EVERY SPOKEN WORD
140 min read · 28,438 words- 0:00 – 2:47
Season premiere setup: Taylor Swift as a business story
- BGBen Gilbert
You're looking very good in that scarf, sir.
- DRDavid Rosenthal
Ah, as are you, fine sir.
- BGBen Gilbert
Had to bust out the red scarf.
- SPSpeaker
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?
- BGBen Gilbert
Welcome to season ten, episode one, 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.
- DRDavid Rosenthal
And I'm David Rosenthal, and I am an angel investor based in San Francisco.
- BGBen Gilbert
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 twenty nineteen, 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 fifteen, twenty-two, and now she's accomplished all of this at the still unbelievably young age of thirty-two.
- DRDavid Rosenthal
That was, that was good. I, I re- I, I like that. I like that. [laughing]
- BGBen Gilbert
You probably know her all too well. She's maniacal-
- DRDavid Rosenthal
Oh, come on! Okay, okay. [laughing]
- BGBen Gilbert
You could even say she's fearless, a mad woman-
- DRDavid Rosenthal
Ah.
- BGBen Gilbert
Or, David, or that she'll never go out of style. Today-
- DRDavid Rosenthal
That-
- BGBen Gilbert
Listeners
- DRDavid Rosenthal
... is true. [laughing]
- BGBen Gilbert
We are telling the story of the business of Taylor Swift.
- DRDavid Rosenthal
I have a fun, uh, little thing I wanted to do. I thought we should guess each other's favorite TSwift album.
- BGBen Gilbert
Ooh! Let's see. I think yours used to be 1989, and now it's Reputation.
- DRDavid Rosenthal
Ooh. Oh, man, re- oh, Reputation is so good. I did not like it at all before starting the research for this, and now I am such a fan. Uh, but no, 1989 is my number two. My number one is Fearless.
- BGBen Gilbert
Fearless! An uncommon pick, my friend.
- DRDavid Rosenthal
I know. I love it. I just love it. So good, and the song Fearless, so good.
- BGBen Gilbert
All right, what's mine?
- DRDavid Rosenthal
I think yours is 1989.
- BGBen Gilbert
Mine was 1989, and I am an Ever- or a, uh, Folklore fan now.
- DRDavid Rosenthal
Oh! Oh, and Folklore over Evermore.
- 2:47 – 7:30
Sponsor + community announcements (Vanta, Slack, LP Show)
- BGBen Gilbert
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, we've got a killer story to tell you today, but first, we want to introduce you to our brand-new presenting sponsor, Vanta, the leader in automated security compliance. Vanta brings a fascinating approach to the whole compliance process, SOC 2, HIPAA, GDPR, and more. We have a guest with us today to tell us more about the company, the CEO and co-founder, Christina Cacioppo. We are insanely excited to be working with you and all of Vanta. I've been following your work across everything you've done in your career for a decade, so this is, uh, this is pretty special for us.
- SPSpeaker
Thank you so much for having me. It's wonderful to, uh, be on Acquired. I've been listening for probably four or five years at this point.
- BGBen Gilbert
Well, to kick us off here in episode one, Vanta today provides the best solution in the market to get SOC 2 certified and, and stay that way. I know there's actually a fascinating history to SOC 2 and why it exists. Can you share that with listeners?
- SPSpeaker
For sure. So, uh, it started in... Or there's a handful of, you know, different versions of SOC 2 before we know what it is now, different acronyms, but it started probably ten, fifteen years ago, um, with something called SOC 1, actually, with the accountants, and that was just a financial auditing standard. Uh, just trying to look at, do companies have the correct financial controls in place to rules around how they, how they handle financial matters in their company, and then what gets audited annually? Um, accountants were doing that. I think it was a good business. Uh, around that same time, right, businesses just started to digitize, come online, um, more in our parlance, software started eating more and more of the world. Uh, and so I think the accountants saw this, uh, you know, tremendous opportunity for, for sort of market expansion. Um, and so they, they started something called SOC 2, uh, which sort of like Java, JavaScript, like, these things aren't really that related, but what it is at a high level is just assurance that the business takes care of customer data well. And we just have seen this be, you know, kind of more and more important as software has eaten the world, as we've seen more data breaches of big companies, and sort of everyone is more aware of how much data there is about all of us on the internet. And so over the last five years, really the last two years, has just really taken off as, you know, there's more B2B SaaS. Large companies are buying software from smaller companies but want assurances around data security, and so it just, again, kind of snowballed. Interesting thing is this isn't a law. It's run by a professional association, the American Institute of CPAs. They make the standard. They update it every few years. They train their members, who are CPAs, in how to administer it. It's kind of this, you know, fascinating and a path-dependent thing, where you have accountants that are looking at financial data, and, and then over time, you know, again, saw, saw an opportunity to leverage their skills in a different area. And, and, you know, here we are in twenty twenty-one, twenty twenty-two, looking at SOC 2.
- BGBen Gilbert
Our thanks to Vanta, the leader in automated security and compliance software. If you are looking to join Vanta's two thousand-plus customers and get compliance certified in weeks instead of months, you can click the link in the show notes or go to vanta.com/acquired for that ten percent discount.... We also wanna 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/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, uh, 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 this show is for informational and entertainment purposes only.
- DRDavid Rosenthal
We may own, uh, a few music securitization deals out there. [laughing] I don't know if we would recommend it. We- we- at the end of the episode, we'll, we'll decide if we recommend buying into Musicmaster securitization deals or not. Amazingly, this is, was, like, shocking to me, there is no official, like, big book biography out there about TSwift. But there is actually quite a good book out there. It's unofficial, of course, but it's really well-researched.
- 7:30 – 12:09
Early life and family roots: privilege, ambition, and the music gene
- DRDavid Rosenthal
It's by a man named Michael Francis Taylor, who is a Brit, and it is called Taylor Swift: The Brightest Star, and, uh, it was... formed the backbone of a lot of the research here and stories, 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-
- BGBen Gilbert
The wonderful Southeast Pennsylvania, Delaware region.
- DRDavid Rosenthal
A baby girl, one Taylor Alison 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.
- BGBen Gilbert
That's sort of all I ever heard on him, too.
