The AI is capable of imitating specific artists—like Greg Rutkowski. He disapproves of his art being included in AI training datasets without his consent, and then used to generate volumes of art in his style.

Some artists are hoping they can sue AI creators or users for copyright infringement. However, it is typically impossible to sue somebody for infringement if all they copied was your style1. And usually, style is the only thing copied by AI art.

But AI art is in significant danger from copyright law:

1. In rare cases, AI art models memorize copyrighted works—and repeat them verbatim.

2. Whenever memorization happens, there is some risk that users of AI art are infringing on memorized works.

3. Copyright law is tougher for music—making it especially risky to generate music with AI.

What is a derivative work?

If you take a beautiful photograph, you own the copyright to it. However, if I edit your photo, I have created a derivative work of your original work.

If I want to distribute my derivative work, I need your permission and to obey any restrictions you set—unless an exception like Fair Use applies2.

If my photo differs substantially from yours, it is more likely to be a transformative work—where permission from the original work’s copyright owner is not required.

The AI memorization problem

Let’s pretend that you and I want to create an image-generating AI model—like Stable Diffusion.

First, we collect a training dataset of millions of images that we want to imitate. For the moment, we won’t worry about if the images are copyrighted. Because of legal precedents like Authors Guild v. Google, the tech industry assumes that AI models are transformative works—and not derivative works of the training dataset3.

Next, we “train” our AI model until it learns to generate new images like the ones in our training dataset. The model itself doesn’t contain any images, but the training process teaches it high-level concepts about how to draw new images.

When we are done training, people can provide prompts to our model to generate images based on the high-level concepts learned during training.

But if we trained our model poorly, it might memorize some training images and spit them out when generating new images.

In the below example, we didn’t want our model to spit out the Mona Lisa we trained on. Instead, we were hoping for a new image.

The dark copyright implications of memorization

What happens if our model memorized copyrighted training images?

Then, any generated images could be derivative works. In which case, we would need permission to use those generated images—or risk committing copyright infringement.

Memorization creates lopsided legal risk for us:

• Easy to prove guilt. Anybody can identify that your AI-generated image is derived from somebody else’s image.

• Impossible to prove innocence. There is no way to verify that a sufficiently large AI model has never memorized any training data.

• AIs never confess. The images you generate could be derivative works—and you wouldn’t know it. The AI won’t warn you if you’re about to commit copyright infringement.

Memorization in Stable Diffusion

Recently, Nicholas Carlini and a team of researchers generated 175 million images using Stable Diffusion—finding 109 images that indicate memorization. Below is one of the images they found:

Carlini and his team have proven that Stable Diffusion can generate derivative works. Therefore, it is possible (but unlikely) that a user could unknowingly generate an infringing derivative work.

The lawsuits start flying

Meanwhile, Matthew Butterick—a Harvard-educated designer, software engineer, and lawyer—has been leading his own investigation.

Last month, Butterick and a team of lawyers filed a class action lawsuit against three companies using Stable Diffusion.

He argues that Stable Diffusion partially memorizes training data by design. As a result, the generated images are derivative works of the training dataset4.

This lawsuit is Butterick’s second foray into AI law. Last November, he and his team filed a class-action lawsuit against the developer tools company GitHub over Copilot—their AI that writes computer programs. Copilot may have a memorization issue as well. Engineers have raised concerns that Copilot will generate code that is nearly identical to existing copyrighted code.

What does memorization look like for music?

I have previously written about music-generating AI models—like OpenAI Jukebox and TensorFlow Magenta. Since then, a handful of newer models like Riffusion have launched.

But generating music is more complicated than images—both from a technical and a legal perspective.

Unlike an image, a song has two copyrights: one for the sound recording and another for the music composition.

And it’s frighteningly easy to infringe upon either one. Some example lawsuits:

• Sound recording. The rap group N.W.A. lost a copyright infringement suit because they sampled a distorted two-second-long guitar chord from Funkadelic’s “Get Off Your Ass and Jam” without asking for permission.

• Composition. Robin Thicke and Pharrell had to pay $5.3 million in damages to Marvin Gaye’s family because “Blurred Lines”’s composition vaguely resembles Gaye’s “Got to Give It Up.”

Now imagine if we trained an AI to generate recorded music. It is possible for the AI to memorize sound recordings, compositions, or both.

This creates two ways for you to get sued:

1. Your AI could generate a new song that contains two seconds of distorted audio from the training set.

2. Marvin Gaye’s family could insist that your AI’s songwriting style is just like his.

If we were generating something else—like text—we wouldn’t have to worry about memorization as much. For example, if you are writing a book review, you can quote short snippets from the book and typically have it considered as transformative use.

But the laws and precedents in music are extra harsh. As a result, it is unlikely that any amount of memorization would be considered Fair Use—although this is a question that needs to be tested in court.

Is there a future for AI music?

There are relatively few legal or economic barriers to building an AI startup that generates text, images, or software.

However, AI music-generation businesses face a uniquely dismal outlook:

• Aggressive rightsholders. Universal, Sony, and Warner own the three largest record labels and music publishers. They have an enormous war chest to finance infringement lawsuits against AI art.

• Lack of access to training data. Universal, Sony, and Warner may also be able to use their influence to prevent other businesses from training models on their music without their permission. Similarly, in the image world, Getty Images is suing Stability AI for allegedly scraping millions of images without permission.

• Automated copyright detection. Systems like YouTube Content ID and Pex will become good enough to hunt down snippets of memorized audio in AI-generated songs. People who upload memorized audio risk DMCA takedowns and infringement lawsuits.

The safest way to generate AI music is to avoid using other people’s copyrighted data without permission:

• Use public domain music. Sound recordings made before 1923 are no longer protected by US copyright law.

• Use your own music. The musician Holly Herndon used recordings of her own voice as the training dataset for Spawn—Holly’s AI-powered vocalist.

• Ask for permission. Alternatively, Creative Commons-licensed music may allow for creating derivative works. However, these licenses often come with restrictions on attribution and commercial use.

Further reading

• The current legal cases against generative AI are just the beginning by Kyle Wiggers for TechCrunch

• Why music AI companies are not flirting with copyright infringement by Yung Spielburg for Water & Music

By the way, I’m looking for a new job as a software engineer. I have ten years of experience—mostly in Python, Rust, and JavaScript. You can read more about my background at jamesmishra.com. You can email me at j@jamesmishra.com.

It is a vision worthy of building. But so far, web3’s efforts to monetize artwork don’t work well with copyright law’s efforts to do the same—for two reasons:

1. Culture. web3 founders don’t care about artists’ copyrights.

2. Technology. A truly decentralized platform can never implement copyright takedowns.

(Please note my ethical disclosures listed at the end of this piece.)

1. web3 founders don’t care about artists’ copyrights

The blockchain OG culture is that only on-chain ownership matters. Any off-chain chain claims of ownership are unenforceable. This culture makes a lot of sense in the world of decentralized finance… but it is incompatible with the legitimacy of rightsholders’ rights under copyright law.

Some blockchain folks enjoy flouting copyright law. The pseudonymous NFT investor VincentVanDough downloaded a bunch of copyrighted profile pictures belonging to Furries—composing the below image NFT and selling it for about $95,000 at the time1.

But ultimately, the Pepe NFT is small potatoes. Other people in the web3 community have started entire projects and companies that play fast and loose with copyrights on a much larger scale:

1. HitPiece. The controversial music startup shut down its website earlier this month after mass outrage from artists. The company raised more than $5 million, scraped Spotify’s API for song metadata, and then used them to sell NFTs representing songs—all without artists’ consent.

2. SpiceDAO. They paid $3 million to purchase a copy of a rare book—intending to publish NFTs and an animated series based on the book. But purchasing an individual book does not grant any copyrights. Otherwise, I’d own the copyrights to the Harry Potter franchise. The DAO did not realize this until after they spent the $3 million.

3. Automated NFT-minting bots. Tokenized Tweets was a Twitter reply bot allowing users to mint an NFT for anybody’s tweet—copyright be damned. Countless other bots are scraping the Internet for content to mint as NFTs. The OpenSea team estimates that over 80% of the NFTs minted with their free minting tool are “plagiarized works, fake collections, and spam.”

4. A long tail of infringing NFT projects. The art social network DeviantArt has sent over 80,000 notifications to their creators—warning that someone else might be making NFTs of their work. The NFT Thefts Twitter account keeps track of individual NFTs with IP stolen from artists.

5. The NFT marketplaces. Marketplaces like OpenSea and Foundation are not infringing on copyrights—their users are. But the marketplaces have to respond to takedown requests to maintain DMCA Safe Harbor immunity. But the marketplaces often refuse to abide by takedowns—citing their Terms of Service2. The marketplaces also keep the fees that they earned from NFTs that were later taken down. That’s a lot of money, given that OpenSea saw more than $2.4 billion in transaction volume in December 2021.

As a result, many prominent artists are now speaking out against blockchains, NFTs, and the people who profit from them [a, b, c, d, e, f, g, h, i, j, k, l, m, n].

2. A truly decentralized platform can never implement copyright takedowns

For a typical image NFT, the metadata is on the blockchain but the image itself is stored on some centralized server. It is possible to issue a copyright takedown against that server—leaving the blockchain metadata pointing at a nonexistent image.

But other projects store their files with a decentralized storage system like IPFS—making it almost impossible to take down infringing content3.

For example, Audius is a blockchain-based4 music streaming site that uses decentralized technologies to store the actual music. But since their launch in 2019, they have been criticized for a rampant rise in copyright infringement on their platform5.

But even if Audius wanted to remove stolen content, their file storage technology makes them unable to. Their music files are served6 by community-run Content Nodes—which sometimes replicate their files to IPFS7.

If a rightsholder wants to issue a takedown notice to Audius, they face several complications:

1. For durability, Audius replicates a song to three different Content Nodes. Currently, there are 39 Content Nodes in total—operated by ten different organizations.

2. Each Content Node operator must individually register with the US Copyright Office as a DMCA Safe Harbor.

3. If a rightsholder wants to remove infringing content, they must track down all Content Node operators hosting it.

4. But even if the Content Nodes delete a file, there could be additional copies that have replicated to the surrounding IPFS network8.

Since their launch in 2019, the Audius team has promised to create a “community arbitration system” for resolving copyright takedowns. However, as of February 2022, no such system has been launched—and there are no details about how it would work.

But Audius has a dilemma here:

• No arbitration system can delete content from IPFS nodes that don’t obey the system.

• Audius could abandon IPFS… at the expense of decentralization. Audius has promised its users that their copyright-infringing content can’t be taken down. Abandoning IPFS would undo those promises.

We cannot build a truly censorship-resistant technological platform and allow for arbitrary censorship. If we include a backdoor capable of deleting any content, our adversaries will inevitably exploit it.

On the other hand, web3’s cultural problem with copyright law should be solvable. We just need to start caring about artists’ rights.

Ethical disclosures

My investments and past employers may influence my writing about blockchains, cryptography, and the music industry:

• In 2019, I worked in a computer security lab at the University of Minnesota known for its analyses of decentralized protocols like Tor.

• At this time of writing, I own Bitcoin, Ethereum, Solana, and STREAM. I have previously sold the ENS DAO governance tokens earned from registering two ENS domain names.

Over the past few years, activists and founders have been building momentum for web3—which would put everything on the blockchain by replacing those corporations with decentralized autonomous organizations (DAOs).

A web3-powered music industry is a compelling vision—especially if it is fairer to artists. But there are two reasons to remain skeptical:

1. Necessity. It is not clear if web3 is necessary for building better music businesses. Perhaps we can achieve the same goals with web2.

2. Security. DAOs must be designed with careful consideration to security, or they’ll be robbed of all assets in their custody. Right now, almost nobody is being careful enough.

(Please note my ethical disclosures listed at the end of this piece.)

When are blockchains and DAOs necessary?

Blockchains offer an important security guarantee: counterfeiting a transaction is incredibly difficult (but not impossible).

So, blockchains are useful for implementing products that need strong resistance to counterfeiting, such as:

• The GET Protocol. GET makes it possible to sell tickets for concerts and live events as NFTs—preventing ticket counterfeiting.

• Ethereum Name Service (ENS). Traditional website domain names (like jamesmishra.com) are governed by the notoriously insecure DNS protocol. ENS implements blockchain-based domain names (like jamesmishra.eth) with resistance to the vulnerabilities that have plagued DNS for decades.

But the recorded music industry is different. During the 2000s, the music industry tried and failed to stop piracy/counterfeiting with cryptographic digital rights management (DRM) systems1. But during the 2010s, the rise of music streaming proved that anti-counterfeiting tech wasn’t the path to higher revenues—building a more user-friendly product was2.

Similarly, if you want to start a record label or streaming site that is fairer to listeners and artists, you don’t need a DAO or any anti-counterfeiting tech. You can build any traditional “web2” company with whatever user experience and economics you want.

DAOs present unsolved security challenges

Attackers have an enormous financial motivation to attack DAOs—they’re full of pseudoanonymous money. We still know very little about how DAOs can be attacked, but there are three notable categories of attacks:

1. Attacks exploiting transparency

Most blockchains are public places where anybody can see the actions of the other participants. A DAO’s transparency can be exploited in several ways:

• Adversarial bidding. Many DAOs’ balance sheet is publicly visible on the blockchain, which compromises them when they bid for an asset at an auction. Citadel CEO Ken Griffin may have defeated ConstitutionDAO by pricing his winning bid barely above their war chest. On the other hand, SpiceDAO won their auction for a rare book—but they paid 100x the book’s estimated value. Someone may have priced a bid just under SpiceDAO’s war chest so the book’s seller would make more money.

• Front-running against decentralized exchanges. Decentralized exchanges on certain blockchains3 may be vulnerable to front-running attacks. When a victim submits a trade to the exchange, an attacker can spot the underlying unconfirmed transaction in the blockchain’s mempool. The attacker can submit a competing trade, paying a higher fee so it gets confirmed before the victim’s trade. The attacker’s trade returns a guaranteed profit, and the victim’s trade suffers from price slippage.

We could prevent transparency attacks by using zero-knowledge proofs—a cryptographic method for proving a statement about a piece of information without leaking the information itself. For example, the Tornado Cash DApp and the Monero and Zcash blockchains use zero-knowledge proofs to implement untraceable transactions.

2. Attacks against smart contracts

A DAO’s policies—from treasury to voting rights—are implemented by smart contracts, which are programs that run on a blockchain’s validator nodes.

Smart contracts are incredibly difficult to write without security flaws. In 2021, over $2.6 billion of assets were lost to smart contract hacks and similar vulnerabilities4.

Some notable hacks from the past several years include:

• The first DAO. “The DAO” was a decentralized venture capital firm launched on Ethereum in April 2016. A few weeks later, an attacker used vulnerabilities in The DAO’s smart contracts to withdraw5 3.5 million ether—worth roughly $50 million at the time—until most of the Ethereum community reversed the hack with a controversial hard fork.

• Parity Multi-signature Wallet. In July 2017, an attacker stole over $30 million of assets from three customers of Parity’s smart contract wallet. Parity responded with a new version of their smart contract, fixing the vulnerability and adding an emergency “kill switch” to prevent withdrawals in case a new vulnerability was discovered. But the kill switch itself had a vulnerability, which someone exploited in November 2017 to freeze over $150 million of assets across 587 Parity customer wallets.

• Poly Network. In August 2021, a hacker stole $610 million of cryptoassets from Poly Network. This was the largest known smart contract hack in history… until he returned all of the stolen assets over the following two weeks.

Nowadays, security engineers and automated scanners are getting better at reading a smart contract and finding vulnerabilities. But many vulnerabilities are mathematically impossible6 to discover this way.

To find those vulnerabilities, we’d have to run the contract exactly as an attacker would7. And that is a losing battle too, because you and I are outnumbered by our enemies.

3. Attacks against governance

Many DAOs decentralize their decision-making by issuing governance tokens—which can offer both voting rights and financial incentives.

But democracy and capitalism tend to undermine each other, and when this happens, DAOs can be vulnerable to governance attacks.

Last November, the blockchain lending project Mochi Inu attempted a governance attack against the decentralized exchange Curve Finance. The details are complicated, but broadly:

1. Curve uses their CRV governance token to reward people who deposit cryptoassets into Curve’s liquidity pools. CRV holders can vote to change how Curve distributes rewards.

2. Mochi attracted $150 million8 of other people’s cryptoassets to Mochi’s pool on Curve.

3. Using their $150 million pool as collateral9, Mochi issued themselves a $46 million loan10 to purchase CVX tokens11—which offer Curve’s CRV rewards and voting rights by proxy.

4. With enough CVX, Mochi could vote for Curve to pay higher rewards to Mochi’s pool. Higher rewards lead to more voting rights, creating a cycle that could have allowed Mochi to ransack Curve’s reward schemes.

Curve’s leadership stopped the attack by enabling their “Emergency DAO”—a nine-member committee that manually disabled Mochi’s ability to receive CRV rewards. While the Emergency DAO was successful, some people [a,b,c,d,e] raised concerns that it was too centralized—making it vulnerable to political corruption or attack12.

As a final note, Mochi’s tactics failed, but their fundraising machine was terrifying. In the near future, pseudonymous attackers will raise hundreds of millions of dollars to fund sophisticated and devastating attacks.

Conclusion

From studying the above attacks, we learn two things:

1. Blockchains and DAOs are so new, we don’t understand them

Because blockchains are so new, we know very little about breaking them. Researchers can take decades to find a vulnerability. For example, the relatively simple SHA-1 algorithm was studied for twenty-two years13 before it was publicly broken in 2017.

Our adversaries could find vulnerabilities decades before us. For example, differential cryptanalysis attacks were publicly discovered in 1990, but the US National Security Agency (NSA) secretly knew about (and may have weaponized) the attacks at least sixteen years earlier14.

2. For the music industry, web2 might be more secure

If your DAO is hacked, it is often both devastating and irreversible. The attacker could have your assets, voting rights, and be able to change contracts and policies. Undoing the hack is about as difficult as counterfeiting a transaction—and for the same reason.

On the other hand, you can steal money or data from a “web2” music business—but it’s almost impossible for a hacker to control contracts or governance. Hacking Spotify won’t put you on their Board of Directors. Hacking Universal Music Group won’t make Taylor Swift renegotiate her contract with you.

The web3 activists have a vision of a music industry that is fairer to artists. And it’s a great vision! But fairness is something we can build anywhere—even in web2.

Ethical disclosures

My investments and past employers may influence my writing about blockchains, cryptography, and the music industry:

• In 2014, I completed a summer internship with the US National Security Agency. Nothing in this essay relates to my work with the NSA or my knowledge of their activities. I don’t know anything about differential cryptanalysis.

• In 2015, I completed a spring internship with the US Department of Energy’s Oak Ridge National Laboratory (ORNL). My job was to look for vulnerabilities in the Bitcoin protocol that a theoretical quantum computer could exploit. I did not find anything worth publishing.

