The Continuing Money Troubles of SoundCloud

Posted on September 3, 2015 by adammarx13

Back in July, it was reported that German music streaming company SoundCloud was “running dangerously low on cash.” While this made barely a ripple in the mainstream news cycle, those in the tech and music industries were certainly paying attention, postulating how it was going to turn out. With ~$125M in cumulative funding, SoundCloud, which would be on its Series E for its next round, seriously can’t afford to be running low on cash; not now.

SoundCloud logo

While ~$125M in funding is nothing to scoff at, one needs to examine the dynamics of where that funding is arguably going given SoundCloud’s precarious position at the moment. In the best of situations, the funding would be going towards furthering Soundcloud’s standing amongst its competitors, which now include Apple Music and Tidal in addition to Rdio and Spotify. And yet, the money is more likely getting sucked up by legal fees as the service braces for a round of massive copyright infringement lawsuits from major labels Universal and Sony. Anyone who knows anything about litigation knows that these cases will most likely take years to resolve, all the while drawing larger attorneys’ fees (not to mention time and effort) from the music service.

What the major label industry really looks like; The Big Three

Warner is conspicuously absent from the intended lawsuits, no doubt because it’s the only one of the Big Three major labels to have struck a licensing deal with SoundCloud already (never mind the fact that Warner also owns 5% of SoundCloud..). While this may sound good for the streaming service on the front end, it actually complicates things even further, as it throws SoundCloud into the middle of two completely different paradigms with completely different dynamics. The reality of the situation is that SoundCloud has found itself alienating the very independent artists who were its biggest supporters since it signed the deal with Warner and began moving towards a more major label-style content service, akin to Spotify and Rdio. While this doesn’t mean that it’s dead in the water by any means, it does point to a larger issue which SoundCloud needs to figure out for itself moving forward.

All of this puts in perspective the fact that SoundCloud can’t afford to be “running low on cash” right now. Now that they’ve entered the major label universe, they need a ton of cash just to continue playing the game, as they need to pay for licensing from Warner (and the other labels eventually), pay out royalties, and keep innovating ahead of their competition. That, in conjunction with their impending legal problems, makes this arguably the worst time to be running low on capital (as if there’s ever a good time!). The lawsuits by Universal and Sony aren’t going to go away overnight, and all those legal hours add up; that’s money that could be spent obtaining licensing rights and paying royalties that is now essentially being sucked out of SoundCloud’s system just so it can survive.

I don’t know what SoundCloud’s next step is going to be, but it needs to figure out a way to take the cumulative ~$125M it has in the bank (or whatever’s left) and figure out its legal quagmire before it does anything else. Otherwise, the legalities are just going to suck the life out of it while its competitors move ahead. That may be easier said than done, though, as it needs deals with the very people suing it in order to survive and be competitive. Could anything be more ironic?

Spotify’s Sony Contract: What It Means for Everyone

Posted on May 28, 2015 by adammarx13

With the leak of Spotify’s contract with Sony last week, there’s a lot of attention on the streaming service right now. I’ll be taking a closer look at that contract over the next week, but for now I’ll focus on the fallout over the last week. In particular there seems to be a lot of renewed interest on the music space, more so than I’ve seen in a while. I think, though, that this has to do with a lot more than simply one contract between two companies; for the first time perhaps, the general public (including music producers, artists, and general music listeners) is aware of the kind of deals being struck behind the scenes.

Even as Spotify soars in newer valuations that have the company somewhere in the $8B range, yesterday’s leak shows that such a valuation may in fact be misleading—Spotify has to cough up around $43M just for licensing from Sony alone. How much do you think they need to cough up for the other two majors, Warner and Universal? Even if we snip off the extra $3-4M, and assume an upfront licensing fee of $40M from Sony—and then simply assume similar prices for Warner and Universal—then Spotify has already spent $120M of investor money. And that’s just for the privilege of having access to the major labels’ stable of artists.

Also, don’t forget that’s before royalties and any other metrics that Spotify has to hit. Therefore it’s more like $43M upfront for the privilege to pay more later on; it’s not a one-and-done purchase. And most unfortunate for Spotify, this latter number is also predicated on how an artist performs in popularity, something they have essentially no control over.

I’m not going to rewrite Micah Singleton‘s article, but I will draw on a number of points he highlighted and what they mean in reality. There are numerous points of importance, but these are the ones I think the general public really needs to be apprised of. Though the contract has since been removed, we got the basic gist:

