Taylor Swift (Acquired’s Version)

You're looking very good in that scarf, sir. Ah, as are you, Fencer. Had to bust out the red scarf. Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Is it you? Is it you? Is it you? Sit me down, say it straight. Another story on the way. Who got the truth? Welcome to Season 10, Episode 1, the season premiere of Acquired, the podcast about great technology companies and the stories and playbooks behind them.

I'm Ben Gilbert, and I am the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund, PSL Ventures. And I'm David Rosenthal, and I am an angel investor based in San Francisco. And we are your hosts. She is Billboard's Woman of the Decade. She was the first woman to ever win the coveted Album of the Year Grammy twice. And now she's won it a third time. She was the highest-paid celebrity in the world in 2019, more than Kanye, LeBron James, Roger Federer, or even Beyonce.

Her fan base is so passionate, and she's accumulated so much power, that she is leveraging it to reorganize the power dynamics of the music industry in front of our very eyes, taking it back for artists, and of course, standing up for women everywhere. You knew her when she was 15, 22, and now she's accomplished all of this at the still unbelievably young age of 32. That was good. I like that. I like that. You probably know her all too well.

She's maniacal. Oh, come on. Okay, okay. You could even say she's fearless, a mad woman, or, David, or that she'll never go out of style. Today, listeners, That is true. we are telling the story of the business of Taylor Swift. I have a fun little thing I wanted to do. I thought we should guess each other's favorite T-Swift album. Ooh. Let's see. I think yours used to be 1989, and now it's Reputation. Ooh. Oh, man. Reputation is so good.

I did not like it at all before starting the research for this, and now I am such a fan. But no, 1989 is my number two. My number one is Fearless. Fearless. An uncommon pick, my friend. I know. I love it. I just love it. So good. And the song, Fearless, so good. All right. What's mine? I think yours is 1989. Mine was 1989, and I am a folklore fan now. Oh. Oh, and folklore over Evermore.

You can't put Bon Iver on an album with Taylor Swift and expect me not to just immediately like the whole album the best. All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Lagora, the agentic operating system that is redefining how the world's best legal teams work. Yep. It's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there.

Lagora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry? So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts, and it pulls every key term into a grid a lawyer can actually work with.

Lagora's bet here is interesting, since it lets each lawyer handle more complexity. Any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time. And they recently launched Lagora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency, since they're still involved where judgment is required.

And Lagora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Lagora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Lagora now has over 100,000 lawyers on the platform, from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months. Truly insane numbers. And that is the real test.

Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at lagora.com slash acquired, and just tell them that Ben and David sent you. We also want to tell you, listeners, that if you are new to the Acquired community, you should make it official.

Join the over 11,000 smart people at acquired.fm slash slack. Most of you know this, but we also have a second show called The LP Show, where we cover nerdier, deeper topics on how to raise venture capital, things like that. Recently, what's going on with the very cool startup Italic, which brings manufacturers directly to consumers. You can get access to that by searching Acquired LP Show in the podcast player of your choice. And without further ado, David, take us in.

And listeners, as always, the show is not investment advice. David and I may have investments in the companies that we discuss, and the show is for informational and entertainment purposes. Only. We may own a few music securitization deals out there. I don't know if we would recommend it. At the end of the episode, we'll decide if we recommend buying into Music Master securitization deals or not. Amazingly, this was shocking to me. There is no official big book biography out there about T-Swift.

But there is actually quite a good book out there. It's unofficial, of course, but it's really well researched by a man named Michael Francis Taylor, who is a Brit, and it is called Taylor Swift, the Brightest Star. And it formed the backbone of a lot of the research here and story. So a big thank you to Michael for writing it. Okay. On December 13th, 1989, Lucky 13, at the Reading Hospital in West Reading, Pennsylvania, not far from where both of us were born and spent our childhood years.

The wonderful Southeast Pennsylvania, Delaware region. A baby girl, one Taylor Allison Swift, is born to parents Scott Kingsley Swift and Andrea Gardner Swift, maiden name Finley. So her dad, Scott, is a stockbroker for Merrill Lynch. That's sort of all I ever heard on him, too. Based on what I could find out, he comes from like a long line of wealthy sort of Philadelphia, you know, area family. If you've seen kind of like the Philadelphia story, like he was born on the main line in Bryn Mawr.

Like his great grandfather, so Taylor's great great grandfather was a guy named Charles Baldi, who was an Italian immigrant, came to Philadelphia in 1877. You know, we got to go back to the 1800s because it's quiet. We can't just start in 1989, of course. And he opens a coal yard in the Philadelphia area, supplying the railroads and becomes like one of the biggest. Oh, wow. Coal magnets for railroads in the Philadelphia area. So he makes a fortune.

He invested in newspapers. He invested in banks. He likes stocks of banks. He buys a ton of Philadelphia area real estate. Let's just say the family has a lot of properties. Speaking of her mom, she also comes from quite an interesting family. Before having Taylor, Andrea had worked in marketing for various financial services firms and then decided to stay home to be a mom to Taylor and her little brother, Austin. But Andrea's childhood was pretty unique.

And her mom, Marjorie, had quite a different path. Marjorie was an opera singer. Is that right? And more. So Andrea's dad, Robert Taylor's grandfather, was the CEO of an engineering company that did a lot of work in the South and particularly in the Caribbean. And so when Andrea was growing up, they lived like all over the country and spent a lot of time in Cuba before the revolution and then in Puerto Rico. And her mom, Marjorie, had a college degree in music, which was pretty rare at that time.

Yeah. I think she was born in like the 20s, I want to say. And while they're living in the Caribbean in Cuba and Puerto Rico, she and I believe Andrea was already born at this point in time. She decides that she wants to like become a professional singer. She gets her own TV show that she hosts and she's selling out clubs, performing shows. She sang opera. She wasn't just an opera singer. She also sang pop tunes as well.

And sort of like Taylor to come, not just a country singer, also sang the pop tunes. Anyway, Marjorie and I believe also Robert eventually end up moving in with the family, the Swift family in Reading and live with Taylor and obviously have a big influence on her. So by age three, Taylor clearly has gotten the musical gene from Marjorie. She's into singing. The family also has a beach house naturally at the Jersey Shore at Stone Harbor.

And supposedly Taylor would just like go up to strangers on the beach and start singing to them. She has this great quote. My parents have video of me on the beach at like three going up to people and singing Lion King songs for them. I was literally going from towel to towel on the beach saying, hi, I'm Taylor. I'm going to sing. I just can't wait to be king for you now. When she is six, a few years later, her parents buy her her first album, which is Leanne Rimes.

Remember Leanne Rimes? Oh, no way. So through Leanne, of course, Taylor gets into country music and how perfect is this? What is country music? The defining characteristic of country music is storytelling. So perfect for Taylor. And she pretty quickly discovers Shania Twain, who, in addition to being awesome and a great country artist, wrote all of her own songs. Hmm. So she decides, why can't Taylor do this as well? So she starts going to local venues, coffee shops, bars, doing open mic nights, karaoke.

And it turns out that one of her regular karaoke venues in the Reading area is a roadhouse just outside of town owned by former country star Pat Garrett. He's kind of the only country star in the area. So at his roadhouse, he would have pretty big acts come through when they were in town like Charlie Daniels or George Jones and the likes. And if you won karaoke night, you'd get to open up for these acts. Hmm.

So Taylor just starts hanging around. She has a great quote. She says, I was kind of like an annoying fly around that place. I just would not leave him alone. How old is she here? 10, 12, 13? Yeah, 10. An enormous amount of parental support for a 10 year old to be a fly hanging around someplace, you know? It's interesting. I was thinking a lot about this and people talk about Taylor was in many ways sort of born standing on third base and had all this privilege and support from her parents.

That's absolutely true. On the other hand, it's also pretty rare for anybody and often especially people from wealthy families to have like that kind of level of ambition. Like her parents weren't pushing her to doing this. They were supporting her. But like she was absolutely the one that was driving like, I'm going to do this. I'm going to go be Shania Twain and Leanne Rimes. I mean, it shows up her entire career that she has a chip on her shoulder that no level of accomplishment is ever enough.

And she needs to set her sights on the next thing. I get the sense she's the type of person who has trouble celebrating wins before immediately focusing on whatever's next. And that you cannot manufacture. Okay. So she's singing at the roadhouses. She starts getting on the national anthem circuit locally. She sings the national anthem for the Reading Phillies, the local minor league baseball team. So it begins. So Taylor one night is watching the VH1 behind the music on Faith Hill.

And the story goes, and she is watching this and realizes that, oh, Nashville is where Faith Hill was signed and discovered. And all these artists, all these country artists, they're all based out of Nashville. So she says, I got it into my head that there was this magical land called Nashville where dreams come true. And that's where I needed to go. I began absolutely nonstop tormenting my parents, begging them on a daily basis to move there.

So, of course, I read this and I'm like, huh, I wonder why Nashville is the epicenter of country music. I mean, it makes sense. It's in the South. It's popular in the South. But why Nashville over Memphis or someplace else? On every other episode that we talk about on this show, when we're talking about tech businesses, this is the part where we're talking about Silicon Valley. And it's amazing that we have a completely different version of that in the country music scene.

Not only country, but bluegrass, like all of it. Nashville is the epicenter. So it turns out that the reason for this is that there was an insurance company based in Nashville. This is wild. You can't make this up. What? There was an insurance company based in Nashville in the 20s called the National Life and Accident Insurance Company. And their slogan was We Shield Millions. And they decided that as a marketing stunt, they were going to go buy a local radio station in Nashville and change the call sign of the radio station to WSM and have it be like We Shield Millions Radio.

So they do this. And one of the things they start doing with the radio station is they do live barn dancing that they broadcast on the radio station on Saturday nights. I know people are like, where are you going with this? It becomes so popular. They're like, oh, we got to build a venue for this and let's make it a show. And let's really go all on. We're getting tons of customer acquisition through this. So they build what becomes the Grand Ole Opry for this show, this insurance company.

And that then becomes like the venue for sort of early country style music. And like Johnny Cash, Dolly Parton, Hank Williams, like they all come up in Nashville. And so that's why Music City Nashville is the place to be. Wow. I love how random. I mean, it's not that it's random. It's complexity theory. It's that there is so many factors that go into something that this sort of unpredictable event of this insurance company sponsoring a radio station to this huge amount is it serves as enough of a catalyst to bring together.

Surely a movement that was already happening, but to happen there. Yep. Okay. Back to Taylor. She finally wears down her parents who say, well, we're not going to move there, but like maybe on a school break. Yeah. Why don't you record a demo and we'll go down to Nashville. We'll drive around. We'll take it to some labels and we'll see what happens. So in March 2001, Andrea takes Taylor down to Nashville. She comes back to Pennsylvania, empty handed, no record deal.

Surprise, surprise. Just walking into offices on her own. Didn't get her deal, but she's undeterred. This is Taylor Swift we're talking about. And the next year in 2002, she gets the chance to sing America the Beautiful at the US Open in New York. Slight twist on the national anthem. You know, she's she's branching out from her single song. So amazingly, like the strategy, it works. It works in the audience. Taylor Swift in attendance at the Open is a talent agent in New York named Dan DeMertro.

And he hears her sing. He's part of Britney Spears's management team. And he's like, oh, that girl's got talent. So he gets in touch with the Open organizers. He calls her up. He gets in touch with her family and signs her as a client. And so Taylor's like, oh, OK, great. I got an agent now. They then go back down to Nashville, back down to Music Row. Dan walks her in to all the studios. This is like the big three record labels.

Second office that's in Nashville, right there. They have Nashville specific offices for country. Yep. And some of them, it's, you know, it's very much like the movie industry. Like some of them, it's, you know, Capitol Records, Nashville or, you know, whatever. And some of them, they have other labels. Oh, if you go look up Universal Music Group, you can see that there's a thousand labels within, you know, UMG. And I think for a lot of these big label groups, they'll even have competing, you know, wholly owned labels.

So there might be two or three or four RCA labels in Nashville or in New York or in Hollywood. Yeah. So this time, once again, Taylor does not get a record deal, but RCA offers her a development deal, which, you know, is not the record deal. Obviously, it's like, hey, we're going to invest resources in you and make a record that we're then going to release and we'll get it on radio and see how you do.

A development deal is like, we think you have potential. We're not ready to commit to a full record. It's like a small check from a venture firm, you know, like we'll participate in the round. We're not going to lead it, though. And I assume there's it's like limited investment, but kind of limited upside. And it's more about making sure you have relationships with the right people and we can keep an eye on you should you start to really shine.

Exactly. And I assume that there's also a rofer on an actual deal in there. Uh, but as folks may know, Taylor does not end up signing with RCA. So we'll have to see how that plays out. Uh, on the back of this, though, this is the ammunition she needs with her family to be like, mom, dad, can we move to Nashville? So she's about to start high school in the fall. They do, you know, I mean, God bless them.

Her parents, they're like, OK, let's move to Nashville, which they do. That is so crazy. It's probably like 0.1%, 0.01% of our audience out there is able to relate to that. Like the parents moving for the kids. Aspirations and career at this young of an age, I mean, it's extremely common to move for mom or dad got a new job or we want to be closer to family. Almost never is there a story in, you know, an ordinary person's life of the family picks up and move for the kid.

Yeah, I mean, like it happens. It's like the stuff of Olympians and future Taylor Swift's, you know, she's so freaking smart. I think she kind of realizes through this, both through her agent and now being in this world with this development deal. There are a lot of other people out there trying to make it like if you want to make it, you really got to stand out and you got to have something great that makes you you.

And for her, what's the natural thing? She would say all the time that she didn't think she had the best voice, but she was an amazing songwriter. So she doubles down on songwriting. She has this great quote. When I first started writing songs, I was pretty lonely. I was about 12 and at school in Pennsylvania. I wasn't popular and I didn't have many friends and never knew where to sit at lunch, but songwriting became a release.

I found that when I was alone, a lot of the time kind of on the outside, looking into their discussions and the things they were saying to each other, I started developing this really keen sense of observation of how to watch people and see what they did. From that sense, I was able to write songs about relationships when I was 13, but not in relationships. It is so true. She's got these like love songs, you know, as a middle schooler that she's written.

