010: The Real Economics Behind Taylor Swift’s Masters and Other Lessons From the Music Industry with Dan Runcie

No, I want to own the things that I made. Like, if I direct attention to something, it's going to be something that I own. And then any opportunity that comes up, whether it's Josh Kaufman with the Personal MBA realizing that his audio rights are out there for his audiobook and saying like, wait, I have an opportunity to buy that back, like, let me bet on myself long term and buy it back. Or Jay-Z saying, yeah, I'll come and run this record label, but you got to give me this other thing, you know, you got to give me my long-term ownership of it. I think it's fascinating.

Attention is power and creators harness it better than anyone else, but they're not using that attention to create the biggest impact possible and are vastly under-monetized. Hi, I'm Rachel Rogers. My co-host Nathan Barry and I believe you can be a billion-dollar creator. Sound impossible? Over the last 10 years, we've followed each other on our own quest to build billion-dollar companies. We've studied creators and seen how entrepreneurs build traditional audiences and use them as a launching pad for a massive business. And it got us thinking, if it can happen for them, it can happen for us. And if it can happen for us, then why not you? Billion Dollar Creator is a show teaching creators how to capture attention and turn it into real wealth. We will deep dive into brands, celebrities, and entrepreneurs who have done it before and show you how you can apply it to your business as an everyday creator. Join us weekly as we learn from both the wild successes and the missed opportunities, the grand gestures and the integral mistakes. And through that, help you become an expert at building your audience on your journey as a billion-dollar creator.

So in this episode, we break down the ins and outs of the music business and how people are using the billion-dollar creator methodologies and that playbook really to build massive businesses in the music space. Dan is an absolute expert at this. He's the person who is like writing case studies and breakdowns of exactly what's happening, why you can sell, you know, masters for hundreds of millions of dollars, in some cases even up to a billion dollars for the back catalog of an artist. And then we also take this and apply it to other creators, like what can you learn from all of this? One of my favorite things we dive into about the middle of the episode is how when Taylor Swift, you know, had her masters sold out from under her and then it got sold to another person, then she re-recorded it. Dan actually breaks down the numbers of how every player along the way, like at every step of the process, ended up winning. So it's a fascinating episode. There's lots that you can copy and borrow from the music industry and apply to the rest of the creator world. And so I think you're gonna enjoy it. Dan, welcome to the show.

Nathan, thanks for having me.

So we were just hanging out 2 weeks ago, 3 weeks ago, I don't know, in Nashville. You were in town for, I think, a bachelor party. I was in town for a recording of Billion Dollar Creator. and we got to just hang out and jam on all things music business. And so I want to do that, kind of recreate some of that conversation that we had just walking around the streets of Nashville talking about how in the music world some of these things, like so many of these ideas that we talked about on the show, are playing out in real time right now in music. And you have the best seat, I think, in the house for all this. So I'm curious, just to kick things off, why don't you tell people a little bit about Trapital and your background so they understand like how you love this world and are studying it, you know, full-time.

In a lot of ways, this world has become everything that I've thought about from a work perspective, and it's the passion and the hobby that became the full-time thing. So it's cool. I'm the founder of Trapital, and Trapital does media and research on the business of music, media, and culture. We have a newsletter and podcast, and we share plenty of these insights on socials as well. And the main objective is to make sure that that we're offering the decision makers, the executives, the founders, the investors in this space the insights they need to stay ahead of the curve with the latest trends and to make sure that they can find things that either help them grow their businesses and take them to the next level. And each year we put out an annual report on a lot of the big trends in the space. We actually just released the 2023 report and we also talk and have conversations with a lot of executives and even some of the artists in the space too.

Nice. So give me an idea, like, who's your target market that you're writing Trapital for, and like, who are some of those readers?

So the target market is the people that control the industry, the people that are setting the terms, the people that are making the big decisions, and that say, I'm managing this large P&L for this record label, for this group. How do we determine where best to invest our money? How much of that do we put towards the existing bets that we have, how much of that do we look towards these new bets, what are the new levers that we need to look at, but also the other stakeholders around that too. Their counterparts that work for the streaming services, their counterparts as well who are investors that look at the space and are always trying to find advantages and ways that they can help their own companies and their portfolios continue to grow. But it's also for a lot of the artists who are moguls. And this is an industry where there are a lot of multi-hyphenate people wearing different hats. And everyone has a bit of that Jay-Z mentality. I'm not a businessman, I'm not a businessman. That whole thing is ingrained in them. So how do we make sure that that person can be in the best position that they can? And if Trapital can help them, then we're doing our job.

I like it. There's, I think, two newsletters that I follow that take a totally different like angle from many others. Like most newsletters are saying, how can I reach as many people as possible? How do I grow as quickly as possible? So what you've done with Trapital and this other newsletter called Playing Field have taken this other angle of like, no, we're just trying to reach exactly the right people and size doesn't matter, it's quality. And like, you've got it where most of the heads of record labels, like people making all these music industry decisions, are on your email list, like reading your newsletter. And Playing Field is doing the same thing where it's this newsletter that you actually can't subscribe to. Because it is only— it's run by a guy named Ben Rawitz, who is Tom Brady's manager. And to get on the newsletter, you have to be either a former or current professional athlete. Like, if you're not NFL, NBA, you know, NHL or something, they're just like, no. Or you need to be a team owner or work in like top-level management in the front office. Like, if you're a GM of a team, like, you can get in, you know, all this. So the newsletter's only like 1,000 people on it.

That's a powerful list though. You could have a really successful business from serving those 1,000 people.

Yeah, so I love it of just like what you've done and then what Ben's done of taking this other angle and saying like, I'm not trying to get to 100,000 or 500,000 on a newsletter. I'm trying to get to any number, 1,000, 10,000, you know, 20,000, whatever, of exactly the right people. Now you haven't gone so far as to say like, I'm going to kick you off the list if you're not in these roles, which Playing Field has done where they're like, how did you get on here? Get out of here. You know, but I like that angle.