- DRDavid Rosenthal
Based on what I could find out, he comes from, like, a long line of wealthy, sorta Philadelphia, you know, area family. If you've seen kinda 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 Baldy, who was an Italian immigrant, came to Philadelphia in 1877. You know, we gotta go back to the 1800s 'cause it's Acquired. [chuckles] Uh, we can't just start at 1989.
- BGBen Gilbert
Of course.
- DRDavid Rosenthal
And he opens a coal yard in the Philadelphia area, supplying the railroads, and becomes, like, one of the biggest-
- BGBen Gilbert
Oh, wow!
- DRDavid Rosenthal
... coal magnates for railroads in the Philadelphia area. So he makes a fortune. Uh, he invested in newspapers, he invested in banks, he, uh, like, like, stocks of banks. Uh, he buys a ton of Philadelphia area real estate. Let's just say the family has a lot of properties. [chuckles] 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, uh, and then decided to stay home to be a mom to Taylor and, and her little brother, Austin. Uh, [chuckles] but Andrea's childhood was pretty unique, and her mom, Marjorie, had quite a different path.
- BGBen Gilbert
Marjorie was an opera singer, is that right?
- DRDavid Rosenthal
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, uh, 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.
- BGBen Gilbert
Yeah.
- DRDavid Rosenthal
I think she was born in, like, the '20s, I wanna say. And while they're living in the Caribbean, in, in Cuba and Puerto Rico, she-- and I believe Andrea was already born at this p- 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, uh, as well, and [chuckles] 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. [chuckles] 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.'" [laughing] When she is six, a few years later, her parents buy her, her first album, which is LeAnn Rimes. Remember LeAnn Rimes?
- BGBen Gilbert
Oh, no way!
- DRDavid Rosenthal
So through LeAnn, 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.
- BGBen Gilbert
Hmm.
- 12:09 – 17:35
From karaoke to Nashville: building a path into the industry
- DRDavid Rosenthal
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 kinda 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, uh, if you won karaoke night, you'd get to open up for these acts.
- BGBen Gilbert
Hmm.
- DRDavid Rosenthal
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." [chuckles]
- BGBen Gilbert
How old is she here? Ten, 12, 13?
- DRDavid Rosenthal
Yeah, 10.
- BGBen Gilbert
An enormous amount of parental support for a 10-year-old to be a fly hanging around some place, you know?
- DRDavid Rosenthal
It's interesting. I was thinking a lot about this, and people talk about Taylor was i- in many ways, sort of born standing on third base and had all this privilege and support from her parents. Absolutely true. On the other hand, it's also pretty rare for anybody, and often especially people from wealthy families, to have, like, that kinda 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 gonna do this. [chuckles] I'm gonna go be Shania Twain and LeAnn Rimes."
- BGBen Gilbert
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, uh, before immediately focusing on whatever's next, and that you cannot manufacture.
- DRDavid Rosenthal
Okay, so she's singing at the roadhouses. She starts getting on the national anthem circuit locally. She sings the national anthem, uh, for the Reading Phillies, the local minor league baseball team.
- BGBen Gilbert
Ah, so it begins.
- DRDavid Rosenthal
So Taylor, one night, is watching the VH1 Behind the Music on Faith Hill, [chuckles] 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?
- BGBen Gilbert
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.
- DRDavid Rosenthal
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.
- BGBen Gilbert
What?
- DRDavid Rosenthal
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 gonna go buy a local radio station [chuckles] in Nashville and change the call sign of the radio station to WSM and have it be like, "We Shield Millions Radio." [chuckles] So they do this, and, uh, 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.
- BGBen Gilbert
Wow.
- DRDavid Rosenthal
Become... I know, people are like: "This is... Where are you going with this?" It becomes so popular, they're like, "Oh, we gotta build a venue for this, and let's make it a show, and let's, like, really go all in, as if we're getting tons of customer acquisition through this." So they build what becomes the Grand Ole Opry for- [chuckles]
- BGBen Gilbert
Whoa
- DRDavid Rosenthal
... 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 [chuckles] in Nashville, and so that's why Music City, Nashville, is the place to be.
- BGBen Gilbert
Wow, I love how random... I mean, it's, it's not that it's random, it's complexity theory. It's that there is so many factors that go into something that y- this sort of unpredictable event of this insurance company sponsoring a radio station to this huge, uh, amount is a, it serves as enough of a catalyst to bring together surely a movement that was already happening, but to happen there.
- DRDavid Rosenthal
Yep. Okay, back to Taylor. She finally wears down her parents, who say, [chuckles] "Well, we're not gonna move there, but, like, maybe on a school break, uh, why don't, 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, we'll see what happens?" So in March 2001, Andrea takes Taylor down to Nashville. She comes back to Pennsylvania [chuckles] empty-handed, no record deal. Surprise, surprise, just
- 17:35 – 22:34
Development deal, move to Nashville, and doubling down on songwriting
- DRDavid Rosenthal
walking into offices on her own. Didn't get her a deal. But she's undeterred. This is Taylor Swift we're talking about. And, uh, the next year, in 2002, she gets the chance to sing "America the Beautiful" at the US Open in New York.
- BGBen Gilbert
Slight twist on the national anthem. You know, it's, she's, uh, she's branching out from her single song. [chuckles]
- DRDavid Rosenthal
So amazingly, like, the strategy, it works. It works. In the audience, uh, in attendance at the Open, is a talent agent in New York named Dan DiMartino, and he hears her sing. He's part of Britney Spears' management team, and he's like: "Huh, that girl's got talent." [chuckles] 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, uh, so Taylor's like, "Oh, okay, great, I got an agent now." They then go back down to Nashville, back down to Music Row. Dan walks her in [chuckles] to all the studios.
- BGBen Gilbert
This is, like, the big three record labels' second office that's in Nashville, right? They're- they have Nashville-specific offices for country.
- DRDavid Rosenthal
Yep, and some of them, it's, you know, it, it's very much like the movie industry. Like, some of them, it's, you know, Capitol Records, Nashville, or, you know, whatever, and, and some of them, they have other labels.
- BGBen Gilbert
Oh, if you go look up Universal Music Group, you can see that there's a thousand labels within an- you know, UMG.
- DRDavid Rosenthal
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.
- BGBen Gilbert
Yeah.
