Where in the world is Fred Davis?

That’s a reasonable question considering the frequent-flier miles Davis racks up as a partner in merchant bank the Raine Group, which has nine offices around the world. He splits his time between the New York and London locations when he isn’t circling the globe advising and investing in such music-business entities as SoundCloud, Quality Control, Downtown and Firebird.

His present job, which began in 2014, represents Davis’ third successful career change. After receiving his B.A. from Tufts University in 1981 and his J.D. from Fordham Law in 1985, he entered the music business, rising to EVP of EMI Records before switching to the legal profession and eventually founding the entertainment/new-media law firm Davis Shapiro & Lewit. In 2010, he made another transition, leaving his firm to become one of the three founding partners of CODE Advisors, where he worked with Spotify and Shazam, among others.

The eldest son of Clive Davis, Fred grew up watching the music industry evolve from up close. In the following conversation, he explains some of the nuances of his current role and how he became the major player in this highly specific area of expertise.

I should preface this by saying I’m a music journalist, not a business journalist.

This world of advising and investing—I know we’re breaking new ground in the music industry, and it’s a complicated story to explain to people who don’t have a background in finance. My major agenda is for the legal community, which is so important in the music business, to look at us as a partner. We’re not competing.

Three years ago you said, “The music lawyers are more in touch with the supply [of potential investments], and I’m trying to figure out how to get them to call me.” Has that situation improved?

It has, but we have a long way to go.

How have you addressed it?

A lot of lunches and dinners. By closing the deals we’ve closed and people understanding our role in those deals.

Looking at your career shifts, what have been the “eureka” moments? I imagine meeting Daniel Ek in 2006 and seeing Spotify for the first time was a biggie.

It was, but the bigger moment was meeting Shawn Fanning when he was in the middle of Napster [the peer-to-peer file-sharing site that grew to prominence based on the unlicensed dissemination of music]. Milt Olin was a consultant of his, and I’d worked for Milt when I was a lawyer at Mitchell Silberberg. I asked him if I could meet Shawn, who was in the midst of the morass he’d created. And Milt set up a lunch, and I had an idea for what I thought Shawn should be doing. It was a nice, polite lunch.

About a year later, he reached out to me on AOL Instant Messenger. We got together, and he said, “I liked your idea, but I couldn’t do it at the time. I have a new idea. Can you help me get licenses from the record companies?” It was a company called SNOCAP [which aspired to be a legitimate marketplace for digital media]. And that started me on a journey. We got the licenses, and I thought, “If I can get licenses from the record companies for Shawn Fanning, something really interesting is going on here”—because at the time, Sean was the antichrist to the industry because he’d destroyed it. [Per a 2019 article in The Guardian subtitled “Twenty years ago, the idea of free music was so compelling that up to 80m users downloaded Napster and broke the law …,” “It took until 2015 for the record industry to finally move into recovery—watching aghast as its value dropped every year from 2000 to a low of $15b in 2014.”]

There was tons of money pouring in from the venture-capital community for new ideas, and I met [YouTube co-founder] Chad Hurley and started working with YouTube before Google bought it and with MySpace at its height. Four or five years passed before I met Daniel Ek, but when I did, I thought, “This guy’s got it. He figured it all out.” And that was the second eureka moment—first Shawn, then Daniel.

It was pretty ballsy for a music lawyer to initiate a conversation with the antichrist. What inspired you to do that?

I felt the future of the music business was in the digital world, and I dedicated my entire practice to helping build it out. I felt I could play an instrumental role. I was calling him to play offense. I’ve never played defense; it’s always offense.

That impulse seems to have asserted itself throughout the last two decades, first by your leaving the legal profession for CODE and then by joining the Raine Group. What can you tell me about the differences between CODE and the Raine Group’s business models and why you decided to make that transition?

Raine actually acquired CODE a few months ago. On one level, they’re very similar, working with great entrepreneurs to help them realize their visions. What’s different is that Raine has close to $3.8 billion of assets, and we invest our capital to realize those entrepreneurial visions. We have a new, $763m fund we’re investing or capitalizing. We also have a venture fund. CODE was just advisory; Raine is advisory and investing.

The other element that distinguishes Raine from CODE is that Raine is very global; we have nine offices around the world, four in Asia, two in Europe and three in America. That’s relevant, for example, to when we sold Quality Control to HYBE because we had relationships in Korea.

