How close are you to the exchange of money? Let's take some time to think through this most vital piece of the music tech startup equation. Money. Join Dmitri in this thought experiment as he goes deep – and works through the realities of building a startup within an ecosystem in which music is often undervalued.
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Episode Transcript
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0:00:02 - Dmitri
How to start up. How to start up? How to start up. How to start up? How to start up? Welcome back to Music Tectonics, where we go beneath the surface of music and tech. I'm your host, Dmitri Vietze. I'm also the CEO and founder of Rock Paper Scissors, the PR firm that specializes in music innovation and music tech. We've got marketing services in the mix as well, and you are listening to one of the episodes of our new series.
How to Start Up in the music industry is finding a business model that customers, clients or users are willing to pay for. Why is that? First of all, ever since the peer-to-peer music sharing era, listening to music has become devalued. If you can get it for free, why pay for it? In spite of all the Herculean efforts Spotify took to get music listeners to return to paying for access to music listening, they get criticized for paying out too little. In 2023, spotify reports they paid out $9 billion to the music industry 63% of their revenue. Before they came along, the music industry had cratered. Spotify complains that they have to pay out the majority of their revenue to labels and publishers. Rights holders complain that Spotify pays too little for music. Labels want the streaming services to charge more Customers do not. Amidst this tension, is the free market determining pricing. All of this sets the context that, for a new music tech startup, it can be tough to sell anything. Labels and publishers fight to keep licensing fees high and platforms push to pay as little as possible, but the only way platforms succeed is by building up a large user base and keeping a large bench of attorneys on retainer to hold off the labels and rights holders until the platform has millions and millions of rabid users. Now YouTube succeeded in sort of sidestepping this whole equation with music licensors by holding them off as long as possible, using the DMCA takedown regulations to block their need for licensing. And then they built the Content ID system, which was a breakthrough that few other platforms have been able to repeat. The Content ID system allowed YouTube to say yes, we can take down your music or, if you prefer, we can do a revenue share with you. They were able to make the case that rights holders had a new revenue stream when their music is used within online videos.
The point here is that in order to succeed as a music tech startup, you have to follow the money. In this episode, it's a bit of a thought exercise. I'll be the only one here no guests today and I just want to talk through with you what it means to follow the money. So what does it mean to follow the money? Following the money means you have to insert your value proposition into an exchange of monetary value. In some cases you have to be aware of what it's going to cost you to use music in your startup. But let's start with figuring out how to insert your value proposition into the financial exchange.
Let's start with the most common categories of consumer-facing music tech startups and then we'll get into the business-to-business ones. So I've got about five different big categories here and there's probably more, but I just want to go through them, talk about what we mean by each and maybe a little bit about the pros and cons. Again, this is a bit of a thought exercise for you to think through. Is there a way for me to make money here? Is there a way for my business to sustain? Because I'm close to where the exchange of money is happening in music?
So the first category of consumer-facing music tech startups I've got is charging for access to music. Obviously, we're all familiar with streaming. There are still some companies that also offer downloads and of course there's physical recordings, so let's just use that as a simple category charging for access to music, whether it's streaming, downloads, physical recordings. What are the pros and cons here? Well, probably most of the companies listening or founders listening are thinking about what it would mean to have a special type of music streaming platform, and the pros here are that there has now been created a way for people to access music with a subscription. That's great. People are now used to paying for it. They're not always thrilled with it. They're not always thrilled if the price goes up. They're not always thrilled if they feel like they have to subscribe to multiple platforms, but they are used to the idea now, also with the help of things like TV and gaming, where there's also subscriptions, where people are used to paying for video or other types of entertainment as well. So that's a pro.
The con is kind of what I outlined in the introduction of this episode, in that it's not easy to license music episode. In that it's not easy to license music. First of all, rights holders, labels and publishers are not always thrilled to try new models with music licensing. They've been burned in the past. They're starting to get a little more progressive, let's say, or creative or open to new ways to monetize licenses, but in general, you know it's a slow process, it's a legal process and it's also an expensive process.
