All posts by Shawn Yeager

For the Future of the Music Industry, Fear is Not the Answer

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The music industry is full of fear. Fear of customers as thieves, fear of technology run amok, fear of loss of control. But for the music industry to do more than just survive, fear cannot be the answer.

The answer lies in listening to customers and letting them inform what and how they want to buy. The answer lies in experimentation and a willingness to fail. And key to it all is to stop grasping desperately for control and to stop acting out of fear.

All too rarely do I read an article in an industry publication that leads with curiosity and possibility when covering new technology. From every streaming service, to novel new music players, to self-driving cars, it would seem the sky is always falling.

Fear also comes in great supply from rock and roll royalty. While their arguments are worth careful consideration, artists like David Byrne and Thom Yorke have, in many ways, become the industry’s version of town criers gathering villagers with torches, set on destroying Frankenstein’s monster.

To me, the irony is this: just as artists embrace fear daily as they make their art, why shouldn’t the industry be expected to do the same with their business models and operations?

So, what’s the good news? Examples of companies and artists pushing past fear and taking risks are out there, if you know where to look. Neil Young’s Pono is a great example of both. Unsatisfied with the state of digital music quality, he crowd-funded a new music player that is now the third highest-funded campaign in Kickstarter’s history. There are plenty of skeptics, us among them, but Neil is to be saluted for trying something new.

Closer to the ground, we’re fortunate to work with deeply established music businesses like Zavitson Music Group, who are turning music publishing on its head with MusicPubWorks, and Lyric Financial, who are bringing progressive financial practices and technology from outside the music business to labels and artists alike.

These and other companies like them in Nashville and beyond are taking big risks and bucking the status quo. In doing so, they’re setting examples the rest of the industry would do well to study.

4 Business Lessons I Relearned at NAMM

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Endorsee, one of our portfolio companies, had its coming out two weeks ago today at the NAMM show in Anaheim. It was my first NAMM proper, having attended Summer NAMM last year. We spent our time introducing the product to over a dozen music equipment companies in one-on-one meetings. During these meetings and our time on the show floor, I watched, listened and learned a lot from my cofounders, NAMM veterans themselves, and the companies we spoke with.

For those, like me, who’ve spent their careers in technology, it’s easy to get caught up in the pace and approach of the industry. To spend days focused on lofty things like business models, user experience, growth hacking, customer development and traction. To operate under the belief that speed wins, and every dollar shaved off your burn rate or slide from your pitch deck is a competitive edge.

In tech, it’s the game we choose to play, and we learn to play it well if we wish to succeed.

The music business, on the other hand, is playing a long game (whether by choice or necessity is a topic for another day.) This becomes even more evident at NAMM. Here’s what I relearned at this year’s show.

Relationships are how it gets done.

In the land of conversation rates and user acquisition, it’s easy to lose sight of actual human beings. Making our rounds at NAMM, I saw time and time again people who’d been doing business together for decades slow down, take time for long handshakes or hugs and have thoughtful conversations. They were paying as much respect to their relationships as the deals they were doing.

Craftsmanship matters.

With an increasing focus on experience over features and functions, the tech industry is beginning to learn this lesson. The app economy, in particular, has increased our focus. Even so, we spend much of our days in documents and data. Getting your hands on a gorgeous, handmade guitar or even a single wooden drum stick made with care is a viscerally different experience.

Putting your hands on a great product – there’s nothing like it.

Passion carries the day.

Passion for instruments, playing and performance – making music. This is when I saw people at their best at NAMM. Watch a kid or an old-timer pick up an instrument they admire to play a few perfect notes, and you’ll see the same thing in their faces: pure joy.

In that moment, they aren’t doing it for personal gain or a business win. They’re doing it because it’s their passion, and it’s priceless.

Lasting change comes in its own time.

Reading through the program guide and studying the show floor, I couldn’t help but think that as a microcosm of the music business, NAMM is simply behind the times. But that was my highly subjective view as a technologist and early adopter. The more accurate view and crucial lesson I must always remember is this: industries are made of people, and people change when ready, not simply because more advanced technology is available.

Music and Tech are completely different animals. Or are they?

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Tech invests in talent in the form of developers, engineers, and marketers, then retains them through compensation and stock options. Music invests in talent in the form of artists and retains them through complex legal agreements.

Tech produces a product and sells a license to it, historically as “packaged” software, but increasingly as a service. Music sells recordings, largely in the form of physical product and downloads, but actually just licenses it. Both are moving rapidly from ownership to access. The former embraces it, while the latter is conflicted, to say the least.

Tech employs customer discovery and development in order to find the ones who’ll buy. Music markets to large demographic swaths based on previous product sales.

Music has always been about “user experience.” Tech has only recently discovered that it should too.

