCloud, major issues include:

• Impossible task of curating and managing this much volume. The industry’s scaffolding has rested on an operating model designed around scarcity: limited releases, manageable catalogs, clear attribution, and monetization that reliably tracks consumption. Today’s climate is breaking those assumptions. As a result, delivering a wanted experience for consumers and creators is becoming harder.

• The growing cost of storing and managing all these tracks. Managing the cost of hosting millions of tracks no one listens to is becoming more expensive, and policing a system that rewards spam, fraud, or low-effort volume over real engagement is becoming untenable. According to a large distributor who spoke to Leveling Up on the condition of anonymity, DSPs and distributors can’t afford to host billions - or even a trillion - songs, indefinitely. At a certain scale, the burden of storage, metadata management, and rights tracking becomes untenable. It’s not just a curation problem; it’s a cloud storage problem, a catalog hygiene problem, and a legal problem. When it comes to music distribution, we must consider more than the audio file alone. There’s also storage and backup, metadata ingestion and maintenance, rights and royalty workflows, cover art and credits, and quality control. Multiply that by billions and the math stops working.

Simply put, the concept of providing free and open distribution to music creators has real tradeoffs. The music industry is now running headfirst into these tradeoffs and if it doesn’t evolve will end up with a market that’s bigger in data centers but smaller in sustainable careers.

From my perspective, we’re left with a fundamental set of questions that the industry has mostly tried to avoid:

• Who decides what gets distributed? Is it anyone with a distributor account? Do you have to be affiliated with a label?

• Should there be limits or filters? If so, based on what? Quality, rights, ethics, commercial potential, or something else? Is this done through an updated DDEX feed?

• What even counts as a “song” in the age of frictionless creation? Most distributors and DSPs now have limits on song length. Should there be more?

While these issues might be new to music, they’re not new to digital ecosystems. Other UGC platforms have already confronted this tension, so let’s see what we can learn from them.

Lessons From Other UGC Platforms

Zooming out from music for a moment, there are three dominant models for handling user-generated content on digital platforms. Each one offers clues for what DSPs might do next.

1) YouTube and TikTok: The Embrace-the-Chaos Model

Then there’s YouTube and TikTok, which operate on a very different premise: let everything in and let the algorithms decide what survives.

In this model:

• Upload is basically free and frictionless

• The feed is hyper-personalized and engagement-optimized

• Moderation focuses more on behavior after publishing rather than a rigorous review before content is published

• A relatively low bar for creators to begin monetizing content

The tradeoff? The signal-to-noise ratio can feel brutal. Spam, misinformation, recycled and stolen clips, and low-effort content are everywhere. The platforms work hard to surface what people like, but the background hum of junk is getting louder. Do consumers care? I’m not sure it matters. We inherently understand social media is a cesspool and we venture at our own risk.

In music, we’ve already adopted large parts of this model:

• Upload is basically free, and frictionless

• Algorithmic “For You” playlists function as the main methods of curation

• Short-form virality drives discovery

• DIY uploads flood the ecosystem

• No bar or a relatively low bar for artists to begin monetizing content

This has been fantastic for the burgeoning creator economy, democratizing access, and enabling viral, breakout moments for unknown artists. But it’s also contributed to a slow erosion of perceived value. When every track feels disposable, listeners start treating music as wallpaper, not art. Remember, “passive listening” was not a thing until music streaming entered our lives.

The key question for music isn’t whether the chaos model is bad. It’s whether it’s enough. Is it enough on its own, to sustain a healthy, long-term ecosystem for artists and listeners? Is it enough for fans looking to discover, engage, and support human artists? Based upon the issues discussed earlier, the answer increasingly seems to be “no”.

2) Roblox: Guardrails, not gates

Roblox is chaotic, but with rules. The platform lets users build worlds, games, and assets with an enormous degree of creative freedom, but all of that creativity sits inside structured moderation frameworks. There are stringent terms of service, reporting systems, automated filters, and human reviews. Interestingly, certain categories of content cost money or require higher friction to publish.

Their content policies include:

• Clear rules that shape what’s allowed

• Layered moderation (automated + human)

• Fees for certain kinds of uploads

• Minimum thresholds for creators to get paid

The tradeoffs are obvious: heavier moderation introduces bureaucracy, but it protects user experience, keeps the platform brand-safe, and makes advertisers comfortable. You can’t have a billion-dollar virtual economy focused on kids without some control, after all. And with more than 100M DAU interacting with 6.7M+ experiences to the tune of 27.4B engagement hours, clearly that control hasn’t come at the cost of growth (all data according to RoMonitor, at time of writing). That’s not to say that Roblox has achieved all of this without raising some concerns, of course, but it’s hard to imagine where it would be without exercising this degree of oversight and moderation.

For music, a Roblox-style approach would mean:

• Upload is easy, but not entirely consequence-free. There is some barrier to being commercially available.

• Distributors and DSPs have more leeway to throttle or price high-volume “spam” uploaders.

• Content moderation systems get much more robust, and have permission to purge unwanted or underperforming content.

• DSPs become more of a curatorial entity.

As an example, picture a world where uploading to Spotify isn’t just “click here.” You connect a social account and provide proof-of-life - proving you’re a musical creator with at least some ambition to live outside the DSP realm. After a year, DSPs conduct an audit. If you don’t meet benchmarks of listenership or driving traffic, your content gets removed.

That may sound extreme until you remember: platforms purge dead weight all the time. Haven’t logged into your early aughts Hotmail account in a while? MSN likely purged it. The lesson: you can still come to the club, but you have to buy a ticket and you better not piss off the bouncers while you’re there.

3) Apple’s App Store: The Gatekeeper Model

Apple’s App Store is closer to a velvet rope. Developers can build whatever they want on their own, but to access Apple’s distribution and users, they must pass through strict submission guidelines, content review, and periodic audits.

The result? Users trust - often subconsciously - that an app in the Apple Store isn’t outright malware or garbage. It may not be great, but it has crossed some basic quality and safety threshold.

Some tradeoffs to the App Store’s approach include:

• Creative friction and slower iteration

• Gatekeeping power concentrated in one company

• Accusations of monopoly control and unfair rejections

And yet, for many consumers, that gatekeeping is the value. It’s what makes the App Store feel different from the Wild West of the open Internet.

For music, this is a compelling metaphor. It may be time for DSPs to lean into being curated marketplaces, rather than infinite, undifferentiated libraries where Beyonce, an audio meme, and a bot farm-boosted scam all sit on the same shelf. Put differently, DSPs love to market themselves as “open libraries,” but their users may want something more like an app store:

• Clear criteria for what belongs in the catalog.

• Human + automated review for certain categories (Gen AI, fraud, bot farms).

• A visible badge of trust: “this is a professional, rights-cleared, ethically-sourced release.”

That could mean a real “royalty-bearing” tier with verification. Signed to a major or a Merlin-repped label? You’re in. Using DistroKid? Then you go through a TSA level of scrutiny to prove you’re a real artist, and not someone trying to game the DSP algorithms: Verified tour dates, a professional contact, and/ or a history of legit commerce. In other words, you don’t just upload a .wav file. You clear a basic quality-and-safety threshold before you get digital shelf space next to Beyoncé.

And a system like this might not be as challenging to implement as you might think. DSPs do have these verifications in place in some capacities, like claiming a profile for Spotify for Artists. They would simply expand it for their entire ecosystem.

Looking Ahead - What Should Music Do?

Streaming platforms have already started to implement several content policy changes that aim to address the exponential growth in uploads. Spotify recently announced it had removed 75+ million “spammy” tracks and has also set a minimum threshold for earning royalties at 1,000 streams in the previous 12 months (a figure that I think may increase over time). Meanwhile, Bandcamp – not technically a streaming service – has banned AI generated music and audio from its platform entirely. The guardrails are starting to go up on some music consumption platforms…

I (Drew here 👋) think that this trend will continue to take hold. In my opinion, a key step might be psychological, not technical. It may be time to accept that not all songs are created equal.

Not every piece of music has commercial value. Not every song needs - or deserves - to be widely distributed. That’s not elitism; it’s just acknowledging that sketches, experiments, and hobbyists making music are different from fully realized, commercially viable works. If we think about this slop-like human music and Gen AI as the same category, it starts to make sense. And according to the new deal between Gen AI platform Udio and UMG, they seem to agree.

So…what should music do? Here are a few ideas:

1) Establish New Creation Spaces & Raise The Hurdle to Distribute on DSPs.

Right now, distribution is quickly becoming a cheap, white-labeled feature in music products. Click a button, pay a small fee, and your demo is on Spotify almost immediately. That sounds empowering, but at scale it becomes a race to the bottom.

We need to reverse that trend and reward the process, not just the product.

Hobbyist, digital music creation (AI, AI-assisted, or otherwise) can be:

• A tool for wellness (people making music for therapy, recreation, or fun)

• A tool for education (students learning about harmony, rhythm, and production)

• A tool for creativity (songwriters exploring ideas, variations, and prompts)

• Even a tool for commerce (custom jingles, sound logos, or enterprise content)

But not all of that needs to be poured into the same commercial distribution pipes that carry the next Billie Eilish banger.

Imagine a world where you can make as much music as you want in a “creation space” that is social, playful, and feedback-rich. It’s light on rights complexity (it’s not being commercially exploited, at least at this stage), and it’s designed for novelty and experimentation - not consumption in the traditional sense.

