“Look, it's six o'clock, I'm hoppin' outta the bed Rain fallin', callin' X, but my phone line's dead I guess my bills ain't paid, no ride to work for the day Second option, hop the bus, but there's a traffic delay My boss trippin', 'cause I'm runnin' late and ain't no excuse When I'm about to be 22 without a whip I could swoop Feel like I'm finna shoot my own dome with chrome to escape Zonin' out 'cause working-working out ain't worth what I make My lady callin' buggin', always fussin' Just because we ain't ballin'

“From Blu and Exiles, ‘Dancing in the Rain’ “

Out of the habit of writing and invited to share my thoughts on finance in music I’ve drawn on a writing method I admire from Ben Horowitz. The A16Z founder, starts his articles, book chapters, etc., by quoting a hip-hop track, so shout out. I've gone with Blu and Exiles, ‘Dancing in the Rain’ from the 2007 Album ‘Below the Heavens’. The song describes the story of a struggling artist who holds two jobs, suffers from depression, and gets pressured by his partner to earn more leaving him to question his choice of being an artist. The song ends on a positive note, with the artist finding his inspiration and managing to continue creating. The music and thoughts on the artists' careers inspired this article as this is often the internal battle our artists go through. As I highlight in this article, I believe we have failed music artists as a society, particularly, in financing to support their careers and pave a viable way forward.

Definition of the business cycle

An effective conceptual framework to understand this issue artists face is the business cycle, which details the progression of a business in phases over time. The steps are divided into five stages: launch, growth, shake-out, maturity, and decline. The image above details this, showing time on the x-axis and revenue/sales on the y-axis. Over time, a business matures by finding product market fit, customers and growth. This is followed by increased revenue and more stable/predictable income. With higher, more stable revenues, companies can access several new financing options from banks, venture capital, private equity, business sales and IPOs. Most funding options are credit-based and form the basis of the economy. While musicians have revenues generated from touring, streaming and brand endorsement, most artists are excluded from all the funding sources mentioned above.

Limited access to credit and investment

To reflect deeper on this issue we return to the business cycle, and this time, we overlay with an adapted image from Nicholas Stern, a Chartered account, except we show how in the 5 stages in the life cycle, financing is available to musicians and the creative industries at large. The picture demonstrates artists have limited finance options – relying on funding from Family/friends/Patrons and from banks but to a lesser extent. They would need to sell their catalogues or a portion to cash in on their achievements. These options are limited not just in South Africa but worldwide. The Major labels (Sony, Universal, Warner) will typically dominate markets in which they operate, accounting for anywhere from 30 to 70% of the market. This makes them the biggest music buyers and, by default, price makers. This can differ in emerging markets, with some independents fairing better. Still, the overall situation is local financial institutions need to be geared to deal with infrequent, unpredictable income and a historical trail of income that doesn't fit their existing credit models.

So what's creating this disconnect between artists and the existing financial framework:

1. Lumpy Earnings: Musicians earn income from several sources: Live performances (Usually 70% - 80% of revenue), publishing (5%) and master recordings (15%). None of the income for any of these income sources comes in monthly payments due to the nature of how the revenue is collected and reported.

2. Business structuring: Many artists need sound business structuring for themselves and their companies. This ranges from needing company documents, tax statements and other structuring methods that would enable them to plug into the financial systems.

3. No professional track for business: This primarily stems from the lack of a professional business track in the music industry. You can study to be a musician and go to top music schools, but we do not have a corresponding professional track for managers and the business side of things. The result is that trust is the most essential currency in the industry vs. commercial competence.

4**. Un-recouped loans**: In markets where major labels have been dominant, we find that most industry legal agreements are made in the image of companies with specific mandates and offshore investors looking to export profits from the countries in which they operate. This led to financing arrangements that heavily favoured the label and disadvantaged the artists. The hangover of this is several artists with label deals still need to pay back existing loans on record deals.  This limits what their assets can do to make them more creditworthy. In the eyes of the banks and financial institutions, the artists are less credit-worthy as they not only have an existing amount of ‘debt’, but also have reduced income to pay off future loans.