Yeah, it's interesting because I think that a lot of the creator economy talks about serving niches and how you have the ability now with all the resources, newsletters, podcasts, socials to reach your people and super serve that audience. But I do feel proud that Trappital is one of those businesses that is actually doing that thing and you're right, it may not be the newsletter that serves everyone, but the people in this industry been able to make a lot of the connections and inroads there and truly feel like we're a value add to the space. But then just knowing how impactful music is and hip hop and each of the areas that it intersects with, with marketing and brand deals and partnerships all over the consumer landscape. Between that and its influence, we know how much it touches, but also Music itself is in such an interesting place because the cultural capital that it has and the influence it has outweighs the actual capital that is in the industry. That's something that people are actively working to close the gap on, but I think that's a huge reason why there is such lift in interest in this space.

Oh, that's interesting. Okay, talk more about that, of the cultural capital and influence compared to the actual capital. What do you mean in there?

So if you look at the annual revenue on recorded music per year, it's under $30 billion right now. It's around $26, $27 billion. If you add live music, if you add publishing, if you add a few other things there, you make it closer to $50 billion. But still, this is an industry that's a fraction of the gaming industry, an industry that many people feel may have a smaller relative cultural influence, but because of the business models and because of the incentives and the way things are set up, there's so many more opportunities for gaming to close that gap and for people at all levels of the demand curve to have a product that serves them. Music right now is the opposite. It wasn't always this way. Back in the '90s, many of us were buying CDs and buying other albums, even if we only wanted to listen to 2, 3 songs off of that album and the rest of them were filler. We were buying that for $20 for each item that we bought. And the cost to produce those were extremely cheap. And the industry in many ways got fat because of it. And it worked out quite well for them. But this is an industry where everything turns on its head after Napster and after iTunes. The album becomes unbundled. And now we're in this place where you could access 100 million songs for $10.99 a month depending on where you live. So that in itself is a product that did save the music industry. Streaming did do that, but it is a lowest common denominator thing. It serves the people that either want to be able to listen to the free ad-supported services that they have or something that is quite basic there. But if you're an avid music fan, some of the few places to really exercise that right now are going to go see your favorite artist in person, whether you're going to go see them at a music festival or at a show, or purchasing a t-shirt or something like that. So The industry is actively trying to work to about work and figure out ways to improve this, but this is one of the reasons why there's such a gap there. So many people love music, it's so inherent, but a lot of us don't spend more than $10.99 a month on it.

Yeah. Oh, that's true. Okay, that's fascinating. So a lot of the premise of the show is that's where you have attention. You have attention that is worth more than what, like, the actual capital or revenue that you're gaining from it. And so what you're saying is that, like, that is the definition, like, that is what is happening all across music where the attention and, you know, notoriety and influence is absolutely huge and the revenue generated from it is relatively small to other industries. Is that right?

I would say so because it's almost similar to how a newsletter that is selling sponsorships, maybe that's an equivalent comparison where sure, there is good money to be made through sponsorships depending on how it's structured, depending on the audience. But if you look at all the ways that you can touch that audience, all the ways that you can serve that audience compared, you may be leaving some money on the table if that's all that you're doing. And if you're not thinking about all the different ways, some people may want to meet in person, some people may want to be a little bit behind the scenes for a membership community and things like that. And in music, it's similar because artists are getting a share of the streaming revenue that comes through from these paid streaming services, or they're getting a portion of what's ad supported. But if they're only focusing on that, they're also likely leaving money on the table from their own version of having a membership community, having people that want to have behind-the-scenes access, going in person and performing different shows, different festivals, doing different things. And that's why we've seen many artists continue to find ways beyond just music to grow their businesses. And whether it's Jay-Z or Rihanna or Beyoncé or many of the others that have either hit billionaire status or near it, a lot of them did it because they were able to explore and find other business opportunities where they leverage the global influence and impact that they have. But that was the foundation for them to build businesses that had much more lucrative business models than music streaming for them.

Okay. Yeah, the attention, the attention's worth a lot. How do you, how do you maximize that? When you look at like across the music industry, what are some of your favorite examples of artists, you know, maximizing that attention or building another business?

I like to look at the artists that are maybe not even the superstar, the top line names that you see, but are doing some really innovative things, whether it's how they own their assets or how they think about fostering their community and really understanding them at a human core perspective. I think about these rappers out of Buffalo, group called Gazelda. You have Westside Gunn and several others there, and they've been able to reach their audience through— they have shows, and with their shows, they're able to sell high-end merch. And the merch is related to things that they're known for. One of the artists in the group is called Benny the Butcher, so they'll have butcher cleavers and things like that that they'll offer. They have vinyl, they have jackets as well that feel the vibe of not just Buffalo but that broader New York vibe. And in a lot of ways, they're older. They're a bit older than a lot of the newer artists have come through. They're like older millennials. I'd put them in that age group. But they feel like a throwback to New York hip-hop that a lot of people that may have liked Wu-Tang Clan and groups like that in the early and mid-'90s. So they've been able to do that effectively. I look at an artist like LaRussell who lives here in the Bay Area. We actually profiled him for the Trapital Report that we just put out, and he's been able to have different shows where he lets his fans pay what you want in order to attend. And he's hosting some of these shows in his backyard where he's setting up residencies there. And because he's part of the community, he's been able to do some interesting things like that. He sells merchandise and that's where he makes a large portion of his money. And then there's other artists too that I often look back to Nipsey Hussle. He's now passed away over 4 years now, but he also had a lot of this ownership mentality. And I think a lot of the artists have looked at the system a little bit differently where, hey, even if you're not the artist that's selling out the— I was going to say the Staples Center, but no longer— whether you're selling out the Crypto.com Arena, you're selling out SoFi Stadium, whatever it is, you could still have success even if you're not doing that because these are artists that own their masters, they own their publishing, and they are thinking about how they can leverage all the tools and take advantage of streaming because sure, it may only be $10.99 a month, but if the people that are listening to music, you are the one that's getting a majority of that revenue, it can be quite lucrative for you. So he's another example of an artist that was able to do that well. He had a mixtape where he charged $100 for the mixtape, and part of it was an awareness boosting campaign, but he was able to sell out the mixtapes because he made it a limited quantity thing. He only had 1,000 of them that he had available. And then 2 years later, he had a $1,000 mixtape and did something quite similar. He said he got the idea from this cheesesteak place in Philadelphia that was selling $100 cheesesteaks, and there was so much earned media about it because who has a $100 cheesesteak? Why would you think to do something like that? But the restaurant gained quite a bit of notoriety for that item that they had, and Nipsey was able to apply the same exact thing to his albums. And similarly, people reacted the same way. How are you going to have a mixtape for $100 when people are downloading these things for free on all of these other random sites? But it worked out quite well for him. Unfortunately, he's no longer alive, so we weren't able to see how he would have adapted to different things, especially with how much the music And the industry has changed even since the pandemic. But those are some artists. I know we'll talk about the superstars, but those are some artists that aren't quite at those highest levels that I look at that have done some innovative things.