2) Build New Layers of Monetization

Instead of tying all value to streams, we can build systems that reward engagement with the creative process:

• Fans paying to access works-in-progress, stems, and alternate versions

• Co-creation sessions where fans and artists build together in a controlled sandbox

• Patronage models where supporters back a creator’s ongoing output, not just individual tracks

• Gamified iteration: badges, unlocks, and rewards for creative milestones rather than just plays

In other words, reward the creative process, not just streams of the output. The more we can move value upstream into the creative process itself, the less pressure there is to push every fragment into the same overcrowded distribution channels. True to form, many of these ideas are already taking shape in music.

3) Design a Two-Tiered Ecosystem

Here’s one practical way forward.

• Sandbox layer: open experimentation (like Roblox)

• Marketplace layer: curated, monetizable catalog (like the App Store)

In the sandbox layer, anything goes - within safety and rights limits. AI tools, fan remixes, half-songs, weird experiments. This is where you play, learn, and collaborate.

In the marketplace layer, the bar is higher. Content is:

• Rights-cleared

• Ethically sourced

• Commercially viable

• Subject to more rigorous metadata and quality standards

DSPs are already inching toward this with “consumer-creator” features - loop creation, AI DJs, remix tools, and more. The missing piece is a clear distinction between “this is creative play” and “this is part of the permanent, monetized catalog.” One concrete lever might be to update the DDEX feed - the industry’s metadata plumbing - to include requirements around ethical sourcing and commercial viability. Only when those boxes are checked does the release graduate into the marketplace layer for public consumption. Otherwise, it remains in the sandbox - a place for learning, expression, but not necessarily for commerce.

Rethinking Value in the Age of Infinite Songs

The coming decade will force music to confront a simple but profound question: what is actually valuable about recorded music?

Sometimes the value is the song itself, a timeless recording that people will return to for decades. Sometimes the value is the process: the act of creation, the community built around it, the learning that happens along the way. Increasingly, it will be both, but in different proportions for different use cases.

The winners in this new landscape won’t be those who upload the most songs, or game the algorithm to get the most streams. They’ll be the ones who build systems that distinguish between art, consumer experiment, and noise. And then the ones who align incentives accordingly.

We don’t need to stop people from creating. Quite the opposite: we want to incentivize more people to make music, to explore, to play, to learn. But we need to protect our most cherished and celebrated commercial recording artists. To do that, we do need to stop pretending that every .mp3 file has equal value in equal ways.

The flood is here. The question now is whether we let it wash everything away or start building better channels so it lifts all boats.

Thanks to Matt and Adam for the feedback, input, and editing!

Leveling Up’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. In addition, our work may feature entities in which Alderbrook Companies, LLC or the author has invested, has worked, and/or has provided consulting services.

📚 Music Business, Tech, and Investing Content Worth Consuming

Here is some of the best content that our team has consumed over the past month or so –

Why The Weeknd’s Catalog Is a Safe Billion-Dollar Bet (Luminate: link): “And the most interesting trend is that, even a decade into his career, The Weeknd’s popularity continues to climb: As of Dec. 25, global On-Demand Audio stream count for 2025 is 9% higher than his total for the same period (weeks 1-51) in 2024, while his U.S. streams grew by 19%. There’s also the question of songs’ “decay curves.” Typically, a hit song will earn the bulk of its lifetime streams within the first year or so of release and eventually settle into a lower but steady average stream count. But The Weeknd’s earliest hits defy that trend.”

Music Finance Index (Duetti and Billboard: link): “Catalog age is the strongest divider in today’s valuation landscape…Their opinion is that Masters move from a base (lower end of the valuation range) of 3.5x (2–5 years) to 5.7x (5–10 years) to 5.8x and higher(10+ years). Their opinion on Publishing follows a slightly steeper slope, rising from a base of 3.2x to 6.1x to 8.7x.”

A Conversation with Ghazi, Founder & CEO of Empire (Sixth Street: link): “When we started the company, I made a conscious decision that I didn’t want to own masters. I’m totally fine with owning license periods, even prolonged or perpetuity license periods, but I don’t want to own your creative…For a long time that was a big competitive edge, because that narrative spread through the legal community. and so a lot of our deal flow comes from the legal community…I just think when you treat an artist like a partner, you get a completely different energy out of them, than treating them as somebody that’s subservient…So to the best of my ability, I always say. We’re business partners. Your job is to bring the creative. My job is to magnify it.”

Luminate’s 2025 Year End Report (Luminate: link): “This year’s report covers the most vital trend shifts in how music is consumed and monetized.”

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GM readers 👋,

Happy Holidays!

Before diving into the final piece of 2025, I wanted to say thanks for all the feedback on our Reservoir Media newsletter. One reader – Sleepwell Capital – pointed out an important risk that I failed to note in the piece. Reservoir is effectively a controlled company (i.e., two groups currently hold ~66% of the company’s shares). As a result, there is a risk that one or both of these insiders could try to buy the company at an unreasonably low price to the detriment of minority shareholders. While I still own shares in the company and believe that this scenario is currently lower probability, this risk is an important one to consider.

This kind of feedback is one of the main reasons I write this newsletter – to learn in public. To that end, if you’re an experienced M&A lawyer who reads this newsletter, feel free to drop me a note. I’d love to discuss the above scenario to better understand legal precedents and the likelihood of it resulting in competing bids.

For this month’s newsletter, we’ll reflect on the past year. 2025 was a year marked by constant change. I started a family in 2024, so this year has felt like an ongoing attempt to refind my work sea legs while balancing new family responsibilities. It’s been a challenging change, but I think that I’m slowly adjusting.

All in all, the newsletter had a good year. We covered several interesting topics, added new team members, and saw our readership grow ~40% from the end of last year. We invested in two startups, after their founders read the newsletter and cold emailed us. And we met several prospective consulting clients due to relationships developed from the newsletter. The internet can create magic sometimes. 🪄🔮🚀

If you’re new to Leveling Up, I like to keep the year-end newsletter light relative to our usual ones.

1. I’ll cover the three most read articles this year. I’m basing the results off of Substack’s “views” metric on each post. The most read article also happened to be the most “liked” and “shared” article from the past year.

2. I’ll highlight the songs that stuck with me in 2025. These are some of the tracks I’ve listened to over and over again while writing, parenting, learning, reflecting, etc.

3. I’ll share some of the most interesting content our team has consumed over the past month or two.

Thanks for taking the time to read our thoughts. I’m very grateful for it. We have some exciting new content planned for 2026, so hopefully you’ll enjoy what’s in store.

If you have any feedback or suggestions for topics that you’d like me to cover next year, drop me an email or comment in this post. I’d love to hear from you.

Finally, a huge thank you to newsletter editors Adam and Matt for providing invaluable feedback on each article. The newsletter wouldn’t exist without their help.

Now, let’s get after it!

Jimmy

2025’s Most Read Articles

Here are the top three most read Leveling Up articles in 2025. I’ll quickly share how I feel about them and why they might be worth another read. Or if you’re new to the newsletter or missed any of them, why they might be worth a first read.

#1) UMG: The Show Me Story (Link to read it)

This was the top post across all three metrics: views, likes, and shares.

I wrote this when the Majors were missing Wall Street’s streaming revenue growth estimates. As a result, investors and industry thought leaders were questioning the future of the Major labels. I wanted to explore this debate by looking at Universal Music Group’s financial performance and strategy. It also includes some ideas on how UMG can argue that its stock price is undervalued (not investment advice, do your own research!). I think that people wanted to better understand why UMG was underperforming analyst expectations and the potential implications of the company’s new strategic bets on its future financial results.

#2) How Are VCs Thinking About Music In 2025? (Link to read it)

I wrote this because I think that entrepreneurs can often find the fundraising process to be a confusing one. This is particularly true in music where there are fewer sector focused funds. As a result, I wanted to interview investors excited about the space to better understand why they’re excited, what they’re excited about, and more. This “VC Edition” was intended as a quick primer for music founders raising capital or investors exploring music.

#3) Reservoir Media: A Hidden Gem? (Link to read it)

This was the only stock pick that I’ve made via the newsletter (again – not investment advice, do your own research!). I think people liked reading a data-backed opinion piece, particularly one that offers potential solutions for how a company can increase its value rather than just pointing out its problems. It also covers strategy and investing – areas that I’m passionate about and have experience in.

My 2025 Year-End Playlist

Here are some of the songs that stayed with me throughout the year. You can click this link to listen to them. I hope you enjoy them!

📚 Music Business, Tech, and Investing Content Worth Consuming

Here is some of the best content that our team has consumed over the past month or so –

Dan Sundheim of D1 Capital on the art of public market investing. (Cheeky Pint: link): “I mean, I like to think of myself as being a little more academic than vibe trading. But look, I think that you’re always going to make the most money for multiple expansion. Just like it’s hard to have that differentiated a view on a company’s growth rate. You can have a differentiated view on the longevity of the growth rate or the ultimate margin profile of the company based upon some work you’ve done. But the multiple over the long term is a function of the perception of stability of the cash flows over the long term. And sometimes people are skeptical about the business model and then, over time, it gets proven out that the business model doesn’t deserve to have that skepticism. And then the multiple expands. You do make most of your money on multiple expansion.”

The Company as a Machine for Doing Stuff (Not Boring: link): “At their best, companies are machines for doing the stuff a founder really wants to do, but bigger, with other people who want to do it too. The longer I spend investing in and writing about startups, the more I think my job should just be to find the small handful of people who view their companies like Forrest does, and then put as much money and effort as I can behind them to help them build their machines.”