Written by Sony—First let’s just take a moment to note that the contract was written by Sony. Of course this is their prerogative, but when considering the fact that Sony holds the rights to much of the content that Spotify wants to license, it clearly illustrates who is subject to whom. Frankly, since Sony holds the content rights, they (and the other major labels) essentially hold Spotify’s lifeblood in their hands—that’s not an opinion, it’s a fact. Realistically Spotify is not built around an independent and free model, so they need to play ball with Sony and the other labels, or they won’t play at all. Period.
Advances—Spotify paid Sony $42.5M just for the right to license the music. That’s an upfront fee just to get in the door. This means that anyone looking to compete head to head with Spotify or Rdio needs to magically have about $130M lying around or in funding before they even get their feet wet (projecting the combined upfront licensing fees of the Big Three major labels). One of the reasons that Spotify has to raise such massive funding rounds is because these advances are somewhat annual, and thus need to be renegotiated all the time. And as the major labels continue to get squeezed in their wallets, these numbers are only going to rise for services looking to use major label content.
Divided How and Among Whom?—As Singleton points out, Sony can essentially do whatever they want with that money; there’s no stipulation that it has to be divided in any particular way, or that any of it has to go to artists or songwriters. According to multiple sources, that money usually stays with the label and is generally not shared with artists. This particular point has raised such criticism that its prompted both a response from the EU, which is now looking into Spotify’s contracts, and virtually obliged Sony to come out with a public statement on the matter.
Most Favored Nation Clause—Essentially a clause that guarantees that Spotify’s balls remain in Sony’s vicegrip. The clause guarantees Sony the right to amend any portion of the contract if it perceives that any other label has a better deal than it does. This means that Sony is essentially never bound to Spotify in any way; it can decide—based on its own perception—that another label has a better deal (which it may or may not) and rework the entire deal for its own benefit. And Spotify has to swallow everything.
Where this really kills Spotify is when used in conjunction with the clause dictating payment based on market share. Thus, if another label has a better deal in that regard—perhaps double what Sony is getting monetarily—then Spotify has to cough up and pay Sony the difference.
Spotify’s 15%—Basically exactly what it sounds like. Spotify takes 15% of the revenues from third-party advertising right off the top. What they do with this money is unknown, though it’s quite plausible that they’re not redistributing it to the artists, and are probably giving third-party advertisers a raw-ish deal. Next time Spotify releases a statement saying that they don’t have the funds to pay the artists more money, let’s all remember this little financial tidbit.
Sony’s Ad Spots—This one’s pretty easy to understand: essentially Spotify is obligated to give Sony a certain amount of free ad space on its service. The ad space—which is clearly worth a fair amount of money—is given to Sony at a massive discount.But that’s not all; Sony retains the right to sell the credited ad space to whomever they want, whenever they want. Again, Spotify gets squeezed.
User Metrics—Spotify essentially has goals it needs to hit in terms of its user metrics (on both payment tiers), and if it misses those, it could be penalized. Conversely, if it exceeds expectations in either of the tier metrics, it recalculates that number so that Sony gets paid more. In English, what this means is that the better Spotify does, the more money Sony is entitled to, but doesn’t necessarily mean that it all works out for the streaming service. It’s important to remember that Sony isn’t in the business of making sure that it backs up Spotify. It—like the other major labels—is licensing its music to numerous services, so its only real loyalty is to its bottom line. How that affects Spotify is essentially irrelevant to the major label.
The Royalty Distribution (Forget About the Artists)—Without going too deeply into it (Singleton’s initial analysis and infographics are worth consulting), it basically boils down to this: the royalties per stream are so miniscule that you need to be getting millions of streams in order to make any real money (and by real, I mean anything more than $10.00). We all know that independent artists are never going to get to that level trying to compete on an unfair playing field, so let’s just put that point to bed right now. One thing that is worth noting now, though, is that not even every artist has a contract entitling them to royalties. So for all the bluster about royalty payments, many of the artists signed to major labels aren’t even entitled to fair cuts from the streaming.But even more so, the way in which streaming royalties are calculated is so incredibly convoluted you almost need a degree in economics just to understand it. That’s not how it should be. For independent artists—and even mainstream artists who simply want to understand the financial dynamics—this is yet another way of keeping them in the dark. No one in any other industry would accept some sort of voodoo economics principle when it came to calculating their earnings, so why should music artists—mainstream or independent—have to settle for that? That’s the point, they shouldn’t.

There are numerous other points worth discussing, but these are some of the major ones that discussions of the music industry revolve around. Though arguably a major embarrassment for Sony and Spotify, the leaking of the contract between the two really shines a bright light on what goes on behind the scenes. It clarifies that what happens behind the curtain affects every type of artist, and underscores why more transparency and reform is needed in the music industry. And it highlights something else: the music industry is not dead and foregone. We’re now right on the precipice of a whole new type of music industry that’s taking shape every day. Those who accept and embrace the new dynamics will be the ones who benefit most from them when they inevitably come.

Thanks to Shelley Marx for reading early drafts of this.

Tidal Is Losing More Lifeboats by the Day

Posted on May 26, 2015 by adammarx13

Yesterday, TechCrunch ran a piece from Kelli Richards postulating the viability of Tidal as a service, and its likely outcome in the streaming wars. The article was essentially an overview of what’s been going on with Tidal lately, with Richards doing a good job of zeroing in on a couple of things I’ve discussed and underscored in my own mind as the real deal-breakers.

Before getting into the two main things of her article, I think it’s important to note a very short—but important—sentence in Richards’ piece: “…the prospects of Tidal upending Spotify in the near future are slim…” This falls right in line with something that I wrote earlier concerning SoundCloud, namely that trying to out-Spotify Spotify is a losing battle and a very poor battle-plan. Going head-to-head with Spotify and playing their game their way (that is, general popular music streaming) is such a poor decision because it means you’re starting way behind the starting line. And in Tidal’s case, this goes double for any sort of exclusive content which might be your main attraction.

Now, Richards’ two main points, and my takeaway from each:

1. Premium/Exclusive Content—Firstly, I’ll be the one to say it: “exclusive content” as one’s main gameplay is a very tough sell. It’s a tough sell because it’s a drastically diminished niche of a larger market, which is basically popular music. That means you’re trying to play on two different levels with two completely different mindsets.

The “exclusive content” play is difficult because it requires your customer base to desire those exclusives almost as much as (or more than) the original content. This isn’t anywhere near the same thing as looking at an independent market, since those content producers are increasingly giving away their material for free (including “exclusives” like remixes, acoustic sets, etc.), and making money elsewhere. For a service like Tidal though, they need to first out-Spotify Spotify to gain the market share of the original popular music demographic, then they need to persuade those people to convert to “exclusive” consumers and pay a whole lot more for something they could just as easily get on YouTube if they wait a couple weeks or a month. This is one of the major flaws in Tidal’s plan in my eyes.

Also under the first point is a small comment included by Richards made by Tidal’s CEO Peter Tonstad, which basically asserts that the industry is moving away from the freemium model, and that “it’s going to be the content richness” which listeners begin to look and pay for. This is bold, but false.

