Tag Archives: Free

Spotify’s Sony Contract: What It Means for Everyone

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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.

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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:

  1. 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.Screen Shot 2015-05-21 at 8.01.23 AM
  2. 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.
  3. Screen Shot 2015-05-21 at 2.36.33 PMDivided 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. Screen Shot 2015-05-21 at 2.36.56 PM
  4. 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.
    Screen Shot 2015-05-21 at 2.41.24 PMScreen Shot 2015-05-21 at 2.42.20 PMWhere 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.
  5. 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.Screen Shot 2015-05-21 at 2.47.16 PM Screen Shot 2015-05-21 at 2.48.28 PM
  6. 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.Screen Shot 2015-05-21 at 2.53.33 PMScreen Shot 2015-05-21 at 2.54.09 PMBut 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.Screen Shot 2015-05-21 at 2.54.41 PM
  7. 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.Screen Shot 2015-05-21 at 3.07.40 PM Screen Shot 2015-05-21 at 3.07.51 PMIt’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.
  8. 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.Screen Shot 2015-05-28 at 6.33.02 PMBut 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.

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

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Trying (and Failing) to Balance Two Completely Different Paradigms

The SoundCloud-Sony Breakup

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

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 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.

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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.

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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.

Music Startups Are About the Artists, Not the Code

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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

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.

What Does It Say When Mainstream Artists Start Criticizing Tidal?

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I’m not much of a Mumford & Sons fan. I have nothing against them as musicians; I just find that my taste in music to be a little different. But I respect the hell out of them for the statement they put out today.

Pulled by Digital Music News from other sources this morning, M&S were reported as disliking Jay Z’s new service Tidal. They’re not alone; other mainstream artists like Lilly Allen and Mariana and the Diamonds have voiced distaste for the service. And that’s not even taking into account the near biblical response from music fans over the service, all of which I spoke about in my coverage of Tidal’s relaunch a couple weeks ago.

But what makes M&S’s statement so stark is the candor with which frontman Marcus Mumford explained the band’s view of the service:

We wouldn’t have joined it anyway, even if they had asked. We don’t want to be tribal. I think smaller bands should get paid more for it, too. Bigger bands have other ways of making money, so I don’t think you can complain. A band of our size shouldn’t be complaining. And when they say it’s artist-owned it’s owned by those rich, wealthy artists.

Wow, some pretty powerful words from the neo-folk rock frontman. I rest my case. I may not be a major fan of M&S’s music, but I for damn sure am a fan of how they see themselves and their fans. They know what they are, and they know what they’re not. And what they’re not is dying for money in the same way an independent artist is. What they are, according to this, are a group of artists who recognize their good fortune. They assert that other artists on their level should recognize similar good fortunes and stop “complaining.”

If this isn’t telling of the splitting we’re starting to see in the music industry, then I don’t know what is. It’s a big day when even mainstream artists are standing up and articulating the difference between themselves and independents. It’s a whole new world.

Lending Artists Millions of Dollars Is a Terrible Idea

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The Setup

This morning, Peter Kafka posted an article on a new company seeking to make its name in the evolving music industry: Alignment Artist Capital. The company, according to Kafka’s piece, wants to essentially work as a lending institution for artists who need the money. Except instead of doling out a couple hundred bucks here and there, it will have the resources to lend millions at a time.

money_bags

A Completely Outdated Business Model

This, for anyone who didn’t already think so by this sentence, is a terrible idea. It’s a rehashing of the same dynamic the record labels have had with artists for decades, sans the ownership percentages over artists’ creative material. Kafka is aware of this as well, noting that, “Alignment isn’t the first entity to advance money to artists…lending money to musicians is one of the core functions of music labels.” [1] That’s very true; lending money to musicians is one of the core functions of a music (record) label, and it’s one of the main reasons their obsolete business model is failing them now.

Don’t be discouraged, though. There’s still plenty of money to be made in the music industry. In fact, it’s on an upswing. But not in the major label space, or using any of the traditional business models of those labels. The new upswing is with the independents—that’s where I would lay my chips.