Streaming Flattened Music. Gaming Makes It 3D. (Emily White: link): “The lesson from gaming isn’t “add points and badges.” It’s that participation and world-building create meaning. Music does not need more “content,” it needs meaningful places – shared, persistent worlds for fandom, identity, and creativity.”

Global Value of Music Copyright Hits New All-Time High. (Pivotal Economics: link): “The global value of music copyright reached $47.2bn in 2024. That’s up just $2.3bn (5.2%) on the prior year; growth is slowing largely because this is the first year where the pandemic effects have vanished. Stacking the puzzle pieces shows a mixed bag of growth stats. Labels grew year-on-year by 5% to $29bn, songwriter CMOs grew by 8% to $13.6bn and publisher direct revenues (i.e. with no CMO involved) fell slightly, down 1% to $4.6bn.”

Netflix and the Hollywood End Game. (Stratchery: link): “That YouTube is Netflix’s biggest threat speaks to a broader point: because of the Internet there is no scarcity in terms of access to customers; it’s not as if there are a limited number of Internet packets, as there once were a limited number of TV channels. Everything is available to everyone, which means the only scarce resource is people’s time and attention.”

Why AI won’t kill Duolingo and other passion-driven apps. (London Jackson: link): “Duolingo’s stock is getting crushed right now. Investors think AI translation is going to kill language learning apps. I think they have it backwards…If you just need to read a menu in Barcelona, you’ll use ChatGPT; but I really don’t believe this is the core reason people use Duolingo. They use it because they actually want to learn Spanish. The challenge creates the reward…Music is maybe the clearest example. Every day hundreds of thousands of people upload their songs to Spotify knowing full well they’ll get maybe 50 streams. AI can generate professional-sounding music in seconds now. Doesn’t matter. People want to make music. Go look at Splice or Bandcamp and you’ll see millions of people paying to do something AI could do faster and cheaper.”

🤝 Want to Work Together? Get in touch!

Alderbrook has helped dozens of companies create value for their stakeholders. We’d love to have the opportunity to work with you too!

Here’s what we offer music publishers, labels, tech companies, and investors:

• Consulting: Projects covering corporate & growth strategy, commercial & market analysis, stakeholder education materials, and more.

• M&A and Investment Advisory: Commercial due diligence for buyers, fundraising support for sellers, valuation assessments, fractional VP of Finance / Strategy services, and more.

• Early-Stage Investing: Actively investing in start-ups, with a current focus on Pre-Seed and Seed rounds.

If you’re interested in learning more and exploring how we could work together, you can either reply directly to this email or click the link below to fill out our contact form. We’ll be back in touch soon!

Work With Us!

📭 Share Leveling Up with a friend!

If you enjoyed Leveling Up this year, the greatest gift you can give back to us is sharing it with a friend or colleague. (link to share)

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GM readers 👋,

Happy October! And Happy Halloween to those who celebrate! 🎃

It was a busy 3Q here. My 1.5 year old daughter learned to say “gargoyle” in time for Halloween (ok, she really says “gah-go” but it’s cute). Alderbrook closed three early-stage investments and formed one exciting partnership. I’ll likely have more details to share on all this at a later date. But if you’re interested in learning more about our consulting services and investment focus, you can reach out to us here [link] to explore how we can work together.

Been a minute since I wrote the monthly newsletter. Happy to be back with a new collaborator. A big thank you to Vanderbilt MBA Ric Funchess, who helped with this piece.

This month we’ll analyze a company that I’ve wanted to write about for some time. Reservoir Media (“Reservoir” or “RSVR”) is well known in music industry circles. It has been acquiring music catalogs since 2007 – long before the most recent catalog buying boom on Wall Street. Fast forward to today, Reservoir is publicly-listed on the Nasdaq stock exchange and has grown to become a leading independent music company. Yet, Reservoir’s current share price is trading meaningfully below where it went public in 2021. This has likely – at least in part – contributed to activist investor interest.

To better understand what’s going on, let’s examine RSVR’s history, strategy, and its current state. Given that context, we’ll consider a few options to unlock potential value for its investors.

Grab a cup of coffee and let’s go deep on a company that appears to be flying under many investors’ radars. ☕

And with that, on to the disclaimers…

Note: We write this newsletter to learn in public. We are not licensed investment professionals. I (Jimmy here 👋) purchased RSVR stock after researching this piece and could absolutely be making the wrong bet. This piece is for informational purposes only. None of this is tax, financial, investment, or legal advice. Do your own research!

Now, let’s get after it!

Jimmy

🤝 Want to Work Together? Get in touch!

Alderbrook has helped dozens of companies create value for their stakeholders. We’d love to have the opportunity to work with you too!

Here’s what we offer music publishers, labels, tech companies, and investors:

• Consulting: Projects covering corporate & growth strategy, commercial & market analysis, stakeholder education materials, and more.

• M&A and Investment Advisory: Commercial due diligence for buyers, fundraising support for sellers, valuation assessments, fractional VP of Finance / Strategy services, and more.

• Early-Stage Investing: Actively investing in start-ups, with a current focus on Pre-Seed and Seed rounds.

If you’re interested in learning more and exploring how we could work together, you can either reply directly to this email or click the link below to fill out our contact form. We’ll be back in touch soon!

Work With Us!

Reservoir Media: A Hidden Gem?

“This goes out to the underdog / Keep on keeping at what you love / You’ll find that someday soon enough / You will rise up, rise up, yeah” - Alicia Keys on Underdog

Sometimes companies can present investors with unique insights and opportunities. I believe that’s currently the case with Reservoir Media.

The company’s stock price is ~20% below where it opened its first day of trading as a public company in July 2021. Meanwhile, its operating metrics have consistently increased over the past four years. This has resulted in RSVR’s valuation metrics reaching all-time lows.

Against this backdrop, we are now at an interesting point in time for RSVR. An activist investor, Irenic Capital Management (“Irenic”), has built an ~8% stake in the company. Last year, Irenic reportedly asked RSVR’s Board of Directors for a “strategic review to maximize shareholder value.” However, I haven’t been able to find details of Irenic’s proposals for the company or any updates on the status of their campaign. Regardless, the company’s share price is roughly unchanged since Irenic issued a statement making its intentions public.

What might be driving the decline in Reservoir’s valuation metrics over time? Is the company being undervalued? Finally, what plans might Irenic Capital have in mind to unlock any potential value?

Armed with a longstanding interest in the company and many unanswered questions, I set off writing this month’s newsletter. In this deep dive, we’ll look at Reservoir Media’s beginnings, its strategy and vision, and evaluate how the company’s been performing. Then we’ll turn our attention to its current valuation in light of its recent performance. And we’ll conclude by considering ways the company might increase its valuation.

To start, let’s take a brief look at Reservoir’s history.

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GM readers 👋,

Happy September!

One quick announcement: Alderbrook will be attending Mondo in NYC the week of October 13th. We’d love to chat about our early-stage investing focus, consulting services, and more. If you’d like to meet up there, fill out this short form. We’ll reach out ASAP to get something scheduled.

For this month’s newsletter, we’re joined by a new guest writer!

Drew Thurlow is a music industry strategist and Adjunct Professor at Berklee College of Music. He is also an advisor to early-stage music tech investor Mindset Ventures. Drew previously held executive roles at Sony Music, Pandora, and Warner Music Group.

Much of Drew’s current work focuses on the intersection of music and technology. In this month’s piece, he’ll leverage that experience to outline some of the investment themes and companies that he is most excited about. Given slowing US recorded music industry growth, several rounds of layoffs, and investors’ recent struggles to generate venture-scale returns in music tech, Drew’s optimistic perspective is refreshing!

I hope you enjoy the piece and consider giving Drew a follow on Linkedin!

And with that, on to the disclaimers…

Note: We write this newsletter to learn in public. We are not licensed investment professionals. This piece is for informational purposes only. None of this is tax, financial, investment, or legal advice. Do your own research!

Now, let’s get after it!

Jimmy

Pockets of Opportunity in Music Tech

“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” - Winston Churchill

For the last 15 years, music tech has been a challenging sector for investors. Unlike other parts of media and entertainment, the returns haven’t come easy. Leveling Up has written about how there have been very few venture-scale exits in the music industry over the past 15 years. According to Alderbrook’s analysis, there have only been 9 companies (across both music IP and music tech) that have exited for $1 billion or more since 2010. My own research and firsthand experience confirms this trend.

There are good reasons why: the (insanely) long time it takes to license master and publishing rights, the (perceived) limited TAM, and the (constant) uncertainty that comes with a business always in transition. And while streaming created a rising tide over the last generation, it didn’t lift all boats. Many startups rode the wave of excitement only to wash up on the shores of high customer acquisition costs and razor-thin margins.

Against this backdrop, the music tech ecosystem is undergoing another transition: one driven by AI, the accompanying legal mess, and changing models of fan engagement. But even as buzzy generative AI tools like Suno dominate headlines and creators adopt AI in record numbers - 91%, according to Epidemic Sound’s 2024 report - we’re not yet seeing widespread operational disruption. The promise of AI-driven efficiency remains largely that: a promise. Meanwhile, layoffs continue across major music and tech companies as they brace for slower growth.

Investment capital has followed suit. According to Traxcn and Music Technology UK, funding into music tech companies has fallen meaningfully over the past five years. And while music tech funding appears to have started the first half of 2025 off strong with ~$700M raised, it is still well below the $1.7B reportedly invested in 2015, largely on the back of streaming optimism. The birth of AI hasn’t had quite the same effect - at least not yet.

