Continuing to Build with Product Hunt

Posted on December 22, 2015 by adammarx13

It’s 3:00 AM here on the east coast, and I would normally draft something like this a few times over the course of a week to get it just right. I’d rewrite it over numerous cups of coffee, but tonight it’s just one glass of seltzer water until the job is done. Tonight, it’s less important that it be a perfect piece than that it goes out by dawn.

I’ve written extensively on Product Hunt over the past few months. I’ve discussed why their main sale isn’t tech products at all, but rather community. I’ve discussed how their sophomore effort ~~could be~~ has been arguably their greatest triumph yet. I’ve argued that the team which has assembled under the Product Hunt banner, and the community it’s built around itself, is something special that should be recognized and emulated. Ryan Hoover’s post a few hours ago convinced me of why that’s true.

The Medium article to which Hoover’s first couple of sentences refer becomes almost completely irrelevant because of the way in which he opens his own piece: he’s not aggressive, defensive, or combative. He’s much more approachable than that. His verbal acknowledgment at his (and his team members’ hurt) over the post, and subsequent chin-up response of taking all feedback with a positive hand, might very well go unnoticed as readers try to figure out and/or find the post that stirred up this whole range of emotions. It shouldn’t.

Where so many might jump to a defensive tone, or a dismissive air, Hoover sets himself, his team members, and their company head and shoulders above by opening (and then closing) the piece with a dynamic of measured grace. It’s very easy to be graceful in your writing when you’re responding to praise. It’s very, very hard to do so when you’re responding to criticism, especially when that criticism is critical for criticism’s sake, with no discernable constructive overtures.

It’s been my pleasure to have numerous, daily interactions with numerous members of the Product Hunt team, and so I’m personally not surprised at such an honest, well-written piece. For those who are really paying attention, they know that this is precisely the reason why PH has shot up in popularity and virality. This is the reason why it’s growth and positive reputation seem to be stupidly big and expanding: because the community which they’ve built inspires people like me to come to their aid at 3:00 AM without batting an eye. It’s because they’ve engendered in their users a desire to see the most positive parts of the community grow, and to help work on the parts that need a little elbow-grease.

In the music business, there’s an adage I hear a lot: for those of you who forget us on the way up, we’ll see you on the way down. It means that for those artists who forget their early fans, and their initial community when they “get big,” there’s no guarantee that those same fans/early community members will be there when the lights come on; don’t take people for granted.

In writing this post (among others), the PH team has proved why it doesn’t take anyone for granted, and why they want to build a place where no one feels taken for granted or forgotten. If nothing else, this is why they win. The tech products, the guest chats, the games, the growth metrics…all of these stem from how they’ve constructed their community. It’s the reason why their community will continue to build with them, regardless of whatever critical responses they might receive in the future. If you want to emulate something, emulate that. I know that my team members and I are. Emulate how to build a damn good community with strong ties. Everything else can come after.

Independent Music Is Big. Really, Really Big.

Posted on November 16, 2015 by adammarx13

PC Gaming Is Just Like Independent Music

Chris Dixon’s article yesterday discussed the trends that media is experiencing in the digital age. While his article focuses mostly on the gaming industry, it also heavily references the music industry, drawing numerous parallels and comparisons throughout the piece. Since I’m not much of a gamer, the music-related aspects of the post fascinate me because:

They so closely mirror those in the gaming industry, which I find intriguing and even somewhat surprising, and
Because Dixon is exactly on-point in his dissection of them.

Regarding the first point, it’s almost eerie how broad Dixon’s thesis could have been, were one to read the piece out of context. Of particular note are subtitles like “PC games are way bigger than you think[,]” which could easily say “independent music” instead of “PC games.” And it is way bigger. Way, way bigger.

Independent Music Is Way, Way Bigger Than You Think

Independent music, like PC gaming (it seems), is substantially bigger than many people initially realize, particularly if they’re only considering one part of “the music industry.” The “music industry” is a misnomer itself since it lends credence to the thought that there is a singular music industry in which to exist and do business. This is incorrect because there are in fact multiple paradigms that exist within the music universe, all of which operate according to very different rules. Independent music is a whole different world than major label music, and thus the opportunities that lie there do not necessarily mirror the opportunities that lie in the latter.

