Without Majors, SoundCloud Had The Potential To Be A Better, Independent Music Space

Originally published on Crunchbase News on August 21, 2017.


It’s no secret that SoundCloud is troubled. Last month, news broke that the music streaming service slashed 40 percent of its workforce (173 jobs) and closed two of its offices (London and San Francisco). Two weeks ago, it dropped its founding CEO to secure new funding on the back of reports that it could run out of money within 50 days or so.

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The developments weren’t without augur or portent.

SoundCloud’s current situation brings us back to our prior thesis: namely that the company’s shift into the major label paradigm was a tactical error. And due to that mistake, SoundCloud lost its focus on an exploding demographic in the form of independent music, which it initially showed signs of controlling.

Rising Red Ink

Let’s run the numbers quickly. As I noted in my previous piece, Soundcloud’s revenue has grown for years. In 2010, the company recorded $1.8 million in top line; in 2012, $9.6 million; and, in 2014, $19.6 million.

But those gains came with rising losses. Soundcloud lost $2.01 million in 2010; $14.9 million in 2012; and $44.2 million in 2014.

The trend of impressive losses continued into 2015, when SoundCloud’s revenue increased by 10 percent to $22.5 million. Unfortunately, for the company, its losses grew by a larger 23.5 percent to $54.6 million in 2015.

And according to a recent Music Business Worldwide analysis, even post-cuts, Soundcloud won’t cut expenses to fully ameliorate its rising costs and royalty payments.

Major (Label) Gamble

Its cuts in staff are indicative of a larger problem. Namely, SoundCloud’s royalty payments are expensive. If Soundcloud’s payout to the major labels is similar to Spotify, it could reach the 80 percent mark of its subscription-sourced top line; in related topics, SoundCloud has consistently declined to comment on how much the major labels own of the company.

Adding to its financial picture, SoundCloud opened a $70 million credit line to keep its doors open.

While major label deals grant SoundCloud access to the world’s most popular catalogs, the royalty payments accompanying that catalog can be a Sisyphus-like experience.

The accompanying costs are high. For example, growth only accounts for one factor in determining a royalty payment. Other factors can range from the labels’ own fiscal bottom lines (which no streaming service can control) to the labels’ employment of a Most Favored Nation clause in their streaming contracts.

Major label content is also available through an array of streaming options: Spotify, Apple, (now) SoundCloud, Pandora, Tidal, and so forth. Given the number of services offering major label tunes, access to that content doesn’t make a streaming service unique. Rather, it gives the major labels outsized influence on a streaming service’s content offerings.

In Soundcloud’s case, the new major label paradigm likely impacted the now-beleaguered music streaming company in two ways:

  1. Major label deals changed SoundCloud’s value proposition. Due to its major label deal, Soundcloud could sell the same major label content as Spotify and Apple. SoundCloud would no longer be the home only for independent audio,  putting a pin in what arguably made the streaming service unique.
  2. The major label deals now required SoundCloud to pay the same piper as Spotify, Apple, and others.

All of this amplified SoundCloud’s already-noted strategic shift, and potential misstep: moving away from the independent music demographic—a group that it had performed well in previously.

Up until autumn 2015, SoundCloud primarily subsisted on independent music and user-generated content. But in the time it took SoundCloud to switch paradigms from the independent universe to the major labels, the market had changed. Whereas independent material up to 2015 was considered disinteresting to general consumers due to niche appeal, by the end of 2016, independent music streaming revenues made up $5.1 billion of the industry’s total haul of $16.1 billion. In fact, the independent market outsized Universal’s cut by more than $500 million.

Multiple arguments can be made about what has led the independent demographic to become the largest pie of the streaming-revenue pie. What’s clear, though, is that the old trope that’s been widely circulated about independent music—that nobody cares and it doesn’t make any money—is likely false.

From 2003-2012 alone, the independent landscape exploded in terms of participants. And it’s that market that Soundcloud likely ceded ground on due to its deals with major labels.

What Ifs And Takeaways

All this underscores SoundCloud’s decision to start down the major label path.

If it had made the same job cuts and office closures in 2015 that have now been enacted, then Soundcloud might look very different. The company might have been able to close the gap long enough for the numbers to show—as they are now—that independent music is a real area of growth in the music universe.

If that had happened, it might have given financial-credence to its massive independent catalog, independent-enthusiast userbase, and independent reputation. But the major label paradigm is like a lobster-trap; it’s very, very hard to back out of once you’re in.

Of course, all that assumes that Soundcloud would have been able to settle lawsuits and figure out a way to monetize its gigantic repository. Assuming it could, SoundCloud might now be the clear frontrunner in its own arena of music, almost completely removed from the whims and dynamics of the major label world which Spotify and Apple have to contend with.

What’s important to recognize now is that the music universe is multidimensional, and, with the explosive growth of independent content, it’s adding new layers by the day. SoundCloud’s plight should encourage—not dissuade—future would-be music-tech startups or entrepreneurs and investors. Let Spotify and Apple battle it out for the major label world; the independent universe is growing quickly anyway.

Whether it’s too late for Soundcloud to take advantage of that growth will depend on its ability to navigate its choppier, less-funded, waters.

Unbundled, Part III: Democratizing the Future

Why democratization and identity are the future of music.

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This is the final entry in the Unbundled series on music dynamics. Read the previously published pieces here:


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Power, Gatekeeping, Scarcity, and Democratization

Which brings us back to the last step in the cycle: unbundled once again. Only this time, the unbundled dynamic refers to power and ownership. The new unbundled form of power—referenced above—removes the focus of power from the major labels and fractures it, splintering it to varying degrees among the plethora of new artists and startups now emerging.

This is the best thing that could happen because it leads to a more stabilized version of meritocracy in music. The top-heavy, unbalanced paradigm of major label control over everything that a fan is exposed to is ending, and being replaced with a much murkier—but more expansive—reality. This in turn affects scarcity and gatekeeping on a massive level.

