Andrew Batey of Beatdapp, joins us to expose the underbelly of fraud within the music industry. From organized crime syndicates to bot and malware operations, Andrew paints a picture of the music ecosystem's vulnerability. We learn about how these sophisticated fraud schemes are manipulating music streams on an unprecedented scale, siphoning billions from artists and stakeholders alike.
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Episode Transcript
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0:00:10 - Dmitri
Hey, hey, it's Dmitri here at Music Tectonics and before we dive into today's episode with Andrew Batey of Beatdapp, I wanted to let you know that right now I'm at the beach in Santa Monica grooving with all manner of investors, big picture thinkers and founders at this year's Music Tectonics Conference. If you're local here in LA near Santa Monica, come on down and enjoy the sand and sun with us. There's still a lot happening. On Thursday We've got our keynote with Mark Mulligan and Tatiana Cirisano from MIDiA Research, our label startup boot camps with both major and indie labels, lots of networking happening and I'm telling you we're having a blast. So if you can make, it love to see you. But now on to today's interview.
Welcome back to Music Tectonics, where we go beneath the surface of music and tech. I'm your host, Dmitri Vietze, also the founder and CEO of Rock Paper Scissors, the PR firm that specializes in music tech and innovation, and also the founding director of the Music Tectonics Conference. Last year, a company called Beatdapp showed up at the Music Tectonics Conference and was ringing the alarm bells about the potential for fraud to take money out of the hands of the music industry. There's the issue of unlawful uploads, the use of stream bots to bolster streams and now how music made with generative AI comes into play. I'm bringing founder and co-CEO Andrew Batey on the podcast today to catch up on how fraud in the music industry has grown in the last year and what Beatdapp is doing about it. You'll hear from Andrew and his co-founder Morgan at the conference, but we thought it'd be great to have them on the podcast. Hey, Andrew, welcome to the podcast.
Thanks for having me Excited to be here, yeah, really psyched that you guys are coming back to the conference in full force and excited to hear what's going on. Let's dive right in, Andrew. Why is fraud such an important topic for the music industry?
0:01:56 - Andrew
You know, what's interesting is like everyone thinks this is some kid in a basement or an artist juicing some streams here and there. This is sophisticated levels of organized crime, running massive amounts of scams whether it's bots or stolen accounts like millions of stolen accounts and manipulating streams so that they can extract dollars. So they're taking a lot of pennies in mass, which ends up being billions of dollars, from the industry. So two to $3 billion a year they're stealing. That is money that otherwise would have gone to real artists, managers, supply chain labels, songwriters, everyone down the chain. And so we are all on the same side of the table here and we're being stolen from not from people within the industry, but from an outside threat, and I think that that's why it's so important. It's why we keep ringing the alarm bells. We're trying to get everyone to care and see that everyone is being negatively impacted here.
0:02:55 - Dmitri
We had your co-founder, Morgan, on the podcast last year, pretty much a year ago. I'm curious what's changed in the last year since that time?
0:03:02 - Andrew
The fraud just keeps becoming more sophisticated, the depths at which they're going. You know we caught a scam, for example, where they had broken, they'd hacked, the prison systems and they were using the tablets from inside prison systems to manipulate streams. Millions of people's accounts are being stolen, whether they know it or not, and not just like your username and password. They actually have malware on your computer and completely control your devices. So even if you change your username and password, they still have control, and there's millions of these available for these bad actors on almost every platform. So this is a pretty systemic issue across the entire industry and it's one that you know. We obviously built a company to try and combat, but I think that we're all, like I said, we're all on the same side of the table. They're stealing billions of dollars from us and there's there's very little defenses right now other than us there.
0:04:04 - Dmitri
Andrew, that does sound new, because my memory a year or two ago, was seeing these pictures of these bot farms where there would be like 100 phones in a room and they're all like programmed to just keep streaming certain songs or something. And now you're saying it's kind of more insidious in the sense that, like all these, um, all these computers are actually getting hacked and that's how it's happening, so they don't even need their own devices.
