Music’s Worth $40bn

Richard Kramer: Welcome to Bubble Trouble, conversations between the independent analyst, Richard Kramer, that's me and the economist and author, Will Page, where we lay out some inconvenient truths about how financial markets really work. Given the title, it's no surprise to see our audience continually bubbling up as the tech stock bubble bursts and as we see more and more trouble in the markets, so welcome to our new listeners this week. And we want to get into some of the forces of gravity at work here and we're going to ask Will to deep dive as he comes out of his bat cave, and explains the work he's just produced on the annual global value of music copyright, which when rounded up, is worth a cool $40 billion. So, bear with us, Will will explain it all in a moment.

So, Will, you've just come out of your bat cave seeing the cold light of day or at least the blistering rain we have here in London, and you're ready to explain to us this new report you've done on the global value of music copyright. Where can we find this work?

Will Page: Yeah, coming out of my bat cave, I have put my sunglasses on, so I can see clearly, but the report is up there on tarzaneconomics.com under the Undercurrent section. And it's already been picked up in most of the music press and will be about to hit the wall street journal as well, so tarzaneconomics.com is where you can find the report.

Richard Kramer: So, before we get on to the abstruse points within the methodology, which may be a long and diverting path, we don't want to go down, can you just give us the motive behind these big headline figures of $40 billion? And give me a tweet-length summary of why this matters. What's the underlying story behind all this money?

Will Page: The motivation is that everyone on Wall Street talks about the music industry with reference to one industry report. That is the IFPI, which is the record labels international trade bodies global music report, which turns out March, April every year. And if you look at this year's report, it's $25.9 billion. It's a big figure. But all the models for valuing copyright, all the forecasts where the music industry going, it all stems from this one report. But that to me, Richard, is a glass half-full.

There are singers and there are songwriters. There are labels and there are publishers. And we've got to capture all of copyright. Essentially, the record labels business, the collecting societies business. That's ASCAP and BMI to our American listeners, PRS for the folks in the UK. And then there's publishing business. So, I don't think having a glass half-full serves the industry well, so I want to fill that glass up and that's what this report does right here.

Richard Kramer: But the tweet-length summary is the figures that are out there are incomplete and you've provided a complete set. Is that what you [inaudible 00:02:57]...

Will Page: Correct.

Richard Kramer: ... tell us?

Will Page: Correct. The holistic view.

Richard Kramer: Now, how realistic is that view? Because clearly, we know the US and UK play an outsized role in the music industry, but there're hu- literally hundreds of markets to track. How do you manage all that?

Will Page: Well, the IFPI and SESAC did a pretty good job at doing that. I mean, the IFPI is covering countries in Africa now. Previously, the International Music Industry didn't recognize Africa existed. It does now. It's gonna get better at doing that. And then again, with SESAC, I think there's 97 collecting societies around the world and they're reporting the collections from everyone of them, from Mozambique, to Taiwan, and so on.

So, it is a truly global business and I think we're getting better at getting global coverage as well. It's something that we've not done a good job of in the past, but now, we're getting a better feel of the world's 209 countries that lost count. Not just the 50 or 60 that we used to count 5 or 10 years ago.

Richard Kramer: Now, whenever I see a big record number being thrown out there, it makes me think of our Smoke Signal section. And I have to ask whether we've hit peak publishing. Is this as good as it gets for the publishing industry?

Will Page: I think there's two ways to cut into that. Firstly, it's a very flippant remark from Eddy Cue from Apple where he said, rightly so in my opinion, "There's 8 billion people on this planet and not many of them don't like music." Now of that 8 billion, how many can pay? Another question, but there's still a lot of runway for growth. There's still a huge potential in Africa and the Middle East to establish markets that don't even currently exist. Ones as opposed to zeros.

That said, you do have to see the recent wobble of Netflix, which I think was the biggest one day fall in stock market history. And ask the question of how many people are there out there who are not, you know, who are without a paid music subscription service. So, I think in the Western markets, we may have two or three years to go, but in the emerging markets, the party is just getting started.

Richard Kramer: But one of the things I found looking at some of those emerging markets is when the money comes in, it's coming in pennies and Pence and bits and pieces. Not dollars or pounds or euros. It's that the ARPUs and what's paid in those markets is a tiny fraction of what gets paid in the West. Does that ever add up to really matter in that giant $40 billion number you've talked about, which is so heavily dependent on the US market for the majority of that?