First, the sorts of audiences which Tidal is looking to court—general consumers of popular music—are not about to leave the freemium paradigm anytime soon. Secondly—and funnily enough in my opinion—the rabid, content-rich focus which Tonstad identifies as Tidal’s silver bullet doesn’t really apply to popular consumer audiences on a general level anyway. Ask anyone listening to Spotify if they’d pay double (or anything) for higher quality which they can’t even discern anyway, and I’d be surprised if large numbers converted over. Ironically enough, the rabid thought process which Tonstad is alluding to is alive and well—in the independent music industry—where free plays a much bigger part than it clearly does with Tidal.

2. Celebrity Backers—This point made by Richards is a lot easy to wrap one’s head around; people simply don’t feel so bad when Jay-Z and Kanye West start lecturing about needing more money because, well, they’re rich. And not like “we perceive them as rich but they’re really not;” they actually are rich. Being lectured about money from people like that, then, is not only not welcomed, but it’s really irritating. There’s really no way you can look at that celebrity-backed list of Tidal promoters and take them seriously.

Even more so, though, it really alienates artists who are not rich—you know, like everyone else. For the singer-songwriter playing in dingy clubs, or the band on the road and sleeping in their van, Jay-Z might as well be speaking an alien language. Their thought process is almost indignant (and why shouldn’t it be?); they’re thinking “dude, you have all this money and influence, why the hell do you need any more?” And frankly, if I was still an artist, I’d be thinking the exact same thing. Celebrity-backed things like this are rarely ever a good idea, especially when it alienates others within the same industry.

Richards notes that Tidal has someone who Spotify doesn’t—Taylor Swift—but as I explained here months ago, here’s why Taylor Swift is on the same level as Jay-Z in terms of “not getting it.” She’s so engrossed in the major label paradigm and its trappings that she doesn’t see what life is like for normal artists anymore. And, just like Jay-Z, her disparaging remarks about artists “devaluing their music” strikes a sour and indignant chord in a lot of musicians who think she takes her good fortune for granted.

But if one needs any more convincing of why it’s going to be a very tough road ahead for Tidal, you can read about:

The storm isn’t about to end anytime soon, and it seems the lifeboats have left the ship.

SoundCloud’s Failed Highwire Balancing Act: The Sony-SoundCloud Breakup

Posted on May 23, 2015 by adammarx13

Trying (and Failing) to Balance Two Completely Different Paradigms

The Sony-SoundCloud Breakup

It’s been a tough week for Sony between its leaked contract with Spotify and criticism over its moves with SoundCloud. And yet, inasmuch as the former is embarrassing and will certainly come back to bite the two companies, the latter is arguably more problematic because it’s not simply between Sony and SoundCloud; it’s between Sony, SoundCloud and the independent artists and fans. That last little caveat is something that Sony can afford to ignore—but it’s going to become an increasingly difficult reality for SoundCloud.

SoundCloud, now a platform for major labels and advertisers

News broke over the last couple of weeks that Sony has started pulling their artists’ music from SoundCloud—regardless of what the artists want. To Sony, SoundCloud isn’t a viable option since it doesn’t presently have a strong monetization plan (as if services like Spotify and Rdio do), and until the label and streaming service can come to terms, it seems that any and all Sony-controlled material will be stripped from SoundCloud.

This has put SoundCloud in quite a precarious position. On the one hand, it doesn’t want to alienate its initial die-hard independent fanbase, but on the other it’s been actively seeking out a deal with Sony, as well as with the other two major labels, Warner and Universal (already having one in place with Warner). SoundCloud is trying to balance two completely different bases and paradigms that are moving in opposite directions: 1) the major label paradigm which is still predicated on an obsolete business model, and 2) the independent paradigm which is increasingly embracing “free” as a big part of the future.

What the major label industry really looks like; The Big Three

What I Said a Month Ago

On April 9th, SoundCloud signed a deal with Zefr—that same day, I wrote a post on why independents should very soon kiss SoundCloud goodbye; why the Zefr deal was essentially irrelevant for them. It seems I wasn’t the only one who’d identified SoundCloud’s prospective problems, as a day later on April 10th, PandoDaily writer David Holmes came to the same conclusion and published a piece with a similar premise. Holmes’ post validated many of my points, and cleverly brought up a few others, all to conclude, as I had, that the Zefr deal was a band-aid for a bullet wound. And now the bullet wounds are really beginning to gush blood.

This week, electronic artist Madeon released a heavily critical statement regarding he Sony-SoundCloud breakup, noting: “Thank you SoundCloud for being such a great discovery platform over the past five years. Well done Sony for holding your own artists hostage.”

Ouch. Snap. Burn.

Clearly Madeon (along with droves of other EDM artists who’ve gained significant followings on SoundCloud) isn’t pleased with Sony’s “money first” thought process and strategy. And while Sony has the legal right to pull music which it holds the rights to, in the grand scheme, it’s not exactly a play which will endear it either to the fans it seeks, or the artists it works with. Actually, it has the complete opposite effect.

Who’s the First Priority?

But what lies beneath the surface of this very public breakup is not simply an issue for Sony, but a major issue for SoundCloud. People expect Sony to act like a major label—because that’s what it is. But increasingly, SoundCloud has been chasing the major label content which it thinks could help it become more competitive with Spotify, Rdio and Apple. In the process, it’s spitting in the faces of the people who loved SoundCloud for what it was before: free discovery.

Excerpt from my original April 9th article

And as SoundCloud moves closer to the major label paradigm, it becomes increasingly irrelevant for independent artists, regardless of genre. Independents are where SoundCloud cut its teeth, so now, moving away from the free-model will leave them somewhat toothless. Case in point: SoundCloud’s new NMPA deal, which, again, is irrelevant for independent artists.

