After Soundcloud, BMI Layoffs Is Music Really Recession-Proof? – Billboard


The financial storm clouds which have triggered layoffs and deep cuts to funding budgets at corporations like Netflix, Snap and Apple are coming to the music enterprise.

In latest months, Spotify stated it could cut hiring by 25%, SoundCloud laid off 20% of its workers and BMI stated it was chopping just under 10% of its whole workforce, by way of a mixture of letting 30 folks go and leaving sure jobs unfilled.

In memos to workers, the businesses cited unsure financial occasions and difficult situations in monetary markets. Fears of a recession in america have been hovering over capital markets and traders because the Federal Reserve started aggressively elevating rates of interest earlier this yr. The trouble to rein in inflation, which hit a 40-year excessive in June, has cooled markets as supposed however has additionally proved tough to manage.

Traders are hoarding money and insiders at song-catalog holding corporations say it’s tough to boost capital, because the U.S. inventory market had its weakest August in seven years.

These dour financial elements have been upended considerably by file hiring and wage will increase — indicators of a robust labor market. A slight uptick in unemployment in August is one signal the labor market could also be cooling, and it might give the Federal Reserve room to boost rates of interest at a much less aggressive tempo. However many corporations have already braced for the worst.

“Making modifications that have an effect on folks is extremely laborious,” SoundCloud chief government Michael Weissman wrote in a memo to workers asserting layoffs on Aug. 3. “Right now’s change positions SoundCloud for the long term and places us on a path to sustained profitability.”

SoundCloud beforehand lower round 40% of its workforce in 2017, however employed a whole lot extra within the years following. Between 2017 and 2022, it additionally raised practically $250 million from traders together with The Raine Group, Temasek and Pandora dad or mum firm SiriusXM.

Spotify, in the meantime, grew its worker base by 50% simply within the final two years, going from 4,405 staff on the finish of 2019 to six,617 on the finish of 2021.

Representatives for SoundCloud, BMI and Snap declined to remark. Spotify didn’t reply to requests for remark.

Trade executives and bankers stated workers and hiring cuts helped them tackle two issues: a bloated workforce and investor strain.

Many corporations expanded through the pandemic, or simply didn’t let go of staff due to an ethical crucial to maintain them employed by way of the well being disaster. In a workers memo concerning the job cuts at BMI, chief government Mike O’Neill cited “a concerted effort to keep up headcount as COVID took maintain” as one motive why the performing rights group (PRO) was now letting go of workers.

It is usually often the case that, if traders are anxious a couple of recession, the businesses they invested in really feel extra strain to show their price.

Carlos Jimenez, managing director at funding financial institution Moelis & Co., says that corporations like Spotify possible checked out what their rivals felt and noticed this as a time to organize for scrutiny.

“It’s the Netflix downside. Saturation of streaming goes to occur, after which the eye will go from progress in any respect prices to profitability,” Jimenez says.

That time held true when Wall Avenue reviewed Spotify’s investor day this summer season.

Goldman Sachs analyst Eric Sheridan wrote in a analysis word in July that, whereas it was heartening to see administration targeted on long-term alternatives versus optimizing margins within the subsequent 12 to 18 months, traders need extra proof that it may possibly deal with the high-inflation surroundings.

“We anticipate the important thing investor debates to stay targeted on extra proof as to how recession-resilient the streaming audio trade is in a challenged client surroundings,” Sheridan wrote.

Justin Kalifowitz, founder and government chairman of Downtown Music Holdings, factors out that the businesses which have introduced plans to chop workers are additionally present process shifts in technique.

“There are loads of companies the place the basics and the long-term progress prospects haven’t modified, however they’re acutely aware of what has occurred within the public markets,” says Kalifowitz.

Living proof, information of BMI’s layoffs coincided with experiences that the corporate had moved on from the opportunity of a sale.

The PRO, which brings in over $1 billion in annual income, hired Goldman Sachs in March to discover strategic alternatives, together with a possible sale. In 2022, the company posted a record-high $1.573 billion in income, practically 16% larger than the yr prior, and distributed or administered $1.47 billion to songwriters, composers and publishers, up 10% from the yr prior.

In a public assertion, the corporate stated {that a} sale “is now not an avenue” it’s contemplating.

Strategic shifts are additionally taking part in out at Snap, a web-based digicam firm that’s positioning itself because the augmented actuality app for concert events. In August, Snap introduced it was shedding round 20% of workers, some 1,200 workers. The corporate, which has struggled with declining advert income, reported a $422 million web loss within the second quarter, roughly 178% larger than the year-ago interval, when Snap reported a $152 million web loss. The corporate’s inventory additionally declined, falling to a low of $9.54 on Aug. 1 from an all-time excessive of $83.11 final September, regardless of income and neighborhood progress.

Even whereas there are layoffs hitting some companies, there are corporations which might be going the opposite manner. Amazon Music, a part of the retail large that has been one of many greatest company winners of the pandemic, is hiring for practically 600 open jobs, based on LinkedIn.

Amazon didn’t reply to a request for remark.

Downtown’s Kalifowitz says that whereas it has turn into a cliché that the music trade is recession-proof and uncorrelated to downturns within the total market, there’s some reality to the maxims.

Main labels and live-music corporations are having banner years. Common Music Group’s second-quarter income grew by greater than 17% to $2.7 billion, whereas smaller labels like BMG reported that income jumped 25% to $405.7 million within the second quarter.

Says Kalifowitz: “That’s pointing in the best path.”

This story appears in the Sept. 17, 2022, issue of Billboard.

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