And it's so clear both from her observing the world, but also like her watching TV and understanding common storylines from TV shows and movies about people falling in love that she sort of writes country music inspired by the feelings that she thinks those people are having. And she's really freaking good at it. So word starts to get around Nashville that there's this girl who has a development deal and, you know, show some promise as an artist, but she's a really freaking good songwriter.

So in May of 2014, Taylor's still a freshman in high school and is 14 years old. Sony ATV, which is one of the big publishing labels, signs her to a songwriting contract as their youngest songwriter ever that they have ever signed. So again, not a record deal, but she has a deal as a songwriter. And it could be songs for her. It could be songs for other people like that. Sony doesn't care. They just want to publish her as a songwriter.

Hmm. So the CEO of Sony ATV Nashville says this is a quote from the time she is among the few artists who are born with a gift that just rolls out of her. I still marvel at how this young girl with limited life experiences at that point could write such lyrics and melodies. She was born with it. That gift. Wow. Amazing. So Sony pairs her up like she's still 14. They pair her up with a really established songwriter in the Nashville circuit, a woman named Liz Rose, who'd written for Tim McGraw and others.

They, of course, end up becoming super close collaborators. But some songs that Taylor and Liz end up collaborating on that you might know. Tim McGraw. Teardrops on my guitar. Picture to burn. Fearless. White horse. You belong with me. And then it's going to come up later, but their final collaboration. Do you know what it is? No, I have no idea. All too well. Really? Really? Yeah. Wow. Taylor brings her back. Current number one for Taylor Swift.

Oh my gosh. Longest number one song in history. This is one of the most boneheaded business move of any type. I'm going back to the Netflix blockbuster. Blockbuster had it in the bag and should not have lost to Netflix and due to shareholder agitation and executive reshuffling was forced to make an unforced error. Yes. Forced to make an unforced error. This is just a fully unforced error. RCA tells Taylor they see what's going on and they're like, you know, we do like your singing.

We think you're a talented singer. We're just not feeling your songwriting. No way. Yes. Yes. So they tell her they want to keep her in development for at least another year. They're not going to give her a record deal. But what they want to do with her in development, they want to have, you know, enough of this performing your own stuff. Singer, songwriter stuff. We'll feed you some good music and you can sing that. We will feed you teeny poppers.

Oh my God. I mean, it's just, it's this classic like underestimating young talent and it happens in every industry. And I think people are so used to watching the standard path that they sort of assume that if you're, you know, one of the greatest of all time, but you're super young, well, you should do what other super young people do. Do the, you know, kids bop stuff. It's not kids bop, but that sort of thing. And so like, I mean, it's almost this Taylor quote of, or the Taylor lyric of when you are young, they assume you know nothing.

Literally, I've got a quote on this from her. I didn't just want to be another girl singer. I wanted there to be something that set me apart. And I knew that had to be my writing. Basically, there are two types of people, people who see me as an artist and judge me by my music. The other people judge me by a number, my age, which means nothing. It's not really a popular thing to do in Nashville to walk away from a major record deal, but that's what I did.

And what she's referring to is when RCA does this, she tells them, she tells them to go off. She walks out on her deal. So they're just stringing her along. Yeah. It's not like she walked out on a record deal, which I don't even know if she could have if she'd signed it. She walks out on the development deal, but that's what she's talking about. Like, this is crazy. Everybody's dream in Nashville is to make it and having a development deal is a huge part of it.

And she's just like, no, I've got a development deal with a major label, but they don't believe in what I want to do. So I'm walking out. Hmm. So in Brightest Star, Michael writes, to understand RCA's decision to be as generous as possible to them here is to better understand the shifting music landscape of the time. It was not exactly a golden age for country music. Teenagers were no longer buying into it in significant numbers. And the music coming out of Nashville was seen in some circles to be floundering and heavily reliant on its aging fan base.

And that was definitely true. Like there were, you know, we were both growing up at the time. Like, what was like the number one thing that kids would say all over the country about the music they like? I like anything but country. I don't like country. Yes. There was a lot of alternative rock. Hip hop was sort of graduating out of what hip hop had been in the 80s and 90s and becoming more pop. But it was still like heavy alt rock.

Yep. And so RCA is kind of like, look, we've got a 14, 15 year old who we do think has talent as a performer. We're a country music label. She wants to write her own music. Obviously, that's going to be aimed at teenagers, but teenagers don't listen to country. We need to change this up here. So this is such a acquired theme that we see all the time. Like, is it that there was something inherently wrong with country music or to a its nature that made it not appeal to teenagers or et cetera?

No, of course not. It's just that nobody was making country music for teenagers at the time. I remember thinking like, well, I'm not like a country type of person. And so it was less about the music itself and more about do I identify with the type of person who I perceive to listen to that thing? And it's the same with any other sort of music. It's often the same with movies, too. It's a form of self-identification and community building that just so happens to sound like this.

I think that's right. Well, what this makes me think of is the auto industry and Tesla, right? Before Tesla, it wasn't cool to be, at least in Silicon Valley, to be a car person anymore. Everybody drove a Prius because like, oh, I don't care about cars. But was it that really like cars weren't something that could be part of people's lives in the same way anymore? Or just that nobody had made a car targeted at that demographic?

Right. That you could use to signal within your community. Yep. So T-Swift decides in her own inimitable fashion that she's going to host her own audition this time. So rather than going back on the circuit out to all the labels now that she's a free agent, she books the Bluebird Cafe in Nashville, which is like a legendary venue and was where Garth Brooks was discovered. She invites all the label execs in town to come see her perform.

She's the Michael Ovitz of the teen country music industry in Nashville, right? She's like holding an auction for herself rather than trying out. So one of the execs who shows up and it was, I think, apparently well attended is a man named Scott Borchetta. Scott is an executive at one of Universal's sub labels in Nashville, and he's planning to leave Universal and start his own label. So he finds Taylor after the show and he pitches her and says, hey, like, I want to sign you and I want to sign you to a real record deal.

I want to make an album with you. I'm about to leave Universal, though, and start my own indie label. And I want you to take a risk on me. And I really believe in you. I believe that you can write your own songs. You can make country music for teenagers. Like, I think this is really going to work. And Taylor doesn't agree right away. It takes a little bit of time of Scott pitching her and her family to do this.

But they decide to do it. Taylor has this quote. You can tell when someone just really gets you. The best part of getting a record deal wasn't just that it was a record deal. It was the right deal for me. I'm with people I believe in and they believe in me. To underscore how much of a chance they were taking on each other. Taylor Swift was Scott's new label, Big Machine's very first client. So both of them taking a chance on each other.

Yep. And I don't know if it was in conjunction with doing this record deal or a little bit before, a little bit after. But there's another transaction that happens between the Swift family and Big Machine. Right. Scott Borchetta needed some financing to get this off the ground. Like, it costs money to make an album, to distribute an album. Right. So where does he get the money? Well, one place he gets it from a minority investor is Taylor's dad.

The Swift family invests $120,000 in Big Machine for a 3% stake in the label. Three-ish. It's been reported in a few different 3%, 4%, but somewhere in that ballpark. Somewhere in, they call it 2% to 4%. The majority of the outside capital, though, comes from... I don't think this has been talked about that much. This blew my mind when I figured it out. I think I already told you who it comes from. Yeah. Comes from Toby Keith, the big country singer, who apparently is a huge business mogul in Nashville and in the business of country.

There's a big Forbes article from a couple years ago talking about how he's worth like half a billion dollars. He's been a super, super savvy business person outside of his musical career. So Toby invests the majority of the money to get it going. And Big Machine does a distribution deal with Universal, with his former major label for distribution. And they're up and running. Yep. Because history has been so antagonistic between Big Machine and Taylor based on what would end up happening, which we will definitely get to, it is worth underscoring she didn't have a record deal.

And this was a person who was willing to give her a record deal on an unproven artist. And I think in the same way that we would need to, throughout this entire episode, advocate for the rights of the artist and the person really creating something that people love, there is also real value in the world in taking a chance on someone. Now, that doesn't mean you have infinite upside from taking a small chance once, but it is worth recognizing that this was a risk.

Right. David, do you think this is a good area to do a little sidebar on how music licensing works? Absolutely. Like, what does it mean when Taylor signs this record deal? So this has been a fun side project for me over the last few weeks, diving into all of this. The thing to keep in mind as you listen is to remember the purpose of copyright law is to spur innovation and creativity. This is true across copyrights.

It's true across trademarks, patents, IP in general. So keep thinking back on this purpose to spur innovation and creativity as you hear the whole rest of the episode. I keep thinking back, are these laws being used as intended? So there are a few really great sources on this if you're interested in learning more. The first is an excellent crossover podcast between The Verge and Switched on Pop, which we'll link to in the show notes. Yeah. Switched on Pop.

So good. The other is a book from the legendary music attorney Don Passman on the music business, which is on its 10th edition. That's how many sort of revisions there have been based on all these changes recently. But two big things to remember here. When a piece of music is created, there are two copyrights that come into existence. It's the sound recording copyright, the first one, which is also called a master recording or a master, which traditionally is owned by the record label.

So this is literally what it sounds like. It is a copyright on the literal recording of the music that they did in the studio, the way it came out and can be heard by your ears. And historically, a label takes ownership of these masters or recording copyrights in exchange for assuming the financial risk of betting on, distributing, promoting the artist's work. So that's the first copyright. It feels like the old school venture capital industry to me.

Like when, you know, back in the 80s, 90s, 70s, when the investors would take the majority of the company for putting up the money to do it. Yes. And ultimately, everything's a market. So it's just determined by supply and demand and market terms that need to be agreed upon in order to take the appropriate risk. And as you were stating with the venture capital industry, the market terms have changed tremendously to take that type of risk because the appetite for capital because of the returns that can be generated.

But in the music industry, there are essentially only like three labels when you get down to it. And there are a lot of people who want to be stars. So the second one is the musical composition copyright or the publishing right. And now these are like the written lyrics and the melody. And they're traditionally held by the songwriters themselves through their music publishers. The way you can kind of think about this sort of the idea and the execution, the musical composition copyrights, it's kind of like something you could put down on sheet music.

This is like the idea of the song, but you haven't actually played a note. And then once the notes are played and recorded, that's the that's the master. So back now to the musical composition copyright. I mentioned these can be held by songwriters, but usually through a music publisher. The publishers tend to deal with these composition copyrights the same way that the music labels deal with the masters. And historically, these publishers would take 50% of the royalties that come through the composition copyright.

But today, they actually take a lot less. So for bigger songwriters, it might just be that the songwriter pays the publisher a fixed fee to do some back office stuff. So for all intents and purposes, you can think about it like the songwriter themselves owns their own musical composition copyrights, the publishing rights, and they can make the decision on whether or not they want to license that for specific purposes. And a quick aside on publishers, even though they don't have a lot of relative power today to like the labels or big stars, they used to be insanely powerful in the era before recorded music, when the publishing rights were the major rights.

Oh, right. The sheet music was like it. Exactly. And since the singers didn't used to be the same as the songwriters, and that meant that the artist and the recording labels were like totally at the mercy of these publishers who owned the sheet music rights, which is like a fascinating little walk down history. And so these are the two big building blocks upon which everything else is built. Some uses of music require one of these approvals, and some other use cases require both.

So there's sort of two different parties, whoever owns the sound recording master right, and whoever owns the publishing right, both sort of have a veto right on who can use the final product for the use cases that do require both. And depending on the use of the music, the splits and the income that is generated are wildly, wildly different. So one little final thing here, just because it might be sort of hanging in your head. What about co-writers?

Well, songwriting credits, interestingly enough, can be split any which way and are privately negotiated by the songwriters with each other. So it's possible that for some types of approvals that require the publishing license, there might be multiple people who wrote the song together that each have to sign off for that use case. And the money can flow in totally unique ways, too. So it could be 50-50. It could be 90-10. It could be a flat fee.

Let's say Taylor brings a guest on who's someone you've never heard of. She may pay a flat fee or a 5% royalty or something. So like for Liz Rose and with All Too Well and Tim McGraw and the like, there's some deal between her and Taylor. Right. But all independently, privately negotiated. Interesting. So you said at the time, typically the publishers would keep like 50% of the songwriting economics and the writers would keep 50%. Even that was very good from the artist's perspective compared to the splits with the labels on the master side, right?

Exactly. Yeah. When you sign a distribution deal where a record label fronts you the money, you make the album, they then own the master, your royalty stream, again, independently negotiated, but you only end up with like 10%, 15%. Maybe if you're a really big artist, you can get like 20%, 22%. But the vast majority of those economics are going to the record label. And this is where we should mention the idea of recoupment. Right. You only get to participate in those revenues if you've recouped your...

The advance, the cost. Yeah. Yeah. Yeah. It's like an upfront advance. So it's like book publishing. Exactly. And so if a record label signs a deal with you and they give you $500,000, well, it doesn't matter if your CDs are flying off the shelves or your Spotify streams are happening. For the first $500,000 that should be paid out to you, the record labels are going to keep that and you only get to participate in your 10%, 15%, whatever it is, after you've recouped the advance.

It's like a VC preference stack on a cap table. It is literally exactly what it is. And I want to talk about that later. It's so Byzantine and it's so from just like a different era. Right. The way it cost a lot of money to make an album and it cost an even more boatload of money to get it on radio and get distribution and get fans to do customer acquisition for it. And more important than that, and this is, I think, what represents what's sort of like often perceived as a predatory deal.

Most of these startups, most of these artists are going to fail and the record labels or the book publishers or the VCs are going to have sunk all this money in to get to a point where we can even see if it's going to work. And when 90 plus percent, I don't know what the failure rate is in the music industry, but when, you know, 90 plus percent of startups fail, well, you need some kind of economic split so that the benefit of the winners that you bet on can more than make up for all of the losers that you bet on.

Right. Just like in a VC fund. But this is what, you know, now I think it's completely changed. Yes. Yes. All that's true in the old world where you got to invest all this money before, you know, if somebody has an audience. All right. So back to T-Swift. So she and Big Machine, they start making the debut album. While they're making it, Taylor puts up a MySpace page. That's what all the teenagers are doing at the time.