The thing about the independents is that, unlike major label artists who are tied to the major label business model, they’re not tied to anybody. Their loyalty can and will be to whoever gives them the best service as a first priority, not an afterthought. This means the best service for the independents, not the best they can do after the major labels have had their fill. SoundCloud is trying to perform a balancing act on a razor-thin highwire and it’s 600lbs overweight. It’s trying to straddle two completely different business paradigms, and managing to piss everyone off in the process.

Free Is Here to Stay—Live With It

The free paradigm which the labels are beginning to get fed up with isn’t going away—something which Peter Kafka seized on in his article on Spotify. Free is a way of life now, and as independent artists continue to explore the benefits that free affords them, they will increasingly detach themselves from the obligations of the major label paradigm. Services like SoundCloud will eventually have to choose a side—something that’s going to be exceedingly difficult for SoundCloud now that they already have a deal with Warner and are chasing deals with the other two major labels.

Excerpt from my original April 9th article

It seems that they’ve already made their choice, and it won’t be too long before droves of independents notice. They don’t have to and won’t settle for being second-tier priorities, and will look for alternative options. In the meantime, Sony and SoundCloud will duke it out until the former signs the latter to a major label-style contract.

I said it before and I’ll say it again: if you’re an independent, kiss SoundCloud goodbye.

Karma, Passion and Identity: A Response to Chris Sacca’s Bleeding Aqua

Posted on May 22, 2015 by adammarx13

Chris Sacca‘s post “I Bleed Aqua.” yesterday is the must-read (or rather, reread) for me today. It’s poignant and candid, enabling it to speak on a deeper level than perhaps would be possible, had it been more reserved. It touches on business terms, but it’s really not about business at all. It’s about relationships and identity.

Sacca illustrates his relationship with the service in an intriguing way, preferring to start the post with a declaration of his passion for it, rather than examining it as a wise business investment. Though he touches on this candidly in the following paragraphs, they fade somewhat when compared to the arguably deeply personal thoughts he shares.

For him, it seems to be so much about the relationships and personal experiences it’s allowed him to have—how it’s allowed him to share milestones in his life with friends (and complete strangers), and to glean from that a certain conversation with the world. As he bluntly notes, “Twitter went from just being an investment to a huge part of my identity.”

And like with so many things, I make the music analogy in my head. If Twitter was the indie band trying to gain any sort of traction in its early days, then Sacca was the truly passionate fan who brought people to their shows and proudly wore their T-shirts. He was (and is) the fan who identified something so magnetic that by his own words, they became a part of him—a part of his identity.

For anyone who missed Sacca’s Periscope talk with Peter Pham on Wednesday, a huge topic that they covered (well, huge in my opinion) was the concept of good karma and relationship building. When discussing the process by which he builds and cultivates his relationships (personal as well as professional), Pham stated that one should do things for others without asking for anything upfront: “create value before asking for value.” Pham and Sacca seemed to agree that the dynamic of good karma was something they both subscribed to. Pham went on to discuss how it’s through this dynamic of good faith and positive relationships that he’s built his (former and current) companies.

Sacca’s subsequent post on how he thinks about his relationship with Twitter is telling of this sort of relationship dynamic. In many ways, it illustrates the notion that I discussed in my post on being excellent; letting your passion inform your professional decisions as much as good business strategy. As I examined with Product Hunt, letting concepts of community and positive relationships inform one’s business tactics is a winning strategy. Even as he discusses the concept of being critical of some of Twitter’s moves towards the end of the post, he does so in a way that reaffirms his love of the service, and excitement at what it is and can be.

Perhaps the strongest sentence is also the simplest. Just three words: “I bleed aqua.” That’s how Sacca caps his post—a blunt, positive statement. And that’s exactly how the post as a whole comes off: blunt, positive, reaffirmed, excited.

Jay-Z’s Tidal “Freestyle” Was Basically a Hissy-Fit

Posted on May 19, 2015 by adammarx13

A couple of days ago, during one of his Tidal concerts, Jay-Z went on a rant, and basically laundry-listed a bunch of people whom he felt have been wronging artists in the music industry. He called it a freestyle, but that’s not really what it was. To anyone who’s not a Jay-Z fan (and probably to many who are), it came off as a hissy-fit.

Jay-Z at one of his TIDAL concerts

It’s not surprise that Jay-Z and company have been having a hard time of it with their new Tidal streaming service. I posted about their launch here, and then followed up with posts on criticism of Tidal from folk band Mumford & Sons, famed producer Steve Albini, and the sudden removal of their (now former) CEO Andy Chen. It’s been a tough couple of months for Tidal, yet instead of putting his head down and working to find a solution to differentiate his music service, Jay-Z thinks it’s a better tactic to antagonize the competition. Though it might make him feel better in the moment, it comes off as petty and juvenile. He looks like a kid throwing a fit for not getting his way.

In his “freestyle,” Jay-Z attacked not only other music services (Google, YouTube, Apple), but called out a few people by name (Jimmy Iovine). Jay-Z asserts that he came into the music game as an independent…which may be true, but that was more than a decade ago, and the musical landscape has changed a hell of a lot since then. The same rich people he’s insulting are his peers—I don’t think he goes home at the end of the night wondering if he’ll make enough money to tour next month.

Frankly, watching him play the victim is getting tiresome. Jay-Z needs to accept the fact that running a music streaming service may in fact be more difficult than he had originally thought. So stop whining about it, put your head down, and work out the problem until you have a solution. That’s how everyone else does it. Getting up on stage and attacking your competitors doesn’t make you a good business person. It make you appear socially and strategically tone-deaf.

Here’s the (mainly) full text from Jay-Z’s rant:

“…So I’m the bad guy now I hear,

because I don’t go with the flow

Don’t ever go with the flow, be the flow…

Pharrell even told me go with the safest bet
Jimmy Iovine on for the safety net
Google dig around a crazy cheque

I feel like YouTube is the biggest culprit
Them niggers pay you a tenth of what you supposed to get

You know niggers die for equal pay right?!?
You know when I work I ain’t your slave right?
You know I ain’t shucking and jiving and high-fiving, and you know this ain’t back in the days right?