Growth of independent music between 2003-2012; image courtesy of Techdirt

The stark reality is that independent music cannot be measured according to the traditional metrics. Unlike major label material, independent music cannot be measured and calculated metrically based on chart success, album copies sold (physical or digital), or video hits. Independent music extends to places major label music never touches: to the garage of the punk band in Chicago, the coffee house performance of the singer in London, the bedroom demo of the multi-instrumentalist in Melbourne, and the piano jazz bar in Amsterdam. As a result, the sheer number of artists that exist (and are popping up every day) is staggering.

The Problem with the “Walled-Garden”

As Dixon pointed out, where gaming wins is in providing endless choices for users, and relying on the dynamic of attention instead of scarcity. This is directly at odds with the current approach in most of the traditional music industry (in streaming especially) where the “walled-garden” approach is used as a means of obtaining exclusive rights to material on one service, and thus making it scarce or unavailable on all the other services. The notion here is that if you can garner enough scarce material, you’ll have something your competitors simply can’t lay their hands on.

The problem with this line of thinking is twofold:

It doesn’t actually work, since material (major label or independent) inevitably finds it way off of solely one system and onto multiple systems; and
It’s against the nature of music. Music is art, and the nature of art is to be seen, shared, engaged with, and shared again.

Music is freedom and expression, and to try and stifle that on one system is simultaneously useless and misguided. It’s misguided precisely because music is inherently social. Unlike movies or books, music has a unique live element which can be leveraged to the benefit of both the artists and their fans (both current and prospective). One of the fastest growing trends in independent music is for artists to alter their perspective of their own music: rather than looking at it solely as an end commodity for sale, now it’s becoming a mechanism for free marketing and advertising. It’s a means to an end, a way to get people to come out to shows, connect on a personal level in the live paradigm, and walk away feeling a direct identification with that artist.

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

Unfortunately, major labels have been less enthusiastic about this approach. As Dixon notes, they rely heavily on litigation and have effectively stayed focused on protecting their back catalog, looking backwards at the past with forlorn eyes rather than tasting the future.

Royalties Are the Emperor’s Clothes

The royalty system is a whole other monster, which I’ve tackled a number of times, and which I think is simply a chain to the past and nothing more. It doesn’t help artists the way they need to be helped, doesn’t make fans feel good about how artists are compensated, and just remains a massive headache for any music company, streaming or otherwise.

1276-music-streaming-services-compared_Sep152

Royalty Rates, Minimum Wage, and Reality; image courtesy of informationisbeautiful.net

Simply put, the royalty system is arguably the best example in media of the Emperor’s clothes: everyone keeps saying that we just need to find a way to make it work in the new age, when in reality there is no way to make it work in the new age. Arguably, it didn’t even work in previous decades; but it was the only real, scalable revenue system around, and thus became the industry standard.

In the post, Dixon quoted the post-mortem statement of Turntable.fm, which states that the Turntable team spent tons of cash on lawyers, tons of time trying to secure label deals, and ultimately that they didn’t heed the lessons of so many failed music startups. I’ll go so far as to argue that one of these mistakes (which founders continue to make) is buying into the old royalty-based system, and thus undercutting their own feet before even beginning the race.

The music pipeline

The diagram above paints this picture, and if you look closely, you see that there are really only two entities who hold any significant amount of consistent power: the major labels and independent artists.

The former group essentially controls the lifeblood of dependent streaming services (like Spotify, Apple Music, Tidal, and more recently SoundCloud), the payment to artists from the royalties collected, and the gatekeeping authority over the music to which the mainstream is exposed.

Major Label Percentage Ownerships of (some) Streaming Services; *(Beats has since been purchased and rolled into Apple Music)

Independent artists, however, control their own distribution, exposure, and revenues models. Because they’re not beholden to any one paradigm or other entity, they are free to explore a wide range of possibilities, and mix-and-match those that work best for them. In many cases, this is highly individualized; what works well for one artist doesn’t work at all for another, and vice versa.

Community. It’s All About Community.

Dixon nails it home in the latter paragraph on books, when he states:

From a legal perspective, some fanfiction could be seen as copyright or trademark infringement. From a business perspective, the book industry would be smart to learn from the PC gaming business. Instead of fighting over pieces of a shrinking pie, try to grow the pie by getting more people to read and write books.

This is exactly true for the music business too. Instead of looking to block remixes and free distribution models, music companies would be better off learning how to leverage those models for improved community building and engagement, particularly as music is so heavily impacted by live continuous interaction. Build the community around the artists, and fans will follow. From those core fans, new and more flexible revenue models arise. The future of music is democratization and community.

