Institutional investors are increasingly using a new playbook when it comes to sinking money into the music industry. Instead of buying individual artist and songwriter rights, some firms have shifted to acquiring stakes in or outright ownership of operational music companies.
One of the newest players approaching the market in this way is Firebird Music Holdings, a 17-month-old enterprise backed by institutional money that is building out a multi-sector music company that includes labels and publishing with an emphasis on management and label services.
Michigan Retirement Systems first invested in Concord back in 2010, and more recently, Brookfield Asset Management and Oaktree Capital Management have placed bets on Primary Wave, to name just two, but Firebird co-founder and executive chairman Nat Zilkha is taking a different approach to the companies it’s rolling up.
“We are maintaining separate brands of the companies that we invest in,” Zilkha says. “We allow their creative process to remain very independent from us; but we’re giving those companies an ecosystem that helps them create opportunities for themselves and the artists that they work with. They can now access really sophisticated resources, both in terms of capital and expertise.”
Zilkha, a former partner at KKR and the chairman of Gibson Brands (after leading the guitar manufacturer out of bankruptcy) formed Firebird with Nathan Hubbard, the former CEO of Ticketmaster and e-commerce company MusicToday.
So far Firebird has acquired stakes in Coran Capshaw’s Red Light Management, which represents approximately 400 artists, including Dave Matthews Band, Phish, Brandi Carlile, Chris Stapleton, and, according to sources, recently signed Mumford & Sons in a co-management deal with Split Second Management; Mick Management, which specializes in independent singer-songwriters such as Maggie Rogers and Hamilton Leithauser; Transgressive Records, the home of Arlo Parks and Alvvays; Defected Records, a U.K.-based electronic music label; Ashley Gorely’s Tape Room and U.K.-based One Two Many Music publishing outfits and the Latin entertainment company Ntertain, which was co-founded by former Sony Music Entertainment chairman/CEO Tommy Mottola. Firebird has also backed two start-ups, dance label EasierSaid, and country label Leo33, the latter of which is in partnership with Capshaw’s Red Light Ventures.
Zilkha says that Firebird tends to acquire a majority stake in the companies it brings under its umbrella, using a combination of cash and Firebird stock, thus requiring its new partners to have a stake in Firebird’s overall business approach. Industry sources say that Firebird has a minority stake in Red Light.
While Zilkha has a lot to say about Firebird’s operating strategy, he is tightlipped when asked about the financial underpinnings of the company. He will say only that Firebird has so far invested “several hundred million dollars acquiring stakes in companies; and that the company has access to over $1 billion in equity. Sources tell Billboard that the Raine Group is lead investor in Firebird, which is also backed by KKR Partners, Goldman Sachs Asset Management, and other institutional investors and high net-worth individuals.
Zilkha says he and his partners are building Firebird to respond to a changing industry in which artists are moving away from label structures to partner with companies that can provide label services and artist development, as well as help them tap into additional income streams, such as publishing, merchandising, branding, and live events.
He uses the word “holistic” to describe the company’s approach and says its first investment was Capshaw’s Red Light because that company was already pursuing a strategy that aligned with Firebird’s strategy. Capshaw founded the direct-to-consumer e-commerce company MusicToday, which sells vinyl, CDs and merch direct-to-consumer, sold it to Live Nation in 2006, then reacquired it in 2017. Hubbard was CEO of the company from 2002 and moved to Live Nation and then Ticketmaster with the sale.
“Firebird has built an artist friendly platform,” Capshaw says of his decision to throw in with the company. “We’re like-minded in focusing on the success of artists over the long run of their careers, including enhancing the value of their IP from music to licensing, and providing additional resources like audience insights, community building and marketing. There was a need for more artist-friendly options out there, and our partnership with Firebird is helping to fill that need. I’m impressed by the team that they’re building.”
Zilkha spoke with Billboard about Firebird’s launch and where it’s headed.
How did you and your partners come together to form Firebird, and what is your investment approach?
It started in the fall of 1994 when I was in college and heard guitar coming from a dorm room. I poked my head and there’s Nathan Hubbard playing guitar. We bonded over a shared passion for music. Both of us initially tried to start our careers by pursuing music from a creative perspective. Ultimately, we came back together 25 or so years later, initially around Gibson. And that’s really how we began looking at the music industry which we believe is in transition. It led us to believe there was a real opportunity to build a better kind of partner for music artists.