Will Page: Yeah. Well, there's a running joke in our business, which is the power stream that you hear about in America, that is the half a cent per stream you get from music. It's easily confused with the RPU from India.

Richard Kramer: Yes.

Will Page: And mathematically, that's probably not far off the truth. That's important. But we do need to take stock of some demographics. Let's leave the music market for a second, the growth of the young population in North Africa and the Middle East with smartphones, with credit or debit cards is exploding beyond anyone's perceptions. It's absolutely huge. Now, if we can bring a horse to water or perhaps, bring water to the horse and bring music monetization models to that growing population, then we've got a formula to succeed.

And credit to people like Universal, if you look at Universal, they're building offices in Vietnam and building proper bases of these emerging markets, supply creates demand and the industry is clearly supplying resources to monetize this market. So, it's not going to be quick. It's not going to be overnight, but the demographics are in their favor, financial inclu- inclusion is in its favor. I think this is going to work out. Give it three, four or five years, we'll start to see some serious numbers coming from these...

Richard Kramer: It's, well-

Will Page: ... parts of the world.

Richard Kramer: I have my doubts, but let's park that for a second. What I'd like to drill into is making sense of some of this growth, splits and share of streaming. How do you go and add up all these different verticals that media can appear? Because our audience might be seeing music crop up in all sorts of places. In video games, there- there's performance rights for. In bars, there's advertising. How do you tally up all these other verticals? And how does the publishing world think about them and address them and actually, get paid by them?

Will Page: I think the first way you cut this 40 billion K-Cup is to think about money that comes from the consumer, that is paying for subscription or consuming ads or buying CDs or buying vinyl, which is potentially the second biggest line item in the business right now. And then you've got money that comes from business that is licensing those restaurants, retail places, those concerts, wholesale licensing. I think that's the first fork in the road. You got to get your head around with this business.

Then we look at splits. What I think you see and we go into this in the report is what's the balance between how much goes to the songwriter and the publisher, vis-à-vis, the label, and the artists. Now, when it comes to licensing businesses, let's say for simplicity sake, a hairdresser, that tends to favor the publisher and the songwriter. So, a hairdresser might get the record label on the artist £200, and the publisher and the songwriter £400. And there's a lot of hairdressers up and down this country. There's not a lot of money, but it does add up to something quite significant.

But when you look at the consumer side of the business, well, that favors labels versus publishers. So, the streaming service was to give the record label $1, it would give the publisher $0.29 cents. So, I think your first fork in the road is, "Are we getting money from the consumer? Are we getting money from business?" Then the second fork in the road is on the consumer side, expect to see the label receive more and the publisher receive less. On the business side, expect the publisher to see more and the label to receive less. That's already quite a lot to take in, but if you can hold those two points in your head, you're really far afield in terms of making sense of the spaghetti of copyright.

Richard Kramer: M- my head is spinning with all.

Will Page: [laughs]

Richard Kramer: I just know that when I go to the hairdresser, she's got Spotify on in the background, and I don't think she pays anything directly. But I'm not going to rumble my hairdresser because she'd be on the hook...

Will Page: [laughs]

Richard Kramer: ... for extra costs and the cost of my ever occasional haircut will go up. Now, something I know we have agreed to disagree on is inflation and how you calculate it, in really in all its forms. And it's clearly hard to parse out, to tease out of rising prices. You say the equivalent figure for 2001 was $28 billion and now, it's 40% up to $40 billion, but shouldn't we strip out some inflation because God, I do not even wanna think about what I had to pay for a stick of butter or a pint of milk or a coffee in 2001 and how much more it costs today?

Will Page: Well, interestingly, I think you paid more for a CD in 2001 than you'd pay for Spotify today. CD prices in 2001 were like $15, $16. But my main concern with, and this is not just a music point, but just a general Wall Street analysts point is stripping inflation out of aggregate pots of cash, which is what we're discussing here, is you missed profitability, you missed supply side variables.

So, you know, the cost of a CD is a unit. And we can strip inflation out of there. The cost of Spotify as a unit $9.99. We can strip inflation out of there and I've done that in the paper that's on my website, melb economics. But an aggregate pot of cash? Is that really related to inflation, which has to do with the unit cost of goods? Was that to do with so much more? And...