What do you look for in a prospective advisory or investment relationship? Is the criteria the same?

Our scope of investing is much narrower than our scope of advising. So, for example, with investing, we generally don’t take control of companies, just minority stakes. With advisory mandates, most of the time it’s asking to sell a company, so investing in that case wouldn’t be a possibility. Sometimes we have to debate whether we’re better off raising capital or investing. And we have to do our own business selection; we can only take on a finite number of mandates. As opposed to being a lawyer, we’re only paid if we’re successful.

Then there’s the example of Larry Jackson’s approaching us with his vision for gamma. The amount of capital he wanted to raise exceeded the maximums of our fund. So as much as we love Larry, it just wasn’t possible.

In terms of what you have invested in, you described SoundCloud as a high-risk investment in 2017. How has that played out?

SoundCloud in 2017 was days away from declaring bankruptcy, but we felt compelled to invest because we saw the unique role it plays in the music community. People use SoundCloud differently than they use, say, Spotify or TikTok.

Spotify is a platform where you go to consume. With TikTok, you’re being exposed to new music, but it’s a 15-second clip and its audio and video. SoundCloud is full audio tracks, and it’s mostly used for discovery. It’s 16 years into its life, and it’s doing extremely well. So I’m very proud of that investment.

How did you become involved?

We invested in the new management; Kerry Trainor and Mike Weissman [formerly CEO and COO of Vimeo] were taking over SoundCloud, and they came to us with the idea of our investing in it. It was a very logical transition.

What can you tell me about Firebird?

Today we have three major labels, but when I was growing up in the music business there were six, and there are a number of players out there building new modern major music companies. They may not look exactly like Universal or Sony, but they’re major players and they’re creating major music companies like HYBE, gamma. and Firebird. And there are others coming up that are well capitalized and have a new vision of what a multibillion-dollar-valued company looks like.

Firebird is building a modern major music company through acquisitions. They’re doing it by combining managers and labels and building a strong central infrastructure.

Are these companies threatening the Big Three?

The major labels are entrenched in what they do. They will not go away. They will only thrive. But even if there were still six majors, it wouldn’t mean any of them were necessarily threatened; it would simply mean there might be more competition. Just because there’s new capital out there doesn’t mean the majors are going to go away. I think competition is good for the music ecosystem. We have a very healthy music economy. All boats can rise.

It seems the pattern since Napster has been that a disruptor appears that foments change, and the music industry initially resists that change but eventually embraces it.

There are seven or eight music companies valued at over a billion dollars. And again, that’s not at the expense of the majors. These companies are building a much larger, greater ecosystem. Think of Believe Digital out of Paris, DistroKid out of San Francisco, Downtown out of New York, just to cite three. Those companies may even be valued at $2 billion, and they are growing the whole pie of the music industry.

Downtown began as a music publisher. How did you get involved with it?

We represented a company called CD Baby. We sold CD Baby to Downtown. We sold FUGA to Downtown. Then Downtown asked us to sell the publishing company, which we did, to Concord.

Let’s talk about HYBE’s acquisition of Quality Control. It seems strange from the outside that a company based in Seoul could help a company based in Atlanta take over that city’s music business, but that was the thinking, right?

Absolutely. People mostly know Quality Control in terms of the recorded-music business; they don’t know that it has an artist-management business, a sports-management business… It’s more well-rounded than just recorded music, which is very similar to Scooter [Braun]’s company. And if you’re running a company out of Korea, you want the best and the brightest in the U.S. in all genres of music. So HYBE has a big appetite and a big vision, and Quality Control was absolutely the best company for them. To break into urban music that way made a lot of sense.

You advised Todd Moscowitz on the Alamo deal with Sony.

I’m very proud of the work we did with Todd. It’s not often that you get to work with a label as hot as Alamo. And we were able to move it from Universal to Sony—when does that happen? It was a very delicate, strategic, complicated deal.

Operating from an investment-banking platform, we have an advantage in that we’re aware of and have access to many sources of capital that want to get into the music business. Sometimes these outside capital sources are successful getting in, and sometimes they help leverage a move like Todd’s from Universal to Sony. This creates a competitive dynamic. It creates optionality in ways that didn’t exist 10, 15 years ago. In that sense we’re in the middle of a transformative era. It’s very exciting.

How was it that you came to be a major player in this field?