Tech builds platforms and components with an eye to reusability and longevity. Music builds hits and sometimes brands.

Tech is free market. Music is semi-regulated.

Tech is West coast code. Music is East coast code.

Tech (read: consumer apps) have a shelf life measured in months and shrinking. For Music, it has always been so.

Music has numerous revenue streams on which to build. Tech has license fees or subscriptions and sometimes service and support.

Tech product is directly and inextricably connected to the company that makes it. Music (read: labels and publishers) has almost no direct connection to consumers.

Tech embraces “release early and often.” With few exceptions, Music releases only finished, polished product.

Tech was once all need, but has become equal parts want. Music has always been want, but is striving to be need.

Nashville – the Next Music Tech Hub

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Nashville boasts an economy among the strongest in the country, a cultural experience that’s captured the hearts of critics and connoisseurs, and an entrepreneurial community that is attracting upstarts at a record pace. Combined with an unparalleled creative community, Nashville is ready to shine.

Moreover, we believe Music City has an opportunity to become the next hub of music technology.

Why Nashville?

All of Back Porch Group’s partners came or returned to Nashville because of the unique opportunity we saw to help build the next music business, and to build it here. I returned after 15 years away in Toronto, the Valley and Chicago. Brian came back after over 25 years in LA. Mike practically fled LA for our fair city. We’re as bullish on this place as it gets.

The highly competitive cost of living, warm climate and natural beauty, a rich heritage of creativity and a bone-deep love of music all make us love this city. And those are just the perks.

What makes Nashville a natural hub of music tech is as much by-the-numbers as from-the-heart. Here are a few:

And as great as these accolades are, they don’t capture the opportunity that Nashville’s creative community offers. Musicians, photographers, filmmakers and artists of all types are everywhere in this city. Spend a few days in East Nashville or on Music Row, and you’ll find the city teeming with makers and creative collaboration. While the Nashville Chamber is working to complete its latest economic impact study, in 2006 there were over 19,000 people involved in music production alone in Nashville.

On the startup front, Jumpstart Foundry, where I serve as a mentor, the Nashville Entrepreneur Center, and StartupTN, are each making capital and significant experience and expertise available to a wave of entrepreneurs.

Is there still work to do?

Absolutely. Here’s where we need to keep plowing ahead.

Talent: Attracting top developers, and – more than that – great hackers is one of our biggest challenges. From Nashville Technology Council to Nashville Software School, numerous groups are focused on growing great developers locally, which is important. But we can do more to tell the story of why talented developers and experienced hackers should start their next music tech company here. And they should.

Money: There’s a tremendous amount of money in this town, but most of it is on the sidelines when it comes to tech investing. While healthcare and life sciences command attention and dollars, tech-savvy VC and angel funding falls well short of demand.

Culture: Old guard thinking and good ole boy networks hold sway over much of the business community in music and beyond. Risk tolerance is comparatively low, and (mostly) outdated views of Nashville and southern cultural weigh on our image.

The good news: this is all changing, and more of us show up daily hell-bent on accelerating this change.

From a position of economic strength, to a great quality of life, a music and creative community like no other, and a startup ecosystem in overdrive, the future of Nashville is very bright. To look out five to ten years and see Music City as a thriving hub of music tech is easier than ever.

We’re banking on it.

Update on July 30: The Nashville Area Chamber of Commerce and Music City Music Council released their report [PDF] on July 29th. The study found the Nashville music industry responsible for over 56,000 jobs, a $5.5 billion contribution to the local economy, and a total economic impact on the Nashville area of over $10 billion. More analysis of the report can be found at The Atlantic Cities.

The Music Industry Has a Debt Problem

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Are the majors in financial trouble? That depends on your definition of “trouble,” but let's leave that for another day. I'm referring to a different kind of debt.

Technical debt

Ward Cunningham originally developed the concept of technical debt in 1992 to describe the inevitable fallout from making poor choices or inadequate investment in software architecture and code. These days, it's taken on a somewhat looser definition, but the essence remains: if you don't invest in understanding and building the technology necessary to deliver on your business's promises, you'll pay. Often dearly.

This brings us back to the music industry.

Music and tech – forever intertwined

Making any argument against the music business' future dependence on technology is a fool's errand. Software is eating the world, and the entertainment business was it's appetizer. At the same time, those saying the majors should simply lay down and cede control to Silicon Valley are equally misguided.

The future of music is a two-party system: artists and fans. Technology is the medium by which we may find ways to reach common goals. The rest – doing the business of music – is up for grabs.

What once was manufactured is now distributed

Using technology they don't own and few deeply understand, the means of distribution have shifted out of the majors' control. This much we know. As rights-holders, they still have a great deal of power, but so does a kid with the keys to his dad's Mustang. Both will end up in a ditch if they can't see the road.