• At this time of writing, I own Bitcoin, Ethereum, Solana, and STREAM. I have previously sold the ENS DAO governance tokens earned from registering two ENS domain names.

Changelog

• February 13, 2021: Added a footnote about Curve’s Emergency DAO.

One company working on this is Audioshake. They recently launched an AI-powered product to split a single song recording into stems—separate tracks for vocals and different instruments. Jessica Powell—a former Google executive—cofounded Audioshake in early 2020 with her husband and data scientist Luke Miner. More recently, Fabian-Robert Stöter joined Audioshake as Head of Research.

(Cover photo credit: AudioShake)

The technology

Audioshake’s technology breaks a recording into separate stems representing the vocals and instruments making up the recording. Below is a video demonstrating how their platform can break down a track into separate stems.

Signal processing researchers have been working on audio source separation for decades. In recent years, neural networks and fast hardware have made tremendous progress on the problem—just like they have in fields like computer vision and natural language processing. WIRED recently wrote about how recent breakthroughs in audio source separation are reshaping music.

There are a handful of other projects and companies in this space:

• The French streaming site Deezer released Spleeter—an open-source package of software and pre-trained machine learning models for separating music into stems. Anybody can use Spleeter for free, and it has also been integrated into industry-standard audio restoration software like iZotope RX 8 and SpectralLayers.

• Audionamix is a French software company well-known for their audio source separation product.

• Fabian-Robert Stöter, Audioshake’s Head of Research, has previously coauthored numerous audio source separation papers and projects, including Open-Unmix—a set of open-source code and pre-trained machine learning models for source separation of pop music.

• Facebook Research released Demucs, a package of source code and pre-trained models for source separation.

However, Audioshake’s product performs exceptionally well compared to most other products. They are also the first product with the capability to separate an individual guitar into separate stems—a difficult challenge given how similar guitars can sound to other instruments or even vocals.

The market opportunity

Major record labels and music publishers own rights to decades of songs recorded before the spread of digital multitrack recording in the 1990s. These songs are cash cows. Firms like Round Hill and Hipgnosis are spending billions of dollars to acquire catalogs of popular classic songs.

For many of these songs, the stems used to make the recording have been lost to the sands of time. If a song was recorded by a band playing into a single microphone, then the song never had separate stems to begin with.

Many of these songs could earn a small fortune in sync licensing deals if placed into, say, the next blockbuster film—but not if licensees need the stems and the rightsholders don’t have them. Powell estimates that around 30% of inbound sync licensing requests go unfulfilled because the rightsholder can’t deliver the stems for the song that the licensee requested.

Before their public launch, Audioshake has been creating stems for at least fifteen music businesses—including Warner Music Group, Crush Music, Hipgnosis Songs Fund, Downtown Music Services, CD Baby, and peermusic. “In my mind, that's the real testament to [Audioshake]’s quality,” Powell explains. “These people are paying for it and landing movies and commercials with it.”

If you enjoy listening to podcasts about music, you may have already heard some of Audioshake’s work. Earlier this year, Audioshake produced the instrumental used in the Song Exploder episode about Yusef / Cat Stevens. They also produced a vocal stem and instrumental for JP Saxe’s “If the World Is Ending” for the Switched On Pop podcast.

Jessica Powell’s backstory

Early in her career, Powell worked in a communications role at the International Confederation of Societies of Authors and Composers—better known by the French acronym CISAC.

After CISAC, Powell climbed the corporate ladder at Google, spent a year as Chief Marketing Officer at Badoo, and then returned to Google to eventually become Vice President of Communications—reporting to Google CEO Sundar Pichai.

After leaving Google in 2018, Powell published the satirical Silicon Valley novel The Big Disruption—the Silicon Valley satire novel that she penned in 2012 and released in 2018.

Focusing on artists and rightsholders

Powell’s experiences at CISAC and Google gave her a unique insight. Most consumer music tech businesses focus on putting music listeners first—and putting artists and rightsholders last. Social networks and streaming sites tend to focus on copyright enforcement and creator monetization only after reaching product-market fit—and only to comply with the law.

Audioshake is taking the opposite strategy—by building for rightsholders first. “We want to start in a place that is respectful of the creative act,” Powell explains. “That’s why we build for rightsholders.”

But record labels and music publishers aren’t the only ones that can use Audioshake’s technology. Any recording artist working with tricky samples can benefit from source separation. “We’re still thinking about the sixteen-year-old artist in their bedroom,” Powell adds. “Eventually we’d want to serve everybody.”

Changelog

• February 13, 2022: Minor formatting changes. Removed unnecessary links.

I wasn’t very successful. While I did end up with a deep respect for the security protections built into Bitcoin, I never understood what regular people would use blockchains for.

Blockchain enthusiasts have been looking for ways to use their favorite technology to improve regular people’s lives—inspiring this past year’s gold rush in non-fungible tokens (NFTs) in the art and music worlds.

This Click Track post makes two predictions about NFTs:

1. Art and music NFTs are misguided. They do not give consumers anything they want.

2. NFT tickets could revolutionize the live events industry. Blockchain technology could be effective at preventing ticket counterfeiting and other dishonest sales practices.

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What do people want to use NFTs for in the music industry?

Cherie Hu does a great job covering the art/music NFT market in her posts Digital music’s new drop culture and Music NFT market update.

There are many different types of art or music NFTs, but I have the same set of concerns for all of them:

Music rights can already be bought or sold without NFTs

Some music NFTs are aimed at investors. For example, various artists like A Tribe Called Quest and Lil Dicky auctioned off NFTs that represent a share of their sound recording or publishing royalties.

In cases like these, the NFT itself merely functions as a purchase receipt. The actual collection and payment of royalties still happen off-chain via traditional channels.

Furthermore, music royalties don’t have to be turned into an NFT to be auctioned. Both Lil Dicky and A Tribe Called Quest sold their royalties on Royalty Exchange, an online platform where music royalties have been bought and sold for many years without the involvement of blockchains or NFTs.

Ultimately, the NFT itself is unnecessary to the entire transaction.

Blockchains cannot make the music itself more enjoyable for listeners

Other music NFTs are marketed as merchandise for music fans, such as Post Malone’s World Pong League NFT collection.

Blockchains are effective at creating authentic digital merchandise and maintaining a public chain of custody. In reality, most music listeners don’t care about these issues:

• Most people don’t care about the origins of a digital good. The rise of digital piracy in the late 1990s showed us that most listeners consider pirated music good enough to listen to. Music is post-scarcity. On the other hand, sports trading cards tend to be valued specifically by their relative scarcity—explaining the massive success behind the NBA Top Shot collection of NFT trading cards.

• Most people don’t care if artists get paid every time a song is played. Many blockchain projects are centered around changing how artists are paid without significantly changing the experience of consuming those artists’ work. An example is Resonate—a blockchain streaming platform with an innovative “stream2own” model. Unfortunately, rightsholders and streaming sites rarely get to dictate terms to listeners—the economics of streaming are decided based on what listeners will pay for. (And they want to pay as little as possible).

• Most people (no longer) care about owning music. People no longer purchase FairPlay-DRMed songs for $1 each on the iTunes Music Store, let alone CD or vinyl albums. Instead, the real source of growth in the recorded music business comes from music streaming. Blockchains are a natural fit for tracking ownership, leading blockchain projects to emphasize ownership to potential users. Still, most music listeners don’t behave as if they want to own music.

Why do NFTs make sense for selling concert tickets?

Ticket marketplaces are screwy

Online ticket marketplaces are plagued with several problems, such as:

1. Counterfeiting. Dishonest ticket scalpers often sell counterfeit tickets to buyers or sell multiple copies of a single legitimate ticket. Sift, a vendor of anti-fraud software, has claimed that “between 3% and 20% of second-hand tickets aren’t real.”

2. Dishonesty around ticket supply. Many ticket sellers falsely or illegally imply to their users that tickets for an event are about to sell out. Other sellers mislead buyers into paying for tickets before the seller even has them. The New York State Attorney General and the UK Government Competition and Markets Authority have been investigating these issues for years.

3. Artists who scalp their own tickets. If artists price their tickets too high, they risk facing a backlash from their fans. If artists do not price their tickets high enough, then scalpers profit at both the artists’ and fans’ expense. Some artists have solved this dilemma by anonymously scalping their own tickets. In 2019, Live Nation admitted to helping artists scalp their own tickets.

Government regulation is hard

Some governments have been trying to solve the above problems with ticket marketplaces, but it hasn’t been easy:

• Laws must be continually enforced. For example, US President Obama signed the Better Online Ticket Sales (BOTS) Act at the end of 2016. But passing the law did little good because the Federal Trade Commission didn’t bother to begin enforcing the law until 2021.

• Regulators often have narrow jurisdictions. Online ticket marketplaces are global businesses, but city, state, and federal regulators usually cannot control how tickets are sold outside of their jurisdiction. Ticket sellers often avoid anti-scalping laws by simply scalping on the other side of a city or state border.

• The law does not always keep up with technology. In 2010, New York State passed a law placing strong restrictions on how electronic ticket platforms could be implemented. The lawmakers wanted to protect buyers’ rights to resell tickets, but the law’s wording might make it impossible to implement an electronic ticketing platform with strong anti-counterfeiting technology1.

• Often, the government makes things worse. For example, in 2010, the US Department of Justice approved the merger between Ticketmaster and Live Nation. Since then, many industry experts [a,b,c] have argued that the merger harmed fair competition in the live events industry.

Government regulators are struggling to enforce some very simple principles of fairness and transparency. On the other hand, enforcing transparency in a marketplace is what blockchains are best at.

The blockchain’s security guarantees are a natural fit for ending ticket marketplace corruption

Blockchains and smart contracts offer an elegant solution to the aforementioned problems with today’s ticket marketplaces:

1. Anti-counterfeiting. Blockchains are specifically designed to prevent the counterfeiting of a digital good. The original Bitcoin whitepaper specifically framed the technology as a solution to the “double spend problem.”

2. Honesty around ticket supply. If we adopt the convention that all of the tickets for a concert are created at once as non-fungible on-chain2 assets, then anybody in the world can inspect the true number of tickets up for sale. This preempts the type of dishonest “pressure selling” tactics that the UK Advertising Standards Authority has been trying to stop with regulations.

3. Artists can collect royalties from resales. It is possible to create an NFT that pays a royalty to the original creator every time the NFT is resold. This allows artists to set a reasonable sale price for their tickets without giving up all of the upside to scalpers3. This removes the temptation or need for artists to scalp4 their own tickets.

So, who is building ticketing solutions on the blockchain?

Some of the most notable blockchain ticketing projects include:

• The GET Protocol is a blockchain project used to implement ticketing platforms. GUTS Tickets is a company building the leading ticketing platform using the GET Protocol. The GET project has recently launched getNFT, a protocol for selling NFT-based tickets.

• Mark Cuban has discussed his plans to issue NFT-based tickets for the Dallas Mavericks during the upcoming 2021-22 season. Cuban outlined that traditional non-NFT tickets would still be sold through Ticketmaster, but that they could use the Ticketmaster API to enumerate ticket purchasers and send them an NFT representing the ticket.

• UPGRADED is a blockchain ticketing platform that was acquired by Ticketmaster in 2018.

• True Tickets is a ticketing platform built on top of IBM’s blockchain, but not using NFTs. Matthew Zarracina—CEO of True Tickets—recently wrote a post arguing that tickets should not be represented as NFTs because the purchaser doesn’t literally own the seat that they sit in during the event5.

Conclusion

Blockchains are extraordinary at creating artificial scarcity for a digital good and then authenticating ownership and transactions for those goods. This makes blockchains and NFTs the perfect solution for eliminating ticket counterfeiting and other dishonest sales practices.

On the other hand, music is arguably a non-rival post-scarcity good. Whether you are listening to an MP3 file, a radio broadcast, or a busker in a public park, your enjoyment of the music does not reduce how much somebody else can enjoy it. Blockchains—and the artificial scarcity that they imply—are a step in the wrong direction for recorded music technology in general.

Changelog

• July 9th, 2021: Added footnote with Leif Gensert article links.

• February 13, 2022: Minor formatting changes. Removed unnecessary links.

Here is what he is up against.

The origin story

Jeff Fluhr and Eric Baker cofounded StubHub in March 2000 at the Stanford Graduate School of Business. Fluhr dropped out of school to build the team and product, but Baker didn’t immediately take the leap. Baker rejoined StubHub as President in 2001 as Fluhr served as CEO.

Fluhr and Baker began to clash with each over the following years. In 2004, StubHub’s Board sided with Fluhr and fired Baker.

At the start of 2007, StubHub under Fluhr’s leadership sold to eBay for $310 million in cash.

Eric Baker’s redemption

Baker had never signed a non-compete with StubHub, opening the door for him to beat StubHub to expanding in Europe. In 2006, Baker launched Viagogo in a flashy announcement with the soccer clubs Manchester United and Chelsea as partners.

In January 2019, the activist investment firm Elliot Management published a letter to eBay’s Board of Directors with recommendations for streamlining eBay—including by selling StubHub. This gave Baker the opening to buy back the company he was fired from. In November 2019, Viagogo announced their intent to buy StubHub from eBay for $4.05 billion in cash.

In mid-December, the UK Government Competition and Markets Authority (CMA) announced an inquiry into the proposed merger. On February 7, 2020, the CMA issued an enforcement order that would “lead to the integration of the StubHub business with the Viagogo business” until the CMA investigation has completed.

On February 13, 2020, Viagogo finalized the StubHub acquisition despite the CMA’s concerns—while committing to run both companies separately to comply with the enforcement order.

“The Worst Deal Ever”

Baker’s redemption was short-lived. By mid-March, COVID-19 lockdowns had cancelled live events all around the world, leaving Baker to face ticket-holders demanding refunds from both Viagogo and StubHub. Forbes Magazine mocked the merger in a piece titled “The Worst Deal Ever.”

To avoid a cash crunch, StubHub altered their refund policies to offer a coupon instead of cash—triggering four (consolidated) lawsuits in the United States plus a class action lawsuit in Canada. Another lawsuit was filed against Viagogo in Florida. Similar lawsuits have also been filed against competitors SeatGeek, Vivid Seats, and Ticketmaster.

Meanwhile, StubHub began to shed staff. They had already cut at least 93 jobs in January, and they cut 200 more jobs by the start of June. By the end of July, StubHub emailed employees that they were shutting down their Latin American and Asian Pacific offices.

And then in October 2020, regulators around the world hit Viagogo with bad news:

• Australia. Viagogo was ordered to pay a $7 million AUD fine for “misleading consumers.”

• Ireland. A proposed bill to criminalize reselling tickets above face value is gaining traction.

• United Kingdom. The UK CMA raised concerns that Viagogo and StubHub combined would have 90% marketshare of the UK secondary ticket market and their merger could increase fees and lower the quality of service. Viagogo responded to the CMA by suggesting they divest StubHub’s operations outside of the United States and Canada.

Jeff Fluhr’s return?

At the same time, Jeff Fluhr—now a venture capitalist at Craft Ventures—wrote an open letter to the CMA suggesting that Viagogo should be forced to divest all of StubHub… preferably to a purchaser with experience in the events business.

In the letter, Fluhr reminisces over his deep experience as StubHub’s CEO from founding to the eBay acquisition—throwing his hat in the ring as a “potential purchaser of the entirety of StubHub from Viagogo.” He also alludes to the deep experience of his peers at Craft Ventures, although the letter is unclear whether he wants to purchase StubHub as an individual or on behalf of Craft.

If Fluhr’s bid to purchase StubHub were to succeed, this would be the second time he pushed Baker out of the company they cofounded.

The next two years

Viagogo recently raised $330 million in debt, and Moody’s Investor Service estimates that Viagogo now has two years of runway if the ticketing industry doesn’t rebound before then.

However, two years may not be enough time, for two reasons:

1. Depressed valuations. Viagogo’s $4.05 billion purchase price for StubHub was already more than 25x StubHub’s EBITDA—before COVID-19 lockdowns wiped out all revenue and created refund obligations. If the UK CMA forces Viagogo to divest StubHub, Viagogo would take an enormous loss on the purchase and wouldn’t benefit from StubHub’s post-recovery revenue growth.

2. The extra-long road to recovery. Typically tickets for an event are sold out on primary sellers like Ticketmaster before the supply and demand reaches secondary markets. This means that Viagogo and StubHub’s economic recovery only begins once primary sellers’ economic recovery is complete.

So what can Eric Baker do?

If he can raise more capital—whether via equity or debt—he should. Viagogo needs more money to guard against the possibilities of:

• Weak consumer demand. Some amount of consumer spending may have permanently shifted to other forms of entertainment. It may not be possible to shift that demand back to live events.

• Paying cash refunds. Regulators or courts may demand that cancelled tickets from 2020 need to be redeemed with cash refunds as opposed to coupons.

But even a giant infusion of capital won’t solve his problems with governments, which may cause:

• Divestiture. The UK CMA might force Viagogo to sell (parts of) StubHub.

• Slow vaccination. The longer it takes for the public to achieve herd immunity, the less cash Viagogo will have in the bank.

• Continuing lockdown restrictions. Governments may be slow to ease restrictions on live events until statistics prove that herd immunity has been achieved.

• Other regulatory restrictions. As mentioned above, Australia and the UK have taken steps to penalize ticket marketplaces for misleading practices. In the US, President Biden’s Federal Trade Commission may step up enforcement of existing legislation like the Better Online Ticket Sales (BOTS) Act which might indirectly curtail the supply of tickets available on marketplaces like Viagogo and StubHub.

Baker has a lot going against him right now. However, if he does manage a to simultaneously turn around both Viagogo and StubHub, it’ll catapult him into the near-mythological plane of turnaround founders like Steve Jobs and Jack Dorsey. Personally, I’m rooting for him.

Changelog

• January 31, 2022: Minor formatting changes to support new Substack features.

• February 13, 2022: Minor formatting changes.

The industry has since gone corporate (and digital), but the monopolistic and criminal mentality never left.

Songkick was a Y-Combinator-backed startup that stood a chance of reforming the ticketing business—but intimidation and computer hacking from a much larger competitor led to Songkick’s demise.

(Cover photo credit: Anthony Delanoix)

Backstory

In late 2009, the giant concert promoter Live Nation merged with the predominant ticket seller Ticketmaster into a new behemoth called Live Nation Entertainment (LNE).

In January 2010, the merger was approved by the US Department of Justice (DoJ) under a few conditions—including a ten-year-long consent decree that prohibited LNE from retaliating against venues that didn’t want to sell their tickets through Ticketmaster. However, the decree was weakly worded. LNE could not be forced into doing business with non-Ticketmaster venues, which led venues to fear retaliation anyway.

In the years since the merger, the DoJ has been widely criticized for allowing the merger to happen and then not enforcing the terms of the consent decree.

Songkick’s founding and growth

Songkick was a concert discovery app founded by Ian Hogarth, Michelle You, and Pete Finlay. They didn’t sell concert tickets, but earned money via referring customers to ticket vendors.