Scarcity is obsolete; democratization wins.

Ownership

Perhaps the most prickly point here is the concept of ownership in the new age. This is a contentious topic even among friends, and no one really knows what the landscape is going to look like in the next few years. What can be surmised, however, is that concepts of ownership of musical material are evolving. Sampling and other trends in electronic and DJ music, along with self-recording and independent releases, have muddied the waters of who owns what and to what extent.

Now the action of covering or remixing someone else’s song and posting it online bristles feathers. But (most) artists who do this also attribute the proper credits to the original artist(s)—many times in the cover or remix’s title—simply because it’s the right thing to do and because it helps them to disseminate their new version.

Asserting that cover songs and remixes hurt the original artist is a cloudy and jaded argument at best.

Yet, the argument can be made that with this new overhaul in ownership orthodoxy, perhaps the right people are now able to own the things they should have been able to all along. Let us not forget the reality of master tapes (where a record label owns the rights to an artist’s original recordings) which so many artists have regretted. Controlling one’s own material, and deciding what to do with it, are the ultimate power plays an artist can make. Appealing to this new sense of power is the best avenue for emerging music startups to make.

Such a concept is fairly reminiscent of a point Daniel Mark Harrison makes in a piece regarding bitcoin, wherein he illustrated that controlling access to material is the ultimate power: “…any major purchaser goes direct to a Bitcoin ‘miner’…and negotiates steep discounts for their volume purchase action.”

In this scenario, the music fan is the purchaser, the artist is the bitcoin miner, and the service that serves as a conduit between the two is better off appealing to and providing value to the artist rather than only the fan. Both are important, but the latter controls the material which the former wants to consume.

Money and Community

One of the loudest major factors that floats around is the argument over money, from streaming, downloading, merch sales, ticket sales, etc. Let’s be clear though: streaming and downloading—the purchase of musical material—is not where the real money is for artists. It never has been. The money has always been in the merchandise and live ticket sales. What does this mean nowadays? Community.

While it is certainly arguable and many times probable that new unbundling dynamics have struck at artists’ ability to make money from the sale of their music, it is equally arguable that it has enabled them to make money from other, more lucrative, avenues.

An artist can only sell a $10 album so many times (unless you’re a major label darling). Their real bread and butter is in their community cultivation: growing their base, getting people to come out, getting people to spread their music and message, and capitalizing on those efforts. Streaming and downloading revenue is at best a holdover until a better stream is tapped.

The dynamics that exist now in this new unbundled world provide new opportunities for artists. Now, they don’t need to make their money off music sales or streams. Enough access to fans and communication/funding tools exist that they can actually give their music away for free and turn a profit somewhere else.

And this is exactly what a growing number of artists are choosing to do.

The dissemination of their material onto a global stage is much more important than a few album sales here or there, and leads to better things on the other side. A more expansive universe brings more shows, more exposure, more true fans, and more branding opportunities. These are the real things that grant artists staying power.

The Expansive Powers of Identity

Lastly, there is identity. I examined in a previous piece how we’re seeing the rise of “identity platforms” in media. Music is no exception to this. In fact, it might be the shining example of it.

Identity gives music—and by extension all art—certain powers that contribute staying power. Identity is so powerful precisely because it exists independently of genre, mainstream recognition, money, or history; it’s unique in it’s own ability to build bridges where previously there were none. Regarding music, identity brings together people on a core level that can almost supersede differences they might otherwise have.

The power identity—especially in relation to art and music—in its potential to create ever-expanding identities—to create communities. Money is certainly a factor in this, but if a shared identity which draws people towards one another, and can shield them—for better or worse—from outside forces seeking to compromise that unique, collective identity. As music is given the ability to disseminate more and more, more communities will arise around newly-minted identities, and art as a whole will become more lush and layered.

In the wake of these trends in art, music, and media, the power will lay with companies and platforms to not only cultivate these newly emerging identities, but to provide fertile ground for even more embryonic ones. Music becomes a vessel for the expansion of art and identity.

The Upswing

Where does this leave us? In unchartered territory to start with. Artists will continue to grow their power as new technologies make the opportunities possible. The companies which see this trend and capitalize on it will be the ones to stick around and do well. The others, however, who are resistant to this new set of events, will find it challenging to court artists and acquire material if they are determined to hold fast to a paradigm that was beneficial mostly to the major record labels.

Independents artists, and consumers of all strata (not merely the mainstream), will not be ignored or marginalized anymore. They will continue to experiment with the bundling/unbundling process until they find the right fit for themselves, and for their careers. There will be less of a set standard that all need to conform to, and more of a flexible set of possibilities and avenues for people to mix and match to reflect their changing personal experiences.

The future of music is three things: freedom, community, and democratization.

***

Find me on Twitter @adammarx13 and let’s talk music, tech, and business!

Unbundled, Part II: Shifting the Paradigm

How a new music paradigm is rising out of the wreckage.

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This is a continuation of the Unbundled series on music dynamics. Read the previously published pieces here:


The second act in the “bundled/unbundled” production is the “bundled” piece. It’s about exploring the bundling process as it pertains to music, and really trying to determine the proper scope of examination. Said scope, when broadened enough, shows a shifting paradigm of power and perception rising out of the wreckage of the previous music landscape. It’s similarly divided into three parts:

  1. Bundled in the Wrong Way
  2. Power and Paradigm Shift
  3. Sexy vs. Unsexy

The first of these is an exploration of what types of bundling already exist, and how it might not be the right kind of bundling to pursue. The nature of peoples’ interaction with music has changed, so it follows that the things bundled in music should change as well. This is a particularly difficult thing to accept because it requires a reworking of thought regarding something already perceived as “done.”