0:04:30 - Andrew
No, I mean, it's better not to use their own devices. Actually, it's better to use someone else's. So if I want to make say I'm going to make 10 million streams for myself, I have to hide what I'm doing with a hundred million other streams so that there's not a giant arrow back to me that says I'm fraud, like only my streams are fraudulent. So in order to accomplish that, you have to basically create accounts that look like real people. Let's say I play, like I just described, 10 streams for me and 100 streams for others. That way they don't notice the 10 streams that I was really the one trying to push my streams up. It's a lot easier if you just hack someone's account and play 10 streams because they're going to listen to whatever they're going to listen to throughout the day and you don't have to control it. They'll look organic, they'll look real, and it's way harder to detect five or 10 streams on an account than it is to detect an account solely existing for manipulating streams, solely existing for manipulating streams. So as fraud has become more sophisticated, they've also become more aggressive in terms of account takeovers, installing malware on people's computers, beating KYC, being able to beat reCAPTCHAs.
This isn't a kid in a basement with three phones playing themselves over and over and over again. This is legitimately organized crime, terrorist organizations. There's lots of different motivations for why they do it. So one is to make money, obviously. So a simple, regular paid premium account can return almost 35 times their money if they're scamming it correctly. But on top of that, let's say you just need to move money. You can basically pay a streaming farm in crypto.
So imagine your organized crime. You take $100 million in cash, convert it to Bitcoin at Bitcoin ATMs, pay off a streaming farm in Bitcoin and have that farm pick what seems to be random tracks to play, but is actually not, in fact, random. They're owned by your shell corporations. You've put in all these different countries, and so what ends up happening is, yes, you don't get 100% of your money back, but you might get 50 or 60 cents on the dollar back, and it's cross-bordered into whatever jurisdiction you want and it's legitimate. And now you can use that money to buy buildings or do whatever you want, because they look like legitimate companies. Now you can use that money to buy buildings or do whatever you want because they look like legitimate companies.
And so there's a huge money laundering potential here within the music industry as well, and I think that that is, you know, it's a big. If I'm an executive at any distributor, for example, that's paying money out like that's, that's actually a real risk. There's a compliance risk to that, because if you have the data and you aren't trying to stop it, you could get wrapped up in a wire fraud sort of situation. So there is a this isn't new, this has happened in other industries but there's real financial risk for everyone involved. There's real liability for everyone involved, and it's sort of one of these things where we've sort of had, we've had ignorant bliss for a long time, and I think now we're all seeing it and it's you know. We're trying to help everyone get organized to fight, to fight these, these threats.
0:07:30 - Dmitri
Is there something unique about music that makes it vulnerable to this? Because it's it's I mean it's it's starting to sound like it's a really big deal, and I'm curious if I mean A it's digital versus physical. That certainly makes it vulnerable in certain respects, but is there something else about the streaming model or the distribution model that makes music more vulnerable to this?
0:07:55 - Andrew
I think it's just easy to load music up onto streaming services via DIY platforms that are distributors. Anyone can do it. So with democratization has come more risk. So, because we don't know who every single artist truly is. When you're signed with a major, they spend a lot of time deciding whether or not you're worth the millions of dollars they're going to pump into you as a brand to try and break you. Uh, you know, it's a venture capital play at the end of the day, right, like they're going to put a bunch of these bets out there. They have to really diligence these. These people slash brands, um, and then they expect a lot to fail and the ones that win pay back everyone else. I mean, that's why it's structured that way. So, um, from that perspective, very rarely does a fraudster get through like true fraud, um, which is why their fraud numbers the majors frauds are less than one percent of the global fraud, like it's really really small, so they really aren't the problem. So, if they own and represent the majority of royalty paying, you know content, but they aren't the fraud.
It's coming from the DIY sector, and the DIY sector, while it's democratized and great for all these independent artists to break, it also opens up the door for fraudsters to pretend to be just like them, slide through those channels and then manipulate all the streaming platforms and take money from all of the real artists because of the pro-rata payout model. But it's not just the pro-rata payout model. If you move to user-centric, for example, they would do the same thing. They would just target accounts and only. For example, the average user might play 100 songs in a week, so they might just target the same user, but only play 10 times and make a dollar. So it's not so much the payout model, it's just that where there's a lot of money to be scammed, these scammers are going to find ways to do it, and it's no different than when they attack your credit cards. It's no different than when they get your grandma to download malware and steal all her money. It's no different than when they go after your you know grocery store loyalty points to buy cheese and then ship it to cheese banks in Europe and make money off of it. Like they will find ways to scam you if there is a way to scam you.
