Bringing transparency to the music biz

September 30, 2020

PLUS: The big business of (h)oney laundering.
September 30, 2020
The Hustle

On Oct. 28, 2018, the Sports Equinox occurred for the first time ever in the US: Games in all 5 major pro leagues (MLB, NFL, NBA, NHL, and MLS) were played on the same day in one city — LA.

Well, finance fans rejoice. Today is the Public Listing Equinox, with Palantir and Asana both hitting public markets via a direct listing.

The Big Idea

The music industry needs more transparency. CreateSafe is making tools to provide it.

Music Twitter has been lit up by an app called the Record Deal Simulator

The brainchild of Daouda Leonard and his music tech firm CreateSafe, the app tells an artist how many streams they’ll need to break even on a record deal.

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The results have been… eye-opening

To illustrate the point, music journalist Cherie Hu plugged in numbers for Kanye West’s 6th album deal with Universal Music Group (UMG).

  • $8m advance
  • $4m recording budget
  • 50% label / 50% artist royalty split 

According to the simulator, Yeezy would have to deliver 3.2B streams before seeing a single dollar in royalties. 

Even without the app, Kanye is not happy with his record deal  

Two weeks ago, the artist shared multiple pages of his UMG recording contracts on Twitter. His key sticking point: the record label’s complete ownership of music rights (“masters”). 

In an interview with Billboard, Kanye says he wants to “rip apart” the existing industry and fix the “balance of power” between artists and labels. One proposal includes creating the “Y Combinator of music” (AKA YeCombinator). 

The music industry has been shady for a long time 

Here are some notably bad record deals:

  • Little Richard sold “Tutti Frutti” to Speciality Records for $50, earning a miniscule $0.005 royalty per record
  • The Jackson 5 received only a 2.8% royalty rate from Motown Records — and when they extracted themselves from the deal, they lost the rights to their name

More recently, artists of all stripes have gone after the new music gatekeepers: digital streaming platforms (Spotify purportedly pays $0.00437 a stream).

For artists to secure better deals, they need transparency and information… this is exactly what CreateSafe is setting out to provide.

(Check out our Q&A with CreateSafe’s Daouda Leonard below)

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  • AppHarvest — which makes tomato greenhouses — is going public at a value of $1B. This is a win for Morehead, Kentucky, one of America’s poorest congressional districts. 
  • Somehow, the airline frequent flyer miles biz is worth more than most airlines themselves.
  • Amsterdam and Helsinki are trying out a new kind of AI transparency: They’re publicly releasing all the algorithms used for local governance. 
  • Only 4.3% of Americans get autopsies today, down from 60% half a century ago — and that’s bad for society.
  • Everyone’s favorite naturalist, David Attenborough, is breaking Instagram records. He hit 1m followers just 4 hours and 44 minutes after joining the platform.  

‘We’re creating an operating system for the music industry’

Daouda Leonard has spent more than a decade in the music industry. In addition to launching CreateOS, he manages the music careers of Grimes and BloodPop

We caught up with Leonard to find out how his music tech firm CreateSafe is creating software tools to empower artists:

Why did you build the Record Deal Simulator? 

In music, the underlying way that people generate income is what I call “metadata management.” If you’re managing the metadata of your intellectual property (in this case, music) properly, then you can value it. If you can properly value IP, then you have leverage when negotiating deals.

The Record Deal Simulator is a music fintech tool designed to open source music business knowledge and provide financial literacy for artists. 

How does the Record Deal Simulator fit into the rest of CreateSafe?  

We’re creating an operating system for the music industry; we call it CreateOS:

  • Book a studio 
  • Build your brand 
  • Pay out collaborators
  • Value your catalog of music 
  • Manage your contracts and deals 
  • Create LLCs (think Stripe Atlas for artists)

The full platform is in beta, but we’ll be rolling out features as they’re ready.

How big is the opportunity you’re going after?

The music economy is projected to more than 2x to $45B by 2030. 

Within that, the independent artists market was $1.6B+ last year. However, this could quickly grow to $10B over the next 5 years or — as chairman of the music firm Kobalt put it — there will be 100k+ artists making $100k a year just from streaming services alone. 

Today, 75%+ of the ~4m independent artists don’t have representation; CreateOS can empower them. 

Are you currently using CreateOS to manage your artists?

Yes, of course. 

Grimes had publicly been adverse to being a touring artist and was interested in changing her business model to be focused on producing art and monetizing it versus needing to physically tour the art to earn a living.

So our pitch to her was that we could use technology to change her business.

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Honey Trap

The big business of honey laundering

Turns out, honey is quite the honey pot for fraudsters.

An estimated ⅓ of store-bought honey — mostly the cheaper stuff — isn’t honey at all (or it’s adulterated). And the problem is so prevalent that honey is the 3rd-most counterfeited food item after milk and olive oil.

Honey, I… drank adulterated syrup

Honey laundering goes back to the 1970s, when amateur chemists started altering high-fructose corn syrups to make them look more honeylike. 

When those fakes became easy to spot, scammers started diluting small amounts of real honey in cheap syrups.

The con only caught up to them in 2013. That year, the US government filed a $180m lawsuit claiming that 2 importers, Honey Solutions and Groeb Farms, were lying about the origins of their honey. 

But scammers weren’t exactly scared straight. And while the industry has developed more sophisticated tests that can catch most honey fakers, it’s not clear how many distributors use them.

Fake honey seems safe for consumers

The problem is more serious for beekeepers, though.

Fake honey sometimes goes for less than the cost of just producing the real stuff. There’s not a lot of room for them to compete. 

According to Business Insider, some beekeepers have just stopped producing honey altogether — which is only making the fake honey problem worse.

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Chat It Up

Can you fund a social media company like a video game?

When you boil it down, every social media giant makes money the same way: You click on content, and they serve you ads.

But a France-based social app wants to do it differently — and it’s taking inspiration from video games. Yubo ($19.5m raised) only makes money when users pay for small, in-app purchases called micro-transactions.

Yubo is just a bunch of chatrooms 

When you log in, all you see are chats hosted by total strangers. They’re grouped according to age, location, and theme. 

You might have a chat for 18-year-old college freshmen or one for diehard Selling Sunset fans. 

And that’s all there is to Yubo. The company hasn’t just ditched advertising — it’s said goodbye to likes, followers, and almost all metrics.  

It’s not crazy to think this could work 

The video game example shows that kids are more than willing to toss out a few dollars to get in-app upgrades. Last year, micro-transactions brought in $1.8B for Fortnite alone.

Yubo has a ton of small charges: Pay $2, and you can send your chatroom to the top of the Yubo homepage for a few minutes.

So are people buying in? 

Not so much. Last year, Yubo brought in $10m in revenue — still a tiny sum compared to the billions raked in by Facebook or TikTok.

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