As you could hear from that intro, spotify spending 63% of their revenue on music itself. On the one hand, you say, well, that's literally the product they're selling is music, but on the other hand, it's such a big chunk of what their revenue is it could be challenging for a new streaming company to emerge and do that and be able to repeat that. Basically, we do see certain types of niche streaming services that are emerging as well and they have to face this as well. We've seen companies like SoundCloud that tried to follow a closer model to YouTube in that it was more about user uploads as opposed to distributing commercially studio produced or even home studio produced music, finished songs, companies like Audius that also follows a similar model as well. But in general, yes, there are customers that are willing to pay for the music, but yes, there are also challenges with license to the music. So that's our first category, something to consider. You're certainly close to the music at that point, because the streaming services become basically what retail was in the past If you want to access the full tracks without ads, you have to pay something. So you are close to the music there. You just have to realize the challenge is the cost of that music as well.
The second category for consumer-facing music tech startups would be charging for access to live music. So that could be a ticket ticketing company, a live stream performance. It could be booking an artist yourself directly through one of these companies that allow you to bring an artist into your birthday party or your wedding or something like that. Or it could be charging for like a VIP event as well similar in some sense. So this is interesting. I think you know a ticket and a live stream performance feel very different than booking an artist. If you have a music tech company that's somehow charging access or a marketplace, it's a bit different. The pros are that live music is doing great. There's a lot of opportunity. People have gotten used to paying more and more for better experiences, more elaborate experiences, and also, you know, some people enjoy smaller, more intimate events as well. So you are very close to where money is getting exchanged if you've created a music tech company that has something to do with charging access to live music.
The cons I'd say there's two big cons. One of them is the existing players on the ticketing side of the business charge a lot of money and they have quite a stranglehold on the concert and live touring business. So if you're a newcomer to that, it's very hard to break into it. As a consumer, people are frustrated with paying so many fees, they're frustrated with not being able to buy the tickets they want to get and they're frustrated with possibly having very expensive secondary market tickets as well. So there's a lot of animosity towards ticketing companies from the consumer and then at the same time, there's this stranglehold. The live music business has a handful of companies, both in terms of the promotion of putting on shows as well as the ticketing. That makes it very hard to find room for yourself in the market.
Now there's a lot of interesting activity happening in the space charging for access to live music, but it's definitely got its challenges as well. It's definitely close to the money, though. So both streaming or access to music and ticketing or some other type of access to live music are close to the money. So those are positives there, and in terms of live streaming performance as a category of charging, access to live music, we've seen some rocky stuff there. As we came out of the pandemic, I heard there were something like 400 live streaming companies that emerged during the pandemic, and now there's only a handful. The handful tend to be Instagram Live, youtube Live, twitch, things like that. But really what we've seen is, I think a lot of people thought that this new behavior the access to live music, of doing it through live streaming, would continue past the pandemic, but so far, though it certainly has continued to some extent, it hasn't taken over the way you see, like in sports or something like that.
So the next category is selling something other than listening, other than listening to recorded music or live music. What are we talking about here? You could have a startup that has something to do with selling physical merch, digital merch a huge category we saw during the NFT and Web3 boom of 2022. You could also be selling something like a custom song or a custom video. There's some companies out there. You could get to something that's physical, like a musical instrument or music gear as well. Not a lot of room for growth there, but it's certainly a category. Or you could look at virtual instruments or plug-ins or other digital creation tools where you're selling something but it's not listening, it's not seeing a live concert, it's not listening to just the music. So let's talk about the pros and cons there.
So some of this stuff is really the things you buy alongside of music the physical merch and the digital merch. I think you're very close to the money there. The question is, what type of merch is going to sell? What are some of the traditional obstacles and challenges of running a physical, brick-and-mortar style business. Even if you're selling stuff at concerts or through e-commerce online, you still have the same issues of taking risk on designing, manufacturing, distributing shipping, dealing with returns, that type of thing. That's a more challenging thing in terms of a con. So you are closer to the money, but you also have some challenges that also have some financial implications that increase the risk.