…You know I came in this game independent, right?

TIDAL, my own lane, same difference

Oh niggers is skeptical about they own shit
You bought nine iPhones and Steve Jobs is rich…”

Product Hunt Doesn’t Sell Products—It Sells Community

Posted on May 14, 2015 by adammarx13

A Very Telling Thread

Earlier today, I came across a post on Medium by Product Hunt CEO Ryan Hoover. Simply titled with a captioned quote, “The world doesn’t need another blogging platform. But I did.” is Hoover’s response to a question he posed in the thread of a new PH product, Buffalo.

The product in question is yet another blogging platform, the necessity of which Hoover muses on. The subsequent series of responses between Hoover and Buffalo founder Drew Wilson is brilliant.

Hoover first posits that another blogging platform might be overkill, as he’s even more inclined to use Medium than his own blog simply because of its ease and reach/social engagement.

Screenshot of Hoover’s comment on Product Hunt

Notice that Hoover began the entire thought with a positive comment—that he liked the clean design. Already a high note has been struck. His subsequent statements are made from the point of view of his own opinion, and thus are disarming, rather than aggressive.

Wilson’s response is equally brilliant.

Screenshot of Wilson’s response on Product Hunt.

In one fell swoop, Wilson answered Hoover’s thought with his own disarming postulation. He’s not defensive in the least; simply enthusiastic to give a brief overview of what he likes best about his product, and why he thinks it’s different. Beyond that, though, his tone and diction clearly illustrate his desire for a product like the one he’s built. He even concedes that Hoover is essentially right, and that the world doesn’t need another blogging platform. But those three words—”But I did”—would make any reader excited to interact with such an honest and positive personality.

Hoover’s second response was much more terse:

Hoover’s second response on Product Hunt.

What this tells me is that I was right when I tweeted this last week:

Product Hunt isn’t really selling products; they’re selling community.

It’s Not About the Blogging

I use a number of blogging platforms (Medium, WordPress, etc.) because I love writing and reading what others have to say. And while I most certainly will check out Buffalo after reading the comments on PH, in the end, this entire exchange wasn’t about the blogging platform at all. Not really.

The exchange—deeper, below the surface—is really about and a testament to the kind of community that Hoover and the rest of the Product Hunt team have built. They don’t sit up on top of their mountain acting with God-like hubris, deciding what will and won’t be popular (though, with the popularity of PH, one could argue that they could if they wanted to). Rather, they encourage discussion throughout their network, and concede that their tastes and opinions do indeed come from personal preference. I have yet to see any post by a PH team member that purports to “know better” than any of the product makers or users on PH.

This lack of arrogance is exceedingly palpable—people notice. It’s what makes Product Hunt a real community rather than a forum. A forum has moderators and editors who have the final say. And while PH does employ some extent of moderation when choosing products for the front page (and how could they not, with so many products posted every day), they don’t condone or foster any sense of superiority within the community.

The Product Hunt cat

Product Hunt Sells Community

Product Hunt is called Product Hunt (I assume) because people post new products on it (duh). But they’re not selling products; they’re selling community. They’re selling a level playing field so open that the team members who built it continue to engage in conversations with their users. And they don’t need to be “right;” they don’t need to have the last say, or come out looking like product soothsayers.

Product Hunt will continue to succeed because of this dynamic. It wouldn’t even matter if their product-content base dried up tomorrow; the people who have come to love the community would find something new to post there. It could end up as Healthcare Hunt, or Garden Hunt, or maybe Airplane Hunt. The products on it would be relevant insofar as the core sense of community remained intact. And I expect it will.

“Why? Because we can.”—An Artist’s Perspective

Hoover capped off his Medium post with this:

Screenshot of Hoover’s post on Medium

This tells me two things.

First, Hoover (and the rest of the PH team, I assume) won’t tolerate dynamics of superiority or condescension that would undoubtedly taint the PH community.

Secondly, by way of using the example of a new drummer experimenting with his first skins, he illustrates the notion that he sees the PH community (product makers as well as users) as artists. This statement explains away any necessity there might otherwise be to explain why someone made something. Hoover’s statement makes that irrelevant. Artists create for the sake of creation, and they learn new things from the process every time they do it. Product Hunt’s community is at its core a community of product artists, therefore the question of “why?” is no longer relevant. Why? Because we can.

My gut tells me that’s exactly how Product Hunt started, if you look deep enough below the surface. Hoover started a product mailing list. Why? Because he could, and he wanted to. Everything else is irrelevant (even the success). Artists are artists because that’s how they see the world. Clearly the same is true for Product Hunters.

Music Startups Are About the Artists, Not the Code

Posted on May 12, 2015 by adammarx13

You Can’t Hack the Music Industry in a Weekend

You can’t hack the music industry in a weekend by talking to a few artists and trying to extrapolate from there. This is a mistake I see music startups make all the time, and a reason I think that a lot of them fail. The music business is a much more complex system than I see people give it credit for, and I think this really throws a lot of would-be music startup founders. It’s also very different from the tech industry in a number of important ways, and I think that this also scares people away—making the music business seem like a losing battle, and an inevitable death. But it’s not.

Me on my show, Underground Takeover

I wrote here how and why music startups do indeed succeed because of passion, not in spite of it. Unlike other startup industries where an overflow of passion might very well blind founders from the realities of customer desires and industry trends, the music world works on its own axis. It’s much more intricate than is reported on by the press—so much so that I would even argue that many within the established model may have a skewed view of what’s possible and probable. Thus it’s precisely that overflow of passion that leads to one’s desired immersion in the culture, arguably the real key to building a successful music startup.