And in every industry there typically emerges one company that becomes the centralized force to combat that. One company that becomes the centralized force to combat that. In banking, it was a company called Verifin which sold to NASDAQ for almost $4 billion, and I think in music it's BTAP. We have emerged, I think, as the leader in fraud detection. We have a massive amount of engineers and data scientists and people whose only job it is to think ahead. We're trying to fight problems. We expect to be there in three ahead. We're trying to fight problems. We expect to be there in three years. Right, like we have an entire R&D team looking at things that if hackers are smart, how are they going to move and how are we going to outpace them? And so we are very much, I would say, proactive instead of reactive when it comes to fighting fraud.
0:10:45 - Dmitri
That brings up a really interesting point, because things are evolving and so you have to be proactive. How has artificial intelligence changed the threats of fraud, as well as the fight against it?
0:10:55 - Andrew
That's a super interesting question because on one hand, if you load 100 million songs up onto a platform, it doesn't do anything until it's been streamed. So at the end of the day, you still have to manipulate the streams to make money. So there's a name, image, likeness issue, for sure, but it's in how you trained and copyright, but it's not the act of making the songs. That is the streaming manipulation part. You still have to manipulate the streams and not get caught. So it doesn't necessarily change what they're doing to manipulate streams, but it does make the access easier to hide, because instead of having a thousand songs that has to generate a billion streams, I might be able to spread that across a million songs.
So if you're a fraudster, your risk profile actually goes down a little because you have more songs that are good enough. You know like they don't need to be hits. No one wants to be charting. If you're the fraudster, you want to have a song that passes as mediocre and probably can do a couple thousand streams, like you're not trying to to have a breakout hit, typically because you don't want any attention. You want the magnifying glass on you, so.
So they live in that long tail of data and so it's interesting because I think it brings the barrier of entry lower to perpetrate your fraud, but at the same time, it doesn't change the techniques or the tactics they need to use to actually generate the streams. So as long as we're really good at catching their behavioral techniques, it doesn't matter where they caught the music or where they got the music. They're going to do it all kinds of ways right. Like previously, they maybe scraped user-generated sites and stole content that hadn't been digitally fingerprinted yet, and then what they would do is upload it as their own and be the owner suddenly. So if you're an artist that didn't want to release your songs, you'd say, oh crap, someone owns my music already. That's not me. And then you're fighting to prove it's yours because you had uploaded it on a platform and shared it with a friend and they had scraped that platform. So they were stealing music that way. We've seen or heard of them stealing music from digitizing old albums from like Africa and Latin America and Europe, from like the 70s and 80s Music that hadn't necessarily been on streaming platforms yet. They digitize the old cds, they change the metadata around and they and they upload it. And no one's uploaded it yet, so they get away with it. So there's always been ways.
I guess my point is to to find libraries of music to then artificially stream. Ai just made it easier. What I'm scared of is how AI then becomes used on the user accounts themselves. How do you manipulate, how do you make user accounts look different? That's the scary part. That's the thing we're working on. When I'm looking through our crystal ball, we're looking at how are these people going to use AI to manipulate things three years from now? What defenses can we build now to detect that, before they ever get a chance? So we are, I guess, thinking three to five years out at our company constantly, uh, to research, develop and sort of productize all of these advancements got you so.
0:13:58 - Dmitri
So the generative ai stuff is just a switch of how easy it is to find or make a catalog that then could be sort of fake, streamed on For sure and sure it could be a matter of scale, but the detection techniques are still the same, so that's not as big of a concern. The bigger concern is how AI might be used on the streaming fraud side, not the music generation side, 100% Okay.
0:14:23 - Andrew
Because, like, got it, it'll be really. You know, the more sophisticated they get, the better we have to be at detecting this is a real user or this is an automated bot that looks like a real user, and so being able to build tools which obviously can't openly describe too much, in case broadsters are listening. But you know, we spend a lot of time developing tools for problems no one exists yet, so that we are way ahead of everyone when it comes to sort of fraud detection.
0:14:53 - Dmitri
Seems like same technique could be used somehow to deal with this issue of the flooding of the markets of I mean, that's. The other concern about generative AI is just like there's so much content out there that people are concerned that quote real artists are going to not get as much attention. But I guess that's for another episode. We've got to take a quick break and when we come back, andrew, I want to ask you a little bit about the origin story of Beatdapp. We'll be right back. Okay, we're back. Andrew, that was super interesting before the break, hearing kind of where we are with fraud, how big of a problem it is, how it's evolving. I'm learning so much already. What made you want to start BDAP?