Look at that. Going direct to her fans. Imagine that going direct to her fans, even though she's not on the radio, even though nobody's spending any money here. She also chooses, you know, for the production, again, like Scott and Big Machine, they've got real money. They've got Toby Keith behind them. They've got Universal. Like they have access to a lot of resources. Taylor's like, no, I want the guy who did my demo to be my producer, a guy named Nathan Chapman, who she has a great vibe with.

And most importantly, she's like, no, I want to control this. Like, I want to control what this sounds like. I wrote these songs together with Liz, with a lot of them. But like, I'm the songer, like I am in control here. So in June of 2006, they release the first single from the forthcoming album. It's Tim McGraw. Thanks to MySpace, she has 20 million interactions. Whoa, crazy. Then on October 24th, the album is finally released. And Taylor writes in the liner notes on the album, I love everyone who has inspired me to write a song, whether you know it or not.

I love anyone who has ever turned the volume up when my song comes on the radio. Anyone who has bought this album. Anyone who can sing along to my songs when I play them live. Anyone who's ever requested my song on the radio or even remembered my name. If you ever see me in public, I want to meet you. I will thank you myself. You have let me into your life. And I will never be able to thank you enough for that.

I love you. I love God for putting you in my life. And then a little PS to all the boys who thought they were cool and break my heart. Guess what? Here are 14 songs written about you. Ha. Did she say that? She literally wrote that. That's so funny. She knows where her power comes from. And her power comes from the fans who she's connecting with directly. I want to meet you. I want you to come up to me.

Say hi to me in public. I will thank you myself. Watching what she did for the next 14 years after that in cultivating community on Tumblr is crazy. She has 27,000 interactions with fans on Tumblr over the years. Wow. That is her personally liking or reblogging or commenting. Like she gets used social media to directly interact with my community. Yeah. She's connected with teenagers all around the world on the internet. And what are they going to do?

They're going to go buy the album. Especially in 2006, where I was frequently buying CDs. It cracks the top 200 in November 2006. And then slow build over this, you know, social media empire. I don't even know what you call it that Taylor is building. And to contextualize this, this is before Instagram has launched. Yes. And I think maybe even still before Tumblr or right around the time Tumblr is starting. So well over a year later in January 2008, after 63 straight weeks in the top 200, it becomes the number one album in the world.

Wow. It ends up in total on the Billboard Top 200. It spends 275 weeks on the charts. Like what other artist and album could do that? Especially from a 16 year old. She was 15 when it came out. Yeah. Wild. Totally wild. So Taylor, she's so smart. She's building this whole direct relationship with her fans, social media, innovating, pioneering in so many ways. She also is a master of the traditional way of doing things too. So what is the traditional thing that an artist would do after they drop their first album?

Tour. You do press. You're probably not on your first album going to go do a headliner tour yourself. You're going to go be the opening act for other tours. So first she starts opening for Hootie and the Blowfish is the first big act that she opens for, which is awesome. Then Rascal Flats. Rascal Flats is going to come back into Big Machine later. Perfect. Then George Strait, Brad Paisley. And then finally, Tim McGraw and Faith Hill.

So literally the first single, Tim McGraw. She ends the opening act phase of her career opening for Tim McGraw and Faith Hill. There is this unbelievable quote from Brad Paisley at the time about why he wanted Taylor to come open for her. He says, I called my manager when I heard her album and said, we have to get her out on tour for her to have written that record at 16. It's crazy how good it is.

I figured I'd hear it and think, well, it's good for 16, but it's just flat out good for any age. She is operating at a level I will never reach already in the groundbreaking way that she has taken a new audience and said, I'm a country singer and they love it. Wow. So that's amazing. Strong words. So fast forward to November 2008. The country is in the financial crisis. Lehman Brothers has gone under. It's doom and gloom, you know, a great recession, blah, blah, blah.

All that stuff. Airbnb and Uber are starting. Taylor drops the second album, my favorite album, Fearless. Oh my gosh. There are so many bangers on this album. Fearless, 15, Love Story, Hey Steven, White Horse, and You Belong With Me. Those are just the first six tracks in order on this album. Whoa, I thought you were naming all the hits. No, those are just the first six tracks. Now they are probably the best six tracks on the album, but yeah, this is a hell of an album.

So unlike the debut self-titled album, which takes a year of like this slow burn social media campaign to hit number one, it debuts at number one on the Billboard Hot 200 chart, where it stays for 11 weeks. It's the longest since Santana's Supernatural in 1999. The longest in the top 10 by a country artist ever. And she becomes the youngest artist to have what would go on to become the best-selling album of the year. And the only female country artist ever to have the best-selling album of the year.

There's another couple things about this album that I think are worth pointing out. Because she's more of an adult now and having real-world experiences, she is starting to shift her songwriting from being love songs and breakup songs about things that she may or may not have experienced that are sort of theoretical into, I'm now doing autobiographical music, and this is about me as a mid-teenager and the things that I'm experiencing. And that would go on basically until folklore and evermore, when she starts to shift and start writing songs about fictional characters and historical characters and other people again.

She had this sort of like autobiographical thing of, here's what I've been going through the last couple years of my life. For the next decade of her career. And this is really where that kind of starts. That's such a good point. Because the first album and all those quotes about how amazing she was as a songwriter were about her powers of observation and imagination and being able to write other people's stories from her perspective. But you're right.

Yeah. Then there's this like long, or long from our perspective here in January 2022, middle period of writing about her own experiences. And then she comes back to storytelling. Yeah. And she's also starting to take a little bit of heat here for becoming less country and becoming a little bit more pop, which is like a funny foreshadow. Because what does she do with that? Like she does 1989 later. And it's like, you know what? Screw it.

Full on pop. So back to Fearless. She wins the album of the year, the Grammy for album of the year, making her the youngest artist ever to win album of the year. So then she goes back out on tour, not as the opening act this time, of course, but as the headliner, her first real tour, that's her own, the Fearless tour, playing big arenas like Staples Center, Madison Square Garden. Most of these places, like, of course, through her online direct connection with fans, they know when tickets are available.

They sell out in like a minute. The tour grosses over $63 million. She plays in front of over a million fans. And then right in the middle of all this on September 13th, 2009 in New York City, Radio City Music Hall. Yes. I didn't realize this happened on a 13th, too. Of course it did. Of course it happened on a 13th. It's Taylor Swift. Taylor wins best female video for You Belong With Me. Which, to be clear, is not the biggest video award of the night.

Nope. Nope, nope, nope. There is best overall video still to come in the night. But somebody either is unaware about that or doesn't care. Some drunk rapper thought this was the big prize. I think we all know what happens next. It's kind of funny to talk about the Kanye Taylor moment on Acquired. But this actually becomes such a huge part of the business story of Taylor's career. It's funny. It inspires so much of her next decade plus.

It's a seminal point in everything that she does from there. And everything that she does from there inspires a lot of change in the music business. And so this point, I mean, it's almost like that meme where you tip over a small little thing and then a huge impact happens years later, like a little domino thing. But, you know, drunk Kanye getting up and I'm gonna let you finish blah, blah, blah. Like, that was a catalyst moment that would change the economics of the music industry.

It would change so much. Well, and not to credit Kanye with that, that would piss Taylor off enough to eventually change the economics of the music industry. Well, Kanye would credit Kanye with that. This was such a butterfly flapping its wings moment in so many ways. There's the specific to there's the Taylor's music and Kanye's music, which forever changed probably for the better creatively. Yeah. I mean, Kanye's my dark, twisted fantasy. Beautiful, dark, twisted fantasy. Phenomenal, tortured album.

I mean, like one of the all time. There's an amazing podcast. Yes. Dissect season two. Yes. The dissect season on that album. It's like one of the best 20 hours you can spend going and listening if you like music to how that album came to be. And I almost feel sacrilegious speaking so fondly of Kanye on the Taylor Swift episode. But the torture that he put himself through after being an idiot or what did Obama call him?

Well, a jackass. A jackass. Yeah. Like the president of the United States calls you a jackass for that. And like he goes into hiding and emerges, you know, creatively from that wounded state with that amazing album. So I think there's three levels of butterfly wing flapping here. Yes. One is musically creatively for Taylor and Kanye. Two is the business of the industry, which we're going to get into in the rest of the episode here. I think you could maybe argue there is also an element of like even bigger than that.

The Obama thing. I didn't put two and two together until just this morning. Is this the Kanye Trump relationship? Yeah, dude. No way. OK, how's this go? Obama in I think it was like either CNN or CNBC or something like he's setting up for an interview and in the pre show set up with the cameras rolling, somebody's talking about the, you know, the incident at the VMAs. And of course, Obama has two teenage daughters who love Taylor Swift.

He says something like, you know, she seems like a perfectly nice young lady. And, you know, Kanye, he's a he's a jackass and everybody laughs. Right. Well, Kanye is like a dude from Chicago. There's like a real connection there in the past. And he feels so betrayed by Obama. 2020 rolls around and there's a lot, a lot happening in that moment. There's some fascinating things to watch, too, if you go watch the videos surrounding that moment, because, of course, you know, Kanye runs up on stage, says that Taylor hears booing from everyone booing.

Kanye kind of thinks they're booing her. So she's kind of standing there half smiling, frozen, like, what do I do? She's, of course, performing in the like right after this. So she ends up going off stage, collecting herself and successfully performing. And she's asked on the red carpet. She responds with such poise. They're like, what do you think of Kanye West? And she's like, I mean, I don't I don't really know the guy. Yeah. And they're like, were you a fan?

And she goes, I mean, yeah, he's Kanye. And you can just see the like the disappointment draining from her face of like Kanye West for as big as Taylor Swift is now. She wasn't Taylor Swift yet, but Kanye West was already Kanye West. And so to be a person to have Kanye say that about you on stage, it's obvious how that is so debilitating. And then the deepest irony of all is that what Kanye was upset about is that he felt that Beyonce had one of the greatest videos of all time for single ladies, which she did, which everybody agreed on because she won video of the year later in the night.

Also, that video is like a that it's so simple and pure and genius. That is no doubt one of the greatest videos of all time. Totally. Was it all done in one take? It sure looks like it. It's really impressive. It's super impressive. The things we never thought we'd be talking about on Acquired, but like I literally this is like the financial crisis. You can't understate the impact of this moment. No. And basically all future Taylor Swift conflicts stem from this, too.

Like we'll get into the scooter stuff. And that, of course, comes from the fact that Scooter Braun was Kanye's manager. There's Kanye deciding to drudge up history again, which again, we'll get to. But it's like all of the future conflicts really do stem from this. Yeah. And here's kind of the sick thing about it all. There was a tremendous amount of emotional turmoil and there was a lot of negatives, especially immediately afterwards. Both of them are way better off today than if this never happened.

Absolutely. I think that's the other dynamic here of like what what was better for both of their follower accounts on Twitter's just starting to come up at this point in time. This is probably right around the same time as the famous race to a million followers right on Twitter. Yep. Yep. So after this, the following year, Speak Now comes out, Taylor's third album. And once again, something I didn't really realize until the research. Why is it called Speak Now?

What is what is it about? Taylor wrote all of the songs on Speak Now. She wanted to prove you can't say anything about me that I like, oh, I get the songwriting credits, but really Liz is writing everything or somebody else is writing everything like no. Right. It's to basically strip herself down and show and say like, this is all 100% me. So if you like this, you like me. Yep. There is no caveating. There's no possible way to say, but she blah, blah, blah.

And I think people liked it because all 17 of the tracks, 14 on the main album and three bonus tracks, all chart on the Billboard Hot 100, all of them on the album with at 1.11 of the tracks concurrently on the top 100. Wow. So it becomes the only album in history to have 17 Hot 100 hits, four of which were in the top 10. Isn't that crazy? 17% of the most popular songs in America are from your new album and represent 100% of your new album.

Now, speaking of songwriting, right after Speak Now comes out, Taylor starts a new relationship. My hope was to have no Taylor relationship conversation on this episode, but I think it's kind of impossible. I know. I know. I didn't want to, but we got to do this one. Well covered by the media. Unfortunately, it doesn't last very long. There's a big blow up at the end of it. She turns 21 during this and the other party in the relationship famously does not come to her 21st birthday.

Yeah, it's bad. So she starts writing a song about it. And this song she would write for over a year. And this is the one that she brings back Liz Rose for even after having just done Speak Now about proving to the world I do everything myself. This one was so there was so much in this song that she wanted to say that she felt like she needed some help from her old collaborator. Of course, we're talking about All Too Well, Jake Gyllenhaal.

This song, it's a freaking masterpiece. Like, it's a masterpiece. A lot of this stuff in this story is like win, win, win for everyone, especially Taylor. I think that kind of keeps being the punchline. The addendum is except for Jake Gyllenhaal. It's like they had a pretty short relationship that ended up bringing him into the conversation around her life in a way that is just like he's kind of a punching bag. And like the fact that she's re-releasing albums from this point in time now, it's like, why are we dredging this up again?

Like, it's just very unfortunate timing for him. Wow. But this song is incredible. I will say I also did the Peloton Taylor Swift Taylor's version ride. And on the 30 minute ride, 10 minutes of it is the 10 minute version of All Too Well. It's a bold Peloton choice. No No. It's not 10 minutes. It's 10 minutes and 13 seconds. Of course it is. Of course it is. So this is the first very, very extended songwriting session for material for the new album, which would come out in 2012.

Of course, we're talking about Red. Yeah. So they make the album, Taylor and Big Machine, you know, the usual. She uses Nathan Chapman again as her producer. You know, it's all it's straight over tackle down the middle Taylor stuff. Exactly what, you know, a label and the music industry would say to do. You've just had this like great moment. Like give the fans more of what they want. They make the whole album. And Taylor's like, no, this is too similar to the old stuff.

If I'm not learning and growing and doing new stuff, I'm not going to do it. So Big Machine wants to release the album and she's like, nope, I'm going to redo it. Is that how it ended up with a 22 track album? That could be. Maybe that's why there's so many tracks. So this is when she brings in Max Martin and Schellbeck, the famous Swedish producers who had worked with Britney Spears and Backstreet Boys and they'd just done Maroon 5's moves like Jagger.