Richard Kramer: Mm-hmm.

Will Page: ... the way I'd wrap this point up is by saying, I remember in 2015, being in Gothenburg in Sweden and learning that Sony Music in Sweden had A, never been smaller in size, in terms of turnover, but B, never produced as much profit as during that year. So, profitability is a bit that gets lost in inflation. The business might be smaller, but producing more profit.

Richard Kramer: But we're not talking about profit here. We're talking about the absolute value of copyright. And...

Will Page: Yeah.

Richard Kramer: ... if I take the $28 billion figure for 2001, and I assume any sort of multiplier effect and we know very well the power of compounding. And I would assume 2 or 3% inflation per annum would not get me pretty damn close to what the $40 billion figure is today without seeing all these incremental use cases in, in hairdressers and video games and ads?

Will Page: You're right. If you actually run the maths, we're a little bit behind the rate of inflation, even with 40% growth.

Richard Kramer: Mm-hmm, mm-hmm.

Will Page: And you, as an analyst aren't only looking for things that keep pace with an inflation, you're looking for things that beat inflation, right? You're not... you know, Richard Kramer is not in the Red Queen race in Alice in Wonderland where you have to run as fast as you can, just to stand still. Richard Kramer wants to run fast and move forward as fast as you-

Richard Kramer: Wait a second. You mean all the... all those, all the 50-year bonds and Swiss francs and the German bonds that have paid negative interest rates, they aren't so good anymore.

Will Page: Yeah, so, so I... it's tricky, because back when we sold CDs, there was a bunch of cost involved in selling them. But they did produce, potentially, a bigger pile of cash in real terms than everything that we've achieved to this day. That said, it is growing. It's gonna continue growing. There is new markets opened up that new formats opening up. So, even if we're behind the curve of inflation, A, don't ignore the problems with deflating aggregate pots of cash, missing profitability, missing the supply side effect, but B, the story hasn't finished just yet. So, you're right to pour a bit of cold water on it, but that water is still pretty little lukewarm to me.

Richard Kramer: I'll tell you what, it'd be fascinating to see, given that I know companies that were in the business of making CDs back 20 years ago, and it cost them a buck or less to make them and obviously, they were sold 15 or 16 bucks. Whether the industry as a whole having gone through the shift from physical to digital is on average more, producing more or less profit than it was in those two steady states at either end of the canyon. Having crossed that canyon...

Will Page: Yeah.

Richard Kramer: ... gone down into the trough of despair and risen up to the Wuthering Heights of returning to growth. Whether, indeed, the aggregate profit of the industry is adjusted for inflation above or below what it was 20 years ago.

Will Page: I think we could do two things. One, we could get some of your very bright analysts at Arete Research to do EBITDA deflator or two, we could just count the number of helicopters and private jets that are in existence within record labels today and compare that to how many were, were in existence back in 2001.

Richard Kramer: Yeah, that's...

Will Page: And between my colleagues-

Richard Kramer: ... that's serves the cost of the to- the cost of the private jets and helicopters might, might have come down a lot as well, you never know. Okay, last point, before we go to the break. Talk me through a little bit this tug of war because I read your piece and there's lots that just my brain is just not big enough to fully comprehend. On the one hand, you talk about labels getting paid, on the other hand, about publishers. But then we see their labels, which are publishers and publishers, which are also linked to labels. We've got the Sony Music signing the publishing rights from Bruce Springsteen and UMG and Warner are talking about their publishing businesses. Is this sort of a three-card monte where they hide the profits between these two groups? Or are they both individually trying to grab as much as they can, and some just are more successful than others at various stages of the industry?

Will Page: Uh, I, I sense your frustration. I remember when I first moved into this business in 2006, it was like, "How can you have a label and the publisher but the artist goes with one label, let's say, Universal, but then signed to a different publisher, let's say Warner's?" And I was told that it's the same thing as you never have a mortgage with your bank account. That's literally how was explained to me, which is you wanna, you wanna split the baby, right? You want to have two parties serving you, not just one.

