we do it for the artists

Hey! Thanks again for helping me celebrate Trapital's third anniversary. It was a great week for growth, so thank you for spreading the word. If you know anyone else who would love to read Trapital, send them this link:‍

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‍Today's newsletter covers my latest interview with DJ MICK, SoundCloud's new fan-powered royalties, Square-Tidal, and the quest to create "Shopify for music."

New podcast: Mick Batyske (aka DJ MICK)

The multi-hyphenate entrepreneur Mick Batyske came on the pod to talk about how his successful DJing career —where he hosted parties for LeBron James and Jay Z—led to opportunities in marketing and investing. He's now a brand consultant, startup advisor, and angel investor. His DJ gigs are his lead generation for other business opportunities and more with his newly launched The Xavier Co.

If you're interested in how the mind of a DJ equates to the mind of a marketer, tap in on Apple Podcasts, Spotify, or wherever you get your podcasts.

The impact of SoundCloud fan-powered royalties

via SoundCloud

Last week, SoundCloud announced "fan-powered royalties," where artists get paid based on each fan's listening habits. It's another step in an ongoing push for artist-friendly monetization options.‍

Pro ratavs user centric. Most digital streaming providers use the "pro rata" model, where payouts are pooled then distributed based on overall listenership. So whether you're in the top 1% of Nicki Minaj listeners or have never heard her verse on Kanye West's "Monster," Nicki gets the same cut of your monthly payment. To keep it real, it's the music industry's version of the Electoral College.

Meanwhile, SoundCloud's new program is music's version of Medium's Partner Program for writers. Medium members pay $5 to read unlimited articles per month. Each member's money is distributed to the writers whose content they engaged with the most. But unlike Medium's program, SoundCloud artists need a paid SoundCloud membership to benefit, or use SoundCloud as their music distributor. That's roughly 20% of the indie artists who monetize directly on SoundCloud. Also, SoundCloud retains around a 25% cut of revenue from fan-powered royalties, which falls in line with the 30% that most digital streaming providers take in the pro rata model.

All these caveats are reminders of why this topic has been debated for years! User-centric royalties are expensive to administer. It takes more back-end work than Medium paying writers based on reader engagement. SoundCloud's rollout is like a beta test for proven customers that can be expanded if successful. It's a real-life case to support the studies that back the impact of user-centric royalties.

‍Make it personal. SoundCloud's best marketing will be its artists who benefit most from the service. The announcement highlighted an artist named Vincent who increased revenue by 5x. The more of those stories, the better. If artists can earn $1,200 per month on other DSPs but $6,000 per month on SoundCloud, that's the difference between artists getting some side cash and getting paid full-time to pursue their dreams.

Read more about SoundCloud's fan-powered royalties here.

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TheFutureParty is a daily newsletter for creative professionals who sit at the intersection of entertainment and business. It's a community-based media brand that curates stories on pop culture, entrepreneurship, tech, and breaks down what it means for the future. I read it every morning to stay up on relevant trends across industries! The creator landscape is expanding fast. There's a lot to keep up with, but TheFutureParty has you covered.

Subscribe here for the freshest takes on the business of culture.

Square, Tidal, and the "artist-centric" future

The deal is done. After ten weeks of rumors and hot takes, Square acquired a majority stake in Tidal for $297 million. Jay Z will join the board of Square.

‍The Yacht Boys in the building. And the winner is... Hov. There's been much debate on whether Tidal is a W or an L. Tidal had its missteps, from its tone-deaf launch event, over-reliance on streaming exclusives, and inflated streaming numbers. It was never a true challenge for Spotify and the biggest DSPs. Yet it's still an asset that Jay Z acquired for $56 million in 2015 and just sold at a valuation potentially 10x higher. Sure, it lost some of its value from 2017 when Jay Z sold 33% to Sprint. But most private equity firms would make that same deal if they could.

It's another example of Jay Z finding underdog assets and helping them level up. Jay Z still has a voice in Tidal's future with his new board seat at Square. And many of the original artist investors each had a 3% stake in Tidal.