And she's like, we're going full pop with a lot of this and we're going to have a whole new a whole new sound. Oh, that's right. Red was super pop even before we hit 1989. Right. But it's got this schizophrenic vibe, right? Like there's some country on it still, but then there's Max Martin and Schellbeck on it too. So I think it's great. The other thing I didn't realize about Red until now, album title is Red.

And if you look at the cover, you know, it's Taylor sort of looking down, you know, photo of her face is a reference. I think there's like a double Easter egg in this. Oh, Taylor's the whole shtick is double, triple, quadruple Easter eggs nested in the album art and the inside booklet of the album and all the other crazy stuff you can research. So I can think of two Easter eggs. One is the obvious one is it's referencing Joni Mitchell's blue album.

We got a link to that from the show notes because the thing that you sent me, like the album cover is clearly modeled off of blue. Clearly. It's like both shots of their face looking down and, you know, blue versus red. I think the other one it's probably referencing is the Leanne Rimes album. Interesting. I think I want to point out here is we've been on a pretty steady track to date where she releases a 15 to 20 song album every other year.

So you got 06, 08, 2010, 2012, 2014. So she's averaging writing and releasing or writing and recording 10 songs a year. So we'll just seed plant that for now. That was the first decade of her career and we'll come back to it. Yep. And it would be again another two year break before the next album, which is, of course, 1989. So many bops, so many earworms. Oh my God. So many like popular videos that come along with it all.

This one to me was Taylor Swift hitting the mainstream and saying, I am for everyone. And if you look at her Instagram follower count today of just about to hit 200 million, she is indeed for everyone. She's like totally transformed herself to, you know, the she's always tried to have a little bit this like girl next door, you know, everyone's friend trying to do the right thing vibe. And here she's just like blowing the doors off that and being like, you like apple pie in America.

I have Taylor Swift for you. Yep. And I think everybody in the orbit on team Taylor knew that like this was going to be really big because, you know, red was it was half pop, but like it was really successful. Red did not win the Grammy for album of the year, which I think Taylor still kind of resents. And she hadn't won one since Fearless, right? Yeah, I don't think so. I don't think Speak Now won.

Red didn't win. Speak Now didn't win. And it's funny we're saying didn't win. Yep. It's as if it's some kind of loss if the album that you released that year didn't become the the album of the year. Which I think is how Taylor views it. That is totally how Taylor views it. In fact, that's the opening scene of Miss Americana is when she gets the call that reputation wasn't nominated and she immediately switches into this mode of saying, oh, OK, well, I will write a better album.

That's OK. I'll make a better record. Not only didn't win, but wasn't even nominated. That's like, oof. Which in retrospect, that was a mistake. Yes. But OK, let's go to 1989. Welcome to New York. Blank space. Style. Shake it off. Bad blood. Wildest dreams. I mean, it's unbelievable. She's always pushing the boundaries like she does two things. One, which is just so fun and totally in the Taylor cultivating the direct relationship with fans. She picks a small number of fans based on their like engagement on social media, how engaged they are in social media.

And she does this at her various houses and properties around the country. She invites them over for secret listening sessions of the album before it comes out. Under NDA, they can't talk about what's on the album. And she bakes them cookies. Incredible. And of course, like photographs and videos, the whole thing and post it on social media, like just freaking brilliant. Right. And the lore that comes from those 10 people getting to say I was there and eventually post pictures or anything like that.

She just gets tremendous amplification of anybody feeling like that could happen to them. Totally. So in July. What year are we in? 2014. Right before the album comes out in October. She writes an op-ed in the Wall Street Journal saying that she completely disagreed with Spotify and the music streaming industry and that she believes that everything about the way streaming is happening is hurting artists. She says, quote, in recent years, you've probably read articles about major recording artists who have decided to practically give their music away for this promotion or that exclusive deal.

My hope for the future, not just in the music industry, but in every young girl I meet, is that they realize all they're worth and ask for it. Music is art and art is important and rare. Important, rare things are valuable. Valuable things should be paid for. It's my opinion that music should not be free. And my prediction is that individual artists and their labels will someday decide what an album's price point is. I hope they don't underestimate themselves or undervalue their art.

Now, what's she saying here? Like, her specific beef is with Spotify's free tier. The ad-supported tier just doesn't generate the royalties for people who listen to a stream that you would if you were a paying member. And I think there's kind of two levels to Taylor's objection here. One is, yeah, about the money. Like, lots of people are streaming my music for free and I'm not getting paid or I'm getting paid a very, very tiny amount for it.

Very, very little. I think the other is she genuinely, as she says in this piece, has an issue with people thinking that music should be free. She's like, no, like, I made this. This is art and it's valuable and nobody should get to consume it without paying for it. Yes. This is where we're really starting to see Taylor viewing herself as the poster child for the music industry. And when I say music industry, I mean the artists.

And she views herself, she's even referred to herself on camera, which is great, as the resident loud person of the music industry, which I think is such a great and a little bit self-effacing way to put it, where she's looking around. She says, I believe this. We're going to hell in a handbasket here. And like, someone's got to do something. It's going to be me again. This is the first time that she's like really embracing that role.

Yep. So let's take a moment to talk about the decline of the music industry. And then I want to talk a little bit about how the royalties actually work in streaming. So first of all, the music industry peaked in 1999 with about 14, 15 billion dollars in recorded music revenues. So this is shipping CDs, basically. I mean, when you look at this line, and we'll link to the RIA's wonderful tableau diagram of this, it is like 90 plus percent shipping CDs.

That was a goldmine for the music industry. And then it starts declining. And like, very clearly, Napster happened. And then it fell like crazy. I'm looking at 2005, it was at 12 billion dollars. And then just five years later, it's at 7 billion dollars in 2009. CD sales fall like crazy. Music streaming hasn't really kicked in yet. And so there's just no money being made. And the all time low for the entire music industry for recorded revenues was like seven billion dollars in 2014 and 15.

So it's like right around this time where streaming hasn't started generating real revenues yet. The industry has basically been like flat to declining for the last six, seven years. It's brutal out there. And so what Taylor is sort of looking at is like, if we continue to put all our eggs in the streaming basket, I don't know. So why is she saying, I don't know? Well, let's resume our previous conversation from when we were talking about the different types of licenses and the different types of copyrights.

Oh, I can't wait. Let's do it. All right. So talked earlier about the publishing right and the master right, which you can think of as the publishing is kind of like the songwriting. The master is kind of like the recording. So now let's talk about the different ways each song could be played and which licenses are actually required for each and what the typical economic breakdown is for each one. So while we're on the topic of streaming, let's start with that.

Well, when you stream a song on Spotify, the vast majority of the payout goes to the master recording. So think the label. And when I say vast majority, let's call it 80 percent. A much smaller portion, 12 percent on average, goes to the owner of the publishing right, typically the songwriter. So that 80 percent goes to the label, which then gets distributed to the artist, the singer or the band, depending on the royalty rate that they negotiated, which, as I mentioned, tends to be 10 to 20 percent going to the artist.

So you're thinking like 8 percent now, 8 to 10 percent. Right, exactly. You get 10 percent of the 80 percent. So then if they're also the songwriter, which Taylor frequently is, let's say that they take home the vast majority of the 12 percent. So let's call it 10 percent. So from a Spotify play, it's reasonable to assume that a singer songwriter would receive about 18 percent for both of those credits. It's sort of useful to know that figure and what licenses get used in streaming.

And is the balance of the, so say like 80 percent to the master license holder and then 12-ish percent to the... Yeah, I don't totally know where the balance goes. It might be like BMI and ASCAP or something. I'm wondering, is the balance to Spotify or... No, this is the balance of what ends up getting paid out on a play. So it's like 92 percent to license holders and 8 percent to I don't know who. Got it.

So radio, even though you kind of feel like you're doing the same thing when you're listening to a song on the radio versus listening to it on Spotify, it's actually totally different, which is really stupid, but the way it is. A song played on the radio is technically a performance. So the rights associated with that are similar to if you decided to go on tour and play your song. So in traditional radio, the split is totally flipped from what we just talked about in streaming rights.

Oh, no way. So the majority of the revenue actually goes to the songwriter, believe it or not. Interesting. But the recording artists actually don't make that much. So in the old world, if you were a songwriter, you wanted a chart topper because that's how you would make your money. And if you were the singer or the artist, you wanted it too, but you wanted it for marketing purposes because then people would go buy your CDs, which is where the artists would and the record labels would actually make their real money.

Interesting. And of course, Taylor is getting both of these, but feels rightly so like she should be getting more of each. And in any songwriter economics, she gets way more of the split than in any masters related economics. Another example is songs that are played as a part of like movies or commercials. These are granted via something called a synchronization license or sync rights. There's a split between both the publishing and the master right for this one.

I think they're about even or they're closer together. Importantly, both copyright owners need to agree to grant this license. So this is why even if an artist doesn't own their masters, but they did write the song, they can still decide if it gets used in a commercial. It's like a veto right. And so this is a smaller overall revenue stream for the industry, but there's sort of a fascinating element to it there where even if you don't participate meaningfully in the economics of something, you still have a veto right over it.

Interesting. So we have all heard this notion streaming doesn't pay. I mean, Taylor's loud about it here. I think a lot of people know like, well, in the music industry, you know, streaming doesn't make the money, but things like touring do. So let's put some numbers around that. At least on Spotify and Spotify-like services, it's about 0.4 cents per stream. And then that cent, that 0.4 cents gets cut up between the label, rights organization, et cetera, before the artist.

And so it's reasonable. This is a crazy thing, but it's a reasonable ballpark to say that a million streams can net about $4,000 for the artist and their label in revenue. Ooh. Ooh. Ooh. And if you have a 10% royalty, that means as an artist, you make $400 for a million streams. Oh. Oh, that's so brutal. And that is if you are recouped against your advance. Wow. Otherwise, it's zero. Wow. So for a very popular artist, you know, you could 2x this by having a 20% royalty.

Or if these streams were on Apple Music, where it's subscription only and therefore a higher payout per song, that could further double it. But even if you have a 20% royalty on Apple Music streams, that's still, you make $1,600 for a million streams as the artist. So Taylor's not wrong here. Like, this is... No. ...bad. Yeah. And if you compare this to the old world, artists used to make like a dollar per CD sold. Like, if you had a 10% royalty on a $10 CD, there's some retail stuff you pay, but like, you make around a dollar.

And so, you know, a million people listening to one song in the old world, or more accurately because you were buying CDs, 100,000 people buying your album would be like $100,000 for the artist. So you're used to people listening to your recorded music netting you real dollars if you're coming from the old music industry. And the line I wrote in my notes, David, you can kill me later, is an artist is never, ever, ever going to make a lot of money from streaming, like ever.

Groan. I love it. I love it. I love it. Oh, man. All right. So Taylor Swift, 2017, right before the Reputation Tour, we're flashing forward a little bit. So like, she's Taylor freaking Swift at this point. Only $2.4 million of her total income from everything she does comes from streaming, which might sound like a lot, but she's like a number one artist at this point. Yeah. She's making between $50 to $150 million a year, depending on whether she's touring or not.

Yeah. And for even a better illustration, U2 that same year made $54 million total, and only 600,000 of it came from streaming. Wow. Like ever. Ever. Okay. So we were talking about 1989. Taylor drops the album on October 27th, 2014. It sells 1.3 million copies of physical and digital in the first week. It's huge on streaming. Taylor had written the op-ed in the Wall Street Journal back in July. So before this, everybody's kind of on edge.

Like, what's going to happen here? She drops the album. A week later on November 3rd, after having been out for a week, Taylor pulls her entire catalog off of Spotify, not just 1989, but all of her albums gone off of Spotify. Power move. Totally power move. It would take until over two years later in late 2017 when T-Swift would come back to Spotify before the Reputation release. Actually, I think it was just about two years. I think it was three.

Oh, you're right. It was three. It was three years. Yeah. Quote from Daniel Ek when T-Swift finally comes back. I should have done a much better job communicating this. So I take full ownership of that. I went to Nashville many, many times to talk to Taylor's team, spent more time explaining the model, why streaming mattered. And the great news is I think she saw how streaming was growing. I think she saw the fans were asking for it.

So eventually when the new album, Being Reputation, came out, she came to Stockholm and spent some time here figuring out a way that made sense to her. Wow. This is the CEO of Spotify. I mean, obviously he gets involved here. And by the way, when he says her team, there's an organization that's pretty big. I don't know if it's 20 employees, 15 employees, something like that, but it's called 13 Management. And it's her whole team. There are other entities associated with it, one for merchandise, one for the fan club.

There's all these real businesses that are sort of surrounding Taylor Swift, the artist. And there's a lot of people that work on those. So we're going to come back a little later to talking about why she changed her mind on streaming and what streaming can do for her now. But there's one more thing in this chapter. Apple Music. Yeah. Apple Music didn't exist back then. It was Beats. And she was cool with Beats because Beats was paid.

There was no free tier in Beats. Yeah. But after Apple bought Beats, and we covered this back on our Beats episode way back in the day, this is so fun. When they were going to launch, relaunch it as Apple Music, and this is June 2015, they announced that everybody's going to get a three-month free trial of Apple Music before you have to pay. Well, what they didn't announce to the world was that the back end of that for artists was going to look just like Spotify's ad to it.

Artists weren't going to get paid during that three months. So Taylor, Taylor's like, oh, no no. Taylor's comment on this, which is unfreaking believable, is, end quote, we don't ask you for free iPhones. Please don't ask us to provide you with our music for no compensation. The two sentences before that in the quote, which, of course, she posts to Twitter and Tumblr on her own social media to her own, you know, audience.

I find it to be shocking, disappointing, and completely unlike this historically progressive and generous company. Three months is a long time to go unpaid, and it is unfair to ask anyone to work for nothing. And then, Ben, as you said, we don't ask you for free iPhones. Please don't ask us to provide you with our music for no compensation. Here she is taking on her role of industry loud person again. And the best part is that Eddie Q tweets back at her.