0:15:41 - Andrew
You know, what's interesting is I really didn't want to work in music again. A lot of people don't realize I used to break artists. Back in the 2000s I was one of the first people building tools on Facebook when it was still EDU based. You used to have to have an EDU address, you can only talk to people on campus and I became sort of a specialist in launching artists through what is now social, but at the time we were just calling new media or online marketing, like no one really had like a clear name for it yet, and so I was truly one of the very first people leveraging Facebook, youtube, twitter when it launched, and so I got really good at sort of doing those things and helping artists break, and so I loved the music industry but found really a home, I would say more in tech. I built three other tech companies and exited them, and so I really never planned on coming back to music that much.
Morgan and I met in grad school 10 years ago and we became, I guess, longer than 12 years ago, whatever a while back and became friends, and Poria, our other co-founder and CTO we worked at another company together. So we all I was I was kind of the, I guess the connector between Morgan and Poria and myself and we kind of all knew each other and we all go to. Morgan and I used to go to football games all the time and a label came to us and said hey, we have no idea how many times a song is played on a streaming service. We just get a CSV that says artist A did 100 million streams and then when we go to audit them and pull the server logs, we actually find that they got 130 million streams and this has happened every single time. We've done audits. So we've done 50 audits across these different streaming services and every time it's not reported correctly and we just need a real-time auditing tool. So when Morgan and Porya and I first started, we were building an audit product.
The question was how many times is a song actually played? And the way that it worked is that a streaming service. We'd integrate with a streaming service and we'd see Andrew playing a song and we'd say, hey, we recognize Andrew, he's a real user, he's played at least 30 seconds of his song, he's in the right revenue generating tier, he's in the right location. This one should count for royalties. The label would see Andrew and all the same data and say we agree, this one should count for royalties and they would sign the receipt. Then we would see the signature from the streaming service and the label and say we see both of you and we see the same data and we agree. So what we had built was a real-time reconciliation system, like real-time tracking and real-time reconciliation specific for royalties, and we have 36 patents on that technology in seven countries issued.
So we built this tech and then what ended up happening was, as it went live with streaming services, we started seeing all kinds of crazy, weird data. Like why are 8,000 users playing a song 63 times on a Sunday? Like, why are what looks to be massive amounts of users playing the exact same sequencing of songs in order, but playing slightly different amounts? We started seeing things that looked fraudulent from our perspective and luckily, on our team at my last company, we had a bunch of machine learning and AI guys from what we'd done previously at another tech company. So what we started doing was looking at data and saying how bad is this problem? Is this a half a percent? Is this 1%? Because if it was a small number, then audit still works Like you're really close. You're within a margin of error. If it's a large number, then audit still works Like you're really close. You're within a margin of error. If it's a large number, there's no point in telling someone this is, in fact, the number of times songs are streamed. If then, you have to tell them it's not actually 100, it's 100 minus 28. And you have to explain where the 28 came from, because it wasn't part of your real-time reconciliation system.
So the point of this all is that we started with an audit product and accidentally discovered fraud, and we solved fraud with the cleanest data that we had collected from the source at the time and realized that this is going to be a massive issue for everybody. And the numbers were not 1%, that the numbers were significantly higher, at least 10%. And so what that drove us to do was go and talk to our partners and say we think there's a fraud problem here and solving audit isn't going to help you unless we can solve fraud first. And so it completely changed the trajectory of our company, because before that, you know, I like to tell people we spent two years building a Ferrari and then realized we needed a scooter. You know like we built this sophisticated audit technology to solve an audit problem and then realized none of that mattered if you couldn't solve fraud.
And we didn't expect we didn't see fraud coming.
You know, like it was just something we didn't.
It was not part of the the sort of landscape that we evaluated when we first built the company, and I think that that then presented an opportunity for us to be the first ones there to help solve it.
An opportunity for us to be the first ones there to help solve it. We had the skill set and the know-how to do so and we quietly started solving it and sort of proving to industry partners that we were the party they should trust, because none of them want to be the best at fraud detection. Like, their job is to either make and deliver great content or, if you're a label, for example, or to provide the best listening experience to consumers so that you consume content in the best way, and so none of them really want to be the best at fraud detection, but it's required for their business to operate, and I think that's where we stepped in and said we can be the undifferentiated heavy lifting for everybody. We can do just that, and the industry and the economics for everyone will be much better if, like one company, is doing it for everyone, instead of everyone spending tens of millions of dollars trying to fight it themselves.