Well, the scarcity play is really interesting because it's like scarcity and notoriety combined. Like coming out with a mixtape is not interesting. You know, plenty of people have done that. But for a super fan, they might care. A mixtape at a certain level of scarcity starts to be interesting. Like, okay, why would you limit something? Where, you know, Naval Ravikant talks about the different kinds of leverage, like labor, capital. He talks about products with no marginal cost of replication. Like, that's a mixtape, right? You make it, it doesn't really cost anything to replicate as many times as possible. So why would you limit supply? And it's like, well, it creates artificial scarcity. And then when you layer on the unconventional price, then all of a sudden the package of all of this becomes interesting and so it becomes noteworthy. Are there any other examples of people doing something like that where they've like pulled a few of these levers and then made people care in a different way?

I think the ultimate one that I think about is Wu-Tang Clan. I know I mentioned them earlier, but in 2014 or 2015, they had an album called Once Upon a Time in Shaolin, and there's only one copy of the album. That's it. It was only one copy of the album that they had. And their whole point was that music is in an interesting place. People are trying to figure out how best to go about this model. We don't just want to give it away for free. Hey, here's our product and we're going to charge top dollar for it. So there was something unique about the fact that the buyer of it, what they could do with it, what the rights could have. But they had these certain stipulations in place that said the group still had some say in what happened to the assets. But What happened a few years later is that the asset ended up getting in the hands of that guy Martin Shkreli, or Shkreli, I forget how you say his last name specifically, but the guy that famously had legal issues with pharma and all that stuff. And then the asset ended up getting seized by the government at one point. So there was all this drama around it. But that's the type of thing that sticks out because when you think about just the psychology of scarcity, Scarcity is people wanting to be like, oh, I'm the one that has this thing. And that changes the whole mentality of the product when it was something of abundance before, but now only a few people have it. It's a completely different game.

Well, if you did something, if you said like, hey, we're going to do a new tour in 3 years, like we want to do our big world tour, then we have enough fame that we know we can sell it out, but we want to like blow it out of the water. So what can we do now, you know, between now and then to like level up fame? It'd be pretty normal to say, hey, let's release an album now and that'll build momentum. And, you know, we'll do a bit of a press tour and then our big tour will get more attention. But if you're like, new idea, let's record an album and release and sell it, but only one copy, it's like, no, no, no, we're trying to get more attention and fans for our tour. And they're like, trust me on this, you know, it'll get everybody to talk about it. And that's fascinating that like they're like, we don't need to make money. Of this one thing. Granted, do you know how much the album sold for?

I forget the exact amount, but it was, it was, it was over a million dollars.

Yeah, so they're like, on one hand that's a ton of money, on the other hand, like, compared to what their reach could be, it's not, not a crazy amount. But it's enough that people will pay attention. And then you just think about the, the amount of earned media that they got from that, you know, it's many millions of dollars of people talking about it you know, us years later on a podcast being like, did you— like, that's a ridiculous story. And right, it goes from there.

Yeah, it's interesting because a lot of artists benefited from doing things that were less than conventional because of the earned media they got from it. I look back to 2013, it's almost 10 years ago now, that Beyoncé had dropped her surprise album, that self-titled Beyoncé album. And this was a drop with no announcement ahead of time. And it's something that doesn't seem as unusual now, but at the time that was quite unusual. The playbook was you had a lead single off of the album, you let everyone know the album was coming, and you're putting it out, and you made sure that you had physical copies in stores in order for people to go get it, because that was the thought about how you promote this product. Obviously a lot was changing in the 2000s and in the early 2010s with the adoption of streaming and digital downloads and things like that, but Beyoncé pretty much said, hey, my album is a digital product. We need to make sure that this is something that's digital ready. And there's going to be so much more buzz from the fact that I just put out an Instagram post that says, surprise, here's my album. And now it's something that's become replicated. But at the time, they have written Harvard Business School case studies about her doing that surprise album drop. It got all this earned media attention. And the fact that the album is still considered one of the best pieces of work that she's done has continued to play into that. And I think over time we've seen artists that have just continued to do things that were unconventional. People thought it would have been a risk, but because of the earned media that they got from it, it ended up working out extremely well for them.

That's so fascinating to me because it goes against every rule of product launches that I know as far as, right, like building attention and the hype and the scarcity and, you know, like all of these things. To get someone excited, waiting for it to drop, you know? And it's like, nope, there's none of that. It's just, it's there. But then you can't help but talk about it because on one hand, over a long period of time, we're like, oh hey, did you hear that Beyoncé's new album coming out? Yeah, I'm excited for it, blah blah blah, right? But if we're like everyone all at once going, did you hear the new Beyoncé album? And like, what? I didn't even know it was coming. You know, like that. I mean, it's kind of like these TV shows You know, I think Netflix maybe was one of the first to really do it, of dropping an entire season all at once, and like global productivity just like screeches to a halt as everyone binges a season of, I don't know, House of Cards or something else, right?

That was always one of the big ones, House of Cards or just The New Black. Yeah, yeah.

And it— I mean, it's a trade-off because you get your moment all in a shorter amount of time, but then I feel like if your content is good, in the case of Beyoncé's album then it gets a spike and it rides it out. Whereas those people who have tried it average content or content that didn't resonate, then they get their spike and they have their, you know, 5 minutes of fame and then it drops off. So it's a bit of a gamble, but it's interesting doing it in an unconventional way.

I think we've seen a few waves of this as well because I felt like in 2013, the time that Beyoncé had that surprise drop, the time that House of Cards was still seen as one of the must-see shows for right, is pretty much capturing all the attention. I think it made sense with where things were, but 5, 6 years later, when that becomes so much of the norm and there's such an increase of content, that is no longer the thing that surprises people. That's no longer the thing that sustains attention. And how it's such a fragmented landscape, it's hard to do that. You've seen some platforms revert back because now they're realizing that, okay, if we want to sustain any sustained aspect of attention, it may be better to make sure that this has a steady rollout. I look at a show like Succession, and I think that show is a show that definitely got more popular in the pandemic. It just had its final season a few months back here in 2023, and the fact that it was a week-to-week episode, I do think helped with the buildup in a way that it could have been a bit more lost in the mix, or you had that big boom. And even though it is a good show, it may not have been able to maintain and capture the conversation for 3 months the way that it did, because even that is a luxury now, just given the way that media and entertainment works.