They launched in June 2007 and quickly grew their war chest, announcing their first $1 million in fundraising in March 2008, then $4 million from Index Ventures, and $10 million from Sequoia. In May 2014, they announced that they had generated $100 million of revenue for their ticketing partners.

That year, Songkick also started selling concert tickets instead of just referring sales. They claimed that venues’ exclusivity deals with Ticketmaster locked Songkick out of the US market, so Songkick grew rapidly in London instead.

In June 2015, Songkick announced a merger with CrowdSurge—a startup that sold white-label ticketing platforms. The combined entity was still named Songkick, but with Ian Hogarth and CrowdSurge’s Matt Jones as co-CEOs until Hogarth transitioned to a chairman role in January 2016.

At the same time as the merger, Songkick announced a $16 million Series C investment from Sequoia, Index, and Access Industries—the industrial conglomerate that owns Warner Music Group. Access Industries soon tripled down—investing another $10 million and another $15 million.

With its war chest and cachet with performing artists, Songkick was becoming a genuine threat to LNE. In December 2015, Songkick helped Adele sell concert tickets directly to her fans with Songkick’s technology to thwart bots and scalpers.

The lawsuit begins

Also in December 2015, Songkick filed a lawsuit against LNE—challenging the legality of the merger that created LNE and accusing them of colluding to lock Songkick out of the market.

Unfortunately, filing the lawsuit did immediate damage to Songkick’s business: they could no longer collect referral fees for or sell tickets to Ticketmaster events.

The early stages of the lawsuit went badly for Songkick. US District Court Judge Dale S. Fischer denied Songkick’s request for a temporary injunction and approved LNE’s motion to dismiss the parts of the lawsuit challenging the LNE merger.

The hacking accusations

But things turned up for Songkick during legal discovery. Songkick discovered that CrowdSurge executive Stephen Mead kept up to 85,000 company documents and still-valid passwords for internal tools after he left CrowdSurge in 2012. Mead was then hired by TicketWeb—a Ticketmaster subsidiary—and began giving documents and passwords to his new coworkers.

The stolen data attracted the attention of Zeeshan Zaidi—a Ticketmaster executive famous for his unrestrained ambition. The son of Pakistani immigrants, Zaidi was his high school valedictorian; completed his BA, MBA, and a JD from Harvard; and then catapulted into becoming a high-powered music executive. His younger brother Farhan was also a high school valedictorian, earned degrees from MIT and Berkeley, and later became General Manager for the Los Angeles Dodgers. Farhan Zaidi is currently President of Baseball Operations for the San Francisco Giants.

Songkick’s lawsuit alleges that Zeeshan Zaidi used screenshots from CrowdSurge’s internal tools in a presentation to Ticketmaster executives, and that Live Nation CEO Micahel Rapino asked Zaidi to use the stolen data to create a strategy for pressuring artists targeted by CrowdSurge to switch to Ticketmaster instead. When Songkick’s allegations became public, Ticketmaster fired both Mead and Zaidi.

Songkick’s downward spiral

Despite now having real evidence that CrowdSurge/SongKick was the victim of federal crimes committed by LNE, things did not go well for Songkick.

In July 2017, Warner Music Group (WMG) announced the acquisition of Songkick’s brand, data, and content discovery product—but they did not purchase Songkick’s ticketing business and “pending litigation.” The parts of Songkick that WMG did not acquire were packaged into a holding company called Complete Entertainment Resources Group (CERG).

Songkick/CERG’s ticketing business shut down at the end of October 2017. CEO Matt Jones wrote a letter to clients blaming LNE for Songkick’s failure and vowed to continue to the lawsuit against LNE.

In January 2018, LNE and CERG settled the lawsuit two weeks before it would receive a trial. LNE offered a $110 million settlement plus an additional payment to acquire the remainder of the intellectual property from Songkick/CERG’s ticketing business.

The Department of Justice takes action

While LNE had settled the civil lawsuit with Songkick, the US Government was still running multiple investigations into LNE.

In April 2018, The New York Times reported that the DoJ was looking into accusations that LNE had retaliated against vendors who chose to do business with LNE rival AEG. In December 2019, the DoJ amended LNE’s 2010 consent decree and postponed its expiration to 2025.

Meanwhile, in a different criminal case, Zeeshan Zaidi pled guilty to wire fraud and “conspiracy to commit computer intrusions.”

In December 2020, Ticketmaster entered a three-year deferred prosecution agreement with the Department of Justice over five counts of computer intrusion and fraud offenses. Ticketmaster agreed to pay a $10 million fine, create a company “compliance and ethics” program, and submit annual compliance reports to the US Attorney’s office for the next three years.

Now what?

Looking back, it’s hard to measure how much damage was done to Songkick via lawbreaking and how much Songkick lost in their attempt to seek justice. It’s also hard to measure how many artists and venues sold tickets through Ticketmaster due to pressure from Live Nation or whether Ticketmaster simply had the more desirable offering.

But all that is left of Songkick now lives on in LNE—the parent company of Songkick’s aggressor—and Warner Music Group—another portfolio company of Access Industries.

While the $110 million civil settlement and the $10 million criminal fine might sound a lot, it hardly pales to what Songkick could have become—a real challenger to LNE. LNE didn’t necessarily win their legal cases, but they won something more important: continued market dominance.

Changelog

• January 31, 2022: Removed extra links at bottom. Minor formatting changes to support Substack’s new features.

• February 13, 2022: Minor formatting changes.

Meet #BrokenRecord

The COVID-19 lockdowns eliminated much of musicians’ income by preventing them from performing live gigs and the decline in public performance royalties by businesses no longer playing music in their venues.

In response, Tom Gray—a musician and a Board Director of the Ivors Academy—launched the #BrokenRecord movement to highlight the realities for working musicians. Ivors Academy chairman Crispin Hunt and CEO Graham Davies are also notable leaders of the movement.

At the start of the movement, the leaders were careful not to vilify any individual music company nor make any specific demands that could be rejected. Instead, they focused on raising awareness of how the music industry worked attracting the attention of government regulators.

They have had some notable successes on that front. The UK Parliament Digital, Culture, Media and Sport Committee (DCMS) opened an inquiry into the economics of music streaming. Tom Gray also submitted a seven-page written testimony to the Committee and Ivors Academy submitted recommendations for new regulations.

So far, the UK Government has been attentive but not all musicians feel the love. UK Chancellor Rishi Sunak suggested that artists consider retraining for other jobs—sparking outrage among musicians until he said he was misquoted. Sunak’s comments were echoed by the UK Government’s disastrous “Rethink. Reskill. Reboot” campaign that offended artists by implying they should get jobs in cybersecurity.

What #BrokenRecord gets wrong

Most of the #BrokenRecord Campaign’s complaints are legitimate—especially the ones that they direct at record labels and music publishers. But their characterization of Spotify1 as the industry’s Great Satan and their implication that Spotify could be paying artists more are false.

As the #BrokenRecord movement grew during 2020, the movement abandoned its neutral tone for one that is increasingly focused on pressuring Spotify to pay even more in royalties to rightsholders2. The movement’s exact criticisms of Spotify are clearly outlined in op-eds by Nadine Shah and James Hall. And while Gray has largely avoided suggesting an exact value for the new royalty rate, the similar movement Justice at Spotify has called for Spotify’s payout to rise from $0.0038 per stream to $0.01 per stream—more than a 2.6x hike.

1. Streaming saved the music industry from piracy—recovering money that would have been lost

Many of the artists supporting the movement began their music careers in the cash-rich era of the compact disc, and are naturally shocked by what happened to the music industry since.

The American recorded music industry’s revenues (as measured by the RIAA) declined continually from 1999 to 2015—and the decline was only reversed with paid streaming. The income that recording artists miss from the era of the CD simply no longer exists. Consumers around the world have collectively decided not to pay for music. The fact that services like Spotify and Apple Music have been able to partially reverse this trend is nothing short of a miracle.

2. Spotify can’t afford to pay rightsholders more

Spotify is a marketplace for music. None of the music belongs to them and they have little pricing power over it. Rightsholders determine how much their music should cost in negotiation with Spotify, and listeners decide how much to pay Spotify—or whether to simply pay nothing and listen to ads.

There are three barriers to Spotify being able to pay artists more:

• Losses. Not profits. Profitability has been a struggle for Spotify3. In financial statements from Q1 2017 to Q3 2020, Spotify has only reported an operating profit twice—having posted operating losses in every other quarter reported.

• Low average payouts per artist. Kim Bayley, CEO of the Entertainment Retailers Association, argued against some of the #BrokenRecord movement’s claims in a piece titled “You don't mend a #BrokenRecord by smashing the record player.” She points out that Spotify allows many low-earning artists on their platform whose music would never be distributed by physical record store chains. These artists make only a few dollars per year—dramatically lowering the average payout across all Spotify artists. Even if Spotify sacrificed their (roughly 25%) gross margin into royalties for artists, it would hardly make a difference in terms of offering a living wage to low-earning artists.

• Bargain-basement subscriptions. The average price of an individual Spotify subscription is likely to go down. We can expect most of Spotify’s future user growth to be in India or Latin America where listeners’ ability to pay is even lower. Spotify recently launched 'Premium Mini' subscriptions in India at ₹7 INR ($0.10 USD) per day or ₹25 INR ($0.34 USD) per week. The low prices will likely help Spotify grow its marketshare, but there will be even less room for Spotify to pay artists even more per stream.

If not #BrokenRecord, then what?

The #BrokenRecord activists are correct about a lot of things in the music industry, especially about the toxic relationship between artists and their labels/publishers. But where they went wrong is by starting a political movement around squeezing nonexistent pennies out of Spotify. Even if their campaign somehow succeeded, how many more artists would be meaningfully better off?

(Hint: almost none.)

Instead, we should consider that humans may not have paid to hear music for most of human history and that the revenues earned from vinyl and CDs represent a temporary asset bubble whose conditions cannot recur in a newly digital world.

In the twenty-first century, from a revenue perspective, people think of paid streaming as the replacement for CD album sales. But from a strategic perspective, streaming is the replacement for radio airplay—a non-rival loss leader that facilitates discovery and demand for something else. Spotify now even offers advertising services to record labels [1,2].

This begs the question—from a strategic perspective, what can replace the lost CD album sales? Here are some awful guesses:

• Live performances. For generations, many artists made the bulk of their income from touring—which has been disrupted due to COVID-19. Some artists have managed to replace some of that lost revenue with online virtual concerts through platforms like Moment House.

• Merchandise. Similarly, for generations, many artists have earned income from merchandise. Since much of that merch was sold while on tour, COVID-19 created a similar disruption. But COVID-19 also forced many consumers to shift their in-person purchasing habits to online retailers. The rise of drop culture and retailers like MSCHF paint a future for what music merchandise could be.

• Non-fungible tokens (NFTs). This is the latest thing that the cryptocurrency people want you to believe in. NFTs are a method of creating and tracking digital goods that cannot be trivially duplicated, theoretically allowing artists to sell rare, expensive, digital goods whose authenticity can be confirmed by anybody.

• #stream2own, which is the revenue model of the streaming site Resonate, where fans pay steadily increasing royalty rates for playing a song, until the ninth play after which the listener "owns" the song and subsequent plays are free. The royalties from the nine plays are calibrated to cost slightly less than purchasing a song on iTunes.

• Digital downloads. Many artists have been won over by Bandcamp’s commission-free Bandcamp Fridays and see traditional single or album purchases as being the future of music.

• Paid fan interaction. Musicians are flocking to platforms like Patreon, Cameo, or OnlyFans that allow them to sell an exclusive look into their lives or even 1-1 communication.

• Fixed-quantity album sales. Who could forget when the Wu-Tang Clan produced the album Once Upon a Time in Shaolin and sold only one copy at $2 million to Martin Shkreli?

Whether from a revenue or a strategic perspective, none of these alternatives are even close to being a replacement for what CD album sales used to be—nor do they compare to what the streaming platforms are paying artists today. But however immature these options are today, they represent enormous potential markets for musicians to capitalize on. The potential gains outweigh whatever fractions of a penny the #BrokenRecord activists manage to gain from Spotify.

As a parting thought, the world of computer software went through some of the same struggles as the music industry. When people started pirating music, they also started pirating software.

On the other hand, many major software projects are open source, meaning the software’s code is free for anybody to download, use, or modify. Commercial open source software (COSS) vendors—like Red Hat and MongoDB—built multibillion-dollar empires by charging for support and services on top of a free open source product.

Hackers and Hobbyist software engineers rapidly adopt great open source products—eventually spreading adoption to large enterprises who pay top dollar for additional support, services, and products from COSS vendors.

The #BrokenRecord activists generally don’t like the sound of giving their work away for free—like open source software maintainers have been doing for decades. But the open source philosophy might be the key to building the next multibillion-dollar music empire.

Changelog

• January 11, 2021: Minor formatting changes.

• January 31, 2022: Minor formatting changes to support features in Substack’s new editor. Some rephrasing in the conclusion.

• February 13, 2022: Minor formatting changes. Removed unnecessary links.

This week, Tech Twitter was abuzz with Kanye West’s thoughts about record contracts—including his idea to create a Y Combinator for musicians1.

I have been thinking about this problem for a long time, so today we’ll go through what it would take to build such a thing.

What is Y Combinator?

Y Combinator (YC) is a startup accelerator. Startup founders apply for $125,000 in funding and a three-month long mentorship program in the San Francisco Bay Area2, ending in a Demo Day where startups pitch investors. So far, they have funded over 2,000 companies, and a small handful of them are now worth billions of dollars each.

Kanye West apparently got the idea of creating a YC for musicians in a conversation with the venture capitalist Katie Jacobs Stanton—who sits on the Board of Directors of Vivendi, the French conglomerate that owns Universal Music Group.

YC is known for being particularly founder-friendly, and for having created simplified fundraising documents like the Simple Agreement for Future Equity (SAFE) that have become an industry standard for early-stage startup fundraising. Culturally, YC’s business dealings are a stark contrast to the legally-complicated ways of major labels and publishers.

Are the economics of a music accelerator feasible?

The Y Combinator model is successful because it only takes a few home run investments to pay for all of the strikeouts. YC’s most valuable portfolio company is the $36 billion payments company Stripe. When the wins are that big, it almost doesn’t matter how many $125,000 investments that YC makes into startups that will fail3.

But if you and I are starting an accelerator for musicians, we have a big problem. No individual musician is ever going to have a $36 billion catalog. The Beatles are the best-selling musical act of all time, and their songwriting catalog has been rumored to be worth around $1 billion. In fact, the entirety of Universal Music Group—the world’s largest music company—has been valued around $33 billion.

The most lucrative investments for a music accelerator are likely to be 1/100 or 1/1,000 the value of a startup accelerator’s best investments, and there are no obvious solutions for decreasing our losses by a similar proportion. Ultimately, this why major labels, publishers, and investment funds like Hipgnosis prefer investing in the reliable cash flow of already-proven catalogs.

A musician accelerator could try increasing the value of their portfolio by negotiating for a greater share of (successful) portfolio artists’ royalties. But the endless media circus around bad record deals has made artists wary of any deal that doesn’t have a sky-high valuation. Small deals feel cheap to many early-career artists, even if there is no other music business offering them better terms.

There is only one way left to make the economics work: to be sure that a high percentage of artists will at least break-even with the investment.

How would we design a Y Combinator For Musicians?

Landing a traditional recording or publishing deal typically requires commercial success, industry connections, or both. But if we’re starting an accelerator, we are presumably reviewing thousands of applications from artists that don’t have commercial success or connections yet. We have to come up with an admission process that can quickly and accurately filter through all of them.

If we are concerned about losing money on commercially unsuccessful artists, the obvious solution is to only accept artists who already have profitable catalogs. Various companies like Stem, TuneCore, The Music Fund are offering advances to artists based on their catalog’s historical royalty data.

But the margins on these financial products are low compared to what a successful accelerator should earn, and if we truly want to build an accelerator as opposed to a bank, then we have to figure out how to reliably bet on artists before they have made any money. Similarly, many of Y Combinator’s best investments had insignificant or no revenue when they first applied.

In order for us to start a musician accelerator that can scale investments without being overwhelmed with losses, we’ll have to consider some crazy ways to vet potential artists:

For one, we could try applying machine learning directly on the audio of artists’ catalogs or demo tapes, looking for songs that could become high earners if correctly marketed. Hit song science is the application of machine learning models to predict which undiscovered songs will become popular. This field has hardly been solved, but we don’t need our model’s predictions to be perfect—they just need to point our accelerator’s admissions team in the general direction towards high-potential artists such that our successful investments cover our losses.

Alternatively, there may be ways to make the application process interactive to get a better sense of which artists to invest in. For example, Pioneer is a cross between a startup accelerator and an online multiplayer video game. Contestants (called “Pioneers”) work on ambitious startups, earn virtual points, and rank each other’s progress. The rankings are then used to generate a global leaderboard. The top Pioneers can level up to being offered larger and larger investments in their company.

What could an accelerator offer musicians?

Y Combinator is far from a passive investor. Their office hours with partners, dinners, the Demo Day, and various other programs do an incredible job of increasing the value of each batch of startups. Companies often seek help from Y Combinator partners or alumni even years after their Demo Day.

If you and I are creating an accelerator for musicians, ideally we offer services that increase the financial value of our catalog without being too labor- or capital-intensive—such as playlist pitching, brand deals, or sync licensing placements. But the downside for our hypothetical accelerator is that we’d be offering these services in a much more crowded market than Y Combinator faced when they started in 2005, nor may our services be sufficient to boost the trajectory of an early-career artist.

Who is already running accelerators in the music industry?

There are a handful of coworking spaces that boldly market themselves as accelerators for musicians. But since they are in the business of charging rent as opposed to investing in artists, they aren’t real accelerators.

That said, there are some real ones out there:

• TechStars Music and gener8tor’s gBETA Musictech are accelerators, but for music-tech startups—not musicians.

• gener8tor also runs two accelerators for musicians—Backline and Motown Music Accelerator. Both programs are twelve weeks long and offer a $20,000 grant without asking for any royalties or revenue share in exchange.

• Zoo Labs in Oakland, California is a nonprofit accelerator for musicians. They run a four-month program for musical groups to develop their business skills.

Given that many of these accelerators are either nonprofits and/or don’t actually invest in musicians, it seems that nobody running a musician accelerator has figured out deal terms that are acceptable to the musicians and profitable for the accelerator.

Which leads me to ask…

Are there better models for artists than accelerators?

As we have seen, it is difficult to map the economics of a startup accelerator to the music industry. It might be better to serve artists by redesigning the record label, music distributor, or the talent agency.

Here are a handful of companies trying to capitalize on early-stage artists in other ways:

Indify

Indify is a marketplace between emerging artists and potential investors. Founded in 2016, they originally pitched a proprietary algorithm that could theoretically predict the future commercial success of an early-career artist based on popularity metrics for artists collected from social networks and streaming sites.

On Tuesday, Indify CEO Keshav Garg replied to Kanye with a video to explain how they’re fulfilling Kanye’s vision for a Y Combinator for musicians.