So, I wouldn't be anywhere near as cynical. In fact, actually, it makes a lot of sense. The copyrights are different. A songwriter copyright is fundamentally different in its breadth and its depth and its legal application than an artist copyright. The way that you invest in these copyrights is different. The way that you monetize, the way that you'd shop at sync writer TV commercial is different from the publisher than it would be for the record label. And that's why it's different horses for different courses.

You do end up with a lot of alphabet soup. God knows how many acronyms and terminologies. But that is why you have a publishing business, which is what X, and a label business that's why it's Y. Yet, they can still report to the same CFO.

Richard Kramer: Mm-hmm.

Will Page: Can I give you one quick example for you wrap up at the break? Think about this. Let's say Richard Kramer is the songwriter of a Beach Boys song, and the performer of a Beach Boys song, and I'm a commercial and I wanna use that Beach Boy song, I Wish They Could All Be California Girls in a commercial. I could go to Richard Kramer, the publisher and say, "How much will you charge for the underlying work?" Maybe you say, "It's gonna be $50,000," just as a round number.

Richard Kramer: Sounds good to me.

Will Page: Then I could go to a covers band and say, "How much would you charge me for doing a recording of I Wish They Coul- Could All Be California Girls?" And they might say, "Oh, we'll knock it out to our version for $10,000." Right, so now, I've got a covers band willing to give me $10,000 pounds for the recording of the song. I then come back to Richard Kramer, who performed the song and say, "I want to use a covers band for $10,000 to use your underlying work. How much would you charge to see something as opposed to nothing?"

The correct answer is $9,999 because anybody can record a song, only one person can write a song. And that's just a really good example of the different negotiating power that exists between the label and the artist on one side and the publisher and the songwriter on the other side.

Richard Kramer: I can already see more and more layers to unpick for that. Now that you've mentioned that idea of copying songs, it opens a whole other can of worms. But for now, let's wrap it up. It's been a fascinating insight, but also one that I think is clearly gonna direct some of our listeners. Those with interests in the music industry to look carefully at your work teasing out this $40 billion copyright world. That seems to be just bubbling beneath the surface and no one takes notice of, so thanks very much, Will. We'll be back after the break.

Will Page: Welcome back to Bubble Trouble with myself, Will Page and the analyst, Richard Kramer, where we're delving deep into the report that's been published on tarzaneconomics.com, which looks at the global value of copyright, which totals up to $39.6 billion. Which if you do the math means that all the world's musical repertoire is what almost enough to go and buy Twitter, which is a little bit depressing. But on more technical matters, I want to pick up on the back end of the report where I indeed cite off, favorite segment of this podcast, Smoke Signals, and asked Richard a question about that dreaded subject of foreign exchange.

Now, Richard, I'm a little bit dyslexic when it comes to foreign exchange. I it takes me three or four times to get my head around that. And I apologize for that. I'm the dumb kid in the classroom, but it is confusing and it's doubly confusing when the US dollar goes into rampage and appreciation against all these other currencies. Now, in the report, what I do is I show what happens when the US dollar appreciates and you have to measure a global business in constant currency US dollar terms, for example. And we'll try and keep this simple.

Japan's music industry grew 9% last year. The American currency, the dollar, has appreciated 18% against the yen this year. If we were to assume that Japan carries on growing its music revenues domestically at 9%, the combination of an 18% appreciation on the dollar against the yen and 9% domestic growth makes the Japanese music industry worth 8% less this year compared to last year, that's where you start banging your head off against the table.

So, I'm just thinking what I've stumbled across in the report is a microcosm for what's going to affect earnings Kohl's and industry reports all over the place. Some of our listeners are interested in music. A lot of our list- listeners are interested in financial markets. This has to be a huge topic, which is, how do you know what the trend is when pardon my French, currency movements fuck it all up?

Richard Kramer: Well, that is a great question, Will. And it's something that is on the minds of every management team that has to get on earnings calls instead of reports. And equally, how they're thinking about setting their guidance and expectations for future periods because it affects a whole range of issues...

Will Page: That's right.

Richard Kramer: ... that go.

Will Page: The future matters, too.

Richard Kramer: So, let me break it down into a couple of constituent parts. And I'd say there's three big ones. First of all, there is the straight up translation. That is, whatever period you choose, whether it's the end of the quarter, the end of the year, on average of the year, on average of the quarter, you've got to translate whatever the absolute figure in Japanese Yen was back into the standard currency you wanna do all of your reporting in.