Considering your background, I would refer to you as an institutional investor, even if Firebird is not using the traditional institutional investor approach of buying stakes in songs. You are acquiring stakes in companies.
There are a few things that differentiate what we’re doing versus what most institutional capital flooding into music is doing. First, we’re not a fund. We’re building an operating company that acts in a holistic, integrated, coordinated way; and where the individual components mean more together than they would apart. We are trying to build a company that solves specific problems in the marketplace.
What problems are you trying to solve and how else are you different from other institutional money?
The world of music, technology and direct to consumer commerce have evolved very substantially over the last five to 10 years; and the rate of change continues to accelerate. But many of the incumbent partners for artists have not caught up. We think there’s an opportunity to create a new kind of partner for artists, one that is fully aligned across everything they do. One that has sophisticated capabilities to create content and provide access to capital. What we are doing is long-term and isn’t oriented toward worrying about a near term return on investment. The question we are answering for the entrepreneurs is: How do you build value for your artists and ultimately for the company?
But you seem to have started in an institutional investment kind of way. There’s a form D filed with the SEC in November 2021 that says Firebird raised $120 million to make an acquisition by selling equity.
Those numbers in the filing are probably stale. We’ve got access to over $1 billion of capital right now. We are not raising capital for funding. We’re raising capital for an operating vehicle. Some of that capital is being used to invest in companies, but some of that capital is being used to build out organic capabilities like our own distribution structure, where we’ve got over 30 people at Firebird. They’re not investment people; they are digital marketing, data analytics, and brand partnerships. We also helped start two other businesses from scratch. There’s nothing about it that’s like a fund.
There are other efforts in the marketplace that have built out label services and distribution companies, like The Orchard, BMG, Believe and DistroKid. How are you going to differentiate yourself from them?
A lot of the distribution businesses that exist currently are focused on the long tail to make distribution accessible to every artist irrespective of their scale. We’re really focused on premium artists. That’s one area of differentiation. The second is we view label services not as a stand-alone but as something you use in conjunction with how you activate artist across all different forms of media.
What do you mean by that?
With our label partners and their artists, we want to participate across a much broader range of all the activities artists participate in by having a horizontal relationship with them so that we can be more forward leaning in terms of how we invest in artists’ careers. Most of the music industry is stuck in silos where you’re an artist’s label, or you’re their manager, or you’re their publisher, or you’re their agent or you’re their merch partner. That under optimizes the investment behind an artist’s career. There isn’t a single best-in-class consumer brand that operates with separate economic sleeves in the way it interacts with its fans and customers.
Instead of silos we are looking at how intentional, coordinated, thoughtful marketing and brand building behind an artist can be optimized, which allows us to invest heavily in any one area that might benefit the whole ecosystem. So, you may invest in recording music to help activate the tour activity, which helps to sell the merch; and getting the right kind of synch can activate your streaming and make publishing much more valuable. So it might be that we lose money on the distribution or recorded music, but that’s okay, because we’re partnering with the artist in a lot of other places where she or he may be reaching their fans.
What kind of deals are you doing with companies?
It depends on the company and the situation. There are examples where we’ve done minority deals, but most of what we’ve done is buy majority stakes. That comes back to this objective to not have standalone, separate investments, but to have an ecosystem where people are benefiting from other companies that are part of a Firebird family. We very passionately believe that in periods of significant change, like you’re seeing in the music industry today, you want to harness entrepreneurship. You don’t want to be a big, slow, bureaucratic corporate entity. We’re trying to bring the best of what a big company can offer, which is expertise, resources, and capital, but marry that with the best of what entrepreneurs can do—make quick decisions, with lot of creativity and have different approaches for different genres, different regions, and different types of companies—to get the best of both worlds.
What was the rationale for your investment in Transgressive Records.
The hallmark of Transgressive is music that moves culture. Arlo Parks is a great example of that, and so is Mykki Blanco. What we love about Transgressive is they have exceptional A&R and artist development people. They have signed artists who they have nurtured over multi-year periods, with very fair and transparent deals. They are true advocates for their artists.
What does Firebird bring to the table for Transgressive?