Instrumental

Similar to Indify’s original pitch, Instrumental is a platform that uses data science to identify quickly-rising artists. They sell a software platform designed to help record labels and brands scout for talent. Instrumental also runs frtyfve, an in-house record label and music publisher.

Conrad Withey, who was previously President of Warner Music Group, founded Instrumental in 2015 as a rebrand and pivot from his wife Abi Hanna’s startup PopShack—which was a network of YouTube channels and an artist development label for YouTube talent.

UnitedMasters

UnitedMasters is a company that distributes independent artists’ music to streaming sites like Spotify. They use this data to help get brand deals for their top artists, or for entire playlists of songs—like they did with Apple Music, ESPN, and the National Basketball Association. I recently wrote about their deal to offer distribution to artists on TikTok.

Amuse

Much like UnitedMasters, Amuse offers music distribution to streaming sites like Spotify. The catch is that Amuse offers this service to artists for free to collect data about their commercial success. If an artist on their platform begins to find significant commercial success, Amuse may try to sign them to their in-house record label. Amuse also offers a program called Fast Forward, which offers artists advances based on machine learning models to predict their revenue.

Snafu Records

Snafu Records is a record label that claims to find unsigned artists using artificial intelligence. They brand themselves as a label, but they’re signing the sort of early-career artists that would join an accelerator for musicians. Snafu claims to look at 150,000 tracks every week, looking for music that is roughly 70% similar to Spotify’s Top 200 chart.

Heavy Sound Labs

Heavy Sound Labs is music executive Jason Geter’s attempt at reinventing the record label. Geter is best known as the founder of the Atlanta-based label and management firm Grand Hustle, where he worked with T.I., B.o.B, Travis Scott, and others. Heavy Sound Labs itself is part of the Los Angeles-based startup studio Science Inc.

In summary…

Well, if you happen to be Kanye West, reply to this email and we’ll start an accelerator.

But ultimately, the most important part of building a successful for-profit musician accelerator is to find a way to invest in a large number of musicians without requiring them to already have lucrative catalogs. Otherwise, it is hard for the winning bets to outsize the losing bets while still being differentiated from later-stage labels and publishing companies.

Changelog

• September 19, 2020: Added the section about Heavy Sound Labs.

• January 11, 2021: Minor formatting changes.

• January 31, 2022: Minor formatting changes to support new features in the Substack editor.

• February 13, 2022: Minor formatting changes.

Over the years, music businesses on one side of the wall or another have tried to punch a hole through it. Frederic Dannen’s classic book Hit Men describes the long history of bribery from record labels to radio stations, often facilitated by independent promoters with connections with organized crime. The US Government’s efforts to crack down on payola were largely unsuccessful, but fear of government intervention ended up strengthening the wall between the businesses who own music and the businesses who play music.

Today we’re going to look at two important questions for understanding the wall:

• Why can’t record labels or publishers start their own music streaming site?

• Why can’t streaming platforms sign artists like a label?

And why the wall might collapse for good.

(I may earn money from links in this post to books on Amazon.com.)

Why can’t record labels or publishers start their own music streaming site?

THE SHORT ANSWER: They are justifiably afraid of the government.

If the major record labels were to start their own direct-to-consumer platform, they would risk becoming victim to antitrust action. In fact, they nearly have.

In 2001, Sony Music and Universal Music tried to create their own online music store called PressPlay as a counterweight to rapidly-growing Internet piracy. Not only did the store fail to gain traction, but it attracted an official inquiry from the US Department of Justice (DOJ).

Depicted: A downsampled screenshot of PressPlay—taken in the year 2002—showing a search results page for “dave matthews.” Photo Credit: Steve McCannell for OpenP2P.

The DOJ has begun to take another look at the music industry. Last month, the DOJ held a workshop examining competition law around public performance royalties—it’s hardly a shot aimed directly at labels or publishers, but there is no telling who is next on the docket.

The risk of antitrust action might be low, but history has shown that the potential losses are enormous. The American film industry was terraformed by the 1948 US Supreme Court decision United States v. Paramount Pictures, Inc. The decision nearly eliminated the Hollywood “studio system”—referring to the near-total control that movie studios had over both their talent and their film distribution. No large player in the music industry can afford to attract that level of government interference.

Why can’t streaming platforms sign artists like a label?

THE SHORT ANSWER: No platform can sign talent without angering labels/publishers and risking access to existing catalogs of hit songs.

The users of platforms like TikTok, Spotify, YouTube, and so forth expect access to the greatest hits in major label catalogs—there is no substitute for the most iconic songs. But for the platforms, the unknown gains of signing new talent isn’t worth the loss of existing catalogs for these platforms.

For platforms like Spotify, the threat of rightsholders pulling their catalogs is a real one, although the catalogs usually return a few years later. A few notable examples:

• In 2011, the music distributor STHoldings pulled music from more than two hundred record labels that they distribute.

• In 2014, Big Machine Label Group pulled Taylor Swift’s catalog from Spotify. However, Swift relented and her catalog returned to Spotify in 2017.

• In 2017, Jay-Z removed most of his catalog from Spotify—in part to entice listeners to TIDAL, the streaming site that Jay-Z co-owns. However, he returned his catalog to Spotify in 2019 to celebrate his fiftieth birthday. Similarly, Jay-Z’s wife Beyoncé’s album Lemonade was exclusive to TIDAL until three years after its release.

• In 2019, the Indian record label Saregama India Ltd pulled their songs from Spotify for Indian listeners. The catalog returned to Spotify a year later.

The fact that music usually returns to Spotify might suggest that they have the upper hand in the licensing negotiations. But based on the absence of drastic catalog removals initiated by Universal Music, Sony Music, or Warner Music, we can assume that the status quo is very favorable to the labels.

(On the other hand, there is not a comparable tension in the podcasting world. When Spotify signed the podcaster Joe Rogan for more than $100 million, I wrote a piece detailing why Spotify can pursue this aggressive strategy in podcasting but not music.)

So then, what are the cracks in the wall?

The answers to the above two questions are generalizations. They hardly describe the motivations of every single entertainment executive—and cracks in the wall have been spreading over the years.

Here are some of them:

Major labels founding the video streaming site VEVO

Six years after PressPlay shut down, the labels were ready to try again in directly serving content to music fans. Universal Music, Sony Music, and EMI started VEVO in 2009 as a joint venture, with Warner Music joining in 2016. The original goal for VEVO was to be a high-end music video streaming service, modeled after the TV and movie streaming site Hulu—which was similarly launched as a joint venture between NBCUniversal, News Corporation, and later Disney.

Ultimately, the vision failed. VEVO’s website and mobile app never gained traction. Today, VEVO’s mark is ultimately a set of YouTube channels. The dream of owning users’ eyeballs—as opposed to giving them to Google—didn’t work out.

While the Department of Justice never launched a formal inquiry into VEVO like they had into PressPlay, antitrust was allegedly a continual concern. It is rumored that Universal Music and Sony Music invited Abu Dhabi Media Company in as an investor in VEVO in order to minimize antitrust concerns.

Major labels investing directly in Spotify

The major labels presumably learned from PressPlay and VEVO that platforms are easier to buy than build. The founding and rapid growth of Spotify—independent of the labels—provided the labels a financial opportunity that could never have been realized by PressPlay or VEVO with theoretically lower antitrust risk.

Not only is Spotify’s core business dependent on catalogs from the majors, but the majors are directly invested in Spotify itself. The music journalist Cherie Hu periodically graphs some of these relationships:

Major labels running their own playlisting companies.

The major labels buying stakes in Spotify gives them access to Spotify’s financial upside, but it doesn’t give them the type of editorial control that they could have had if PressPlay or VEVO succeeded.

Music streaming sites like Spotify and Apple Music have a considerable amount of power when they decide which songs end up in their human-curated or algorithmically-generated playlists. A relatively-unknown track might find its way to millions of listeners at once—turning it into a hit overnight.

Over the past few years, the major labels have created their own playlisting companies to capture some of that editorial direction for themselves. Universal Music owns Digster, Warner Music owns Topsify, and Sony Music owns Filtr.

Major labels entering music distribution.

Independent artists typically do not upload their music directly to platforms like Spotify. Instead, they use distribution services like Stem, UnitedMasters, or DistroKid. These distributors have a lot of data about which independent artists are exploding in popularity—which is useful for labels that are looking for artists to sign. Amuse is a company that offers free distribution in order to collect data about artists that they could sign to their in-house label.

The Big Three record labels have made big investments into music distribution—theoretically allowing them access to tremendous amounts of data:

• Universal Music Group launched the distribution service Spinnup—first in Sweden in 2013

• Warner Music Group launched their own distributor Level Music in 2018.

• Sony Music Entertainment bought the music company The Orchard. However, The Orchard is more selective about whose music they distribute when compared to DistroKid or Spinnup.

TikTok’s new deal with UnitedMasters.

If TikTok were to try signing their own talent, they might agitate rightsholders. Or they may not. We can’t know without them trying.

But in either case, this week TikTok announced the next best thing to signing their own talent: a new deal allowing artists on TikTok to use UnitedMasters to distribute their music to Spotify and other platforms.

UnitedMasters is more than just a music distributor. They offer (some) artists licensing opportunities and brand deals, like their continually-changing soundtrack for the basketball videogame NBA 2K. Rapidly rising artists like NLE Choppa and Lil Tecca signed to UnitedMasters as if it were a major label, although both have since left in favor of traditional label deals.

The beauty of the TikTok/UnitedMasters deal is that it offers a career path for TikTok artists similar to signing to a major label, but in a manner that is less likely to anger rightsholders. TikTok presumably isn’t doing any signing themselves, and UnitedMasters presumably is not dependent on record labels or music publishers for their catalogs. When both of these companies combine their strengths, the “wall” practically disappears.

The streaming site Quadio launching their own record label

Depicted: A screenshot of the Quadio Records homepage, featuring their initial roster of five artists. Photo Credit: James Mishra

Quadio is a niche music streaming site focusing on helping college students discover up-and-coming musicians on campus. This week, they launched their own in-house record label Quadio Records with an initial roster of five artists.

This arrangement works out because listeners do not use Quadio to listen to established artists. Quadio centers around listeners discovering nearby unsigned artists—which means that it can collect data about artists on the platform, sign the most promising artists, and then use their platform to promote their signees. Because they are opting out of the rest of the music market, Quadio has nothing to lose and everything to gain from vertical integration.

So where is this all going?

When it comes to antitrust concerns, the future is unclear. It heavily depends on who is going to be the next President of the United States. But the Big Three record labels have managed to chip away at the wall with their investments in distribution, playlisting, and platforms like Spotify and VEVO.

On the other hand, the negotiating positions for platforms like Spotify and TikTok is likely to strengthen over time if future music is routed through independent distributors like Stem or UnitedMasters versus the three major labels. Perhaps Quadio’s recent record label is a glimpse of what one of the larger players in the market might be able to do.

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In the past, he managed artists like Beyoncé, Elton John, Guns N’ Roses, Mary J. Blige, and countless others. But his current venture, the billion-dollar1 investment vehicle Hipgnosis Songs Fund, has catapulted him from fixer to philosopher-king. The industry press routinely christens him with hagiographic headlines like “The Man Who’s Spending $1 Billion to Own Every Pop Song.”

Depicted: A headshot of Merck Mercuriadis. Photo Credit: Jill Furmanovsky.

But as a manager-turned-investor, Mercuriadis and his company are not easily recognizable to the general public. He isn’t a musician himself, nor he is a music streaming site CEO trying to get you to download an app.

Instead, he is a man with a simple plan and a very large war chest.

Who is Merck Mercuriadis?

Mercuriadis was born in a small town in Quebec. At age 19, he landed a job at Virgin Records after bombarding them with countless letters. He was involved in signing artists like Mary Margaret O'Hara, but eventually left because he wanted to directly represent artists as opposed to just advocating for the label.

He joined the United Kingdom-based management company Sanctuary. He spent more than twenty years there, rising up to CEO of Sanctuary Group PLC. where he oversaw the management of Destiny’s Child, Beyoncé, Nelly, Tommy Lee, the Who, Robert Plant, and more. Sanctuary grew into the world’s largest music management business and the largest independent label in the United Kingdom.

After several successful decades, Sanctuary overextended themselves financially and discovered fundamental accounting errors. After twenty years of working at Sanctuary, Mercuriadis resigned in 2006. Sanctuary sold to Universal Music Group in 2007. Afterwards, most of Mercuriadis’s management clients left him.

Mercuriadis built his reputation at Sanctuary, but most likely he will be remembered for his second act—something more ambitious than anything most managers ever dream of.

What is Hipgnosis Songs Fund Limited?

Depicted: The Hipgnosis Songs Fund Limited logo. Used under Fair Use.

Hipgnosis Songs Fund Limited is a British investment fund that gives institutional investors exposure to songs as an asset class. They specialize in buying stakes in some of the most culturally-acclaimed and commercially-successful songs ever recorded. They don’t take chances on unknown artists—instead focusing on the annuity-like income that proven songs come with.

Music as an asset class

A key part of the Hipgnosis sales pitch is the idea that hit songs are both reliable income and uncorrelated with the stock market or other assets—making Hipgnosis an ideal investment for funds that want to diversify their risks..

A song being commercially successful is not enough for it to be a good investment to Hipgnosis; it also has to be relevant to the culture. In one interview, he said, “With the greatest respect to Pixie Lott, I’m not buying her number one single, because it has no cultural importance”

Giving power and capital to songwriters

Mercuriadis describes coming up with the idea for Hipgnosis while brainstorming with his management client Nile Rodgers about how to change the industry. They saw the songwriter as the “low man on the totem pole” despite being vital to the success of recording artists.

And they’re certainly paying songwriters. Hipgnosis typically doesn’t buy music rights from publishing companies—instead cutting Gulfstream-sized checks directly to songwriters or their estates.

What does the Hipgnosis catalog look like?

First of all, you can listen to it. Hipgnosis’s top 150 songs are available as a Spotify playlist.

Currently, they own stakes in five of the Billboard Hot 100’s top ten songs of the decade:

• #1: “Uptown Funk” by Mark Ronson ft. Bruno Mars

• #3: “Shape of You” by Ed Sheeran

• #4: “Closer” by The Chainsmokers ft. Halsey

• #5: “Girls Like You” by Maroon 5 ft. Cardi B

• #9: “Despacito” by Luis Fonsi & Daddy Yankee ft. Justin Bieber

By the end of March 2020, Hipgnosis declared stakes in 13,291 songs across 54 catalogs independently valued at $953 million. This is very small for a company of their size.

Based on public filings, I have found 12,419 of those songs across 48 catalogs. The difference is likely made up from catalogs that I missed or weren’t announced yet2. Based on my count, below is a chart of Hipgnosis’s catalog size since their first announced deal in July 2018.

Depicted: Hipgnosis’s catalog growth over time, per my calculation from public filings as of April 23, 2020. The spreadsheet for this graph, including links to original filings, is here. Photo Credit: James Mishra.

Note the massive increase in investment December 2019. It is likely that the songs that I were not able to find would steepen the curve well into 2020.

What do Hipgnosis’s financials look like?

Hipgnosis planned, and then cancelled, an IPO in summer 2017. They went public a year later with the ticker SONG on the London Stock Exchange. Since summer 2018, Hipgnosis has raised at least £628.5 million3 from equity sales, plus a £65 million revolving credit facility (RCF), and then a £150 million RCF.

In the public markets, Hipgnosis’s stock price has stayed largely steady—except for a customary COVID-19 price shock around late March 2020. Hipgnosis made it into the FTSE 250 just twenty months after the IPO—which Mercuriadis claims is the fastest any company has ever made it onto the FTSE 250.

Depicted: Google’s infobox showing Hipgnosis’s stock price since their July 2018 initial public offering. Hipgnosis trades on the London Stock Exchange as LON:SONG. Photo Credit: James Mishra.

Some industry voices are quietly criticizing Hipgnosis for overpaying for catalogs, making it hard to compete—an accusation that Mercuriadis regularly pushes back on in interviews.

But are they overpaying?

Hipgnosis’s blended acquisition multiple for their entire catalog is high and has been creeping higher. Their multiple was 12.75x their historical annual net income as of March 2019. A year later, the multiple creeped up to 13.9x. Hipgnosis explains that the rise reflects that they are acquiring the “finest vintage Catalogues of all time” such as from Journey and Timbaland4.

No matter what the critics say, Hipgnosis is not the only one paying these multiples. Mercuriadis claims that they do get outbid for catalogs5. Many of their competitors are acquiring catalogs or publishing companies at high multiples—see below. Furthermore, BMG CEO Hartwig Masuch noted in a staff memo that they were seeing prices for music assets were “some cases beyond all reason, a game BMG is unwilling to play.”

Who are Hipgnosis’s competitors?

The broader music publishing world is dominated by the publishing arms of the three major record labels: Universal Music Publishing Group (UMPG), Sony/ATV Music Publishing, and Warner/Chappell Music.

Other notable players are:

Tempo Music Investments

Tempo Music is an acquisitive investment fund launched in December 2019 as a partnership between Warner Music Group and the private equity firm Providence Equity Partners. Tempo started with $650 million raised from equity and debt, with most of it coming from Providence.

Ithaca Holdings

Ithaca Holdings is one of the many business ventures of the music super-manager Scooter Braun. Ithaca became world-famous when it acquired Scott Borchetta’s Big Machine Label Group for around $300 million. Big Machine helped build Taylor Swift’s career and her masters were a portion of the assets sold to Ithaca. Swift whipped up an Internet firestorm over allegations that Borchetta promised her the right-of-first-refusal in any sale and that Braun had bullied her in the past.

Primary Wave Entertainment

Founded in 2006, Primary Wave got its start by purchasing a 50% stake in Kurt Cobain’s music publishing. They later raised more than $800 million across two funds, much of it from the investment firm BlackRock. Most recently, Primary wave acquired a majority stake in Ray Charles’ pre-1964 publishing catalogs.

Concord Music

Concord is a music company founded in 1973. They have acquired numerous record labels and publishing companies in that time. In 2017, Concord announced the purchase of Dutch music publisher Imagem for €450 million. In 2020 Concord bought PULSE Music Group for more than $100 million.

Downtown

Downtown is a conglomerate made up of a publishing company, a neighboring rights company, a pair of recording studios, and the music rights management platform Songtrust. Downtown has also acquired AVL Digital Group and the South African music publisher Sheer.

Kobalt Music

Kobalt Music is a administrative music publisher that generally does not own any copyrights. They instead focus on providing services to rightsholders. Kobalt has raised hundreds of millions of dollars in venture capital from GV (Google Ventures), Section 32, Hearst Entertainment, and other firms.

Kobalt’s subsidiary Kobalt Capital is an an acquisitive investment fund like Hipgnosis. In November 2017, Kobalt Capital announced a staggering $600 million fundraise (from both equity and debt). One month later, Kobalt Capital acquired SONGS Music Publishing for around $160 million.