- DRDavid Rosenthal
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, is like, "Hey, we're gonna invest resources in you and make a record that we're then gonna release, and we'll get it on radio and see how you do." Uh, 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 gonna lead it, though." [chuckles]
- BGBen Gilbert
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.
- DRDavid Rosenthal
Exactly, and I assume that there's also a roe for 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, "Okay, [chuckles] let's move to Nashville," which they do.
- BGBen Gilbert
That is so crazy. Uh, 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 wanna 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.
- DRDavid Rosenthal
Yeah. I mean, like, it happens.
- BGBen Gilbert
It's like the stuff of Olympians and future Taylor Swifts, you know?
- DRDavid Rosenthal
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 [chuckles] other people out there trying to make it. Like, if you wanna make it, you've really gotta stand out, and you gotta have something great that makes you, you. And for her, what's the natural thing?
- BGBen Gilbert
Hmm.
- DRDavid Rosenthal
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, and 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." [chuckles]
- BGBen Gilbert
It is so true. She's got these, like, love songs, uh, you know, as a middle schooler, that she's written, and it, 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.
- 22:34 – 29:25
Sony/ATV deal and the RCA ‘unforced error’: betting on the wrong thing
- DRDavid Rosenthal
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, shows some promise as an artist, [chuckles] 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-
- BGBen Gilbert
Hmm
- DRDavid Rosenthal
... signs her to a songwriting contract as their youngest songwriter ever, that they have ever signed. [chuckles]
- BGBen Gilbert
So again, not a record deal, but she has a deal as a songwriter.
- DRDavid Rosenthal
And it could be songs for her, it could be songs for other people, like, the... Sony doesn't care. They just want to publish her as a songwriter.
- BGBen Gilbert
Hmm.
- DRDavid Rosenthal
So the CEO of Sony/ATV Nashville says, this is a quote [chuckles] 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."
- BGBen Gilbert
Wow!
- DRDavid Rosenthal
Amazing. So Sony pairs her up... Like, [chuckles] she's still just 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 gonna come up later, but their final collaboration. Do you, do you know what it is?
- BGBen Gilbert
No, I have no idea.
- DRDavid Rosenthal
All Too Well.
- BGBen Gilbert
Really?
- DRDavid Rosenthal
Yeah.
- BGBen Gilbert
Wow!
- DRDavid Rosenthal
Taylor brings her back.
- BGBen Gilbert
Current number one for Taylor Swift.
- DRDavid Rosenthal
Oh, my gosh. Longest number one song in history.... This is one of the most boneheaded, like, business move, move of any type, uh, that like, I'm going back to, like, the Netflix, Blockbuster.
- BGBen Gilbert
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 [chuckles] error.
- DRDavid Rosenthal
Yes, forced to make an unforced error. This is just a fully unforced error. RCA [laughing] 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." [chuckles]
- BGBen Gilbert
No way!
- DRDavid Rosenthal
Yes, yes. So they tell her they wanna keep her in development for at least another year.
- BGBen Gilbert
Uh.
- DRDavid Rosenthal
They're not gonna give her a record deal, but what they wanna do with her in development, they wanna have, you know, enough of this performing your own stuff. [chuckles]
- BGBen Gilbert
Singer-songwriter stuff. We'll feed you some good music, and you can sing that.
- DRDavid Rosenthal
We will feed you teenybopper stuff. [chuckles] Oh, my God.
- BGBen Gilbert
I mean, it's just, the, it's this classic, like, underestimating young talent, and it happens in every industry. And I, 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, Kidz Bop stuff. It's not Kidz Bop, but that, that sort of thing. And so, like, I, I mean, it's, it's almost this Taylor quote of, or the Taylor lyric of, "When you are young, they assume you know nothing."
- DRDavid Rosenthal
Literally, I've got a quote on this [chuckles] from her. "I didn't just wanna 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-
- BGBen Gilbert
[chuckles]
- DRDavid Rosenthal
... but that's what I did. And what she's referring to is, when RCA does this, she tells them [chuckles] she tells them to go F off. She walks out on her deal.
- BGBen Gilbert
So they're just stringing her along?
- 29:25 – 33:49
Big Machine’s founding bet: the Bluebird Cafe audition and early financing
- DRDavid Rosenthal
Yep. So, TSwift decides, in her own inimitable fashion, that she's gonna host her own audition this time. [chuckles] 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, uh, was where Garth Brooks was discovered.
- BGBen Gilbert
Hmm.
- DRDavid Rosenthal
She invites all the label execs in town to come see her perform.
- BGBen Gilbert
She's the Michael Ovitz of the teen country music industry in Nashville, right? She's, like, holding an auction for her, herself, rather than trying out.
- DRDavid Rosenthal
So one of the execs who shows up, and it, and it was, uh, I think, apparently well-attended, is a man named Scott Borchetta.
- BGBen Gilbert
Ah.
- DRDavid Rosenthal
Scott is an executive at, you know, one of Universal's sublabels 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, I wanna sign you, and I wanna sign you to a, a real record deal. I wanna 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. [chuckles] 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 gonna 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."
- BGBen Gilbert
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.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
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.
- DRDavid Rosenthal
Right. Scott Borchetta needed some financing to get this off the ground. Like, it costs money to make an album, to distribute an album.
- BGBen Gilbert
Right.
- DRDavid Rosenthal
So where does he get the money? Well, one place he gets it from, a minority investor, is Taylor's dad.
- BGBen Gilbert
Hmm.
- DRDavid Rosenthal
The Swift family invests a hundred and twenty thousand dollars in Big Machine for a three percent stake in the label.
- BGBen Gilbert
Three-ish. It's been reported in a few different, three percent, four percent, so, so, but somewhere in that ballpark.
- DRDavid Rosenthal
Somewhere in... They call it two to four percent. The majority of the outside capital, though, comes from, uh, I don't think this has been talked about that much. This blew my mind when I figured it out.
- BGBen Gilbert
[chuckles]
- DRDavid Rosenthal
Uh, I think I already told you who it comes from.
- BGBen Gilbert
Yeah.
- DRDavid Rosenthal
Comes from Toby Keith, the, like, big country singer, who apparently is, like, a huge business mogul in Nashville and in the-
- BGBen Gilbert
Yep
- DRDavid Rosenthal
... 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. [chuckles]
- BGBen Gilbert
He's been a super, super savvy business person outside of his musical career.
