What do music/tech startups REALLY think about working with major labels?
In Music Ally’s latest analysis report, we take a look at the three major labels’ strategies around music/tech startups and investment. The full report is for Music Ally subscribers only, but you can sign up for a free trial, which includes access to the latest report.
An extract from it follows, written by journalist Joe Sparrow, focusing on music/tech startups talking about their experiences working with labels.
Major labels are making large, clear, “open-arm” gestures towards startups and music technology. Their innovation teams are very publicly engaging in a kind of tech A&R, and cutting-edge innovation is being discussed at the highest levels. So music-tech startups must be happy with this turn of events, right? Music Ally spoke to a bunch of them — under conditions of anonymity — to find out.
The startups we spoke to operate in different facets of music tech, at varying stages along the perilous path to success. One quickly raised millions. One has made an early splash and is making tentative steps towards funding. One is poised to raise a large Series A round. Some are among the darlings of their cutting-edge fields. A few have taken part in major-label affiliated accelerators. Some needed music licenses from majors to operate, and others didn’t.
All expressed exasperation, extreme cynicism, and deep disappointment when describing their experiences with major labels.
All independently highlighted what they saw as the same problems — and there were a lot of them. From these startups’ perspective at least, labels — and their publishing divisions — have to make fundamental changes if they really want to embrace startup innovation.
The main complaints from startups were:
- Majors are riddled with old-fashioned thinking that doesn’t work in a startup’s world
- Majors have a structural aversion to taking the kind of risk that is needed to bring reward from working with a startup
- Majors’ and publishers’ current approach to licensing doesn’t merely make it hard for startups, it kills them before they can even get off the ground
- Promising developments vanish into deathly silence as soon as a startup is passed from Innovation departments to other departments or territories
- A lack of understanding, at a corporate level, of a startup’s needs, time pressures and budgetary restraints.
- Majors are not structured to expedite the kind of change that tech promises, and are not setup to synchronise with startups’ fast pace and comfort with failure
The majors have admitted that they have previously dragged their heels when connecting with tech innovators and certainly appear to be putting a lot of time, resources and smart people into making amends.
But is their newly-acquired appetite to “move fast and break things” for real or is it just for show — especially now that their time-tested reliance on licensing is raking in mountains of cash? And why did every single startup bemoan the “structural failings” at major labels?
Complaint 1: Majors are afraid of risk and decision-making is timid
Every single founder we spoke to criticised the internal structure and decision-making process of majors as being slow, disorganised, timid and old-fashioned. They all thought that company-wide changes are needed if they really want to collaborate with startups.
One founder, having built and launched a novel music-tech product, described only negative experiences with majors, and was hugely cynical about their macro-level enthusiasm for embracing new technology.
“Majors suffer from what I call ‘Innovation Theatre’. They want to be seen to have people on the cutting edge because it looks good to the press. And for employees, connecting with startups and talking up new ideas makes them look good to their boss. But when it’s passed onto senior staff it goes nowhere.”
So far, so what, perhaps: major labels talk up a good game and suffer from slowness — just like any major business.
But this founder — well versed in the “failure is good” startup mantra — expressed exasperation at what they saw as majors’, “timidity across the board. People are not empowered to be innovative. They play it extremely safe. They don’t want to take risks at an individual level or company scale.”
“We, for instance, built a use-case for our tech which showed how it was low-risk for them and could only provide a stream of great, valuable data. But even then, nothing happened. Even with no material risk to the label, they still don’t take risks because they don’t want to be seen to have failed. They’re protecting their jobs.”
Feedback wasn’t entirely negative, and almost all praised — and expressed sympathy for — the people working in the majors’ innovation departments and tasked to liaise with startups.
However, praise for these individuals was often tempered with frustration that this support and enthusiasm could not be carried through to other people or departments that could make meaningful action take place.
Here’s the story of one founder who raised significant money for a successful music-tech app:
“We launched our app without any licensed music — and we got good feedback for our proprietary technology. There were similar, inferior products with licensed music that were making money for publishers and we assumed it would be easy for us to speak to publishers and find a similar deal.