Something like a custom song or video super interesting. Again, you're close to the money. It's almost like somebody is a micro sync supervisor or you know. Typically what you see is somebody's getting a custom song or a video, not necessarily a music video, but more like a shout out video for somebody's birthday or a celebration or something like that. It's kind of an interesting idea. It does not seem to be a humongous business. You are definitely directly close to the money if you're able to succeed at that.
The challenge, of course, is there's some of that chicken or egg. You can set up the marketplace and not have any artists big enough using it to actually help you. Or maybe it's not about big artists. You can recruit a lot of lesser known artists that are willing to create songs or some other content like that. But then you have your customers who are like well, do I really want a song from somebody that I've never heard of? So that's a little bit of the challenge there. But you are certainly close enough to the money in that one Musical instrument or music gear.
You could look at this as consumer-facing or prosumer in some cases. There aren't a lot of music tech companies in this space Reverb, probably the biggest one for selling used equipment originally, but then eventually new stuff too, and then you have the Sweetwaters, the Guitar Centers and Amazon. You're probably competing with some pretty big companies, but you have some specialized companies as well, like Perfect Circuit that specializes in synths and sequencers and drum machines and things like that. So there's some opportunity there, probably for some more specialized stuff as well. But you are certainly close to the money. Typically you are a retailer, so you've got to pay wholesale prices there too, and you've got the whole thing of customer service and shipping or brick and mortar stores, things like that too, that create similar challenges as the physical merch challenge I talked about. So then there's this other category of software slash, virtual stuff you can sell to music creators, and I do think you are close to the money there. So that's good. The challenge there would be standing out, especially if you're new or small. There's a lot of fragmentation and diversity of how people make music, what DAWs they're using, what types of instruments they're willing to use virtual instruments and plugins. So I think it's a great startup opportunity to slide into a market but then to figure out how to grow it, to be big enough and to compete with some of the big players. There is always a challenge, but I think you know you are pretty close to the money and I think you are selling something there that has an obvious value proposition In pretty much all those things.
The custom song or video is probably the most challenging in the category of selling something other than listening. So we've covered three categories. So here's a fourth one and I'll get to a fifth one and then we'll move on to the B2B stuff Making another experience better with music. So so far we've talked about streaming, so you're listening to music live music or live streaming or even booking an artist, so it has something to do with the live event or selling something other than listening. But what about making an experience better with music? What am I talking about here? I'm talking about things like exercise, meditation, healthcare and well-being, gaming. You could probably come up with even more that haven't been thought of or that are in some little experiment in some corner of the music. Or you think about the Calm app and what role music and sound has there. We've seen the emergence of some companies coming out that are focused on actually being able to prescribe music listening as part of well-being and also bettering the gaming experience with music as well.
This one is interesting because when we talk about following the money, you are actually selling a different value proposition than a lot of the other categories. It has some functional aspect to it that you're saying this will help you be better, more fit, calmer, feel better or play better, all of those things and so you are tied to the success of that value proposition. We've seen success there In the case of Peloton, we've seen a lot of news around well, not recently but in their earlier days a lot of news around their licensing challenges as well, which goes back to some of the challenges we saw with the streaming service as well. So you do have the licensing thing. That could be a challenge. We've seen a lot of folks in this place, in this space, challenging that obstacle to applying music to a better music, to another type of experience, by having royalty-free music, original music, production music, ai-created music to be a part of that. So that's an interesting place where you can kind of sidestep the licensing challenges of music for those things.
Of course, if you're a music lover and you like commercial and popular music, that might not be what you want to do anyway. So you just have to keep in mind that there's multiple challenges in this category. Are you licensing commercial music? That's a challenge. What is the value proposition beyond the music? What is somebody paying for and is there room for somebody to pay more to add music to X? You could just have a voice that's helping you walk through meditation. You could have some other healthcare alternative that has nothing to do with music that doesn't have licensing involved. You still have to go through some of the important legal and safety regulations in the healthcare industry.
