Capitol Congress

we lived in a monoculture. If MTV showed it, it was successful. So the goal was to get on MTV. Then Napster comes along and disrupts freething amongst people on this side of the fence in the music business, all the customers were labeled as thieves, they didn't want to pay, revenue was going down, etcetera. What we've learned is change is constant and the customer is always in control. If

you're not appealing to the customer, you're doomed. So the example I always use if we look at eighteen years worth of history since of Napster is some of you may be too young to remember this, but on Saturday morning. They used to show Westerns okay, and the bad guys would rip off the bank. Now no one said, let's build a really big megaphone, put it on the roof of the tallest building and yell for them to bring the money back. That's what it's been happening in the

music business until Spotify. So what do they do in these old Westerns. They say, we're going to form a posse. We're gonna cut them off at the past. One of the great things about streaming music at this late date is many people do not understand it. The example I use on a regular basis, I get emails saying, uh, I'm not gonna have a streaming service. I need to own it because what if I'm out of a cell range.

Whereas everybody here probably knows, you can sink approximately two to three thousand songs on your hairndheld device, so as long as you have juice, you can listen even if you're on the top of Mount Everest. So in the music business, which is the canary in the coal mine for entertainment tech, we have figured it out. We live in an on demand culture. Everything has to be your fingertips.

Everybody say what's after Spotify? What's after these or Apple Music? Nothing? Okay, as long as you can get it on demand, we're here. What does that mean? A We're not like the movie business. Now, if you followed yesterday's news, Disney said, we're Disney. We don't really have to compete with Netflix. We don't have to make as much product, which, of course, if you've lived through the last eight years, your eyes are rolling. Okay, So there's consolidation. Fox was sold to Disney in order

to compete to Netflix. And if you're following the CBS Viacom story, it really isn't about less Moon Vez and uh me too moment. It's about Sherry Redstone saying, we gotta sell this stuff before the bottom falls out. If we look at label business that's talking in the green room, Universal Music is worth somewhere between twenty five and fifty billion dollars, okay, and it's by far the largest company

in the sphere. But if you look at Warner Music, the guy who doesn't run Warner Music anymore, Dick Parsons, who came from American Express, he blew out Warner Music for a couple of billion dollars. That's the music business we're in. It's all short term thinking. You might have seen yesterday of the day before, the big news was that Warner blew out their Spotify stake. That's like saying the people were in business with we don't belo, we

don't believe in, which is nuts. Then they're proud of themselves saying we are going to put one point six billion dollars worth of the five billion dollar cash up from Spotify towards artists. I'm getting email all day today. Go, that doesn't look too good. But before we get deep into the nuts and bolts, what we have to realize is we are now in the era of content. Tech and distribution have been figured out. You'll remember five six years ago, every month there was a new rage, turntable FM,

you can have your own radio station. There hasn't been a new rage in forever. In addition, there hasn't been a viral video. Everybody here remembers getting hum style. That hasn't happened anymore. Because as we've gotten into the modern era, what we've found is the i'd say the clock isn't working here in case, you know, I could talk forever, but I want to make sure I don't so. Uh In the modern era, what we've found is that I've

lost my place, but I remember where I'm going. So the uh so Netflix, as I say, is all about distribution, and in the modern era we found there's cacophony. Everybody is spreading messages. One don't listen to the people yelling loudest about royalties and other changes in the music business. They tend to be old and uneducated and non players. The number one people I get email from bitching about Spotify royalty rates don't make records. They just hope that

at some point they can get a good deal. Okay, And then you have old sers like David Crosby who seems to have lost the ability to do algebra, never mind regular math, and can't really figure out what's going on. But these are always the headlines. I'm sure you're emailed there was the big story today is from the City Core uh research. People like these people know anything about the music business. But then even they say twelve percent of the dollars ends up with acts, and then people

email me that sounds terrible. It's a really big business. Everybody here has to get paid, the venue has to get paid. Twelve percent is not so bad. In addition, it's larger than what it used to be. So my point is, now is the time to focus on content. What do we know? To a great degree, the major label record business is running on the same paradigm it's

been running since nine, which is chase what's popular. If you're aware of your record business history, in the seventies and late sixties, the foremost label in the business, with Warner Brothers Records, they did something called artist development. Artist development is over the career of an artist. It doesn't mean you took a record from zero to a hundred in a year. That's not artist development. That's record development.

