Why Hip-Hop's Indie Economy Has Taken Off

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Hip-hop’s indie economy has damn near exploded. Every few months, there’s a new program launched to make life easy for the DIY artist.

Wanna text your fans? Done. There are several apps for that. Need to manage social media? There are more apps for that than there are social networks! Want to distribute music from your phone to all the digital streaming providers? Several companies got you covered.

These services support the rise of individual creators. Each company is on an aggressive quest to unbundle the services offered by legacy institutions. It’s a pivotal shift with tons of venture capital betting on it.

But each service will reach a point where it makes a tough decision. Will it serve the upstart indie users who love the platform? Or the corporate partners who help cut the big checks? Most will try to do both, but it’s harder than it sounds.

A movement defined in phases

Indie rap isn’t new. We can break it down in phases. Phase 1 was in the 80s and 90s. People like DJ Screw and Master P made bank independently. They were direct-to-consumer before ‘DTC’ was a keyword in pitch decks.

They paved way for Phase 2, when unsigned artists hopped on the internet. Services like MySpace Music and SongClick were key for DIY rappers. In 2007, Soulja Boy inspired a generation with the YouTube sensation, “Crank Dat.” The era led to success stories like Nipsey Hussle on TuneCore and Chance the Rapper on SoundCloud.

Phase 2 aligns with Web 2.0 and the rise of sharing and user-generated content. Tons of artists tried to replicate those success stories. But much like nonstop “Crank Dat” remixes (gotta love Crank Dat Roosevelt), many of these artists struggled to build a career on it.

That led to today, Phase 3. Today’s companies were built with Phase 2 success stories in mind. These new services address lingering pain points, especially in distribution. Stem and UnitedMasters help artists get their music on streaming services, simplify royalty splits, and gain access to brand partnerships. SuperPhone and Community show how far texting has come. Not too long ago, Mike Jones gave out his actual phone number and he got called 40,000 times a day. What a time. Long live 281-330-8004.

These businesses line up with the broader trends in the “creator” ecosystem. Email newsletter services like Substack were first built to breed more success stories like Ben Thompson’s indie publication, Stratechery. OnlyFans has evolved from an X-rated membership platform to an informal paywall for Instagram-style content. If there’s an audience to monetize, there’s a startup that’s on it.’

The strength in power users

Most of these Phase 3 companies follow three popular tech waves: platforms, membership, and unbundling:

• Platforms facilitate a value exchange between two parties. In music, those parties can be creator-consumer, creator-vendor, and more. When creators make more money, platforms do too.
• Membership models are hot because they offer recurring revenue. The digital era has granted customers access to a growing suite of services that improve over time.
• Unbundling splinters off services offered by institutions, like record labels. On the consumer side, it’s direct access to fans. On the business side, it’s music distribution, partnerships, and other services.

Much like record labels, the business model thrives on the short tail—the few power users who subsidize the majority. Keeping these users happy is key since there’s no commitment to stay on a platform. Usually, the best switching cost is the ease of use compared to alternatives. These services are often quick to sign up for, save users time, and can yield results quickly. If the alternatives have steeper learning curves, the platform’s retention will be higher. And if switching costs aren’t enough, the advances can get offered to the most valuable users.

These companies are built to grow fast. Profitability is delayed. But how they become profitable, if ever, is when the strategy gets tougher.

The platform’s strength is its flexibility

The success stories from Phase 2 helped Phase 3 companies attract early users and investors. But by the time Phase 3 companies gained traction, the landscape had changed.

For instance, UnitedMasters CEO Steve Stoute once said there needs to be 250,000 Chance the Rappers. When Chance and Russ came up, there were fewer indie artists in the pool. Their success has since inspired more to follow their lead. The pool got even bigger when Phase 3 companies addressed the pain points that held others back.

In-house success stories became far more relevant. That includes young artists like NLE Choppa and established ones like Jeezy. Both are doing their thing, but it’s still a narrow scope of what’s possible. Phase 3 needs to hit that next level. The platforms need to embrace their flexibility with their multihyphenate users.

Artists like Jason Derulo now make bank on TikTok. His business model has more in common with TikTok star Charli D’Amelio than Trey Songz. New partnerships like UnitedMasters and TikTok can help creators distribute the music behind their video clips. A music distribution service can be home for the rapper who wants to be in your Top 5 and the creator who wants to build the Hip-Hop Hype House.