Oh, my God. So this is so great. Literally within 24 hours, Apple changes its stance because of Taylor. Apple doesn't change its stance for freaking anybody. It's Apple. It's the biggest company in the world. Tim Sweeney can't get them to change their developer. Like, this is unbelievable. Less than 24 hours. Eddie Q tweets. We hear you at Taylor Swift 13 because, of course, her Twitter handle is Taylor Swift 13. And Indie Artists. I don't know where the and Indie Artists comes from.

Like, no, this is about Taylor. Yeah. So then later that day in an interview, he says, when I woke up this morning and I saw Taylor's note that she had written, it really solidified it that we needed to make a change. Overnight, they change it and they say, we're going to eat the cost during the three month free trial for customers and pay artists. Taylor Swift versus Apple. Taylor Swift wins. That is a rare, rare, rare thing.

Yeah. You might be wondering, well, how does Taylor make all this money if it's not from streaming and obviously digital album sales? She makes a good amount of money from that. She makes money from endorsements, various merch, other stuff. The 1989 tour grosses $250 million. So that's a quarter billion dollars from the tour. Now that's gross. And it is quite expensive to put a tour on. Like you got to pay for the arena. You got, you know, fireworks crew, other musicians.

Like it's, this is not high margin revenue, but. This ain't software. Not software, but still $250 million is a lot for one tour for one album. It becomes the highest grossing US tour of all time, beating the Rolling Stones. Whoa. Sadly for the 1989 tour, but not sadly for Taylor, that record would be broken a couple of years later by the Reputation tour. Which grossed $266 million. In the US and $345 million worldwide. Whoa. Yeah. That's a lot of money.

And I have to imagine that's still the highest grossing tour today because who would have performed after that with. No. COVID. It is not. So this is where it's interesting. Like you can't really do apples to apples with different artist tours. Actually, it gets eclipsed by Ed Sheeran to T-Swift Bestie with his, I think, Divide tour. Oh. But I think the Reputation tour, I'm going to get this wrong. I want to say it had, call it 50 dates, 40, 50 dates, something like that.

The Divide tour went on for years and had like, you know, I don't know, 200 dates or something like that. I think she still holds the record for the highest single year grossing tour. That is also hard because it's, you know, how often do you perform? You could perform 200 times in a year. Right. Yeah. It's really hard to normalize these. You need to do the same thing that people do in retail where they like do same store sales.

So you're like, what's your average price per arena or per show? Yep. Okay. So interesting on touring. That's the Reputation tour. We did sort of flash forward here and we just started talking about Reputation. Reputation was inspired by a series of events and is a very different album than its predecessor of 1989. It's much darker. It's making a loud statement. In fact, there were two years before it where she didn't release an album versus her typical every other year.

So there was a whole sort of year that she did some reflecting, some changing, some grieving, some being angry. What on earth happened that predated Reputation? Well, first, I have a confession to make. So until like, I don't know, 24, 48 hours ago, I was still in the camp that like, I mean, I know all this context and whatnot, but just like me personally enjoying the music, I didn't like Reputation. I thought it was, you know, I was with the majority when it came out that it was a weaker album.

Yeah. And as you brought up, the opening scene of Miss Americana is Reputation not even getting nominated for Grammy, right? Like everybody agreed. And then recently it has become very cool, much like Kanye's 808s and Heartbreak album to say, no, actually Reputation was really great. It was just ahead of its time. How dare you bring Kanye into this? And I will say like, so Reputation has some just like amazing songs. Ready for it. I did something bad.

Look what you made me do. Anyway, I didn't like it. But now doing all the research and re-listening to it, I think it's great. I love it. I'm now in the camp of, it's fantastic. Yeah. It's interesting when some albums are better after years go by. I really like Endgame. Oh yeah. Also great. With Ed Sheeran, of course. By the way, David and I are not music critics. There are like four Rolling Stone podcasts linked in the sources that are like an amazing music columnist discussion of each of these albums if you want to do some like real musical analysis on it.

But anyway, okay. What inspired Reputation? Okay. So yeah. What is it? What inspires it? On Valentine's Day, February 14th, 2016, Kanye West releases The Life of Pablo. I don't know that I've actually ever listened to Life of Pablo all the way through, but I think it's probably a pretty good album. But of course it has the song. Famous. Famous. Which has the famous line in it that I don't think we need to say it here, right?

I think people know what it is, right? Yeah. Absolutely not. It's a pretty offensive line made more offensive by a music video where Kanye finds a doll that... Is it a doll? Is it a model? But something that looks a lot like Taylor Swift and it's nude in the video. It is just like so much about this is so offensive and cringeworthy to look at. And the album comes out. And I don't think we need to go into the whole like Kim Snapchat thing here.

But suffice to say, Kanye and his team deemed it appropriate to release this album with this song to the world. And you can't ship an album without a lot of people signing off on it, including your manager, and things were signed off on. Well, I mean, literally in the video of the famous phone call, Rick Rubin, the famous producer is in the background. He produced... I don't know if he produced that song, but he was there.

Yes. Lots of people were involved. I guess we should allude to at least like what it is. So there's this like terrible lyric that Kanye, after the album comes out, says, Oh, Taylor and I actually talked about this and she approved it. And Taylor's like, no, I didn't. And then later on, Kim Kardashian releases some Snapchats that are like, I secretly taped or Kanye secretly taped this conversation. And here's you saying that it was okay. But she didn't fully say it was okay.

She didn't approve the worst part of the line. Anyway. It's controversy. There's lots of discrepancy over this. Taylor's like, what the hell? I thought this thing was dead and buried five, six years ago. And here we are dredging it up again. Again. Yeah. Again. How could this not send you into some like emotional duress such that you're not releasing your next album when you thought you were, that it changes where you are creatively, that it inspires a whole new look and feel and tone to your music.

A lot of popular opinion turned against Taylor. And that's got to be hurtful too. That's got to be really hurtful. Totally. And popular opinion kind of fairly turned against her. Like she was saying, I don't know if she exactly said we never talked, but she kind of implied like there was no agreement. And what the snap touch. So is like, you definitely had a conversation. You were very thoughtful about how this is going to come across when this gets released.

You may not have heard that one lyric, but like you totally talked. So then Taylor sort of has to change her positioning to the public after she's getting sort of lambasted and people are turning on her and say like, well, I didn't hear that line. And that's sort of what I meant. And it's not a great look. No, it's not. And so for the first big time, a person who derives a lot of her pride and a lot of her sense of self and has always gotten very positive, largely positive feedback from fans is now seeing an immense amount of negative feedback.

And it really, she talks about this in Miss Americana, it really requires a psyche reset where she has to retrain herself on who I am in the world and why I'm a person of value and why I need to value myself and how I should think of myself that is not connected from did a million people tell me I'm great today? Because a lot more than a million people were telling her she was not great at that point.

Yes. So yeah, that's the background for reputation. And, you know, other than like this being hugely influencing the creative aspect of the work, this comes up in a really big way very soon in the business aspect of Taylor Swift. All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF, then everyone would nod and you're done.

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All right, David, I think Taylor's six record deal is up. Yeah. So that's the other thing about reputation. Man, reputation was such a landmark. It's a turning point in the career in a huge way. But I think this is the thing about Taylor that we're going to talk about much more in Playbook. But every album is a turning point in her career. She reinvents herself every single time, and I just have so much respect for that.

That is so hard to do. So we've talked about the rights that you license when you give your master's away. The way these record deals work is they sign you for a certain number of albums. And they're saying, look, if I'm going to take the risk and front you money for this first album, I'm either committing to or getting the option to your next X albums. Taylor's was six. That's about market from what I could tell.

Yeah, I was going to ask, is that normal? I think so. It actually used to be more, but it's like eight to 10, but it's come down in recent years. So this was her sixth album and the last one she was under contract with Big Machine for. Taylor does all of Taylor's own stuff, but she doesn't have any issue with Big Machine per se. There's no bad blood there. Ew. But the industry is like, well, this is going to be a big moment.

A variety article from Around the Time comes out that lays out what they see as Taylor's for options for what to do going forward now that this deal is expiring. And they note that probably the most important factor in her decision is going to be the master licenses, certainly for future albums that she'll make. She's not going to take a 10 to 15% cut going forward. But they suggest, say people in the industry are saying that Taylor is such a big star that depending on how things go with Big Machine in this negotiation, she might be able to renegotiate the past split on old albums that she's done if Big Machine is involved going forward.

So they say there's probably four options here. One, Taylor actually genuinely could just ditch labels altogether and go run this whole thing herself. I think the bigger reason she and other people don't do this is if you do go this path, you essentially have to build a whole full stack company around yourself. And that takes a lot of time and energy. And if you are an artist and the primary thing you do is create and make music, that's a distraction and time away from that.

There's way more stuff involved in the back office of music than you can fathom. I mean, of course, there's like we need to make sure it gets on all the streaming services, but you also kind of need to be in retail, even though there's not a lot of CDs sold. If you're Taylor Swift, your CDs are being sold. You need to be able to make CDs. You need to be able to make merch. You need to be able to handle all the inbound requests for people who want to use your music for certain things.

You need to work with the rights organizations to go around to events who are illegally using your music and make sure that they're listening for that and making sure there's a matching license. And if not, sending them the invoice for it. And this is an unbelievable amount of things that if you go through the traditional value chain through the record labels that you kind of get. The other big component that I sort of failed to realize until reading again, reading Donald Passman's book is just so enlightening.

It's like the venture deals of the music industry is the right. I think the best way to put it, if you're a retailer or if you're a streaming service, you can't really piss off one of the big three because their clout is to take everything away from you. Or even let's say you're a retailer and these don't matter as much anymore, but let's say you're selling CDs. Like for the indie artists who dealt with you individually, they can be the last check that you pay, but you better make sure you're writing the checks to everybody who's on the label because they sort of work as a group.

And so there's all these ways, you know, you want to make sure that you're getting in the right playlists on Spotify. There's all these ways where it's really helpful to be a part of something really big for negotiations. Maybe this is part of the unsaid point of in this variety article is that like Taylor is really one of the few artists, maybe the only one who could do that. Right. That second point that you're mentioning, I think applies to almost every artist, but literally she made Apple change their policies in 24 hours.

Right. So she could, but it's unlikely that she's going to decide to do that just because she's an artist. She wants to be an artist. Option number two that they lay out is she could sign with a different kind of major label ecosystem altogether. So she remember big machine, her label is part of the universal heritage and ecosystem. Yeah. Taylor could jump to Warner music group or Sony or, you know, one of the other big groups.

And she already has the Sony relationship for songwriting. That's not unreasonable. Probably going to come down to like just economics and who's willing to pay the most in that arena. Three, she could leave big machine, but stay in the universal ecosystem and sign with, you know, the parent label itself or one of the other sub labels within universal. And option four is she could stay with big machine. Now, ultimately, as we all know, she chooses option three.

She does explore staying with big machine. She definitely does. They even publish what looks like some screenshots of legal document going back and forth and having proposed changes. And it sort of seems like from those, what big machine is angling for is if you sign with us for they want 10 years, Taylor says seven, then by staying with us, you earn back the rights to all your masters. So if you stay with us through this second term, then the masters from your first term become yours.

And there's no way to know what the economic splits were or any of the other terms of this agreement. We don't even have it substantiated that that screenshot that big machine decided to put out is real. But what we do know is that big machine was willing to let her have her masters from the first six albums if she signed with them again. And we don't know what the terms were. So she signs with Republic records, which is another universal sub label.

And specifically, it's universal pop sub label. Now, this makes tons of sense. Big machine is a country label and independently owned. But in the universal ecosystem, Republic is a pop label. Like this really is what makes sense. And not only that, but Taylor and big machine had been working super closely with Republic to get all of Taylor's songs that when they wanted pop radio play to get on pop radio stations, Republic was the one handling that because obviously big machine didn't have those relationships.

So when this is all announced, like it's very amicable, at least that's what's this is presented as. Taylor is staying in the universal family. She's moving from a country label to a pop. It makes lots of sense. And again, we don't know what the tenor and tone of the negotiations were up to this point. But once this happens, this really, really changes the business dynamic for big machine. And again, we don't know how much people knew this was going to happen beforehand.

But here's the reality. It's estimated that revenue from Taylor's work was 80% of big machines total revenue. Now, they had other artists. They had Rascal Flats. They had other folks, both current and past. And they owned the masters of in the past. But Taylor was so big, it was 80% of the revenue of the company. While Taylor is still signed with them, that's like operating revenue. And even after Taylor's not signed with them, it's still your operating revenue because...

Well, the nature of what this asset is, it really goes from becoming... I think in my view, this is all my interpretation, that 80% of big machines revenue turns from being operating revenue into being like a cash flow streaming asset revenue. The whole nature of the company changes. You were a label who worked with Taylor Swift and you were actively producing music with her and distributing and everything. To now, you've got her library. And that's very different.

Right. That's a great point. Yeah. It's now an income producing asset. Yes, for sure. To your point, you need people to answer the phones when somebody wants to use it in a commercial and have their relationships with the label. But probably, I don't know, 80%, 90% of your operating activities around that, the Taylor Swift aspect of your business, now just disappear. Right. It changes the nature of what big machine as a company is and specifically turns it into this, at the time, you would think, probably predictable cash flow asset.

By the way, this cash flowing asset that you own is subject to someone else having strong feelings about the cash flow ability of that asset. Exactly. So what's the first thing that comes out in terms of some scuttlebutt on this deal? Well, it's an extended period of time before all the drama and all the beef and everything comes out around big machine and the masters. I suspect what happened is that as soon as this change happened, all the dynamics we were talking about become evident.

It now becomes pretty clear that like big machine is now a securitizable asset essentially and probably should be sold. Scott Porchetta could hang on to it and keep the royalties associated from the old T-Swift masters. But like there's not that much else going on at big machine as a label. It's now this cash flow asset. The market is hot for securitized IP licensing deals. Hotter than ever. Probably he's going to sell. The reason I think this is now becomes a separate phase of the negotiations is because had Taylor made a different decision and stayed with big machine either fully or in some form, all these dynamics would be different.