For founders, two narratives dominate the pitch decks crossing investor desks: AI and superfans. One primarily promises greater efficiency; the other, an untapped resource.

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GM readers 👋,

Happy August! 

This month we’re trying a new format: a Leveling Up guest post! The goal of guest posts is to bring you more insights than I’m capable of delivering solo from people who have different perspectives and areas of expertise than I do.

Today’s guest writer, Nate Fisher, is a perfect fit. Nate is the Director of A&R Research and Label Acquisition at Too Lost. He has previously worked at Warner Music Group, beatBread, Royal.io, and other respected music firms.     

Given Nate’s background of finding and structuring innovative deals with artists at various career stages, he is exactly the person who should be exploring this newsletter’s topic. 

This month’s piece explores a novel artist funding structure (which Nate has dubbed “Artist Inc.”). To do so, we’ll consider the evolution of how artists build their careers, the typical financing options available to artists, and how & why one company in particular, Firebird Music, is introducing this new funding structure into the mix.

I hope you enjoy it and consider giving Nate a follow on Linkedin! 

And with that, on to the disclaimers…

Note: We write this newsletter to learn in public. We are not licensed investment professionals. This piece is for informational purposes only. None of this is tax, financial, investment, or legal advice. Do your own research! 

Now, let’s get after it!

Jimmy

Exploring the Artist Inc. Funding Model

“I’m not a businessman. I’m a business, man!” - Jay-Z on Diamonds From Sierra Leone (Remix) 

I’ve long admired artists who have branched out and successfully built businesses in new verticals. My favorite example is Jay-Z, who has shown an incredible entrepreneurial spirit and drive while building out a formidable empire. His business portfolio includes a variety of ventures across music (e.g., Roc Nation, TIDAL), sports (e.g., Roc Nation Sports, NFL partnerships), consumer products (e.g., Puma, D’Usse), investing (e.g., Marcy Venture Partners), and more. According to Forbes, these interests have amassed Jay-Z a $2.5B net worth, with the vast majority of his estimated wealth attributable to non-music catalog assets. 

Over time, I’ve seen a growing number of artists from different genres leveraging their brands – initially built within the music industry – to endeavours outside the music industry. Some noteworthy examples include:

• Rihanna: 50% interest in Fenty Beauty made her a billionaire and represents the majority of her estimated net worth.

• Jimmy Buffett: 28% interest in the Margaritaville brand contributed to his estimated net worth of $1B+.

• Selena Gomez: stake in makeup company Rare Beauty Brands made her a billionaire and represents the majority of her estimated net worth.

The list goes on. From Bad Bunny to Snoop Dogg to Chris Stapleton, many artists are leveraging their music-native fan communities to launch and scale non-music products, services, content, and IP. 

Although the way artists are building their careers has changed, I believe that the best practices for financing their growth – particularly for smaller and emerging artists – is actively being discovered. Artists have more diversified revenues and options for business partners than ever. And I’m increasingly convinced that we’ll see novel funding structures emerge that enable artists to fund their various entrepreneurial interests while maintaining a greater degree of IP ownership and autonomy.  

Along these lines, one recent deal between UK rock artist YUNGBLUD – who has ~11 million monthly Spotify listeners and ~6 million Instagram followers – and institutionally-backed Firebird Music (“Firebird”) caught my eye. In short, the deal sees YUNGBLUD and Firebird owning equal 50/50 shares in a new company called YB Inc. that houses YUNGBLUD’s earnings from his core music assets (e.g., recorded music royalties and touring income) as well as his music festival Bludfest, a fashion/lifestyle brand, and comics.  

Today, we’ll walk through the emergence of this new funding model – one I’ll be calling “Artist Inc.” To do so, we’ll first need to understand how the music industry has evolved, the funding options available to artists today, and how this Artist Inc. funding structure is different. Then we’ll talk about why I’m so optimistic on the Artist Inc. model. Finally, I’ll wrap-up with where I think the economic model between artists and their business partners is headed in the next few years. 

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GM readers 👋,

Happy June! 

Over the past three years, Leveling Up has served partly as a way for me to learn in public and get to the right answer, partly as a serendipity / marketing tool, and partly as a journal to capture the wins and losses of building a small business. As it relates to that last point, we saw some big milestones in June –

• We welcomed three part-time writers to the Leveling Up team. I’m excited to see how much better this newsletter becomes as super-smart, curious folks with diverse backgrounds share their unique perspectives on the industry.   

• We spun up our first SPV via an investment in the pre-seed round of Qanooni alongside some great venture firms! This one was extra special, because many of the investors are Leveling Up readers. If you’re a lawyer who wants to get repetitive tasks done quicker, check them out!

• One of Alderbrook’s first seed investments achieved unicorn status! An exciting milestone that wasn’t on my 2025 bingo card. 

So a big thank you. None of these milestones or this month’s newsletter would be possible without you reading, commenting, sharing, and reaching out. I’m grateful that you are willing to take time out of your busy schedules to read what I write. 

Ok, back to the regularly scheduled programming… 

This month’s newsletter is Leveling Up’s “VC Edition”. We asked five experienced investors how they’re thinking about the current climate in music investing, what they’re most excited about, how they’re advising founders, and more. Thank you to each of them for taking the time to provide their perspectives. Their responses should be insightful for music tech founders, executives, and other investors in the space.   

I owe an extra special thank you and shout out to long-time Leveling Up supporter Andres Lauer at Fairway Partners for helping us connect with many of the excellent contributors to this piece. 

And with that, on to the disclaimers…

Note: I write this newsletter to learn in public. I’m not a licensed investment professional. This piece is for informational purposes only. None of this is tax, financial, investment, or legal advice. Do your own research! 

Now, let’s get after it!

Jimmy

How Are VCs Thinking About Music In 2025?

“I’ve always been more of an analyst than an optimist.” - Bill Gurley, venture investor and General Partner at Benchmark

Investor Intros -

Andres Lauer / Partner / Fairway Partners

Andres Lauer is a partner at Fairway Partners and a specialist in corporate strategy for media and entertainment companies, with +10 years of experience. 

Andrew Kahn / Managing Partner / Yamaha Music Innovation Fund

Andrew Kahn is the Managing Partner of Yamaha Music Innovation Fund. Previously, Andrew was the head of Crush Ventures, a leading early-stage fund focused on the intersection of music, technology, and cultural innovation.

Daniel Ibri / Managing Partner / Mindset Ventures

Daniel Ibri is the Managing Partner at Mindset Ventures. With over 10 years of experience as a venture capitalist, international management consultant, angel investor, M&A advisor and mentor for startups, Daniel closed over 100 deals across six different countries and founded three VC funds. 

David Tauber / Investor / Creator Partners

David Tauber is an Investor at Creator Partners. David previously worked on the investment and strategy teams at Influence Media Partners and Kobalt Music. 

Ishan Sachdev / General Partner / Deciens Capital

Ishan Sachdev is General Partner at Deciens Capital. Previously, Ishan was a growth equity investor and an early member of the portfolio operations team at PSG Equity.

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GM readers 👋,

Happy May! 

*Due to a Substack technical issue causing the original post to get cut off, we’re re-publishing this piece.*

This month’s newsletter is a fun one. We have two exciting collaborations! 

First, I’m teaming up with talented media consultant and analyst Maxime Eyraud to write this piece. If you aren’t already familiar with Maxime’s work, I recommend checking out some of his prior media industry year-end reviews and subscribing to his newsletter Recreations. Second, we worked with the team at Luminate, the entertainment industry’s most trusted data source, to access streaming data that made this piece more insightful. You can request a demo for Luminate’s music product offering here.  

This month we’re going to explore a company that I’ve wanted to write about for some time. Pophouse is taking a unique approach to the music catalog investment game. After starting its life as a real estate and branding business, the Pophouse team and its backers made a huge financial bet (and appear to have been proven right) on their ground-breaking ABBA Voyage show. Just recently, the company made another splash, announcing it had closed a $1.3 billion music rights investment fund.

I’ve wanted to better understand why and how this team did it. In the process, I’ve learned a lot about where the music catalog space may be heading.

And with that, on to the disclaimers…

Note: I write this newsletter to learn in public. I’m not a licensed investment professional. This piece is for informational purposes only. None of this is tax, financial, investment, or legal advice. Do your own research! 

Also, one quick announcement. We are still looking to add a couple writers to our newsletter team. If you are interested in business strategy, are familiar with aspects of the music industry, and have the ability to learn and share insights from a variety of companies and trends, please send an email to contact@alderbrookcompanies.com and we’ll be in touch!

Now, let’s get after it!

Jimmy

Pophouse: The Music Branding Pioneers

“We don’t buy catalogs to put them on a shelf and let them grow slowly … is there a brand that is not utilized or being exposed for a generation to discover.” - Pophouse CEO Per Sundin

In 1800s America, hundreds of thousands of people traveled West into unexplored territory looking for a new life. These pioneers embarked on an uncertain future and embraced risk to maximize their potential opportunities. 

These days a few entrepreneurs from Sweden are carving out a new trail in the catalog investment space. Unlike many music intellectual property (“IP”) investors that seek to insulate themselves from risks, Pophouse Entertainment (“Pophouse”) is embracing innovative ideas to bring older artists’ music to new generations of fans. Along these lines, Pophouse is well known, in music circles at least, for its groundbreaking ABBA Voyage show, which has generated hundreds of millions of dollars in revenue over the past three years. More recently, in March 2025, Pophouse announced that it had closed a $1.3 billion fund to purchase music IP. But its plans appear somewhat different from the typical music rights fund.