How many streams does it take to equal one download? What is the sound of one hand clapping? In both cases, answers vary greatly, and clinging to an answer means we miss what really matters: the opportunity for transformation.

As Google's Tim Quirk (a recording artist himself) recently admonished, “don't fetishize the past.” Rather than retrofit the glory days to work in a digital world, show me the majors' bold experiments. Where is the transformation?

It's time to declare bankruptcy and a handful of smaller groups are hard at work tackling tough issues, but real change requires significantly more effort and openness from stakeholders. In the industry's centers of gravity, NYC, LA and – perhaps most notably – here in Nashville, it's business as usual. I've attended the last two Music Startup Academy events in Nashville, and I saw the majors deliver the same slides to startups both times. They went a little something like this: kneel before the king. This is not how you kick-start innovation.

Sure, there are experiments being run on the lower floors of the major labels and publishers and PROs, but it's slow, incremental change. It's too little too late. What's needed is a clean slate.

Platforms and partnerships

What do I think is the way forward for the majors?

  1. Re-imagine how rights-holders offer and license content as a platform.

    Create and publish APIs. Try different consumption and pricing models. Create clear rules and accept all comers (e.g. startups) who want to build on your platform. Experiment, learn, iterate. Invest heavily in new technology, not just to protect, but to grow.

  2. Learn to become true partners, both to artists and to those who connect them with their fans in meaningful, sustainable ways.

    Partnership means sharing risk and reward in the joint pursuit of a greater goal than one could achieve alone. It's not feel-good talk. It's just smart business, particularly when you've failed repeatedly to reach the goal on your own.

These transformations require deep cultural shifts and are challenging to digest and turn into action. But they beat the alternative.

What the Music Business Can Learn from Free-to-Play

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If you’re a casual gamer on phone or tablet (and 46% of you are, according to Forrester), you likely have a few free-to-play (F2P) games kicking around. You may have even spent a buck or two on in-app purchases for the games that you really enjoy. (It’s ok. There’s no shame in needing the Mighty Eagle to get through that level in Angry Birds.)

Whether or not you’ve voted for F2P with your wallet, it and freemium, in general, are all around us. As a pricing and business model, F2P has become a major force in games, and large swaths of the software business have embraced freemium. Nicholas Lovell and Rob Fahey have written an excellent ebook, Design Rules for Free to Play Games, if you want to quickly come up the F2P learning curve.

The principles behind F2P make a lot of sense in a lot of ways for the music business. Those selling to-fan and even to-band should take note.

Here are a few of the lessons the music business can learn from free-to-play games:

  1. One size does not fit all. Segment or perish.

    F2P breaks users/consumers into three segments, at minimum, based on revenue: Minnows, Dolphins and Whales. You can guess which pay the least and the most. The kinder, gentler term for a Whale is a Super Fan.

  2. Raise the ceiling on what a Super Fan can pay.

    Rather than $9.99 for an iTunes album or a subscription to Rdio or Spotify, why not let your biggest supporters pay you more for what they love? Crowdfunding embraces this with a variety of price points and perks, and pay-what-you-want experiments have shown that you’ll want to set a minimum, but there’s much more to be done and learned.

  3. Don’t dismiss the Minnows. You paid to acquire them, now work to convert them.

    One of the tenets of F2P advocates is “Free-to-play forever,” which is to say once acquired, never kick a user out. A large portion will not convert and pay, but you won’t know which will unless you give them sufficient time and value.

  4. Don’t be greedy. Extortion isn’t a sustainable business model.

    While the game business is still working out some kinks, it’s rapidly iterating and finding ways to balance value delivered with price paid. Scammy F2P plays are sniffed out fast and word travels faster. Damage to brand and bottom line follows.

  5. Give away what’s cheapest to distribute, even if it’s what you value most.

    For most, this is the hardest pill to swallow. Content may be king, but its kingdom is shrinking fast.

  6. Sell what can’t be (readily) copied.

    Emotion, elation, great experiences and memories. Merchandise, social capital. The list is long. These things are now what fans value most. Yes, live event ticket sales are where most artists’ eyes are focused, but the machinary of the business is still tuned for record sales.

  7. Production costs and values have to fit free.

    In the games industry, AAA is the equivalent of the music industry’s “major label”. $10MM+ budgets used to be the norm for AAA games. Those days are over, in large part because of free-to-play alternatives from smaller studios and the rise of mobile. Sound familiar?

Is there still a place for premium? Absolutely, just as there is in games, but finding and serving customers who’ll pay a premium out of the gate is increasingly hard to do. Is free-to-play still in its infancy and finding its legs? You bet. There are many mistakes still to be made and problems yet to be solved. If I just ignore it for long enough will it go away? Not a chance.

The music industry has forever lost the ability to force a customer to purchase, but it has not lost the ability to ask a fan to buy.