KILL THE STARVING ARTIST: FOUNDERS ARE ARTISTS (PT. III)
The New Models of Music, Media, and Entertainment
Modigliani, ‘Portrait of Maude Abrantes’, 1907
OLD WORLD MODELS
I’ve been getting more into art lately, and one thing I noticed is the “starving artist” concept dates back several hundred years. One of the artists that I’ve learned about is Amedeo Modigliani, an Italian painter and sculptor born in the 19th century. A description of his life details him as having little success during his life; but, as is often the case, his work became popularized after his death.
I’m not an expert on historic art, but the story goes something like this - there wasn’t much of a market for artists and sculptors back then. The main way to make money, as an artist, was to have a wealthy individual or family sponsor you. They were called Patrons. An example is a wealthy 15th century family in Spain called the Medici’s who sponsored artists like Leonardo da Vinci and Michelangelo. These patrons would pay the artists a daily stipend, finance art tools, lodging, and often assist in the distribution of the artists work. In Modigliani’s case, many of his most commercial paintings were funded by his art dealer, Léopold Zborowski.
Many of these artists didn’t succeed financially during their lifetimes and would suffer from addictions and mental ailments (which were often a part of their appeal). Many who died early or tragically would see more commercial success in their deaths than when they were alive; this all somehow added to their mystique and corroborated society’s infatuation with the starving and suffering artist.
If you’re tracking, this sounds a lot like the media/entertainment industry doesn’t it? Well, that’s the difference between the old and new models. It’s time to kill the starving artist story. Let’s get into it.
Threading the Needle
Today there’s a tension between art and commerce. This is mainly due to competition (i.e., competing forces and systems which often act as impediments). In Part I of this ‘Founders are Artists’ series, I wrote about how business is an art; but many artists don’t see it like this for a few reasons. One of which is that artists are often visionaries who live in an alternative reality and point humanity to what could be, rather than what is.. just as founders do through the products, services, and businesses they create.
In the middle of the civil rights era, James Brown declared: “say it loud, I’m black and I’m proud!” This wasn’t to diminish any other race or ethnicity, but to instill a sense of pride, self worth, and dignity in those who were being beat down by the systems of their time (and sometimes ours). In the same way, Steve Jobs said “think different”, instilling creative design and innovation in his products which were counter to the status quo of his day. Of course, Apple isn’t Apple simply because of a mantra; but also because of technical, financial, and marketing excellence. My point is technical and musical visionaries have the ability to instill emotions, thoughts, and perspectives which frame and dictate the way we operate. It’s no wonder why a popular refrain is “nothing brings the world together like music”. Regardless of where and how your were brought up, there’s always the ability to bond with someone over an artist or a song.
That’s an operating system.
And that’s what this series is about, traditional artists (music, film, literary, visual, and sports) have to start thinking more like tech entrepreneurs; and founders have to think more like artists; because the truth is artists are founders and founders are artists. As AI and technology continue to democratize the playing field; it will become easier and cheaper for everyone to learn the same things, access the same amounts of capital, and build the same products - what will survive are brands and entrepreneurs who authentically understand, connect, and resonate with their audience and community. Artisanal Founders are uniquely positioned to profit in this new dispensation.
The issue, however, is that no matter how artistic you are, you will inevitably deal with economic constraints. Every consumer has a limited amount of time and money. So as an artisanal founder, “vibes” aren’t enough. What do you do and have to offer that will blatantly set yourself apart from the pack, and increase the demand for your product or service? because at the end of the day, that’s what it is. Everyone is talented, gifted, and intelligent in some way - you’re not special - you have to put in the work to actualize your talent and vision.
A. ctualized
C. onscious
T. alent
….(don’t steal that)
Because of technology, we’re going to increasingly see an explosion of supply - which as you know will exert downward pressure on the demand for certain goods and services. In music we see this play out in the sheer amount of music that’s available. There’s simply too much music for any one person to listen to.
Music Business Worldwide recently published an article detailing that 38m tracks on Spotify were played 0 times; that amounts to 24% of the music catalog on Spotify. Meanwhile 42% of tracks had 10 or less plays in 2022. Clearly, this is disturbing at first blush. We can dig into Spotify and streaming stats all day; but it comes down to this - most artists don’t get heard nor will they succeed commercially; many (but still a very small percentage) are making a living from streaming income, and although this number is growing, the majority of streaming revenue is made by a tiny percentage of artists - something like under 0.3%
So this leads to the new world models and why we’re seeing a shift across the board; particularly for those who are able to break through.
NEW WORLD MODELS
King Solomon once said, “What has been will be again, what has been done will be done again; there’s nothing new under the sun”. When it comes to the media/entertainment industry the same is true.
There have been artists who did it independently and/or took greater control over their careers: Berry Gordy was a songwriter who created a production company, record label, and film studio; James Brown had multiple businesses, his own radio station, and a private jet; and, of course, Jay Z said - “I’m not a businessman, I’m a business.. maan”.