Music distributors, text marketing platforms, and email delivery services should embrace the wide range of use cases. They should support those who make money from the content itself, use the content to distribute other services, or both. The best Phase 3 companies will lean into this. They will surpass the platforms that are stuck on recreating the Phase 2 champions.

The most powerful users possible

The current indie economy is both blazing a new trail while mirroring those who came before. YouTube, an undisputed Phase 2 champion, is much further along in its indie creator lifecycle. But the video platform has evolved considerably, which angered its initial users.

The Verge’s Julia Alexander broke it all down in The golden age of YouTube is over:

The platform was a stage for creators who didn’t quite fit into Hollywood’s restrictions. It allowed people like Jenna Marbles; Felix “PewDiePie” Kjellberg; Anthony Padilla, Ian Hecox, and their channel Smosh; and Lilly Singh to thrive. They were each driven to create a form of entertainment that wasn’t happening elsewhere, and their work was incredibly unique... 

Behind the scenes, things were changing. YouTube had begun tinkering with its algorithm to increase engagement and experimenting with ways to bring flashier, produced content to the platform to keep up with growing threats like Netflix... 

YouTube’s biggest front-facing stars began following in the footsteps of over-the-top, “bro” prank culture...The antics were dangerous, but they caught people’s attention. 

...There was the YouTube the company wants advertisers to see: Ariana Grande on Vevo, series from Kevin Hart and Demi Lovato, clips from The Tonight Show Starring Jimmy Fallon.

YouTube’s evolution is a case study on the laws of the internet. First, shock value wins on platforms where views, likes, and subscribers are currency. Early YouTube hits like “Charlie Bit My Finger” can’t compete on an algorithm now built for Logan Paul’s clout-chasing stunts.

Second, and more importantly, YouTube now makes less money from indie creators and more from established companies that got with the times. The “power users” are now the most powerful media conglomerates. They came through the gates with massive audiences, tons of advertising potential, and an overdue need to get with the times. Those original power users made YouTube some money, but they can’t make YouTube that ViacomCBS-money. Big bank literally took little bank.

This trend has happened outside of streaming too. Look at WeWork. The shared workspace company was first pitched as a home for startups, freelancers, and independent consultants. But last year, 40% of its members worked for companies with 500+ employees. Since the pandemic, 65% of WeWork’s new members are from large enterprises. It’s the same shift, same reasons.

Some of this has already happened in music. In 2019, Stem pivoted its business model from serving anyone to only select artists with a proven track record. In August 2020, the company secured $10 million in new financing from several investors, including Quality Control Music’s Coach K, who uses the service for artists on his record label, which is distributed through Motown Records and the largest label in the world, Universal Music Group.

The strategy shift is understandable. These platforms have lofty goals, want to keep investors happy, and the major clients can help them meet those goals. But today’s indie creators should be ready. The platform’s most profitable customers often become the institutions they initially disrupted.

The inevitable re-bundling

The “unbundling” that dominated Phase 3 will lead to an inevitable re-bundle. Despite the numerous tools available, there are still unmet benefits that record labels and other institutions once offered artists.

For instance, global distribution is still an uphill battle for indies. If an American indie rapper wants their album to do well in Tokyo, they’ll have a harder time than a signed artist on a major label. It’s why Russ had a distribution deal with Columbia Records until recently, and why a self-made mogul like Tyler Perry still needs a film distribution deal with Lionsgate.

The re-bundling will happen in several ways. Indie artists themselves will band up, share ideas, and pool resources for shareable services. A group of 18 former Deadspin writers recently came together on The Defector, a new paid media publication where each writer owns 5% of the company. The same can happen in music.

Platforms will also re-bundle by adding services. Distributors like EMPIRE and Audiomack have ramped up their content arms to serve the artists on their services. The various re-bundling efforts can succeed as long as they embrace the independent ownership of its users.

It’s an exciting time and an uncertain time. Today’s indie artists and founders are asking the same question: How far do we go before we team up with powers that be?

For some, the answer is never. They want to run their thing, serve the initial customers, and keep it going. For others, the shift is inevitable. But with the wide range of options and past examples to learn from, the inevitable shifts shouldn’t surprise anyone.