Yeah. As we're talking about this, I want to go to ownership in a second because there's some really interesting things in music there. But maybe first, if we take this to the creator world, some of these things that we've said around scarcity and like unconventional launch plans, is there anything that you think creators should try or adopt around this?

I think there's so many interesting parallels to how creators build their businesses that I think are relative. I think a lot of creators starting out, and even if you're someone that is quite successful— Beyoncé is someone that is already established by the time that she had that surprise album drop, so there's enough of, uh, reason to at least stop and have a conversation. No different than any time she stops an album. I think her, Kendrick Lamar, Drake, Taylor Swift, a few other contemporary artists now are in that category. I think there's certain creators that are at that level, whether it's folks like MrBeast and folks like that. But I think for most creators, they're more likely to have their niche than be someone that is this omnipresent monocultural artifact or someone that is in themselves. But I do think that the part that's relatable to creators is a bit more of those stories that I was sharing earlier, whether it's artists like your Griseldas or your Nipsey Hussles and LaRussells and how they were able to serve their audience. And they knew that there were certain vanity metrics that were quite popular. They knew that they may have never won on those vanity metrics, whether it's how many monthly Spotify listeners do you have, how many monthly streams do you get, what album does your, what place does your album chart on the Billboard Hot 100 or 200 and things like that. I think the creator's version of this is, when you put out your blast, how many likes does your message get? Or how many impressions does the tweet get when you announce something? Or what's your average day? Or any of the things that most creators check for the most of it. But what's the thing that actually matters? How good are you at converting? How many people are actually clicking and looking at what you're doing and then converting that into sales? Whether you are selling a course, whether you are selling some other digital product, whether you are selling some type of service. These are a lot of the things that creators now are building. But what does that conversion look like? Because that's what matters at the end of the day. And if your conversion is better, then you could be doing even better than someone that may be much more, quote unquote, Twitter famous than you are, but they may not be able to convert the same way that you can. And I think that's the piece that sticks out.

Yeah. I like that. Okay, so on the ownership perspective, that's a very hot topic in music. And you had this Twitter thread, I don't know, a few weeks ago, a month ago, that really stood out to me about Taylor Swift and her masters. And you basically, you started talking about— the headline is, despite the drama surrounding Taylor Swift's masters, every stakeholder involved has won. On one hand, I'm like, how is that possible, right? Because she felt like she was screwed over. Like, just take us through that. How can everyone win in that process of, uh, you know, the masters being sold out from under her. And then even in this case, she's re-recorded them. She just released 1989 Taylor's Version. And so like, is the thing that got sold even valuable anymore?

So there's 4 main stakeholders here. So of course there's Taylor Swift, there's Big Machine Label Group, which is her original record label that she was a part of, there's Ithaca Holdings, which was the company that Scooter Braun had started, which got a lot of the headlines for this story and how it came to be. And then there is Shamrock Capital, which is the investment firm that had bought and now holds the original, um, recorded albums. And the reason that all these stakeholders won— and it may not seem that way, but there's a big reason why each of these stakeholders won— because a lot of the drama and a lot of the finger-pointing— and there's a lot of it that's warranted. I think that when you do dig into it, there's more that may not have necessarily reached public consumption in that type of way. But still, this is why it's important, because the Big Machine label group, they won because they were the ones that signed a 13-year-old girl from Pennsylvania that just moved down to Nashville on a 6-album record label deal and were able to build an entire record label and business around her and then essentially sell that for over $300 million, but a large portion of that was based on, or at least a majority of that was based on Taylor Swift's music itself. They then sold that to Ithaca Holdings, which was Scooter Braun's company. And just for the sake of this conversation, I'm not going to get into the drama aspect. We're just going to talk about the financial piece of it. They sold that to Ithaca Holdings, and the value at the time of that was $140 million. Ithaca then flips Taylor Swift's original recordings and sells it to Shamrock Capital, the investment firm that I talked about. This was right around 2019 timeframe. They sell it for what they value the masters to be at $305 million. So this is over a 2x jump in terms of the valuation in less than 18 months. And a lot of that falls in line with this big catalog boom that we've seen. If you're someone that's listening to this podcast, then you've probably also seen a lot of the headlines over the past few years about Bruce Springsteen and Pink Floyd and others who have either explored or sold their catalogs for hundreds of millions of dollars. Justin Bieber and Katy Perry, I think she was actually one of the more recent artists. Then you have many hip-hop artists as well, like Metro Boomin and Timbaland and others who have been involved with this. And a lot of these assets are selling for a lot of the reasons that a lot of things were happening in the, late 2010s and the pandemic times, interest rates were very low and money and debt was cheap. So there was a big appetite to be able to buy these assets. But there was also a big change that happened in music specifically because we talked earlier in this episode about how the dynamic flipped from the way things were in the CD era to the way things were now in streaming. But one of the big things when streaming, you're able to A, see the data on how well these individual songs are and how well they perform. And the asset can act even more as an annuity that can continue to generate revenue in a way that it couldn't before. Before 20 years ago, if I wanted to listen to Bruce Springsteen, I'd buy that album once. Maybe if there's a new platform that comes out, whether it's something that replaced CD or whatever it is, then maybe you would buy that version when it comes out, but you buy it once. Now, each time you want to listen to "Born in the USA," that registers as a stream in the same way it does for every single person that does that. And there's a predictability to that. The data can track how much revenue the song will generate, and that changes everything. So those two things played a huge factor in a lot of these music rights being sold the way that they are. So Ithaca being able to flip Taylor Swift's assets was a huge aspect of this and how they're able to do that in such a short amount of time. Now, of course, Taylor Swift has rerecorded these albums, and these albums have done extremely well. They have outpaced the original recordings, each of them now from a pace of revenue. And everyone has been eager to see what's going to happen to 1989, because this was her, by far, her most streamed album and had some of her biggest commercial songs and was responsible for 30% of the overall streams and revenue that she generated, according to some data that Music Business Worldwide had put out there. But the reason that I think that Shamrock Capital, the company that has the original recordings, and of course 1989 Taylor Swift's version is going to get much more priority and play than the originals. You're still, even if you own that original asset though, you're still in the business of Taylor Swift and all those original playlists, all of those original algorithms. And to be frank, people that may still enjoy and want to listen to the old version when Taylor Swift originally recorded that album when she was 20, 23 years old, world. No different than someone that may not want to— there's someone that's a big Star Wars fan, they may not want to watch the digitally remastered version of Return of the Jedi from the late '90s. They want to watch the one that came out in 1983. So there's an aspect of that there. And at the end of the day, sure, there's a relative devaluation, but I'd probably still rather own 1989, the original version, than a majority of the other hundreds of thousands of songs that the major record labels have the rights to.