0:21:15 - Dmitri
That's super cool, andrew. You know, on the podcast and at the conference, we're kind of always doing a couple things at the same time. One is talking to companies like yours to sort of talk about innovative tools, processes, product services, just innovations in general that are, you know, have the the potential to transform and make the music industry better. And then the other thing we're always doing is talking to startup founders people like you, maybe not far as far along as you guys about, like, how do you build a successful music tech company or music innovation company? And I.
One of the things that comes up a lot is sort of sometimes people have a really good idea. They come from outside of the industry and they're like more fans and they come up with an idea, but it doesn't really have any relationship to what's already happening in the music industry. What I love about your story, your origin story at Beatdapp, is that you're already in the music space working to solve a problem and you stumbled onto another problem, which I think is a really valuable lesson for other startups that are listening to this conversation. One thing we haven't talked about is how Beatdapp works. Obviously, you don't need to give away any of the science or the patents or anything but what generally like who are your customers and what do you do for them? And what does it look like?
0:22:23 - Andrew
Yeah, that's great. We actually have a couple different customer types or segments. The first one is the streaming services themselves. So we work with a number of streaming services and they give us massive amounts of data directly. So we're under the hood, totally integrated with them.
We get battery life, gyroscope, orientation of phone when you played something, all the in-app event triggers. So if you like something, saved it, put it onto a playlist, shared it with somebody, searched for an artist and then picked the sixth one down on the search list. We get all of that data and so we're mapping everything you're doing in the app anonymized. We don't know that it's Andrew Batey, we just know that it's a user that's unique, and we're analyzing just the core behaviors to determine who appears to be fraudulent. So that is like the biggest one Across the industry. This year we're about to cross 4 trillion streams evaluated, so no longer a sample but truly a census of the industry. And then, for user events, we're about to cross 40 trillion user events, just to give you the scope, which is obviously a massive amount of the industry.
0:23:35 - Dmitri
So we have a bunch of DSPs.
0:23:37 - Andrew
Unfortunately, not all of them allow us to talk about who they are. Some of them are publicly traded and whatever, but given the number of streams, you can tell that we're across a big amount. The number of streams, you can tell that we're across a big amount. On the other side, we help the distributors, because distributors often are used especially DIY distributors as the pipes to getting their fraud on platforms. And so, like last month, for example, 50 distributors that 50 distributors that we look at across our DSPs, for example, had over 50% of their streams were fraudulent. So this, I know it's a, it's a crazy number, but what it tells you that it's systemic, like a fraudster isn't just choosing distro one and distro two. They're putting their fraud across all of them in case one of the distros shuts it down. So it's not like it's just one or two of them that are problems. The fraudster will target 20 of them at once, because you're not going to take a million songs and pipe it through one distro. You're going to spread that out as many distros as you can. So the distributors also don't have the means to fight the fraud or be ahead of it. So we take all of their data. We help them analyze who's fraudulent and we help them remove it before they're ever told from the streaming platforms. So we evaluate who those customers are, what's most likely to be fraud, we prove that it's fraud. So everything we do is at 99.99% confidence, Like we are not going to claim something's fraud unless we're absolutely certain, because we never want to penalize a super fan or an artist for doing something creative, so we're probably more conservative than we need to be, but it's out of protection of the artists themselves. And so first is DSPs, second is distros. The other ones that we help are typically the PRO and CMOs themselves making sure that they're not accidentally paying out artificial claims, or people claiming to be part of songs that they're not, or even fraudsters have loaded the sound recordings up and are now trying to claim the publishing side. So we help a lot of the PRO and CROs globally as well.
And then some of the other segments we have are, for example, like technology companies that are using music in some way. They want to make sure that their users aren't doing something fraudulent. So for them we're actually analyzing the user behaviors and just predicting who's going to be fraud. So instead of saying who actually created the fraud themselves. We are telling these other platforms ahead of time. Here's who your users are most likely to be fraud, and for them they'll just put them through a slightly different user flow. So when they're creating let's say, they're creating music for AI generated content, or they're creating user generated content in general, or they're, you know, using some sort of editing tools what we'll do is we'll tell them hey, these particular users look potentially fraudulent. You should ask them for more information around KYC. You should know your customer. You should make them prove some banking credentials. You should change the way you pay out and maybe only distribute to a bank and don't do PayPal.