Now, if your company is based in Stockholm, it might be a Swedish kroner, if it's based in London, it might be in pounds, if it's based in the US, it might be in US dollars, but you have to decide what your baseline is going to be. And there is that translation impact of saying, "I'll take whatever I earned in the foreign currency and translate it back, either at the current exchange rate at an average exchange rate," or then we get on to the second category, which is transaction revenues, which is, "When I made a sale or purchase, and I brought that money back, what was the rate at that time?"

Now, for a company that has a monthly subscription, and collects in a rate outside their home currency every month, they may transact at slightly different rates 12 times during the year, so they have to decide how they're going to report that. And so, you understand that on the one side, there's the translation impact. There is a theoretical average rate over the course of the year. Then on the other side, there is the hard currency, "How much when I sold in this foreign currency did I get back when I transacted back to my own home currency, how much did I have in my pocket?"

Now, for reports like yours, you're trying to come up with a sensible average translation rate. You're not talking about the actual commercial transactions, because you're not party to the millions and millions of copyright deals that go into making that $40 billion number, you have to come up with a translation rate. Now, on top of that, there's a third, even more vexing problem of forecasting. I'll come on to that in a second. But most companies that give you constant currency growth numbers are reflecting some combination of translation and actual transaction revenues to say, "This is the amount of money I got back this quarter on a constant currency basis. Had I transacted all that revenue at the same rate as a year ago, this is what my real growth rate would be."

In the case of the Japan market, it would have grown 9%. If my base currency is US dollars, when I translate that back -18%, it might turn out to be a -9%. So, there is those two components there. One is to do with the average rate and the other is to do with the actual transactions as they come back and are translated back into your home currency.

Will Page: So, it's almost like three ships potentially passing each other in the night. If you ask for a, a straightforward question, you expect a straightforward answer, you have three different ways of carving out that answer.

Richard Kramer: Well, there's really two because one is, "What is the average distance the ships pass between one another as they go through the English Channel?" And the other is, "How actually close to each other did they get when they hit a certain longitude or latitude?" So, again, that actual translation is academic. The transaction is real, because you could keep all of that Japanese yen income in Japanese yen, hoping that the Japanese yen rebounds against the US dollar at some point and you don't bring...

Will Page: Right.

Richard Kramer: ... the money back until it does.

Will Page: So, that's a treasury function essentially playing, not arbitrage, but just optimizing what it does with its cash and different currency pockets.

Richard Kramer: Absolutely. And every Treasury function worth its salt is also doing something called hedging. And just to be really simplistic about it, let's say you knew that next year you're going to make a unit of 100 of sales in Japanese yen. You might buy an instrument which protects that 100, that you're gonna get a Japanese yen to translate back into an equal 100 of dollars or pounds or something else. So, that you lock in certainty for a fee that when you translate that revenue back from the transaction, that you know what the translation rate is going to be.

It's like insurance against the currency being volatile, moving up or down. If the currency moves in your favor, you might have lost out and your hedge was worthless. But if the currency moves against you, that hedge protects against some of the losses you might incur, because the bottom dropped out of the currency that you knew you were going to get that 100 of income in. So, there's another layer on top of that of trying to get insurance for what might happen in the currency markets, what sort of volatility you might expect, but indeed, there are those two separate functions. One is sort of an academic exercise and one has to do with the amount of hard cash you can bring back into your home currency.

Will Page: But if I could just wrap this one up, Richard. So, if I think about the situation Japan, which could do everything right, carries on going 9%. But when we roll it up into a global dollar figure is worth 8% less...

Richard Kramer: Mm-hmm.

Will Page: ... would it be fair to say the only exchange rate that matters is the one that ensures that you get your bonus.

Richard Kramer: The only exchange rate that matters...

Will Page: [laughs]

Richard Kramer: ... is the one that allows-

Will Page: Cuz you could have great performance.

Richard Kramer: It's not about the bonus, I'll step back from that. The only exchange rate that matters quite simply, is the one that allows you to have a solvent ongoing business. Now, if that company that brought the money back from Japan had 100% of its costs in Japanese yen, guess what, those costs against the US dollar rate would also have gone down 18%. So, they would actually get a benefit because they're bringing their costs and their revenue back in the same currency. There's no impact. But if they had half of their costs in dollars and half in yen, but 100% of the revenue in yen, then they would be hit, or vice versa.