My work with digital-media companies like Spotify and YouTube and MySpace taught me about the power of capital. When you’re a lawyer, you learn mostly about the power of rights, copyrights. When my world expanded to the world of venture capital, I could see how it’s the engine that fuels great ideas. I was very lucky to be exposed to it.

Venture capital is fairly new to the music business.

But when a label signs an artist, it’s risk capital—they’re venture capitalists. When we invest in SoundCloud or Firebird, it’s risk capital but with a guarantee that you’re going to get your return. When private equity comes in and buys catalogs for companies, it’s still risk capital, but the music business overall is offering unprecedented opportunities for investment because it’s growing on so many levels, simultaneously and globally.

Which region do you expect the next burst of energy to come from?

One of the transformative benefits of the DSP era is that countries have more local music on the charts than they used to because the distribution barriers have broken down, so it’s much easier for French music to get played and distributed in France and German music in Germany. Around the world, local music is exploding, and we’re going to have hits coming out of France and Germany—and Mexico and Singapore and everywhere in unprecedented numbers. Given that, I’m disinclined to predict any one region’s overwhelming the others.

It seems like K-pop kicked open the door and then the whole world burst through it.

The level of artist development, in terms of both the creative and financial commitment, that goes into K-pop artists I don’t see anywhere else in the world—millions of dollars, years of training and good old-fashioned artist development. If you compare that to the proverbial TikTok hit, there’s a lesson we can all learn; taking two or three steps back to do “proper” artist development is a lesson we can and should learn from the Koreans.

Let’s go further into your background. Growing up in the music business, seeing the industry change through your father’s involvement, what did you glean that would serve you later?

My father always taught me that there’s no substitute for hard work. But I also saw how quickly things can change. Those who know my father’s story know he had a couple of high-profile career pivots, so you learn to take nothing for granted and to appreciate everything you have and work very hard.

Another thing I’ve come to appreciate is my true love for the music business. When Shawn Fanning and Napster nearly destroyed it, I felt that in my gut; it wasn’t like I was just reading a PowerPoint or looking at numbers and trends—I felt it.

What grounding did you gain from your experience in the label world, at EMI?

I learned that I’m actually much better operating outside the label world than inside.

What about your experience running a law firm—did you find that rewarding?

One thing that was rewarding was working with artists and seeing them go from tiny, smelly, smoky clubs to superstardom. It was wonderful to be part of, an incredible journey that I miss. Also, building the law firm was very fulfilling. I was very proud of Davis Shapiro; building an institution that is now almost 30 years old is something I take great pride in, watching it grow and thrive even after my leadership ended.

What motivated you to take that leap?

I actually left the legal practice twice, once to go to EMI, once to form CODE. I’m excited by change. Both times it just felt like a natural progression.

How do you see the music business, say, five years from now? All this new energy and the new modern major music companies you mention will presumably be an integral part of it.

The biggest change has already happened. The music business five, 10 years ago consisted of artists who signed to either a major label or an independent label. Now, with the advent of streaming, you have this new sector of artists doing it on their own, without any label. That’s now a multibillion-dollar industry, the fastest-growing segment of the music industry that’s maturing. And to reiterate, not at the expense of the major labels but in addition to them so that the entire industry is growing larger.

I think AI will create change on the fringes of the industry—for the better. But it’s not going to dramatically change the music business. I think in five years, the business will be essentially what you see today. Obviously, there will be some changes but nothing nearly as dramatic as what you saw from CDs to downloads to streaming.

In 2019 you said, “We have 10 to 15 years of streaming growth in front of us. It won’t start to plateau until around 2030.” Do you still see it that way?

Yes.

And what about when it does start to plateau? I guess history tells us that some new innovation will appear, and we’ll experience another transformation.

If I were that good, if I knew what that was, I’m not sure I would share it with you! But I don’t see it yet. You could see streaming coming 10 years before Spotify, maybe more, and then it took 10 years for Spotify to make a difference. You don’t see anything like that right now.

Because the industry is firing on all cylinders.

Yeah. It works right now. If it ain’t broke, don’t fix it.

Is there anything you’d like to convey that we haven’t touched on?

Just my desire to work closely with the music legal community, to collaborate with them and for them to collaborate with us. That’s always my message.

I do have one last question: Have you been to all nine of Raine’s offices?

Hell, yeah! Wait… No, I haven’t been to our Mumbai office. I’ve never been to India. Full disclosure: I’ve only been to eight of the Raine Group’s nine offices.

Noted. And thank you.