The second part is a discussion of how power naturally shifts during these seismic events, and how the new power should be held by a previously dismissed faction: the artists.

This flows right into the last part, which is an exploration of how many of the things which should be considered and bundled may not be the “sexiest” or most exciting of things to include. But “sexiness” and utility don’t always go hand-in-hand, and reality prevails at some point.

BUNDLED

Bundled in the Wrong Way

This is the biggy. Inasmuch as many things in the music universe(s) have become unbundled, so too are there a variety of things that have also become bundled. In the light of all the unbundling going on (Chris Saad blew through an extensive example list from everything including music and news to relationships and war), it appears somewhat unsexy to talk about the things going through the bundling process.

Where unbundling is fast and sexy and simple, bundling appears slow and outdated. But in music at least, this is far too simple an assessment.

The reality is that there are many things in music that have always been bundled, but bundled in such a way that they appeared to be unbundled. Many of the things which “music” apps are now trying to tackle separately—distribution, marketing, social, ticketing, analytics, messaging and/or communication, and live booking—have always been bundled under the banner of the record label.

The label controlled virtually everything, from distribution and radio play (yes, payola is real) to marketing and fan engagement. If you wanted to exist as an artist, you needed to be a part of this world in some way. Otherwise, you were relegated to the “independent” pile, which in the years prior to 1991, was much less glamorous than it is now.

Power and Paradigm Shift

When the digital age hit, the unbundling of the record labels’ power began. Since around 2005, major label power has seeped, and independent power has reached new heights. However, in their new-found power, independents were also sold a myth that everything they needed could be solved by partaking in a variety of unbundled services, from analytics to social platforms.

What this myth fails to address though, is the massive time-suck it really promotes. There are a great many things that should be bundled. Things like analytics, ticketing, distribution, radio play, social engagement, community, and marketing should all be offered under the same banner of a startup or new company.

But—and this is so important—done so in a way where the artists retain their power.

Sexy vs. Unsexy

The unbundling that has occurred has amazingly and unexpectedly taken much of the power away from the labels and delivered it to the artists. Artists now have the ability to control nearly every aspect of their operation, from recording through distribution through community engagement. But they don’t really have it all in one place, for free (yes this is huge), with the level of choice they need.

They have a variety of music discovery sites to choose from, a variety of analytics engines to use, and a variety of social platforms to post on, among other things. This is too much, and simplification is necessary. A music company should offer all of these types of functions under its purview, wherein artists can then choose to use them—or not—as they like. Choice and freedom remain intact while efficiency and simplicity are underscored.

But why stop there? Why not tackle the unsexy things that major labels have always done and give that power back to the artists as well?

Have a company that encompasses all the functions above, and then add (fan-driven) radio play, legal information and resources, management, copyright, and informational context. In making the experience of one site all-encompassing, you then succeed in changing the artists’ paradigm, thus changing the music landscape.

Giving artists access to these “unsexy” things is just as easy as (easier actually than) giving fans access to the music they want to hear.

The only difference is that instead of focusing on half of the equation, you instead complete the circle, and do so independently of the former rigid structure.


The Power of Knowledge

Whereas the points of the previous piece—choice and format—led to the overarching concept of community, the three points here point to something different, but equally important: knowledge.

If knowledge is power, then bundling things in a new way to give artists access to more knowledge clearly translates to a shift of power in their direction. This upends the previous paradigm immensely.

As artists gain perspective and knowledge on things like music analytics, marketing strategies, and engagement statistics—as well as “unsexy” things like legal resources and contacts—the power shifts significantly away from the major record companies. Their power has always been cemented in two main things: money and knowledge. But once artists and creators have access to the second of these two things (knowledge), they can apply it flexibly to attain the first of these two things (money).

This creates major fissures in the current music landscape, and opens up a splintering ecosystem of new opportunities for creatives at all levels of music creation and engagement.


The next movement in the symphony will be Part III: Democratizing the Future, which will take a look again at a new unbundled dynamic. Concepts discussed will touch on how the new unbundling will change music ownership and identity.

Stay tuned!


Find me on Twitter @adammarx13 and let’s talk music, tech, and business!

The Spotify-SoundCloud Supergroup Is Dead

Originally published on Mattermark on December 29, 2017. 


tl;dr: The SoundCloud and Spotify deal is dead. For Spotify, no deal avoids unnecessary headaches. For SoundCloud, the road ahead looks lonely as the platform heads into 2017.

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Cream. Bad Company. Temple of the Dog. These were some of the greatest supergroups that ever existed. The Spotify-SoundCloud union could have been next, but like many supergroup concepts, it only lasted a short time.

The real question is why. Ultimately, in my view, the deal died because SoundCloud tried to become something that it wasn’t, alienating its core fan base in the process.

It was easy to argue that a Spotify-SoundCloud combination could benefit each party: SoundCloud’s independent-heavy catalog and Spotify’s major label material are natural complements.

But the prospect is no longer on the table. It recently became known that Spotify passed on acquiring the little orange cloud.

Let’s talk about why that happened.

Supergroup Not

2016 was not kind to SoundCloud.

Despite signing deals with major labels, securing its largest to-date funding round, and launching its own subscription service, key questions remain concerning its current operational results, where it fits into the M&A landscape, and what an independent SoundCloud looks like in 2017.

Fiscal Expense

Mattermark recently examined, broadly, who could afford to buy SoundCloud, now that Spotify has left the table.

To understand why Spotify might have passed—neither Spotify nor SoundCloud responded to requests for comments regarding this piece—on SoundCloud, it’s worth remembering the smaller firm’s P&L.

SoundCloud’s revenue quickly expanded from $1.8 million in 2010 to $9.6 million in 2012, to $19.6 million in 2014. Its losses tracked upwards, however, from $2.01 million in 2010 to $14.9 million in 2012, to $44.2 million in 2014.