Round Hill Music

Founded in 2010, Round Hill is a conglomerate made up of a record label, a music publisher, and other business units aimed at artist and label services. Round Hill bought the publisher Carlin Music for $245 million—at a 16x multiple of gross profit. Two months later, Round Hill acquired music licensing and publishing firm Zync Music.

Royalty Exchange

Royalty Exchange is an online marketplace for buying and selling music royalties. In late 2017, they created a subsidiary called Royalty Flow aimed at buying and holding royalty streams from the world’s biggest artists—much like Hipgnosis. In attempt to purchase 25% of the producer’s share of Eminem’s catalog from 1999 to 2013, Royalty Flow tried to float a SEC Regulation A+ public offering on NASDAQ.

NASDAQ ended up revoking their provisional approval for Royalty Flow in April 2018 shortly before the public offering. Royalty Exchange CEO Matt Smith wrote a Medium post blaming Regulation A+ itself for what happened to Royalty Flow.

What is the future for Hipgnosis?

The music rights market is heating up, with venture capital, private equity, public equity, and public retail investors all chipping in. The fall of piracy, the rise of paid music streaming, and the Music Modernization Act have set the stage for music to become even more profitable.

Across numerous interviews, Mercuriadis has described his desire for Hipgnosis to own 20% of the music publishing market. And it’s certainly within reach. Hipgnosis has the vision, the leadership, the war chest, and investor relationships to raise even more to take that 20% or even more.

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I have spent most of my life in Minneapolis and its surrounding suburbs. Seeing a police officer murder George Floyd on camera absolutely broke my heart.

As a personal favor to me, I would request that Click Track readers donate to rebuilding Lake Street in Minneapolis. If you want to make my day, reply to this email with your donation receipt, or with your donation receipts to another charity.

Since this is a music newsletter, I want to highlight that George Floyd was a rapper in Houston before he moved to my hometown. Under the name Big Floyd, he collaborated with DJ Screw’s hip-hop collective Screwed Up Click. He also was featured on the Presidential Playas’ 1996 album Block Party.

The prelude

The 1980s saw the rise of gangsta rap—and simultaneously a social panic around it. Rap music was a vehicle for anti-authority political messages, with popular tracks like “Fuck tha Police” from the West Coast rap group N.W.A.

Depicted: The song “Fuck tha Police.”

A year after the release of “Fuck tha Police,” Milt Ahlerich—then the Assistant Director of the FBI's Office of Public Affairs—wrote a letter to N.W.A’s record label Priority Records voicing his disapproval for the song without naming it directly.

Depicted: A display of the letter sent from Milt Ahlerich to Priority Records.

Ahlerich wrote his letter as if he spoke on behalf of the entire law enforcement community, but N.W.A’s manager Jerry Heller later wrote that Ahlerich was a “single pissed off bureaucrat” that wrote the letter without the backing from the agency.

US Congressman Don Edwards—then chair for the House Judiciary Committee’s subcommittee on civil and constitutional rights—heavily criticized the letter in 1989 after it became public. Edwards’ committee was tasked with overseeing FBI behavior towards American citizens. About the letter, he said that “the FBI should stay out of the business of censorship.”

The release of “Cop Killer”

The rapper Ice-T is recognized as a pioneer of gangsta rap. His 1986 song “6 in the Mornin’” is recognized as one of the first gangsta rap songs, after which he landed a record deal with Sire Records—then owned by the entertainment giant Time Warner and distributed by its subsidiary Warner Bros. Records.

However, Ice-T didn’t stay locked within the genre he helped define. In 1990, he cofounded and fronted the heavy metal group Body Count. That year, they wrote the song “Cop Killer” and performed it live several times to no great fanfare before later recording the song in a studio. At the same time, Ice-T played a police detective in the 1991 movie New Jack City.

“Cop Killer” is an anti-police revenge fantasy written in the first person—but it’s Ice-T singing as a fictional character. The song is distinctly heavy metal—not gangsta rap—but inevitably critics associated the song with rap as a political movement.

Ice-T envisioned Body Count’s debut album to be called “Cop Killer” after its title track. Warner Bros. executives anticipated a backlash, and Ice-T ended up renaming the album to Body Count and placing “Cop Killer” as the last track. The group’s self-titled album was released on March 10th, 1992 to not much fanfare.

Depicted: The song “Cop Killer” by the heavy metal band Body Count, fronted by rapper Ice-T.

But a few weeks later, the world changed. On April 29th, 1992, a jury acquitted four police officers charged with assault and excessive use of force against Rodney King the previous year. The acquittal ignited six days of rioting in Los Angeles, ending only when the California Army National Guard, the US Army, and the US Marine Corps gained control of the situation.

Depicted: A frame from the video depicting the four officers beating Rodney King. Photo Credit: PBS/George Holliday.

The backlash begins

Many Americans tried to reason about why the Los Angeles riots happened—often choosing to blame gangsta rap instead of police violence. “Cop Killer” was a newly-released heavy metal song, but it was in the wrong place at the wrong time and became a marker of the influence of gangsta rap instead.

The trouble began when Dallas police officer Glenn White published an article titled “New Rap Song Encourages Killing Police Officers” in the May 29th, 1992 issue of The Shield—the Dallas Police Association’s monthly newsletter. Outraged by the song, White called for a police boycott against Sire Records’ then-owner Time Warner.

In June 1992, the Combined Law Enforcement Associations of Texas (CLEAT)—the largest police officers’ union in the state—announced a boycott against Sire Records’ then-owner Time Warner. The New York Patrolmen’s Benevolent Association petitioned their pension fund board to divest its $100 million stake in Time Warner, with other police officer organizations making similar requests to their pension funds.

The “Cop Killer” controversy boosted album sales, but record store chains were dropping the record. Trans World, Superclub, Camelot, and Musicland were among the major chains that dropped the album in response to the controversy.

Politicians weigh in

The conflict was inflamed by 1992 being an election year. Both the Republican and Democratic Presidential tickets positioned themselves against radical music.

On the Republican ticket, Vice President Dan Quayle blasted Time Warner for selling an “obscene record.” President George Bush Sr. criticized “Cop Killer” when speaking to a group of police officers in Michigan.

On the Democratic ticket, then-Governor of Arkansas Bill Clinton didn’t directly criticize “Cop Killer” but spoke out against unrelated comments made by rapper and activist Sister Souljah in response to the LA riots. Clinton’s running mate’s wife—Tipper Gore—was a cofounder of the Parents Music Resource Center (PMRC), a committee focused on labeling explicit music with Parental Advisory stickers. While Al Gore’s record as a US Senator was largely favorable to the recorded music industry, his wife’s focus on policing music worried many music industry figures.

The Independent Presidential candidate Ross Perot, running with former Navy Admiral and Vietnam prisoner of war James Stockdale, largely stayed out of the rap music debacle.

The defense of “Cop Killer”

But not all police officers were unified against “Cop Killer.” The National Association of Black Police opposed the boycott, instead offering suggestions aimed at increasing police officers’ accountability to the people. Ronald Hampton—then the Director of the 35,000-strong Association—said: “People are not going to go over and shoot police officers just because Ice-T sings about it […] Where were these police groups at the time of the Rodney King beating?”

Time Warner tried to defend itself on freedom-of-speech grounds, but they had already set a precedent for withdrawing albums in the face of popular criticism. Country singer-songwriter Holly Dunn’s “Maybe I Mean Yes” was withdrawn in the face of activists saying that the song encouraged date rape. At the July 16th, 1992 Time Warner shareholders’ meeting, the actor and minor shareholder Charlton Heston made a speech asking Time Warner if their freedom-of-speech stance would let them release a song titled “Fag Killer” or had the lyrics “Die die die kike die.” Heston’s speech was later followed by dramatic testimony from two police officers who lost their eyesight after being shot in the face.

Ice-T’s surrender and the aftermath at Time Warner

At the end of July, Ice-T folded. On July 28th, 1992, he called a press conference to announce that he was pulling “Cop Killer” off of Body Count. Ice-T stated that he pulled the song on his own accord because Warner Bros. Records was receiving bomb threats and “taking the war” for him. On August 3rd, CLEAT announced that they were ending the boycott.

Ice-T then sat down with Rolling Stone to tell his side of the conflict, gracing the magazine’s cover in a police officer outfit and a billy club.

Depicted: Ice-T’s Rolling Stone cover. Cropped from the original. Photo Credit: Rolling Stone.

Ice-’s next album Home Invasion was originally set for release on November 15th, 1992, but he agreed to postpone the release to February 14th, 1993 to minimize controversy. Warner Bros. then balked at the heavy metal-inspired album cover for Home Invasion, which depicts the clothes being ripped off of a woman and a man being beaten.

Depicted: The album cover for Ice-T’s album Home Invasion. Photo Credit: Sire Records/Warner Bros. Records.

The conflict over the album cover prompted Ice-T to leave Time Warner entirely. He released the album through his own label—Rhyme $yndicate Records—with a distribution deal through Priority Records.

The record labels owned by Time Warner realized that they could no longer release any music they wanted. Mo Ostin—then-Chairman of Warner Bros. Records—pledged to artists that if Warner refused to release a record, that they wouldn’t stand in the way of the record being released elsewhere. The Time Warner labels ended up dropping controversial artists Live Squad, RSO Crew, Kool G Rap, and Juvenile Committee. Other labels began following suit—censoring anti-police themes in their artists’ music.

Time Warner continued to be antagonized by cops, despite the CLEAT boycott officially ending. One police leader threatened to write parking tickets for Time Warner cable trucks in retaliation for “Cop Killer.” Furthermore, Ice-T continued to be frustrated by the police. Local police organizations would often demand to concert promoters to cancel Ice-T’s appearance. Off-duty police officers would often refuse to provide security for Ice-T shows.

Ultimately, the “Cop Killer” controversy continued to burn on for years and had no definitive end. In a 2007 interview, Body Count member Ernie C. mentioned how people still bring up the controversy seventeen years later.

And most ironically, Ice-T ended up playing a cop once more after New Jack City. In 2000, he appeared on the TV show Law & Order: Special Victims Unit as an NYPD detective named Odafin "Fin" Tutuola. He was only supposed to appear for four episodes, but ended up becoming a major character that he continues to play twenty years later.

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What is tonebase?

Depicted: A tonebase promotional Facebook cover. Pulled from Abhi Nayar’s Facebook page.

Tonebase offers several plans, from $29.95 per month to a $495 one-time lifetime subscription. The classes come with videos, outlines, workbooks, and PDF editions. The tonebase website also tracks users’ progress on their journey to learning guitar or piano.

Tonebase gives a peeks at the content they have to offer via their YouTube channels for guitar and piano. Here is a segment from renowned musician Leo Brouwer.

And this is a segment from their guitar YouTube channel that demonstrates playing in a guitar duo.

If you sign up for tonebase, you’re greeted with an interface that looks like below—with various links to videos teaching classical guitar or piano.

Description: A screenshot of the tonebase homepage for guitar lessons. Photo Credit: James Mishra

The founders’ story

Tonebase was founded by classical guitarists Christopher Garwood and Igor Lichtmann with Abhi Nayar joining as the technical cofounder. Abhi and I briefly met in high school, although we haven’t kept in touch since. He declined to comment for this piece.

The trio met each other as students at Yale, with Christopher and Igor starting in October 2016, Abhi joining in March 2017, and incorporating in May. They gathered their initial customer base via a Facebook group and then built the surrounding website. They went through Jason Calacanis’s LAUNCH accelerator in the winter of 2018. In Spring 2019, they raised their seed round. As per Crunchbase, they went on to raise $3 million across four funding rounds over the years, including from e.ventures and the student-focused venture capital firm Dorm Room Fund.

During all of this, the tonebase team relocated from New Haven to Los Angeles—eventually growing to fifteen people. They are still hiring, with the COVID-19 crisis pushing them to a more remote-friendly workplace not centered around Los Angeles. They are currently hiring for a frontend developer.

Can tonebase stand up to the competition?

Tonebase has a laser-sharp focus on teaching classical guitar and piano, but they are operating in a brutally saturated market.

• Other online music lesson websites. There are many websites—some of them much older than tonebase—that offer video music lessons, like This is Classical Guitar, ArtistWorks, JustinGuitar, TrueFire, GuitarCompass, FenderPlay, JamPlay, Orange Amps, Jamorama, JamTrack Central, InsidePiano, Liberty Park Music, Zebra Keys, Piano Lessons On The Web, Skoove, Playground Sessions, Piano Marvel, Flowkey, PianoWithWillie, Piano Nanny, Hoffman Academy, and Yousician.

• Massive Open Online Course (MOOC) providers. Coursera and Udemy also all offer music education courses for sale.

• Real-world music schools. MacPhail, Sense & Color, London Contemporary School of Piano, Full Sail University, and the Berklee College of Music all have online courses. Some of these schools have pivoted heavily into online courses recently in response to COVID-19 making it unsafe to run their normal in-person courses.

• Gig economy marketplaces. Fiverr, Skillshare, and Amazon Home & Business Services are places for musicians to offer 1-1 online, in-home, or in-studio music lessons to interested students.

• New high-tech startups. TribeXR—a recent graduate of the TechStars Music Accelerator—offers lessons in DJing via virtual reality. This is their first product and they have aggressive plans to expand into new ways of interacting with music via VR. Music Everywhere is an augmented reality iPhone app that teaches how to play songs on the piano. Music Everywhere is also compatible with the Microsoft HoloLens AR headset.

Depicted: A promotional video showing a rendering of how the Music Everywhere app works with Microsoft HoloLens.

• Big Tech and hypercapitalized video streaming sites. Subscription video content is one of the hottest categories in tech and entertainment—with companies like Quibi, Hulu, Netflix, Amazon Prime Video, and Masterclass deploying enough capital to build an aircraft carrier.

Masterclass is a particularly intimidating threat due to their seemingly-unlimited checkbook to buy the best talent and produce videos with high production value—although not necessarily the highest educational value. Below is a screencap of Masterclass’s page for the musician deadmau5’s electronic music production course.

Depicted: A screenshot of the musician deadmau5’s Masterclass on electronic music production. Photo Credit: James Mishra

Masterclass currently also has offerings from Carlos Santana, Timbaland, and Christina Aguilera—all of whom have dominated the Billboard charts at one point or another.

Depicted: A screenshot of some other entertainment-focused Masterclass videos. Photo Credit: James Mishra

Thanks to the COVID-19 crisis, plenty of people are unemployed and quarantined and have nothing better to do than to finally learn the guitar they bought years ago. With music schools forced online by the virus and the video streaming sites spending money like it’s going out of style, it remains to be seen whether tonebase can capitalize on the opportunity or whether they’ll be outflanked.

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But the streaming sites lack true market power—they are marketplaces for a product largely owned by the Big Three record labels—Universal Music Group, Sony Music Entertainment, and Warner Music Group. These three earned about 67.5% of global music revenue in 2019, which gives them incredible leverage against the music streaming sites.

Podcasts are the new great hope for the music streaming sites to strengthen their negotiating position, although podcasts are just the latest step in the journey. First, let’s see what the streaming sites have done previously:

(I may earn money from links in this post to books on Amazon.com.)

The various ways that streaming sites have tried to wrest control from the labels

Exclusive album releases

It is hard for the streaming sites to differentiate themselves when most of their listening activity goes to the same major label superstar artists. Spotify has 286 million monthly active users as of March 31st. Today, Drake’s artist page on Spotify says that he has over 61.5 million monthly listeners—which suggests that (nearly?) a whopping one in five monthly Spotify users are monthly Drake listeners.

To try and build a differentiated catalog, TIDAL and Apple Music signed exclusive streaming deals for new album releases from artists like Rihanna, Beyoncé, Frank Ocean, Kanye West, and Drake. Most of these deals happened during the year 2016, but some were earlier. But the deals rarely lasted for long—the exclusive albums would eventually make their way to the competing streaming sites. Kanye West tweeted that his album The Life of Pablo would be forever exclusive to TIDAL, only for the album to become available on Apple Music and Spotify a few weeks later—prompting a lawsuit from a fan who felt tricked into buying a TIDAL subscription.

In August 2016, Universal Music CEO Lucian Grange ordered Universal labels to stop cutting exclusive deals for albums, but not necessarily for documentaries or other content. Even the billionaire rapper Jay-Z—who is one of the owners of TIDAL—returned his own solo catalog to Spotify last December after having removed it in April 2017.

But Spotify—for the most part—did not follow Apple and TIDAL’s exclusivity playbook. In April 2016, Jonathan Prince, then Spotify’s Global Head of Communications and Public Policy, commented to Mashable that “long-term exclusives are bad for artists and they’re bad for fans” but that Spotify did not have a “total policy against” exclusive deals—especially temporary exclusives. A year later, Troy Carter—then Spotify’s Global Head of Creator Services—said during a Music Biz Conference Q&A that “exclusive audio content, specifically with albums, is not within [Spotify’s] playbook.”

Curated and algorithmically-generated playlists

On Spotify, users can listen to human-curated playlists like RapCaviar, or AI-generated recommendations like Discover Weekly. Especially for genres like sleep music and lofi, the playlists are bigger brands than most of the artists in them. This helps remove the inherent risk that the streaming sites have from depending on top major label artists like Drake.

Up-and-coming artists are typically delighted to make it onto a playlist, but they often struggle to retain their newfound listeners. The musician Ari Herstand, in his book How To Make It in the New Music Business, warns artists that they may suddenly make thousands of dollars per month if they get a song onto a playlist, only to lose that income when the song gets removed. Now the playlist is the celebrity—not the artist.

However, the streaming sites aren’t alone in their playlisting push. The Big Three labels own their own playlisting companies to help promote their own artists without relying on the streaming sites for favorable curation: Universal Music owns Digster, Warner Music owns Topsify, and Sony Music owns Filtr.

Fake artists? (Maybe not.)

In August 2016, Music Business Worldwide raised the accusation that:

1. Spotify was producing its own music and releasing it under fake artist names.

2. Then, Spotify places this music in its various popular playlists—earning hundreds of millions of streams in total.

3. Because Spotify presumably owns this music, they don’t owe any money to the record labels when these songs are played.

Spotify declined to comment until they chose to vehemently deny these accusations nearly a year later. In response, Music Business Worldwide enumerated fifty artists that they believe to be fake. Here is a song from Gabriel Parker—one of the alleged fake artists.

But the accusation was seemingly debunked when Music Business Worldwide figured out that much of the music comes from Epidemic Sound—a music production company based in Stockholm. In response, Epidemic Sound CEO Oscar Hoglund sat down for an interview with Music Ally, admitting that they were behind the “fake” artists while insisting that they uploaded the music on their own accord and not in an elaborate conspiracy with Spotify.

Music journalist Cherie Hu pointed out that Spotify may have still (unknowingly) saved money by swapping major label artists’ songs with Epidemic Sound songs in top playlists because the major labels typically receive higher royalties per song than relatively-unknown artists.

In the end, it is impossible to prove if Spotify’s actions were deliberate. Spotify doesn’t have to actually produce music in order to save money by directing playlisting and royalties away from the Big Three labels.