If you look at many of the companies that are winning in media/tech right now—companies like Medium, Twitch, Product Hunt (with Games, Books, and Podcasts), and BuzzFeed—you see that they have invested a substantial amount of time and energy in creating communities around their products and/or services. The Medium community writes about anything and everything, and communities on Product Hunt and Twitch are super sticky. And all of this is to say nothing of the Dixon’s crowdfunding point, which certainly has massive and positive implications for the music business moving forward.

Scarcity Is Obsolete, Democratization Wins

Dixon’s closing statement gives me chills:

The internet renders business models focused on scarcity and litigation obsolete. But as the PC gaming market shows, it also unlocks lucrative new business models, and lets creators connect with consumers in new and exciting ways.

It gives me chills because it’s so on-point with what’s happening in music. Dixon set out to write a post on gaming, but in the process he laid out precisely the dynamic that’s bubbling to the surface in the music universe. I can’t believe this is a coincidence. Art is art, its essence is sharing and engagement. Music and games are forms of art, and draw their life-force from the communal engagement that occurs between the creators and the consumers. It all comes back to community. Every time.

Support Systems Make Long Odds Targets to Hit, Not Walls to Avoid

Posted on October 14, 2015 by adammarx13

In another post this week, Hunter Walk wrote that the prospect (and indeed reality) of starting a company is hard. He referenced previous posts by Jason Calacanis and Paul Smith, both of whom wrote good posts on the kind of spine and drive you need to have in order to tough it out in this business. Both pieces were on point; Calacanis’ in particular struck a chord with me as it reminded me of how DIY punk you need to be in to work in the startup world.

Walk, however, brings something different to the table in his new post; he postulates how people from different backgrounds might have read the previous set of posts differently, and how they might have understood the points which Smith and Calacanis were making. Indeed, Walk strikes on this towards the end of his own piece, when he declares that something has been “gnawing” at him:

Starting a company—deciding to absorb that risk—should attract a self-selecting group of founders[,] but I also suspect stressing nothing but the long odds, the sacrifices, creates a barrier to entry for entrepreneurs who don’t have role models or a support system around them.

And in an instant, Walk seizes on something that is as palpable as it is subtle: those startup entrepreneurs who have a positive role model and/or support system from which to draw confidence are inherently better prepared for the slog than those who do not. However, it’s worth noting that many successful entrepreneurs didn’t come from families of entrepreneurs. Rather, they had to make the jump themselves—into instability, increasing pressure, constant rejection—in order to see their drive and vision fulfilled.

I got lucky; the support system I needed was already in place. I wasn’t aware that my road towards the startup world started long before I ever thought to explore such a path. As such, the long odds are almost normal for me, and the DIY punk attitude is something which has always been underscored in my life.

For others, though, Walk makes an astute point: those who come from different backgrounds—the people who might be the first entrepreneurs in their families, or who have had to surmount obstacles that some of us might not have had to contend with (race, gender, economics, etc.)—need to be aware that they may be able to draw upon support systems outside their personal experiences and upbringing. Such an awareness can change their perception of the long odds although the odds themselves do not change. Walk:

How do we help potential entrepreneurs understand the long road ahead of them while letting them know there’s a support system to help them? Frankly…it’s better that 1% too many people start companies than 1% too few because you never know…And maybe that first time doesn’t work but the second time does…

Walk’s point is palpable; the view that success might be only one failure away is something that becomes ingrained in an entrepreneur who has a support system to fall back on. That support system makes one resolute in the face of the long odd; something to be confronted and overcome, circumstances permitting.

Successful entrepreneurs understand that the long odds are just numbers on a screen that tell you all the reasons something isn’t possible. With the right kind of role model(s) and support system, the long odds become less a wall to avoid than a target to aim at. Perception is a powerful thing, and is a key factor in the spine and drive which one needs to embody to forge ahead.

Why Product Hunt’s Sophomore Effort Could Be Its Greatest Triumph

Posted on October 6, 2015 by adammarx13

In an insightful post yesterday, David Berkowitz postulated that Product Hunt might be suffering from startup fatigue as 2015 draws to a close. His presented graphs and statistics are all on point, and the analysis of said metrics is fairly fleshed out, and I’d say quite accurate.

However, though I agree with Berkowitz on a number of points, I stand apart in questioning whether Product Hunt has fallen victim to ennui and achieved the “Mad Men” effect. While the metrics point to a decrease in overall activity (which you can see in Berkowitz’s original post), I’m not so sure that the postulation of trouble for Product Hunt is exactly right. Let me tell you why.

