One can summarize all of the recent technological disruptions in the music industry as a continuous ungrouping, and regrouping, of content.
Napster and iTunes ungrouped albums into individual tracks for sale and exchange; streaming platforms like Spotify then regrouped these "unbundled" tracks into the newly-ordered format of a playlist, which has become one of the primary units of audience development and engagement for music. While the "Napster era" of piracy slashed U.S. recorded music revenue by 40%, streaming helped the sector see its third consecutive year of growth in 2017, and now accounts for 38.4% of the revenue pie.
The next natural step in this technological evolution is unbundling an individual song itself into isolated vocal and instrumental parts ("stems") and bite-sized samples and loops ("sounds"), for interactive transformation by artists and fans alike.
Apps like Instagram, Snap and Vine have demonstrated an enduring hunger for “snackable,” user-generated content (UGC) that treats others’ creative works as a launching pad for self-expression. Audio is arguably the next frontier in this UGC wave.
While it will usher in a mountain of technological and legal challenges, the grass looks greener and cushier on the other side. The stem market alone—targeting the market of over five million professional and amateur DJs around the world, eager to remix their favorite songs—is projected to contribute $2 billion to the recorded music industry by 2020, without cannibalizing existing revenue sources.
Hip-hop, a genre built in part on digging up decades-old samples from record crates, has been planting the seeds of this song-level ungrouping for decades. Today, several A-list producers like Illmind (Jay-Z, Dr. Dre, 50 Cent) are banking hundreds of thousands of dollars a year from selling packs of their signature sounds on their personal websites, which other producers can download and incorporate into their own works without having to worry about siphoning off any royalties.
“I think hip-hop producers and beat-makers are really on the forefront of how the music industry will look moving forward,” Daniel Haver, CEO of leading DJ/production software and hardware manufacturer Native Instruments, told me. “It’s much less about ‘me’ and protecting myself, and more about enabling and empowering others to create, while also getting something back in return.”
Companies like Native Instruments are working to unblock traditional industry bottlenecks and foster a more open creative ecosystem by making more content available to artists across a variety of formats. In January 2018, Native Instruments launched Sounds.com, an online subscription service that charges $9.99/month for up to 1GB of monthly downloads from a selection of nearly 600,000 loops and samples, culled from hundreds of label partners.
Its closest rival in the marketplace, Splice Sounds, charges anywhere from $7.99/month for 100 monthly sample download credits to $13.99/month for 300 monthly credits, which subscribers can spend across a selection of over two million sounds and hundreds of exclusive sound packs from artists like deadmau5, KSHMR and Sonny Digital.
Both Sounds.com and Splice Sounds distribute a proportion of their revenue to artist and label partners on a pro-rata basis, based on the number of downloads (not streams) that their respective loops and sounds attract each month. The latter site has already paid out over $7 million to creators to date.
In the stem space, companies like Stemit are in talks with major record labels to help unlock value in their back catalog by providing technology to stem individual songs, then making those stems available to DJs via an online marketplace with secure digital-rights management and tracking built into the files.
Tracklib is on a similar mission to create a more affordable resource for original master recordings for sampling—in a landscape where practically the only other alternative is shelling out hundreds of dollars just to afford an attorney who can start the initial sample-clearance conversations with labels in the first place.
Every recording on Tracklib's site can be downloaded for a flat fee of $1.99, with subsequent licensing costs running on a three-tier system. For instance, if you wanted to sample between 15 and 60 seconds from a Tier A song like “Impeach the President”—one of the most-sampled tracks in recent music history—you would have to pay $2,500 to legally monetize your track containing that sample, in addition to giving away 50% of royalties to the original rights holders. On the other hand, if you wanted to sample just two seconds from a Tier C song like "Morgus the Magnificent" by Morgus and The Three Ghouls, you would only need to pay $50 to secure the rights to monetize your track, and then give away just 2% of your royalties to the original rights holders.