- DRDavid Rosenthal
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, uh, they're off and running.
- BGBen Gilbert
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, uh, 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.
- DRDavid Rosenthal
Right.
- 33:49 – 41:57
How music rights and money work: masters vs publishing, recoupment, and licensing
- BGBen Gilbert
David, do you think this is a good area to do a little sidebar on how music licensing works?
- DRDavid Rosenthal
Absolutely. Like, what does it mean when Taylor signs this record deal? [chuckles]
- BGBen Gilbert
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, this is 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, and 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, uh, The Verge and Switched on Pop, which we'll link to in the show notes.
- DRDavid Rosenthal
Yeah. Switched on Pop, so good.
- BGBen Gilbert
Uh, the other is a book from, uh, the legendary music attorney, Don Passman, on the music business, which is on its tenth 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. 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.
- DRDavid Rosenthal
It feels like the old-school venture capital industry to me, like when, uh, 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.
- BGBen Gilbert
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, uh, a- 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.
- DRDavid Rosenthal
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.
- BGBen Gilbert
So the second one is the musical composition copyright or the publishing right, and now these are, like, the written lyrics and the melody, uh, and they're traditionally held by the songwriters themselves through their music publishers. The way you can kinda think about this, sort of the idea and the execution, the m- musical composition copyrights, it's kinda 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 fifty percent 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. Um, so for all intents and purposes, you can think about it like the songwriter themselves owns their own musical composition copyrights, the publishing rights, uh, and they, 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-
- DRDavid Rosenthal
Ah.
- BGBen Gilbert
-major rights.
- DRDavid Rosenthal
Oh, right. The sheet music was, like, it. [chuckles]
- BGBen Gilbert
Exactly. And since the singers didn't used to be the same as the songwriters, and that, 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, uh, 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 fifty-fifty, it could be ninety-ten, 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 five percent royalty or something.
- DRDavid Rosenthal
So, like, for Liz Rose and, you know, with "All Too Well" and Tim McGraw and the like, there's some deal between her and Taylor?
- BGBen Gilbert
Right. But all independently, privately negotiated.
- DRDavid Rosenthal
Interesting. So you said at the time, typically, the publishers would keep, like, fifty percent of the songwriting economics, and the writers would keep fifty percent. Even that was very good from the artist's perspective, compared to the splits with the labels on the master side, right?
- BGBen Gilbert
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, ten percent, fifteen percent. Maybe if you're a really big artist, you can get, like, twenty, twenty-two percent, but the vast majority of those economics are going to the record label, and this is where we should mention the idea of recoupment.
- DRDavid Rosenthal
Right.
- BGBen Gilbert
You only get to participate in those revenues if you've recouped your-
- DRDavid Rosenthal
The advance, the cost. Yeah.
- BGBen Gilbert
Yeah, yeah, yeah. It's like a, a, an upfront advance.
- DRDavid Rosenthal
Right. So it's like book publishing?
- BGBen Gilbert
Exactly. And so if a record label signs a deal with you, and they give you five hundred thousand dollars, well, it, it, uh, doesn't matter if your CDs are flying off the shelves or your, you know, Spotify streams are happening. Uh, for the first five hundred thousand dollars that should be paid out to you, the record labels are gonna keep that, and you only get to participate in your ten, fifteen percent, whatever it is, after you've recouped the advance.
- DRDavid Rosenthal
[chuckles] It's like a VC preference stack on a cap table.
- BGBen Gilbert
It is literally exactly what it is, and I wanna talk about that later.
- DRDavid Rosenthal
It's so Byzantine, and it's so from just, like, a different era.
- BGBen Gilbert
Right.
- DRDavid Rosenthal
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, you know, do customer acquisition for it.
- BGBen Gilbert
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 gonna fail, and the l- l- record labels or the book publishers or the VCs are gonna have sunk all this money in to get to a point where we can even see if it's gonna work. And when ninety-plus percent... I don't know what the failure rate is in the music industry, but when, you know, ninety-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.
- DRDavid Rosenthal
Right, just like in a VC fund. But this is what, you know, now I think has completely changed.
- 41:57 – 51:01
Breakthrough era: debut album, direct-to-fan playbook, and Fearless domination
- DRDavid Rosenthal
Yes, all that's true in the old world, where you gotta invest all this money before you know if somebody has an audience. All right, so back to TSwift. [laughs] So she and Big Machine, they start making the debut album. While they're making it, Taylor puts up a MySpace page. It's what all the teenagers are doing at the time.
- BGBen Gilbert
Look at that, going direct to her fans.
- DRDavid Rosenthal
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 wanna control this. Like, I wanna control what this sounds like. I wrote these songs, together with Liz, with a lot of them, but, like, I'm the songwriter. 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, [chuckles] she has twenty million interactions.
- BGBen Gilbert
Whoa, crazy!
- DRDavid Rosenthal
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. [chuckles] 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, [chuckles] a little PS, "To all the boys who thought they were cool and break my heart, guess what? Here are fourteen songs written about you. Ha!" [laughing]
- BGBen Gilbert
Did she say that?
- DRDavid Rosenthal
Uh, she literally wrote that.
- BGBen Gilbert
Oh, that's so funny. She knows where her power comes from.
- DRDavid Rosenthal
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."
- BGBen Gilbert
Watching what she did for the next fourteen years after that, in cultivating community on Tumblr, is crazy. She has twenty-seven thousand interactions with fans on Tumblr over the years.
- DRDavid Rosenthal
Wow!
- BGBen Gilbert
That is her personally liking or reblogging or commenting. Like, she gets, "Use social media to, to directly interact with my community."
- DRDavid Rosenthal
Yep, she's connected with teenagers all around the world on the internet, and what are they gonna do? They're gonna go buy the album.
- BGBen Gilbert
Especially in 2006, where I was frequently buying CDs. [chuckles]
- DRDavid Rosenthal
It cracks the top two hundred in November of 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.
- BGBen Gilbert
And, and to contextualize this, this is before Instagram has launched.
- DRDavid Rosenthal
Yes.
- BGBen Gilbert
And I think maybe even still before Tumblr or right around the time Tum- Tumblr is starting.
- DRDavid Rosenthal
So well over a year later, in January 2008, after sixty, sixty-three straight weeks in the top two hundred, it becomes the number one album in the world.