So we try to help the technology companies predict and combat fraud before it ever occurs. And so there's these various different customer segments that we serve, but I would say the primary one is still the streaming service and the secondary one is the distros themselves. And so we work our way down the chain, because I describe it often like a water balloon. When we started pushing the fraud out of the streaming services, it started pushing towards the fraud out of the streaming services. It started pushing towards the other parts of the industry. So now we are in those other parts of the industry trying to help them as well, and ideally we just push it all out to a different industry. I don't think we're ever going to stop fraud, but maybe we can push it so far into a different sector that we sort of just batten the hatches down for music.
0:27:27 - Dmitri
Wow, it's super interesting to hear how you've done that, because it really does feel like you're not saying oh, we're a one-trick pony, You're not like doing all things for all people, necessarily in this kind of fraudulent ecosystem, but you really are, you know. I mean, one of my questions is you know what are your growth areas? It really sounds like your growth areas continue to be, you know, just whack-a-mole down the supply chain, basically, as well as on the user base, which is super interesting.
0:27:55 - Andrew
And we work with labels too, like especially large labels, making sure like they're rarely the problem but they still don't want it to exist. So we help them understand if any of their artists are cheating, so that they can have private conversations with those artists and sort of make sure they know it's a zero tolerance policy. So you know, we've found overwhelming that labels I think all labels, not just large labels, but large labels have a lot of data so it's a little easier to sort of triangulate. But I would say that we found that labels do not want fraud to exist. If you think about it, it's one step forward, 30 steps back Because, like I described earlier, I drive 10 streams for myself but then I need to drive 100 streams for other people, so you don't know that I was driving the 10 for myself. Rarely are those other 90 at the same. Label them with all the other fraud that they're doing, whether they know that that's happening or not. If they hire another firm, for example, or if they hire a streaming fraud company, like that's what's happening when they hire these guys, it's hurting the label. So there really is a zero tolerance policy at the label level. They do not want fraud to exist.
So you know to your point, there's lots of growth areas here. I think we've clearly. You know to your point, there's lots of growth areas here. I think we've clearly um no-transcript, and I think that there's so many different areas within the industry that need it model or they're detecting like they've already been fraudulent. We have a massive amount of these sort of models, constantly looking at things, and I think that helps every part of the industry. So, as we've developed, it used to be we only worked with streaming services. Now I'm proud to say that we do work with most parts of the industry at this point.
0:29:59 - Dmitri
Yeah, that's super cool. It really shows your endurance and kind of comprehensive approach to your mission. As I kind of alluded to earlier in the podcast, we have a mix of kind of traditional music industry folks and startups, you know. So we've got streaming services listening in our audience, we've got record labels, distributors, attorneys, advisors, investors, and then we have startup founders as well, who I also like to get a lot of value out of the conversations we have here, and I'm sure they will already. But I'm curious what's led to Beatdapp success that that those startups might take a take a page from?
0:30:36 - Andrew
You know this is my fifth company, so I think some of it translates, no matter whether you're in music or not, because it's basically been a very similar pathway, I would say for startups in general finding product market fit. So I'd say start with a real problem, like are you solving an actual problem that someone needs to fix, or you just think there's a problem here, or you think it's cool, like I see that a lot in music like this seems like cool technology, but it doesn't actually solve anything and they have trouble getting any kind of traction. So I would say like, are you really solving something that's needed? Like are you solving a real problem in the market? And I think you know that by talking to customers. So in the early days, morgan Porya and I spoke to just dozens of potential customers to sort of mind map where these problems were. That's why when they audit for example, when someone came to us with the audit product we didn't just start building an audit product. We went and talked to probably 30 other labels and validated that they were having the exact same problem and then honed in on exactly where. Because you could audit publishing, you could audit sound recording and we really focused on sound recording audits of the streaming services themselves, like really narrowed in on what we thought was the biggest part of the problem to solve first, and I think that that's my advice to startups is to sort of make sure you're solving the right problem and that it's like a really big problem to solve and that people need that solution.
The other thing that I would say is that when we fundraised, we fundraised with having three years runway in mind.
I think the music industry in general has seen a lot of companies that come and go quickly.
They raise, you know, 12 months or 18 months worth of revenue or runway, for you know, sorry, they raised 12, 18 months worth of financing so that they have, you know that month that you know 12, 18 months of survival, but the reality is it takes a long time to get these things done, especially in B2B context, and so what I found to be true in music specific more than any other sector was to fundraise for was to fundraise for three years and know that you need to have money for three years or have a team that can sustain for three years, because I really think three years is the sweet spot.