More than 99% of recordings on Tracklib are categorized as Tier C—emphasizing affordability as the site's main value proposition—and licensing fees are advance payments recoverable from royalties the producers pay on future revenues from their new recordings containing the sample(s) in question. Tracklib facilitates the process of registering a song containing a sample properly with a performing rights organization (PRO).
Based in Stockholm with additional offices in New York and London, Tracklib launched to the public last month with close to 60,000 fully-cleared tracks from more than 100 content partners, and has endorsement and advisory support from award-winning producers like Erick Sermon, Prince Paul, Questlove and Hank Shocklee. “We’ve already done our third round of payouts to labels and publishers, and the payment has gone from just ‘symbolic’ to really substantial,” Pär Almqvist, CEO of Tracklib, told me.
In the streaming era, artists might not see profits on album release campaigns until months or even years down the line—compelling many of them to explore diversifying their recorded-music revenue as early as possible in their careers. As a result, monetizing the creative process as a product in and of itself is now as much of a financial necessity as it is a cultural choice.
There's also a significant consumer play here: experts estimate that professional and amateur DJ-producers create a combined five million hours of new musical content every 90 days. Avid music fans want to feel empowered to create their own content using the same building blocks as the artists they love. Apps like Jammer and PlayGround are striking direct deals with the likes of Ariana Grande, Sofi Tukker, Francis and the Lights and 20syl to allow fans to remix and re-compose these artists' most popular tracks on a visual, mobile interface.
“The internet is a disaggregation machine,” Matt Adell, Chief Digital Officer at Native Instruments, told me. “Across all content types, users want to consume only what they want, when they want and in the format they want. I see my job in this space as threading that needle, and ultimately finding the right model that works for all constituents involved.”
In this vein, the music industry might be its own biggest obstacle to change. Most labels, especially in the corporate world, have neither the proper infrastructure nor the incentives to distribute songs in an “unbundling”-friendly way.
“Albums are like compounds, recordings of songs are like molecules and stems are like the atoms that come together to make the molecule—but we’ve never really priced atoms before,” Tom Silverman, founder of iconic hip-hop and electronic label Tommy Boy Entertainment, said at a SXSW panel in 2017. “ISRC codes [identifiers encoded in musical recordings to determine proper royalty payments] are only for the molecules. We would need sub-ISRC codes for each atom, such that we can make stems available to anyone who wants to download and license them properly. We’re still five to ten years away from that happening, but we need to start thinking about how we get there from where we are today.”
As of now, the dominant process for clearing samples and acquiring stems for remixes is labor-intensive and cost-prohibitive. For a typical sample-intensive hip-hop album released through a major label, artists have to set aside $100,000 to $150,000 in upfront fees for the proper sample clearances. Experts estimate that only two to five percent of tracks containing samples are actually cleared properly through rights holders; the remaining 95 to 97 percent likely obtained their samples for free from online black markets.
Even the process for searching and obtaining royalty-free sounds remains rather cumbersome and has not wholly caught up with technological advancements. For all the industry talk that “downloads are dead,” the artist-facing content economy still runs primarily on download sales—and the rampant piracy that comes along with that paradigm.
“If you look at the recent history of music-service innovation, it’s all been about the listener experience. But what about the creators?” said Almqvist. “What about delivering music to artists in the formats that they need, and building services that enable them to make their best work? This creator-first approach is still a new mindset that few labels are really embracing.”
In March 2017, Native Instruments acquired MetaPop, which aimed to make remixing easier via an online marketplace for selling pre-cleared stems. The MetaPop marketplace shut down shortly after the acquisition, however, as “rights management was not at the top of the list when it came to Native Instruments’ strategy,” said Adell, who was MetaPop’s founder (the startup's community-oriented elements are still active).
Sounds.com—which was brought to market MVP-style, after just six months of development—hopes to be a viable, royalty-free content alternative for Native Instruments’ user base.