Much less likely to sell. Yeah, exactly. But when she made the decision to leave, now it sort of kicks off the sale process. So now lots of people are interested. They run an auction. Reportedly, Evan Spiegel, who I didn't realize the data Taylor Swift briefly, is interested in buying. Lots of PE shops are buying. I think for Snap, the idea was to like build music into the Discover tab that they owned or something. Interesting. Well, they run a sale process.

Now here's the question. Is Taylor part of the sale process? Could Taylor reasonably have just bought either big machine itself or the masters, which were the majority of the value of big machine? I mean, either. Yes, she could have outright if she was the highest bidder or she could have lined up financing to become the highest bidder. Taylor's current net worth is $550 million. So just over half a billion at the time. This is according to Forbes.

At the time, Forbes thought it was probably around $360 million. The ultimate sale ends up happening for between $300 to $330 million. She for sure could have. Yeah, it would have been like most of her net worth to buy it outright, but she would have lined up financing just like everybody else lined up financing to do this. Now, did they pick up the phone and call her and say, do you want to make a bid? That we don't know.

She claims that she was never offered the chance to outright buy either big machine or the masters themselves. Which is, of course, fascinating because the owners, and you can see this on the Secretary of State website for the state of Tennessee of Big Machine Records LLC, there are only five members in this LLC. One, of course, is the CEO, Scott Borchetta. Another, of course, is Toby Keith. There are two that we don't know, at least Dave and I couldn't find in the research.

And then, of course, the fifth is Scott Swift. So in order to make a sale, it's not that you need Scott's vote. And what apparently happened is because there was a nondisclosure agreement involved that he didn't want to attend because he, of course, would want to call Taylor, but he did not attend the vote to decide to sell this or not. But it is crazy that the Swift family is one of five shareholders of Big Machine.

And when the sale inevitably does happen... Everybody knows this is going to happen. Taylor even says that she knew that once she went somewhere else, it was obvious that Big Machine was going to get sold. Yes. Now, who did it get sold to? As we were saying, there's a lot of private equity interest and it does get sold to a private equity backed company by the name of Ithaca Holdings. Specifically, it is backed by Carlisle. David, who's Ithaca Holdings managed by?

The CEO of Ithaca Holdings is Scooter Braun. And Scooter himself, very well known, famous talent manager in the industry of artists like Justin Bieber and for a time Kanye West. And for a time Kanye West. And for a time, well, Kanye West put out famous Kanye West. Yes, you made the point. Lots of people knew that famous was being worked on and was coming out. And like there are people in that video that obviously were there.

Certainly Scooter probably knew about it. Would any of that changed Kanye doing this? Like, I don't know. So to cut to the chase, Taylor comes out with a post about this and says, this is my worst nightmare. Not only that I wouldn't be given the opportunity to buy my masters, but also by Scooter Braun. And what's not totally clear, and it doesn't need to be public because people can have private spats, is like, OK, so he managed Kanye during that time.

There was one thing on Instagram that Justin Bieber posted at one point that had Scooter Braun in it that said, like, what's up, Taylor, that she screenshotted and used to show that in some way Scooter had been taunting her. What's not totally clear is like why there's beef and why it's her worst nightmare for it to be Scooter. But she absolutely, once she decided that that was true, made a gigantic deal about that. And I have no value judgment on that.

But this served as an explosive point for her and her fan base. Then things just get even more interesting from a business standpoint. There's this whole morass of rights issues around what you can and cannot do with music. Taylor owns the not the recording copyrights, the masters, but the songwriting copyrights. So she's been vetoing all these opportunities to use them in sick licenses. It's like, oh, you want to use in that commercial? And that could make a bunch of money for the people that own the masters.

Nope. Meanwhile, all this is playing out on the court of public opinion and publicly. Lots of people are listening to Taylor Swift. That's definitely happening. On July 13th, singer Kelly Clarkson tweets at Taylor, just a thought. You should go in and rerecord all the songs that you don't own the masters on exactly how you did them, but put brand new art and some kind of incentive. So fans will no longer buy the old versions. I'd buy all the new versions just to prove a point.

This tweet exists. We'll link to it. It's out there. Now, here's what's really interesting. Where did Kelly come up with this idea? Well, it turns out that aside from being like a great country artist herself, her mother-in-law at the time, I think she's since gotten divorced, but her mother-in-law at the time was Reba McIntyre. And Reba did this. No way. Reba did this for several reasons with old albums, but certainly one of which that Reba had told Kelly was that by remaking albums from the earlier part of her career and releasing them later when she had a better record deal, she was obviously going to get more of the upside on that.

It's amazing. And on the one hand, you're like, come on, that's so much work. Who would do that? You have to invite back all your collaborators. You have to rerecord every single track because you can't use any of them. Your voice has changed. You're singing about all these exes. Do you really want to sing about them anymore? Poor Jake. But Taylor is maniacal and on a warpath and she does it. A couple of weeks later, in August of 2019, Taylor goes on Good Morning America and announces that she's going to do this.

She doesn't reference the Kelly Clarkson tweet, but I think it's just as plausible as not that this is where the idea comes from. Not probable cause, but plausible cause. But Ben, to your point, other artists famously Prince had threatened to do this before, but like, this isn't something you do in a weekend. This is really, it's like making a whole new album. Like, it is a lot of work. And the release and the promotion, Taylor's time on this earth is short and her time of being a celebrity is shorter.

Unless she manages to constantly keep reinventing herself and for her to dedicate prime years of her career to this project, going and spending all the time doing this instead of creating the next album, that shows how much she wants this. It's completely implausible that Taylor could recreate her old albums and keep making new albums, even anything close to the pace that she had been doing, right? Yes. David, you're referring to this chart that I made last night.

I made a rolling two-year average graph of the number of songs Taylor released to smooth out the curve, basically, since she used to release albums every other year. And it's basically 2006 to 2019. It's right around 10 songs per year that she was releasing. And then in 2020, she released 25. And in 2021, she released 46. She managed to release two brand new albums while also doing two re-releases during the pandemic. Best thing that ever happened to Taylor Swift, I guess.

So Lover's the first album on the new label. Is that right? On Republic? Miss Americana comes out in January 2020. It's also really good. Go watch it if you haven't. But then there was a big tour planned for Lover, Loverfest, that was going to take all of 2020. That tour gets canceled. And the crazy thing is she announced the re-recording plan even while Lover was going to happen, the Loverfest tour. So she was like, oh, yeah, sure.

I'll be on tour all year. And I'm going to do this. I think this is one of the really good things that come from the pandemic. Do you mean like Folklore and Evermore? Or do you mean... Yeah, Folklore, Evermore, and Fearless, and Red, and the long pond sessions. I'm always torn in trying to decide why is she re-recording? Is it vindictive and emotional? Or is it because there's an enormous amount of money at stake if she does?

And it's both. Definitely both. But it is fascinating that she has this kind of dual motivation here where one of them is, I definitely wanted to buy my masters. I'm kind of bummed that I couldn't get them. But oh my god, now Scooter has them. So I must wreck and destroy. So surprise, November 2020, the Long Pond Studio Sessions comes out as a film on Disney Plus where they all get together at Long Pond Studio in person for the first time and play the songs live.

You know, they are together right around the same time in 2020. Irony of ironies, Ithaca and Scooter and Big Machine sells the asset of the masters of the first six albums. Just Taylors. Big Machine, the operating company, all the other masters of other artists, they have everything that stays with Ithaca Holdings. They sell only the Taylor Masters to a private equity firm for about $300 million. So about the same price that they paid for all of Big Machine a year earlier.

And assuming that 80% of the revenue in that so that they're still left with some 20% chunk of the value. So it's a nice little markup in a year. There's some Rascal Flatts stuff and some other stuff. I think there might be some Tim McGraw work that they have. Anyway, the private equity firm that they sell it to is Shamrock Capital. Which sounds innocent enough. Now, the minute I saw this, I was like, oh my God, because I used to work in media investment banking.

And one of the things that we would talk to, one of the PE firms we would talk to would be Shamrock Capital. They did a lot of media deals because they started as the family office of the Disney family. So crazy. Now, there's no direct connection anymore. Like, this is more just coincidence. But like, wow. And it's Roy E. Disney, which is the son of Roy O. Disney. I think I have that right. He was the one who was kind of like agitating on the board in the CEO transition, if you've read Right of a Lifetime.

Interestingly enough, they did this without talking to Taylor. And if I were doing diligence on an asset where someone has announced that they intend to, on a warpath, devalue the thing that I'm buying, especially when I'm buying it at an appreciation to where it was most recently marked in the last year, I would probably call that artist and say, like, should we do this deal? What would you do if we did this deal? Can we find a way to work together?

Apparently, that doesn't happen. And by the way, just to underscore how unlikely it was that she would continue and go through and do this, there's a Stratechery article from April of 2021. So only nine months ago, where Ben Thompson says, it's easy to see how this plays out going forward. Swift probably doesn't even need to remake another album. She's demonstrated her willingness and the capability to make her old records and her fans will do the rest.

But then she dropped red. Ben wrote that when the Fearless, Taylor's version came out, which again, wasn't until April 2021. Back into December 2020, when Evermore comes out, because Folklore had come out just a few months before and was obviously huge. When Evermore comes out, T-Swift has concurrently, from these two albums, 22 of the top 50 songs on the Billboard charts. It is remarkable, too, as you go and listen, how good the re-recordings are. They're both faithful to the originals and all the ways you'd want them to be.

Oh, no, that's just Evermore and Folklore. Oh, this doesn't include Red and... That does not include Fearless, yeah. Whoa. Well, I do want to make that point, but it's not related. They're both faithful and better because she's matured so much as a singer. So April 2021, Fearless, Taylor's version comes out, debuts at number one, as did Folklore, as did Evermore. So Taylor becomes the first artist in history to have three albums come out, debut at number one in less than a year.

All graphs of Taylor Swift look compounding. There's never been a more up as it goes to the right, at least in her industry. We got to talk about what she calls it, Taylor's version. It's brilliant. It's so brilliant. Because what else is he going to call it, like 2021 version or, you know, remake, remaster? If you want to identify with Taylor, this is the version for you. Dear fan base I've been cultivating for 16 years, if you love me, you'll listen to my version.

And then in November of this year, on November 12th, Taylor sends me a birthday present. Thank you, Taylor. It was a really, really nice birthday present. I didn't notice at the time because I had a one month old, but releases red, Taylor's version. The Fearless Taylor's version was so good. It's my favorite album. I loved it. I mean, this has the 10 minute version of All Too Well. The 10 minute version. The video associated with that.

The other music video that came out that's directed by Blake Lively. The Saturday Night Live performance. Yes. You know, Jake Gyllenhaal may have been a jerk to her 10 years ago, but like, come on, give the guy a break. I mean, he just picked, he had bad timing. That was bad timing. Indeed. There is a couple of points before we round out the story here that are worth making about her deal with UMG. And one of them will be straightforward and one of them will be a fun deep dive into Spotify history.

So here's the straightforward one. Taylor negotiated maybe the best, most artist favorable record contract of all time. The way that her deal with UMG works is she actually maintains the ownership of her future master recording rights and she licenses them to the label. I own this the minute we press the album and you can use them. But that is not an unlimited period of time. UMG only has the license up to 10 years, at which point she will regain full control.

So they could go make UMG's version of folklore and everyone. Actually, they couldn't because she owns the songwriting credits. That's right. Yes. So Taylor has cut this just unfreaking believable deal. And Taylor is quick to point out, well, actually, the bigger part of the negotiation for me was this thing that I negotiated that involves all other artists benefiting from my contract. And what does that mean? Well, this is where we have to take a quick trip down memory lane.

So think back to 2008. If you lived in the UK, you could use Spotify. I think maybe Germany. If you lived in the US, you couldn't. So it's this young emerging thing. It's got about 2 million users in the UK. You know, Brush Metal is in vogue. Yes. Kind of looks like dark iTunes. Well, Spotify really, really needs the labels to play ball. And what are they going to do? Go SoundCloud's route and list a bunch of indie music on there?

Like, Daniel Ek has a specific vision for mainstream music listening happening in a streaming way. And so the three big labels and some indie labels collectively together get offered the opportunity to buy Spotify shares at an extremely favorable price. And so whatever the basis is, it's like trivially low. And they own 18% of the company. Huge amount. I mean, they're as big as a VC or bigger than any VC on the cap table. And so they're, you know, incentivized to play ball for the foreseeable future and make this asset go up.

They, from what I can tell, made a balance sheet investment. So it comes out of the shareholders' coffers. And fast forward to today, the Universal Music Group is estimated to own about 3.5%. Wow. So that today is worth about $1.5 billion at the current market cap, which is basically all a capital gain since it was super, super low basis, super early investment. So UMG, unlike the others, never sold its share. So that's been great for the Spotify stock because it's appreciated the last few years since their IPO.

So what did the other two big labels do? Well, Warner moved first and they gave some of the money to artists. They gave 25%. When they sold, they gave 25% of the proceeds. Yes. Of the sale proceeds of Spotify stock. You might think, why are they giving any? Which is kind of a reasonable thing to think because they made a balance sheet investment from what I can tell. They may have been given the shares, but I think it was an investment.

Yeah, right. I mean, that seems like awfully generous in a industry that isn't exactly renowned for generosity. Right. You might say, well, why are we transferring value from our shareholders to our suppliers effectively? Well, artists aren't just suppliers. This is a much tighter relationship. And in some ways, if by doing this, the labels actually accelerated the move to streaming and it may not have happened otherwise, then the artists as a stakeholder group were sort of hurt by the labels deciding to collude really and do this because all three of them did it.

So interestingly enough, Warner does this. They only give 25% of the appreciation, but they do it as a credit that will be recouped against earnings from albums. So they sell it and they say, this is great. You can have this as basically an additional advance and you can pay us back for it. So that's kind of shitty. So Sony was kinder. They said that the money that they gave to artists was non-recoupable, totaling $250 million of a total windfall for all of the artists.

This is about a third of their stake. So it's more than what Warner did and it's non-recoupable. In Taylor's negotiation as a sticking point in her contract with UMG, she forced their hand to do the best deal of any of the labels by far. It's not public, but people think it's at least the same thing that Warner did, 25%, but non-recoupable. And given the size of UMG's stake from the holding, that would mean something like $700 million would get distributed to artists with zero need to pay it back.