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Much like Spotify and other streaming services, some SoundCloud revenue quickly passes through its books. In SoundCloud’s case, around 80 percent of its revenue from a portion of its aggregate top line goes right to labels. Spotify’s results are similar.

The context for those numbers is simple: SoundCloud has raised around $193 million to-date over a series of five rounds. Just comparing the company’s through-2014 losses, SoundCloud has spent around half its raise so far. And since we’re not including more recent operational results, that figure is very conservative.

The Sophomore Slump

If 2010 to 2013 was SoundCloud’s breakthrough album, then 2014 to 2016 was its disappointing follow-up.

Beginning in 2015, SoundCloud started to move away from its initial user base of independent artists and began courting major labels. The company inked a deal with Warner in later 2015 and Universal Music in early 2016.

Warner and Universal were joined by the last remaining holdout in March of 2016 when Sony signed on. That effectively marked the end of SoundCloud’s days as the independents’ playground.

Following the three major label deals, SoundCloud released SoundCloud Go, its entry into the music subscription wars. The company has yet to report major gains from the subscription product. I’d posit that it may be difficult for SoundCloud to entice music fans to the service. If potential subscribers are interested in mainstream music, they can already go to other music services.

Money Talks

While Spotify sports extensive independent material, its focus is major label artists. That fact did not escape those who made the argument in favor of the combination. SoundCloud’s huge base of independent EDM, acoustic, rock, and other artists could help balance the scales and provide a funnel into the Spotify nest.

If the argument for Spotify buying SoundCloud was that the latter could help the former pull in independent music, do SoundCloud’s operational results matter?

The answer is yes, as Spotify doesn’t want anything to threaten its impending IPO.

Earlier this year, I took a deep dive into Spotify’s own financials, examining the numbers and reasons that they already might have a tricky path to IPO. New cost centers could make that already difficult-looking trek nigh impossible.

Even with SoundCloud’s legal issues seemingly taken care of by major label deals, SoundCloud’s subscription service arrived to lackluster reviews, and its sizable debt may present too much of a headache for Spotify just before their looming IPO.

This is all especially stark considering SoundCloud’s desired price-tag of $1 billion. Even with Twitter’s most recent $70 million investment into the service, valuing it in the neighborhood of $700 million, Spotify would still need to pay an additional $300 million to close the difference.

2017

What does this all mean for SoundCloud’s future?

As with Spotify, the major labels now have a vested interest in SoundCloud’s existence. But that doesn’t mean that they have a long-term interest in its health. As I noted in my previous Spotify piece, the labels may not want to kill SoundCloud, but they also don’t have to go out of their way to help it. So long as it sends in revenue, who cares?

Some people will care. The danger could be that independent artists may care enough to go somewhere else more focused on them. (Since they operate independently, SoundCloud’s major label deals have no sway over their prospective decisions.)

SoundCloud’s challenge is that the faster it rushes to catch up with Spotify and Apple in the mainstream arena, the faster it may alienate its key demographic of independent artists; in working to compete with the larger, mainstream players, I wonder if SoundCloud has become what its initial user base—its core point of differentiation—was trying to avoid

We’ll see in 2017.


Find me on Twitter @adammarx13 and let’s talk music, tech, and business!

Unbundled, Part I: Reformatting the Barriers

How unwrapping the previous barriers is changing music.

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This is a continuation of the Unbundled series on music dynamics. Read the previously published piece here:


The first movement in this symphony is the “unbundled” piece. It’s all about “reformatting” the conceptual barriers that initially existed for decades. It’s divided into two parts: Choice and Format.

The former is an exploration of how choice has evolved with the changing technology, and how it’s taken on a power it previously lacked. The latter, however, discusses how new formats have changed music and broken down barriers which artists historically were—most times—unable to scale. Similarly, it’s given light and life to format types which for decades have been ignored by the broad base of music consumers, except perhaps for the most die-hard fans.

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Choice

The first and most obvious form of unbundling in the music industry is the industry itself; no longer is there simply one music industry to partake in.

Now there are multiple, and they exist as completely separate universes; the major label mainstream, the exponentially growing independent industry, and everything in between. Along with this kind of unbundling of different musical arenas comes a freedom for music fans to explore in new ways.

Where non-mainstream fans were once relegated to shoddy mixtapes and bare-bones independent releases (which many times meant lower quality), now they have a plethora of music sources to choose from, as do all music listeners.

This leads to a level of choice the likes of which has never been seen in music. Now, it’s realistically possible to exist as a music fan outside the mainstream in a holistic way. You’re able to not only find the music that you like, and which speaks to you, but are similarly able to take advantage of growing communities of people like yourself. With the free access to all this new material comes access to other like-minded people.

This is community.

Chris Saad pointed to two distinct contributing factors which have lead us in this direction:

  • Reducing the cost of inventory and discovery to, in many cases, zero or near zero
  • Reducing the cost of direct communication and orchestration with more people at once—bypassing the need for manual mediators/editors/orchestrators/curators

Format

Saad’s post also mentioned this within the scope of musical format. What was once a record and CD has now become digital information, thus with more power to disseminate. Even the album format itself is restructuring, as fans looking for a single-song experience are abandoning the long form in favor of something musically shorter.

But this has a swing dynamic as well; while some argue that the album format is dying (or is already dead), many see the opposite.

The unbundling of the album format has actually given it more power than it had before. Now, when an artist chooses to create a full album, a fan knows that there is an artistic meaning behind that, rather than a record label’s fiscal bottom line.

It also lends long-overdue validation to releases that fall in between singles and full albums. EP’s and double-sides have long been ignored by most but the hardcore fans. Now, however, they exist with the same legitimacy as their gaunter and fuller peers.

The Ironic Thing

The ironic thing about these two points—choice and format—is that they’re inherently about one overarching concept: community.