Today, Maxime and I are going to uncover most of what we could find on the company’s backstory, strategy, growth, risks, and future. 

• Meet Pophouse

• What Is Pophouse’s Vision?

• How is Pophouse Currently Faring?

• Looking Ahead for Pophouse

It’s our pleasure to go deep with you on Pophouse!

Meet Pophouse

Pophouse is a global entertainment and music investment firm that acquires select music properties and develops them across multiple mediums and formats, with a focus on location-based and interactive entertainment.

Based in Sweden with offices in London, the company was co-founded in 2014 by Björn Ulvaeus, one of the four members of legendary Swedish pop music band ABBA, and Conni Jonsson, the founder of private equity giant EQT. Today, it’s led by CEO Per Sundin, a music industry veteran who earned his stripes at Sony Music Nordic and Universal Music, where he was instrumental to Spotify’s first deal with a label, and chaired by Lennart Blecher, EQT’s Head of Real Assets.

Pophouse’s activities consist of two main segments. On the one hand are productions, a growing range of location-based and often technology-enhanced entertainment experiences. These include:

• ABBA The Museum, an interactive museum in Stockholm celebrating the legacy of ABBA

• Mamma Mia! The Party, an immersive theatrical dining experience with productions currently ongoing in London, Stockholm, and Rotterdam

• ABBA Voyage, a virtual concert residency in the purpose-built ABBA Arena, and developed in collaboration with all four ABBA members

• Avicii Experience, an interactive museum in Stockholm dedicated to the life and work of the late Tim “Avicii” Bergling

• Pippi at the Circus, a now discontinued original circus musical based on Astrid Lindgren’s kids IP that performed in Stockholm, and

• An upcoming KISS avatar show, planned to launch in Las Vegas in 2027

As of March 2022, Pophouse is also a music investor, focusing on three categories of rights: publishing, master recording, and importantly, artists’ Name, Image, & Likeness, or “NIL”. Today, the company’s portfolio of rights includes (ordered by the time of their acquisition):

• The master recordings and publishing rights for Swedish House Mafia’s back catalog

• A 75% stake in Avicii’s master recordings and publishing

• A majority share of Cyndi Lauper’s master recordings and publishing, and

• The music catalog, brand, and NIL, “including the world- famous face paint designs”, of KISS

As we’ll explain throughout this piece, the production and investing components of Pophouse’s activities are not just complementary; they are indissociable. The team’s entrepreneurial savvy, as well as their branding skill and success, has convinced artists or their estates to entrust the company with their lives’ work. As Per Sundin put it in an interview, “We have a different approach to pursuing music rights deals than traditional investors. [...] There’s a parallel in private equity, when acquiring companies from founders — understanding the founder’s perspective significantly facilitates the transition.” Tellingly, while only the KISS acquisition included brand and NIL rights, the announcements for the three other deals all specified that Pophouse would be collaborating with the artists or estates on creative initiatives through dedicated joint ventures.

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GM readers 👋,

Happy April!

Before diving into this month’s newsletter, two quick announcements. 

First, Alderbrook is heading to Music Biz 2025! We will be attending the conference Monday through Thursday (May 12 - 15) and would love to meet you. If you want to discuss ways to collaborate with Alderbrook – from investing to research to consulting to partnerships – please let us know by filling out this form.

Second, Leveling Up is looking for a few part-time writers, who are interested in business strategy, are familiar with aspects of the music industry, and have the ability to learn and share insights from a variety of companies and trends. If that’s you, please send an email to contact@alderbrookcompanies.com and we’ll be in touch!

It’s been about a year since Jesse Feister and I wrote a piece about one of the music industry’s favorite buzzwords: “superfans.” At the time, it was clear that recorded music growth was decelerating and the Majors would try to invent new pockets of growth. 

A year on, industry growth has indeed decelerated, but the superfan opportunity still feels like a hand-wavy one. 

You already know respected firms expect 20% of paid streaming subscribers to be superfans. You’ve flipped through UMG’s Capital Markets Day deck outlining their research about why superfans should be a significant opportunity. And you’ve read the Bloomberg article about what the Spotify “Music Pro” (i.e. superfan) tier might look like.

Still, you might be hungry for a bit more. What superfan features will Western DSPs release and at what price? What will the adoption curve of superfan tiers look like? How big of a near-term impact will new superfan tiers really have on industry revenue?

And with that, on to the disclaimers…

Note: I write this newsletter to learn in public. I’m not a licensed investment professional. This piece is for informational purposes only. None of this is tax, financial, investment, or legal advice. Do your own research! 

Now, let’s get after it!

Jimmy

Looking East For Music Superfan Clues

“[World of Warcraft] was the best subscription business of all-time…We never raised the prices. My view was to come up with value added services. Come up with new things to sell. But just leave the price…It’s a prickly audience. You don’t want to do too much to agitate them.” - Former Activision CEO Bobby Kotick describing why Blizzard never raised World of Warcraft’s $15 per month subscription price

The once booming recorded music market has begun to slow down. Recent analysis by IFPI and MIDiA shows that streaming revenue growth – the driver of industry revenue over the past decade – has decelerated.

As Leveling Up has written about, the industry’s leading players are searching for the next vector to reignite growth. One of the key areas being explored is segmenting music fans in hopes of getting the most engaged, most willing-to-spend users – so called “superfans” – to open up their wallets for more stuff (e.g., special content, access, perks, etc.).  

When it comes to the music superfan trend, the big burning questions that I think a lot of investors, and executives have are -

• What value (i.e., products and features) will be offered to “superfans”? 

• What will it cost fans to access this value?

• How many fans will adopt these premium offerings?  

• How quickly will fans adopt these offerings?

• Given all of the above, what impact will superfan offerings have on industry revenue? 

To kill any suspense, I have no insider knowledge or experience building and launching these types of products. Still, I think that there are likely clues to these questions by looking closer at non-Western companies that have been shipping superfan products for years. 

In 2022, China-based Tencent Music Entertainment rolled out their “Super VIP” streaming tier. Since then, TME’s “online music” annual revenue, average revenue per paying subscriber, and stock price have increased ~75%, ~25%, and ~85%, respectively.

These are promising high-level signals of product and creative teams finding new ways to unlock user spend. In this month’s issue, let’s take a closer look at TME’s superfan tier experience and wrap up with some big picture thoughts on the potential lessons for Western companies readying new superfan products.

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GM readers 👋,

Happy 2025! 

There’s recently been a lot of debate among investors, music industry professionals, and entrepreneurs about the future of the Major record labels. Will the Majors be able to grow streaming revenue inline with Wall Street expectations? Has the balance of power shifted away from the Majors to streaming platforms? Do artists even need Major labels to achieve superstardom anymore?

Universal Music Group (“UMG”) – the largest Major by revenue – is a company at the heart of this debate. While UMG has its critics, the company also has some savvy and well-funded backers. And its biggest investors feel that UMG remains “an attractive long-term investment.” 

In my opinion, this ongoing conversation has lacked some depth and failed to acknowledge the dynamic nature of the playing field. I want to take a swing at clearing things up in this piece. 

So let’s explore the following -

• Why do investors believe that UMG is an attractive investment?

• What’s holding back the bullish thesis?

• What is UMG’s strategy to address these concerns? 

• Given the above, how might UMG convince the market of its investment case?

Keep in mind – I write this newsletter to learn in public, and this topic is complex. I’d love to hear your thoughts, so please shoot me a note if you have any feedback, alternative takes, or think I missed something.

And with that, on to the disclaimers…

Note: I write this newsletter to learn in public. I’m not a licensed investment professional. This piece is for informational purposes only. None of this is tax, financial, investment, or legal advice. As far as I’m aware, I don’t own any UMG stock right now. Do your own research! 

Two final items before diving into the post -

1. I’m sure most of you saw the news of the New Year’s Day tragedy in my hometown of New Orleans a few weeks ago. If you’d like to support the families of the victims, consider donating here. 

2. My heart goes out to everyone impacted by the fires in Los Angeles. I wanted to share links to a couple of incredible organizations – Baby2Baby and Los Angeles Fire Department Foundation – working tirelessly to provide relief and support those impacted. If you’d like to make a donation to these organizations, click here and/or here. 

Now, let’s get after it!

Jimmy

UMG: The Show Me Story   

“I think music is forever. Music is a many thousand year old part of the human experience. And I think it will be thousands of years from now…And [Universal Music Group] basically owns a third of the global recorded music [business]. And that’s the most dominant market share in the business.” - Bill Ackman, founder and CEO of Pershing Square Capital Management

What feels like many moons ago, I was an analyst at a firm that invested in public companies. Certain companies became unaffectionately known as “show me” stories. This typically meant that a company’s financial results had underperformed expectations and the stock price had declined. For the company’s stock price to recover, investors needed to see better results before they felt compelled to buy shares, as opposed to simply taking management’s guidance and their confidence in the business’ prospects at face value. 

If you’ve been following music industry news over the past few quarters, Universal Music Group (“UMG”) seems to fit the mold of a show me story. In July 2024, UMG reported its 1H 2024 earnings, which caused analysts and investors to become increasingly concerned about the company’s future growth prospects, particularly in comparison to streaming services like Spotify. As Leveling Up has written about, UMG’s recent revenue growth has been driven by the emergence of streaming. However, the company’s growth has been decelerating over the past couple years, with its subscription streaming revenue growth decoupling from that of Spotify.  