But there's none of that here. Okay, major labels only want to sell what's what there's there's a reaction to already someone comes in, well, what are your socials? We want to know you can get the word out. It's not an evaluation of music. So right now, hip hop is the dominant force. Why has hip hop the dominant force? Because rappers embrace the Internet before everybody else. If you go on Spotify where all the numbers are regularly, you

know Spotify is the largest player. But I also use it because it's an open platform to the degree if you are on the desktop application and you hover over in the right and we'll tell you how many streams the track has, where you can't get that information from competing services. But we see that the main thing that's played is hip hop music. That's great. Just like when we went to sound skin and we got an accurate kind of sales, we found that country music was much

bigger than we thought of it is. But the business at large right now is excluding every other sound. Okay, so the biggest act in the world, okay, time has gone by. Three biggest acts in the world are Adele Drake and Taylor Swift. Let's start with it, doll, what is she selling. Well, she's not doing any of the traditional hype, and she's not selling it on glamour. She's selling on songs that people can sing along to, that something that you know. It's not like a unique person.

It's not like an athlete, and we can't clone Lebron James, but we could clone that sound. We're not doing that. So as we move forward, as the rest of the audience comes to streaming, which is country, which has come to a certain degree, Okay, rock which is still rebelling because if people in rockers such streaming haters, they're gonna be other genres. So it's your job to find those acts and literally find an audience for them where someone else will beat you to it. This is the story

of Chance the Rapper. This is the story of Spotify. Now a lot of this stuff is piety and plain site. When Spotify did its road show in the spring, just to get a little bit into the nuts and bolts. At this particular point in time, it's a bad business

because it doesn't scale. One of the great things about music business, once you make the record, doesn't cost much more to sell ten million copies than one million copies, or to use today's lingo, it's not that hard to get a billion streams as opposed to a hundred million. Where Spotify they continue to have to pay royalties. They have a very low margin in the neighbor of thirty the neighborhood of thirty odd percent. So what they said in their road show is we are going to make

direct deals with artists. One thing you have to know is today's artists are sophisticated. It's not the fifties with Ahmed Er again and the other labels saying, oh, you want to have royalties, Let's go to dinner. Let me give you a Cadillac. You know, there's so much information out there. Don Passman's book. When you make a deal with somebody, they have a music business attorney and they know what's going on, and they're not always saying yes, what do they want from a major label? Which this

is they want money and they want awareness. Let's go back to distribution. You'll hear all the time content is king. That is complete horseship. When anybody ever tells you that know that they have no idea what they're talking about. They have drunk the kool aid. To use the expression distribution is king. It's a very simple example. If we sit here right now, we make the best movie of all time and there's nowhere to see, it doesn't make any difference. It's all about the distributor. So how did

distribution used to work in the physical era? It was about relationships with the retailer. Okay, so what you had is you ship product. Sophisticated people know here, they didn't pay for the product. They paid for the product when you had new product, and you were always behind when each other blew up. The labels were always losing millions and millions of dollars in revenue. They hadn't been paid. There's a famous story of Bobby Walmack was on a

record coming called Beverly Glen. They had a million seller. It put the company out of business. Why they could just never get paid. Those days are done. You can get paid from Spotify. There may not be anybody listening and there's no money there, but you can go to direct. This is a very important thing. So what is the advantage of the traditional player, the major label. Well, the main advantage is they wield their catalog and they've been doing that for twenty years. But we're at the end

of the road. If you notice, Spotify is going to go into India and there's some hesitation and there's some scuttle but saying well, the hesitation comes as a result of the major labels are pissed that Spotify wants to sign people direct. The major labels can't back out of Spotify, and prior to being involved with Spotify going public, they actually lowered the percentage that the major labels are paid because they're the number one account. It's like going to Walmart.