Oh, that's fascinating. Just the idea of like the, the rising tide has gotten so high that just everyone is, is winning in, in an incredible way. How much do you think the re-recording devalued the original masters? Because also, when, when Shamrock bought it, they knew the re-recording was happening, right?

Yeah, they knew it was happening. And I believe it was at least what was publicly recorded that there was conversations between Scooter Braun and the Shamrock team about, well, what is this going to do to our asset? And what you said, those were Braun's words as well, where he said the rising tide will lift all boats. And I still do believe that to be true. There is a good breakdown that Tim Ingham from Music Business Worldwide had done on this, so you could see a bit of the math there to see what was Red doing before the Taylor Swift version came out and was just the original? And now how's Red original doing versus how Taylor Swift's version of Red is doing? So there's some interesting numbers there. So it definitely took a hit, but just given how relatively big everything is, I still do think that Red or Speak Now, the original versions, are still doing much better than a lot of the other music out there.

Oh, that's fascinating. Okay, so This idea of selling your masters, it was not something that I knew about really until all of this drama went down, but it's been happening for a long time. And then it's happened a much more like, why does a back catalog of songs have so much value? And why would, you know, like investment firm be going in to buy like Springsteen's or someone else's catalog?

This is the asset. This is the moneymaker and music itself. In some ways is no different than other forms of IP, but music's a little bit different because of the replayability of how often you hear these songs. And your favorite movie, your favorite TV show, even if you love that show, maybe you'll watch it 2, 3 times. Like, I'm a big fan of The Wire, Sopranos. I've seen those series 2, 3 times, but I haven't consumed that content nearly as much as the favorite albums that I listen to. Part of that's because of the length, but it's audio. You can listen to it while you're doing so many other things. So that replayability is huge and it adds so much more value to owning that underlying asset. And just given the nature of a lot of these record label deals, that master's ownership can often lead to 80/20 splits, 80 being the share that the rights holders get, the rights holders being the record labels or the publishers or folks like that. So it's not uncommon for an artist like Taylor Swift to sign a 6-label deal, but after you surpass your advances, it's still, you're still only getting 20% of the cut indefinitely, and the record label gets 80% because that was essentially the quote-unquote bet that they get from when they got that on you. So of course, this is risk. It's in some ways it's similar to whether it's venture capital or other things where you're taking an early bet, but the economics of that early bet could probably look a little bit different. But because that is the way it is, that's why there is so much value in those back catalogs. And for all the people that talk about wanting to disrupt the music industry and finding a new way, and these record labels are doing X, Y, and Z, the reason that a lot of those record labels are still so powerful and why it's hard to in many ways disrupt the incumbents to an extent is because they still own so much of those back catalogs. Because it's big a lot of these investment firms are. Yes, you may have seen names like Hypnosis or Shamrock or Roundhill and some of these others. They may buy assets that are $50, $100, or even $200 million. But once you get into the world of $500 million, like it was rumored for Springsteen's, or even the close to a billion dollars that we've heard of Michael Jackson for even selling that estate, selling 50% of the catalog. There's really only a few buyers that have the willingness and ability to do that. And many times it lends itself to still being the record labels and the broader rights holders themselves that maintain the ownership.

Hmm. Okay. So that's making me think of like basically music as an annuity that's just continually paying you. And I've heard this before. I've heard authors talk about this a decent amount, especially those people who have written a book that like is evergreen and keeps selling. So I think of like Josh Kaufman, who wrote The Personal MBA, which I think he published in maybe 2007, somewhere around there, 2009. And it's just continually sold. I think he recently passed over a million copies sold. And that book, especially because he has the— he controls the audio rights to it. So the book makes him money and the audiobook makes him a lot of money. And it's just this thing that keeps selling. People keep buying it and it's evergreen. And I know also like Ryan Holiday has built this back catalog of books where no single one of his books has been like an absolute home run, you know, to the level of Atomic Habits or Mark Manson's The Subtle Art. Ryan's just continually stacked this back catalog of books that just keep selling over and over again. And like it's gonna pay for his kids' college. That's gonna pay— like those books, like The Obstacle Is the Way is still going to be selling copies and his grandkids are going to go to college off of the, you know, $2 a copy or whatever that those books will keep selling for a long time. I think of another book is The War of Art. The War of Art, uh, has sold more copies every single year that it's been released for the last 20 years that it's been out, 18 years. And not like a cumulative graph of like, yeah, of course the total has increased. No, I mean like, as in year 1, it sold 1,000, year 2, it sold 1,500, year 3, it sold, you know, like just up and up and up. And it continues to sell out like each past year. And so you make something that is evergreen, like music, like these books, it can just keep paying you for a long time.

And that's why we're recording this. It's almost November. We're going to be hearing a lot more about Mariah Carey's All I Want for 'All I Want for Christmas Is You,' because this is a perfect example of this. She's someone who had the record, or was close to having the record, for the most number one hits that anyone had had. This is in the '90s and even going into the 2000s as well. But one of the songs that never got there was this song, 'All I Want for Christmas Is You.' It was a song that she wrote in a very short amount of time. It was part of a Christmas album that she had made when she was in her 20s. But streaming changed everything and social media changed everything. Streaming changed everything because now, even if you may not have went out and bought Mariah Carey's "All I Want for Christmas Is You," it's so much easier to stream it now. And you have the annual reminder of when you would want to stream that song. Plus, Mariah Carey herself has leaned into the whole meme aspect of it, where once Halloween ends, there's all these memes that come up about "It's time," and she leans into it. She's partnered with other artists like Ariana Grande and others to then have different versions of it. She's rerecorded the song and done different music videos and sold different products around it as well and really leaned into this Queen of Christmas branding. So she's someone where this is a lucrative song. It's a song that does well. It may not get a ton of streams 9 months out of the year, but those 2 and a half months or the 1 and a half months rather during the holiday season, The song just continues to do well and well, and I forget the exact number, but the royalties that she gets from that song each year just continue to compound.