With all the tools now cheaply (or freely) available to budding new artists, the traditional artist/record label model doesn’t apply anymore (something which Kafka notes as well as “harder to justify”). The reality of the situation is that most artists can get the basic things that they need—access to distribution, access to recording equipment and programs, access to merchandising platforms, access to producers/promoters, etc.—without signing away anything. That begs the question of why they would choose to take a monetary loan if they can do most (if not all) of the necessary things themselves.

New Artists Don’t Need Millions (of Dollars)

And there’s something else: funding an artist (band or solo) like a startup is indeed a unique idea—but a misguided one. Artists don’t need millions of dollars out of the gate to be successful in today’s market(s). The sums of money are too large to apply to most of the new artists who might be interested in taking it, precisely because the economics don’t work in their favor; it’s highly unlikely that throwing a million dollars on your fire will create a lasting fanbase for you. Core fanbases are made on the road, sleeping on couches, driving crappy vans, connecting with your real fans—all things that can be done without a multi-million dollar loan on your shoulders.

In the startup world, there’s a delicate balance between taking VC money you know you’ll need to survive (to the next round), and not taking so much that you end up diluting yourself beyond reason. The same principle holds true here: the concept that new artists should take millions at a time is analogous to a startup raising a Series B when they only need a Seed investment of possibly a quarter of that.

Why Incur Debt You Don’t Need?

AAC cofounder James Diener is quoted in the article saying “We’ll give the artist and their entity financing so they can go build a record label.” That’s like giving someone financing so they can go invest in a line of new and improved floppy disks—i.e. obsolete and irrelevant. The fact that this seems to be one of the main drives behind AAC’s plan tells me that they are still mentally tied to the old model of the record label, only now they’ve decided to cut their prospective losses by dealing only with the financial side (and not the creative one).

Based on my years in the independent music arena, I see these sorts of monetary entities as having a very difficult time breaking into the independent spheres—essentially where they need to be in order to really thrive. Buying streaming services, record labels, summer homes—these are things most artists don’t care about and don’t think about. I suppose a few do, but the numbers of those people are well below anything you can build a real solid business model on. The Jay Z’s of the world are astronomically outnumbered by the independents who are on the rise, now with distribution at their fingertips.

I wrote last week that artists are becoming savvier business people, and I can see them steering clear of these sorts of institutions at all costs. They understand that injecting millions of dollars into their brand image doesn’t buy them fans—that’s a belief propagated by the major label industry. Rather, they know it has to be done by way of live shows, personal attention, and appreciation of core fans; all things which can be done on their own, and without incurring debt (remember my article on crowdfunding?). I suppose there will be some customers of course, but I don’t see this ever catching fire in the independent industry. And that’s the next growth phase of music.

So why would artists incur massive debt if they do’t have to??

I wouldn’t.

Would you?

 

Notes


[1] Notice here that Kafka used the term “music labels.” I have a friend who used to work for Warner Music who explained this phenomenon to me. The reason that the term “music” has replaced the word “record” is because the major labels have become so bloated with an obsolete business model, they need to start making money off of revenue streams that they traditionally never touched: live ticket sales and merchandise sales. Traditionally, their main revenue streams were from record (or CD) sales, hence the term “record label.” Yet in the wake of the massive disruption of their business model, they have taken to calling themselves “music labels” in order to explain their practice of now taking money from revenue streams traditionally left for the artists.

Artists Are Not “Bad Business People”

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Two Differing Opinions

“Artists are not good business people; they need to be told what’s good for them.” Those were the exact words that came out of his mouth. And I disagreed with every single one of them.

But let’s back up. Last summer, I was having a conversation with an entrepreneurial peer of mine about the current state of the music industry, and possible avenues forward. He’d had some success with a small company working with a few venues, and with some other music industry professionals (who, as shall he, remain nameless). By all accounts, I thought my peer would have a positive outlook on the future of the music industry as he, like me, had experienced numerous problems that could be solved. And yet, his outlook was dreary at best; and at worst, insulting.

When we began discussing what possibilities there were to build tools to better enable artists to make informed business decisions, his response was terse, arrogant and negative: “Artists are not good business people; they need to be told what’s good for them.”