A MASSIVE investment into podcasting

Album exclusives largely didn’t work, and the “fake artist” controversy was likely never real. And that’s why this essay’s title is about podcasts—because they may be the true saving grace for Spotify (and the other streaming sites).

Spotify has been investing enormous amounts of cash into podcast-themed acquisitions. From February 2019 to March 2020, Spotify bought podcast networks Gimlet Media for $195 million, Anchor FM for $154 million, Parcast for $55 million, and The Ringer for a rumored $250 million.

Spotify has also been cutting deals directly with podcast producers, including with Joe Budden, Jemele Hill, Guy Raz, Amy Schumer, and Higher Ground—Barack and Michelle Obama’s production company1 [a]. Now yesterday, Joe Rogan announced an exclusive deal with Spotify rumored to be worth more than $100 million.

Spotify’s podcast investments are ground-breaking in two different ways:

1. The long-term exclusive deals with podcast producers are a strategic reversal from Spotify’s opposition for album exclusives. Podcasts are clearly an exception to Troy Carter’s words that “exclusive audio content, specifically with albums, is not within [Spotify’s] playbook.”

2. Podcast content serves the same financial purpose as the mythical “fake artists.” Spotify lays out a finite amount of money for top-tier podcasts while earning a theoretically-unbounded amount of advertising and subscription revenue. Spotify doesn’t owe podcasters royalties every time a podcast is listened to. In short: Spotify’s unit economics will no longer be tied to the record labels.

Of course, the record labels are investing in podcasts too. Warner Music [1, 2], Universal Music [1], and Sony Music [1, 2, 3, 4, 5, 6] have all announced some form of podcast initiative or investment. So has Apple. But podcasts are still a greenfield territory compared to music, but Spotify’s massive investments have possibly given them an early lead.

The Call Her Daddy fiasco: are podcast hosts irreplaceable?

But Spotify’s podcast plan comes with one major flaw—now they’re in the business of negotiating with talent. At least on the music side, Spotify can leave the dirty work of scouting, signing, and bullying talent to the record labels.

How bad could it be to negotiate with podcast talent? What could go wrong?

This week’s drama between the mega-popular sex and dating podcast Call Her Daddy and their network Barstool Sports show the kind of drama that Spotify may have bought their way into.

The Joe Rogan Experience might be worth over $100 million to Spotify, but on Apple Podcasts, it’s currently charting second to Call Her Daddy. The podcast, where the pair of twenty-something women Sofia Franklyn and Alexandra Cooper host a no-holds-barred discussion about sex from the female perspective, is wildly popular.

The New York Times journalist Taylor Lorenz wrote a great summary of the Call Her Daddy power struggle. In short, Franklyn’s boyfriend (nicknamed “suitman”) is a Harvard-educated HBO executive that pushed the pair to shop Call Her Daddy to other podcast networks. The Barstool Sports founder Dave Portnoy proceeds to record a Call Her Daddy episode of his own where he reveals the nasty details of the contract negotiation.

Portnoy revealed that the cohosts had taken home nearly half a million dollars each in the past year, and that Barstool was to agree to new terms of guaranteed $500,000 salaries each plus potentially millions of dollars in bonuses. Meanwhile, the cohosts had stopped recording new episodes since April 8th, which caused Barstool to lose out on $100,000 of ad revenue each week.

I think there is a small chance that this dispute is manufactured to bring more attention to both Call Her Daddy and Barstool. Portnoy is taking full advantage of the attention in either case, even selling “cancel suitman”-branded apparel. But let’s assume the conflict is genuine.

The Call Her Daddy hosts are (were?) Barstool employees with steady salaries, while artists signed to a record label are typically considered contractors under a work-for-hire arrangement paid with royalties and recoupable advances. (Joe Rogan will not become a Spotify employee as part of his deal with them.)

The struggle between Barstool and Call Her Daddy is a classic problem in the entertainment world:

1. The financing company offers an attractive deal to early-stage, unproven talent.

2. The talent becomes incredibly successful, and suddenly the deal they negotiated a long time ago doesn’t represent what the market could give them today.

3. The company must retain the talent otherwise risk not being able to collect a return on their investment. Meanwhile, the talent has their own social media megaphone that they can use to blast the company to gain leverage in negotiations.

In the music business, we saw this happen between Megan The Stallion and her (now former) record label 1501 Entertainment. The deal terms were passable when she was a relatively unknown signee but wasn’t a match to her market power after “Hot Girl Summer.”

An even more dire tale is the one between the quiz game HQ Trivia and its newly-minted celebrity host Scott Rogowsky. HQ Trivia never truly recovered, shutting down before being bought and reinvigorated by a private investor.

Spotify’s podcast ventures will mitigate its weak negotiation position against the Big Three labels, but Spotify might find that managing their own talent means that they face a completely alien set of risks.

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Every jukebox was a cash business selling an ephemeral product, and it was easy for the jukebox owner to falsify how many songs were actually sold, making the jukebox an ideal tool for money laundering and tax evasion for venue owners and organized crime.

(I may earn money from links in this post to books on Amazon.com.)

The origins of the jukebox

Thomas Edison invented the phonograph in 1877, which Louis Glass and William S. Arnold modified in 1890 to make it coin-operated. Albert K. Keller claims to have invented a coin-operated phonograph first, but Glass and Arnold were the first to do a public demonstration. Keller managed to get a head start on marketing coin-operated photographs anyway until the arrival of the “Big Four” jukebox manufacturers—Automated Musical Instruments (AMI), Seeberg, Rock-Ola, and Wurlitzer.

Some of the manufacturers had Mob ties. Rock-Ola was founded by Mob-connected businessman David Cullen Rockola, who was charged with corruption in 1929 but only served six months by turning State’s Evidence against James “High Pockets” O’Brien and other mobsters. For some time, AMI was run by Chicago mobster Jake Guzik’s son-in-law Frank Garnett and then taken over by mobster Sam “Mooney” Giancana in 1949.

Depicted: A mid-twentieth century Wurlitzer jukebox. Photo Credit: Joe Mabel.

These manufacturers typically did not sell jukeboxes directly to bars and clubs—instead selling to regional distribution companies, who in turn would sell to operators of jukebox “routes” that contained groups of venues. Jukebox routes, distribution companies, and operators’ associations became a natural toehold for mobsters to enter the jukebox market.

The Mob moves into jukebox distribution

However, the Mob—in Chicago, at least—did not play much of a role in jukebox distribution until Mooney Giancana partnered with African-American hustler Eddie Jones. Jones and his brothers distributed jukeboxes and also ran “policy”—the illegal lottery played by many Black Chicagoans. Giancana eventually kidnapped and then forced Jones to exile to Mexico—all in order to take control of Jones’ business on behalf of the Mob syndicate known as the Chicago Outfit.

Depicted: Sam “Mooney” Giancana. Photo Credit: Unknown.

From then on, various mobsters started or joined various distribution companies around the country, including:

• Lormar Distributing Company—run by Mooney Giancana’s underlings Bill McGuire and Charles “Chuckie” English.

• Century Music Company—run by mobsters Jake Guzik and Dennis Cooney. By 1954, Century Music “was believed to control more than 100,000 of the nation’s 575,000 jukeboxes.”

• Runyon Sales Company—owned by the gangster Abner “Longy” Zwillman. Runyon distributed AMI jukeboxes on the East Coast.

• Riverside Music Company— co-owned by Longy Zwillman and Mike Lascari.

• Chicago Simplex Distributing Company—run by Alvin Goldberg, Joe Accardo, and Frank Garnett.

• Emby Distributing Company—cofounded by a group that included Alvin Goldberg and the international Jewish mobster Meyer Lansky. It is said that—for a time—Emby controlled “every Wurlitzer jukebox in the New York area.”

Depicted: Meyer Lansky. Photo Credit: Al Ravenna/Library of Congress.

In 1946, Emby would sell its Wurlitzers for $1080 per machine to the operators of jukebox routes that would place them in their territories’ bars and clubs. Route operators might control a few hundred machines each. They would supply repairs and new records for 50% to 70% of the take, which could go up to about $15 per machine per week in New York. Emby worked to cut out the “route” middlemen that stood between Emby and venue owners—often by acquiring failing routes and often using intimidation, threats, and picketing from false-flag labor unions made up of paid actors.

Milton Hammergren’s testimony

In 1958, Milton J. Hammergren, former Vice President and General Sales Manager for the Wurlitzer Corporation, testified in front of a Congressional committee. Hammergren was questioned by then-Committee counsel Robert F. Kennedy about the Wurlitzer Corporation’s knowledge of and dependence on Mob-affiliated distributors:

HAMMERGREN: […] Yes, there was violence, such as blowing out the windows of the store or blowing up an automobile or something of that nature, or beat a fellow up.

KENNEDY: Is that part of the characteristics of the industry?

HAMMERGREN: Yes; I would say so.

KENNEDY: Were there also killings?

HAMMERGREN: Yes, there was.

Hammergren went on to describe the murder of Lehme Kelley—an operator of around seven hundred jukeboxes in the Joliet, Illinois area. Kelley’s brother Dennis was also killed shortly thereafter. Kennedy continued his questioning:

KENNEDY: Were company officials upset about the use of force?

HAMMERGREN: Company officials, of which I was one, yes, we didn’t like it, but we still had to sell jukeboxes. We knew all about it, and we knew what the problems were. We tried to go along with it the best we could.

[…]

KENNEDY: I mean if somebody, just in the course of trying to get your boxes distributed, if somebody was killed, that was taken as part of the trade?

HAMMERGREN: That is one of the liabilities of the business, I would say.

Using jukeboxes to promote music careers

Once having gained control of jukebox distribution, the Mob could control which records would be selected to go into the jukeboxes, offering jukebox placement to promote artists of their choice.

Carol Lawrence (born as Carolina Maria Laraia) unknowingly benefited from Mob promotion. Her father Mike Lairia was connected with mobster Joe Accardo, who placed Carol’s debut record into thousands of Mob-controlled jukeboxes. Carol later went onto play various roles in theater and television, including Maria in the musical West Side Story on Broadway.

Depicted: Carol Lawrence appearing on the TV show General Electric Theater. Photo Credit: General Electric Corporation

The journalist David Leon Chandler, in his book Brothers In Blood, wrote how then-Lousiana Governor Jimmie Davis helped local Mob boss Carlos Marcello open casinos in New Orleans. In addition to being Governor, Davis was also a country singer. After this favor, Davis’s recording of the song “You Are My Sunshine” suddenly appeared in various Mob-controlled jukeboxes around the country. Twenty years later, the FBI dredged nearly one hundred thousand records from the East River—most of them being copies of Jimmie Davis’s “You Are My Sunshine.” The FBI came to the conclusion that the discarded records had been originally bought by the Mob and placed into jukeboxes as payment for Davis helping the casinos open.

The Chicago Outfit also used its control over jukeboxes to promote acts booked by Jules Stein’s Mob-connected Music Corporation of America (MCA). Boosted by jukebox promotion, these acts would go on to perform at Mob-controlled venues or even sign to Mob-owned record labels. When the Mob could not own the recording or publishing for these artists, they would monetize these artists’ popularity by printing and selling counterfeit records.

Finally, because self-reported jukebox play data was part of the dataset used to determine the Billboard Hot 100 (until 1959) and which records radio stations chose to play as their Top 40, the Mob could promote artists of their choice by falsifying jukebox play data.

Meyer Lansky’s failed bet on television

Over time, it became impossible for the Wurlitzer Corporation to play dumb about their dependence on the Mob for distribution. The Wurlitzer Corporation eventually asked Meyer Lansky to leave Emby Distribution. Lansky acquiesced and moved on from Emby to cofound Consolidated Television in 1947 with partners Ed Smith, Bill Bye, Joe Adonis, and Frank Costello.

Consolidated Television sold television sets to the same bars and clubs that bought Emby jukeboxes. They also wanted to produce “soundies”—the name for early music videos—to give bar and club patrons something to watch on the TV sets. The venture went out of business in less than two years for multiple reasons including:

1. A lack of recurring revenue. Jukeboxes provide continual revenue and require continual maintenance and new records. In contrast, televisions weren’t coin-operated and did not need servicing to get new content.

2. Poor product quality. Consolidated Television’s TV sets continually broke down, leaving venues unhappy and adding continual manufacturing and repair headaches for Consolidated Television.

3. Competition from home-installed TVs. Consolidated Television was a bet that Americans would go to bars to watch TV. Instead, many Americans chose to purchase a TV set for their living room and stay home at night to watch it. Meyer Lansky later said, “We should have gone into the home-end set, and maybe I would be a very rich man today.”

The Scopitone and the mobsters behind it

The Scopitone was a coin-operated video jukebox that appeared at the start of the 1960s and was all but gone by the end of the decade. The Scopitone was made by CAMECA—a Parisian subsidiary of the French electronics giant CSF Corporation—in 1960 as a superior version of an older video jukebox called the Panoram made by the Mills Novelty Company in Chicago. (Today, CAMECA is a maker of scientific instruments.)

Depicted: A surviving Scopitone machine. Photo Credit: Joe Mabel.

The typical Scopitone film was a three music video on 16mm color film and a magnetic soundtrack, featuring barely-clothed B-list recording artists and film stars gyrating in front of equally scantily-clad backup dancers.

Depicted: Joi Lansing’s Scopitone music video for her song “The Web Of Love.”

In 1961, the William Morris Agency talent agent George Wood began putting together a deal to bring the Scopitone to America. Wood formed a company called Scopitone Inc, which would have the American rights to the Scopitone machine, backed by a consortium of Mob-friendly investors including Genovese crime family capo Vincent “Jimmy Blue Eyes” Alo and underboss Gerry Catena.

The entire time, the NYPD and the District Attorney’s office had bugged Wood’s office and wiretapped his bachelor pad’s telephone in an effort to collect evidence and turn him against the mobsters. But in November 1963, Wood was badly beaten up during a night at the Camelot Lounge and died after checking himself into Mount Sinai the next day. The District Attorney’s office lost their potential witness, but another William Morris agent closed the Scopitone deal.

In 1964, Scopitone Inc was unable to import enough Scopitones from France, so they started looking for an American company that could manufacture more. They cut a deal with the publicly-traded plastic sign manufacturer Tel-A-Sign Corporation to build thousands of Scopitones, with Tel-A-Sign ending up with an eighty percent stake in Scopitone Inc.

The Genovese crime family’s involvement in the deal attracted the attention of the Securities and Exchange Commission (SEC) as well as US Attorney General Robert F. Kennedy. The US Government launched a secret grand jury to investigate Tel-A-Sign. An April 1966 Wall Street Journal article leaked the news of the grand jury investigation, which sent Tel-A-Sign into a tailspin. The CEO resigned a few weeks after the Journal article. Scopitone Inc filed for Chapter 11 bankruptcy in 1967 and then shut down completely in 1969. The machines were sold off and found other purposes—many of them used to give peep shows. The Justice Department ended up charging nobody with a crime in direct relation to the investigation—other than Vincent “Jimmy Blue Eyes” Alo for making false statements to the SEC.

The jukebox in modern times

Technogical and social change caused jukeboxes to begin falling out of favor as early as the 1960s. Today, user-selected music in live venues is dominated by companies like TouchTunes and Rockbot. The selection of available music is much wider than could have ever fit in a traditional vinyl or CD-based jukebox.

But for the most part, the era of the barroom jukebox is dead and gone.

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OpenAI’s Jukebox is just a demonstration of their general ability to train neural networks—I doubt they—as a research lab—are likely to commercialize this technology. But AI-generated music represents the future of the industry. Not too long from now, neural networks will be involved in every step of music production, from lyric writing to mastering. In fact, there is already a long history of AI in music-making.

Major developments in the use of AI for music creation

1821 — Dietrich Nikolaus Winkel’s Componium

Long before computing or artificial intelligence truly existed, Winkel—also known as the inventor of the metronome—created the Componium: a pipe organ that generated pseudorandom compositions using a system of two rotating barrels.

Depicted: Winkel’s Componium. Photo credit: Wikimedia user Jbumw.

1957 — Illiac Suite

The University of Illinois Urbana-Champaign professors Lejaren Hiller and Leonard Issacson programmed the ILLIAC I computer to generate the Illiac Suite.

Depicted: A video of the beginning of a performance of the Illiac Suite.

1965 — Ray Kurzweil appearing on I’ve Got A Secret

The AI futurist Ray Kurzweil—then only seventeen-years-old—appeared on the television game show I’ve Got A Secret to play a piano piece that had been composed by a computer program that he had written.

Depicted: The I’ve Got A Secret segment depicting teenaged Ray Kurzweil and his computer-composed piano piece.

1981-Present — EMI and Emily Howell by David Cope

The researcher David Cope created the computer program EMI over many years. EMI stands for “Experiments in Musical Intelligence” and is capable of producing works that mimic the style of composers like Bach. Subsequently, he created Emily Howell, a computer program that is a successor to EMI. Both computer programs have released music on the classical music record label Centaur Records.

Depicted: A composition produced by Emily Howell.

Oct 2010 — Iamus’s “Opus One”

The University of Málaga in Spain hosts the Melomics research project. The project centers around music composition, generating its research using two computer clusters—Melomics109 and Iamus. In October 2010, Iamus composed “Opus one”, which is a fragment of classical music designed to be original as opposed to being a mimicry of an existing composer’s style. Iamus later composed Hello World!—its first full composition.

Depicted: A performance of Iamus’s Hello World!

Sep 2016 — “Daddy’s Car” by Sony Computer Science Laboratories (CSL)

In September 2016, Sony CSL released “Daddy's Car” as a The Beatles-style AI-generated single. This was the lead single for Hello World*, an AI-generated album released by Sony CSL in collaboration with various artists using their toolkit called Flow Machines.

*Not to be confused with the composition from Iamus

Oct 2016 — Alex Da Kid releases “Not Easy” with IBM Watson

The rapper Alex Da Kid released his debut single “Not Easy” featuring X Ambassadors, Elle King, and Wiz Khalifa. In addition to these superstar artists, Alex worked with IBM Watson BEAT, a technology designed to help guide the songwriting and music production process. IBM later publicly released the code for Watson BEAT on GitHub. Then-IBM employee Anna Chaney also wrote a blog post about using Watson BEAT to produce music.

Aug 2017 — “Break Free” by Taryn Southern

“Break Free” was the first single on Taryn Southern’s album I AM AI. She developed her album using the toolkit developed by the company Amper Music. She spoke about her AI-driven composition process with Lizzie Plaugic and Dan Schawbel.

Depicted: The official music video for Taryn Southern’s “Break Free.”

Nov 2017 — Coditany of Timeness by Dadabots

Dadabots is simultaneously a death metal band and a machine learning research group. In November 2017, they released their album Coditany of Timeness as part of a submission to the AI conference NeurIPS. Dadabots spoke with The Outline about the production process for Coditany of Timeness. They later spoke with Vice in 2019 about their never-ending AI-generated death metal YouTube channel.

Depicted: The album Coditany of Timeness.