Will Page: Got it, got it.

Richard Kramer: So, it's not about the bonus, it's not about boiling it down to some personal factor as if some individual can affect exchange rates. In the end, it's about the solvency of the business. And maybe I want to throw something back to you. When I looked at your report, there is this question about the dominance of the US market...

Will Page: Mm-hmm.

Richard Kramer: ... in all of these, in music, in copyright and so forth. It's like a giant Treasure Island. Is that just a function of the US having so many more lawyers per capita than every other country that they negotiate these deals? Or what's going on that so much of the revenue of this global copyright industry is stemming from the US?

Will Page: I think it's true to say there's more students studying law than there's lawyers practicing law in the United States, which makes you wonder about where law is going next. But on this US question, let me start by saying a quick refresher on the notion of globalization.

Now, globalization, when you're taught at university at least, is the idea that poorer countries catch up with rich ones. The marginal productivity of capital is so much worth more in a poorer country versus a rich one that you get convergence. But we know that globalization is controversial, because what we've seen in practice is rich ones pull away from poorer ones. Then you think about bringing streaming into the market, which is globalization on music, playlists without borders. Everybody's got access to everyone else's music. And you'd think that America's dominance in the business would wane and the growth of other markets would grow.

What we seen since Spotify launched in the US in 2011, is back then American made up 26% of revenue, so just over a quarter. Now, it's up to 38%. So, America is making up a bigger share of a bigger pie in your beautiful primer on exchange rates from those dyslexic numbskull like myself, just makes me wonder, at 38% of the global business, you factored A, the biggest market in America continues growing at the biggest rates. It can be worth $10 billion by the end of this year to record labels. And B, you got on top the exchange rate developments where the dollar appreciates. Is it's plausible... possible that America can make up half of the global recorded music industry very soon, and that is not what globalization predicted. To reiterate, poor countries are not catching up with rich ones. The richest one is breaking away from the pack.

Richard Kramer: So, what do we make of that when you think if your business plans are inside one of those publishers, do you just put all your irons in the fire of the US and just say that's where you focus all your energies, because that's the only market you're really worth getting paid in?

Will Page: Well, no. Local markets and local markets, Harold Wilson, the pound in your pocket is still worth a pound. But from a global perspective, one thing I would add is, it is now a lot cheaper for those American music companies and Wall Street companies to buy up global music catalogs.

Richard Kramer: Mm-hmm. Yeah.

Will Page: So, there's the share of revenues is increasingly American. And the share of ownership could quite quickly become increasingly American as well.

Richard Kramer: So, let me ask you, before we move to Smoke Signals, I've got to ask you about this one very strange listed company in the UK, which has spent an awful lot of money buying a publishing rights, but seems to be running into a bit of a pickle in terms of its own business model, which is the hypnosis, if that's the right way to pronounce it, a song fund. Now, this company seems to have more debt than equity. It's just got a rescue rights issue from Blackstone, which seems to own about half of it right now. And it has gone on a spending spree like an entire crew of drunken sailors buying up publishing rights for all these interesting artists.

Now, what do you make of this business? Will it work in the long term? They're obviously doing it from a perspective of buying it on spec, assuming that the publishing rights would yields revenues over a long period of time. How should our listeners think about looking at a super speculative vehicle? Is that part of bubble trouble or is that one gonna be a bubble that indeed keeps inflating?

Will Page: I think what you've seen happen with hypnosis, and I use this word in part, well, I'm going to use it again, it's a microcosm for what could be going on elsewhere, which is essentially what I call trajectory logic. Doing nothing more than adding a ruler, a Northeast gradient, and saying, "Look at the past, and that predicts the future." I'm a little worried, I'm a little worried. I'll just give you a little bit of math around how these deals are done, so you can see the scale to which there are no pain for me to cooperate.

Not that long ago, and I'm talking about 5, 6, 7 years ago, I would try and buy a publishing catalog off you by saying, "Let's take a look at your revenues." Let's say you're making $50 million a year as a publisher owning that catalog and I'll give you 8 to 12 times that $50 million a year. Now, I would ask for 8, you'd ask for 12, perhaps we sell at 10. So, I'm going to buy the catalog off of you for $500 million or 10 times multiple on the net publishers share. Not what the songwriter got, but what the publisher kept.

