Music is the Loss Leader

As emerging artists begin to leverage influencer revenue to finance their careers should they prioritize partnerships with brands or owning the product completely?

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“I am not a businessman. I am the business, man.” — Jay-Z

Artists Have Always Been Influencers

A decade ago being an influencer as a sole career was foreign. Most “influencers” were initially introduced to a consumer through another avenue such as acting or playing a sport. As a result, many advertising agencies “picked” influencers by analyzing who was already super popular. This laissez-faire approach to advertising meant that at the height of an individuals career they were inauthentically promoting multiple products or experiences solely because they were inundated with time-sensitive opportunities to earn money. Additionally, during this time the number of businesses that had the capacity and budget for influencer marketing was largely restricted to companies that had large sources of capital. The inability to easily track conversions encouraged companies to perceive influencer marketing as a strategy to build brand awareness rather than meaningfully drive sales. Regardless of this initial perception, more and more companies began to embrace influencer marketing once they began to see its ability to convert sales. The frequency and shelf life of music makes artists ideal influencers because they have one of the longest audience touchpoints. Once businesses realized this deals suddenly became so large that they were generating more revenue for artists than their music. To capture a piece of the pie labels quickly emerged with the “360 deal”. At its core the “360 deal” allows record labels to profit not only through an artists music but everything associated with their likeness — merchandise, touring, brand deals, etc.

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“People stole the soul and hit ****** with 360s” — Jay Z

How Social Media Birthed a New Influencer

The rise of Instagram, Twitter, and Snapchat has given way to an entirely new type of influencer. The term is now attributed to individuals who use the internet to organically grow and captivate an audience. As social media has evolved so has e-commerce and advertising. Innovation in advertising, e-commerce, and social media has created the perfect trifecta for influencers to thrive. It is now simpler than ever for a person to create a product, develop a brand, and sell it directly to consumers. Thanks to Google and Facebook it has never been easier to run an advertising campaign. While the barrier to entry of creating a company is lower the complexity of marketing continues to rise. Presenting a huge opportunity for influencers who have become the gatekeepers for super engaged audiences.

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Cardi in the studio.

The evolution of an influencer has spearheaded a new playbook for emerging artists. Cardi B illustrates this shift perfectly. Cardi originally started off on Instagram making short videos where she performed simple skits and offered transparent commentary on current topics. The dedicated following she amassed on social media allowed her to start making money as an influencer (i.e Fashion Nova, club appearances) and opportunities such as being cast on popular VH1 show Love and Hip Hop. By reinvesting the money that she made as an influencer into creating music Cardi had a prepared body of work to promote her first season on the show. Cardi took advantage of on being on television by promoting her music and giving people insight into her artistic journey. Once her music began to hit mass appeal she left the show to focus exclusively on her career as a musician. An artist is an influencer but an influencer is not always an artist. Artists benefit tremendously from the rapidly growing revenue potential of being an influencer. By reinvesting these profits into their career artists can capitalize on this trend to fund their musical pursuits and make money off of their likeness from day one.

An Influencers Last Mile: Ownership vs. Partnership

While social media has given artists more opportunities to make money, the question still remains whether an artist should prioritize ownership or partnership. Let’s explore both by looking at the moves of Chance the Rapper, Rihanna, and Jay- Z.

Chance the Rapper (Ownership)

“Laugh about my hat all you want. I made $6M off these”. — Chance the Rapper

Chance has long been hailed as the ideal model in any discussion about independent artists. Chance helped us understand just how lucrative being independent can be when he went on the Joe Budden podcast and revealed he made $6M just from selling his infamous three hats. Owning your own product allows an artist to control everything; marketing, price point, and how the product is purchased. Additionally, artists can choose to manufacture scarcity by limiting the products supply. While owning your own product can generate larger upside ownership is not immune to its own set of challenges. Artists need to be able to provide sufficient capital to handle all costs associated with producing the product, have an authentic enough relationship with fans that drive them to purchase, and the desire to maintain an in house team to run the day to day of the business.

Rihanna (Partnership)

Rihanna’s Fenty Beauty collaboration with LVMH was so successful that she is rumored to become the first female designer of color at the largest luxury conglomerate in the world. We have seen the star partner with multiple brands over the year, deals that have undoubtedly become more lucrative as her star power rose. A few of the brands Rihanna has collaborated with include Puma, River Island, Balmain, etc. We can infer that a bigger artist would sell a higher volume of product. Matching the demand that the artist would generate requires significantly more capital and time. This paints a strong case for artists to utilize a company that already has the infrastructure in place as long as the decision significantly reduces the timeline to go market and comes with a lucrative revenue split.

Jay-Z (Hybrid)

The model that I believe most artists will pursue is a hybrid of ownership and partnership best perfected by Jay-Z. Jay-Z brilliantly secures capital through advantageous partnerships with brands and then reinvests that capital to wholly acquire businesses once their supply chain infrastructure has been completely built out. Jay-Z eloquently broke down his businesses on his verse in What’s Free:

“1'm 50% of D’USSE and its debt free. 100% of Ace of Spades, worth half a B. Roc Nation, half of that, that’s my piece. Hunnid percent of Tidal to bust it up with my Gs”.” — Jay-Z

Two of the companies Jay-Z owns, Tidal and Ace of Spades, he acquired by reinvesting his profits from other ventures to buy the companies outright. Once purchased Jay-Z is able to use his overall star power, strong relationships, and marketing acumen to scale what is already in place. Consequently, for companies that he does not want to assume the total risk for (you can not do it all), he is able to strike lucrative partnerships that allow him to benefit tremendously all while having the freedom to be less involved in the day to day.

As artists continue to expand their revenue streams their mentality will adapt from partnership vs. ownership to deciding when it is more cost effective to partner and when they should assume the upfront risk of ownership.

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To chat more ping me on twitter @denishakuhlor or shoot me an email: dkuhlor at svb dot com. Founders/Artists/Music Nerds welcome.

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