Why investors shouldn’t fear an artist friendly approach to music investing

By?Peter Sinclair, CEO & Co-Founder at beatBread

In?Part 1, I explained how?sliceNote?adds something new to music investing in the growth phases of artists’ careers and how investors can back both artists and the great music executives behind them. I also explained how beatBread’s sophisticated, market-tested AI has been turned into a tool for investors to make informed decision making).

In Part 2, I’ll go into the history of music investment, the problems sliceNote was designed to address, and why investors shouldn’t fear an investment platform designed to empower artists.

The sad history of the artist deal

For over 70 years, early and growth stage investment in musicians has come from well-connected insiders and major labels. These two groups generated massive wealth for themselves, mainly at the expense of artists.

In a typical label deal, artists are entitled to only 10–20% (or even less) of the total lifetime economics generated, with the label pocketing the rest. Label marketing costs and overhead can often be charged against the artists’ net, further reducing their actual share. This means that the most recent $100 million-plus catalog buyout you read about was just the tip of the iceberg — that likely didn’t include the hundreds of millions more that the label secured when it set the terms, well before that artist’s career took off.

Three factors led to the lopsided wealth distribution between artists and labels that still persists as the industry standard today.

Music discovery?used to be?rationed through the radio

Until the advent of music streaming, music discovery took place on terrestrial radio — a medium with limited bandwidth and, therefore, limited stations. Only a few artists could ever get exposure, and those that did were granted access by gatekeepers in a tight network of relationships that ran through major labels.

Distribution and manufacturing?used?to?require huge expense

Up until about a decade ago, recorded music was primarily consumed through physical media. Formats such as vinyl or CDs required significant manufacturing and distribution expense, much of which needed to be spent before anyone knew whether there was any chance of a profit. This means that label deals HAD to be lopsided, because the small number of “hits” needed to pay for the larger number of “flops.”

Predatory practices

The third factor may be the most familiar story about the music industry. Many music insiders and labels have generated wealth for themselves — not because of their “golden ear” or acumen at developing and promoting talent — but because of their ability to charm naive artists into predatory financial contracts at the beginning of their careers when they are most vulnerable.

The music industry was (and unfortunately, still is) filled with charismatic self-promoters whose currency is sizzle rather than substance. They are excellent at taking liberties with the truth, and know just the right time and method to flatter, fool, bully, and ultimately exploit artists’ inexperience and insecurity for their own personal enrichment.

To be clear, not every music executive is a charlatan. And a skilled team is almost always required for an artist to find success — to connect the artist with the right creative collaborators, to make the right marketing decisions, nurture a fanbase, and so on. These executives, many of whom are ethical, hardworking, and just plain awesome at their jobs, deserve a significant share of the pie when a project and a career go well.

Unfortunately, in many cases, bad actors pose as skilled music executives, disappearing after the deal is signed and the hard work of artist development is still to be done. In other situations, a label may stop supporting an artist at the first sign of adversity, leaving the artist stuck in limbo. Even when these labels and executives do good work, the large slice of the pie they receive is worth a bit more than they deserve.

The music industry today: not great, but getting better

The good news is that bigger forces in the music industry are beginning to make it harder for insiders to exploit vulnerable artists.

The bad news is a lot of rotten behavior and unfairness remain. Many label deals are still lopsided. The artists who sign these deals often don’t fully understand the options and possibilities available to them and end up agreeing to terms that require them to sacrifice large chunks of ownership for the entirety of their careers.

The advent of music streaming has eliminated the first and second drivers of unfair deals — music distribution has been commoditized, and manufacturing costs are mostly zero. An artist can distribute their music to every major streaming platform, in every major country globally, for less than $20 per year (not per song, but for ALL their songs.) Music discovery is no longer rationed through the radio and the network of gatekeepers who control it. What plays on the radio trails what is popping on streaming platforms by 4–6 weeks. And most importantly, many artists are getting wise to the game.

“Owning your masters”?is now finally cool?(even cooler than “signing to a label”) and is a concept that many artists understand and have the good sense to demand when their managers present them with a business plan.

I won’t pretend to understand every last reason why artists still don’t understand their power in the new music industry. Still, there are at least two that contribute to this sad inertia. First, there is still something about the mythology of the music industry that attracts shameless self-promoters, who excel at little more than selling a dazzling dream rather than actually delivering it. Second, the financial resources available to working artists are still tied to bloated, inflexible labels and legacy service providers who take a significant cut from artists, whether they deliver any meaningful value or not.

How the sliceNote and the beatBread ecosystem of artist empowerment helps

While there is much to be hopeful about in the music industry, we still think it needs a bit of a nudge to overcome its past.