- BGBen Gilbert
Wow!
- DRDavid Rosenthal
It ends up, in total, on the Billboard Top 200, it spends two hundred and seventy-five weeks [chuckles] on the charts. Like, what other artist and album could do that?
- BGBen Gilbert
Especially from a sixteen-year-old?
- DRDavid Rosenthal
She was fifteen when it came out.
- BGBen Gilbert
Yeah. Wild.
- DRDavid Rosenthal
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?
- BGBen Gilbert
Tour, you do press.
- DRDavid Rosenthal
You're probably not, on your first album, gonna go do a headliner tour yourself. You're gonna go be the opening act for other tours. So first, she starts opening for Hootie & the Blowfish, is the first- [laughing]
- BGBen Gilbert
... [laughing]
- DRDavid Rosenthal
-big act that she opens for, which is awesome. Then Rascal Flatts, and Rascal Flatts is gonna come back into Big Machine later.
- BGBen Gilbert
Ah, perfect.
- 51:01 – 1:03:52
VMAs Kanye moment to Speak Now and Red: controversy, authorship, and pop expansion
- BGBen Gilbert
[chuckles]
- DRDavid Rosenthal
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-
- BGBen Gilbert
Yes. I didn't realize this happened on a 13th, too.
- DRDavid Rosenthal
Of course, it did. Of course, it happened on a 13th. It's Taylor Swift. Taylor wins [exhales] Best Female Video for You Belong With Me.
- BGBen Gilbert
Which, to be clear, is, is not the biggest video award of the night.
- DRDavid Rosenthal
Nope. Nope, nope, nope. There is Best Overall Video still to come in the night. But somebody [exhales] either is unaware about that or doesn't care.
- BGBen Gilbert
Some drunk rapper thought this was the big prize.
- DRDavid Rosenthal
Uh, I think we all know what happens next. Uh, it's kind of funny to, like, talk about the, the Kanye-Taylor moment [chuckles] on Acquired. Um, but this actually becomes, like, such a huge part of the business story of Taylor's career.
- BGBen Gilbert
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, like, you tip over a small, little thing, and then a huge impact happens years later, like a little domino thing.
- DRDavid Rosenthal
Totally.
- BGBen Gilbert
But, you know, drunk Kanye getting up, and, "I'ma let you finish, blah, blah, blah," like, that was a catalyst moment f- that would change the economics of the music industry.
- DRDavid Rosenthal
It would change so much.
- BGBen Gilbert
Well, and not to credit Kanye with that, that would piss Taylor off enough to eventually change the economics of the music industry.
- DRDavid Rosenthal
[chuckles] Well, Kanye, we credit Kanye with that.
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
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.
- BGBen Gilbert
Yeah.
- DRDavid Rosenthal
I mean, Kanye's My Dark Twisted Fantasy-
- BGBen Gilbert
Beautiful Dark Twisted Fantasy. Phenomenal, tortured album. I mean, like, one of the all-time... There's an amazing podcast-
- DRDavid Rosenthal
Yes, Dissect, Season 2.
- BGBen Gilbert
Yes, the Dissect season on that album. It's, like, one of the best 20 hours [chuckles] you can spend, uh, going and listening, if you like music, to how that album came to be. And I almost feel, uh, sacrilegious speaking so fondly of Kanye on the Taylor Swift episode, but the torture that he put himself through after being an idiot, or, or, uh... What did Obama call him?
- DRDavid Rosenthal
Well, a jackass.
- BGBen Gilbert
A jackass, yeah. [laughs] Like, the President of the United States calls you a jackass for that, and, like, he goes into hiding and emerges, you know, creatively, uh, from that wounded state with that amazing album.
- DRDavid Rosenthal
So I think there's three levels of butterfly wing flapping here.
- BGBen Gilbert
Yes.
- DRDavid Rosenthal
One is musically, creatively for Taylor and Kanye. Two is the business of the industry, which we're [chuckles] gonna 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.
- BGBen Gilbert
Is this the Kanye-Trump relationship?
- DRDavid Rosenthal
Yeah, dude! [chuckles]
- BGBen Gilbert
No way. Okay, w- how does this go?
- DRDavid Rosenthal
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 setup 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, [chuckles] and 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? [chuckles] Well, Kanye's, like, a dude from Chicago.
- 1:03:52 – 1:23:40
1989, streaming wars, and out-leveraging platforms (Spotify + Apple Music)
- DRDavid Rosenthal
Yep, and it would be, again, another two-year break before the next album, which is, of course, 1989.
- BGBen Gilbert
So many bops, so many earworms-
- DRDavid Rosenthal
Oh, my God.
- BGBen Gilbert
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, t- 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, "Y- y- you like apple pie in America? I have Taylor Swift for you." [chuckles]
- DRDavid Rosenthal
Yep, and I think everybody in the orbit on Team Taylor knew that, like, this was gonna be really big, 'cause, 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 kinda resents.
- BGBen Gilbert
And she hadn't won one since Fearless, right?
- DRDavid Rosenthal
Yeah, I don't think so. I don't think Speak Now won.
- BGBen Gilbert
Red didn't win. Speak Now didn't win, and it's funny we're saying didn't win.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
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.
- DRDavid Rosenthal
Which I think is how Taylor views it. [chuckles]
- BGBen Gilbert
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, okay, well, I will write a better album. I will... That's okay. I'll make a better record."
- DRDavid Rosenthal
Yeah, not only didn't win, but wasn't even nominated. Like, that's, like, oof!
- BGBen Gilbert
Which, in retrospect, that was a mistake.
- DRDavid Rosenthal
Yes.
- BGBen Gilbert
But, okay, let's go to 1989. Welcome to New York, Blank Space, Style, Shake It Off, Bad Blood, Wildest Dreams. I mean, it's unbelievable.
- DRDavid Rosenthal
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 on 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. [laughs]
- BGBen Gilbert
Incredible.
- DRDavid Rosenthal
And, of course, like, photographs and, you know, videos the whole thing and posts it on social media. Like, just freaking brilliant.
- BGBen Gilbert
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.
- DRDavid Rosenthal
Totally. So in July-
- BGBen Gilbert
What year are we in?
- DRDavid Rosenthal
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 under value their art. Now, what's she saying here? [chuckles] Like, her specific beef is with Spotify's free tier.