For gaming, people are paying to subscribe to the game or they're buying the game or they're getting advertised to for the game. Where's the additional money coming from for the music? So there's a little bit of a follow the money challenge in that category, but certainly potentially a licensing challenge. And then you know if you're using non-commercial music, you have your own catalog or it's a less expensive source for music, or it's AI-generated music and so forth. The question is does it really do what you want it to do? And in some cases it does, but just to be aware of that.
And finally, in our consumer facing categories selling something new that has something to do with music. Now that sounds like a weird category, but we come across things like a music game that's like fantasy football for music, or a card game that has something to do with music. It could be collecting stuff or it could be actually playing with physical cards. It could be music figurines. Maybe we're getting into a little bit of the physical merch side there, but in a way it feels like it's a non-traditional thing that is related to music.
Are you following the money. Yes, if you can get somebody to buy it, you're following the money. There's clearly a reason for somebody to buy something, but it goes back to similar challenges as the merch category, in that you are having to design, produce, distribute, ship or somehow show up somewhere where people are going to buy a physical product. Usually it could be digital too, but it's so non-traditional that you're taking a lot of risk there. And if it's physical, you've got investment in all of that production, shipping, returns, customer service types of things as well. So just a little thought exercise on some of the consumer facing music tech startups to think through are we following the money? What are the challenges in the business model? There are plenty of other music tech startups that are business to business or B2B, so when we come back we'll talk about where they fit into the financial exchange.
0:18:13 - Shayli
If you're enjoying Dimitri's how to Start Up series, you need to be at our next Seismic Activity online event. It's a live how to Start Up conversation. Step right up for incubators, accelerators and pitch competitions. Special guest Bob Maz will talk about the startup circus. As former managing director of Techstars Music, he's been around the big top. Are events like these golden tickets or distracting sideshows? What should music tech founders know before they throw their hat in the ring? Join us April 10th at 10 am Pacific that's 1 pm Eastern, 6 pm UK time to find out. Get ready to ask questions and network in the chat. These aren't your usual sleepy webinars. Seismic activity is fun, fast-paced and interactive. Register for free and learn more about our monthly seismic activity online event series at musictectonicscom. See you there.
0:19:09 - Dmitri
Now, before we dive into B2B models, business-to-business models, let's address the artist-facing companies, the distributors, the analytics companies, the fintech for artists, the marketing and promotional services for artist companies. Business-to-artist companies look a little bit like B2C or B2B companies. They're B2C in the sense that a business is selling to someone who might be paying with their personal credit card. They might be paying for a hobby rather than a business expense, but ultimately, they'll probably eventually evaluate their business in your artist-facing product or service based on whether it does something for their music career. It's not the same thing as buying a piece of vinyl or a mocha frappuccino. They're making a business calculation when they pay for your artist-facing service or product.
In addition, most artist-facing music tech companies are also label-facing companies or have to at some point make the decision whether artists, labels or even distributors are a target customer, and that could change over time. So, for the sake of this conversation, I'm putting artist-facing music tech startups in the business-to-business category. So let's talk about the most common B2B music tech startup categories and I have a lot of them here.
I have at least 16 on this list, so I'm not going to be able to spend as much time on all of them. But again, this is a thought exercise, because I'm sure some of you who are listening are thinking about or have already started a startup in one of these categories and we want to think through how you're following the money, whether you're close to the money, whether people will pay for it and what are the challenges of the value proposition as it relates to getting paid for the product or service that you're launching. Okay, the first category, since we've already covered streaming. That's probably the category that everyone in the world at some point thought oh, a streaming service that did X or a streaming services that's better than Y. But in the B2B category, one of the first ones that comes to mind is distribution. This is distributing your song to streaming services. Usually they have other artists or label facing services eventually and you know the traditional model is to the Spotify's and Apple's and Amazon Prime's. Prior to that it was to iTunes. Prior to that it was to the Amazons of the world when it was physical and also all the stores that were out there.
