Water & Music

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Summary

Trapital founder Dan Runcie joins this episode to discuss the wide variety of shared opportunities—and problems—between hip-hop and venture capital. What are the similarities in how independent musicians and tech founders navigate their respective funding landscapes, and what alternative funding models are emerging to serve their needs? How do record labels and VC firms make investment decisions, and how could they potentially improve (e.g. pattern-matching biases)? How are third-party music distributors like UnitedMasters similar to tech accelerators like Y Combinator? At large, will the convergence of music and venture capital actually increase the value of recorded music itself—or only exacerbate current issues of wealth disparity and diversity in the music industry? After diving into these questions, we each share our carefully-selected picks for the latest overrated music news.

Show Notes

OPENING & CLOSING MUSIC:
Mark Redito (fka Spazzkid) - "Getting To Know You"
SoundCloud | Bandcamp | Spotify (Spazzkid) | Spotify (Mark Redito)

FEATURED GUEST:
Dan Runcie, founder of Trapital
https://trapital.substack.com
http://www.danruncie.com

PODCAST ARTWORK:
Arielle Trenk
http://www.arielletrenk.com/

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FULL SHOW NOTES:

This episode is inspired by Dan's article in Trapital about the intersection of hip-hop and VC:
https://trapital.substack.com/p/why-hip-hop-can-help-venture-capital

[3:30]
Interview with Dan Runcie begins

[4:25] The original tweet is now deleted, but there are several news articles written about the debate that ensued—here's just one example:
https://news.iheart.com/featured/jojo-wright/content/2018-01-29-people-are-choosing-dinner-with-jay-z-over-50k/

[6:18] Links to some of Jay-Z's nuggets of wisdom, including his autobiography and interview on the Rap Radar podcast:
https://www.amazon.com/Decoded-Jay-Z/dp/0812981154
http://rapradar.com/features/rap-radar-podcast-jay-z/

[8:45] One example of a social app that relied on celebrity investment for user acquisition, only to fall flat shortly thereafter, is Shots:
https://www.recode.net/2016/10/30/13459412/shots-app-justin-bieber-rudy-mancuso-lele-pons

[10:39] Some links to rapper Russ' tweet-storm touting the importance of artists owning all the rights to their work and building enough leverage and clout on their own terms, prior to approaching a label, lawyer or other business partner:
https://twitter.com/russdiemon/status/1103422668366376960
https://twitter.com/russdiemon/status/1103393282506264578
https://twitter.com/russdiemon/status/1103390793316921344

[12:25] The "record-label-as-VC-firm" concept has been swimming around for over a decade—here are links to some earlier examples:
https://money.cnn.com/2007/04/18/news/companies/pluggedin_arango_music.fortune/index.htm
https://www.hypebot.com/hypebot/2010/09/the-music-venture-capital-business-model.html

[14:15] We reference indie distribution company UnitedMasters frequently in this episode. For those who aren't familiar, it's a distribution service owned by ad agency Translation that purports to give unsigned artists an unparalleled opportunity to connect and partner with brands, using distribution and the accompanying consumption data as the primary funnel.
https://unitedmasters.com/

[16:53] The news of NLE Choppa partnering with UnitedMasters instead of signing a $3 million traditional record deal was broken on Billboard:
https://www.billboard.com/articles/business/8498476/nle-choppa-turned-down-a-3-million-record-deal-partner-united-masters

[18:18] Here are some links that give more context on indie.vc's model, and its investment in black-owned media company The Shade Room:
https://venturebeat.com/2016/07/30/how-the-indie-vc-model-is-disrupting-vc-firms/
https://techcrunch.com/2017/05/17/the-shade-room-is-profitable-and-not-interested-in-acquisition/

[21:01] Amuse is a 100% free music distribution tool; the parent company's business model relies in part on its wholly-owned record label, which scouts and signs artists based on data gathered through the distribution service:
https://amuse.io/record-label