As choice expands and begins to encompass formerly ignored genres and artists, new communities have the ability to coalesce and thrive. Choice isn’t merely about having new material for already established communities to engage in; alternatively, it can lead to a mixing of communities that otherwise might not happen.

Punks and jazz fans may begin to mix over a new punk-jazz fusion genre, and people who otherwise would never have met one another can now suddenly exist alongside each other. This leads to an increased level of creativity and an exponential production of creative material.

And this material is further disseminated throughout communities—splintering them and rebonding them—through new formats of information technology. Communities cease to be rigid and orthodox in their functionality towards music and instead become more elastic—they become living, breathing things which grow and continue to evolve.

This is the unbundling process within music as it should be: an unwrapping of previously rigid dynamics that lends more flexibility and power to the overall process of community cultivation.


The next movement in the symphony will be Part II: Shifting the Paradigm, which will take a look at the BUNDLED dynamic. Concepts discussed will touch on how bundling — but doing so incorrectly in the new era — impacts music consumption and community cultivation.

Stay tuned!


Find me on Twitter @adammarx13 and let’s talk music, tech, and business!

Unbundled: Introduction to the Bundle

Why the unbundling of the music universe matters.

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In recent years, the dynamics of bundling and unbundling have changed everything in media. But they’ve had an especially palpable effect on music.

This is an exploration of the bundling and unbundling dynamics taking place in the music universe right now. Because of the massive amount of information discussed herein, it is necessary to cover it in series of parts, each explaining a particular aspect of change and restructuring.

This series will appear as the following:

  • Introduction to the Bundle
  • Part I: Reformatting the Barriers
  • Part II: Shifting the Paradigm
  • Part III: Democratizing the Future

Additionally, all four pieces (including the introduction) will subsequently appear as a single, holistic text, entitled: Unbundled: The Story of Music.

This is the first entry in the story.

A New Emerging Dichotomy of Freedom and Reach

A few months ago, Chris Saad penned an article on the dynamics of bundling, and how they’re affecting a number of fields. In his piece, Saad addressed how concepts of bundling are impacting areas of creativity like art and music, among others. Ironically, it had a similar air to Joshua Topolsky’s earlier article on media companies, which itself prompted my response on music-startup realities.

Such examples were only briefly mentioned, but one can go deeper on them, particularly in the way of music. Things are happening now to the age-old structure of music that arguably haven’t changed for the better part of five or six decades. And even that is only the tip of the iceberg.

Part of what was so intriguing about Saad’s examination of these morphing areas is just how much change is going on which is not being discussed. In many ways, Saad’s piece shines a light not only on the changing bundling and unbundling dynamics taking place in music, but how these two different forms—yin and yang—are interacting with one another to shape a new musical landscape. What we see is an emerging dichotomy of freedom and reach that we haven’t seen in quite a while.

Three Trends in a Specific Order

Within the context of music, three trends—unbundling, bundling, and unbundling again—matter. And they matter in that sequence. This is so because each (un)bundling action touches a different area of the music arena, and thus their interaction together forms a new paradigm.

They lay out as follows:

unbundled

Covered in Part I, Reformatting the Barriers

  1. Choice
  2. Format

BUNDLED

Covered in Part II, Shifting the Paradigm

  1. Bundled in the Wrong Way
  2. Power and Paradigm Shift
  3. Sexy vs. Unsexy

unbundled

Covered in Part III, Democratizing the Future

  1. Power, Gatekeeping, Scarcity, and Democratization
  2. Ownership
  3. Money and Community
  4. The Expansive Powers of Identity

The music industry, like all other forms of media, is undergoing such a massive tectonic shift that we’re only beginning to now see how big the fissures are. The most interesting thing will be how these changing power paradigms affect the music coming out, and the communities which are built around the material.

Stay tuned!


Find me on Twitter @adammarx13 and let’s talk music, tech, and business!

Playlists Will Not Save Your Music Business

My media business will not be saved by video, bots, newsletters, or Slack integration. That’s what Joshua Topolsky told me yesterday. And he’s right.

A still from High Fidelity (2000); Captures the sentiments pretty will I think

A still from High Fidelity (2000); Captures the sentiments pretty well I think

The New Thing that so often arrives just in time as the savior of the whole machine is many times bullshit. It’s a desired escape from an already challenging (dire?) situation that is causing headaches upon ulcers upon headaches. That’s why it seems so magical in the first place; it seems to appear out of nowhere like some miracle from a higher power. You prayed to the media gods for deliverance, and so they delivered unto you newsletters, bots, and Slack.

But Topolsky is right about the misleading nature of these new things: they have the potential to help, but none has the power to deliver us, to part the seas of stubbornness and ego.

While it appears to me that he sought to write about media in general, Topolsky could easily have been talking about any of the media industries in particular. Music, for example, fits right into his sardonic diatribe in a way that must chafe for the megalithic powers who used to control the industry. In music, it goes: yay for playlists, analytics, offline access, curation, and exclusives—build those in, and then we’ll be saved. No, these won’t save your (music) media business. And that’s painful for a lot of people.

More and more, the posts on changing media dynamics which garner shit-tons of feedback are the ones that are the truest. They are radically brilliant—radically poetic in a way—because of their sheer shunning of “conventional wisdom.” Such is more or less an oxymoron nowadays anyway.

I saw an earlier example of this back in November with Chris Dixon’s post on independent gaming, and was similarly moved to write my response on independent music, something he was also referring to (knowingly or not). Now with Topolsky doubling down on a similar idea, it’s becoming an even starker point.

“Because that [former media] system was built on the concept of scarcity and locality—the limits of what was physically possible—it was very easy to keep the gates and fill the coffers.”