- BGBen Gilbert
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.
- DRDavid Rosenthal
And I think there's kinda two levels to Taylor's objection here. One is, yeah, about the money. Like, [chuckles] "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."
- BGBen Gilbert
Very, very little.
- DRDavid Rosenthal
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."
- BGBen Gilbert
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, uh... she's even referred to herself, uh, on camera, which is great, as the, uh, 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 gotta do something. It's gonna be me again." This is the first time that she's, like, really embracing that role.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
Let's take a moment to talk about the decline of the music industry, and then I wanna talk a little bit about how the royalties actually work in streaming. So first of all, the, uh, music industry peaked in 1999 with about $14, $15 billion in recorded music revenues, so this is shipping CDs, basically. I mean, when you look at this line, and we'll link to the RIAA's wonderful tableau diagram of this, it is, like, 90-plus percent shipping CDs. That was a gold mine 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, and then just five years later, it's at $7 billion 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, $7 billion in 2014 and '15. So it's, like, right around this time, where streaming hasn't started generating real revenues yet. The industry's basically been, like, flat to declining for the last six, seven years. It's brutal out there, and so what Taylor's sort of looking at is, like, if we continue to put all our eggs in this streaming basket, uh, I don't know. So why is she saying, "Uh, 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.
- 1:23:40 – 1:29:39
Reputation’s catalyst and the record-deal cliff: leaving Big Machine for Republic/UMG
- BGBen Gilbert
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, uh, 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?
- DRDavid Rosenthal
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... I, you know, I was with the majority when it came out, that it was a weaker album.
- BGBen Gilbert
Yeah.
- DRDavid Rosenthal
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 & Heartbreak album, to say, "No, actually, Reputation was really great. It was just ahead of its time."
- BGBen Gilbert
How dare you bring Kanye into this?
- DRDavid Rosenthal
[laughs]
- BGBen Gilbert
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."
- DRDavid Rosenthal
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!"
- BGBen Gilbert
Yeah. It's interesting when some albums are better after years go by.
- DRDavid Rosenthal
I really like "End Game."
- BGBen Gilbert
Oh, yeah, also great.
- DRDavid Rosenthal
With Ed Sheeran, of course.
- BGBen Gilbert
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 wanna do some, like, real musical analysis on it. But anyway, okay, what inspired-... Reputation.
- DRDavid Rosenthal
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-
- BGBen Gilbert
Famous.
- DRDavid Rosenthal
Famous, which has the famous line in it that, uh ... I don't think we need to say it here, right? I think people know what it is, right? Yeah.
- BGBen Gilbert
Absolutely not. It's a pretty offensive line, uh, made more offensive by a music video where Kanye finds a, a-
- DRDavid Rosenthal
Doll that-
- BGBen Gilbert
Uh, 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's, it's just, like, so much about this is so offensive and cringe-worthy 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-
- DRDavid Rosenthal
Right
- BGBen Gilbert
... you can't ship an album without a lot of people signing off on it, including your manager, and things were signed off on.
- DRDavid Rosenthal
Well, I mean, literally in the video of the famous phone call, [chuckles] Rick Rubin, the, you know, famous producer, is in the background, in the vid- like, he produced ... I don't know if he produced that song, but the alb- like, he was there.
- BGBen Gilbert
Yes.
- DRDavid Rosenthal
Lots of people were involved.
- BGBen Gilbert
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 had 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," uh, 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-
- DRDavid Rosenthal
It's controversy.
- BGBen Gilbert
There's lots of discrepancy over this. Taylor is like, "What the hell? I thought this thing was dead and buried five, six years ago, and here we are dredging it up again."
- DRDavid Rosenthal
Again, yeah.
- BGBen Gilbert
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?
- DRDavid Rosenthal
A lot of popular opinion turned against Taylor, and that's gotta be hurtful, too. That's gotta be really hurtful.
- 1:29:39 – 1:41:37
Sponsor break (Vouch) and setup for the masters battle
- BGBen Gilbert
Okay, well, David, I know we're about to talk about a very big record deal, but first, I want you to tell us about one of your favorite companies in the Acquired ecosystem.
- DRDavid Rosenthal
Oh, my goodness, are they ever! One of my, one of our, one of all of our favorite companies, our second sponsor of this episode, and for all of season 10, we would like to thank Vouch, the insurance of tech.
- BGBen Gilbert
And let me just say, before David gets fully into this, we're gonna do something a little bit different this season with Vouch. I know a lot of you have heard a lot about Vouch before, but, uh, listen on before kinda what, uh, what we're gonna do.
- DRDavid Rosenthal
Vouch, as you may remember from back in season eight, I think it was?
- BGBen Gilbert
Sounds right.
- DRDavid Rosenthal
Yeah, it was during Berkshire, talking about all the insurance and-
- BGBen Gilbert
That's right.
- DRDavid Rosenthal
Yeah. It was founded to address a huge gap in the startup ecosystem, business insurance, which is a foundational tool for running a business, yet before Vouch, [laughs] this was so painful. There was not a good option out there for getting this. It was ... Trust me, it was really painful.
- BGBen Gilbert
Totally.
- DRDavid Rosenthal
Every other category, you had at least, you know, something like Stripe for payments or AWS for cloud. Like, there was a service to take care of this for you. Not with insurance.
- BGBen Gilbert
Yeah, and I'm sure lots of you are out there and [chuckles] can attest to, uh, how you have gotten your business insurance or D&O insurance or anything like that to date. Uh, it is not a modern experience unless you're with Vouch.
- DRDavid Rosenthal
But now, thankfully, there's Vouch. Vouch is business insurance engineered for the modern tech industry. Whether you're a bootstrapper, a blitzscaler, or somewhere in between, you can get coverage in as little as 10 minutes, starting as soon as the next day, which is crazy. [chuckles] That is not how it used to be, for sure. And you can grow your coverage as you grow your company. Vouch is fast, easy, and scalable, just like all the other modern tools that you rely on to run your startup. And they have licensed insurance advisors standing by to help you navigate challenging insurance situations, like required limits and customer contracts, et cetera. They're recommended by Silicon Valley Bank, WeWork, Carta, Brex, and more, and they have clients, great clients, like Pipe, Neighbor, Midesk, and of course-... Acquired itself, dating back to Season Eight.