5. "Music is not an asset class": It's unclear why what is created by the music industry is deemed so hard to value by many, but for whatever reason, it means the music is not seen as an investment class with assets that one can provide loans to. This is different for major labels, as Universal and Warner generated 8bn and 5.3bn euros, respectively. They are listed entities, so investor recognise their IP as assets. For independent and lesser-known artists, their catalogues are not seen as assets. Due to the complexity of historic legal agreements that make it hard for regular investors to understand the asset's value, there is a lack of liquidity in the music market and a monopoly of market share in the industry. This leads to a challenging environment for musicians to negotiate or have power in

6. R100m loans vs R10m loans: The due diligence to assess tax, accounting, business model, etc., is the same in the music business whether the loan is R10m or R100m, so a financial institution is likely reticent to do all that work for R10m vs R100m.

What's the solution?

Lumpy Earnings

Lending solutions need to be given to the institutions that provide payouts for musicians. This presents a scalable industry solution that would address the problem's core. The label/publishing societies and collection management societies have higher volumes than individual musicians and thus would provide a more attractive option to financial institutions. The financial institution's role would be to provide a float for the lumpy earnings but assess the creditworthiness of the music institution instead of the individual musician.

Business structuring for artists

There are many viable approaches to this, but I believe, the best model is for musicians to create their own limited companies and place all assets and proceeds of all income streams into said company. This would enable individuals to draw a fixed (adjusted each year for inflation or growth in overall earnings) salary demonstrating income and business activity which is more commonplace to lenders. It's a simple fix that would allow them to plug into most of the financial system's credit models. Secondly, taking a leaf from the book of Nigerian Singer/Songwriter Mr Eazi's, Africa Music fund would be an option. He created an accelerator where he invested equity into musician's companies that were run as start-ups and used the music and music videos as collateral to reduce the financial risk. It's an innovative model which could yield exciting results.

Professional track

This is a challenging issue to resolve*.* Maybe change this to at present, there are no recognised pre-requisites or qualifications needed in order for a person to present themselves as an artist Manager in the music industry, literally, anyone can become a music manager regardless of experience. This can often lead to a lack of understanding of how the industry functions as a business, what the legalities of music contracts mean and the practical implications of deals on an artist in terms of revenue. We need to see the implementation of a certification of competence before being allowed to be a manager, as you have in most other business functions worldwide.

Un-recoupled loans

As tempting as it may be when presented to them by a label or artist service, artists need to refrain from entering into agreements with the largest advance possible. Advance taken should be in line with conservative estimates of the music performance created during the agreement's tenure. From a regulatory standpoint, it might be worth aligning advance arrangements with the National Credit Act terms relating to how advances are provided to musicians.

Music is currently not an asset class

The industry needs to unite to educate financial institutions on how music is an investment class and that we should be providing credit and investment. Hipgnosis, a UK-listed entity that buys catalogues, recently purchased the rights to Justin Bieber's publishing rights for $200m. This and several other private equity firm transactions to acquire catalogues show that music assets can return healthy double-digit annual returns.

‘Dancing in the Rain’ by Blu and Exile, with its raw portrayal of the struggles many artists face, highlights the challenges and hardships we need to address in order to support our artists of the future and ensure a thriving environment for creatives. The song serves as a powerful metaphor for the difficulties in financing and supporting creative careers, reflecting the failure of our society to adequately address these issues. By embracing these solutions, we can bridge the gap between artists and the financial world, providing the support and resources they need to excel in their creative endeavours. By acknowledging and addressing the challenges artists face, we can work towards creating a more equitable and flourishing environment for musicians and creatives worldwide. Just as ‘Dancing in the Rain’ concludes on a hopeful note, with the artist finding inspiration and creative fulfilment, our society can also endeavour to uplift and empower its artists to reach their full potential.