In response to UMG’s 1H 2024 results, several banks (e.g., Citi, Wells Fargo, Guggenheim, Barclays) downgraded their ratings on the company’s stock, and the company’s share price fell ~30%, erasing over €10 billion off its market capitalization.

Then in September 2024, UMG hosted a Capital Markets Day to lay out its strategy and financial outlook. At the four-hour-long event, the company’s top execs outlined UMG’s track record for identifying and developing superstars, its runway for future growth, its future capital allocation priorities, its deep bench of talented executives, and much more. Importantly, UMG guided to high single digit revenue growth and mid twenties percent EBITDA margin targets through 2028, which was in-line with its guidance before going public in 2021. 

UMG’s CEO Sir Lucian Grainge summed up his pride and confidence in the company’s history, trajectory, and positioning: “Simply put, UMG is not only the most successful company in the entire history of the music business, but also the company that is the most essential in driving the industry forward.” 

Wall Street analysts’ reviews of the presentation were generally positive. JP Morgan’s analysts said it was “one of the best capital markets days we have attended in the past 30 years, and it further increased our already high conviction in the UMG story.” High praise! 

Nevertheless, UMG’s share price hasn’t fully recovered. It remains ~15% lower than the closing price the day before the significant 1H 2024 earnings sell-off. And unless an investor was able to participate in the stock’s 36% IPO pop, long-time shareholders likely haven’t seen their shares appreciate much, with the stock still ~5% lower than the closing price on UMG’s first day of trading publicly.  

As you’ll see, this piece dives into the streaming market’s evolution and how UMG is positioning for it. Based on my research, I believe that UMG has a thoughtful and adaptable leadership team. And the implications of their current strategy will likely impact what a Major record label looks like in the future – both from a business model and a financial profile standpoint. And these are things that I don’t think are fully appreciated by the market quite yet.

But first, let’s set the foundation here and understand the bull case for investing in UMG.

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GM readers 👋,

Happy Holidays! 

2024 was a transformative year on a personal level. Hannah and I moved to a new city, bought a house 🏡, and welcomed our first child 👶! 

As a result, 2024 wasn’t the most prolific writing year for Leveling Up, with only four new posts. Still, our readership grew 40%+ year-over-year! 🚀

And I've been blown away by the kindness of this readership. On more than one occasion in the past couple months, I’ve been in conversation with apparent strangers at conferences and events. When they find out I write Leveling Up, they tell me how much they enjoy it. Thank YOU for the support. 🙏 I’m extremely grateful for it. 

With my sea legs a bit more under me on the home front, I’m focused on writing more often in 2025. And I hope you’ll continue to enjoy the ride! 

If you’re newer to Leveling Up, I like to keep the year-end newsletter light relative to our usual ones. You can think of this edition as our version of the Dundies (if you’re not already a fan of The Office, click this link for a glimpse at what I’m referring to).

This year-end review will mix a few topics.

1. I’ll cover the most read articles of the past two years (since we wrote less in 2024). I’m basing the results off of Substack’s “views” metric on each post. 

2. I’ll highlight the songs that stuck with me this year. These are some of the tracks I’ve listened to over and over again while writing, traveling, learning, reflecting, etc. 

3. I’ll share some of the most interesting content I’ve consumed over the past month or two.

One final ask before diving into this month’s piece. In an effort to improve Leveling Up, I’d be grateful if you could fill out this survey (linked here) and let me know your feedback. It will help me get a better sense of what you’re most interested in learning about. 

Finally, a huge thank you to my wife Hannah and my business partner Adam for editing and providing invaluable feedback on each article. Leveling Up wouldn’t exist without their help.

Now, let’s get after it!

Jimmy

2024’s (and 2023’s) Most Read Articles

Here are some of Leveling Up’s most read articles over the past two years. If you’re new to the newsletter, I hope you’ll find them interesting.

1. The Music Industry’s Superfan Ambitions (Link)

2. SoundCloud: Understanding Music Streaming’s Dark Horse (Link)

3. Has Hipgnosis Hit The Bottom?  (Link)

4. The Contrarian: Understanding MUSIC’s $200M Raise (Link)

5. beatBread’s Moneyball Approach to Funding Musicians (Link)

6. Music and the AI Opportunity (Link)

7. Universal’s Push for Higher Streaming Payouts (Link)

8. A New Tune: Looking at the Future of BMI (Link)

9. The Rise of Concert Films (Link)

10. Exploring Africa’s Music Market Opportunity (Link)

My 2024 Year-End Playlist

Here are some of the songs that stayed with me throughout the year. You can click this link to listen. I hope you enjoy it! [And yes, I had to include one that we’ve listened to over and over again with our daughter. See if you can spot it 😊.]

📚 Music Business, Tech, and Investing Content Worth Consuming 

Here is some of the best content that I consumed over the past month or so – 

• Global Value of Music Copyright soars to $45.5bn (Pivotal Economics: link)

• [untitled]: building the operating system for music (Not Boring: link)

• State of the independent music economy: fragmentation AND consolidation (MIDIA: link)

• Universal Music: I Was Brutally Wrong (Seeking Alpha: link)

• ABBA Voyage Generated $129M in 2023 (MBW: link)

• Hold or twist? The music industry’s innovation dilemma (MIDIA: link)

• Why Subscription Growth is the Barometer for Major Label Success in 2024 (Billboard: link)

• Will UMG’s Lawsuit Against Believe User in a New Era of Regulation for DIY Distribution (Billboard: link)

• Global economic study shows human creators’ future at risk from generative AI (CISAC: link)

• HYBE wants to change fan culture in US, Latin Music, and 4 Other Things We Learned on the Company’s Latest Earnings Call  (MBW: link)

• What HYBE and UMG’s Q3 earnings tell us about superfans (MIDIA: link)

🤝 Want to Work Together? Get in touch!

Since 2017, Alderbrook has consulted with numerous companies across various industries and stages. This includes working with labels, publishers, music technology companies and investors on a range of projects. 

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Over the past few years, we’ve had the privilege of supporting several great investment firms. Our team is available to provide market and investment research, due diligence, and advisory support. Whether you invest in public markets, venture capital, private equity, or are a business or investment bank facilitating deals, we’d love to help you meet and exceed your investment goals. 

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In addition to our consulting services, we make early-stage investments, with a focus on companies building in media and government technology. If you’re a founder who is raising, please reach out to us!

To get in touch, you can either reply directly to this email or click the link below to fill out our contact form. We’ll be back in touch soon!

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  📭 Share Leveling Up with a friend!

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GM readers 👋,

Happy July!

I’ve been quiet on the newsletter front the past couple months. I’m excited to say that this is my first Leveling Up newsletter as a dad! Hannah and I are loving spending time with our newest family member. But the result is less time to put together the usual monthly deep dive. 

To help keep the content cadence consistent, I’m hoping to collaborate more on future newsletters. I’ve met lots of folks who read Leveling Up that are incredibly knowledgeable on a variety of topics. In short, I believe this readership will benefit from greater collaboration. If you’re interested in teaming up or even writing a guest post, please shoot an email to contact@alderbrookcompanies.com! I’d love to hear from you.  

Back in March 2023, Leveling Up wrote about artificial intelligence’s potential value to the music industry. We looked at barriers standing in the way of realizing that value and made some predictions on which parts of the value chain may be most impacted.

A lot has happened in this space in the year since. AI continues to dominate headlines, with the music industry remaining both excited over AI’s potential and concerned over how music AI startups are utilizing this technology.

In this month’s newsletter, we’ll analyze the music AI startups that have successfully raised venture funding over the past couple years. In doing so, we can try to 1) identify the areas that music AI builders see as the biggest opportunities and 2) observe which investors are most actively funding them. 

And a quick shoutout to my friends at Naavik whose recent piece on gaming and AI served as the inspiration for this one. If you’re interested in learning more about gaming, I highly recommend subscribing to their free newsletter. It’s consistently packed with insights!

And with that, on to the disclaimers…

Note: I write this newsletter to learn in public. I’m not a licensed investment professional. This piece is for informational purposes only. None of this is tax, financial, investment, or legal advice. Do your own research! 

Now, let’s get after it!

Jimmy

Music and the AI Opportunity

“AI at the service of artists is a good thing, but AI that is used to harm or prevent artists from due compensation is a bad thing. So, our approach is to embrace responsible AI technology in a way that enhances human creativity. How is this done? By letting artists lead the way.” - Sir Lucian Grainge, CEO of Universal Music Group

The past two years have seen the artificial intelligence hype cycle continue to pick up steam. The public launch of popular generative AI models – like OpenAI’s ChatGPT (chatbot), Midjourney (text-to-image), and Stability AI’s Stable Diffusion (text-to-image) – has driven much of the recent excitement over AI’s potential. Depending upon which firm you ask, the generative AI market is forecasted to be anywhere between $50 billion to $400 billion by 2033.

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GM readers 👋,

Happy April!

For the second month in a row, we have an exciting collaboration! This month we’re teaming up with Jesse Feister, Global Head of Creator Marketing at Twitch. Jesse has an impressive background that spans various roles at the intersection of music and technology. Earlier in his career, Jesse played drums and wrote songs in a rock band signed to Island Records and Warner/Chappell. Later, he co-founded a music tech startup Songspace (now a part of FUGA), managed global digital partnerships at Kobalt Music, and led the go-to-market team for Kobalt’s AWAL. At Twitch, Jesse is thinking about how to attract, retain, and help creators monetize their biggest fans on a day-to-day basis. Honestly, I couldn’t hope for a better thought partner to tackle this month’s topic. 