[21:39] Playlist placement isn't artist development. Repeat that ten times.
https://twitter.com/cheriehu42/status/1067873158705893378

[22:30] UnitedMasters' first official brand partner is the NBA, giving the distributor's artists the opportunity to have their music synced across NBA's digital properties:
https://techcrunch.com/2018/11/09/new-unitedmasters-deal-will-enable-its-artists-get-play-across-nba-properties/

[24:34] CD Baby's CEO Tracy Maddux has written about the , despite
https://www.billboard.com/biz/articles/news/digital-and-mobile/6121578/tales-of-long-tails-death-greatly-exaggerated-guest

[26:46] See the graph on page 4 of PitchBook's Venture Monitor report from Q4 2018:
https://nvca.org/wp-content/uploads/delightful-downloads/2019/01/4Q_2018_PitchBook_NVCA_Venture_Monitor-1.pdf

[27:20] Music Data Narrative #1: Labels are becoming much more data-driven than ever and exercising more scrutiny in the artists they sign—serving as a model for outside industries.
https://www.inc.com/darren-heitner/big-data-is-revolutionizing-music-industry-here-are-lessons-for-your-business.html

[27:35] Music Data Narrative #2: Labels are still throwing everything at the wall and seeing what sticks, rather than taking a more measured and data-driven approach in their A&R process. Three different publications have written about this frenzy as it relates to hip-hop:
https://www.rollingstone.com/music/music-features/f-ck-it-well-take-the-bet-the-gold-rush-to-sign-the-next-rap-god-699707/
https://www.billboard.com/articles/business/8272682/hip-hop-signing-frenzy-record-deal-prices-soaring
https://www.wsj.com/articles/behind-hip-hops-bidding-wars-1536073605

[29:49] L.A. Reid opened up about his signing of Lady Gaga during an interview with Larry King:
https://www.youtube.com/watch?v=0101Sm7HAjs

[31:19] Gut vs. data is the music-industry cliché of the century. Some executives, such as Instrumental CEO Conrad Withey, have argued that it's not a question of "gut vs. data" but rather "gut plus data":
https://www.musicbusinessworldwide.com/in-ar-gut-vs-data-isnt-actually-a-binary-choice/

[31:54] The mic acted a little wonky for a few seconds here during the recording—sincere apologies for any disruption in your listening experience!

[32:57] Ever heard the term "Uber for X" or "Spotify for X"? If yes, you're familiar with pattern-matching in tech. Perhaps the best way to learn about the pitfalls of pattern-matching is from people who are deliberately trying to avoid it in their investment choices, such as Arlan Hamilton with her firm Backstage Capital.
https://mattermark.com/venture-capitalists-cognitive-bias-and-why-past-isnt-always-prelude/
https://www.cnn.com/2019/03/10/tech/backstage-capital-founder-arlan-hamilton-profile/index.html

[34:07] Dreamville is rapper J. Cole's record label, which operates as a subsidiary of Interscope Records. The label's first compilation album Revenge of the Dreamers III is set to be released in April 2019.
https://djbooth.net/features/2019-01-09-revenge-of-the-dreamers-iii-j-cole-dreamville-camp

[35:20] This Pitchfork feature offers a good overview of how the online "type beat" economy is catapulting otherwise unknown producers to international fame.
https://pitchfork.com/levels/how-selling-and-leasing-type-beats-is-making-unknown-producers-rich/

[36:03] BeatStars is one of many "work-for-hire" platforms that producers are using to market their work and establish more passive income streams around their beats. Some producers on BeatStars are earning comfortable mid- to high-six-figure annual salaries from the platform alone.
https://www.beatstars.com/
https://www.billboard.com/articles/news/8449507/work-for-hire-websites-give-new-life-to-songwriters-producers-and-beatmakers