The Debut Album

Product Hunt debuted halfway through 2014, and I came to it late in that summer, somewhere between July and August. I had just enough time to familiarize myself with the site (and app) before the windfall from the 6+ million a16z-led A round really enabled them to start expanding rapidly on their product and offerings. This summer alone PH has released 3 betas (that I’m aware of), Games, Books, and Podcasts, along with its LIVE feature (which I quite enjoy). I’ve heard murmurs that some people think PH is throwing anything at a wall and seeing what sticks, rather than focusing on one specific vision. Not only is this a fairly correct observation, but it’s exactly the right thing for Product Hunt to do.

As I discussed in this twitter thread, I think that from ~June 2014 till now (~October 2015), we’ve seen Product Hunt’s first act; its debut album as it were. That’s the album that is either overlooked except by the core fans (Nirvana’s 1989 album, Bleach) or gets all the attention (Pearl Jam’s 1991 debut, Ten).

@rrhoover @KoriDHandy @charlesjo the initial inertia wasnt to be expected to last; PH appears to be searching for its own unique vertical

— Adam Marx (@adammarx13) October 5, 2015

@rrhoover @KoriDHandy @charlesjo ..succeeding becuz thy focus on the fans who wear their shirts, hats, etc. the 1’s who rly identify w/ them

— Adam Marx (@adammarx13) October 5, 2015

The data implies that Product Hunt is of the latter, and that the coming months will most likely continue to be somewhat challenging for the company. The fact that PH might well be a necessary utility for some (as Berkowitz now identified it as for himself) as opposed to a quirky, fun new thing is arguably irrelevant. The fanaticism that Product Hunt enjoyed over the last year may not last in its current form, but it does signal something greater, I think.

The Sophomore Effort

Continuing the music analogy, Product Hunt now finds itself in the studio after its debut success. The tour’s been completed, and as such, self-avowed PH fans wait for the next release, many hoping to see a redo of the initial popular effort. But PH has outgrown its debut skin, and is looking for something to keep its creative juices fresh. What the metrics really tell us is that PH is going through growing pains, trying to figure out just how many new instruments and styles it wants to try on its new album. Product Hunt’s sophomore effort will do two things: 1) it will likely alienate a demographic of general users who “like the old stuff, but not the new vibe,” and 2) solidify those of us who want to see PH keep growing and cultivating its community.

I discussed Product Hunt’s winning in community earlier this summer, and since then have only furthered my beliefs in such. This signifies one of the main distinctions that I think will come to play out over Product Hunt’s ecosystem: certain users will use it mainly as a necessary utility, while others aren’t exactly sure what to use it as, but are drawn to the intriguing dynamic nonetheless. To be clear, there’s nothing wrong with being either kind of user; different strokes for different folks. But to be equally as clear, Product Hunt continues to succeed brilliantly because it attracts people like me; people who were not (are not) self-avowed die-hard tech product enthusiasts, but find it enticing anyway. I was never as much into new tech products and beta testing until I started using Product Hunt, and that’s exactly why it wins: it turns outsiders into insiders.

Some have begun to criticize PH for its commenting invites, and the exclusivity factor which they arguably perpetuate. But I think the minor exclusivity factor actually distracts from a much bigger inclusive factor. Product Hunt has succeeded in building the backbone of a community that is magnetic; it’s engaged, positive, and exciting for people who are open to new things.

Points of Discussion

In all this, Berkowitz makes a number of statements which I agree with, but analyze differently.

Upvotes may not be the best measure of activity: This may in fact be true, but I’m not sure it matters as much as one might think. I see Product Hunt’s upvotes as proof of concept; people did want to see new products and share their impressions of them. But the upvote (and downvote, additionally) is a fairly one-dimensional interaction, and one I can see becoming less important to Product Hunt in the grand scheme. I don’t necessarily think they’ll get rid of it, but now that the PH team has planted the seeds of a truly interested and engaging community, those seeds are now germinating, and thus simple upvote metrics might not even be enough to truly capture the meaning behind those interactions.
There could be a long tail effect: The prospect that lesser known products are doing better is possibly the best thing that could happen to PH in my opinion. What we could be seeing is the beginning of a democratization in the PH community, one where you don’t necessarily have to know someone influential to get your product some real traction. If I were part of the PH team, I would try to capitalize on this and figure out how to focus this dynamic; keep pushing the democratization without losing the high standard of quality.
Perhaps Product Hunt is too slow in letting new people participate: I can see the validity of this point, and can see how it plays right into the “Product Hunt is about exclusivity” argument. There’s no quick and easy fix here, and I don’t think there should be. PH needs to retain its values and vision, even if that means it remains partially closed to prospective new users for a time.