Yeah, that's wild. One other thing on music masters before I want to go to other examples of people creating these other types of businesses. With her re-recording her masters, is there something fundamentally different about ownership when she goes around to do it round 2? Like, is she owning significantly more or if you think of the stack of everybody from all the different rights holders for a song, does she now control and own significantly more than she did before?

It's a completely different landscape. And the thing is, she's also in a very different place. She does that initial deal. As I mentioned, she's 13 years old. She signs a fairly standard deal. Then I believe 2018 was the year that she was essentially a free agent. and she ends up doing a deal with Universal Republic Records. One of the other heads of the record label, Warner Music Group, who she did not end up signing with— I don't know if there were deep discussions there, but that head at the time, Steve Cooper, he had commented and said, oh, that is too artist-friendly of a deal that they had given Taylor Swift. But again, it gives you the opportunity to be in the business of Taylor Swift. It's hard to pass that up, just given even if you're only getting 20%, let's just call it, of of the revenue for the song. It's not quite that simple. I'll talk about it a little bit in a minute, but you still rather her 20% than 80% of most anyone else. And that's just how I think it's helpful for people to think about it from a high level. But what Taylor ended up doing, and this is something that other artists like Drake and The Weeknd and others have done, she ended up doing what's called a licensing deal. So she licensed the masters and the ownership for these songs for just a set amount of time while these recordings end up coming out. So it's a very brief time frame, but it is then in the hands of the record labels, and they are the ones that are working and pushing this asset, no different than Taylor is herself. But after a certain amount of time, and it's a fairly short amount of time, they end up reverting back to her. And when they revert back to her, that means that all of the money that comes from it does as well. So they do have the partnership there where the record label still gets something out of it. But once things flip, she then is able to have even more because she's the one that then owns this asset in perpetuity. So she already had a favorable deal with it to begin with, and then it becomes even more favorable once it comes back to her. And, and I don't think it's a coincidence that ever since she signed this deal, we look at all the albums that she's released as part of this deal. There's now been, if my math serves me right, I think it's at least 7 or 8 albums if you count the re-recorded albums that she's put out since 2018, plus the 4 studio albums that she's put out since 2018 of brand new music. So she's releasing music at a much faster clip than she was before. And I think you've seen similar things with Drake releasing music even faster than he was before. I feel like every 9 months Drake is guaranteed to drop a new album, if not sooner. The weekend has been a bit more frequent, and I think they have done this because when the numbers work in your favor, it's no longer just this thing where you don't make any money on streaming and you have to go make it all on tour. No, you are one of the artists that now has a more favorable deal. You are one of the artists that every time you release a product, you get to dominate the charts. And because of that, you may be more likely to put more essentially impressions, more moments into your streaming service, into the platform for people to listen to. Because not only when you put out a new album are people going to stream that album, it also reminds people to go stream all the other stuff that you have as well.

I didn't think that the, like, how prolific artists are becoming has to do with the ownership and effectively the, the payout structure. But I think you're absolutely right. I've seen this with authors where They'll come out with a first book with a traditional publisher. It'll do well. They're making, you know, $2 of every $15 copy sold or $1 depending on the deal. And they promote that somewhat. And their next book, they self-publish or do a hybrid publishing where they're making 50% or more. And you see them promoting it a lot. And it's like, well, yeah, obviously the economic incentives are there. And the same thing where it's like, hey, if I put out an album every 2 to 3 years, that lets me tour and sell merch off of it where I'll actually make money. Then that flywheel is good. We'll keep going. Why would I put out another album when it's 90% of the work and 10% of the payout? And then when it flips and it's like, no, no, no, I make all the money from the album and I can do touring and merch on top of that, then like, absolutely. Like, we're doing an album every year. Let's go.

Right. The numbers and economics shape everything in terms of how different artists act, how they go about certain things, and Even things in terms of how often artists release music and things like that, like we're talking about here, so much of that is often a reaction to the type of deal and the type of economic incentives that they have.

Yeah. Oh, I love that. Okay, so if we go broader than music and masters and we think about the attention that these artists have, what are some examples of artists that you've enjoyed watching either like launch a different product line and scale that, or make like some business move that they were able to do because of their attention.

I think the one I still go back to is the Beats by Dre story. A lot of people have probably heard this in some shape or function, but the thing that sticks out to me is less about the headphones itself but more about the music streaming service that Beats by Dre had started.

So really quick, give people a rundown of the headphones. And if they aren't familiar with that since it was a few years ago, and then yeah, dive into the streaming service because that part I didn't know.