If you've ever sold to Walmart. They pay the lowest price to the manufacturer, so an act can go directly to Spotify. So what do you have? You have terrestrial radio. This is a business that has run ontorestrial radio to its detriment. We've known forever that radio isn't about music, it's about selling advertising, and the power is going down. The people in radio, or like the people who are

Trump fans, they're just built on disinformation. If you say anything negative about radio, they will wow, it's better than ever. But I ask you to talk to someone between the age of ten and eighteen and asked them if they ever listened to the restal radio, and you'll find no, they never do. Okay, this is the history of what's going on at large. This is like kodak Oh digital cameras, they're never gonna come there to come whoops. In one year,

everybody got a digital camera. Okay. So the major label has an advance, okay, and it's a really big thing. People are looking for money to make a record, which is cheaper than ever before, to live on, to go on the road. But it's also the relationships put the traditional relationships mean less than ever before. Radio comes last, okay, and television is relatively meaningless. Sunday Morning CBS counts for

an older demo and Saturday Night Live. As a manager put it the other day, it just creates buzz later in the week. It's not like someone is actually watching that, okay. So all the tools in the box of the major label, the bottom is coming out, okay, So you have to be aware of that. So the key is to look to the future because the past is never coming back.

One of the foremost business educators is like Clayton christiansen Clayton Christians and said, you build your competitor across the street, and then at some point you then join with your competitor, you move your business. So what do we hear in this business? No one's gonna want to listen to an MP three. Okay, we all heard all these things people didn't want to do. It doesn't sound good enough. Listen. I've got more stereo equipment, probably the people in this room.

Oftentimes I'm listening to the echo. It's just so convenient. And staying on that point, okay, the voice control is totally where it's at. If you don't have one of the disease devices and I would say to get an Echo as opposed to a Google Home because ultimately they're more options because people can tie you into it. Google homes, I mean, Apple's a closed system, dead on arrival. Let's say open it. You can make Spotify the default, but if you use Amazon Music, it'll give the lyrics, which

is really good. So it's not about sound. It's about reaction. It's about the music cliche and the hip hop role that may not apply. You know, three chords and a chorus had a good beat, that's what you're selling. All this other stuff we focused on recording quality, etcetera. They don't really matter anymore. So how do you reach the audience.

So we hear all this stuff about playlists. I'm not going to underestimate playlists, but let's not forget playlists are primarily for passive listeners, and this business, more than ever, is built on active listeners. Okay, if you talk to a music fan, they say, oh, yeah, I picked my own music on whatever service they use. So the point is what can the label do that no one else

can do. It is a relationship business. But the more you try to extract an announce of flesh from the acts the more that they react, they can make the music in their living room. People say, oh, it's not like you can cut for a hundred thousand dollars, but very few people are getting a hundred thousand dollars to cut. Okay, you can promote it yourself. So we go back to the playlist. It's about creating a hit song. Hit song is something you have to play more than once. However,

now more than ever. If it's great, that doesn't mean anything. Now, if you talk to people on the street, they have to leverage their fans. Your key is leveraging other people's audience to get something exposed. If it's exposed to audiences, then it can react. We're all inundated with messages all day long. People send me a record, they go listen to it five or six times and tell me what you think. Are you fucking nuts? I mean, babies are overscheduled.

I'll listen for thirty seconds if it doesn't hook me, not because I'm an asshole. That's what everybody does. We hear this. The kids have short attention spans. They don't have a short attention span. They have an incredible ship detector. So it's about great, Okay, something has to be great. The other thing you have to realize, like the world at large, music business is and will continue to be

a business of winners and losers. If you go on Spotify, if your new rock band is not that good, I can listen to led Zeppelin all day long, you're competing against the history of recorded music. But in addition to that, it is it's not like the old days. Well, if I got a local market and everybody in South Dakota they got the five hundred channels, they got the hundred gigabye down Internet, everybody's on the same page. Thanks for listening. M can think of in the reason I don't know

me exactly. One must be