“There was no ‘how-to’ guide to speaking to publishers: just finding out who to connect with, and how, must have taken about three months!
“Even then, our initial period was a waste: we were given an appointment ten weeks in the future, with the wrong people — the meeting was a huge waste of time. In the end, it took over a year to get the attention of the relevant people.”
Change is happening, albeit slowly. All the founders we spoke to identified individuals who they believed were passionate about music technology and were interested in making true, game-changing innovation happen. What they need, our interviewees said, is to be able to quickly move things along without getting bogged down. Which brings us to….
Complaint 2: Legal purgatory and licensing lethargy
The startups that needed any form of licensing agreement — that is to say, most of them — voiced the sort of frustrations which allow this writer to use all the key dystopian literary analogies:
- Kafka-esque: They say that majors’ legal departments are slow, legacy-thinking stumbling blocks: Innovation Departments have good intentions but their hands are tied as soon as a startup needs to progress to a licensing contract.
- Doublethink: They are confused by major labels being at loggerheads with their own publishing departments, in a stalemate where neither party can agree, leaving startups — who have short runways — withering on the vine.
- Catch-22: They’re pessimistic — the cash that tech has showered on the majors may, ironically, make them more resistant to innovation, as they revert to their traditional approach of finding ways to wring money out of licensing.
One founder reserved special opprobrium for majors when recalling the process of acquiring licensing agreements, describing their interactions with Majors as a nightmarish, years-long “purgatory” of endless delays, confused messages and infuriating internal bickering.
“You can be in the crazy situation where a major wants to do business but their own publishing department won’t — because they worry that a license might set a damaging precedent. Or you may end up with a major getting stuck in a disagreement deadlock with its own publishing department over the terms of the contract.”
Once an issue passes from the enthusiastic, fast-moving Innovation departments to the legal department, they say, things grind to a snail’s pace — and even senior staff can’t move things along. Our founder continues:
“I would speak to Chief Innovation Officers at majors — C-level people — about progress on a licensing deal, and it’s a ludicrous situation: they say, ‘I can’t get an answer for you, my hands are tied.’ Because it doesn’t matter how excited they are about a startup, as soon as they hand proceedings over to the legal department for licensing agreements, it’s like swimming through treacle.”
The licensing conundrum dominated conversation with all the startups we spoke to. The frustration is palpable in this founder’s explanation:
“It takes so long — years — to do anything or to make a decision, and it kills so many startups. I’ve almost run out of money and scrambled for cash to survive so many times. We want to make money for them!”
“You might make a deal with a publisher, but then, two years later, you’re half way through that deal and you’re still negotiating another deal with a major — with the same name as the publisher — for their licenses. So then you secure the label deal, but the publisher deal expires — and then you need to renegotiate again. Why aren’t they talking to each other? It’s crazy!”
“The standard timeframe is 18–24 months to get deals done. I wish I’d known this at the start and I would have raised more money to survive.”
This death-before-birth scenarios is a very real one for any cash-strapped startup. Empathy for the reality of startup life, one founder, explained, is needed:
“Startups need to move quickly and nimbly, but labels won’t offer quick licensing solutions. I daren’t think of the number of brilliant tech solutions that have died in this protracted process.”
One other founder said that, to make a truly innovative music-tech app, the license needed is beyond the reach of mere mortals and scuppers ambition:
“If it’s an app, it’s available anywhere, so we need worldwide rights; and for the app to work, users need access to any song they want — so we’d need the whole publishing catalogue, worldwide. The biggest, most complicated license!”
One founder suggested this solution to the tortuous licensing problem: “The majors won’t offer simple, flexible licenses to startups because they’re terrified of setting a precedent.
“But they could give innovation departments their own legal teams that could quickly offer limited-term, non-precedential test licenses to startups which allow them to get on with creating new income streams for the major.”
A string of founders we spoke to outlined exactly the same solution: labels need to be braver, and offer simple, quick, licensing solutions so that startups can get off the ground and start making money for the rightsholders.
