In March, Universal Music Group chairman/CEO Lucian Grainge spoke with investors about his company’s $775 million acquisition of Downtown Music Group. The moment marked Grainge’s first comments since European regulators greenlit the deal, and the major-label mogul likened it to UMG’s $1.9 billion acquisition of EMI in 2011.
“Today, 15 years later, that acquisition is universally acknowledged as one of the most successful and strategically important in the history of the music industry,” Grainge said. “I firmly believe that our acquisition of Downtown will be as transformational.”
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Downtown’s businesses — distributors FUGA and CD Baby and publishing administration platform Songtrust among them — will help UMG expand its offering and geographic footprint in the high-growth global indie segment, where UMG is third behind Sony’s The Orchard and Believe.
Nat Pastor and J.T. Myers, co-CEOs of Virgin Music Group, are overseeing the hard work of integrating Downtown’s suite of businesses into UMG’s independent label and artists division. The entrepreneurial duo — who both separately started their careers in investment banking, then moved to Warner Music Group before co-founding the management firm mtheory — have seen all sides of the artist-label world during that time and are focused on trying to bring Downtown’s expertise under the Virgin umbrella to help artists of all sizes. While the process will take years, the upside is immense and vast, Pastor and Myers say.
“We’ve seen an explosion in the independent space largely driven by the growth in the sort of middle- class artists [who] are making enough money to have a career in music but aren’t superstars,” Pastor tells Billboard. “We’re so well-positioned to empower and continue to fuel that part of the business, not even [to help] the next Sabrina Carpenter, but rather [to create] 10,000 more career artists … who have real careers and opportunity.”
You built the management company mtheory, and in 2022, UMG acquired the company and decided it should be the backbone of its indie division, Virgin Music Group, with you two overseeing Ingrooves and Virgin. How did that happen?
Nat Pastor: When we left the major-label system to build our own thing, it was at a time of great weakness for the majors. Over the 12 years that we were running mtheory, we got to try a lot of stuff: partner with artists in nontraditional ways, produce tours, strike direct deals with nascent [digital service providers], put out records. Nobody else would put out a Diplo record or no one else was paying attention to Skrillex. We found ourselves being bit players in a really exciting, transformational time in the independent space, and our company got to achieve a lot of success that otherwise hadn’t been possible. It changed how we viewed what independent labels, management companies [and] artists [could] achieve outside of the major- label system, and that was hugely formative for us spiritually.
J.T. Myers: Originally Lucian [Grainge, UMG CEO] said, “I want you to run my independent distribution company.” And our reaction was, “No, that sounds terrible.” Because distribution is a fundamental part of what we do, but it is simple … and not where the opportunity to add value was. Customers have more than 100 options to do that, including working with nobody.
We felt there’s more success among independent labels and artists at every level than ever before. We can be a catalyst to help empower that further and actually help the biggest music company in the world be a champion for independence, as weird or counterintuitive as that might sound. That’s the thing that we signed up to do.
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Since then, Virgin has made several acquisitions, the biggest being Downtown Music. How are the Downtown companies integrating and enhancing Virgin’s business?
Myers: The parts of their business that are the most analogous to what we were previously doing — FUGA and Downtown’s Artist and Label Services — have been going through an integration process. We’re going to continue that journey with Virgin and Ingrooves to try to have that come together as one thing, in the same way that we’ve been bringing [Integral into our portfolio from [PIAS]. Everybody in our sector is good at digital. What are the second-, third-, fourth-, 12th-most important things to a customer? It’s neighboring rights and synch and physical and [user-generated content] monetization. That’s where we are complementary with each other.
Pastor: We had a road map of what we would have wanted when we were running mtheory if we were going to partner with Virgin Music Group. Mtheory had been a FUGA client in the old days. We knew they had great executives that were service-minded people. There was cultural alignment. [Downtown] checked off a bunch of the boxes that were on our road map to work with entrepreneurs of all shapes and sizes.