But this is kind of a pretty well-covered market. The advantage, the pro here on the money scale is yes, you are inserting yourself into how an artist gets their song onto a streaming service, which then pays them. The distributor usually takes a fee to get it out there and or a percentage on the back end of any royalties that come in from that song getting streamed. This has kind of faced a new challenge recently. As Spotify has now said, any artists that get fewer than 1,000 streams won't get paid at all. They have to reach a certain threshold. I can imagine that was a huge new thorn in the side of distribution companies, because many of them are long-tail companies and they generate revenue off of a few streams from very many artists or songs and so that probably cut off a huge revenue stream for distributors. The other challenge here is that there's a lot of distributors now and it's somewhat become commodified. I hate to say that for somebody who's worked their life to build a cool music distribution company and they don't feel like they're selling a commodity. They're not selling a black bean or a coffee bean or something like that. They're actually selling a service. They've built technology around and eventually additional services.
But the point there is. It's been a bit of a race to the bottom in terms of pricing for independent artists and distribution. And then, as you add more services more promotion and label services types of things you become a little bit less of a distributor. And you become a little bit less of a distributor and you become a little bit closer to a record label. You start to see distributors launching advances, giving advances to recruit artists into their fold and take the risk on artists that they think are going to be more successful and generate more revenue as well. So distribution is highly competitive.
You are definitely inserting yourself into the financial equation, but there's so many of them now and so many different pricing models. It's challenging to find a place that's different from what's already there. In fact, we're starting to see some distribution companies launch as white label distribution companies, so they're not just distributors, they're distributors of distributors, and so you can set up your own distribution company, which means you're getting this kind of fractal growth-like model where the streaming services get their stuff from distribution companies that get their stuff from distribution companies that get their stuff from labels, that get their stuff from artists or something like that. A lot of layers. So the more layers you insert there, the less kind of value you can extract financially from that.
Now, before we move on to the next category, there are also the emergence of other types of distribution. We've seen some companies that are bringing songs to other verticals to the fitness or to brands or to DJ mixes and in some cases this isn't a simple streaming distribution model. It could have a sync component, where you have to have both sides of the rights cleared in order to put your song to metaverse or athletic teams. So those are all categories as well. But again, as the middle player between the end product and the source of the music, it can be challenging to now extract enough value there. So you're definitely following the money, but you're kind of in the middle there, and so as everyone else gets squeezed, you'll get squeezed as well, and the amount of money you can extract seems to get smaller over time, unless you start adding other services, and you just have to keep in mind that you're no longer just a distribution company.
You're a new type of record label or investment and marketing service in a way which leads us to marketing. There's a lot of cool music tech startups that are helping artists and labels market their music. So this one, I think, starts to get a little more challenging than a lot of the stuff we've talked about, because marketing it's hard to guarantee the return on investment in marketing. If you have a model that's done well, especially in the early days, where you're able to help with programmatic advertising or insights on where your fans are and how to reach them better SMS or email marketing or websites or e-commerce all those types of things can be really valuable. If you have shown early on that Artist X management company X, label X has made money from you, then people are going to associate you with a good return on investment. You're close to the money in the sense that you have demonstrated that if you invest in our marketing music tech platform, you will get a higher return on what you're already trying to sell. However, if you have not been able to prove early on that there's a likely return on investment for investing in your service, you're going to be challenged there. You're going to be not as tied into the value proposition of making money as an artist, manager or label, so it can be challenging. So you really have to focus on making sure you're delivering value, delivering value early and not launching and marketing yourselves too widely until you have enough success that people will try it. Have success early and keep talking about it and the word of mouth will spread from there.
Record labels and managers are constantly talking to each other and following each other and seeing what's happening and how, that you know what's successful and so forth. So it is tricky to be a marketing business unless you can clearly demonstrate the ROI. People are always looking at marketing as an investment, not a utility, and that means they're going to question whether it's worth it to invest in it. Another category is analytics. So there's music tech companies that provide data to help see how things are going, see how streaming and monetization is going, see how marketing, social media and so forth are going things like that as well. This one is certainly a useful tool for helping artists or labels or managers monetize music, to see where the traction is or where they should be and things like that. It's one step away from being right in the financial exchange for music, so it's a little bit more of a challenge there. But if it's priced right and again similar to what I said about the marketing companies, you do have the opportunity to sort of show the return on investment and there are certain tools that end up getting used that are just. If you don't have data and metrics and benchmarks, you don't actually know if you're being successful in general or if certain activities you're doing are successful too. So maybe that's an obvious thing to say, but it is one step further away from where the money is getting exchanged In terms of cons.