I recently read a short blog post from a little while ago, wherein the founder of a failed music startup wrote about the problems which were encountered. As I read through it, I noted a number of mistakes which I think should be deeply examined. Let it be noted here, though, that this is not an attack on the author, nor is it meant to call anyone out; as such, I will steer clear of any terminology (including specific pronouns) that might reveal the author or their failed company. Let’s begin.

The Realities

1. A Few Conversations Aren’t Enough

In most startup industries, talking to your customer base is key, and fast iteration is the name of the game.

But music is different. Music is different because people seem to forget that it’s an industry that can’t be understood by reading a few articles on Wikipedia or having conversations with a few artists.

Who are these artists? Where are they from? How big is their fanbase? How rabid is their fanbase? How many albums or EP’s have they released? Are they teetering on the point of break up, or are they solid? Do they tour or don’t they? These are just a few questions you need to ask yourself before relying on the feedback given to you. It helps qualify the types of answers you get. Different types of artists think different types of ideas are “cool” (which means nothing until you qualify that word as well), and without understanding where in the ecosystem these artists exist, such feedback is essentially useless.

Never stop talking to artists.

That was the author’s first mistake. The second one was much more egregious. Never ever stop talking to the artists. If you stop talking to them, you’re dead. Period. The music landscape changes every day, much faster than a lot of other companies, even within the context of tech. The artist who was nobody yesterday is a national name tomorrow. If you stop talking to artists and stop putting your name out there, you become irrelevant so fast it’s not funny.

This is not an industry where you can have some conversations, gather feedback, go back and recode something, then collect more feedback. You need to find a way to be coding and strengthening your reputation among artists simultaneously. The artists don’t care about your iteration cycle; the only thing that they understand and connect with is your passion and their voice through you.

Me interviewing (clockwise): Felice LaZae, Alabaster, Christopher Linden (Neverblue), Me vs. Gravity, Isobel Trigger, Diamond Eye, and Heel

Me interviewing: Felice LaZae (left), Alabaster (top), Christopher Lindén (Neverblue) (mid, top-right), Me vs. Gravity (mid, top-left), Isobel Trigger (mid, bottom-right), Diamond Eye (mid, bottom-left), and Heel (bottom)

2. Music Isn’t Neatly Splintered Like Other Industries

In the music industry, the first thing to understand is that things aren’t as splintered and unbundled as they are in other fields. In other arenas, being an expert in data analytics or e-commerce sales might very well be enough of a foundation on which to build a company. But in music, understanding only one aspect means not understanding all of them. This is where the author failed (or rather, misunderstood) in this respect.

Music isn’t neatly splintered.

“Sales” in the music business can mean different things to different people; it could mean sales of tickets, merchandise, music files, special gifts, etc. And it could mean understanding those sales from the point of view of an artist, fan, promoter, venue, etc. Thus to say that one isn’t a “music sales domain expert” essentially means that one doesn’t understand that there are a very many different types of music sales domain experts, and that they are all very intricately interconnected in different ways. In approaching a music startup with this skewed notion of understanding, I believe the author began on a misleadingly difficult path to come back from.

3. Never Keep Anything from the Artists.

Understand that this is an industry where artists and people are used to being taken advantage of. That’s the norm. For many artists, industry experience has taught them to be wary, and anyone who is familiar with the dynamics of the industry can understand why. Sexual harassment, broken promises, money troubles, and limited access to resources are just a couple of things that plague artists daily.

The music industry is full of all kinds of realities that music consumers rarely see, and even more rarely care about: breakups, bad blood, intra-band politics, collaborations, no money, live touring, ridiculous royalties payments, new releases, band tragedies, sleazy industry “professionals,” loyalty to particular people—these are all things that music startup founders should understand way before writing any code. If not, you’re doing it ass-backwards.

The meaning of this is very simple: if you keep secrets from or mislead the artists you want to work with, you’re dead. Done. Finished.

If you mislead or keep secrets, you’re dead.

The author did the company a massive disservice by misleading an artist they were working with. Artists are not VC’s; they don’t give a shit if your product is subpar and you need to pull it back, if you’ve missed multiple ship dates, or even if the damn thing works right the first six times they try it. They don’t care. The only thing they really care about is not feeling taken advantage of. If you’re honest and up front, you’re golden, no matter how many ship dates you’ve missed. Their deepest loyalties (most artists, anyway) are to people who they perceive as supporting them the way their fans do. This is where you need to be speaking with passion, not tech logistics.

The music industry is very much like the tech industry when it comes to interconnectedness; everyone knows everyone. They tour together, play together, promote each other, and rely on each other to steer clear of sleazy people. Keeping secrets and misleading artists is one of the sure-fire ways to quickly find yourself a pariah in the music community. (And no, genre doesn’t matter. People talk, and word gets around. It doesn’t matter if you’re dealing with rappers or heavy metal bands, a bad reputation is a bad reputation).

4. Free Is Ubiquitous. Live With It.

Free is ubiquitous in the music industry. No matter how much people might try and fight it, it’s a big part of the future. Period. Fighting the free dynamic will only give you headaches and lead you faster toward the deadpool.

Free is here to stay, live with it.

If your company can’t exist in a very competitive way within the free paradigm, you’re fighting a losing war. And no, royalties aren’t going to save anyone, so don’t believe that they will.

The fact of the matter is, many artists embrace free. They see it for all its benefits. Again, this has to do with understanding the differences between different types of artists. If you can’t even make those distinctions, then trying to understand this whole point is useless and thus irrelevant.

5. Artists Tend to Be Open-Minded By Nature

The reality of it is, many artists tend to be open-minded by nature. These are not engineers focused on the logistics of how realistic something is. They don’t care about market-cap, valuations, competition, or which programming language will run the best.

This is the music industry, it’s inherently filled with dreamers. These aren’t people who care which classes you took in college, or how many programming languages you know. They are perfectly happy to tour the country in a crappy van, and hang all their hopes on the notion that they might be able to make a living playing music. And there are a lot of them.