I think it takes a long time to get integrated with partners. I think it takes a long time to prove to them the value that you can create, and I think it takes time to build trust If you're not from inside the industry. They need to know that you're going to be here tomorrow, that you're not just like throwing an idea out, that they get all these wheels in motion and then all of a sudden you're gone and they've all wasted their time. So I think there needs to be a sort of a long-term view on that, and so when I'm looking at building a company or even, quite frankly, investing in a company in music, it's really are they solving a real problem and do they have the means to make it at least three years? Because I think that's what's required here to be successful.
0:33:33 - Dmitri
I love that. That's so valuable, andrew. I mean, even before I asked that question, I was just thinking about your product market fit is unbelievable, your timing's unbelievable. But it's great to get a little bit of a backstory about how you actually talk to customers to find that out. I mean even your origin story of sort of like this isn't even what we were doing before we started Beatdapp.
We found, you know, like this opportunity came up because we were paying attention to what was going on, and I think that's you know, it's hard as a founder sometimes to say I'm open to not doing what I thought I was going to be doing, and that's super valuable. And then also, yeah, that time period that you're talking about, just, you know, in three years might be conservative in the music industry, but at least, like, get that mindset of, hey, this is not going to be an overnight success. Right, you might have to pivot, you might have to show your endurance and so forth. Super valuable. All right, we have to take one more quick break and when we come back let's look into the future a little bit more. We'll be right back.
Andrew, you've brought so many interesting things about the kind of the macro level things that are going on in the music industry, with fraud, and also your origin story and even tips to startups. Let's look forward a little bit. What can we expect to see emerge as it relates to this issue of fraud in the coming year or two?
0:34:54 - Andrew
I think you see a full court press when it comes to fraud in all these different areas. When it comes to fraud in all these different areas, fraudsters are going to start, you know, going after more distributors because they can. They're going to and when I say that, I mean they're going to spread the fraud around as many distributors as possible so that they don't have one source of failure or one single point of failure. You're going to see a lot more account takeovers. We see millions of accounts being compromised already. I think that's going to increase. When we first started looking at fraud, we might've found 10 to 15% of account takeovers. I think that number is increasing to 40, 50% and growing. It becomes easier to perpetrate your fraud on someone else's other account than it does to create an account from scratch. So I think that is an area that's going to increasingly become problematic for people. And the other thing that's scary is that if all of these distributors have this much fraud on their platform, I think at some point there has to be some sort of penalties. I mean, we already saw it from Spotify, but I think there's going to be more that come down the pipe, and I think that the distributors that are ahead of this and combating fraud early and really putting their best effort in are going to be the ones that succeed here, and the distributors that continue to take checks that they willfully neglect could be from fraud, I think um are going to have problems, and so I think there's going to be potentially some consolidation around distro services who aren't maybe putting their best foot forward, um, and I think that, uh, I think this is not going away anytime soon, um, but I think that we will emerge and I think we'll be successful.
So when I look two years out, I think BDAP is the leader in helping the industry really curb this fraud, and maybe what's all that's left is the really sophisticated stuff.
You know that we work with services. For example, one of our advisors, one of the companies, ifra Law, that we did a partnership with. He used to be the chief of organized crime for the DOJ, maine Justice. So one of the advantages we have is that we can help our customers package these things together and take it right to the DOJ and sort of help actually with enforcement on these potentially bad actors. So I think that we have a lot of pathways here to sort of helping the industry not just discover the fraud but enforce and make sure that it gets removed and really go after these fraudsters. In terms of enforcement, and I think that that's what I see in the next few years More cases that are brought to court, just stronger defenses overall, and I think we'll go through a little more pain as an industry, but I think it'll get to another place where we're all kind of moving forward.
0:37:47 - Dmitri
I saw that Kristen Robinson at Billboard did a piece recently. Actually, several of the music industry outlets talked about this particular case where there was $10 million of fraud that was largely using AI generated content on the catalog side of this issue. Are we going to see more of that type of thing and where do you expect that to kind of land?
0:38:11 - Andrew
Yeah, I think we're going to see a lot more of that thing. I think this is a landmark case for a number of reasons. In that case and I'm not fully you know there's a lot that things probably can't be said, but I think in that particular case it's interesting that he owned a lot of his own accounts and they weren't necessarily account takeovers and I think this will prove proves that that's fraudulent. So the reason I think this case is so important is it will actually create precedent that that is fact fraud, which will open up the channel to prosecuting all these other larger cases Like that fraud.