It’s All About Access to Knowledge

Immediately I knew our opinions on the evolving music industry would differ from then on. First, no, it’s not a true statement to say that artists are “bad business people” anymore than one could make the insinuation about construction workers, for example. In an industry where so much of the business has traditionally been done by a major label or other third party, artists are just now realizing that they have access to the tools to simply learn about how to be good business people, and many are taking advantage of the opportunity. No one would expect someone who’s never had access to a certain type of education to understand the intricacies of said education.

It comes down to simple access to tools and means of learning, traditionally things that have been outside the reach of most artists—after all, educating artists on the inner working of the music business never was in the best interest of the major labels. So if this is the case, why then would one criticize artists for not having knowledge of business dynamics when they have traditionally been denied such knowledge and experience in favor of a more “savvy” entity (a management firm or label, for example)?

Who Actually Knows “What’s best”?

Second, the statement that someone needs be told “what’s best” for them is beyond arrogant: it’s plain insulting. Many of the evolving concepts of business strategy that are popping up in the music industry nowadays I find are coming from the artists themselves. These are the people who are looking to new vehicles of distribution like the internet and new business models such as free or freemium as viable ways to push their careers forward. And from what I can tell, they’re getting pretty damn good at it. I find the things I learn that should have been so obvious to me many times come from discussion with artists themselves, opening my eyes to a reality I may not have previously considered or understood.

So if artists are continually researching and discovering new methods of business strategy to effectively compete in the new digital era, why is there still this pervasive view that they “need to be told what’s best for them?” Perhaps it’s just a difference of worldview, as with between my peer and myself. Whereas he appeared to see the world through a lens that was dismissive—and even bitter—I see possibilities abounding for how the industry can change with the technology available to give artists more power over their own careers. It’s arguable the in the end, the only opinions that matter are those of the artists, as they are the ones producing the material that so many other people are trying to find ways to monetize.

My Bet

Whatever the next big thing will be (and it’s anyone’s guess in this sort of fickle content market), what I don’t doubt is that artists will begin to step out from behind their guitars and amps to shape their own futures (much like programmers are being encouraged to step out from behind their keyboards and aspire to roles in management). I wouldn’t be so quick to underestimate the artists out there. In fact, just the opposite: they know what they want, and now they’re beginning to see how to successfully get it. For me, my bet’s on the artists 

 

Thanks to Mom and Dad for reading early drafts of this.

Navigating Swift Currents

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As we come to the end of 2014, things seem quiet in the music-tech arena—at least for now. Yet it wasn’t too long ago that things were blowing up between Spotify and a number of artists over royalty rates and compensation practices. No doubt the most famous of these disputes (this year) was between the streaming service and popstar Taylor Swift. In what has come to be known by some in the tech and music communities as SwiftGate, Taylor Swift abruptly pulled her entire catalogue from Spotify just around the same time that she released her new album 1989. The response was nearly biblical.

All I saw for weeks on end was a back-and-forth exchange of words, accusations, arguments, and media coverage between Swift and Spotify. Even the service’s CEO Daniel Ek took time to release a public statement responding to Swift’s qualms with the service. This was definitely a story with legs—it just didn’t seem to die down.

Yet what struck me the most were not the statements made by either side, or even the statistics each used to bolster their respective cases. I was more focused on the amazingly divided response that Swift’s actions and statements generated from her fans. Personally, I’m ambivalent—I enjoy some of Swift’s music, though not all, and would not call myself either a major fan or a hater. When Swift wrote her op-ed piece in the Wall Street Journal earlier this year, though, there were immediately a couple of things I didn’t agree with. Perhaps the most presumptuous statement I thought, though, was:

“Music is art, and art is important and rare. Important, rare things are valuable. Valuable things should be paid for. It’s my opinion that music should not be free, and my prediction is that individual artists and their labels will someday decide what an album’s price point is. I hope they don’t underestimate themselves or undervalue their art.”