May 2019 — Holly Herndon’s AI-powered album, PROTO

Herndon and her partner Mathew Dryhurst created an AI singer named Spawn to help produce their album PROTO. Herndon described her music production process in more detail with Noisey, The Fader, ARTnews, and The Guardian. Vulture and The New Yorker reviewed PROTO in great detail. She also recently completed a Ph.D. from Stanford’s Center for Computer Research in Music and Acoustics.

Depicted: “Birth,” which is Holly Herndon’s first track from PROTO. The vocals are “sung” by by Herdon’s AI model named Spawn.

Aug 2019 — Chain Tripping by YACHT

In August, the band YACHT released their album Chain Tripping. They used various AI models to help compose songs, write lyrics, and create artwork. Chain Tripping was nominated for a Grammy for Best Immersive Audio Album. YACHT member Claire Evans gave a Google I/O talk about producing Chain Tripping using Google’s TensorFlow Magenta AI music tool.

Depicted: The single “Downtown Dancing” from YACHT’s album Chain Tripping.

Oct 2019 — Arca and Bronze AI

The musician Arca composed a soundtrack using an AI toolkit created by the company Bronze AI, which was then played in the lobby of New York City’s Museum of Modern Art (MoMA) starting in October 2019. (The MoMA is currently temporarily closed due to the COVID-19 crisis.)

May 2020 — AiMi.fm

Around May 2020, AiMi.fm launched a new mobile app that generates electronic music based on a few bars that have been composed by human artists.

The future of generative music

The merger of generative music with hit song science

“Hit song science” is a term trademarked by Mike McCready’s Polyphonic HMI, referring to the application of data science to whether or not a song will become a chart-topping hit.

So far, generative music models are focused on producing music that sounds like a human would make it, but typically the outputs are not yet specifically conditioned to try and be commercially-successful. IBM Watson BEAT is one of the exceptions: they claim to have analyzed the structure of 26,000 Billboard Hot 100 songs as well as data from social media websites. There are various efforts to apply AI to record label A&R, such as Sodatone (acquired by Warner Music Group), Instrumental, or the more-recently-launched Snafu Records. For any of these players, the likely next step is mixing generative music with their A&R capabilities.

The merger of generative music with virtual musicians

The Internet has birthed various virtual musicians like Gorillaz, Hatsune Miku, and Lil Miquela. Behind these musicians are (presumably) human songwriters, but this doesn’t have to be the case in the future. Recently, Lil Miquela signed with the talent agency CAA.

Depicted: Lil Miquela’s single “Machine” featuring Teyana Taylor

Fans are perhaps more invested in the personality of a musician than the music itself, but this doesn’t have to prevent a future where the appearance, personality, and music are all simultaneously AI-generated.

The merger of generative music with “deepfakes”

Deepfakes are a colloquial name for a similar phenomenon—typically where a model is used to replace one person’s face or voice with another. Deepfakes have been used to produce satire, mimicked political speeches, and (mostly) fake celebrity sex tapes.

Depicted: An NBC News segment demonstrates how deepfake videos can be used to creat fake videos of celebrities and explores potential ways to detect deepfakes.

A YouTube channel called Vocal Synthesis has started uploading numerous audio deepfakes of celebrities reciting famous texts. For example, below is a deepfake of Jay-Z reciting the “Navy SEALs copypasta” (a joke from Reddit). Again, this is not a real recording of Jay-Z and his firm Roc Nation LLC has filed copyright complaints with YouTube complaining that these videos are impersonations of Jay-Z. Blogger and former Kickstarter CTO Andy Baio interviewed the creator of Vocal Synthesis, exploring the legal and ethical issues at hand.

Depicted: A deepfake of Jay-Z reciting the Navy SEALs copypasta.

The obvious next step for this technology is to produce original composition and songwriting with the delivery of famous artists. The marketing agency space150 has already done it last February, producing an AI-generated music video in the style of Travis Scott.

Depicted: The song “Jack Park Canny Dope Man” (lyrics) by TravisBott, the AI trained by the ad agency space150.

Mostly-unanswered questions around AI-generated music

Who owns the copyrights to purely AI-generated music?

There is limited case law on the topic, and the governments of the world have yet to reach a fully-consistent conclusion on how works purely created via artificial intelligence can be copyrighted. Todd Carpenter, Gerald Spindler, Andres Guadamuz, Shlomit Yanisky-Ravid, and Edward Klaris and Alexia Bedat have written interesting pieces regarding copyright law and artificially intelligent IP generation.

Are artists going to accept AI-generated music?

Last November, the musician Grimes (who now goes by c) was interviewed on Caltech physicist Sean Carroll’s podcast. Grimes talked about how in the future it might be difficult for human artists to compete against high-quality AI-generated artwork. The musicians Zola Jesus and Devon Welsh flamed Grimes’ comments, referring to her take as “silicon fascist.”

It’s hard not to see Zola Jesus and Devon Welsh’s takes as being potentially popular among other artists. Throughout history, musicians have resisted technology when they felt it could be a risk to their livelihoods. In 1906, the conductor John Philip Sousa wrote an op-ed titled “The Menace of Mechanical Music” in an effort to oppose the adoption of recorded music. In the early 1980s, the Musicians’ Union in the UK tried to fight the adoption of the synthesizer because they feared for the employment of musicians that performed string instruments. Or, perhaps most visually was in the 1930s when the American Federation of Musicians ran attack ads against the concept of recorded music in theaters. Musicians have often opposed technology—and technology has never cared.

Depicted: Advertisements run by the American Federation of Musicians during the 1930s, criticizing the developing practice of replacing live musicians in theaters with recorded music.

How can artists use AI to make music?

Google’s TensorFlow Magenta Studio offers a standalone application for Mac and Windows, as well as an Ableton Live plugin. This might be the cheapest and easiest way currently for artists to get started with production-grade machine learning models.

Additionally, AIVA, Alysia, Amadeus Code, Amper Music, Boomy, Bronze AI, Endel, Popgun, Melodrive, Mubert, and RunwayML are a handful of startups that expose some sort of AI model that assists in songwriting or generates or modifies music in some way.

Changelog

• May 18th, 2020: Added a link to the startup Mubert as another way to make music with AI.

• June 13th, 2020: Added AiMi.fm to the timeline.

• January 11, 2021: Removed a broken YouTube video embed. Minor formatting changes.

• February 13, 2022: Minor formatting changes. Removed unnecessary links.

In his song “ISIS” featuring the rapper Logic, a narrator defines ADHD as a condition and describes its prevalence in the population.

I have previously written about the connection between bipolar disorder and musical talent. In this newsletter, we take a look at the connection between ADHD and musical talent.

(If you would like to get articles like these in your email inbox, feel free to subscribe.)

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(I may earn money from links in this post to books on Amazon.com.)

What is ADHD?

If you didn’t pick up the definition from the song, here goes:

ADHD stands for Attention Deficit Hyperactivity Disorder. It is a mental disorder that is typically diagnosed in children around age seven but is sometimes first diagnosed and treated in adults. The symptoms of ADHD are typically divided into three main groups:

Inattention

Children and adults with ADHD often have difficulty focusing for long periods of time, or focusing on solving specific problems.

Hyperactivity

Someone with ADHD may be restless or have difficulty sitting still for long periods of time. But ADHD doesn’t always come with hyperactivity, and sometimes the “H” is dropped from the acronym to reflect that. Girls often have AD(H)D without hyperactivity.

Impulsive behavior

People with ADHD might have a hard time waiting in turn. They might spend their money recklessly, interrupt others, or make big decisions on-the-spot.

What causes ADHD?

Much like bipolar disorder or schizophrenia, ADHD is likely caused by several different genetic factors. On average, genetics are supposedly responsible for 74% of the variation in whether someone had ADHD or not.

One factor under investigation (out of many) is the gene for the D4 dopamine receptor (DRD4). A variant of this gene—DRD4-7R—goes by many nicknames, including “the rockstar gene.” Stanford biologist Robert Sapolsky, in his pop-sci book Behave, describes DRD4-7R as being weakly correlated with “sensation and novelty seeking, extroversion, alcoholism, promiscuity, less sensitive parenting, financial risk taking, impulsivity, and, probably most consistently, ADHD.”

Treatment

Treatment for ADHD often involves either:

• stimulant drugs like Ritalin, Adderall, or Vyvanse.

• non-stimulant drugs like Strattera, the stimulant-like antidepressant Wellbutrin, or the blood pressure drug Kapvay (clonidine).

Some people with ADHD (diagnosed or not) self-medicate with caffeine or nicotine—mild stimulants that can temporarily alleviate some of the symptoms. People with ADHD smoke twice as frequently as normal American adults.

Others self-medicate with cocaine or other illegal stimulants. The ADHD self-help book Driven to Distraction claims that fifteen percent of cocaine addicts report feeling focused by cocaine as opposed to feeling high, which might be a sign of having ADHD. Molly Oswaks describes treating her undiagnosed ADHD with cocaine in a piece for The Atlantic.

Are people with ADHD more creative?

Researchers have conducted various studies [at least 1, 2, 3, 4, 5, 6, 7] trying to answer this question. They typically find people with ADHD outperforming neurotypical people on some cognitive or creative tests, but at the cost of being weaker in other areas. However, some studies [8, 9] found little significant difference.

A 2007 study found that many creative children met some, but not all, of the diagnostic criteria for ADHD. This might offer an explanation of why the genetics of ADHD exist—having “some” ADHD genes but not “all” of them could offer creativity without excessive concentration issues. There are similar theories for the evolutionary origins of bipolar disorder and schizophrenia.

A 2018 paper examined when people with ADHD periodically overcome their inattention and experience “hyperfocus”—sometimes allowing them to complete projects like musical compositions with great attention.

Does music help with ADHD symptoms?

There is limited evidence that musical training may improve attention in children and adults with ADHD. A 2018 paper in Frontiers in Computational Neuroscience found that developing musical expertise appears to strengthen some of the neural circuits that ADHD weakens. The BBC in 2013 also covered various research efforts exploring how musical training may treat ADHD symptoms.

Additionally, music therapy is a branch of therapy that involves the patient either listening to music or making music. Some researchers have explored music therapy [at least 1, 2, 3, 4, 5] as a treatment for ADHD—especially for children in a classroom setting. The studies show some weak benefits but are plagued by small sample sizes.

Some musicians diagnosed with ADHD

Joyner Lucas

Of course, this list couldn’t miss him. In October 2018, Lucas took to Facebook to describe his lifelong struggles with ADHD and to announce his then-upcoming album. In the post, Lucas describes receiving “Individualized Education Programs” (IEPs) at every school he attended growing up, marking him as a special-needs student on a track separate from the majority of the school.

Adam Levine

Maroon 5’s lead singer has been a loud voice in ADHD advocacy. He has written a piece for ADHD magazine ADDitude and appeared in a public service announcement for OwnYourADHD.com.

Solange Knowles

Knowles came out with her diagnosis in 2008. She was diagnosed, but received a second opinion confirming her diagnosis before she chose to believe it. As Bang Showbiz records:

She said: “I was diagnosed with ADD twice. I didn't believe the first doctor who told me and I had a whole theory that ADD was just something they invented to make you pay for medicine, but then the second doctor told me I had it.

“I guess I was in denial. I don't understand exactly what it is. The symptoms seem to apply to everyone around me in the industry - loss of memory, starting something and not finishing it.”

Joe Perry

The Aerosmith guitarist has struggled with long-undiagnosed ADHD for much of his life. In his memoir Rocks: My Life in and out of Aerosmith, he describes how—as a child—his then-undiagnosed ADHD dashed his dreams of becoming a marine biologist, causing him to turn towards music instead.

He spoke to PopMatters in greater detail about how ADHD affected his progression as a musician:

Perry's self-professed slow learning dogged him during his school years and was largely the result of ADHD, a condition that remained undiagnosed until recently. “It was looked at as a discipline problem when I was in school. And certainly, over the years, after I left school, I had forged my way into this thing called rock 'n' roll and it was less of an issue.” However, Perry now considers the possibility that the learning disability was something of a double edged sword for his career: “I'm starting to realize than in some ways it's helped my guitar playing and it's hurt my guitar playing in the way that I kind of learned certain things and my ability to retain certain things.”

will.i.am

In 2013, he spoke with The Mirror about his lifelong struggles with ADHD, including his efforts to manage his condition through making music as opposed to psychiatric medication.

In the interview, he also described how his condition affects his songwriting:

“I’ve figured out a place for it. If you listen to the songs I write, they are the most ADHD songs ever. They have five hooks in one and it all happens in three minutes. I figured out a way of working with it.”

Changelog

• January 11, 2021: Minor formatting changes.

• February 13, 2022: Minor formatting changes. Removed unnecessary links.

Thanks for Andrew Aldridge and andy.company for reading drafts of this post.

(I may earn money from links in this post to books on Amazon.com.)

David Geffen’s background

David Geffen was born in Brooklyn in 1943. He dropped out of three different colleges and then found his way into the mailroom at the William Morris talent agency. He left for the Ashley-Famous Agency, quickly leaving there to cofound what became a hugely successful artist management firm. Then he started a record label called Asylum Records in a joint partnership with Atlantic Records, which was eventually acquired in entirety by Atlantic’s owner Warner Communications.

Geffen retired from 1977 to 1980 because he was incorrectly diagnosed with cancer. He returned to the business in 1980 by founding the label Geffen Records, which was eventually acquired by music giant MCA for $550 million in stock. He continued to run Geffen Records until he left to cofound the movie studio DreamWorks SKG with Steven Spielberg and Jeffrey Katzenberg, until his departure in 2008. He has managed to aggressively invest the money from his business ventures, growing his net worth to nearly $8 billion dollars.

Lessons from his career

#1: Fake it until you make it

One of the most famous tales from his origin story is how he got into the William Morris Agency’s mailroom. He lied that he had a degree from UCLA because he knew he would not be hired without one.

When he got the job, the Agency sent a letter to UCLA to verify his degree. Geffen—taking advantage of his position in the mailroom—intercepted UCLA’s response that they didn’t know who he was. Then, he printed out a letter on fake UCLA stationary stating that he had a degree in Theater Arts. He mailed it to his brother Mitchell’s law office in Los Angeles, who then mailed it back so the letter would arrive with a Los Angeles postmark. David Geffen later came clean to the William Morris Agency, but only after he had proven himself there.

The subterfuge was worth it. The Agency kickstarted his career, and he would go on to describe the William Morris mailroom as “the Harvard School of Show Business—only better: no grades, no exams, a small stipend, and great placement opportunities.”

#2: Seek out great mentors, but never be afraid to leave them behind

Geffen had a knack for attracting the mentorship of entertainment moguls, starting with Nat Lefkowitz—an executive at William Morris. Geffen built a relationship with him by showing up to the office on Saturdays to work and grab lunch with him.

In May 1968, Geffen turned in his resignation to Lefkowitz to join his new mentor Ted Ashley at his Ashley-Famous Agency. Geffen stayed there less than a year at Ashley-Famous before deciding to cofound an artist management firm with business partner Elliot Roberts. Geffen and Roberts claim that by 1972 they were running the most successful artist management firm in the world.

Geffen would later become the protege of Ahmet Ertegun, the legendary founder of Atlantic Records. Ertegun would encourage Geffen to start what would become Asylum Records in a joint venture with Atlantic (by then a subsidiary of Warner).

As part of the deal, Ertegun would introduce Geffen to his next mentor—Warner CEO Steve Ross, who would become something of a surrogate father to Geffen. He would move beyond his relationships with both Ertegun and Ross when he sold his second record label—Geffen Records—to music industry rival MCA

#3: Keep going back to the negotiating table

David Geffen sold Asylum in exchange for Warner stock, which did not enrich him as much as he thought because Warner’s stock price subsequently fell in the early 1970s. Geffen complained so loudly about this that in 1973 Ross placated him by merging Asylum with fellow Warner label Elektra and promoting Geffen to run both of them. In exchange, for the remaining six years of Geffen’s employment contract, Warner would pay a $1 million salary and pay in cash the difference between Warner’s average stock price and the stock price when Asylum sold.

Geffen was notorious for returning to the negotiating table with Ross many times over the years. Ross’s priority was keeping Geffen within the orbit of the Warner empire, and was generally willing to be flexible on compensation to achieve that. Ross was known for treating his executives and artists with luxury, but ultimately he was not able to satiate Geffen’s stratospheric ambition.

#4: Share uncomfortably personal details in order to gain others’ trust

While he occasionally dated women—even almost marrying the musician Cher—David Geffen built his career as a gay man during a time in America when homosexuality was stigmatized. However, he often shared the secret of his identity with others as a sign of trust—while still nominally being in the closet to the public.

His frankness made some uncomfortable, but it provided a valuable counterweight to the more stereotypically capitalistic aspects of his personality. He finally came out to the public during a November 1992 speech at a AIDS Project Los Angeles (APLA) benefit dinner.

#5: Get great deals signed, even in the face of opposition

As Geffen’s clout as an agent rose at William Morris, he signed a client that would turn out to be monumental to his career—Laura Nyro. In addition to being her agent, Geffen put together Nyro’s songs into a small music publishing company called Tuna Fish Music that they would be fifty-fifty partners in.

Standing in the way of the deal was Nyro’s old manager Artie Mogull, who had several signed contracts with her that would have conflicted with Geffen’s deals. Additionally, in an effort to combat harmful conflicts of interest, the entertainment labor union AFTRA forbade talent agents like Geffen from owning music publishing companies. Geffen was undeterred—hiring famous entertainment attorney Dick Barovick to break Nyro out of her deals with Mogull. Additionally, he gambled that AFTRA and the William Morris Agency would not find out about Tuna Fish Music before he sold it.

It paid off when Geffen sold Tuna Fish Music to CBS for $3 million worth of CBS shares. Geffen had failed to break Mogull’s contracts with Nyro and ended up settling with him for $470,000, but the deal still turned Geffen into a millionaire at twenty-eight years old.

#6: Make big promises and see what happens next

David Geffen was infamous for meeting artists and making huge promises to them to get them to sign. Tom King’s book The Operator describes Geffen and fellow agent Todd Schiffman—both then working in the music division of Ashley-Famous—meeting with a rock group called Strawberry Alarm Clock:

“We’re going to get you six Ed Sullivan shows,” Geffen promised the band, “and we’re going to get you on Janis Joplin’s next tour.”

Schiffman, who was not in a position to be moralizing, was nonetheless shocked. “David, what are you doing? he said after the meeting. “Six Ed Sullivan shows? Are you kidding? Janis Joplin wouldn’t piss on these people! We’re not going to give them any Janis Joplin dates.”

“If they have another hit, we’ll get them one Ed Sullivan show, and we’ll get them a couple of dates on somebody’s tour. I don’t care,” Geffen responded calmly. “And if they don’t have another hit, well, fuck ‘em.”