The original story goes that Dr. Dre, he was in his mid-30s at the time, maybe he was even 40 at the time, but a lot of his peers and a lot of the other artists in hip-hop were starting to get a lot of sneaker deals. There were G-Unit sneakers, there were S-Dot's, and even Nelly I think had his own pair that he had at one point. And then Dr. Dre was approached to do a sneaker deal. He was still signed with Interscope at the time. Through Aftermath, and he was working with Jimmy Iovine. And Jimmy Iovine essentially told him, hey, F sneakers, let's go make some speakers. So that was the thought behind making the Beats by Dre speakers. They saw that everyone had these white iPod headphones that were quite popular in the 2000s. But even though they kind of became a fashion statement to themselves to some extent, they were a simple product, and the audio quality just wasn't that good. So because of everything transitioning into streaming and into digital, they wanted to create something that was effectively that, something that sounded better and something that could be even more of a fashion aesthetic onto itself. So they then work to start and launch Beats by Dre. The company Beats Electronics starts in 2006, and then they eventually, by the end of the 2000s, they were able to have a product that does quite well, and you start seeing it more and more different places. They had different partnerships. I believe LeBron James had an equity stake in the company, and they definitely leaned into others there. They were working with different folks at Best Buy, for instance, to help push the product. And the Best Buy CEO had told people at the time, hey, you need to sell these like you're working at Foot Locker selling Jordans. Like, that's how you need to think about this. This is a fashion aesthetic that you're pushing to people. And the product really picked up steam. I mean, I wanted a pair. I eventually did end up getting a pair. One of the things that stuck out— ambush guerrilla marketing style campaign where most brands that tried to become the official sponsor for the Olympics have to go through all of these different protocols and pay a pretty hefty fee. But Beats thing was different. They were just like, hey, all right, here, Michael Phelps, LeBron, hey, here are these speakers, they're on us, just wear them. And they wore them during their warmups. They wore them when they were walking all around London and places like that. And again, tying back to what we talked about before, the earned media, the earned media that that Ambush marketing campaign got and the association with all of those athletes, the Olympians wearing the Beats by Dre headphones, was so much more valuable than any of those official sponsors for the Olympics ever could have imagined. The IOC, I believe the IOC was the folks that were working with this, that's the International Olympic Committee. I'm pretty sure that's what the acronym stands for. But they were the ones that eventually outlawed anything like that from happening. But That's what really sticks out to me from the physical headphone side of stuff. It was really a well-executed marketing campaign. They were able to lean into so many timely things that worked. So this is around 2012. 2014, that's when the acquisition happened. But I think there's a few interesting things that happened because Jimmy and Dre and the Beats team, they knew they had these headphones, but they knew that streaming itself was also in this transition because Spotify, was still pretty nascent and people were trying to figure out what's next for music. Digital downloads, while cool, they didn't necessarily capture the consumer behavior of how people wanted to just be able to play and listen to what they want when they want and they were less concerned about owning the actual song. So Beats then starts Beats streaming, which Beats Music rather, which is its streaming service. It had this partnership with AT&T at the time. And they were pretty early in it, but that's what actually caught the attention of Apple because Apple, a company that for most of the 2000s was setting the tone and was ahead of the curve on music and with the iPod and iTunes and everything else, they were now playing a little bit of catch-up on music streaming because Steve Jobs famously wasn't a fan of online music streaming as a monthly subscription type product. But when that eventually became the dominant consumer behavior, Apple kind of had to play catch up. And acquiring Beats by Dre, Beats Electronics specifically, was an opportunity not just to get a bit of the cool factor from the headphones, but it was also to get a head start and save themself maybe a year, year and a half of time for their own streaming service. Because about a year, year and a half after they acquire Beats Electronics, they end up launching Apple Music. So it's this funny story about how, yes, you had this brilliant marketing campaign for the hardware, the headphones itself, but in many ways was that part of the quote-unquote loss leader that eventually gave Apple the awareness to then buy the nascent thing that they really wanted, which was the thing that saved them time. And I do think especially around the mid-2010s, timing was everything. Who knows how much market share Apple would've been able to capture if they had launched their streaming service in 2016, 2017. So Beats really bought them time.

Okay, so I thought that the deal was primarily about the headphones and like the streaming service was a value-add and Apple was just trying to maybe build more relationships with artists or some of these other things, but really like get that revenue, build the brand, and, and go from there.

Yeah, and I think in a lot of ways people assumed that that's what it was because the headphones were the most visible thing. The streaming service was so nascent. There were a few early commercials, but still there wasn't anything that was necessarily discussed, but this was part of Beats Electronics' broader plan to be able to tap into this industry. So even though Apple itself didn't necessarily have as much there, they see that opportunity. And if you think about it from Apple's strategy, they're not really one to acquire companies like this. It's a bit ironic because as often as Apple just being a very cash-rich company, people are often saying, oh, what if Apple acquires them? What if Apple acquires them? They really don't do that that often. So even this deal was seen as being something that was a bit more unique. And sure, there definitely was a cool factor and they definitely paid a premium for something largely to get a music streaming service out of it. But the headphones were quite popular at the time. But we also saw that the headphone popularity, at least as it was, likely peaked around that time. And yes, headphones are still popular, but the culture and the shift around those started to shift. And Apple is now at a position where it also still continues to dominate the headphones, but slightly different where AirPods is a business unit that they make over $14 billion from, at least from the sales that they had last year. Based on my estimations, that's more revenue than they generate from Apple Music overall. So that's just another version of how streaming in a lot of ways can even be a bit of a loss leader product in terms of content itself. The same way that it is for the artist, it exists that same way for a lot of these corporations.

Okay. Yeah, that's really interesting. So they've— I mean, they've continued to double down on headphones as a business, and I enjoy seeing those graphs that talk about like comparing revenue of different businesses. And it's like, add all of these huge businesses that you've heard of up together. It's like, that's still less than AirPods make. Apple, like AirPods, that makes it a single year, right?

I know. I love those. It's fascinating whether it's like combine all of the streaming services that you pay for, both audio and video, and AirPods still makes more.

Still a bigger business. But so it's fascinating how you can think about bringing customers and making money in a different way. One other example that you were talking about before we started recording of someone focusing on ownership is Jay-Z. Can you talk about what he did early on as, you know, he was asked to take over Def Jam?

So it's around 20 years ago at this point. Jay-Z's at a bit of a crossroad. He's about to release The Black Album. He's thinking about what's next. There's some turmoil and some disconnect between him and his business partner Damon Dash in terms of the future of the company and where things are going. But there comes an opportunity to then lead Def Jam, the record label that Jay-Z himself was signed to. At the time, Jay-Z didn't have full ownership of his masters. Rockefeller Records was a company that they were able to start independently, but they ended up doing, uh, joint venture, a 50/50 deal with them in order to continue to grow and have that record label and Rockefeller Records itself continue to succeed, which worked out well for them. But he still didn't own everything. So when the opportunity came for Jay-Z to be offered the role to be the CEO of Def Jam, he says, wait, if I'm going to take this role, one of the things I want is my masters. I want the masters for the albums that released here. And anyone that knows Jay-Z's music, yes, he's released a lot of popular music since this point. I think people look at 444 or even some of the other albums he's put out as quite popular, but the prime Jay-Z era is specifically this era that he's talking about, those first few albums he put out in the late '90s and early 2000s. And they said yes, he was able to use that leverage to get what he wanted and get what he was able to have that's his. And that's why as those songs continue to gain value and in the streaming era and things like that, it's him. He's the one that's able to benefit from it. He's obviously tried a few different ways, whether it's with Tidal to be able to maximize his revenue there with different things. I think Tidal was a business that probably didn't work out the way he fully intended it to, but he was able to have an exit and still sell it for over $300 million to Block, which was Square at the time. But he's also tried a few different things, whether he had an album that he sold to Samsung and then Samsung offered it as a free download to all of its users. He had an album that he sold to Sprint and then Sprint offered it as a free download to all his users. So he's always done interesting things, but I've always liked how he's used his leverage, both with the partnerships he has with these companies and this thought of, okay, how can I think beyond just the financial transaction? How is there an opportunity to maximize the pie and grow the pie? And I think that's a helpful thing for creators too. It may not be as big of a thing as trying to negotiate a $200 million deal with Sprint or a 6, 7, or a 7, 8-figure deal with Samsung. But what do those opportunities look like for you? And I think those are things that everyone that is a creator can pull from to some extent.