And here we come to the prickly point that so many music businesses have trouble with now: scarcity is obsolete; democratization wins. I underscored this in my Dixon-response piece, but now it seems all the more palpable. What used to serve as a power play by music companies—the scarcity squeeze by the major label—has lost most of its bite, if not its bark as well. Maybe it’ll work if we call it “windowing” and stagger the release on multiple services! Nope, we all know that you simply changed the name of what you were doing instead of trying to actually change the action. And it’ll end up free somewhere anyway. Live with reality.

Wait, I’ve got it! We’ll tell people that we have the best playlist-making feature around! Great, so does everyone else. And, by the way, the people who really matter for your music business don’t care. The general consumer/listener might care (and I stress might), but the artists who actually produce the content you rely on for your lifeblood won’t give a shit. Why? Because it does nothing for them.

Ah, then we will give them the deepest, best set of analytics they can have! Awesome, so will everyone else. You can join the swaths of sites telling them they have a couple hundred streams, have made no money, and then tell them they owe you $4.99/month for that wonderful data. The reality that you don’t want to hear is that the vastly growing demographic of artists—independents—are smart enough to know this already, and all you’re really doing is giving them numbers with no context. You’re giving them the numbers, the locations, the graphs— but with no real way to actually affect change in those numbers.

Offline access and exclusives then! Right! Except not, because exclusivity doesn’t help these artists long-term, it only helps you in the short term. It’s why artists immediately understand the opportunities before them now while other people struggle to see the big picture. Because they have long-term vision, and patience. Because exclusives are not where the long-term strategy is, either for the artists, or the music business.

It’s in the community cultivation and the relationship bridging. Social and messaging then! No, stop, that won’t be an easy save either. The reality that so few people want to hear is that community cultivation is a long-term process. It’s about knowing things about your content producers—in this case the artists you work with—that your competition doesn’t bother taking time to find out. Don’t ask me how many registered users I had yesterday. Ask me how many conversations I had yesterday with ten artists in seven different countries with fanbases numbering in the tens of thousands. Ask me what comes out of that. And then remember that was only ten artists.

Over the last few years, we were asked who we thought would win the streaming wars, because streaming is obviously the future of music. Except that’s too simple a magic potion because it’s going to take a lot more than that to reach the new horizon. It’s not about fixing the faulty component in the engine. They’re all faulty, and have been for near 40 years.

You have to rebuild the engine completely. Bottom up. You need to construct a music company that does everything that will change the reality for a new artist; after all, there are so many more of them than anything else. And they never stop creating and producing. You need to take your time to do all the sexy things—the playlist functionality, the radio, the streaming, downloading, profiles, social, live—and all the un-sexy things you never thought about—the legal stuff, the business stuff (more than just analytics!), the financial, and the marketing. Fixing the broken paradigm is a losing proposition; building a whole new one is (ironically) cheaper, better, and much, much more powerful long-term. That’s the strategy I’m committed to.

Topolsky was dead-on:

We’ll have to learn a thousand hard lessons, most of them centered around the idea that if you want to make something really great, you can’t think about making is great for everyone. You have to make it great for someone. A lot of people, but not every person.

And that’s what’s missing from the music-business discussion right now. The “everyone” that most streaming services are targeting is already saturated with competition, high prices, and a lot of bad press (from artists and artist agencies like ASCAP and BMI). The “someone” that Topolsky refers to, though, is the independent demographic, clear as day. They’re underserved, undervalued, dismissed, marginalized, pissed off, and not tied to any major label contracts—just right to woo and capture with something as easy as a conversation and explanation of a better future.

I’m as shamelessly self-promotional as Topolsky admits he is because these are the people I love. I know they see what I see, and they’ll wait around as long as it takes to make it work. Because they’re not jaded or angry—they’re just waiting.

Waiting for something better to come along for them.

The Undeniable Hypocrisy of the Apple-Swift Saga

Image courtesy of Mirror

Image courtesy of Mirror

The Background

With Taylor Swift’s cleanup at the Grammys this year and attention over her misleading “victory” over Apple—and her subsequent partnership with the company—having waned (if not faded) over the last half year, it seems to be the appropriate time now to dissect what the fuck really happened back in July of last summer. Prior to the past few months when things seemed to have boiled down to a low simmer (focused mostly on SoundCloud and Spotify), the music news arena was blowing up over Taylor Swift’s push-back against Apple. Her open letter criticizing Apple, and subsequent statement that she would be boycotting the new music service—as she had done with Spotify—made it easy for the media to paint her as a martyr for “artists’ rights.” But that’s not the whole story. Not nearly.

When Apple announced early in June of 2015 that its new music service, aptly titled Apple Music, would not be compensating artists with royalties during the first three months of a user’s free trial period, there was significant push-back before Swift even got her letter out the door. The announcement was panned by the general music community, as well as by both artists within the mainstream paradigm, and the broad base of independents. When Apple retracted the statement and replaced it with a “fine, we’ll pay artists for the three-month trial period,” artists felt that they had won a major victory against the tech giant. Many even felt that Swift spoke up for them and that they benefited from her desire to help the general music community. Here’s why that’s wrong.

A Misleading “Victory”

Numerous sources reported on Apple’s recanting and Swift’s “victory,” from TechCrunch to Forbes to Mashable. But it wasn’t that at all. The retraction by Apple was telling of a much larger trend at play (and frankly, a much larger problem for independent artists which they should be focusing on). Swift made the same stink that she did when she “broke up” with Spotify, drawing on arguments like “artists shouldn’t give anything away for free” and her favorite “art needs to be rare to be valuable.” Soon after, Apple caved and said artists would be paid, and everything ended happily ever after.

Not.