So what we’re seeing now are just new iterations of old movements. The difference is that technology is accelerating the pace of change, innovation and distribution of information; allowing for more artists to take advantage of varying solutions to empower themselves at a rapid rate. Here are a few examples:
Jay Z - Roc Nation
Beyonce - Parkwood Entertainment
Kendrick Lamar - PgLang
Childish Gambino - Gilga
Lebron James - The SpringHill Company
Ryan Reynolds - Maximum Effort
Ben Affleck / Matt Damon - Artist Equity
So on and so forth…
The new model is artists breaking through in their respective fields, growing prolific, prominent, dominant; and then leveraging the clout and attention they receive into ancillary endeavors that are authentic to them which culminates in the establishment of commercial enterprises. This surpasses mere endorsements, holding a product and saying a “cool” line (cringe); but having a real stake, say, and equity in the businesses that are built on top of them and their cultures. These endeavors could include film and television production companies, clothing lines, agencies, marketing companies, sports teams, investment funds; etc.
This is the playbook, it’s been done and is going to continue to multiply itself. These artists are going to sign other artists, give them “the game” and enable them to build the same structures. Just like Lebron and Naomi Osaka who also recently launched her own sports agency.
The cat is out of the bag and it’s not going back; it will only be limited by the level of ambition, focus, knowledge, and expertise possessed by artists and their teams - in addition to power law distribution; which says in so many words that about 1 / 10 artists will become mega stars.. but the thing is, not everyone has to become Drake or Lebron. Even music artists now have a greater opportunity of excelling in the middle class and making a substantial living and growing from there. Spotify’s numbers are murky, but 17,800 artist made over $50k on Spotify alone in 2022. I’m sure you know my perspective by now; and truly that figure is extremely small; but however you want to slice it, that wouldn’t have been possible when I was in high school. There’s no way I would have known of a random artist in Kansas without them signing a one-sided deal with a major label. But now, through IG, and a decent digital marketing budget, they could reach me fairly easily. Maybe they don’t make millions from streaming, but what could they build on top of the exposure they get from streaming and the direct access to their fans which they get from social media?
In a nutshell, these are the differences between the old and new model.
Old Model:
Artists aren’t self-contained business people nor businesses; they are wandering, helpless sole proprietors sponsored by wealthy individuals and commercial entities, (patrons); and wholly dependent on those patrons for support, guidance, and money. They have virtually no access to independent financing sources, no leverage by which to negotiate and navigate societal and economic systems, nor do they have the infrastructure in place which would allow them to grow their businesses and detach from legacy systems.
New Model:
Artists are sophisticated entrepreneurs, founders, and businesspeople who understand the market and have a vision for their careers and their product’s market-fit. They enter into commercial partnerships with vendors who provide ancillary services such as distribution, marketing. They no longer solely depend on one or two “patrons”; but have services like Substack and Patreon (see what they did there), and others who enable them to build their own businesses through consumer access and major distribution .
MAJOR DISTRIBUTION
I’ve written before about the misconception of “independence”; it essentially comes down to the fact that independence doesn’t mean you don’t partner with other companies, it means you control your path. So the development of this model doesn’t mean we don’t see artists continue to work with legacy companies and institutions, it means we see the relationship shift. It means we see artists empowering themselves to decide who to partner with and how to partner.
There’s a quote often attributed to bank robber Willie Sutton which goes something like this, a reporter asked him “why do you rob banks?”, and Willie responded, “because that’s where the money is”. That’s the concept. So the future is not artists completely disconnecting from major institutions. They’ll continue to partner with them, but in the same way that Salesforce might partner with AT&T. Neither owns each other nor exerts a great deal of economic pressure on the other; but they have a mutual agreement on certain terms, conditions, and compensation over a limited and controlled time period.
I used to be an in-house counsel for a fintech company called IDology which was acquired for $300m; that’s roughly the same price Taylor Swift’s sound recording catalog was acquired for ( which she didn’t own). This means that artists are now reaching the level and valuation of major enterprises; they’re starting to think like them too.
“Major distribution, labels call me
Bad Bunny numbers, it’s a robbery”
- Drake, Major Distribution
For example, many don’t know that Michael B. Jordan owns his own marketing agency, which partnered with top-talent agency WME/Endeavor. I only know this because I once had 7 interviews with them (didn’t get the job) and did my research. It makes sense. Once you get to that level, why would you give up marketing control? You are the brand. You know what your fans/consumers want, you know your own vision; and because of social media, you have direct access to your consumers. You don’t need anyone to tell you what to do at that point. You can do more for most than they can do for you. Why not take control into your own hands? And while you’re at it, leverage the distribution of major partners while maintaining control.
This is the key thing that artists have to understand from the jump. They have to understand that they’re not just artists, they’re founders who own businesses and operate in Corporate America (or whatever other country they may live). The problem is, even though we understand power law, many artist don’t understand the game and by the time they understand it, it’s often too late - because even though the odds were slim for their commercial success when success, new opportunities, and emergent technologies do come - they aren’t prepared for it because they signed the type of deal that someone who didn’t expect to win would sign.