Both Native Instruments and Splice have honed in on subscriptions as a better business model than downloads for loops and samples not just because of affordability, but also because “the download model doesn’t really fit well into the creative flow,” Splice co-founder/CEO Steve Martocci told me.
In fact, Splice Sounds seems to be a natural continuation of the “rent-to-own” model that its parent company launched for plugins in August 2016—whereby producers could "rent" access to the full version of a given plugin on a monthly basis, with every payment going toward earning a full license of the product, rather than paying a steep price for the license upfront. Multiple industry execs cite Adobe as an outstanding inspiration for bringing this subscription mindset to music creation, and to creative software at large.
Subscription services also beget deeper user engagement than download sites, potentially bolstering brand loyalty for producers and labels. One of the most common criticisms of consumer-facing streaming services like Spotify and Apple Music is that they don’t support individual profile pages for record labels—a particularly urgent gap for genres like EDM in which labels can serve as influential brands and curators for fans.
In contrast, Splice Sounds, Sounds.com and Tracklib all have designated label and producer pages. Tracklib producers and users can even create their own “sonic mood boards” by assembling their own collections of Tracklib recordings, in a grid format similar to Instagram.
“You’re not just downloading something random from a website—you also get to learn more about the story and creator and about where these sounds came from,” said Martocci. “It almost feels like you’re closer to collaborating with that artist, rather than just buying from them.” Indeed, it's relatively common to hear about producers, songwriters and vocalists who end up in fruitful writing sessions together after discovering each other’s branded sample packs on Splice.
“Splice Sounds has brought us a whole new audience,” Sharooz Raoofi, veteran DJ-producer and founder of loop/sample marketplace and Splice label partner Sample Magic, told me. “One challenge with a brand like ours that’s been around for over 12 years is that while we tend to retain our customers, as they get older, so do their music tastes. In terms of our best-performing genres, our audience is traditionally more techno-focused rather than EDM-focused, and didn’t initially appeal to the younger U.S. market. Having a platform like Splice come along that serves that younger demographic incredibly well has renewed a lot of interest in our brand.”
Interestingly, from Native Instruments' perspective, this deeper community engagement might not necessarily be the appropriate goal for Sounds.com right off the bat. “When you build an engagement business, your job is to keep someone on your site, but I actually see my job with Sounds.com to be the opposite,” said Adell. “We want to help you find the song you need for the song you’re writing as quickly as possible, so that you can get off the site and go back to composing music. Our goal is to help your workflow and to be valuable to your writing process. The less we can distract you from your workflow, the better.”
Multiple sources tell me that it will be hard to build a comparable subscription service for stems, in part because of the legal complexities around royalty payments and the ways that labels prefer to broker deals for remixes today.
Typically, a label pays a DJ-producer a flat fee—ranging from $1,000 to $5,000—to create a remix for a given song, with the label and any other original rights holders keeping all royalties and profits.
“Where it gets more interesting is when a DJ wants to create an entirely new piece of content using stems from a variety of different artists and songs, such that the end listener can’t discern where those stems originally came from,” Sam Kornstein, Head of Finance & Strategy at Stemit, told me. “Maybe the model of paying the majority of royalties to the original artist shouldn’t hold if the resulting content isn’t as recognizable.”
Tracklib's tiered, time-based payment model is one potential solution—but one could argue that paying out sample royalties based solely on the amount of time referenced within a song might not actually reflect the sample’s value. For instance, James Brown’s signature screams and grunts are arguably worth more than many other samples, even though each scream or grunt lasts only around a second long.
What’s more, Tracklib's royalty payout plan differs vastly from that of Stemit, which anticipates that labels would keep the lion's share of stem revenue under its own marketplace. This only drives home the point that when it comes to experimenting with different models for unbundling content, it's still very much the wild west.