#7: Use the industry press to put pressure on business deals

David Geffen wanted to start his own label in 1969 with famous music executive and mentor Clive Davis joining him. Davis was slow to make a move, so Geffen announced to publications Cash Box and Billboard that Geffen was starting a label. He exaggerated that he had been offered a deal from several companies. Despite the pressure from the announcement, Davis chose to stay at Columbia Records instead of partnering with Geffen.

In 1972, Warner Communications owned half of David Geffen’s label Asylum Records—and Warner CEO Steve Ross was exploring buying the other half. Geffen prepared for the negotiation with a media blitz, with a glowing feature in the Los Angeles Times and then a story in Record World titled, “It’s The Artist, Not The Company” where Geffen describes his “artist-oriented” strategy for bringing success to Asylum.

In early 1990, the Wall Street Journal revealed the various suitors in the running for purchasing Geffen Records—which in itself put pressure on all of them at once. Geffen himself was quoted in the piece saying (inaccurately!) that he was “not about to sell” Geffen Records. Many suspected that he also leaked a subsequent WSJ piece that Geffen Records had agreed to be acquired by Thorn EMI for $700 million in stock and cash. The story wasn’t true, but it succeeded in goading Warner’s Steve Ross in returning to the negotiating table. Instead, Geffen Records ended up being acquired by MCA for $550 million in stock.

#8: Don’t be afraid to pick up the telephone

David Geffen is a master of working the phone lines, acting as a conduit for industry gossip with the goal of shaping what his allies thought of his rivals. A 1993 profile by the Los Angeles Times says:

Geffen’s primary business tool, as always, is the telephone. He is a legendary talker capable of fielding an unrelenting torrent of calls, whether he is at his house, which is stocked with several multi-line phones, or traveling in his car, which is equipped with enough telecommunications gear to satisfy the Secret Service.

A 1985 New York Times piece covers the specifics of how David Geffen uses the phone to wheel and deal, building connections and sharing gossip with artists and record executives alike.

Resources

This is a video clip from an interview with David Geffen from a January 1978 episode of the British TV show The Old Grey Whistle Test, where he talks about the artist-friendly direction of the label.

Changelog

• January 11, 2021: Minor formatting changes.

• February 13, 2022: Minor formatting changes. Removed unnecessary links.

Thanks to Andrew Aldridge and Nikita Yurkov for reading drafts of this piece.

The story of Tower Records

Depicted: A mural honoring the band Nirvana in a now-shuttered Tower Records location in Seattle. Photo Credit: zoomar

Russ Solomon was born in Sacramento, CA in 1925. As a thirteen-year-old, he worked in his father’s drug store in the Tower Theater building in Sacramento. Soloman’s father began selling records in the drug store in 1941, soon expanding to an empty room adjacent to the drug store that they called “Tower Record Mart.”

Solomon began pressuring his father to expand the business. Instead, Solomon ended up buying Tower Record Mart from his father in 1952 to expand on his own, but the business was undercapitalized and ended up being liquidated by his distributors.

In 1960, Solomon reopened his business and then created Tower North as a second location—financed with a $5,000 loan from his father. Around this time, he rebranded Tower Record Mart to Tower Records—with a new logo and a Shell Oil Company-themed red and yellow color scheme.

In 1968, Solomon spotted the building for his future Tower Records San Francisco location while having a post-hangover brunch across the street with a woman he was partying with the previous night. He transformed the property—a 6,000 square foot former Chinese grocery store—into a record store that was gigantic by the standards of the day.

Tower Records opened its first Los Angeles location in 1970 on Sunset Boulevard. The location was not far from many famous recording artists and record labels, making it the preferred hangout for many of the music industry’s tastemakers. The Sunset location was giant: the 1974 Guinness Book of Records listed it as the largest record store in the world.

In 1979, Tower first turned to international expansion by establishing a wildly successful footprint in Japan. Tower’s success in Japan would whet Solomon’s appetite for international expansion. Later on, in an interview, Solomon reflected that they tragically “weren’t really successful in any of the other countries [they] went into.”

Depicted: A Tower Records location in Tokyo, Japan. Photo Credit: MD111

In 1990, Russ Solomon made Forbes Magazine list of the 400 wealthiest Americans at #335, pegging his net worth at $310 million based on an estimate of Tower Records’ parent company’s private market valuation.

In June 1995, Tower Records launched the first online music store on AOL, registering nearly $200,000 in sales that December. A year later, they launched the music store tower.com. CNNMoney—in a November 2000 piece—even described tower.com as once being a dotcom IPO candidate. Despite these forward-looking moves, Solomon seemingly never believed that physical CD sales were threatened and never made serious investments into a digital-first music world.

In 1998, Tower pursued a plan that would eventually contribute to its undoing: they borrowed $110 million in bonds to finance aggressive international expansion.

In 1999, Tower was forced by its creditors to pay off debt by selling its profitable Japanese stores. Tower’s revenue that year had reached a peak of around $1 billion dollars. Sales had continually grown since Tower’s founding in 1960 but finally began to flatten around 2000.

In September 2002, Tower was one of the defendants that agreed to a $143 million price-fixing settlement with 41 US states and three US commonwealths. The settlement was part of a two-year investigation into “minimum advertised price” schemes where music distributors agree to pay for retailers’ advertising costs for CDs in exchange for retailers not advertising discounts on those CDs.

In 2004, Tower filed for bankruptcy partially because they could not make a $5.2 million payment on the $110 million they borrowed. Bondholders forgave millions of dollars in debt in exchange for an 85% stake in the company, leaving Russ Solomon and his family with the remainder.

By 2005, Tower’s revenue had fallen from $1 billion a year to $430 million per year.

In August 2006, Tower filed for bankruptcy for a second time. The retail liquidation firm Great American Group won a two-day bankruptcy auction in October 2006 with a bid of $134.3 million, announcing its plan to liquidate all Tower Records assets to pay off creditors who were owed about $210 million in total. All inventory was to be sold and all US stores were to be closed. Solomon emailed his staff, “The fat lady has sung. … She was off-key. Thank you, Thank you, Thank You.”

Depicted: Russ Solomon in December 2006. Photo Credit: JD Lasica

In 2007, Solomon tried to build his second act by creating a new record store called R5 Records in Sacramento, but he ended up closing the store in 2010. Dimple Records took over the location, celebrating their purchase by throwing a retirement party for Russ.

Russ Solomon died on March 4th, 2018 of an apparent heart attack while watching the Academy Awards, shortly after asking his wife to refill his whisky glass.

Today, Tower Records’ Japanese stores continue to live on. Because they were sold in 1999, they were not on the liquidation chopping block in 2006. Furthermore, there continues to be a brisk demand for physical media in the Japanese music market.

What made Tower successful

Depicted: The inside of a Tower Records location in Israel. Photo Credit: Dovi Shraga

Carrying a wide selection of music

Tower Records focused on building gigantic stores with enormous selections of music—beginning in an era when this was not the norm for record stores. Former Tower executive Stan Goman said, “We liked to make sure we had every single record in stock. If you wanted the Amazon tree frog noises, we had it.”

International demand for American music from American brands

Tower also chose to expand into Japan during a moment when American music was in high demand from Japanese youth. This allowed Tower to build enormously profitable businesses in Japan by exporting their American model, as opposed to having to work harder to build a more natively Japanese enterprise. Mark Viducich—the Tower exec responsible for bringing the company into Japan—claims in an interview that Tower in the 1970s was the first American retail business to directly operate in Japan without a local Japanese partner.

An emphasis on bottoms-up sales and marketing

Solomon also recognized that music tastes varied heavily from one locality to another—which led to a bottoms-up sales and marketing strategy where the staff of each local store figured out how to best sell records to their surrounding neighborhoods.

He gave enormous amounts of credit to the store teams for Tower Records’ success and culture. In an interview, he stated, “Everything we did was invented by the kids in the store: the art on the walls, the way they displayed things, their attitude about what to buy and what not to buy was [sic] all things happening at the store level.”

Why Tower collapsed

Depicted: A Tower Records location with a “Going Out Of Business” sign. Photo Credit: Caldorwards4

Competition from big-box retailers

The advent of the compact disc was—at first—enormously profitable for the music business, especially record store chains like Tower, for several reasons:

• CDs offered far superior audio quality when compared to the LPs they were replacing.

• CDs were a novel, expensive-looking product that could be marked up to high prices.

• Consumers were interested in spending considerable amounts of money in replacing their entire LP or cassette collections with CDs.

• CDs were smaller than LPs, which meant that they took up less floor space in the store.

CDs were so attractive as a product that—unfortunately for record stores like Tower—big-box retailers like Walmart and Best Buy began selling CDs as cheap loss leaders. These retailers sold hit records at steep discounts with the goal of getting consumers to also buy higher-margin goods when in stores. Tower was neither financially able nor willing to sell records at steep discounts. Tower charged as much as $18.99 for a CD while Walmart or Best Buy might charge $13.99 or $14.99, although in 2004 Walmart began aggressively negotiating with record labels and distributors to push the price of a CD below $10.

Napster and Internet piracy

The compact disc was a format unencumbered by digital rights management, making it easy for consumers to rip music from CDs and share them on services like Napster—setting the stage for Internet piracy to besiege the recorded music industry.

Consumers were also motivated to turn to piracy because of the music industry’s move—led by retailers like Tower—to make it impossible for consumers to buy singles. The industry marketed singles via radio airplay and MTV, but with the goal of forcing consumers to buy entire $18.99 album CDs at the record store. Consumers that only wanted a single and didn’t want to pay for the whole album often turned to piracy.

The $0.99 single from the iTunes Store

Apple’s iTunes Store model of charging $0.99 per song also fulfilled the consumer demand for high-quality, no-strings-attached singles.

Online music stores like iTunes once again made it accessible for consumers to purchase their favorite singles without committing to buying the whole album. The iTunes $0.99 single was a powerful counterweight to both the expensive Tower Records offerings and online piracy.

Taking on excessive debt right when the bottom fell out of the market

Russ Solomon was a high school dropout with no formal business education. His business partner and character foil Bud Martin was an accountant that was dedicated to maintaining a semblance of fiscal responsibility at Tower. Martin believed in profitability in favor of growth and was skeptical of international expansion.

Martin and his viewpoints were gradually sidelined in the 1990s, and he resigned in 1995. His successor—DeVaughn "Dee" Searson—was assigned to the mission of selling Tower Records bonds to raise money for opening more stores. The early success of Tower gave them access to huge amounts of debt that they would not be able to service in the face of competition and piracy. In multiple interviews [1, 2], Solomon lamented that Tower would not have faced the problems that it did if Solomon had listened to Bud Martin. Instead, Tower Records took on an enormous amount of debt when the bottom fell out of the recorded music market, allowing creditors to come in and eventually take the company apart.

The breakdown

Russ Solomon and Tower Records rose to power with the understanding that consumers would favor a record store with a wide selection staffed with friendly local employees with encyclopedic musical knowledge.

Yet Solomon never envisioned a world where the Internet could do what he did better than him. He did not build an institution that was willing or able to compete on price against big-box retailers, online music stores, or filesharing sites—tragically not taking Tower’s own pioneering Internet investments seriously. He climbed his Tower all the way into the Forbes 400, only to fall all the way back down.

Changelog

• February 13, 2022: Minor formatting changes. Removed unnecessary links.

(I may earn money from links in this post to books on Amazon.com.)

Why did the Mafia love the music business?

The music business was particularly appealing to the Mob for several reasons:

1. All-cash transactions. Many transactions were conducted in cash. Jukeboxes, entry covers, and drink purchases at nightclubs to vinyl at record stores to (sometimes) payments to artists. This allowed mobsters to hide profits tax authorities and launder money from other Mob operations.

2. Continual cash flow. The master recordings and publishing copyrights of hit songs are a source of continual cash flow, somewhat like (but more volatile than) rental properties or annuities. This ends up becoming a place to park capital accumulated from other Mafia-controlled businesses.

3. Cross-selling. Music businesses like nightclubs and record stores could be made into vendors of other Mafia-controlled businesses. The Mob could provide real estate, construction workers, food & drink, tablecloths, garbage collection, and more.

4. Ease of counterfeiting. Analog forms of music like vinyl records and cassette tapes were easy to counterfeit. Bootleggers could press counterfeit records and sell them at or below retail price for cash, effectively printing money.

Today, the Mafia’s influence on America has declined, and revenue in the music industry increasingly comes from digital sources, making it harder to launder money and avoid paying taxes and royalties.

Arguments against evidence of Mob influence

A handful of prominent names in the music industry have claimed that the connections between the music industry and the Mafia have been overblown. Jerry Wexler of Atlantic Records fame has said “the Mafia would like to control the record industry, but they have never managed to. They’re just on the fringes: selling cut-out records, pressing, independent promotion.” That is, mobsters were limited by their choice in taking on roles as managers, brokers, or financiers as opposed to more creative roles in a fundamentally creative industry. Former Sony Music Entertainment CEO Walter Yetnikoff has also widely criticized the conspiracy theories of Mob influence in the music industry, but in his memoir, he describes how much he knows of his friend and fellow label head Morris Levy’s Mob ties.

Music businessmen with Mob ties

(Editorial note: In this piece, I focus on businessmen as opposed to recording artists with mob connections, like Frank Sinatra. Additionally, I avoided including businessmen that tried to create a reputation for having Mob ties, but without much evidence.)

Meyer Lansky, the “Mob’s Accountant”

Depicted: Meyer Lansky (in front). Photo Credit: Al Ravenna, World Telegram staff photographer - Library of Congress. New York World-Telegram & Sun Collection.

The Jewish mobster Meyer Lansky is one of the most successful organized criminals in history. Lansky owned a large international gambling empire, but he also had significant investments in music jukeboxes. He was rumored to have run a company that “controlled every Wurlitzer jukebox in the New York area.” The book Meyer Lansky: The Thinking Man’s Gangster tells the story of Meyer Lansky’s rise to power.

The Chicago Outfit

Depicted: Some members of The Chicago Outfit. Photo Credit: American Mafia History.

The Mob history book The Outfit tells the story of the Chicago crime syndicate that rose to power under Al Capone. The book describes The Outfit’s involvement with both Meyer Lansky and the jukebox manufacturer Rudolph Wurlitzer Company. The book describes Wurlitzer’s vice president Milton J. Hamergren testifying before Congress that Wurlitzer Corporation knew that Lansky and his associates represented a solution to struggles that Wurlitzer was having when it came to distributing jukeboxes to bars—even admitting that they knew that people may have been killed in the pursuit of selling jukeboxes.

Jules Stein, Lew Wasserman, and MCA

Depicted: Jules Stein. Photo Credit: UCLA Stein Eye Institute.

Depicted: Lew Wasserman. Photo Credit: Documentary.org. Screen capture from Barry Avrich’s documentary The Last Mogul

The Outfit also had close ties with Jules Stein and his company, the Music Corporation of America (MCA). MCA would turn into a Hollywood giant under Stein’s protégé Lew Wasserman and would eventually split, merge and evolve into successor behemoth corporations like NBCUniversal and Universal Music Group.

The book The Last Mogul: Lew Wasserman, MCA, and the Hidden History of Hollywood describes MCA as founded by Stein and scaled by Wasserman. It draws a loose connection between Stein, MCA, and Meyer Lansky via attorney and Mafia fixer Sidney Korshak, who was one of the top Mob figures in Los Angeles. Korshak was one of Wasserman’s closest friends for decades until the friendship was no longer useful to Wasserman.

The book Dark Victory: Ronald Reagan, MCA, and the Mob alleges that Wasserman was the link between the actor Ronald Reagan and the Mafia, and was instrumental in funneling entertainment revenue to the Mafia while pushing Reagan into becoming President o the United States.

Morris Levy

Depicted: Morris Levy. Photo Credit: Richard Carlin

Morris Levy is one of the most notorious independent record label heads of the twentieth century. He started his career as a nightclub hatcheck boy, rising to become the owner of the popular Birdland jazz club on Broadway in Manhattan.

From there, Levy started Roulette Records as well as several other record labels and music publishing companies. He was infamous for having longstanding connections with the Genovese Crime Family, including the crime bosses Tommy Eboli and Vincent Gigante. Levy had used their money to finance his business ventures, with the mobsters starting as “silent partners” whose presence became increasingly visible as time went on, often conducting meetings for Mob-related business at Levy’s offices.

Morris Levy also acquired and grew a chain of record stores he renamed Strawberries. He allegedly purchased the chain in partnership with the Genovese crime family with the intention of the family eventually taking total control of the business and its cash flow.

In 1990, after having very openly been under FBI investigation for years, Levy was convicted of extortion but died two months before he was scheduled to report to prison.

The book Godfather of the Music Business: Morris Levy tells the story of Levy’s rise to power as a boss in the world of nightclubs, record labels, record stores, and other entertainment businesses. The autobiography Me, the Mob, and the Music: One Helluva Ride with Tommy James & The Shondells by musician Tommy James tells much of the same story from James’s perspective of being a recording artist on Levy’s Roulette Records.

“The Network” and the independent promotion scandal

Depicted: John Gotti. Photo Credit: FBI

During the heydey of record stores and radio stations, record labels had a chicken-and-egg problem when it came to promoting new albums from their artists. Labels needed singles from their albums to play on radio stations to fuel album sales at record stores, but typically radio stations only wanted to play the music that was already in demand.

Over time, a process and culture for pitching radio stations—including paid bribery and payola—developed, allowing labels to pay to break new songs and artists. Over the twentieth century, the US Government made various weak or unsuccessful attempts at cracking down on payola in the music industry, but ultimately the crackdowns only facilitated to strengthen a layer of middlemen—known as The Network—between the record labels and the radio stations. The promoters of The Network managed the relationships with the radio stations while allowing some level of plausible deniability for record labels. By some estimates, by the 1980s anywhere from $60 million to $80 million per year was being spent on independent promotion for records.

Fred DiSipio, Joe Isgro, Dennis Lavinthal, Gary Bird, Jerry Brenner, and Jerry Meyers were all powerful players in The Network. These men, and the record labels and radio stations they worked with, are covered in Fredric Dannen’s groundbreaking book Hit Men: Power Brokers and Fast Money Inside the Music Business.

Dannen’s book describes an iconic moment in January 1986 when an undercover New York State Organized Crime Task Force agent bumped into an undercover FBI agent, both tailing John Gotti who was meeting with Fred DiSipio and Joe Isgroat at the Helmsley Palace Hotel on Madison Avenue in Manhattan. An NBC News camera crew led by Brian Ross happened to have been following Disipio, turning the meeting between the Mob men and the Network men into a nearly-seven minute NBC news segment that led to a federal grand jury investigating record label payola.

Joe Isgro, with two other defendants, was charged with 57 counts of offenses related to payola, but the case was dismissed due to prosecutorial misconduct. In 2014, Isgro was indicted in New York State Supreme Court on various gambling charges, revealing accusations that he is a member of the Gambino crime family.

Changelog

• May 23rd, 2020: Set the image of Meyer Lansky as the image preview. Added some better formatting for image captions and the list at the beginning of the article.

• January 11, 2021: Minor formatting and editing changes.

• February 13, 2022: Minor formatting changes. Removed unnecessary links.