While I wholeheartedly agree with Swift that artists shouldn’t have to give away their music for free if they don’t want to (as opposed to Swift’s catch-all “no free music ever/free music devalues your art” blah blah blah), I don’t think her motives are as angelic and altruistic as they might initially appear. People should be asking why exactly Swift made such a big fuss over this. Why? Because it really cuts into her bottom line. A bottom line that many of the independents she somewhat claims to “speak for” don’t have. Their economics are a very different reality from hers. Swift lives in a completely different universe, and no, as Matt Atkins wrote in a great Medium post , she is not an “independent artist.” Her signing to Big Machine Records makes her seem more independent than she really is; make sure you remember that she owns a huge stake in Big Machine, and that it’s distributed by Universal Music Group. So no, Swift doesn’t see it from the same perspective as that of an indie band in the garage in Ohio just trying to scrape by.

If an Independent Tried to Strong-arm Apple…

This doesn’t make Swift a bad person; it simply makes her human in looking out for her own best interests. At the time, that aligned with the best interests of the general music community. But people should not confuse happenstance with correlation.

Swift was able to strong-arm Apple into changing its position on paying royalties for the free trial period, and I commend her for that. But I can pretty much offer a dead guarantee that if it had been an independent artist who took to Twitter to complain (and many did, mind you) or write to Apple, nothing would happen. I’m not even sure they would receive a response email addressing their grievances. The fact that their position changed as a result of Swift’s vocal stance was a sheer coincidental benefit for the independent music community.

Artists who are not on Swift’s level (that is to say, most artists in the world) should be asking what could and would happen if and when their best interests don’t line up with hers. (Never mind the fact that Apple completely screwed up an independent artist’s entire catalogue upon Apple Music’s release). The moniker of Swift as “the Apple-Slayer” was nice and poetic, but all the more misleading. It painted Swift as the David to Apple’s Goliath, but that’s on a whole incorrect. Swift is just as much a Goliath as Apple is, and that’s precisely the reason that Apple caved to her in the first place. Had she been the David-level artist she parades around as (and which most independents actually are), she most likely would have been roundly ignored, as most independents usually are. When Apple caved, it was a good week for all artists. But what happens when Swift decides that what’s best for her is to choke the radio market and keep out other artists who might be stepping on her musical toes? I can’t imagine that she wants to give up any of her power.

It’s All About the Power

And that’s exactly what it’s about: the power. Swift has the power to turn heads and make things happen the way she wants. But that could be very bad for other up-and-coming artists. Swift, ironically, has become yet another gatekeeper, akin to the ones she so readily criticizes. She’s signed to an “independent” label which is distributed by one of the Big Three labels (Universal), and she has the clout to mobilize legions of fans (when she’s not suing them, I suppose).

But what about her whole “anti-free” mentality? That’s directly at odds with a lot of the thinking within the independent music community, where artists increasingly see their music as a means of marketing, rather than an end commodity for sale. What happens when push comes to shove and she’s on the other side of the fence from the much broader—but much more unknown—independent music community? She will still have the power to push her agenda, and they will simply be more obstacles in her way.

The reality is that no artist, of any caliber or genre, should have the power to dictate changes like that. At the time, it worked out for the better, but next time will be another story.

Subsequent Partnership

All of this made the announcement of Swift’s subsequent partnership with Apple more confusing, and in some ways, harder to swallow. After all the stones that were thrown, and all the press that was garnered (a calculated effort, I’m sure), the end result was somewhat anticlimactic. We were all ready for a super showdown of a major mainstream artist (yes, that’s what she is, live with reality) bucking the system and sending a message for musicians everywhere. What we got was…well…predictable.

As soon as Apple caved, so did Swift. She caved to using the service when it turned out that her open letter would get her exactly what she wanted. That sounds logical, except for the fact that she pretty much abandoned the “Apple-Slayer” independent gauntlet when she stopped focusing on how the new service would be for non-mainstream artists, and just said “ok.” In so few words, it seems that Swift was content to “take the money and run,” so to speak. Her victory really wasn’t a victory for anyone who wasn’t seeing massive streaming or airplay already anyway, so let’s not treat it as one.

A Picture’s Worth a Thousand Words

Perhaps the most glaring result of Swift’s flirtatious battle with Apple, though, was the fallout over her own contracts. In the wake of her open letter, other types of creatives called her on her own hypocrisy, though this time, they weren’t musical artists: they were photographers. In an open letter of his own, professional photographer Jason Sheldon shined a light on Swift’s own hypocrisy in her company’s contracts with photographers at her shows. According to the Washington Post:

Swift’s management company, Firefly Entertainment, demands that photographers who shoot Swift’s concerts to do so on a “one-time-use” only basis and relinquish any rights to republish or sell their photos. Additionally, the contract states that Firefly has the “perpetual, worldwide right to use” the very same photographs in just about any way it sees fit, without compensating the photographer for their usage.

Wow, let’s just take a moment to let that sink in. Swift—the great “Apple-Slayer” and champion for artists’ rights and fair compensation—didn’t (doesn’t?) even feel that those same dynamics should apply when she’s the one who has to pay royalties. That’s pretty staggering.

As she wrote in her own Wall Street Journal op-ed piece, “Music is art, and art is important and rare. Important, rare things are valuable. Valuable things should be paid for.” Considering just how much Swift seems to think that “valuable art should not be free,” it’s fairly amazing that she doesn’t go out of her way to create the best working opportunities for other creatives. In fact, the only thing it does is make her an undeniable hypocrite. If she wants to sit on top of the mainstream and act in a holier-than-thou way, that’s fine, but she should at least be honest about it. She shouldn’t be parading around as some “champion for the independent artist” when clearly her actions say otherwise. It essentially negates everything she’s done to “bring attention to artists’ rights.”

Perhaps the most upsetting thing of all is that many were lulled into thinking that Swift is something that she’s not, including other artists, and independents in particular. This was akin to telling someone that they now had a spokesperson they could trust and count on to speak up louder than they could for their general rights, only to find out that person wasn’t nearly as altruistic as they initially appeared. Most frustratingly, though, it has the power to negate arguments made by others who really are looking to campaign for artists’ rights. Swift’s hypocrisy has the power to undermine other voices (ones who might not be as loud as hers), and to take the focus off the matters that need to be addressed.

