By Bertrand Beauté

Rumour has it that in 2017, Sony put €400 Million on the table to take over the startup Believe. But the deal didn’t go through. At the time, turning down the offer might have come across as a bold choice. Now, four years down the road, no one doubts that it was in fact a wise one. In June 2021, Believe raised €300 Million at its IPO in Paris, valuing the company at nearly €2 billion. In those four years, the French unicorn grew exponentially, driven by the tremendous growth of streaming. Its revenue nearly doubled in two years, from €238 Million in 2018 to €441.4 Million in 2020. Growth like that is enough to bring down the majors.

Founded in 2005, Believe started out distributing digital music, at a time when industry giants – the likes of Universal, Sony and Warner – were still trying to save the CD. By harnessing algorithms used on streaming platforms such as Spotify, Apple Music and Tencent Music, the company has attracted more than 850,000 artists, including stars such as the Icelandic musician Björk and the German group Milky Chance. Denis Ladegaillerie, Believe’s CEO and co-founder, explains more.

Global music revenues almost reached record levels in 2020. Can they grow any further, to the point of exceeding the peak of the early 2000s, before the music industry crisis?

In 10 years, the peak of the 2000s will be perceived like a distant hill, because music industry revenue will continue to grow. Even by 2030, we won’t have hit our peak. In fact, digital technology is increasing the number of people who pay to listen to music. In the early 2000s, sales of CDs, vinyl and cassettes were concentrated in three markets: the US, Europe and Japan. Monetisation was non-existent in the rest of the world, because physical media was copied illegally. Now with streaming, Asia, South America and Africa can be monetised. And that will boost the music industry’s revenues.

In Scandinavia, 45% of people currently have a paid subscription to a streaming service. That figure is 30% in the United States, United Kingdom and Australia, 15% in the rest of the EU, but only 2% to 5% in Asia, and less than 1% in Africa and the Middle East. Therefore, in both developed and developing countries, revenue from streaming services has room for substantial growth.

This growth potential explains why several labels (Warner, Universal and Believe) have decided to go public in the past two years...

I can’t speak for the others, but for Believe it was definitely the right time, due to the industry’s outlook. When sales were at their highest in the 2000s, the average music consumer basket was about two CDs a year. These days, with digital technology, we’re moving towards an average subscription basket of $65 per year, equivalent to about five CDs. The average spend is climbing, and on top of that, the number of music streaming subscribers will continue to rise. Music for commercial use is also booming. In the past, film and television were key vectors for promoting a piece of music. Today, platforms such as TikTok, Instagram and YouTube provide new ways of doing that.

The music market is therefore showing very strong structural growth, which is attractive to investors.

Figures from the International Federation of the Phonographic Industry (IFPI) show that streaming accounted for 62% of the music industry’s revenues in 2020, compared to less than 1% 10 years ago. What are the consequences of this shift to digital formats?

The main advantage of digital is that it diversifies the musical landscape. The music market was very linear in the 2000s. For an artist to make it in the industry, labels had to produce a CD and then promote it on TV and radio. Only one band out of 10 would usually break through. To offset the cost of those failed attempts, as well as the cost of manufacturing and distributing records, the majors had to sell high volumes. That’s why they only focused on their top artists. In each country, about 200 artists accounted for 70% to 80% of record companies’ revenue.

However, in the digital world, distribution costs are considerably reduced, which lowers the barriers to entry and gives rise to significantly more diversity. All musicians can have access to the market, because all they have to do is post a song on a platform to reach an audience. Artists are no longer at the mercy of labels and artistic directors, who would apply subjective criteria in deciding who was allowed to make music. The industry is much healthier than it used to be, and value is distributed more evenly. I think the top 200 artists will eventually only account for 20% or 30% of revenue in the music industry. The middle of the ranking, i.e. from the 200th to the 10,000th artist per country, will account for 50% of the value, and amateur artists (below the 10,000th spot) will divvy up the remaining 20% to 30%.

If anyone can put their music online on their own, won’t music labels disappear?

No, we shouldn’t underestimate the importance of labels in supporting musicians. But the business is changing. It’s no longer about partnerships with TV and radio stations, but about how a label uses the algorithms applied by Spotify, TikTok and other platforms. For example, if you post a song on YouTube, it will get lost amid the countless other videos. Practically no one will see it. That’s where we come in. Our know-how in data analysis and digital marketing gives us the capacity to improve the visibility of our artists. On YouTube, our solutions can increase monetisation of a song by up to 150% over three months.

On a platform like Spotify, the algorithm that makes personalised recommendations to subscribers is what contributes to the success of a song. Three-quarters of listens are generated by recommendations. What’s key for labels to understand is how the algorithm works, so that their artists’ tracks are included in recommendations to listeners. Technology has become an essential aspect of managing artists.

"In the first six months of 2021, our revenue grew twice as fast as that of Universal"

Is that Believe’s advantage over giants like Universal, Warner and Sony?