Well, yeah, that idea of getting paid in equity. Right? And not even— not telling someone else, hey, I'll do this endorsement deal for you if you pay me in equity, but just saying, no, I want to own the things that I made. Like, if I direct attention to something, it's going to be something that I own. And then any opportunity that comes up, whether it's Josh Kaufman with the Personal MBA realizing that his audio rights are out there for his audiobook and saying, like, wait, I have an opportunity to buy that back. Like, let me bet on myself long term and buy it back. Or Jay-Z saying, Yeah, I'll come and run this record label, but you got to give me this other thing. You know, you got to give me my long-term ownership of it. I think it's fascinating.

Yeah, I'm really eager to see how these things continue. I think that artists probably would be more able to pursue the Jay-Z approach to things, trying to revert and get ownership back, as opposed to the Taylor Swift approach, because the record labels have come out and said they would do their best to not allow a version like this to happen. Like, one of the reasons they do the deals is because they want to hold those back catalogs for decades. So yes, I know I said that rising tide lifts all boats in Taylor Swift's situation, but of course, still, like, relatively speaking, if you're the owner of her original assets, you don't like the fact that these new assets are out there. So of course it's all relative, but they do want to try to protect against these things moving forward, because if everyone does it, then it, it hurts the business considerably.

Yeah, that makes sense. Okay, is there anything else from the world of music that you're seeing that you just give as some closing advice to creators who might be at that earning a couple hundred thousand to maybe a million dollars a year, having an audience of tens of thousands or 100,000, and they're thinking about how does this apply to me and what, what moves should I make?

I think audience segmentation is huge here, even if it's only a smaller number of people than you may intend it, even if it may not be the largest people. Everyone has a funnel. Top of the funnel is, of course, awareness. When you get to the bottom of that funnel, it gets really important to make sure that you're offering products that have value and you're also offering them in a way where the audience can expect to and get used to wanting to purchase, not just from a support or charity perspective, but because they see value in it. It's something that exceeds the value that they have in it, which is why they're willing to exchange cash with you in order to have it. So actively thinking about that and whether it's through audience surveys, having the conversations with the people that are in your audience. And a lot of these things may seem fairly standard, whether it's some aspects of community, some aspects of early access, being able to have connections, things that sometimes you can scale, things sometimes that you can't scale either. But what do those things look like? And thinking about those things in a flexible way has helped artists just continue to succeed there. And there's going to be challenges that may come. There could be streaming rules that happen that may make it less lucrative for you to earn your money. There could be a pandemic and touring becomes more expensive than it was before. So there's all these levers, but with how fragmented things are, if one lever is going down, that may mean that there's another lever that has more opportunity that is just waiting to be tapped into. So there's a helpful job of just always paying attention to what's out there.

Okay, so if someone's listening to this and they are like, wait, you didn't go deep enough on the ins and outs of this deal, or, you know, they're really fascinated with it, like the specifics of the music industry, where should they go to sign up to your newsletter and learn more?

Yeah, so you could definitely sign up to the newsletter at trappital.co. But if you're listening to this podcast, then you probably enjoy listening to podcasts as well. And we do have a podcast where we dive in deep to a lot of these backstories. It's been really fun to dissect and break down a lot of the companies in the space. We look at the— we, in the past few months, we've looked at the impact of companies like MTV, Pandora. We have a few more exciting episodes coming up on different companies. We looked at Rockefeller Records, we looked at Def Jam, we looked at Interscope as well, and being able to talk about these companies and also the ones that are a bit outside of the industry but still have influence like the sneaker companies and things like that. So if you like these types of conversations, that's definitely the place to go. And we do release episodes there every week. So that's Trapital wherever you get podcasts. So that's T-R-A-P-I-T-A-L.

I love it. One thing, when I was doing a lot of design and that design was my primary career, instead of doing what other people were doing of like copying the design trends in web design or iOS design, I'd try to go to a different industry. So actually one of my favorite places was to look at fashion, not even high fashion, but like go into a Banana Republic store or something like that and see what color palettes and textures they're using on the clothing labels and everything else. And I'd get all these ideas for my web design clients.

That's cool.

And it made my stuff really unique when I was just borrowing from a different industry than everyone else was. And so I think the same thing of even if I'm not in the music business, you know, I'm in the newsletter business or I'm in something else. If you want to come up with new and interesting ideas, then go borrow from like the music industry and go like do these deep dives. You know, I'm just encouraging people to go listen to your podcast and check out your content. Because there's going to be things that aren't an apples-to-apples comparison, but it's going to spark something. You're like, wait, this version could work in my business. And then in your industry, you'll seem entirely novel because you're not just copying from the same, you know, like 3 leaders.

Exactly. Going back to the example we shared before, if someone like Nipsey Hussle was only looking at Jay-Z and Nas for business advice, then he would have never known about what some Philadelphia cheesesteak restaurant is doing in terms of their strategy and things like that.

Yep, I love it. Well, Dan, thanks for coming on the show and hanging out, and it's always good to see you.

You too, Nathan Barry. So much fun. Thanks again for having me.

Thank you for tuning in to this episode of Billion Dollar Creator. If you enjoyed this episode, please like and subscribe, share it with your friends, and leave us a review. We read every single one. If there is a company you want us to profile on Billion Dollar Creator, send us a message on social media and we we will consider it. Thank you, and we will see you next time.