If new technology isn’t polarizing, is it really that innovative? Those most hesitant to change are usually the incumbents. But when powerful detractors eventually come around, they are often in the best position to reap the rewards. It’s a pattern we see time and time again.
AI is music’s latest polarizing shift. This industry is often one of the first to get disrupted given the flexible nature of short-form audio and the mp3 format of a song. But change is only a threat if the industry isn’t willing to adapt.
Lessons learned from how producers leveled up
We rarely hear the term “superproducer” anymore. In the late 1990s and early 2000s, Timbaland, The Neptunes, Dr. Dre and others could easily charge several hundred thousand dollars per beat. They had access to gatekeepers, private jets, distinct sounds, and crazy levels of talent. But when piracy hurt the business, the record labels earned less, which means the artists and labels couldn’t pay producers as much for their services. Plus, technology lowered entry barriers to introduce more alternatives for both artists and producers to buy and sell beats through online marketplaces.
Why pay Timbaland half a mil’ for his beats when you could buy a “Timbaland type beat” online for a couple grand?
Timbaland may not get those size checks for a track anymore. And in 2016 he pejoratively called new producers “programmers” due to the new tools they have access to. But today, Timbaland is the co-founder of his own beat marketplace, Beatclub. He and another superproducer of his era, Swizz Beatz, launched Verzuz and sold it in less than two years for (at least) $28 million. He was less focused on preserving that check but more focused on using new technology formats to his unique advantage, which brought in much bigger checks in the long run.
A hobbyist producer can now mimic Timbaland’s sound on a beat, but those hobbyists aren’t in a position to launch the businesses that Tim has. Technology helped everyone level up their game.
And even if we look at the younger successful streaming-era producers, like Metro Boomin, Murda Beatz, or Tay Keith, their talent backs up their rise. Technology may give a one-hit-wonder an easier platform to rise up, but they’re unlikely to stay on top unless they deliver consistently.
Tech’s bull run benefits the incumbents
Here’s a quick recap from last week’s memo on how the industry should embrace AI:
“So far, these AI-generated songs have only gone viral because they’re based on popular artists… Music itself is subject to the power law, which means generative music is also subject to the power law. In other words, it’s in the superstar artist and record label’s best interest to enable experimentation—as long as there’s a fair way to compensate the artist and rights holder. Their work would be the most-accessed music for generative songs anyway, so why not lean in?”
Leaning in requires the industry to level up in ways that new entrants can’t. That’s what Timbaland did. That’s what the largest tech companies in the world did in the bull market run since the Great Recession.
During the 2008 to 2021 bull run, the companies that fared the best were the largest companies in the world: Amazon, Apple, Meta, Google, and Microsoft. If there was a trend worth pursuing, they had the most resources to allocate toward it. If there was an innovative new company making moves, they acquired it.
On a “per bet” basis they often missed the mark, but when they got it right, they changed the game. Like when Facebook acquired Instagram, or Google bought YouTube. These companies have the luxury to treat M&A deals like growth-stage venture capital.
Music has historically been reticent to big swings like this, but it has an opportunity to do the same with AI. These major labels have the money for big acquisitions too. They will spend half a billion dollars to acquire a legacy music catalog or a rising record label with popular young talent. Those are smart bets, but they are safe. Those moves rarely lead to outsized asymmetrical returns that can take a business to that next level.
We’ve already seen some M&A activity in the space. SoundCloud acquired AI music curator Musiio less than a year ago. Earlier this year, HYBE acquired voice-based AI company Supertone. And generative AI music company Endel has landed playlist partnerships with Amazon Music and a record deal with Warner Music Group.
Deals and moves are happening. And plenty in the industry are eager to see it play out. Grimes said that she’ll split 50% royalties with any successful AI-generated song and I bet she’s not alone. But Grimes is an independent artist who can call her own shots. This shift will be most effective if everyone is bought-in together—major record labels, streaming services, distributors, social networks, and more.
Everyone says they want to expand the pie beyond the zero-sum games that can limit the music industry’s growth potential. This is a great way to make that happen.