We can help them supercharge what they’re doing by bringing all the resources that exist at an internationally focused company as opposed to the resources they have in the United Kingdom. It means having access to more capital to help grow the interests of their artist, and to invest in advances to sign bigger artists who appreciate the aesthetic and the integrity of Transgressive. That’s a perfect example of where one plus one equals three.
Where do the acquisitions of publishing companies Tape Room and One Two Many fit into the equation?
Tape Room is an example of where we will buy catalog. We purchased some of their existing catalogs; and then we created a go-forward joint venture with Ashley Gorley. Coran is also involved in that deal so it’s a three-way partnership to create songs and sign writers. What you won’t see is for us to go and compete with KKR or Primary Wave or anybody else and buy straight catalog without a frontline component, which means that we don’t have something we can build on.
Can you give me an example of the entrepreneurial cross-pollination you’re talking about?
Transgressive, Defected, and One Two Many each do different things and have different genre focuses, but their teams are talking to each other all the time. One Two Many is extremely good at synch, so they’ve been working with Transgressive and Defected on synch strategies. These are separate entities within Firebird that maintain their separate brands, but they’re finding ways to work together where one company’s areas of expertise can be helpful laterally.
With Ntertain, you have a Latin component.
Ntertain is [Neon16 label co-founder] Lex Borrero. When we think about what Firebird is trying to accomplish in how you tell stories around talent, move culture, and create brands around artists, Ntertain is already doing a great job of that within the Latin space. They’re doing it for music, film, and television. They just wrapped up a [Latin music competition] show La Firma, which was very successful on Netflx. They’ve got a management company; they’ve got recorded music; they have publishing, and they’re doing really interesting things around film and TV. In many ways, it’s already the Firebird model focused on Latin music and Latin culture. We think Lex is a superstar and that’s a partnership that we’re really excited about.
What do you mean by moving culture?
We’re focused on any genre where people identify with it beyond just a single song or a single artist. One of the things we love about Red Light is its strength within country music. As you’re seeing from things like Yellowstone, it’s not just a genre, it’s a lifestyle. There’s a lot we can do around that partnership with Red Light and you’re already seeing us start to do that with Leo 33, with Tape Room. And there’s more to come on that front. The same thing is true with Latin culture and Ntertain, which is moving music, film, entertainment. The same is true with dance music. There’s a word we use: tribes. Tribes identify strongly with these genres. In dance music you have a fan base that identifies with Defected, you will see that it’s not only a label, but we have live events in Ibiza, and in Croatia. We’re going to be doing more in New York, Chicago and Vegas — bringing fans together, giving them something special and giving the Defected artists an opportunity to access those fans.
You looked at some specific deals that didn’t happen, such as Glassnote and Mom + Pop. What happened there?
We’ve looked at literally hundreds of transactions. There are lots of reasons deals don’t happen — you just can’t come to an agreement on price; or an agreement structure. Does the team involved in a potential deal really buy into our strategy? Every deal we’ve made, the company we have invested in has taken Firebird stock as part of the deal. We want people who believe in what we’re doing; to be a part of a family; to be a part of this broader strategy. If you want all that, than let’s talk. But if it’s just about dollars, then that’s the wrong partner. If you just want capital, that’s fine but go talk to a private equity firm. Glassnote and Mom + Pop are companies we have enormous respect for; they are leaders in the industry. I’ve nothing but great things to say about those organizations.
Is there any way that you can achieve economies of scale without interrupting the formulas each individual brand has?
That’s where Nathan and I spend a lot of our time strategically: how to balance all the resources to make them successful at whatever scale they can reach without interrupting the very thing that makes them special.
For any of these individual companies to spend the kind of money that we’re spending on our data analytics team would be cost prohibitive. But we can spread that cost across all of the different companies. That’s really where we’re trying to help.
What we do say is, what resources do you need to do five shows instead of one show? Or what would your label do if you had access to $25 million more in capital next year to grow your business? How do we take some of what we’ve learned with Red Light, which is the largest and most successful management company in the world, to help you scale your management business at Ntertain? We’re not going to tell Lex who we think the next great Latin artist is going to be. We’re going to let the creatives we’ve invested in be creative and entrepreneurial. We’ll provide the infrastructure to turn all of that into a world class business.