Historically, traditional record companies have supported a very small number of artists in great depth – the said top 200 per country. But this type of service is very expensive and is not adapted to that middle segment of artists. Our advantage is that we’ve developed technological solutions to support not just a few dozen artists, but hundreds of thousands of them, along with services adapted to their monetisation levels. As an example, lesser-known musicians can benefit from our fully automated service called TuneCore. For €10 per year and per track, they can be included on more than 150 streaming services worldwide, while retaining 100% of their royalties. Then we have more personalised services for better known artists. Believe is unique in that its range of solutions has always been structured by segment.

Since acquiring the US company Ingrooves in 2019, Universal now offers services similar to yours. Just like Warner and Sony, for that matter...

Yes, there’s competition and that’s a good thing. In the 2000s, the music industry was an oligopoly made up of six major record labels: Universal, Virgin, Emi, Warner, Sony and Polydor. Then the record industry crisis led to concentration in the market, and 70% of today’s global market is dominated by three players (Universal, Sony and Warner). With the market growth, I think that within the next few years we’ll again be seeing six to eight major actors. Our goal is to be one of them.

What are your advantages over the competition?

We are the most advanced in digital technology, and our competitors are forced to keep pace with us. In the first six months of 2021, our revenue grew twice as fast as that of Universal, in terms of recorded music. In July 2020, we signed a new type of partnership with TikTok, nine months before the major labels. On YouTube, our tools allow artists to monetise their content two to three times more than the incumbents, especially because we’re the only company to partner with YouTube to conduct econometric research. Finally, in July 2021, we also signed an agreement with Spotify to experiment with its new Discovery Mode feature that enhances artists’ visibility on the platform. By working in such close collaboration with different platforms, we can better understand their algorithms and know when and how to release a track to find its audience.

"The new generation can make a lot of money from streaming, but it’s true that this is often not the case for artists who’ve been around longer "

The streaming platforms themselves understand the algorithms best. Aren’t you concerned that they will expand into digital distribution, like Spotify, which has bought a stake in the US digital music distributor DistroKid?

Spotify took a few steps forward in distribution, and then a few steps back. But I don’t think you can be a streaming platform and a distributor at the same time. That would create a conflict of interest. As a distributor, our mission is to serve artists by maximising their audience and their revenue. The aim of platforms, however, is to provide the best experience for their customers. But serving consumers and serving artists are, by definition, conflicting roles. For example, Believe negotiates with Spotify every two years. As a distributor working on behalf of artists, our goal is for Spotify to pay as much as possible, while they of course want to pay as little as possible.

That’s the problem, distribution of income. Many artists complain that they don’t make enough from streaming. Do you think that’s justified?

Older artists complain and that’s natural. For example, from 2010 to 2020, the two artists who sold the most records in France were the rocker Johnny Hallyday and the rapper Jul; each sold about 5 Million albums. For Johnny Hallyday, 98% of revenue was from CDs sold in supermarkets, but 80% of Jul’s earnings come from digital. When Johnny (ed. note: he died in 2017) looked at his income from streaming, he obviously probably felt he didn’t make anything from it compared to CDs. On the other hand, the revenue Jul generates via streaming is extremely significant and equivalent to what a top artist would receive in the physical world. The new generation can make a lot of money from streaming, but it’s true that this is often not the case for artists who’ve been around longer. If we look at the figures, from a CD sold for €10, the record company gets about €6, of which 25%, or €1.5, goes to the artists. Out of a digital subscription of €10, €6 to €7 goes to the labels, and 40% to 60% of that goes to the artists. So the breakdown between industry players remains more or less the same.

What type of artists does Believe focus on?

We’re not looking for the next Ed Sheeran. We focus on local artists from all over the world. In the United States, 97% of the music listened to is American, and in China 85% of the music listened to is Chinese. The figure stands at 80% in Russia and 70% in France. We were the first to enter fast-growing emerging markets such as India and Russia, where we are leaders. Our most streamed "top artists" of the moment include the group Scriptonite in Russia, the Swiss rapper Loredana in Germany, Jul in France and Ultimo in Italy.

The lawyer now calling the tune

Nothing could have predicted that Denis Ladegaillerie would make a name for himself in the world of music. Born in 1969 in Limoges, he is the son of an oil industry executive and a guidance counsellor. He studied law in Rouen and management in Paris. After that, he travelled to the other side of the Atlantic and graduated with a master’s degree in law from Duke University in 1997, before starting a career as a business lawyer in New York. But the end of the millennium was burgeoning with enthusiasm. Rather than sit quietly at his law firm, the young lawyer preferred to give in to the beckoning new economy.

In 2000, he joined the Californian company MP3.com, the forerunner of MySpace and SoundCloud, which had just been snatched up by the French company Vivendi. That’s where he learnt about the music industry and the incredible potential of the internet. But the bubble was deflating. It was time to wake up from his American dream and leave the beaches of California. Denis Ladegaillerie returned to France with the drive to start his own company. In 2005, he founded the online music distribution label Believe with Arnaud Chiaramonti, who formerly worked with Sony Music and understands the music production side, and Nicolas Laclias. It was a bold move. In 2005, digital accounted for less than 5% of the music industry’s revenues. But Denis Ladegaillerie pulled out all the stops. Now, 15 years since it was founded, Believe’s capitalisation is close to two billion.