Complaint 3: Endemic structural failings and communication breakdowns
Major labels can be huge, often unwieldy businesses, and this, our startup founders told us, means that unless you’re a big-hitter like Spotify, your precious startup can quickly slip through the gaps into an endless void.
One mid-stage startup founder, based in one of Europe’s startup capitals, described their relationship with one major as a depressing rollercoaster ride.
“We had a great initial experience. The innovation department made it easy to collaborate, and gave access to the type of senior people who can make a difference. So we got excited… and then the shit began. We got passed to someone elsewhere in the business, and because they were not in those exciting initial meetings, they just didn’t care.
“So we got promises and enthusiasm and then they stopped answering our emails — they’d moved on. By this point we had put so much time and effort trying to make things work for the major, and it was for nothing. And this was the best experience we had with the majors!”
Another European founder was confounded by the “cognitive dissonance” of majors’ internal practices:
“While we worked with some really good people, the whole experience of dealing with the majors was tortuous. Simply put, there is no joined-up thinking for startups that require rights. We waded really quickly into legal hell, where every single licensing eventuality was agonised over.
“And a startup’s Series A funding might hinge on this licensing contract being in place. Startups don’t have the runway to wait. Old-style thinking in legal departments is stymieing the opportunities that their own innovation departments create.”
Complaints about communication and decision-making were almost always blamed on this old-fashioned thinking and pass-the-buck mentality. It’s an anathema, says one successful founder, to the fast decision-making culture of the tech world:
“I dream of a one-stop shop: one contact at a major or publisher. You have to repeat the same process over and over with different people. It’s such a waste of resources. And there’s no reason for it because eventually they offer you a deal you can’t change anyway!”
Another founder puts the responsibility-roundabout down to an indecisive approach to ownership:
“There is a ‘pass the baton’ mentality. No team seems to know where innovation should sit. You end up with a situation where everyone agrees it is a good idea but no one is willing to be accountable for it, which means it doesn’t happen.”
Complaint 4: Majors want the success startups bring, but they don’t want — or understand — the risks
The common response to the suggestion that major labels are keen on innovation was cynicism: they said that despite majors having Innovation teams, their business model means that they cannot truly embrace new tech meaningfully. Majors, they said, are living in the past.
One founder put it this way: “They talk about wanting to work with innovative startups but their behaviour says otherwise. Labels and publishers will ask for huge advances up front just for the licenses, for instance — but how can a startup afford that?
Another was more blunt: “Majors say they want innovation but they don’t want to change the structure of their businesses to help innovation. Streaming is growing so fast, they don’t have to do anything or change. Everything is working for them. So they are not incentivised to innovate. It’s boring.”
One founder pointed the finger all the way to the top: “I think that when [senior label staff] talk up their ambitions for true innovation — real change that sets new precedents — they’re merely paying lip service: they know that, in reality, majors don’t work in a way that allows this innovation. They’re scared of risk.”
Another was scathing about majors’ lack of understanding of how startups work: “Beyond the Innovation departments, majors don’t understand the pressures that startups work under. They don’t get the idea of long-term monetisation. Projects that create big innovation take time — but labels demand numbers, growth and revenue now.
“I don’t think labels truly believe in tech innovation and they don’t chase or adopt changes. There’s a culture of fear: you fail, you lose your job. So no-one takes risk.”
And what is the experience of working in one of the many major-backed accelerator programmes like? One founder discovered that it was the key to making good, deep connections to the people who can make a difference… and that’s when it went wrong:
“They gave us lots of support, development and access to some really cool, helpful people. Our most important gain was that the programme had strong links to labels and publishers, which helped us get meetings to arrange licenses.”
“But when we finally had the meetings, the publishers wanted a huge share of the income from our app. Only a small percentage of our users were paying to use licensed music, but the conditions of the publishing deal meant we had to pay a huge slice of all of our income to the publisher — even if we sold merchandise with our app’s logo on, for instance.”