So, the dollar comes in, publisher holds on the $0.25 cents and passes $1.75 through to the songwriter. We're gambling on the multiple of that $0.25 cents. Now, what Mark has been doing is not paying between 8 and 12. He's paying between 18 and 22 times multiples for catalogs. That has a stratospheric jump in the value of this. Where I get a little bit weary on it is one, on the claim that is we can monetize these rights better than anyone else. I don't understand why your sync department, which is in charge of placing songs in commercials and movies is any better than an el... anyone else's sync department.

And by the way, if I want to use Carole King's You Need a Friend for the... a car commercial, I'm going to find a publisher that's got Carole King's You Need a Friend. I'm not looking for competitive bidding on different songs. I knew the song that I want. So, I don't quite understand how one sync department or one publisher can perform better than another sync department or another publisher. It's the songs that matter.

And then secondly, something that you've taught our audience a lot about, which is interest rates, interest rates are going back up. The bond market is waking up and that doesn't matter whether the performance of music stay strong, whether next yea, I'm talking about a $44 billion business. It makes the yield look less attractive or what you've constantly reminded our audience is we're going back to normal. So, I wonder whether this hypnosis scenario, okay, benefit of the doubt it might play out perfectly and be the land of milk and honey. But I wonder whether it was just of its time, like Robin Hood was of its time.

Richard Kramer: Mm-hmm.

Will Page: Like Shopify hitting the peaks, [laughs] it was of its time. And it was just that weird pandemic bubble period where things got a little bit out of hand. And now, as you constantly remind our audience, we're getting back to normal, and normal rules need to apply. The forces of gravity kicked back in- into play.

Richard Kramer: Mm-hmm. Okay, let's move to Smoke Signals, our favorite part of the show where you roll on up and do a bit of smoking. Tell us when you look at this $40 billion, $40 billion end market of words dreamed up in someone's mind. And you just have to think of all those impoverished poets that never made a dime. Wandering around the streets of Paris or London, begging a drink, caging of drink or smoke from anyone that would listen to their poetry. All of these wealthy songwriters or at least lawyers and industry executives, what makes you worry about this $40 billion figure whether we've hit peak publishing? Those moments where you smell trouble ahead? And how can our audience spot them as well?

Will Page: Okay, here's my two. Number one of two, I think, is attention economics and it's what we're doing right now. We're creating a podcast, which once edited by the wonderful Julia Natt, uh, will last about 40 minutes. Now, us, wonky economists, use this term, at the margin. At the margin a Richard Kramer chooses listen to a podcast instead of a song, he allocates 40 minutes of his time instead of four. The average hours a week spent listening to music is eight hours on Spotify and the rest. The same as it was in March 2009 when Spotify launched in the UK. It's that-

Richard Kramer: Eight ho- just eight ho- only eight hours?

Will Page: Eight hours, right. So, let's just think this through. That could be Richard's commute to work, Richard's commute home, and maybe a few other scraps in between. But if Richard suddenly says, "I'm gonna listen to a podcast on my way to work, and a podcast on the way home, "that doesn't give much time for music. James Cridland, friend of the show, says that people spend seven hours a week listening to podcasts.

Now, the rubber hits the road when I have to remind you and our audience that you still can't use music in podcasts. There's workarounds. But if I want to do a podcast about my favorite band of all time, INXS, why can't I take I Need You Tonight and put it inside that podcast because of licensing. So, again, you can take a horse to water, but on this occasion, is there a way that the music industry could avoid this problem by bringing water to the horse and working out a way in which people like ourselves can put music into podcasts? If we don't, we just have to keep on using library music and Production Music. That's smoke signal number one. We could lose the battle for attention.

Richard Kramer: Okay. And smoke signal number two, Will?

Will Page: Well, I wanna imagine Richard Kramer hanging off the back of a truck on a skateboard, drinking a bottle of soda with their Afro hair, breezing in the wind and singing Dreams by Fleetwood Mac recorded and released in 1981.