Those are some of the pros and cons. I think you have to be able to do something that's not already in existence. I think it's really differentiation. Some of the companies have stood out by having a better visual presentation. Others have stood out by giving more specific tips. You know, once you find this information out, you get these insights what do you do next? Once you find this information out, you get these insights, what do you do next? And some of them go even further to include, you know, like programmatic responses to data that comes up and integrations with other companies and things like that. That just makes it a more complicated tool and since it's a B2B tool, you obviously need some complexity. But also that means more investment in technology and testing and seeing how long you have to keep building to find product market fit there, it can be a little more challenging there.
No-transcript. There's definitely some financial exchange happening there where you can help somebody's catalog become more marketable at scale. You're close to where the money's exchanged. But you're really going to have to know what you're doing. You have to really understand how the industry's workflow works to be successful there. And the other thing is, as you get more complexity and have to work with companies that have large catalogs, for example, to make it worthwhile, you have a limited number of customers, so you have to charge a higher price. You have to convince fewer people, and if you're not successful at convincing those fewer folks, you kind of don't have a lot to go after next, because it's not a very mass market.
Another category that's kind of in the same kind of ballpark might be monetization and administration tools. There's a lot of companies out there that are specifically for helping rights holders find more money or collect more money and things like that. That you're very close to the money there. I mean, if you are successful at that, um, you are very close to where financial exchange is happening and so if you're helping publishers or record labels pick up money from sound exchange or the mechanicalical Licensing Collective or through Neighboring Rights or through other publishing opportunities, international or, say, for YouTube. There's a lot of YouTube administration companies or other kind of like publishing administration tools. You'll find out pretty soon when you are driving revenue, and typically those companies may charge a fee but they may also take a percentage of found money as well. Again, that type of company. There's some complexity there, but as far as following the money, you're right there. I think that one's one where you are literally saying use our service and we will increase your revenue. You do it successfully. They never leave you. That's a great one for following the money.
Another category are licensing tools. These could be tools specifically for sync placement, for example, things that help any type of licensing happen for music. If you are successful, you're certainly close to the money. But what I've seen a lot of and this is kind of overlapping with another category that I wanted to work in here, which is marketplaces A lot of times there are marketplaces for licensing and that one's a little more challenging because A you've got a chicken and egg situation You've got to get people to provide music and then you've got people to buy music and marketplaces could include sync, for example, or new forms of licensing sync like podcasts or video games or something else. But it can be challenging to get good enough music on your marketplace without customers, because if you don't have customers on your marketplace, people aren't going to necessarily go through the trouble of either doing a deal with you or uploading their content, or you flip it. Will customers show up if the music is not good enough for the marketplace? Other types of licensing tools could help generate revenue, helping companies that are already in the business of doing licensing to get stuff done. So I think you're closer to the money there.
A related category are B2B music hosting platforms.
It's sort of like the specially made Dropboxes or Google Drives for music, and some of them are very simple just for hosting music, but a lot of them have enriched features as well Tagging, search, recommendation or sharing, playlist building things like that as well. You know this one is not as directly tied to where money gets exchanged, but it is a very utilitarian service that I think is almost everybody in the music industry needs at some point. So it's not as tied to music, but it really does solve something. There is getting to be a little bit of competition in that space, so that's kind of a con. But also it tends to not be priced too high and tends to be something that people are. It's almost like the cost of doing business.
If you're in music, you have to have a way of hosting and sharing and organizing your music. So I don't know, a little give and take there. All right, I'm about halfway through my B2B categories and I know this is a long list, but I think it's super helpful to just keep thinking through what are the different business models for music tech startups and how they relate to following the money. We're going to take a quick break and when we come back let's talk about more of these categories. We'll be right back.