Hmm. That's leverage. That is like some new customer coming to you and saying, by the way, in order to do business with us, not only do you need to give us a screaming deal, but you need to kind of change the way that your other existing contracts work that I have nothing to do with. And pledge this asset that has nothing to do with me. Yes. Now, of course, she's going to make some money, but I think other people actually will be much larger recipients of the $750 million when it ultimately does get distributed.

And certainly in terms of impact to those other artists who don't make as much as Taylor on an ongoing basis. So I said earlier that Taylor came around on streaming and streaming has actually been good to Taylor and Taylor has been good to streaming. What is the biggest part of that? Now, this was not in the works when Taylor did come back to Spotify, but has been huge for her. The Taylor versions, right? Imagine a world where streaming was not the primary paradigm through which customers consume music.

Even the brilliant calling them Taylor versions, she'd still have to go convince people who already owned Fearless and Red to go rebuy the CDs. Now it's very easy to swap it out in your playlist or if you're just like, if you're not a playlister, you're just searching. You're like, oh, good. The newest one, Taylor's version. That sounds right. I've noticed. I don't I can't imagine this is just for me. But if you ask your favorite virtual assistant to play Red or Fearless or All Too Well.

Are they playing Taylor's versions? Of course they're playing Taylor's versions. Whoa. It was yet another factor that enabled Taylor to really do this remake strategy in a big way. So Taylor Swift has an astonishing 200 million followers on Instagram, which makes her the 14th most followed in the world. But there are four people from a single family that are ahead of her. Who are they? Kardashians? Yes. There's stardom and then there's ludicrous stardom. And it is amazing that there are so many places in this story where it's Taylor and her crew versus Kanye and his.

And it's great. As I was just looking through who has the most influence on Instagram that just did like total reach that the Kardashian, Jenner, West. I know they're not together anymore, but that team Kanye has is nuts. Yeah. Wow. I mentioned to you that Matsusha Electric came up again. Oh, yes. In the research. And I'm sure at this point you can probably guess why. Universal Music Group? Yeah. So Universal Music Group is now a totally separate entity.

But at one point was part of MCA Universal, which Michael Ovitz sold to Matsusha. I didn't realize that they were still together at that point in time. I thought they had already been split out. Yeah, totally crazy. So the fast forwarding all the way to today, UMG's owners are, of course, it's probably traded, but Vivendi still owns 10% of it. Vincent Bellore, I'm not familiar with that, owns 18%. Pershing Square Holdings owns 10% as the famous Bill Ackman's recent don't call it a SPAC activity.

Do you know who owns 20% of UMG that we have done an acquired episode on and is a big part of acquired lore? Tencent? Tencent. Yes. Which may have come as part of a swap with Tencent Music in that IPO, I think. Something like that. Crazy how interconnected this web is. We don't yet have total earnings numbers for 2021 for Taylor. But as I mentioned earlier, her net worth estimated by Forbes in August of 2021 was $550 million, up from $365 less than a year before.

So I think it's fair to say she had a pretty good 2021. Totally. For a sense in the music artist industry, how she stacks up all time for just music sales alone. So we're not including touring. We're not including merch. Just like literally consumption of paid consumption of the music. Now, this does include streaming. It's been accounted for in here. So you can sort of compare eras here. Taylor is 31st of all time in highest pure music sales.

Now, you might say like 31. I mean, that's like that's great. It's impressive. It feels a little low. But I do think the way that the streams are counted is disadvantaged relative to the way that they used to count album sales because they equate. 1500 streams to one album, which is a little bit like, OK, so you're sort of like saying that it's. 150 listens per album, which might be a little bit generous. If like, did I ever listen to my CDs 150 times?

Yeah. OK. She is the only artist in the top 50 who started her career after the year 2000. And she started in 2006. Everybody else in the top 50 started at least one, if not multiple decades before Taylor. Now you look at other artists who started in the 2000s decade. The only others, there are three others in the top 100. Taylor's 31. The next is Adele at 66. So this is like comparing LeBron mid-career to Jordan.

If you're like trying to compare Taylor Swift now to the Beatles. Beatles are number one. Now switching over to the touring side, the Reputation Tour is the 19th highest grossing tour of all time. Including ones that run for multiple years. Well, that's the thing is like when you factor in number of dates on the tour, it has significantly less dates. I think it has less dates than every higher ranks tour above it. And most of them, it has significantly less dates.

The other thing I looked at here, which was pretty hard and fluffy, is you can look at various publications have estimates on highest earning, you know, lists of highest earning artists for the year. And they all have different methodologies. And almost undeniably by any measure, 2016, 2019, 2020, and probably 2021, she will be the highest earning artist. Totally amazing. Okay, that's my trivia. Now, I tweeted the other day that the first episode of season 10 has a direct connection to Standard Oil and I bet nobody can get it.

So I bet a lot of listeners at this point know exactly what the connection is. But this is the most amazing part. And we gave no hints. We've told almost no one about this. Almost no one. But one person. Who guessed it outright immediately and nailed it. Direct reply. Nailed it. No inside knowledge. No awareness of what was happening. It's Christina from Vanta. Amazing. That is how good she is. Christina Cassioppo. That was a dead on guess.

And it is scary how much you knew that the last great American dynasty was indeed the linkage between the Standard Oil Trust and Taylor Swift. In 2013, of course, Taylor bought the property known as the Holiday House in Rhode Island that was previously owned by Rebecca Harkness and Bill Harkness, one of the direct descendants of the Rockefellers, inheritor of Standard Oil fortune. Heir to the Standard Oil name. There's a lot of fun stuff out there about Rebecca.

And she was eccentric. She funded lots of stuff in the arts, particularly dance. The stories in the song about stealing the dog, dying at Key Lime Green, definitely did not steal a dog, may have died a cat, Key Lime Green. But there was some poetic license taken in the song. David, I'm moving us on. All right. Let's move on. It's great. All right. Seven Powers. So as longtime listeners know, we are adapting using Hamilton Helmer's Seven Powers framework, which is an analysis of what enables a business to achieve persistent deferential returns.

In other words, how can it be more profitable than their closest competitors and do so sustainably? So, David, I guess let's think about Taylor as a business, not about like her previous rights or UMG as a business, but like the business of being Taylor Swift and having all the assets she does and all the control that she does over what she controls and not over what she doesn't control. So you're Taylor. That's the analysis. I think that's the only scale that we can really analyze this on.

Anything else feels too small, of course. So the seven powers are counter positioning, scale economies, switching costs, network economies, process power, branding and cornered resource. Branding is a no brainer. Like if I heard a song and then was told that it was Taylor Swift, first of all, she's recognizable enough where I probably could guess. But if I didn't guess, such as in what's the song where she was pseudonymous? The Rihanna Calvin Harris song. Yep. Yes. She, of course, wrote that and is singing in that, but it's not named.

I never knew that before. It brings up the value of the song to me and 100 million other people. Yep. So she's definitely got branding power going on. I suspect the biggest one she's got is scale economies. Oh, you think scale economies? Well, I look at it as the scale of value she's producing in the world because so many people are consuming her music. She has the opportunity to take advantage of scale economies and bring stuff in house that no other artist could bring in house.

She's not necessarily doing that. But I think the fear that she could do that is one way that she got the deal that she did where she actually owns the masters and licenses them to the labels. Right. Like we were talking about, the only reason she keeps a label around at all and didn't go do it herself is probably just convenience at this point. Yes. They made it cheaper for her to do that or as cheap as actually doing this in house, which would require her scale to be able to do in house.

Yeah. Okay. I can buy that. I think definitionally she also has switching costs because the CEO of Spotify, when she was not on Spotify, was flying to the US to negotiate for her to get back on. Clearly, you can't substitute a replacement and have equal value. Which I think also implies cornered resource. Does she have network economies with the fans and the Swifties? The fans with each other? Maybe. I mean, to the extent that like stuff like this podcast that we're doing, like the fact that the fans do so much, there's so much YouTube content and podcast content about Taylor.

Oh, yeah. Search Taylor Swift in a podcast player. There's a lot of Taylor Swift podcasts. Yeah. Maybe. I don't think it's strong network economies, though. If I were to take away the framework for a minute and say, where does Taylor's power comes from? It's the relationship with the fans, which she's built over all these years and all the tiny little micro interactions that she's built to build the brand that she's built with them. And then it comes from her process to be creative, which I don't think she has a specific process.

I think she has a way of existing in the world that enables her to continually be creative in different ways. And those things, I think, are probably hard to fit into the powers framework. But those, to me, are the two big reasons that she's able to wield a pretty big sword in all of this. The latter of those, I think, is exactly process power, right? It's kind of like Packy's process power, where it's like, I can't really explain it.

And she even says in the NPR Tiny Desk session, she's like, by the way, this song, I think she's talking about Lover. She's like, it felt like cheating to write because I did no work. I woke up in the middle of the night. I went over to my piano. I started voice memos. And I played the chorus basically exactly as you hear it on the album. And it felt like cheating because usually songwriting takes work. And then she kind of caught herself.

She's like, actually, songwriting is completely different every time. And there's no process for it. Probably everybody listening has a smartphone, has voice memos if it's an Apple phone or some equivalent on Android, probably can get access to a piano. And yet you cannot write like Taylor Swift. All right. Playbook? Oh, so much to talk about in playbook. I feel like you have a bunch. You want to start? Her productivity has been skyrocketing. And her skill and the complexity of her songs has also been increasing.

I think if you go look at any rankings, Rolling Stone has a ranking of every single one of Taylor Swift's songs. The top 10, 20, 30 is pretty loaded with recent stuff. So she's sort of like on two different axes on quality and quantity increasing. And so she has this like unbelievable quadratic effect to the value that her music creates in the world. If you want to phrase it in a really sterile way. But the impact that her music has and the amount of emotion she's able to create for people, which I think is just remarkable.

Amazing observation. I love the way you phrase that. I think that's swiftier. Taylor, if you're listening, I'm sorry that I called your music value. I can't recreate it. Because so many of these are like undeniably laudable for Taylor, there's one that I want to call out that's worth throwing in. She's able to bend the truth a little bit or tell a specific version of the truth a little bit that usually ends up to her benefit. And often it benefits everyone involved.

Sometimes it doesn't. But I mean, there's a bunch of different examples of this. One being she initially said Kanye didn't call for approval, which we know he did, but just not the full approval. Okay, fine. She said she woke up to finding out at the same time the rest of the world did that her albums were sold. According to Big Machine, they sent her a text the night before. Maybe she didn't see it. Of course, her dad was also a major shareholder.

Okay, he didn't show up to the meeting. But there's a little bit of like, she wanted to tell a clean story there. Another example, she was never offered the chance at her master's that she had to earn them back one at a time. Not totally clear. Maybe she could have put in an offer to buy them. This is my worst case scenario. Is it really? Or is that the most dramatic way to put it? And I don't think any of these things are necessarily untruthful.

There's a very good chance all this is the way that she perceives these in her head. So she is speaking the truth as she experiences it. But she's very good at finding the version that she can tell the world that has the most possible impact. And as we've said many times, she is a tremendous storyteller. You know what this is? What? There's like nothing more acquired than what this is. It's a reality distortion field. Oh, she's the Steve Jobs of music?

Absolutely. She totally is. I think she's the Michael Ovitz, too. There's so many ways that she leverages her self-appointed position as the music industry's resident loud person to beat up the centralized power and benefit the artists. Totally. One big one that I have that is going to spiral here a little bit, and then I'll hand it over to you afterwards, is the litany of disruptions that happened, like actual low-end disruptions, like Christensen-esque, that led to where we are today and Taylor's remarkable ability to use them as catalysts for herself and jump on new things.

So it's cheaper than ever to record your own music. It's cheaper than ever to produce and mix your own music. You have the opportunity by going viral to get an insane amount of free marketing on places like TikTok, where she's always commenting back and forth with fans or Spotify playlists or Tumblr, Twitter. Yeah. Then, of course, distribution, in addition to marketing, is also free since you no longer need to print CDs or mail them. And then on top of that, retail stores don't really exist, so there's no retail markup.

So this and the rise of social media all at the same time, the fact that the VMAs incident wouldn't be the VMAs incident without Twitter. Like that was a catalyzing event of why everyone was talking about this. It's like the tree falling in the forest problem. Kanye grabs the microphone and there's no Twitter. Did it happen? Yes. So there have been like a compounding set of waves that have all collapsed and she has been very effective at making sure to ride where they all peak together.

Yeah. All right. So that was my big long one. Over to you. Okay. First one that we talked about in the beginning of the episode is like the whole teenagers don't listen to country music narrative. Who wouldn't love country music? It's music and storytelling. People love music. People love stories. It's just that nobody was making country music for teenagers. She showed up. She made country music for teenagers. Yeah. And you see that all over the tech industry and startups and et cetera.

To the reinvent or die. There are two aspects to this. I have so much respect for her reinventing herself literally every single time. Like that is so hard to do for an artist, for a company. And yet if you don't do that, you die. I think it's also even harder for women to do that. Like women artists specifically. Like I think that male artists and bands and the like can get away with not having to reinvent themselves for longer.

Yes. And they don't have the, you know, turning 30 or turning 35 problem where they're no longer sex symbols. And this is all stuff she says in Miss Americana. Yeah. So not only is she like best in the world at doing this, like she does it with the deck stacked against her in a lot of ways. And then three, which is totally an acquired theme or we aspire to be. She treats her audience like they're smart.

Yes. And so few other people do at the scale that she does. She understands the power and the value of her audience. And so she spends a remarkable amount of time catering to them and building things for them and interacting with them. To my original point on the way that she tells her favorite version of the truth in some of these situations to create the largest impact. I think the savviest people in her audience could be spoken to in a little bit more of a nuanced way.

Right. When you think of how she speaks to 200 million people versus how, you know, traditional media used to speak to 200 million people, like it's very different. Yes. Follow me on this one. The free download in 99 killed the CD sale, which was the cash cow of the industry. I mean, for everyone, artists, labels, everyone. So then iTunes comes along and individual song purchases start to save it, but don't nearly make up for the lost revenue.