- BGBen Gilbert
Yep, proud customers.
- DRDavid Rosenthal
Indeed. We're so excited Vouch is continuing to sponsor Acquired in Season Ten. And Ben, just like you alluded to, instead of running a bunch more reads like this one, we are gonna do a little bit of an Insurance 101 series in the coming episodes that will skill you up on the key insurance coverages relevant to startups. So stay tuned for that to come this season. I've looked ahead and can attest there is some really good stuff in there, and we are excited for that to come. Acquired listeners can get an extra five percent off on all your coverages by going to vouch.us/acquired, or, as always, by clicking the link in the show notes.
- BGBen Gilbert
Thank you, Vouch. All right, David, I think, uh, Taylor's six-record deal is up.
- DRDavid Rosenthal
Yeah. So that's the other thing about Reputation. Man, Reputation was such a landmark.
- BGBen Gilbert
It's a turning point in the career in a huge way.
- DRDavid Rosenthal
But I think this is the thing about Taylor that we're gonna talk about in much more in Playbook, but, like, every album is a turning point in her career. Like, she reinvents herself every single time, and I just have so much respect for that. Like, that is so hard to do.
- BGBen Gilbert
So we've talked about the rights that you license when you, you give your masters 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 gonna 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.
- DRDavid Rosenthal
Yeah, I was gonna ask, is that normal?
- BGBen Gilbert
I think so. I th- it, it actually used to be more, but it's, like, eight to ten, but it's come down in recent years.
- DRDavid Rosenthal
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.
- BGBen Gilbert
Ew.
- DRDavid Rosenthal
But the industry is like: "Well, this, this is gonna be a big moment." A Variety article from around the time comes out that lays out what they see as Taylor's four options for what to do going forward, uh, 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 gonna take a ten to fifteen percent 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 s- 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.
- BGBen Gilbert
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 kinda 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 wanna 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, uh, listening for that and making sure there's a li- matching license, and if not, sending them the invoice for it and this, uh... Y- you know, so there, there's a unbelievable amount of things that if you go through the traditional value chain, through the record labels, that you kinda 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 artist who dealt with you individually, y- 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 wanna make sure that you're getting on 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.
- DRDavid Rosenthal
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.
- BGBen Gilbert
Right.
- DRDavid Rosenthal
That second point that you're mentioning I think applies to almost every artist, but literally, she made Apple [chuckles] change their policies in twenty-four hours.
- BGBen Gilbert
Right.
- DRDavid Rosenthal
So she could, but it's unlikely that she's gonna 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.
- 1:41:37 – 1:51:43
Masters sale to Scooter Braun and the re-recording counterattack (Taylor’s Version)
- BGBen Gilbert
So what's the first thing that comes out in terms of, uh, some scuttlebutt on, on this deal?
- DRDavid Rosenthal
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 Borchetta could hang on to it and keep the royalties associated from the old TSwift 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.
- BGBen Gilbert
Hotter than ever.
- DRDavid Rosenthal
Probably, he's gonna 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.
- BGBen Gilbert
Much less likely to sell.
- DRDavid Rosenthal
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. Uh, reportedly, Evan Spiegel, [chuckles] who I didn't realize dated Taylor Swift briefly, is interested in buying. Lots of PE shops are buying.
- BGBen Gilbert
I think for Snap, but the idea was to, like, build music into the Discover tab that they owned or something.
- DRDavid Rosenthal
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?
- BGBen Gilbert
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.
- DRDavid Rosenthal
Taylor's current net worth is five hundred and fifty million dollars, so just over half a billion. At the time, uh, this is according to Forbes, at the time, Forbes thought it was probably around three hundred and sixty million. The ultimate sale ends up happening for between three hundred to three hundred and thirty million. She for sure could have... You know, it would have been like most of her net worth to buy it outright, but she would've lined up financing, just like everybody else lined up financing to do this.
- BGBen Gilbert
Now, did they pick up the phone and call her and say, "Do you wanna make a bid?"... that we don't know.
- DRDavid Rosenthal
She claims that she was never offered the chance to outright buy either Big Machine or the masters themselves.
- BGBen Gilbert
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, [chuckles] uh, it's not that you need Scott's vote, and what apparently happened is because there was a non-disclosure 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 and 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-
- DRDavid Rosenthal
Everybody knows this is gonna happen. Taylor even says that she knew that once she went somewhere else, it was obvious that Big Machine was gonna get sold.
- BGBen Gilbert
Yes. Now, who did it get sold to?
- DRDavid Rosenthal
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 Carlyle.
- BGBen Gilbert
David, who's Ithaca Holdings managed by?
- DRDavid Rosenthal
The CEO of Ithaca Holdings is Scooter Braun. Uh, and Scooter himself, very well-known, famous talent manager in the industry of artists like Justin Bieber, and for a time, Kanye West.
- BGBen Gilbert
And for a time, Kanye West, and for a time, well, Kanye West put out Famous Kanye West.
- DRDavid Rosenthal
Yes, you made a 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.
- BGBen Gilbert
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, 'cause people can have private spats, is like... Okay, 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.
- DRDavid Rosenthal
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.
- BGBen Gilbert
Taylor owns the, the, not the recording copyrights, the masters, but the, uh, the songwriting copyrights, so she's been vetoing all these [chuckles] opportunities to use them, uh, in sync licenses. It's like, "Oh, you want to use it in that commercial, and that could make a bunch of money for the people that own the masters? Nope."
- DRDavid Rosenthal
Meanwhile, all this is playing out in the court of public opinion and publicly.
- BGBen Gilbert
Lots of people are listening to Taylor Swift. That's definitely happening.
- DRDavid Rosenthal
On July 13th, singer Kelly Clarkson tweets at Taylor: "Just a thought. You should go in and re-record 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." [laughing] 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, uh, aside from being like a, you know, 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 McEntire, and Reba did this!
- BGBen Gilbert
No way.
- DRDavid Rosenthal
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 gonna get more of the upside on that.
- BGBen Gilbert
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 re-record every single track, 'cause 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?
- DRDavid Rosenthal
[laughing] Poor Jake.