We created sliceNote as the third piece of an ecosystem designed to empower artists, erode the opportunities for predatory executives, and reward the music executives, distributors, and independent labels who add real value.

Our first two brands, beatBread, and chordCash, enable artists to finance their careers, customize their own deal terms and maintain control and ownership of their music. While both add meaningful artist choice, they are entirely algorithmically driven, an approach with benefits and limits.

Benefits of the algorithmic approach include:

• It makes finance more efficient, making meaningful amounts of capital available to more artists than ever before
• It makes finance more equitable by removing bias from the process.
• It allows finance to be separated from service so that the artist can choose the best service provider AND the best finance offer rather than have to select the second-best version of each in a forced bundle

However, the approach also has its limits:

• However good the algorithm is at predicting future results and the chances of positive or negative investor outcomes, there’s a second task of optimally matching the right deal with the right investor. Some artist deals are high-risk and high reward. Some investors are risk averse, while others are not. beatBread and chordCash are built on standardization and can’t easily “switch” back and forth between the risk-reward appetites that different types of investors may have to different kinds of artist profiles.
• The algorithm doesn’t fully capture the impact that a high-performing service provider can have on a project or an artist’s career.
• beatBread and chordCash funding flows don’t fully empower value-adding service providers to compete for projects and artists they haven’t sourced themselves.

Although sliceNote is now out of private Beta, it has already become an essential part of that beatBread ecosystem. It has contributed to our mission of empowering artists in the six months we’ve been doing sliceNote deals behind the scenes. sliceNote does the job of matching financial investors, artists, and skilled music companies to drive even better terms for artists than our algorithm would otherwise provide, but it also does some other things:

1. sliceNote matches some investors seeking more stable, lower risk investments with certain kinds of artist deals, and other investors seeking higher risk and higher return investments on different types of deals
2. sliceNote enables financial investors to back not just an artist and their “data trail” but the skilled team behind the artist as well
3. sliceNote allows distribution and artist service companies to build relationships with more artists and more meaningfully compete with highly capitalized labels

While all three of these benefits add value to the beatBread ecosystem, we are most excited about №3.

We seek to create a capital market for music that rewards executives with a track record of delivering real value and results. Thousands of great artist managers, producers, former major label execs, and small independent label staff are just as good and sometimes even better than major labels at developing and promoting artists. sliceNote lets investors bet not only on the artist but the team behind the artist. It allows highly skilled independent labels, music executives, distributors, and artist service companies to have a chance to serve artists and be part of the conversation when a project is coming together, rather than being shut out due to the size of their checkbook or their lack of a relationship with the artist.

(We’ll be sharing a case study where we matched investor capital with a rising artist and one of the most talented teams in the music industry soon).

What about investors?

If you are a certain kind of investor, you may be thinking, “Artist empowerment is well and good, but I’m just seeking a good return.” Fair enough. What’s in it for you? And shouldn’t you be worried that “increased access to capital for artists” is synonymous with a competition that will erode any attractive returns?

While sliceNote’s raison d’etre is grounded in an artist-facing mission, we believe the investors we bring will have access to an attractive set of investment options that will stay attractive in the long haul for at least two reasons.

1. Because our platform is built upon a network of partners with access to hundreds of thousands of working artists, there is just more variety of artists with investable upside in their careers at any given time. There are two multi-artist funds, and 10 artists are up for investment. In a month’s time, there will be 10 or 20 new artists and 1 or 2 more funds.
2. 1 Competition for artist deals doesn’t mean investor returns won’t remain healthy. Sure, competition for artist deals drives out the “unfair” returns historically enjoyed by bad actors in the music industry, but we also give investors the tools to make thoughtful decisions about risk-return trade-offs, so they don’t bid “too much, too often” to have a good chance at generating the risk-adjusted terms they seek. Our platform puts the outputs of beatBread’s data science in the hands of investors. We provide access to rich information about artist performance and predictions of potential results backed by a track record of hundreds of deals (and growing) and a data set of hundreds of thousands of artists and over 10 million songs. Put differently, there’s plenty of competition for growth stocks in the stock market, but growth stocks outperform more stable companies over the long haul because that’s the nature of the companies themselves.

So, if you are a financial institution or high net-worth investor, we encourage you to sign up for?sliceNote?and check it out. We think it brings opportunities in music investing that don’t exist today.

If you are an artist or independent label, we encourage you to seek funding at?beatBread?or one of the white label partners who leverage the?chordCashplatform — you will always get a transparent, flexible offer with terms you can customize to meet your needs, and the flexibility to choose the partners who are right for you. If you have the right characteristics, you may be able to access the sliceNote Investor Network for even more leverage in your career.

And for the rest of you, sit tight. More is coming this year… both inside sliceNote and within the broader beatBread ecosystem.