(Legal) Iceberg Ahead

Even as the fallout from the Apple-Swift roiling seems to have unfolded months ago, so too was there something else on the horizon for Apple which spelled a different kind of trouble: monopoly. As the FTC subsequently sent out subpoenas to competing music services following its initial probe of Apple Music, attention began to focus again on the tech giant in a way that is less than flattering. The “war” which Spotify started last July with Apple seemed to spread to other areas of the collective music business conscience. Apple Music may not have been “doomed” as Tidal was (or seemed to be) upon its initial release, but it does have new things to take care of that other services don’t need to account for.

Perhaps the irony of the whole situation is that Apple’s legal issues regarding Apple Music really only surfaced after the service was announced and released. Inasmuch as Apple would like to pretend that it has enough money to push its way through to any opinion and finding that would benefit it, it still must contend with U.S. legal code, not to mention its own Terms of Service. Power and money notwithstanding, the outcome of the said legal issues won’t resolve super quickly.

In the End

In the end, the whole Apple-Swift saga that encompassed the end of last summer really wasn’t what people reported it to be. It won’t (and hasn’t) really resulted in a super-massive victory for independents beyond some news attention, and it actually served to highlight some dirty little secrets in Swift’s own business affairs. I don’t know if the saga is concluding or just in a lull itself, but I don’t think this “picture-royalty” thing is going to go away anytime soon. Now that the dam has broken, I bet we’re going to see many more creatives (photographers for sure) speaking up over the next year or so about their business experiences with Swift, and I don’t think they will all be positive.

As for Apple, it continues to chug ahead after the release of Apple Music, albeit in the shadow of the new FTC probes. Though the service boasts a few interesting features, few of them can really be described as “new” or “earthshaking.” While ex-BBC host and DJ  Zane Lowe likely made U.K. listeners happy on the new Beats 1 radio program, for us in the States he was a somewhat irrelevant “exclusive” for Apple to tout (simply because most Americans didn’t know who he was). If Apple really wants to set itself apart in the long term (10+ years), it’s really going to need to do better than a few exclusive names. I suppose we’ll see, but for the time being, the Apple-Swift saga has left a sour taste in my mouth that won’t be going away any time soon.

Cold Emails Are an Opportunity, Not a Chore

Last week, Hunter Walk posted a short piece detailing a few calendar experiments he’d be trying this autumn. Amongst the challenges was a point which stuck out to me: his commitment to replying to any cold email at least once. This started a reflective thought process in my head on the heavy benefits of cold emailing.

I’ve Sent More Cold Emails Than I Could Ever Count

In my time and experiences within the music business, I’ve sent more cold emails than I could ever count; they’re virtually required if you want to start any sort of dialogue. In many industries (tech included), introductions through peers and contacts account for a large percentage of successful business relationships. Cold emails, however, work less often (excluding famous stories which have since become startup lore, like Box’s Aaron Levie cold emailing Mark Cuban and getting an investment). Many times, startup founders are lucky if they gain a response anywhere near Walk’s commitment to answer them at least once.

But in the music world, cold emailing is the norm; you better become very comfortable with it (and very good at it) if you want to get anywhere. You end up cold emailing artists, managers, promoters, bloggers/journalists, DJ’s, venues…the list goes on and on. You learn how to craft just the right sort of message that is equal parts fan and prospective business contact (and if you forget the fan part, you’ve majorly screwed up). Cold emailing becomes such a normal part of the overall flow that if you’re not sending at least a couple per day, you’re losing out.

The Benefits Far Outweigh the Drawbacks

Yet Walk’s piece reminded me of something different. We’re so used to reading posts about cold emailing written by the senders that many times the recipient’s perspective might go unnoticed. I’ve been on that end too.

I’ve had artists email me out of the blue asking for any number of things: a review of their new album, play on my radio show, feedback on their new single, advice about local venues, etc. And this is where Walk’s point hit home for me: it’s so easy to ignore cold emails (especially when there are mountains of them) that sometimes we can forget the opportunities which they can contain. Some of my best and longest lasting business relationships germinated from cold emails. It’s those solid, long-lasting relationships that have led to further opportunities in both the music and entrepreneurial spaces.

(It is of course relevant to note that cold emailing isn’t the only way to broach an initially unsolicited conversation. In my experience, there are any number of indirect methods that work just as well, if not better, than the cold emailing avenue. These, however, I think will provide fodder for a subsequent piece.)

Perhaps cold emailing in the music world is less overwhelming than it can be for tech angels or investors (which is both highly probable and understandable), but experience has taught me that Walk’s approach has benefits which far outweigh the drawbacks, so far as I can see. In opening his mind and palate up to what could be out there, Walk greatly increases his chances of striking upon a beneficial new contact and/or relationship. He does this because cold emails tend to go unnoticed or unanswered by some, and thus provide fertile ground for Walk to mine out new opportunities in an area all his own.

Where Some of the Greatest Opportunities Lie

Time-consuming though it may be, I think Walk’s proposed solution of setting aside 60-minute windows in which to go through these emails is precisely the right course forward. He is upfront about his limits (simply as a human with a life and a job) and does not set out to promise responses within a 24-hour period; everyone has a limited amount of time in the day and that’s just life.

Yet, when the opportunities are literally on your (digital) doorstep, I think the worst thing one can do is simply ignore them. In the music industry at least, one of the first things you learn is to look where no one else is looking. Taking the time to do so usually ends up being the best decision you can make; that’s where some of the greatest opportunities lie. I would be surprised if the same couldn’t be said for at least some level of the tech/investing space as well.  

The Continuing Money Troubles of SoundCloud

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

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

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.

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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?