- 1:51:43 – 2:09:46
Financial engineering meets fandom: Shamrock purchase, UMG deal terms, and Spotify equity ripple effects
- DRDavid Rosenthal
So surprise, November 2020, the Long Pond Studio Sessions comes out as a film on Disney+, 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 [chuckles] in 2020, irony of ironies, Ithaca and Scooter and Big Machine sells the asset of the masters of the first six albums.
- BGBen Gilbert
Just Taylor's.
- DRDavid Rosenthal
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 three hundred million dollars, so about the same price that they paid for all of Big Machine a year earlier.
- BGBen Gilbert
And assuming that eighty percent of the revenue in that, so that they're, they're still left with some twenty percent chunk of the value, so it's a nice little markup in a year.
- DRDavid Rosenthal
There's some Rascal Flatts stuff and, you know, some other... So I think there might be some Tim McGraw work that they have. You know, anyway, the private equity firm that they sell it to is Shamrock Capital.
- BGBen Gilbert
Which sounds innocent enough.
- DRDavid Rosenthal
Now, the minute I saw this, I was like: Oh, my God! Because I used to work in, you know, media investment banking, and one of the things that, you know, 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.
- BGBen Gilbert
So crazy.
- DRDavid Rosenthal
Now, there's no direct connection anymore. Like, this is more just coincidence, but, like, wow [chuckles] !
- BGBen Gilbert
And it's Roy E. Disney, which is the son of Roy O. Disney, I think I have that right, who was the... Oh, he was the one who was kind of, like, agitating on the board and the CEO transition, if you've read Ride 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 war path, 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?"
- DRDavid Rosenthal
Can we find a way to work together?
- BGBen Gilbert
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 own records, and her fans will do the rest." But then she dropped Red.
- DRDavid Rosenthal
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, TSwift has concurrently, from these two albums, twenty-two of the top fifty songs [laughing]
- BGBen Gilbert
[laughing]
- DRDavid Rosenthal
... on the Billboard charts.
- BGBen Gilbert
It is remarkable, too, as you go and listen, how good the re-recordings are. They're both faithful to the originals in all the ways you'd want them to be.
- DRDavid Rosenthal
Oh, no, that, that's just Evermore and, uh, and Folklore.
- BGBen Gilbert
Oh, this doesn't include Red and-
- DRDavid Rosenthal
That does not include Fearless, yeah.
- BGBen Gilbert
Whoa! Well, I do wanna make that point, [chuckles] but it's not related. They're both faithful and better because she's matured so much as a singer.
- DRDavid Rosenthal
Yeah, 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.
- BGBen Gilbert
All graphs of Taylor Swift look compounding.
- DRDavid Rosenthal
There's never been a more up as it goes to the right, at least in her industry.
- BGBen Gilbert
[chuckles]
- DRDavid Rosenthal
We gotta talk about what she calls it, Taylor's Version. It's brilliant.
- BGBen Gilbert
It's so brilliant.
- DRDavid Rosenthal
Because what else is she gonna call it? Like 2021 Version or, you know, Remake, Remaster.
- BGBen Gilbert
If you wanna identify with Taylor, this is the version for you. "Dear fan base I've been cultivating for sixteen years, if you love me, you'll listen to my version."
- DRDavid Rosenthal
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, 'cause 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.
- BGBen Gilbert
I mean, this has the ten-minute version of All Too Well.
- 2:09:46 – 2:39:18
Frameworks and wrap: Seven Powers, playbook lessons, and grading the deals
- BGBen Gilbert
It's great. [chuckles] 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 differential 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, that's the analysis.
- DRDavid Rosenthal
I think that's the only scale that we can really analyze this on. Anything else feels too small. [laughing] Of course, so the seven powers are counter-positioning, scale economies, switching costs, network economies, process power, branding, and cornered resource.
- BGBen Gilbert
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, uh, what's the song where she was pseudonymous?
- DRDavid Rosenthal
The Rihanna/Calvin Harris song. Yep.
- BGBen Gilbert
Yes. She, of course, wrote that and is singing in that, but is not named. I never knew that before. It brings up the value of the song to me and a hundred million other people.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
So she's definitely got branding power going on. I suspect the biggest one she's got is scale economies.
- DRDavid Rosenthal
Oh, you think scale economies?
- BGBen Gilbert
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.
- DRDavid Rosenthal
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.
- BGBen Gilbert
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.
- DRDavid Rosenthal
Yeah. Okay, I can buy that.
- BGBen Gilbert
I think definitionally, she also has switching costs because the CEO of Spotify, when she was not on Spotify, was flying to the US [chuckles] to negotiate for her to get back on. Clearly, y- you can't substitute a replacement and have equal value.
- DRDavid Rosenthal
Which I think also implies cornered resource. Does she have network economies with the fans and the Swifties?
- BGBen Gilbert
The fans with each other?
- DRDavid Rosenthal
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.
- BGBen Gilbert
Oh, yeah. Search Taylor Swift in a podcast player. There's a lot of Taylor Swift podcasts.
- DRDavid Rosenthal
Yeah. [laughing] Maybe. I don't think it's strong network economies, though.
- BGBen Gilbert
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.
- DRDavid Rosenthal
The latter of those, I think, is exactly process power, [chuckles] right?
- BGBen Gilbert
It's kinda like Packy's process power, where it's like, I can't really explain it, but it... A- and, and she even says in the Tiny, the NPR Tiny Desk session, she's like, "By the way, this song," which 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 ex- basically exactly hear it-- as you hear it on the album. And it felt like cheating because usually, songwriting takes work. And then, she kinda caught herself. She's like: Actually, songwriting is completely different every time, and there's no process for it.
- DRDavid Rosenthal
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.
- BGBen Gilbert
All right, playbook?
- DRDavid Rosenthal
... Oh, so much to talk about in Playbook. I feel like you have a bunch. You wanna start?
- BGBen Gilbert
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 ten, twenty, thirty 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 wanna 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.
- DRDavid Rosenthal
Amazing observation. [chuckles] I love the way you phrased that.
- BGBen Gilbert
[laughing]
- DRDavid Rosenthal
I think that's Swiftian.
- BGBen Gilbert
Taylor, if you're listening, I'm sorry that I called your music, uh, value.
- DRDavid Rosenthal
I can't recreate it.
Episode duration: 2:39:18
Install uListen for AI-powered chat & search across the full episode — Get Full Transcript
Transcript of episode ssljH1mQyfk