This month we’re going to be taking a closer look at the music industry’s buzzword of the moment: “superfans”. Much ink has been spilled covering this trend over the past few quarters. Industry leaders like UMG CEO Lucian Grainge and WMG CEO Robert Kyncl made it clear in their annual letters that superfans are a priority.

In this piece, we aim to better understand why folks are so excited about the potential of monetizing musician’s biggest fans in 2024; how big the opportunity could ultimately be for the industry; what barriers stand in the way of unlocking that value; and finally, how participants are positioning to ride this potential wave. 🌊🏄   

And with that, on to the disclaimers…

Note: I write this newsletter to learn in public. I’m not a licensed investment professional. This piece is for informational purposes only. None of this is tax, financial, investment, or legal advice. Do your own research! 

Now, let’s get after it!

Jimmy

The Music Industry’s Superfan Ambitions

“This for every single fan that know every single line / So I'm saying thank you for loving me / For setting me free and letting me be me.” - Logic on the song Thank You

In 2007, I (Jesse here 👋) moved with my band to Chicago with the hopes of growing a fan base, getting a record deal, and taking over the world. We only accomplished 2 of those 3 goals, and I’ll leave it to you, reader, to figure out which ones. But in the process of trying, we learned a valuable lesson about fandom that’s as relevant today as ever. 

Of all the possible people we could reach, we realized that by far the most valuable were a specific group of music fans who were surprisingly easy to find and connect with. They were the ones who were willing to stand in line early, waiting for venue doors to open at the concerts of larger bands on tour. There they were queued up, decked out in their favorite artists’ merch, and ready to take a burned demo CD from an unknown band. They weren’t just fans. They were what industry pundits and professionals refer to as “superfans”. 

Superfans are en vogue today. They’re at the center of conversations around drivers for future music industry growth. Universal Music Group’s CEO Sir Lucian Grainge identified them as a 2024 company priority in his annual letter, and WMG is reportedly building a superfan app for likely the same reasons. That’s in addition to a broader fandom product focus driven by streaming platforms like SoundCloud, Spotify, Tidal, and Amazon Music. 

Why are superfans receiving the industry’s focus now? Who exactly are they? How big, really, is the superfan opportunity? And how are participants attempting to unlock their potential? In this piece, we’re going to try our best to answer these questions. But first, let’s walk through a little industry history to better understand how technological shifts from selling physical records to selling / licensing digital tracks have impacted the monetization of music fans.

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GM readers 👋,

Happy March!

First off, we had a great turnout for our Second Annual King Cake Raffle. Congrats to this year’s winner John D.!

Second, we have an exciting collaboration to announce! Several years ago a friend forwarded me a Twitter thread analyzing the origins of my hometown New Orleans’ hip-hop scene. I loved the analysis and have been following Trapital’s content ever since. If you’re not already familiar with their work, I suggest subscribing to their weekly newsletter and checking out their podcast, which has included interviews with industry thought leaders like Will Page, Matt Pincus, and Tatiana Cirisano. 

So it’s a real honor to team up with Trapital’s founder Dan Runcie to take a closer look at the booming concert film genre. You can read the piece on Trapital’s site and subscribe to their newsletter here. I also recorded a podcast with Dan that you can listen to here.  

Before diving into this month’s newsletter, I should admit that I don’t have much experience in the film industry. But it’s hard for me to quell my curiosity in the face of Taylor Swift’s film making over $200 million at the global box office, while only costing an estimated $10 to $20 million. Does she ever miss a shot? We’re going to analyze how concert films have performed historically, what seems to be driving their sudden resurgence, and speculate on where the genre might be headed in the future.

Finally, I’ve learned one thing over and over again while growing a newsletter. You need a team of smart folks to help you grow. With that in mind, a huge thank you to Cornell student Emily Yuan for helping research, write, and edit this piece!   

And with that, on to the disclaimers…

Note: I write this newsletter to learn in public. I’m not a licensed investment professional. This piece is for informational purposes only. None of this is tax, financial, investment, or legal advice. Do your own research! 

Now, let’s get after it!

Jimmy

The Rise of Concert Films

“As soon as I accomplish one goal, I replace it with another one. I try not to get too far ahead of myself. I just say to myself, 'All right, well, I'd like to headline a tour,' and then when I get there, we'll see what my next goal is.” - Taylor Swift

Back in college, a couple friends introduced me to Martin Scorsese’s film The Last Waltz. If you’re unfamiliar, the documentary covers rock group The Band’s farewell concert at Winterland Ballroom in San Francisco during the late 1970s. During the show, the group is joined by a number of legendary special guests, including Bob Dylan and Joni Mitchell. I loved the film. It introduced my teenage self to The Band’s music, and The Last Waltz’s soundtrack remains in my regular playlist rotation.  

Concert films like The Last Waltz aren’t a new genre. Some of the earliest examples date back to the 1940s, with one of the earliest known productions being Concert Magic, which features violinist Yehudi Menuhin performing at the Charlie Chaplin Studios in 1947. While developing a concert film isn’t a new idea, 2023 was arguably the most successful year ever for this genre. 

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GM readers 👋,

Happy (belated) January!

I hope your 2024 is off to a great start. In my hometown of New Orleans, folks are celebrating the city’s next holiday – Mardi Gras. If you’re a veteran of this newsletter, you know what that means… 

It’s time for our Second Annual Mardi Gras King Cake Raffle! We’ll be sending one subscriber a free Gambino’s Bakery king cake. Last year had a solid turnout with Mike C. winning the grand prize. If you’re interested, fill out this form with your name and email. We’ll randomly draw a winner on February 27th. To participate, the only rules are that you have to be a subscriber to this newsletter and located in the United States (for shipping reasons).

This month we’re going to study a company that I’ve wanted to write about for some time. SoundCloud is one of the most unique companies in music technology that I’ve come across. Fans use it to discover and interact with their new favorite artists. Artists use it to experiment and build their careers while staying independent. Labels use it to find and sign the next Chance the Rapper, Lorde, and Billie Eilish. It’s a music discovery and streaming company, an artist services company, and a social media company all rolled into one. 

Despite its undeniable cultural capital and a dynamic value proposition, SoundCloud seems to receive less attention than other streaming juggernauts like Spotify and Apple Music. More recently, the company has been grabbing headlines for strategic reasons, as it’s reportedly going to hire investment bankers to run a sale process in the coming months.

With some of my favorite things – music, technology, finance, and strategy – intersecting, the timing feels perfect to cover this fascinating business. 

And with that, on to the disclaimers…

Note: I write this newsletter to learn in public. I’m not a licensed investment professional. This piece is for informational purposes only. None of this is tax, financial, investment, or legal advice. Do your own research! 

Now, let’s get after it!

Jimmy

SoundCloud: Understanding Music Streaming’s Dark Horse

“Maybe he’s an enigma. A riddle wrapped inside a mystery.” – Seinfeld’s Elaine Benes describing Newman

I was in New York this past month for a handful of meetings. In a few, I mentioned that I was thinking about covering SoundCloud for this month’s newsletter. Each time, I got a quizzical look. The responses from music industry professionals were more or less the following –

“Why?”

“What do they do again?”

“It’s always a Re- with them. Restructure. Reorganize. Re-something.”  

These quips – even though delivered with a pinch of humor – surprised me and reflect a view that SoundCloud’s best days are behind it. 

I’ve wanted to write about the company for a while. I’m a semi-active user. And more importantly, the platform’s track record is impressive in my opinion. Consider the following milestones:  

• More than 40 million creators or 4x+ more than competitors.

• Over 375 million tracks or 3x+ more than other popular streaming platforms.

• A history of breaking music megastars, including the likes of Billie Eilish, Chance the Rapper, Lil Uzi Vert, Lorde, Post Malone, and many more. 

• An artist-friendly brand, as the only technology company I’m aware of that has been thanked by an artist during a Grammy speech.

• An innovative approach to paying rights holders via its fan-powered royalties program. 

When reports surfaced that the company is being shopped at a $1+ billion valuation by investment bankers, it felt like the right time to go deeper. 

As I’ve researched SoundCloud’s history and vision going forward, I’ve realized that there is so much to learn from it. The company has been a high flying start-up that grew quickly and raised a lot of (maybe too much) funding from top VC firms. It has struggled to monetize its large user base and been forced to recapitalize and restructure. And through it all, it’s still standing and has an ambitious, thoughtful, and differentiated strategy for the future. 

So which is it? Are SoundCloud’s best days in the past, or is the future brighter than ever?

In this piece, I’ll do my best to answer these questions. I’ll explore how SoundCloud rose to prominence; its value proposition; how it’s currently faring; its unique strategy among music streaming companies; and finally, my quick take on the likelihood of a $1 billion valuation in the context of its historical financials and its publicly-listed peers. 

Grab a cup of coffee! We’re about to go deep on a fascinating company.

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GM readers 👋,

Happy New Year! 

This is the second year since I committed to writing more often and 2023 was another big year for Leveling Up. Our readership grew 344% this year (albeit off a low base!). I’m extremely grateful that each of you spends a bit of your valuable time with my thoughts on various topics. The results from writing this newsletter continue to surprise me. I get to learn a ton through the writing process, meet a bunch of super talented people (you!), and in certain cases get invited to help with exciting, unexpected projects. Simply put, the newsletter continues to be a serendipity machine.