‍Jay Z recently sold 50% of Ace of Spades, which likely helped him buy back Tidal's shares from Sprint to close the Square deal. And he's about to have another investment cash out when Oatly goes public. It's been quite the start to 2021 for the 51-year-old businessman.

‍The case for Square. I've written previously about why Square wants to buy Tidal. Tidal's far from profitable, but most streaming services aren't. This is an opportunity to do three things: double down on Cash App's rapid growth, use content to acquire customers, and leverage Square's resources to enable commerce for sellers.

- Cash App. The mobile services platform has grown for two reasons, hip-hop and Bitcoin. Hip-hop artists have used their influence to attract their fans to Cash App through free giveaways, and Cash App made it easier to purchase Bitcoin, which Square just bought $170 million of itself. So when Meg Thee Stallion tells her followers to buy Bitcoin on Cash App, that flywheel is moving on all cylinders.

‍- Customer acquisition. There's also a great opportunity to use Tidal's content to acquire customers. Tidal's platform hosts movies, livestreams, interviews, and more. Audio or video content can be lead generation for more Cash App and Square customers, and Bitcoin investors.

‍- Commerce tools for artists. And with Square's seller resources, artists can have a home to sell merch and music, similar to what Bandcamp and other platforms offer. This is what Square CEO Jack Dorsey alluded to in his tweets to announce the acquisition.

Read more about Square - Tidal in the Wall Street Journal.

The quest to create "the Shopify for music"

Lately, every digital streaming provider is positioning itself as more artist-first. Whether it's Spotify in its Stream On event, or now SoundCloud and Tidal.

Recently, Nathan Hubbard (Rival CEO and former Ticketmaster CEO) posed the idea of Tidal shifting to a Shopify-type model for musicians. For merchants, Shopify offers the back-end infrastructure that allows a company's brand to shine. It's a stark difference from Amazon, where "brand" is diminished and more emphasis is placed on product.

Today's music streaming landscape is dominated by Amazons. Artists don't have "brands" on most digital streaming platforms (unless we count when Drake dropped Scorpion. He took over Spotify like a startup that just closed a funding round and dropped half its budget on Instagram ads). Some indie distributors position themselves as "Shopifys," but they are alternatives to record labels—not streaming services. Most of them still rely on Spotify and Apple Music to distribute their artist's music.

Patreon and Bandcamp are the closest things to that Shopify model, but those are more marketplaces for creators to sell content and merchandise. They aren't services that pay artists royalties for music streaming. SoundCloud is a step in that direction. But again, SoundCloud's new program is more like Medium where customers pay the platform, and less like Patreon or Substack where customers pay artists and the platform gets a cut.

‍Outside the major label system. The challenge with "Shopify for music" is that the major record labels own most of the mainstream content, and most of today's mainstream artists are vested in that system. But the Shopify model has legs if it's independent of the major label system. New artists could choose whether to use the new service as their infrastructure for fans to pay them directly to stream their music. The platform could take either a cut of revenue or charge a monthly service fee.

It's a newer concept, but it's not impossible. It can also succeed without threatening artists who rely on Spotify and Apple Music. Sure, they may have worldwide distribution, but so does Amazon for retail businesses. Both options can coexist.

Coming soon from Trapital

- Podcast interview with Micah Johnson, the artist who recently sold $1 million of his NFT in 1 minute! We talked about why he left his career as a MLB player to create art, his thoughts on NFTs, and where he sees this space in five years. Drops later this week!

- Essay on Will and Jada Pinkett Smith. Drops soon! Get ready for this one.

‍Corrections 3/15:

- An earlier version of this memo said that SoundCloud took a 45% cut. SoundCloud does not keep 45% of the revenue cut from fan-powered royalties. It pays mechanical royalties and performance publishing royalties, which vary by country, as well as cost to payment providers, and other costs. According to VICE, SoundCloud retains around 25%.

- The artists who currently have paid Soundcloud memberships or use SoundCloud as their music distributor do not make up 20% of the musician base on SoundCloud. Instead, it's the payout share made to indie artists monetizing directly on SoundCloud.