This is important because technologies are appearing and it’s important to maintain flexibility in your commercial strategy. I recently said this on LinkedIn about the use of AI to replicate artists voices -
That said, Universal is now asking streaming sites to block AI companies from accessing the catalogs on their platforms. For context, in order for AI technologies to be able to replicate artist’s voices and styles, the AI has to be trained on that artist’s data - this largely means artists music catalog.
The real play here is not just the protection of copyrights; but that Universal likely wants to control and commercialize this technology for their own commercial gain and advantage; and guess what? if they execute correctly, they’ll succeed. Not just because they, and the other labels, control 70% of recorded music revenues; but because they have the rights to most of the music these major artist’s songs that would be used to train the AI. And I can all but assure you that most artists haven’t carved out AI training from their recording agreements.
The artist of tomorrow who has leverage, may agree to a partnership with a major label for distribution; but may carve out “AI training rights” and limit the use of the artist’s name, image, and likeness to only records associated with that particular agreement. Again, it’s not about completely disconnecting from “the system”; I would call it “clever detachment” - it’s about owning your options… literally.
Special Delivery
In this article, I wrote about Spotify’s acquisition of ‘Heardle’ (which they’ve now shutdown) and how artists are not the primary customers of DSPs like Spotify. This is because Spotify is paid primarily by music consumers. Yes, Spotify pays out ~70% of recording revenues to music rights holders and keeps ~30%; but that money comes from consumers not recording artists. Because of this, Spotify is incentivized to optimize their platform and playlists for major label records, distribution companies and top artists or artists with traction. This is the main reason why the biggest Spotify playlists aren’t full of independent artists you’ve never heard of.
It’s also why 38m of Spotify tracks don’t have any streams.
This is another similarity between media/entertainment artists and tech founders. I recently read a great article by Kyle Harrison which touched on how LP’s (limited partners) are the real customers of VC funds; and not the startups themselves. Here’s a great breakdown from his article:
“Take this as an example. Accel invested $12.7M in Facebook in 2005, and that generated a 700x return . But of that $8.8B return, Accel got 20%. They didn't get it from Zuckerberg. They got it as their contractual reward from LPs. ‘For investing my money, I'll give you 2% every year, and 20% of the money you make me after I get my money back.’ So every "revenue stream" for a VC is coming from LPs. Not from founders.”
That sounds very similar to my previous example.
So how do founders and artists protect themselves and navigate? It starts by understanding what type of artist or founder you want to be, how long you think it’ll take you to get there, and whether you’re willing to take the risk and pay the price for whichever route you choose. There’s always a price, it’s just about choosing which price you want to pay.
Here’s an example from the tech sector. When fundraising, founders give up equity to investors in exchange for a financial investment. This financial investment often occurs over multiple rounds. In each round, the company aims to raise money at a greater valuation - which is great; but each time the company raises money, the current shareholders get diluted (which means they own less of the company). This is often not so bad because the company is presumably worth more every time the company raises funds.
For example, in the graphic above, the founders owned 100% of the company; but the company was only worth $250k. If they raised a $3.6m round, their ownership stake gets diluted down to 34%. The kicker is that 34% ($1.224m) is worth more than their initial 100% ($250k). Now, of course the company needs to exit (acquisition or IPO) in order for the shareholders to realize the commercial value of the enterprise; but the point remains.
This principle is present for artists as well. Many music executives often say “100% of nothing is nothing” when artists ask to own their masters or fight for the lion’s share of their revenues. This is true; but there are different ways to slice the cake, and it comes down to your path or vision. Do you want to sign that major label deal where you give up ownership of all your projects in exchange for the minority of your recording revenue just for an immediate shot at the “big leagues”? It could work, you could blow up and become an A-list artist; the other side is you don’t own your IP and give up leverage when negotiating down the line because now they own everything.
Taylor Swift became Taylor Swift after giving up ownership of her first six albums and she became a multi-millionaire several times over. Yeah, she ended up up losing out on $300m when her catalog was sold - but would she have reached the level she’s attained otherwise?
Only God knows.
So it comes down to you determining for yourself which path you want to take, and what you’re willing to do to get there. Many artists opt to bootstrap until they build leverage and can then sign more favorable deals with major labels; just as many founders choose to bootstrap their way into seven figure revenues and potential exits.
Owning 10% of a $1b company is $100m.
Owning 20% of a 100m company is $20m.
Owning 90% of a $50m company is $45m.
Owning 100% of a $100k company is $100k.
I’ve never sold a company for $1b, $100m, nor $10m so I can’t act like a know it all because I’m learning everyday. That’s how I think. That said, I do know what it’s like to really start from nothing and 10x + your results, and I’ve worked at Fortune 500 companies and have negotiated a few big deals so I know a little bit; and the way I look at it is that it comes down to vision, knowledge, wisdom, self-direction, domain expertise, work ethic, math and good fortune; etc.
There’s no magic to it, and money alone won’t get you there. I always say, “if money was all it took to succeed in the music business then there would be no such thing as a one-hit wonder”. At the end of the day, this is the opportunity that is present for artisanal founders. It’s not new, and everyone will achieve differently; but it is wide open for those who will take it. If it was easy everyone would do it.