Richard Kramer: Did you see me-

Will Page: Could a guy-

Richard Kramer: Didn't you see me on TikTok?

Will Page: [laughs] Well, a guy did that on TikTok and he got...

Richard Kramer: He did.

Will Page: ... 97.8 million views, which is a lot of views.

Richard Kramer: Yeah.

Will Page: It's not billions of views like YouTube, but it's a lot of us, but here's the crazy bit 875,000 people have impersonated a guy hanging off the back of a truck drinking a bottle of soda, singing Dreams on TikTok. That's where it gets strange, and I just keep on thinking about this potential scenario, where the success of a Fleetwood Mac song released in 1981 with an audience which largely was born after 2000, sometimes after 201, means you could sell it Wembley Stadium to a bunch of Gen Z millennials to see Fleetwood Mac live and have only listened to 34 seconds of their repertoire.

"Daddy, Daddy, what's this?" "It's called a verse, son. You'd have two word of them after the guitar chorus." I'm worried about snippets, like if the next cohort of people going into university today have never listened to a song from start to finish, I think that's a pretty big smoke signal.

Richard Kramer: But isn't that something... just before we, we wrap up, isn't that something it's been happening for ages? I remember watching the biopic of Queen and there was this great concern about Bohemian Rhapsody because this was something like a six-minute or a seven-minute song that was gonna get played on radio...

Will Page: [laughs]

Richard Kramer: ... when all the other songs were three or four minutes and songs got longer the prog rock era, they would go on for days. Those songs would be 11, 12 minutes.

Will Page: Do you remember, do you remember that line, that record exec said, "Nothing lasts seven minutes." And Freddie Mercury said, "I feel sorry for your wife."

Richard Kramer: Yeah, there. I don't remember that line and we definitely want to keep that in the edit. But you know, then all of a sudden, you have that Spotify effect of people listening to the first 20 seconds of a song and stopping or moving on or clicking on words. And we had the length of a song shrinking and shrinking. Is this not just the natural progression of, of a hypertrophied attention economy where people just, they just can't pay attention for more than 30 seconds, so the first verse is all they get.

Will Page: I'm torn on this one. Firstly, we've been here before, when the mafia ran the jukeboxes in America. In 1950s 1960s, the mafia insisted that no song at jukebox could last for more than 2 minutes 30 seconds.

Richard Kramer: Right.

Will Page: That's-

Richard Kramer: That's why there's more plays.

Will Page: They want more money.

Richard Kramer: Right.

Will Page: Best way to extract value from jukebox is to avoid having long songs available to play, so we had it before.

Richard Kramer: Didn't... didn't it got In-A-Gadda-Da-Vida on those, on that dukebox?

Will Page: [laughs] But on a more real note, you do have to worry about attention spans. The fact that you can just flick left and flick right to skip a song in TikTok, I do wonder what that is doing to the creative process. That said, bands are getting signed from TikTok these days, festivals or booking acts on TikTok these days. So, maybe it's not, maybe I'm just being a little old. I do wonder whether the notion of listening to the album as a Body of Work is getting lost. And if it is lost,, I think that's that that makes us worse off of a society.

Richard Kramer: Yeah, and just as a, as perhaps an optimistic note to end on. And on the flip side of that is that Spotify has dropped the shuffle play. It's on automatic and they do now-

Will Page: We will pay a feature in old time.

Richard Kramer: They do now seem with things like the new Taylor Swift album to be putting out to these, these blockbuster albums that people do seem to listen to start to finish.

Will Page: And that allows you to, as I've said many times on this podcast, Richard, the internet can scale many things, but it can't scale intimacy. And for artist to have an intimate relationship with their fans, that track order, that body of work, that stuff really matters.

Richard Kramer: Absolutely. With that, we will leave our audience to hop off and listen to their favorite artists and to end their latest album, start to finish and understand the unfolding mystery of beautiful art. I wanna thank Will Page for an enlightening description of what's really going on behind the $40 billion copyright industry. And we'll be back next week with some more special guests. Thanks very much.

If you're new to Bubble Trouble, we hope you'll follow the show wherever you listen to podcasts. Bubble Trouble was produced by Eric Newsome, Jesse Baker and Julia Natt at Magnificent Noise. You can learn more at bubbletroublepodcast.com. Will Page and I will see you next time.