0:34:48 - Shayli
Mark your calendars for the 2024 Music Tectonics Conference. Music tech innovators will gather October 22nd through the 24th 2024. We're heading back to Santa Monica, california, of course, to the beautiful beachside places we loved in 2023, including the Santa Monica Pier Carousel and the Annenberg Beach House. Stay tuned to this podcast and the Music Tectonics newsletter to keep up to date on the creative new features the team is adding to the 2024 conference. If you're not getting that newsletter already, don't worry. Go and sign up now at Musictectonicscom. Now back to the show.
0:35:27 - Dmitri
Okay, we are back and we've gone through about half of our B2B music tech startup category types, as we put them through this lens of are we following the money? The next one I want to talk about is white labels. There's a lot of services out there for white labeling something else and in some senses that's not really a category of product or service, but in some cases it is, and I think it's just worth talking about this. If you are operating a business that helps another business operate and make money, you are in a good place in terms of following the money, are in a good place in terms of following the money. The types of white labels I've seen are companies that have streaming services that you can white label for your own business, and then you also have some other companies that white label distributors I mentioned that at the beginning where you could become a distribution company by using somebody's technology, and I think you are very close to the money on this. If the service that you white label is profitable is the type of company that makes money as well. Sometimes, white labels are more for brands or for companies that want to add on some other element of music as well, and they're not as tied to money. So then you have to make the case for what the value would be there. So, moving in a totally different direction, I've seen a lot of music tech companies that focus on industry networking. Sometimes they're directories, but a lot of times they have like a social or collaborative component. I would almost consider collaboration tools as a separate category, but for this industry networking I think is very tricky to make money with business. That make it really challenging to add in a new tier. Because both Instagram and LinkedIn are free. People are already used to using them. Creatives use Instagram as well as consumers, and job hunters as well as biz dev and sales folks use LinkedIn. So I think this one is a tough one for. Following the money, I'll just be direct about that, I think it's a great opportunity. The money I'll just be direct about that. I think it's a great opportunity. But ultimately you might find yourself needing to make it a free service and then figuring out how else you're going to generate money once you have gathered the music industry all within your platform. Not seen a lot of success there.
Another category I mentioned was collaboration. This gets more into some of the music production stuff. You know opportunities for artists to collaborate with each other. I think this one also will be tough to make money off of, because typically artists that are looking to collaborate would do so more in a kind of social interaction rather than a tech interaction. They've heard about somebody or they've met somebody through somebody and they start making music together. Some of the tools for collaboration are specifically for making notations when you're collaborating, like an actual workflow collaborative thing, where I think there could be some value there, but a little bit tough because you're not really as close to the exchange of money for that. Let's talk about music production and content creation tools, since we're kind of in that category now with the collaboration.
Music production, I think, is very close to where you can make some money. The reason I say that is it's similar to buying a musical instrument, buying an effect, buying a plugin, buying a VST, buying a virtual instrument, something where somebody's like this is a tool that I need. It starts to feel a little less B2B and a little more B2C, a little closer to like selling a musical instrument, and I think people who are in the professional music making career would be interested in spending money on something that's going to make their sound better or make their workflow better and things like that Kind of a peripheral thing that actually might be tougher to sell but is not totally without a connection to where money gets exchanged is content creation. There's video making services, graphic services. There's probably other content that I'm not thinking of. Eventually they're going to sell you on AI that writes your social media posts, et cetera and so forth, for something like a video, where people have been used to spending thousands and thousands of dollars on professional videos now becoming really simple, you do it from the comfort of your home, you put your virtual avatar in or something like that and before you know it, you've got a music video. I think people it's not as close to the exchange of money, because video is typically used for marketing as opposed to selling music, but because you can do it in a way where the technology is saving so much money, I think it's got potential as well there. Okay, just a few more categories we're going to go over and then we'll kind of broaden out from there.
Anr tools I don't know that much about specific ANR tools, but I know it comes up in a lot of conversations. Some of these overlap with things like the analytics or the marketing tools or the data enrichment tools as well. But I think this one feels utilitarian and if it's not too expensive, I think you are still close to where money is, because it's where deals happen. It's where record labels are finding artists and artists are finding record labels and they're doing deals as investments to make more money off of future developing artists and things like that. But I think at a certain point there's ways that people are already doing this. So you're a little disconnected from how money is made with A&R tools, because people are already using these analytics companies or they're using the data that they already have access to through Spotify or Apple or Pandora or YouTube or social media, facebook and Instagram and things like that as well. So, a little bit trickier.