“People need to get prepared for the shattering reality of new ideas,” Ty Roberts, former CTO of Universal Music Group and advisor to Stemit, told me. “Can you take U2’s stems, get rid of Bono and put your own voice in? Can you mash up Crosby, Stills & Nash with 50 Cent? Even if that’s technologically possible and you can figure out how to split royalties, is that culturally acceptable? I don’t think it’s inherently bad, but it will upset some people.”
Because of the enduring complexity around stems, label sources say that the ideal price point for a stem subscription service today would be north of $19.95/month—the same price point that Jay-Z-owned streaming service Tidal current charges for its high-fidelity tier.
In fact, even as technology improves, we can expect certain power dynamics in the music industry to stay the same. For instance, a high-profile artist like The Chainsmokers would still want to keep 100% of their royalties on remixes and pay just a flat fee to producers; sites like Tracklib would arguably be unnecessary for facilitating those types of deals.
In addition, as Roberts alludes to, there is still some resistance to this distributed-unbundling paradigm shift in music, including among artists who are just starting out and trying to distinguish themselves in an increasingly crowded, competitive marketplace.
One early-stage artist manager, speaking on the condition of anonymity, told me that he would not want to distribute original stems or samples from his artist’s work openly online, due to fears around identity protection. “If someone else runs off with my artist’s sounds and becomes more successful, my artist won’t have the upper hand later on,” he said. This fear is partially grounded in longitudinal evidence, as several hit songs throughout history have out-charted the songs they sample.
Execs at Splice, Native Instruments and similar companies respond to this skepticism by pointing to how the monetization opportunities around loops, samples and stems are non-cannibalistic to existing revenue streams, and can also help strengthen producers' reputations among a cohesive, like-minded community.
“I remember when we were showing Splice Sounds to artists two years ago, and we would hear feedback like, ‘There’s no way I would share my drums on here because that’s my secret sauce—that’s what makes my career,’” said Martocci. “What we’re starting to see today is a much different culture, where more people coming up in their careers are happy to share their materials and inspirations. One, it becomes a great source of income for them, and two, it builds their credibility as a producer with that ability to inspire and give back.”
Moreover, samples in and of themselves don't define artistry; one can give the exact same sound or sample to a group of ten different producers to play around with, and they will come out with ten completely different works of art.
“Cutting through the noise isn’t about which specific samples you’re using, or how thick your bass drum is,” Mate Galic, Chief Innovation Officer & President at Native Instruments, told me. “It’s about your identity—who you are as an artist, and whether you have something compelling to say. Tools like ours can help you express yourself, but your creativity is ultimately what makes all the difference.”
All of the above-mentioned companies are also looking into strategic partnerships to make the creative flow around subscription services even more streamlined across both software and hardware. Tracklib is in talks with production software companies Serato and Propellerhead for deep integrations, while Native Instruments is working on integrating Sounds.com with hardware and software both inside and outside its own product ecosystem.
“There’s a lot of room to improve when it comes to music creation, specifically around fragmentation and lack of alignment across the ecosystem, which ultimately leads to a worse user experience,” said Haver. “If you are just starting out as an artist, it’s really easy to get lost. Even Native Instruments is somewhat involved in this problem, whereby if you’re not tech-savvy it can be difficult to jumpstart your career as a musician. We want to get rid of that contradiction, and invite more people to create music through new types of services and standards.”
Importantly, so does Spotify: in November 2017, the streaming service acquired Soundtrap, a cloud-based, collaborative recording studio that charges users $3.99 to $11.99 a month for access to loops, instruments and online collaboration software. Soundtrap was reportedly in acquisition talks with creation-focused companies like Native Instruments that seemed more naturally aligned; the fact that the startup ultimately sold to a now-public company focused on distribution raised some industry eyebrows, and underscored the mutual mission across multiple, otherwise fragmented services of building a more connected, streamlined music ecosystem for artists and fans.
“Why would Native Instruments and Spotify be interested in the same companies and people?” said Haver. “In the end, the vision is the same.”