J.T., you’ve said in the past that it didn’t make sense for Virgin to add a DIY upload service, like CD Baby. What changed, and why this is a business Virgin wants to be in now?
Myers: At the time, the answer was, “To what end?” There is so much data. We didn’t need to own an aggregator to see what was bubbling up. That remains true. We didn’t want to lose sight of why we were doing this. When you’re in the business of trying to have as many people upload as many tracks as possible and charge $30 [a year], you can end up embracing customers that aren’t real artists or have a different motivation. It was never about [not wanting] to be in business with emerging artists. I don’t like a business where you’re making money by charging people more than they generate in royalties, and it doesn’t matter whether that is a human being making music or AI-generated background noise.
But there is a real opportunity there. There is an emergent class of creators who are making a living for the first time. And that’s powerful. We’re just trying to think about what we can do [beyond] letting people get music up on Spotify, which is almost trivial at this point. With AI, you can start to think about tools that you can deploy at scale to add value beyond just releasing music.
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Fraud is a serious concern for DIY distributors. How are you dealing with that at CD Baby?
Myers: We are very careful about the trust and safety elements. We’re not excited about AI slop factories using a laissez-faire entrance into the system to skim money from real artists. The good news is a big area of our diligence process [was] understanding how Downtown approached that, and they had done an amazing job with technology, tools and other means policing that stuff quite well. We will help them continue that. There’s always room for improvement. It’s a constant cat and mouse game. Product features and pricing can offer ways to incentivize the people we want to be with us and disincentivize the people that we don’t want to be with us.
How can pricing help fend off bad actors?
Myers: By not having unlimited uploads for an unlimited number of artists for one low, low price. That’s really attractive to bad actors. And CD Baby does not have a pricing structure like that. They’re on a revenue share [model]. If you’re a slop factory, you’re going to choose to go somewhere that’s not going to take 9% of your revenue. You’re going to go to the lowest cost provider.
Pastor: The good news is Lucian leads the charge on this. He’s the guy out front saying we as an industry need to evolve. We get to benefit from the great investment from UMG. It’s not something we lose a lot of sleep over because at the end of the day, we know what initiatives we and they at Downtown have been doing, and they have been successful, so we will continue to develop those tools. And we know that we work with great artists who are creating things that fans love.
What are the margins like on CD Baby, and what do you need them to be to continue running a profitable business?
Myers: Everybody knows the nature of the margins in our sector is lower than the traditional record-label margins. We’re used to operating in a lower-margin business, as is the concert promotion business and the agency business; everybody’s been very healthy in fairly low-margin businesses. CD Baby’s margins are quite consistent with the rest of our businesses.
Are you able to into the UMG infrastructure and Michael Nash’s digital team?
Myers: That’s one of the nice things about being affiliated with Universal is they have a lot of people and clout to be addressing the big questions.
Pastor: We have the benefit of being our own self-contained, global organization [with] our own digital and physical supply chains. We get to be independent, yet we get to live under the umbrella and in the shadow of biggest, most influential music company in the world. JT and I talk to Michael Nash and Nash’s team multiple times a week when they’re making policy decisions, thinking about how to structure the next deal with the next music company … to have the ability to give the independent perspective on those decisions and negotiations is huge.
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What it means to be independent has evolved over time, and you are owned by a major company but serve indie labels. With BMG and Concord becoming one company, the definition of independence might be even harder to pin down. Would they be a competitor?
Pastor: We’re all leading experts in this field and we are not totally sure whether we’re competitors with a new BMG Concord. There’s so much choice. Back in the days when I started my career in music, there were only a few doors you could enter if you wanted to have success as an artist. Today, those lines being so blurry is one reason that we feel so strongly that it’s the best time ever to be an artist. You have so many paths and so many choices and so many ways in which you can find success on your own terms. At the end of the day, that’s net positive for the whole music industry.
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