Me with: Those Mockingbirds (top left), Bloody Diamonds (top right), The Steppin Stones (bottom left), Sunshine & Bullets (bottom left)

Me with: Those Mockingbirds (top left), Bloody Diamonds (top right), The Steppin Stones (bottom left), Sunshine & Bullets (bottom right)

This means that if your ratio of yes:no doesn’t skew heavily towards yes (like 80-85%), you are doing something very, very wrong. In an industry where the content producers are dying to try new avenues every single day, if you don’t at least capture the attention of 8/10 with your pitch, you have a real problem.

If you don’t capture around 8/10, you’re doing something wrong.

Again, these are people who live on passion, and are not super bothered by logistics. If you put out a soft beta and it doesn’t load the first six times for an artist, no big deal. As long as they really believe in your vision, they will keep coming back. Period. And they will wait as long as they need to.

(In fact, if you’re not getting emails from artists apologizing for not signing up for your beta fast enough, you’re doing it wrong. This actually happens, and if your inbox isn’t full of apologies for delayed responses, you haven’t gotten through to your key demographic. I actually have emails sitting in my inbox from artists apologizing to me for not signing up for a small test fast enough, hoping that they haven’t lost their spots).

6. Artists Don’t Care About Your Software

Artists are not engineers. They don’t give a shit about your software. None. Zero. Zilch. They don’t care if it’s written in Ruby or Python. They don’t care how many iterations it’s gone through. Many times, unless they’re programmers themselves, they won’t understand what makes your software unique or special. And frankly, they don’t care to understand.

Artists don’t care about your software. Period.

Artists care about what the software will let them do. What kinds of doors will it open for them, and how many of their fans will they be able to reach through those doors? Is your software just like SoundCloud’s or Spotify’s? Doesn’t matter. The only thing that matters is their understanding of what the core dynamic is that the software is attempting to solve. This understanding is again distilled down to passion.

Most every artist I know—whether they’re from the U.S., Canada, Europe, or Australia— doesn’t give a shit how good your playlist-making algorithm is. It isn’t aimed at helping them, so they don’t care. If that’s your pitch, you should really reexamine your status.

This is where the author made a major error. There wasn’t a clear argument made for how this startup’s software would augment the passion dynamic of the artist. How would it affect the passion of the his fanbase? Would it give the him more dynamic tools to address the passions of the fans with regard to his music? Clearly there wasn’t enough of a distinction to dissuade him from using another platform.

This actually brings up another important point: if your music startup is so threatened by the existence of other music platforms that they can’t be used in conjunction, you have a major problem. The music landscape is populated by numerous services, platforms, apps, and companies. If you need to unseat one or more of these to be successful, go home and redesign your company.

7. You Need to Speak Their Language

All of this culminates in one singular, important point: you need to speak their language. Artists are like engineers, bankers, lawyers, doctors, or journalists in that they have their own language; their own buzzwords (both good and bad), their own tone, diction, emphasis, and colloquialisms. If you don’t know or understand these, you’re out of luck. No amount of good programming will make the difference if you can’t sell it to the artists.

Me in Dublin, Ireland with Chris ____from the Riot Tapes

Me in Dublin, Ireland with Chris O’Brien from the Riot Tapes

If you want to be a music startup founder, you better have at least a few years’ experience in actually talking to artists. Understand that conversations between you and the artists, and you and the music fans will be very, very different. Do not speak to artists the way you would to music consumers. They are not the same as music consumers, and if you treat them as such, you label yourself as someone who can’t distinguish between the two.

If you don’t have a cofounder on your team to translate the tech speak into artist language, you will have a very, very hard time. There’s no substitute. Being comfortable talking to other startup engineers or investors means very little in this respect, except for knowing how to put words together in a sentence. Other than that, you’re speaking a completely different language than the artists you’re most likely talking to. Artists are not engineers, so assuming that they are will kill you.

Me interviewing Cherri Bomb (now Hey Violet) from Amsterdam, Netherlands

To artists, metrics rarely, if ever, speak as loudly as passion. The passion is what comes across first and last. Most everything else sandwiched in between is somewhat secondary. If you’re a founder of a music startup, accept the fact that you’re going to be speaking to artists and music industry professionals (promoters, venues, organizers, merchandisers, etc.) a hell of a lot more than you’re going to be talking to your music consumers. And if you’re working in the major label paradigm, get used to talking to major labels (that means lots of lawyers and executives). All of these people have different dialects of the same language. This doesn’t mean that the music industry is impossible to crack for new music tech startups. It just means that if you’ve never been in the industry before, you’re starting very far behind the line.

You Need to Live This Passion

In the end, what this all means is that being a music startup founder has to come from a deep-seated passion. It has to almost be a nagging need that you wake up with. It’s not a one-and-done scenario, where if your first crack as a music startup doesn’t work you move on. If that’s the case, you don’t care enough—you don’t love it enough. You need to live this kind of passion. From how you dress to the slang you use, the little things matter, even if they shouldn’t. And trust me, the artists notice. It becomes an “us/them” mentality. You’re either with the artists—you know them, you understand them— or you’re not. There’s rarely a middle ground.

Me at Warped Tour 2012, with: June Divided (left), The Nearly Deads (middle), Might Mongo (right)

Me at Warped Tour 2012, with: June Divided (left), The Nearly Deads (middle), Mighty Mongo (right)

In the music industry, if you’re an artist and don’t use every tool at your disposal to try and grow a fanbase, you simply don’t care enough. That sounds callous, but it’s true. The same is true for music startups—the only thing that will really get you through to the other side is your passion. You need to breathe the relationships with your artists; you need to be friends with them on Facebook, know them by their first names, know their birthdays, why they started playing music, what their ambitions are—everything short of how they take their coffee, and maybe even that.