“Their argument for this was that the licensed songs would bring users in — which is true to an extent. We suggested that they take a reduced initial percentage that would allow us to make a business that didn’t lose money — but we couldn’t even get them to move by 1%.”
“They make it harder for smaller businesses than large businesses. The deal would become more favourable to us as we grew — but while we were small, they were draining all our money — not allowing us to grow! It’s so weird — it’s the wrong way around.”
“They want innovation but the kind of licensing deals they offer kill innovation — why don’t they want to help new startups to make them money?”
Our startups’ warnings were clear: having been presented with a glut of startups aiming to change the status quo to the benefit of the majors, the labels are blinking at the crucial moment: erring on the side of caution, and funnelling startups into a licensing quagmire instead of taking risks to build a better ecosystem.
Counterpoint: startups can be naive and majors are simply protecting their assets
Are things really this bad? Blame can be shared in both directions, as one prominent music-industry lawyer pointed out in another interview with Music Ally. Having worked with startups seeking collaboration with major labels and publishers, they, understandably, were more even-handed, with criticism — and praise — for both sides.
Our lawyer characterised some of the startups’ complaints as (perhaps understandable) inexperience on their part. And, just like the music business, the startup world has its fair share of overhyped products and over-stuffed egos too:
“Some startups that raise a lot of money have a terrible product and founders who won’t listen. Majors are much maligned — they’re not that bad. A lot of startups are quite naive about navigating the music industry and need a lot of education about who to speak to and what to do. They need a good lawyer!” they said.
“Startups sometimes have unrealistic expectations of what it costs to do business with the music industry. You won’t believe how often I receive an email saying, ‘We think you’re great and we really want to partner with you,’ and I know immediately that they don’t want to pay for my work.”
And what of the startups’ universal complaints about licensing: the slowness of the process and the reticence to make a decision?
“At the end of the day, the majors are custodians of their artists’ IP and are out to make money for their artists. And licensing is long-winded and labour-intensive in its nature. A valid complaint from startups is that labels can’t make a decision because someone senior has their hands tied. The buck is passed but the startup can’t get in the room with the person who can really make the decision,” said our source.
“Legal departments are not always adequately staffed at some majors: so they prioritise jobs. A billion-dollar Spotify deal will obviously take precedence. There are loads of startups, and they may not be making any money. All the majors are seeking to deal with startups, but they hear lots of flavours of the same ‘new’ idea.”
“Startups that don’t need a licensing deal probably don’t get priority because they don’t use licenses and majors make money from licenses. So they vanish in the system.”
Does our lawyer think that the universally-mooted idea of simpler short-term licensing to help startups off the ground is possible? Well, yes — and no.
“Majors could take less money, and license music with terms that are not so onerous to let startups live longer at the beginning… and different, innovative services could indeed be withering on the vine because of this approach,” they said.
“But majors have tried this to an extent with sandbox licenses, and often these don’t work for anyone. The majors’ content is out there and they’re not getting paid — and they may not even get good data in return. And if the service goes badly, the major’s time has been wasted.”
“Even if the service goes well, the startup then needs to transfer to a “grown-up” license, and it might turn out that the startup’s business model doesn’t work under the terms of a real license.”
There are also other issues around labels risking their most valuable assets — their IP — in the wild.
“The major wants to protect their relationship with the artist at all costs. Let’s say a major allows all of their songs to go on a new platform on a test license. If an artist then sees their song being used on a poor piece of tech and they think it looks bad for them as an artist, they may be angry that the label has allowed this to happen.”
Our lawyer saw a future where majors mutate as artists hold onto their rights — and suggested that startups should perhaps look to connect with them, and not just the majors.
“What will change is that there will be new types of labels. The artists and DSPs will change things, not the major labels. The big question right now for labels is: what is your rate of copyright acquisition? If that declines, they’ll move away from a licensing business to a services business.
“It’s the artists who are starting to own the rights: look at Chance the Rapper. I think that startups and platforms that deal directly with DIY artists and help them with licensing have a good future.”
So what’s the best path forward?