Notice, however, that I said partially closed; my best thought would be to let new users trickle in by giving them some access, a little at a time. Give them perhaps 5 comments every month until they gain full access. This could hopefully encourage them to use their comments wisely, and thus dissuade them from posting drivel or offensive material, while simultaneously allowing PH team members the necessary control to guide these new users.
Product Hunt is expanding into new categories such as games, books, and podcasts: This I don’t think is a problem at all; I think it’s an opportunity. Not every sub-category will be gold, but that doesn’t make it lead either. I quite like Books, and use it way more than Games (I’m not much a gamer). And though I’ve never been huge into podcasts, the new channel is making me rethink that. People will get different things from different channels, and there will be no way to see what’s really a success until a few more months pass.

I do, however, think that PH has enough new things to keep its hands full (especially with the addition of the LIVE channel as well), and think it should focus on the irons it already has in the fire rather than continuing to add new ones.

Berkowitz’s focus on the overall trends present in the graphs, though, is just one part of the story I think. Metrics are necessary things, but they can sometimes distract from possibilities on the horizon otherwise overshadowed by more dour trends. I think that’s the case here, where PH’s recent trends forecast a much more problematic stance than is actually there.

Cultivate the Community, Ignore the Noise

In the coming months, I can see Product Hunt becoming one of the popular contemporary examples of a company that arguably lost its “special sauce” after a great first year and successful Series A round. I anticipate articles to follow on TechCrunch, Re/Code, and to pop up all over Medium, as PH gets picked apart over its somewhat plateauing (if not declining) metrics. However, I caution against counting out PH too soon, and not focusing thoroughly on where they have situated themselves over the past year. Observers would do well to remember that PH is much more than metrics and trends; in fact, it’s mostly more than that. It’s community.

Keep throwing things at the wall, and experimenting with new instruments on the next album, and see what works. PH has already succeeded because their core fanbase is coalescing. Now they just need to nurture that base. Cultivate the community that any band or startup would kill for; that’s where the real power rests. When you leverage the power of your fanbase, the trends can go any way you want them to. All the rest is just noise.

As for the Product Hunt team, my best advice to them were I to be asked would be to keep their heads down and just work. Acknowledge that this is the sophomore effort, and thus may irritate some of its debut supporters. However, this is the nature of the sophomore album, and could signal Product Hunt’s move towards the release of something even bigger than before. Whereas 2014-15 was Bleach, 2016 could be Nevermind.

You Better Be a Punk

Posted on September 21, 2015 by adammarx13

I just finished reading Jason Calacanis’s post “You don’t have what it takes” with regard to starting a company. How hard it is to start a company, and how hard it is to keep a company going. And how it is to keep your team breathing financially, and make your company successful. And not just any company; a startup.

I was pointed to the post when Charles Jo tagged me on Twitter (though I would have read it eventually, as I follow Jason’s blog), and posed a thought process to me: “[S]eems similar to what I imagine musicians go through.”

I let that postulation play through my head as I read Jason’s article, and tried to see if any of the advice and realities in it applied to new (most times) independent artists too. I reflected on my ~10 years of experiences in the music universe—as an artist, a journalist, a DJ—and of all the artists I know and speak to. And the finding of my thought experiment regarding those realities, is yes, they do. A lot.

Jason talks very bluntly about the pain that startups cause founders, and what kind of spine you need to have to soldier on through it. Startups are a bloodsport, and not nearly as easy, romantic, or chic as people might think after watching an episode of Shark Tank.

So in an effort to not simply reiterate Jason’s already well-made points, I’ll instead pose a different line of thinking. Before deciding that you have the spine to lead a startup company, take a moment and ask yourself a different question: Do I have what it takes to be in a band?

Do You Have What It Takes to Be in a Band?

Bands are fucking hard. And just like startups, they are way less glamorous than people think. Do you have visions of yourself playing Madison Square Garden, or accepting a Grammy as your song rockets up the charts? If so, you probably don’t have what it takes. Do you look forward to touring and watching as packed clubs mouth the words to your songs? You’re living in a dream.