That case specifically was baby fraud, like that's kindergarten fraud that a kid could have caught, like that was not sophisticated fraud. That is so far up the tip of the iceberg of the fraud that we catch on a daily basis that it was glaringly obvious. I would say that what that case does is open the pathway to being able to prosecute all the really sophisticated cases, the ones just below it that are much larger, much more intense, have much worse parties, you know like involve, like criminal organizations and stuff Like. I think that I think that is a landmark case that we will look back on in years to come as where the tides turned in our favor, and I applaud everyone involved in sort of you know, participating in this. But I would say that the fraud itself is baby fraud compared to the stuff that we see.
0:40:00 - Dmitri
Interesting, really, really interesting perspective. Helpful to hear from somebody who's so deeply in the weeds with this. I mean this in the best possible way, but you're a bit of a music tech geek, which is a good thing here at Music Tectonics. Andrew, as we wrap up here, what other trends are you keeping track of in the industry, and are there any other companies you want to shout out in the space?
0:40:19 - Andrew
Yeah, the trends that I I continue to love, independent artists. I know that I've just you know at least somewhat said the DIY market is in a little bit of trouble but at the same time it's democratized and made available a lot of pathways for independent artists to be successful and own their music and own their content and control their narrative, especially with artist development lacking these days in a lot of places. You have more control once you're breaking. So I think the things I'm most excited about personally outside of BDAP are tools and things that help independent artists become successful and sort of control their journey a bit, and so I get excited about that. I also get excited about things that are related to ai that aren't like generative, uh, but can be used in a business context. So I think audio shake is one of them.
Um, for example, I believe that's jessica's company, correct, where they're like yes, that's right, sing out the the um you know the songs into all these different pieces, these pieces that can be used in all these different ways, like there's massive b2b applications for that, whether it comes to, you know, trans translating stuff into different languages or using different components, or, on the consumer side, playing guitar to my favorite song but not having to play over the guitar. That's there. Like there's so many cool applications of a technology like that. That that makes me excited for music. It makes me excited for where music's going, it makes me excited for engaging in that type of content or those new types of ways to be participatory. So, anyway, that's. I get excited about the technology that's emerging for music by musicians or from music people, and I think that's the coolest part, I think, of the position I'm in is like, while I'm trying to batten down the hatches on one side, I get to have a front row seat to all this other cool emerging technology. That I think is really cool.
0:42:16 - Dmitri
Yeah, it is really cool that you kind of have that perspective and I appreciate that broadening out a little bit to things beyond Beatdapp. But this has been a great conversation. By the time we get this episode up, which we're turning around as fast as we can, you'll be on stage speaking at the Music Tectonics conference. You guys are also hosting a party which is going to be awesome. It's on the beach at the pool house at Music Tectonics, the main day of our conference. It's on the beach at the pool house at Music Tectonics, the main day of our conference.
So if you're at a hotel or an Airbnb in LA right now or maybe you live in LA and you're waking up getting ready to come over to the conference look out for both Andrew and Morgan from Beatdapp speaking at the conference. We'll do a workshop on the final day with Beatdapp over at Expert Dojo, but also that party on the second night of the conference is going to be epic. Andrew, thank you so much for this great conversation. I feel like I learned a ton more about what's going on with fraud and how to combat it in the industry, and thanks always for your support and being there at Music Tectonics.
0:43:11 - Andrew
Thanks for having me. Excited to be there and excited to help support everything.
0:43:15 - Dmitri
Thanks for listening to Music Tectonics. If you like what you hear, please subscribe on your favorite podcast app. We have new episodes for you every week. Did you know? We do free monthly online events that you, our lovely podcast listeners, can join? Find out more at musictectonicscom and, while you're there, look for the latest about our annual conference and sign up for our newsletter to get updates. Everything we Do explores the seismic shifts that shake up music and technology, the way the Earth's tectonic plates cause quakes and make mountains. Connect with Music Tectonics on Twitter, instagram and LinkedIn. That's my favorite platform. Connect with me. Dmitri Vietze, if you can spell it, we'll be back again next week, if not sooner
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The Music Tectonics podcast goes beneath the surface of the music industry to explore how technology is changing the way business gets done. Weekly episodes include interviews with music tech movers & shakers, deep dives into seismic shifts, and more.
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