Infuriating slowness, shunning of responsibility, maddening decision making… our startups’ complaints are reminiscent of the annoyances musicians and artists have voiced about labels for decades.
That said, if some startups are naive, unrealistic, and ego-driven, maybe the majors are rolling their eyes in recognition in the other direction too.
It’s worth noting that Tuhin Roy, the executive who heads up UMG’s New Digital Business and Innovation approach, said recently that he thinks that the majors make, “collaborative contributions to the same goal of supporting [the] entrepreneurial ecosystem.”
This “collective contribution” he’s referring to is a reasonable claim in the context of outreach: the majors are scrambling to engage with startups via hackathons, collaborations with accelerators, and mentorship.
Back in 2016, former eMusic boss David Pakman — by then an investor — wrote a widely-shared blog post criticising what he saw as the recorded-music industry’s greed when engaging with startups, claiming that “the high royalty rates imposed upon startups, even after clear signs over the past 19 years that the strategy killed companies, has prevented a healthy ecosystem from emerging”.
Three years on, the most commonly-suggested changes from our startup founders build on Pakman’s concerns:
- Majors can’t have their cake and eat it: if they really want the positive effects of startup tech, they need to accept that DNA-level changes must happen.
- Majors need to stick their necks out, and work faster, more decisively, more nimbly and embrace the risk that is inherent in the startup world.
- Majors and publishers need a realistic approach to licensing: a faster, cheaper, simpler, and flexible approach in the early years of a startup would allow innovation to flourish.
A founder who sought licences echoed Pakman’s thoughts, and warned of future problems for majors if they don’t change.
“A startup needs two years to get going. A much simpler, stripped back licensing deal that helps the startup is needed. Support them, and then renegotiate. We’re held hostage,” they said.
“This approach is going to come back and bite them in the arse. They need an ecosystem of innovative businesses that work differently and they need to encourage it. Everyone listens to music — they should be making much more money from their rights! This ecosystem could make it happen.”
It’s fair to say the seeds of change have been sown, and startups are starting to see green shoots: but how fast will they grow? One founder of a fully-launched startup with big ambitions is hopeful but pessimistic:
“Now that majors and publishers are starting to come together under one roof, we’re seeing the first step to effective change, but much more is needed,” they said.
“I wonder what Rob Stringer, Lucian Grange and Stephen Cooper would do if they knew how hard it really was to create an innovative startup in collaboration with a major? And do these CEOs really want to solve the problem?”
One source with many years’ experience liaising between startups and rightsholders and who now works at a cutting-edge music tech startup, sees a long road to change:
“Access at low cost would allow innovation, allowing startups to experiment more easily. But that won’t happen while licensing is the starting point for all engagement. Majors don’t want to do this because it’s not in their DNA. They want innovation, but they have spent years working the other way — it’s like turning an oil tanker around,” they said.
One founder admitted that big picture ideas — the kind that startups love — are difficult to make work; however, building tools that a label can use to get an edge over a competitor could be a pragmatic solution.
“If a startup’s business model relies on being label-agnostic, then you’ll hit all the roadblocks — the fear of collaboration or competition with the other majors halts progress. However, if a major thinks it can make your startup an internal tool, it becomes much easier,” they said.
Finally, one founder wryly saw abundant opportunity in these failings: “I love the industry because there’s so much we can change — it’s so bad! The industry has been reluctant to embrace tech — it’s shocking. But I have seen a change: labels and publishers are becoming more open-minded and working with new ideas to solve problems.”
Most other founders also acknowledged that things are getting better, and the changes they hope for might happen. And in return, startups might need to accept that the music business, despite its failings, is a complex licensing business, and that labels will always fight to protect their main asset.
Startups also admit that they could be better educated about how the music business works at an early stage, and need to accept the painful reality — for a while at least — of working with huge, slow-moving businesses.
Startups may always be the dog to the majors’ cat, yet there are many ways the working relationship can continue to improve. But maybe the majors and publishers need to make the changes first, while the going is good — or else face an existential crisis in the future.