I intend to continue writing regularly in 2024, so hopefully Leveling Up continues to be interesting and/or entertaining to you. To that end, we have a couple exciting newsletter collaborations in the pipeline, which should result in some amazing new content next year. 

For our year-end piece, we’ll be keeping it light relative to our usual newsletters. If you’re newer to Leveling Up, you can think of this edition as our version of the Dundies (if you’re not already a fan of The Office, click this link for a glimpse at what I’m referring to).

This year-end review will mix a few topics.

1. I’ll cover 2023’s top 5 most read articles. I’m basing the results off of Substack’s “views” metric on each post. 

2. I’ll highlight the songs that stuck with me this year. These are some of the tracks I’ve listened to over and over again while writing, traveling, learning, reflecting, etc. 

3. I’ll share some of the most interesting content I’ve consumed over the past month or two.

One final ask before diving into this month’s piece. In an effort to improve Leveling Up, I’d be grateful if you could fill out this survey (linked here) and let me know your feedback. It will help me get a better sense of what you’re most interested in learning about. 

Finally, a huge thank you to my wife Hannah and my business partner Adam for editing and providing invaluable feedback on each article. Leveling Up wouldn’t exist without their help.

Now, let’s get after it!

Jimmy

2023 Most Read Articles

Here are Leveling Up’s most read articles this year. If you’re new to the newsletter, I hope you’ll find them interesting.

1. Has Hipgnosis Hit The Bottom?  (Link)

2. The Contrarian: Understanding MUSIC’s $200M Raise (Link)

3. beatBread’s Moneyball Approach to Funding Musicians (Link)

4. Universal’s Push for Higher Streaming Payouts (Link)

5. A New Tune: Looking at the Future of BMI (Link)

My 2023 Year-End Playlist

Here are some of the songs that stayed with me throughout the year. You can click this link to listen. I hope you enjoy it! And yes, I included the entire Burna Boy NPR Tiny Desk concert because it is incredible!

📚 Music Business, Tech, and Investing Content Worth Consuming 

Here is some of the best content that I consumed over the past month or so – 

• 44 memorable Charlie Munger Quotes about life and markets (Yahoo: link)

• Acquired’s Interview with Charlie Munger (Acquired: link)

• Two Tier Licensing is about to become a reality (MIDIA: link)

• The Strategic Reasons HYBE’s Chairman Wants to Retire in 10 years (MBW: link)

• Spotify Added 6M Premium Subscribers in Q3 – and Became Profitable (MBW: link)

• How Artist Friendly Are Streaming Platforms? (Water & Music: link)

• The Trapital 2023 Report (Trapital: link)

• The Future of Music: How Generative AI is Transforming the Music Industry (a16z: link)

• Taylor Swift Will Earn $100M from Spotify This Year  (Billboard: link)

🤝 Want to Work Together? Get in touch!

Since 2017, Alderbrook has consulted with numerous companies across various industries and stages. This includes working with record labels, music publishers, music technology companies, and investors on a wide-range of projects.  

Our experienced group of consultants provide services across several categories, including: a) market research; b) corporate strategy; c) investment and M&A due diligence; d) capital raising support; and e) financial planning & analysis. Need help on a project? Reach out via the link below!

In addition to the above consulting services, we also have a growing venture portfolio of 20+ early-stage investments. Our primary focus is backing founders who we believe in and whose vision we are aligned with. While we are industry agnostic, our preferred sectors are media and government technology. 

Finally, reach out to us about opportunities to sponsor Leveling Up’s newsletter. Our readership includes music technology entrepreneurs, executives at major labels, Grammy award-winning creators, investors and bankers at large financial institutions, and more. Share what you’re building with them!

To get in touch, you can either reply directly to this email or click the link below to fill out our contact form. We’ll be back in touch soon!

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GM readers 👋,

Happy October! 

This past month saw Leveling Up gain a ton of new subscribers! If you’re new around here, welcome! Thank you for spending a bit of your valuable time reading my thoughts. My goal with this newsletter is to learn in public with you and hopefully to have some fun along the way. In other words, I aim to give you an ROI on your time – either via insights or entertainment. Also, if you have any feedback or want to learn more about a specific topic, leave me a note in the comments or reply directly to this email. I’d love to hear from you! 

Also, a massive thank you to Bill Werde at Full Rate No Cap (subscribe here!) and Darren Hemmings at Network Notes (subscribe here!) for sharing this newsletter. You’ve both enabled more folks to become aware of Leveling Up. I hope to meet you both one day, but until then, thanks (and a hat tip) for generously sharing our work! 🎩👌🙏

For this month’s piece, we are going to cover a topic that is familiar to regular readers of this newsletter – Hipgnosis. A lot has transpired since we published our last piece on the company in July 2023 (linked here) and our first one in November 2022 (linked here). In July, I was encouraged by how Hipgnosis Songs Fund’s Annual Report suggested that the company may have begun showing signs of a turnaround. But I was also concerned that the company’s stock price had not quite reached bottom, primarily due to its ongoing free cash flow issues. 

It turns out that these concerns were warranted. Earlier this month, Hipgnosis Songs Fund announced it wouldn’t pay a quarterly dividend and the stock dropped ~10%, reaching an all-time low. As a result of this and other setbacks (discussed below), some investors intend to vote against the company’s continuation at its Annual General Meeting set to be held in a few days. 

With all this uncertainty, it seems like the perfect time for another newsletter speculating on the company’s future. I also wanted to get it out before the continuation vote – it’s no fair (or fun) speculating if you already know the outcome!

So, what’s happened since our last piece? What do I think the company should do to turn its valuation around and what are the implications to the various stakeholders? And finally, what lessons can be learned from this fascinating situation?

Read on and let’s try to figure this one out together!   

And with that, on to the disclaimers…

Note: I write this newsletter to learn in public. I’m not a licensed investment professional. This piece is for informational purposes only. None of this is tax, investment, or legal advice. Do your own research! 

Now, let’s get after it!

Jimmy

Into the Void: What’s Next for Hipgnosis?

“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” - Warren Buffett

I’m not always the best at business politics. I often have a strong opinion about business decisions and strategies. And I struggle with the inauthentic feelings that bubble up with “going along to get along” or holding back. 

My wife Hannah tells me “don’t worry so much about being right.” Other times, she’ll shoot me a knowing look. Her eyes are saying: “Are you really sure this is the right place and the right time for that conversation?” 

Difficult conversations are a necessary evil in business. But over time, I’ve learned that how I approach and time these conversations is just as important as what I want to say. And certain situations just aren’t worth the fight in the long-run.  

Meanwhile, through my consulting and investing experience, I’ve also witnessed how corporate board rooms – at their worst – can devolve into an endless, dysfunctional “difficult conversation.” If you’re not already familiar, a company’s board of directors – who are elected by shareholders – are meant to approve / make key company decisions (e.g., acquisitions, dividends, executive compensation, etc.), oversee a company’s management team, and protect shareholders’ interests as best they can. 

When times are good (e.g., a company’s stock price is performing well), shareholders are typically happy with the company’s board of directors and its management team. As a result, in these environments, shareholders usually approve a board’s recommendations and decisions without much protest.  

But when times are bad, when shareholders are losing money, when management teams aren’t performing up to expectations, the game changes. A board’s ability to work effectively to diagnose issues, to use good judgment to make changes, to communicate effectively, and to protect shareholders interests is put under a closer microscope.  

That’s where Hipgnosis Songs Fund (“SONG”) is today. Shareholders have seen the company’s share price decline ~40% over the past 2 years. SONG’s stock price remains ~50% below the £1.55 Operative Net Asset Value (“NAV”) per share calculated by the company’s independent valuer as of March 31, 2023.

To add insult to injury, SONG’s primary competitor on the London Stock Exchange – Round Hill Music Royalty Fund Ltd – recently announced that its shareholders had agreed to an acquisition by Concord Music at an all-time high share price. The relative performance of SONG and RHM’s share price since November 2020 (when RHM went public) is depicted below.

At this very challenging moment for the company, SONG is set to hold its Annual General Meeting later this week (October 26th). At the meeting, SONG shareholders will participate in a “continuation vote”, which occurs every five years, to determine whether SONG will continue as a going concern or potentially be shut down. Ahead of the continuation vote, SONG’s chairman of the board of directors and another member of its board announced that they would be “retiring” – possibly as a result of shareholder pressure. Along these lines, several shareholders are demanding changes to the company’s governance. For example, Asset Value Investors Limited (“AVI”), which owns 5% of SONG’s shares, wrote a letter to shareholders (linked here) urging them – among other things – to vote against continuation, so that a new board of directors can be appointed. Similarly, Metage Capital, another SONG investor, wrote a letter (linked here) to shareholders asking for their support in replacing certain board members. Yikes!  

To put it mildly, SONG’s future remains more uncertain than ever. Given this backdrop, I thought that it would be a perfect time to dive back into analyzing the situation. Is now really the time for governance changes? Or are certain shareholder concerns overblown? 

In our third installment on Hipgnosis, we’ll try our best to answer this question by covering:

• What happened since our last Hipgnosis piece in July?

• Where is SONG headed?

• What are the lessons to be learned from the company? 

Grab a cup of coffee and let’s run it back one more time on a fascinating company!

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