[37:22] Deutsche Bank valued Universal Music Group at around $33 billion in January 2019.
https://www.musicbusinessworldwide.com/universal-music-group-is-worth-33bn-says-deutsche-bank/

[38:01] According to the H1 2018 fiscal report from Universal Music Group's parent company Vivendi, UMG makes around $55 million per week (or around $7.9 million per day!) from streaming.
https://www.musicbusinessworldwide.com/universal-now-generating-50-an-hour-from-streaming-as-label-revenues-jump-xx-in-h1/

[40:10] Brief video featuring the songs involved in the beef between Lil Pump and J. Cole:
https://www.youtube.com/watch?v=zV8IF31iCuo

[40:41] Chance the Rapper is known for building his fanbase by releasing music for free, then monetizing through higher-margin income streams like touring and merchandise.
https://djbooth.net/features/2017-02-28-chance-the-rapper-revenue-streams

[41:09] Dan's Trapital piece about Nipsey Hussle's direct-to-consumer retail strategy:
https://trapital.substack.com/p/direct-to-consumer-hip-hop-is-not

[42:25] You can listen to the first episode of the Water & Music podcast about Ariana Grande's marketing strategy here:
https://waterandmusic.transistor.fm/1

[45:16] Ashton Kutcher made the cover of Forbes Magazine in March 2016 thanks to his investment success, in partnership with artist manager Guy Oseary.
https://www.forbes.com/sites/zackomalleygreenburg/2016/03/23/how-ashton-kutcher-and-guy-oseary-built-a-250-million-portfolio-with-startups-like-uber-and-airbnb/#1eabb5511753

[45:30] A 2010 study from CB Insights claimed that only 1% of total funded founders were black, while only 8% of funded founders were female.
https://www.cbinsights.com/research/team-blog/venture-capital-diversity-data/

[48:07] Quality Control Music is an Atlanta-based record label with artists including Migos, Lil Yachty and Stefflon Don on its roster.
https://www.complex.com/music/quality-control-music-interview-2018-cover-story

[49:02] More background about Manhattan Venture Partners' All-Star Fund, which was founded in February 2017 to invest in unicorn startups on behalf of star entertainment and athlete clients such as Patrick Ewing and Dwight Howard.
https://www.forbes.com/sites/alexkonrad/2017/02/03/all-star-fund-matches-pro-athletes-to-tech-unicorns/#73b2fe5729ea

[50:14] Overrated/Underrated segment begins

[50:30] Dan's pick for an overrated story has several background articles online, including but not limited to CNN and the New York Times:
https://www.cnn.com/2019/03/07/politics/supreme-court-first-amendment-rappers/index.html
https://www.nytimes.com/2019/03/06/us/politics/supreme-court-rap-music.html

[53:22] Spotify rolled out its hateful conduct policy in May 2018, only to wind it back less than a month later due to both internal and external backlash.
https://www.rollingstone.com/music/music-news/spotifys-hateful-conduct-policy-is-officially-dead-628598/
(CORRECTION: Needless to say, R. Kelly is not a rapper.)

[54:20] In response to the late XXXTentacion being targeted by Spotify's hateful conduct policy, the rapper's team sent an email to the New York Times interrogating Spotify's decision to target X instead of a wide range of other artists across genres/backgrounds facing similar allegations:
https://twitter.com/joecoscarelli/status/994635579525599232

[55:02] My pick for an overrated story is the announcement that SiriusXM has established a new original-content team at Pandora:
https://www.billboard.com/articles/business/8501359/siriusxm-first-content-team-pandora-media

[55:34] More background on the new Pandora Stories format:
https://techcrunch.com/2019/02/26/pandora-stories-launches-combining-music-and-podcasting-in-a-new-format/

Thanks for listening! :)

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What is Water & Music?

The fine print of big ideas in music and technology, hosted by Cherie Hu and featuring a curated selection of leaders, innovators, artists and thinkers from across the music business. This is an ad-free audio companion to the eponymous email newsletter.