Streaming takes off like crazy and then CDs really stop selling. So the primary revenue driver for labels and artists is gone. Streaming makes some money, but that revenue generated from streams that goes to the labels to be divvied up doesn't nearly match what the CDs matched in revenue. So there's this big sort of like missing revenue gap. So all the revenue shifts toward performance royalties then. So we're in this situation where in order to make money, it's touring and it's merch at this point since streaming doesn't make a lot of money and CDs are dead.

So record companies then interestingly got obsessed with, did you hear about the concept of the 360 deal? Yes. So they're trying to capture revenue, even if they're not helping you create the album and you're overproducing revenue on your own on their side. They're like, oh, we're your label. So, you know, we're, we're involved in everything your brand does. And we're going to help you do everything. Well, yeah, sure. So where does this leave us? Basically what it means is the industry is just going to have to make it up on volume, but because streaming pays out so much less, we're just going to need a lot more streams.

Now, is this going to happen? Here's where there's an interesting argument in this, the, the Donald Passman book is so good in bringing up two points in the introduction. And these two points are at the peak in 1999, an average CD buyer spent about $45 per year on CDs. Today was streaming averaging $7 a month. That average spend per customer has gone up to $84. So you have almost a two X in terms of consumer spend.

Now let's look at like the number of consumers that are doing this. Well, in the old days, when you were done with your twenties, you basically stopped buying records and you stopped buying CDs. You kind of had your musical taste. You had your collection. You weren't really listening to the new stuff anymore. And you certainly weren't buying it. You only ever heard it on the radio, which was free. And today people of all ages are paying for streaming every month from like, you know, four-year-olds listening to stuff that four-year-olds listen to on Spotify all the way to like, you know, grandma having a Spotify subscription.

Can confirm children like music. So there's like very real TAM expansion, both in terms of the amount consumers will spend as everyone fully shifts to streaming and the number of people who will behave that way. So it's just sort of about like, okay, well then how do we divvy up those dollars? Cause there should be more dollars than ever flowing in. Look at you, Daniel X should have come and talked to you before he talked to Taylor.

Well, all credit goes to Donald Passman. Fair enough. Fair enough. All right. So my last one that I want to dive into a little bit here are that advances interestingly are a clear sign of a power law dynamic where you mentioned it's like book publishing. We talked about how it's like venture. It's the same thing in all these things, music, books, and startups where having the big winners in your portfolio is really what matters. At one point I had a book agent tell me that America basically picks one book a year to all read together.

You know, it's the Michelle Obama book or it's whatever it's going to be. And you don't know what that's going to be ahead of time. And so you kind of don't really care that much about recouping your advances on the losers. All you care about is making it so that in your portfolio you get the book that America reads every year. And it's just so similar to venture capital. And the way that the payback works is so similar to where, okay, an advance and then you recoup against the royalties.

Well, what's preferred stock? You know, the first X amount goes to the capital provider, you know, in exchange for the capital they've provided. And then they participate with some split in whatever outcome is after that. And I don't want to quite get into the nuances of like participating preferred and how it's slightly different. But the fact of the matter is these contracts that seem predatory, and I'm not going to argue yet that they're not predatory, but what they're doing is basically making sure that they cover their losses.

And there's this interesting human nature thing where if you look around and you're the winner and you realize you're the one subsidizing everyone else, it's really easy to forget that you had an equal chance of failing if someone was to underwrite you. So you're like, why am I paying so much back to this original capital provider? I hate being locked into this deal. But that deal was theoretically whatever the market clearing price was in order to take the risk on you as a young startup author or artist.

And the only place where this falls down, which I think is what I want to do this episode instead of value creation, value capture, is in order for this really to be fair, in order for these terms to truly be market price, you need the labels to not be making a ton of profit. If they're very profitable on like a free cash flow basis, like all the way full bottom line, if they're printing money, then what you could say is, Jesus, this is an oligopoly.

There's only three people here. So there's not actually a good competition among the people that want to give you money as an advance in order to, you know, do all the stuff that a record label does. These businesses aren't that good of businesses, but like... It's an oligopoly. It's an oligopoly. Yeah. It's just like the old school VC industry when there were like five firms. And of course, they got great deals because there were five firms and now it's way more competitive and founders get way better deals.

And to underscore the power law, the stat is that last year, the earnings of the top 1% of artists in each music category accounted for 78% of revenue of all music sales. It's power law. It really is. It looks like 80-20 to me. Yes. All right, listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team and deploying them is no longer the hard part.

Yeah. The hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like, the risks are real. Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI Control Tower. Yep. AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business.

And it works with any AI, not just theirs. Every device on your network, every permission across every system, every AI agent, visible and secure in one place. And ServiceNow can do this because they've spent more than 20 years building the operational backbone of the enterprise. The workflows, governance, approvals, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security. ServiceNow already runs more than 100 billion workflows annually and trillions of transactions for more than 85% of the Fortune 500.

So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates. And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale, go check out ServiceNow.com slash acquired and tell them that Ben and David sent you.

Okay, so grading. It's kind of weird. We're like grading Taylor here. So streaming did save the music industry, sort of. I mean, more money was made by the music industry in paid streaming subscriptions alone in 2020 than the entire industry made across all formats in 2015. Streaming is a gigantic revenue driver. But to be honest, none of the dollar figures in anything that we've talked about are actually that big. The music business is just small compared to the software businesses that we cover.

And here was the way that I want to show that, David, is would TechCrunch even cover a $300 million exit? No. I mean, if they would, nobody would read it, right? Right. It's like, sure, there might be a TechCrunch article. It wouldn't be the biggest deal that day, certainly. No. There may be investment amounts into companies larger than that. And here we hinge the whole thing on this gigantic exit of Taylor's music catalog for $300 million.

Like, it's just not that much money. We had Sam SPF from FTX on, who's younger than Taylor and, you know, awesome. That was a great episode. I love at the end when he was like, Mario asked him what he feels about our current age. And we live in the age of social media. Nowhere is this more applicable than the current episode. He's the wealthiest person, I think, under 30 in the world because he works in technology and started a cryptocurrency firm.

Well, he works in modestly regulated finance using technology. Yeah. Taylor, for everything we've just discussed over a long period of time, is worth half a billion dollars. That's a big disconnect, it feels like, relative to, like, influence versus economics. Celebrity does not equal economics. Yep. And so, just looking at some other deals, Bruce Springsteen's entire catalog just sold for $500 million. John Legend, mid-career, just sold his. There wasn't a number attached to that. Even Bob Dylan's entire catalog of more than 600 songs was around $300 million.

So, you're like, okay, well, maybe the music royalties just aren't worth that much. The entire industry of recorded music is only a $14 billion industry. That is less than one-tenth of the video game industry, which is $170 billion. Music just is not that big. And if you look at the music industry as a whole, which includes tours, okay, it's a $40 billion industry. It's still not that big. Which even that big number is about one-tenth of Apple's revenue.

Right. All the money anyone makes on anything in music every year is about 10% of what Apple makes just in revenue on their products. And my favorite way to tie this all off is the entire music industry's revenue, that's including all the concerts and touring and everything, is about equivalent to Best Buy's revenue. Or if you want another comp, American Airlines. Oh, wow. Best Buy actually, I feel like, has done a pretty good job as of late, you know, staying alive and relevant.

But yeah. Oh, wow. That's such a good point. Crazy. I hear that and I feel like there's more opportunity for Taylor and other artists to do other things and make more money. Or just got to find a better way to monetize music. I mean, it is such a meaningful part of all of our lives. Maybe this is part of the motivation of Miss Americana and the Long Pond Studio Sessions and the All Too Well short film.

Taylor's tried, she's been in a bunch of movies as an actress and that's not obviously going to be a big thing for her. But she can make her own movies, do her own deals with Netflix. Maybe that's a way to make a lot more money. There's a thing to grade that's not like all of Taylor's career. So it's probably worth doing, grading Ithaca's purchase of Big Machine. There's another one that's grading Sherrock's purchase of Taylor's Masters.

And then there's a third one, which is what price would you pay for those Masters today? Which I think is sort of a fun one. It's not quite grading, but Big Machine selling when they did was a great decision. And Big Machine shareholders should be excited by that. It was A, the only decision. And B, selling while Taylor was still friendly. Amazing. Still amicable relationships with Taylor. Yeah, absolutely the right move. By the way, just for fun, I did a calculation on if you own 3% of Big Machine, like Scott Swift allegedly did at the time of the sale, you would have turned your $120,000 of initial investment into $9 million by selling to Scooter Braun, which represents a 75X.

Not bad. Not bad. Not bad. Now, was that a good decision for Ithaca? Well, they made a pretty quick buck by flipping 80% of that $300 million, also for $300 million, then to Shamrock. They got their principal back quickly. Yes, and more. I mean, they own whatever the value of the remaining 20% of the assets are. But now, if you're Shamrock, I don't think I would pay $300 million. That feels like a pretty bad deal. There has never been a more overvalued asset in the music industry than the masters for Taylor Swift's original albums at $300 million today.

Not only is she actively devaluing them, but the whole industry is at complete peak for what people are willing to pay for assets. Like, some people are even calling it a bubble in the music industry, just like they are in public equities or in startups. I think Shamrock and the Disney family are going to be left holding the bag on this investment that they'll never recoup, which is the great irony of Taylor Swift not recouping. Right.

Right. Oh, boy. It certainly seems that way. I mean, yeah, things could change. But how? Taylor's committed to this project now. Like, even if Taylor and Shamrock were to smooth things over and have good relationships against, she's remaking them. She's going to want the new versions. Maybe. I there still may be some deal that can be cut where you're like, I want Scooter out entirely. Sell me this thing or I'm going to make it worth, you know, $30 million to you.

And she might be able to buy them for a bargain basement price and stop doing this. But that's what Ben Thompson thought before Red came out. It also is. I don't know. It seems like she's an artist. She creates and she enjoys it. It seems like she's enjoying doing this. I think that's right. Yeah. Seems like pretty bad deal for Shamrock. All right. What do you want to grade? Hmm. Taylor Swift's career, unprecedented, unbelievable, A plus, like my God.

And the change that she's affecting along with it. Amazing. I mean, it actually kind of reminds me of like Elon Musk, where people love to hate on Elon Musk because, oh my God, he's so rich. And look at all this money he's making. He's making all this positive change for the world. At least I believe that. And getting rich while doing it, which you probably should be if you're making the change on the level that he's making.

And like, do I care that Taylor Swift is benefiting from all these deals while also advocating for artists? No, I think I kind of think she should. So I have no gripes with that. I mean, shocking the two people who host this acquired podcast about technology and capitalism. No gripes with somebody making money. Yeah. Musically. We have anti-gripes with it. Productively, financially, and the way that she's affecting change. It's just an A plus. Yeah. She's a genius.

No other way around it. All right. Quick Carve Outs. I can't recommend strongly enough the Beatles documentary. Oh, nice. Oh, I got to watch that. By Peter Jackson. Get Back. It is like hanging out with ghosts is the best way I can describe it. The original footage, and it's clearly restored because it's like very high quality footage of John, Paul, George, and Ringo. And you're spending, it's like eight hours. It's many hours cut across three parts.

You're just hanging out with them while they are creating an album from nothing in a matter of a month. And it is, especially for those of us who grew up seeing pictures of the Beatles, listening to the Beatles music, and only ever seeing like a little video here or there and usually poor quality. I think for the first hour of it, I was just spending like being in a state of shock that I was just hanging out in a room informally with the Beatles.

For mine, I've got a fun one that we've talked about much over on the LP show. Go check it out on the LP, the now newly public LP feed for everyone. And we are both wearing right now, Italic. Yes. We did a little partnership with them for some acquired gear for recent guests and us and our significant others. And it's just such high quality stuff. I love it. It's great. Yeah, totally agree. All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

Yes. Long time acquired partner. There is a reason why the best product teams at companies like OpenAI and Notion, Atlassian, Figma, Rippling, Brex, and more rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale. Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next.

Whether it's a feature tweak, a pricing change, a performance improvement, or an AI update like a model change or prompt adjustment, they're not relying on instinct. They're measuring what actually moved engagement, retention, and ultimately revenue. And as more teams build with AI, that learning loop becomes even more important. Building with LLMs introduces non-determinism into your product experience. The same input doesn't always produce the same output, and behavior can shift in subtle ways in real-world use. So doing offline evals will give you part of the picture, but you can really only understand the impact once your product is live with real users, and then you can measure how their behavior actually changes.

It's very different than the way that you would ship features in a pre-AI world where you knew exactly what the software was going to do in production. Yeah, exactly. So this is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved. The result is a tighter feedback loop and learning that compounds over time so you don't just ship more, you ship better.

So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com slash acquired to get started. All right. Well, listeners, with that, if you're not in the Slack, you should be. Honestly, I've met so many awesome people there, and it's really cool to learn from so many of you. And if you like talking about the news of the day with an intelligent group of people who are into the stuff you're into, you should join at acquired.fm slash Slack.

I will take the episode off from telling you to become an LP this time to just say if you've always thought about it but don't know what that sort of content is. That content is all public from the back catalog now, and the new stuff is just available to LPs for a couple weeks. So go look at the whole back catalog, and we'll put a link in the show notes or just search Acquired LP Show in any podcast player, including Spotify.

We've got a job board. It's great. You should join that if you're looking for something new, or feel free to submit jobs on there. We only pick the ones that David and I think are interesting. So if you want a view of what we think the interesting jobs are, go to acquired.fm slash jobs. And then lastly, if you want to tweet about this, we would love that. We actually would love it even more if you just share one-to-one with your friends, because we think that strong connections are the best connections.

And you can find us right along Taylor Swift on Spotify and in all of your favorite podcast players. Literally right next to Taylor Swift. Immediately next to Taylor is acquired. With that, we will see you next time. We'll see you next time. Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Huh? Who got the truth now? Who got the truth now? Who got the truth now? Who got the truth now?

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Who got the truth now? Who got the truth now? Who got the truth now? Who got the truth now? Who got the truth now? Who got the truth now? Who got the truth now?