Your Code Can Wait—They Can’t

All of this information comes from conversations that never stop. If you stop messaging an artist because you’re busy fundraising, sorry, you’re dead. If you can’t be bothered to respond to their emails because you’re too busy fixing you’re code, sorry, they don’t care, you’re finished. Your code can wait—they can’t and they won’t.

Ironically, this is what I find the most invigorating about being a music startup founder. I love talking to the artists and contacts—I thrive on it. I’ll respond to Facebook messages from artists in Canada, Denmark, Ireland, or California at 4 AM. And I do it because I love it. If you’d rather be writing code at 4 AM than talking to artists in New York or Germany, don’t do a music startup. Do something else that’s not people-based. Because in the end, you can’t hack your way into personal relationships. These relationships take time and care—they don’t happen on your schedule just because you’re trying to code your next app update.

But the flip-side is also true. If you have them going in, you’re lightyears ahead. You have a built-in base that’s invaluable. That’s how you really need to build a music startup: based on the relationships you develop with the artists. Everything else flows from that.

Back to Equilibrium

Posted on May 8, 2015 by adammarx13

Today was a slow day. After the three-day whirlwind that was TechCrunch Disrupt in New York, even those of us who streamed at home felt like we need a day to recuperate. After sitting (relatively) glued to my computer for the past few days (to watch the live stream as well as participate in the conversations), I was happy to “take today off” and let my mind wind down somewhat.

And yet, even as I forced myself to take a break today, I still found it unnerving to not at least look at the tech and music news. Though not a feeling as heavy as displacement, it seems that coming off the tail-end of a highly charged and intensive conference like TCDisrupt has a tiring effect. A “duh” statement in and of itself, it nonetheless is important to keep in mind that we’re human, and simply can’t keep our brain’s on 100% of the time. So what feels like being unfocused is actually a way of rediscovering an equilibrium that was recently out of balance. I’ll feel more focused after the weekend I’m sure. After all, a little rest never hurt anybody.

SoundCloud’s New NMPA Deal Is Irrelevant for Independents

Posted on May 6, 2015 by adammarx13

News broke today that SoundCloud has reached a deal with the National Music Publishers’ Association (NMPA) to secure publishing rights for the artists who use the service as a content publishing site. In the byline of the piece is the notation that as a result of the deal, independent publishers will now be able to receive royalties from their content one the service. Yet while the news sounds groundbreaking as a headline, it nonetheless fails to address the problem that I identified earlier—namely, that SoundCloud is fast becoming an obsolete option for independents.

The NMPA and SoundCloud logos

As the streaming service has worked hard to monetize in the last few years, it has begun a move away from the independent arena in which it started. On the heels of a licensing deal with Warner Music Group (attained last November), SC has been attempting to lock up similar deals with Universal and Sony as the major labels try (but fail) to reestablish their dominance in the musical landscape. Yet despite the fact that only Warner has signed on for now (not really a good sign for SoundCloud’s major label ambitions), it’s still clear that SC’s priorities are shifting in favor of a major label paradigm.

Major Label Percentage Ownerships of (some) Streaming Services

As a result, the news of SoundCloud’s deal with the NMPA today is essentially irrelevant for independents because it doesn’t address the real problem of independent artists: the problem of competition and exposure. Inasmuch as the deal sounds good for independent publishers, it’s unlikely that it will give them any edge over their major label counterparts. Actually that’s a misleading statement—the major label publishes already have a massive edge over the independents, so what this deal will really fail to do is make the two equal.

NMPA CEO David Israelite is quoted as saying, “This agreement ensures that when SoundCloud succeeds financially, so do the songwriters whose content draws [users to the site].” However, I feel that though Israelite’s intentions are good, his notions of the dynamics below the surface are misguided. The royalties that independent artists and publishers will supposedly earn exist essentially in theory, and this doesn’t even take into account the minuscule amounts of each royalty payment.

What the major label industry really looks like; The Big Three

In the end, the royalties “earned by the independent publishers” are essentially nondescript because in order for any real money to be made through royalties, the artist is required to have a massively large and engaged fanbase to drive those royalty-dyanmics. Independents by nature rarely (but not never) have these sorts of powers behind them. Thus the resultant playing field is still the same: the major label artists (and labels) more or less control the spotlight while the independents are left in the large swaths of shadow. This is a good publicity piece for SoundCloud; but for the independent artists and publishers, it’s more or less irrelevant in the grand scheme.

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Category Archives: Startups

The Continuing Money Troubles of SoundCloud

Spotify’s Sony Contract: What It Means for Everyone

Tidal Is Losing More Lifeboats by the Day

SoundCloud’s Failed Highwire Balancing Act: The Sony-SoundCloud Breakup

Trying (and Failing) to Balance Two Completely Different Paradigms

What I Said a Month Ago

Who’s the First Priority?

Free Is Here to Stay—Live With It

Karma, Passion and Identity: A Response to Chris Sacca’s Bleeding Aqua

Jay-Z’s Tidal “Freestyle” Was Basically a Hissy-Fit

Product Hunt Doesn’t Sell Products—It Sells Community

A Very Telling Thread

It’s Not About the Blogging

Product Hunt Sells Community

“Why? Because we can.”—An Artist’s Perspective

Music Startups Are About the Artists, Not the Code

You Can’t Hack the Music Industry in a Weekend

The Realities

1. A Few Conversations Aren’t Enough

3. Never Keep Anything from the Artists.

4. Free Is Ubiquitous. Live With It.

5. Artists Tend to Be Open-Minded By Nature

6. Artists Don’t Care About Your Software

7. You Need to Speak Their Language

You Need to Live This Passion

Your Code Can Wait—They Can’t

Back to Equilibrium

SoundCloud’s New NMPA Deal Is Irrelevant for Independents