Chances are most all the clubs you’ll play for the first year (or more) will be near dead empty, and no one will know (or care about) your songs. You’re more than super likely not going to have a “hit song,” and you pretty much for damn sure aren’t ever going to get anywhere near Madison Square Garden except when you’re buying tickets to see KISS play live.

You’re going to have a day job for the foreseeable future (forever?) and when you “go on tour,” you’re going to be sleeping in your crappy van, eating overpriced bar food (which you can’t afford), playing to people who mostly don’t care, and trying to raise a Kickstarter campaign for your next EP release, which again, no one cares about. You’re going to have to deal with being stiffed on your pay many nights, and your van will get broken in to and your gear stolen at least once.

This is just the reflection of the tip of the iceberg, and if any of this bothers you, then pack up, go home, and don’t even think about doing it. In fact, if this doesn’t excite you and make you hungry for more, then you don’t have the spine to be in any part of the music business other than as a fan and consumer.

You Need to Be Somewhat Masochistic

I’m convinced that you need to be severely masochistic on some level to want to be an independent artist, the same as if you want to lead (or be part of) a startup company. There are no breaks, and you shouldn’t want any, other than to eat, and call your parents and friends to tell them you still have a pulse. You should want to be thinking about work all the time because your work should excite you that much.

The real independent artists out there—the ones who you will probably go through your whole life never hearing about—know you won’t ever hear them, care about them, or help them. They do it anyway. They don’t wait for someone to hand them a great contract to get started, and they for damn sure don’t let hardships slow them down.

You Better Know How to DIY It Like a Punk

Just like being in a startup, how do you know if you have the spine to be in a band?

Here’s how: You know you’re going to do it, no matter what anyone else says, or tries to convince you of. You’re going to be a punk about it; you’ll DIY it the whole way through if you need to, but you’re going to do it. You’ll get down and dirty in the muck of all the things that could and will go wrong, and make your home in the palace of adversity. You’ll relish the challenge and ask for permission from no one to take on that next challenge that gives you chills. And that’s it.

Some may say that being too focused on your startup is living too closely to your passion, and can create large blindspots. In general, that can be very true. But you also can’t do a startup without that diehard passion. If you don’t want to tattoo your startup’s logo on your arm—if you figure you can just pivot to something else—you don’t have the drive and spine for either a band or a startup.

But if you can honestly think to yourself, “yeah, I’d definitely go on tour in a shitty van (which will break down), play shows to empty rooms, not get paid, and then spend money I don’t have on recording my next album” then maybe you can do the band thing. It doesn’t matter what kind of music you play; bring out your inner punk and see how stupidly masochistic that punk is, and just how badly that punk wants it.

The Continuing Money Troubles of SoundCloud

Posted on September 3, 2015 by adammarx13

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

SoundCloud logo

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

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

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

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

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

Spotify’s Sony Contract: What It Means for Everyone

Posted on May 28, 2015 by adammarx13

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

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

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

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

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

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

Thanks to Shelley Marx for reading early drafts of this.

Tidal Is Losing More Lifeboats by the Day

Posted on May 26, 2015 by adammarx13

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

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

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

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

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

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

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

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

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

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

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

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

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

Posted on May 23, 2015 by adammarx13

Trying (and Failing) to Balance Two Completely Different Paradigms

The Sony-SoundCloud Breakup

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

SoundCloud, now a platform for major labels and advertisers

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

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

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

What I Said a Month Ago

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

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

Ouch. Snap. Burn.

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

Who’s the First Priority?

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

Excerpt from my original April 9th article

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

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

Free Is Here to Stay—Live With It

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

Excerpt from my original April 9th article

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

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

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

Posted on May 22, 2015 by adammarx13

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

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

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

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

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

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

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

Adam Marx's Mind

Playground for Creativity

Tag Archives: Startups

Continuing to Build with Product Hunt

Independent Music Is Big. Really, Really Big.

Support Systems Make Long Odds Targets to Hit, Not Walls to Avoid

Why Product Hunt’s Sophomore Effort Could Be Its Greatest Triumph

You Better Be a Punk

The Continuing Money Troubles of SoundCloud

Spotify’s Sony Contract: What It Means for Everyone

Tidal Is Losing More Lifeboats by the Day

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

Trying (and Failing) to Balance Two Completely Different Paradigms

What I Said a Month Ago

Who’s the First Priority?

Free Is Here to Stay—Live With It

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