This statement, though most likely made with the best of intentions, comes across to many within the music community as narrow-minded and out of touch. First, I readily agree with Swift that music is indeed art; art is subjective and highly personal to each person who experiences it. But art is not inherently rare. Nor should it be. This is an outdated concept that smacks more of a stuffy art-history academic than a modern musician. Art as a commodity, or even simply as a means of expression, should derive value from its inherent existence and experience; economic value is secondary to the very nature of what art is. In stating that art requires qualities of rarity and economic value in order to be valuable as art, Swift thus demonstrates a misunderstanding of what art functions as at its core. The concept of music as free is a notion that I will tackle in a later post (probably more than one), but what I will say with regard to Swift’s analysis is to point out how narrow its definition is. There are a great many artists who distribute their music for free, either online or as free giveaways at shows. By insinuating that these artists are devaluing their own art by making the decision to freely distribute, Swift does two things: 1) she demonstrates a worldview that is essentially narrow in its scope, and 2) she effectively succeeds in insulting these artists, more or less stating that they’re not smart enough to “know better.” It’s been a while since I performed as an artist in my own right, but even I still take offense to the above insinuations. Am I really to believe that Swift never played a pass-the-hat acoustic set at a Starbucks or diner somewhere when she was just starting out? [1]

But back to the response to Swift’s sparring with Spotify. If the goal was to generate a media response, then such a goal was certainly achieved. The responses from Swift’s fans in the general music community were far more diverse than even I would have thought. They ranged from those championing her decision and statements to those swearing they will never buy another Swift album from here on out (of course, the latter of those is hardly a statistic that can be confirmed at present). Yet what I focused on through this whole maelstrom of attention and biting back-and-forth comments was the way it could very conceivably (and most likely did) affect Swift’s fans on a psychological and emotional level.

Music, as stated, is emotional and highly personal. There’s a certain identification that one feels when one identifies with a particular artist, song or album. The psychology of wearing a shirt with an artist’s moniker on it effectively marks one as flying a flag for that artist—they become an extension of oneself—an extension of us. We use an artist’s music as a way to expand our sense of expression to the world. That makes our identification with that music highly volatile. Snap decisions like Swift’s have the opportunity to aggressively backfire (depending on one’s point of view, I suppose). Thus I question the long-term effect of Swift’s actions and statements. Yes, the immediate effect was fantastic for her: sales of her new album 1989 blew through the roof upon it’s release on Oct. 27, 2014. It opened at number one on the Billboard 200 and sold over 1 million copies. But I can’t help but focus on the gripes of those fans who felt personally betrayed by Swift’s removal of her catalogue from and subsequent sparring with Spotify. Are those fans going to go see her on tour? Buy a shirt? Tell their friends about her new album? Probably not. The way I see it, Swift has effectively traded long-term benefits for short-term gains. One thing I know about music and artist-loyalty is that it can be a fickle beast. The possible (probable?) effect of dividing her fanbase I think will constitute a major challenge for Swift to overcome in the future. She will have to spend time, energy, patience (and most likely money) trying to reconnect with those fans she might have alienated or even lost.

While it’s possible that the short-term gains may have been worth it to Swift and crew, I think the next currents will prove more difficult to navigate in the coming months. I think Swift has a lot of work ahead of her, and a lot of damage-control to partake in (ironically, not unlike the damage-control that Metallica faced in the wake of the whole Napster controversy). [2] I suppose only time will tell. We’ll reassess in the new year.

 

Thanks to Alyssa Shaffer, Charles Jo, Mom, and Dad for reading drafts of this. (And to Paul Graham for reminding me that thanks are as much in order for assistance as much as publication of the final product).

 

Notes

[1] Within the music community, the term “pass-the-hat” most readily refers to a (usually) acoustic set where no cover charge is required, and the artist relies mostly on the generosity of the audience to throw a few dollars in a hat or the guitar case to show their appreciation for and enjoyment of the performance.

[2] As many may remember, when Metallica waded into the thick of the Napster controversy in 2000 (most visibly driven by drummer Lars Ulrich), their rabid fanbase subsequently split into those who supported Metallica’s decision and those who vehemently opposed it. The alienation of a portion of their fanbase proved a challenge that took Metallica a number of years to surmount (and arguably one they are still surmounting). It affected both their sales of merchandise/tickets and their reputation within the music community.