Here's one for you Valuation tools. If you've come up with music technology that helps you put a value on catalogs, on songwriters' works, on entire labels or entire publishers' catalogs, you are very close to the money. You're helping somebody come up with the value of what they could sell their catalog for, or maybe even with licensing as well, so you really understand the value there. I think you're staying pretty close to the money. You're not really directly in a transaction for a consumer, but for a B2B sale of a catalog. I think you're very tied there. Obviously, there's not going to be a lot of players in that space. Once a handful of folks are successful at that, we're not going to see a lot of more players. It'll be tough to break into, but once you break into it, I think you've got a bit of a moat there.
I think the only other category that I thought of in advance I think this would be the 16th B2B category on this episode is fandom tools. I see some emergence of music tech companies that focus on fandom. That could be in the form of VIP clubs, fan clubs, that type of experience. It could also be in terms of fan content creation or fan interactions, online interactions with an artist, maybe not quite as VIP, but more like mass scale interactions and things like that. And I think that one's one where you have to think through what will be the monetization strategy there. You are putting yourself in a place where you can really help an artist, especially bigger artists, reach their fans at scale. But it could be challenging to figure out how you're going to monetize that and it might require partnerships. It might require some additional things beyond what you think of for fandom, such as merch or fan-created videos or artwork or things like that, so that one's definitely got some challenges to it as well.
So what am I forgetting? I'm not sure there can be so many other categories in here. I'm probably forgetting some important ones and honestly, email me if you think of any. I'd love to know if I've left out some big ones Music at rockpaperscissorsbiz, b-i-z and remind me what I left out for future episodes, or just so that I know what I'm talking about here. I mainly and I know that was kind of an exhaustive list. That was a lot to go through, and so, if you're still with me, thanks for listening and I hope that you're getting some value here I mainly just wanted to take some time with you to think through whether your music tech startup has considered how close you are to the exchange of money.
As we heard in the recent Cliff Fluet episode as part of this how to Startup series, which was actually the first episode, you can't just solve a problem and you can't just create the tech to solve a problem. You need to have a business model that will generate cash to help you keep building the product, to help you attract investment needed to scale or to reinvest in the business yourself. Here's a list of problems you will have if you don't make sure that you meet the follow the money criterion. You'll start racking up expenses, existing investors will start putting pressure on you and they won't reinvest. Future investors will not come on board because they don't see a path to success. You'll let down co-founders or team members because they have to get paid. Family will start to get nervous or scared because they're relying on you for revenue generation and ultimately, you'll likely lose motivation.
I'm not trying to scare you, but what I do want is for, if you're early enough in the phases of building your music tech company, is to just remember that you've got to be business focused and you've got to focus on those transactions and really understand if this is going to be a challenge for the type of company that you've created and how you're going to solve that challenge. So what do you do if you realize you've not followed the money and you're in too deep? This might be where you need to go. Grab your oblique strategies card set created by Brian Eno. You might have to push your thinking. Check that out if you don't know what that is. It's a super cool deck of cards that helps you think outside of what you're already thinking of. So put aside some time to rethink your business model. Is any of your tech reusable for something that's closer to the exchange of money? Can you imagine an existing business that might be able to integrate what you do with their existing business model? Maybe it's time to partner or to look for a strategic acquisition, and maybe it's time to have a thought exercise of what it would mean to go dark and to chalk this one up to a great learning experience that will inform your next startup. There's got to be something that positive comes out of it, and for many of you, you're early enough you've already thought of this, or you're early enough that you can pivot down and make sure that you're staying close to this. I hope you've gotten something from this thought exercise.
Keep listening to the how to Startup series here on Music Tectonics to continue to push your thinking and build an amazing startup. Here on Music Tectonics, to continue to push your thinking and build an amazing startup. 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 musictectonics.com and, while 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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