“Chancelor Jonathan Bennett, known professionally as Chance the Rapper, is an American rapper, singer, songwriter, actor, record producer, and philanthropist from the West Chatham neighborhood of Chicago” is a sentence from the Wikipedia biography. I will explain more about Chance in the post below.
- “There’s no reason to [sign with a label]. It’s a dead industry.” “A&Rs like, ‘Chano you ain’t playin’ fair!’”
The music industry has been transformed by the digitization of music. Ben Thompson who writes the Stratechery newsletter describes this change in the fewest words possible: “Zero distribution costs. Zero marginal costs. Zero transactions. This is what the Internet enables, and it is completely transforming not just technology companies but companies in every single industry.” My friend Dan Kohn was on one side of the first “secure online transaction” in August 1994. The Smithsonian magazine wrote: “Kohn sold a CD of Sting’s “Ten Summoner’s Tales” to a friend in Philadelphia…. Kohn’s friend paid $12.48 plus shipping, and he used data encryption software to send his credit card.” Kohn wrote about this same phenomenon in the context of music seven years later in 2001:
“In a world where there are essentially no costs to replicate content and it is effectively impossible to stop anyone from doing so at will, the current economic model underpinning content creation will be dead…. If I copy your CD, you’re none the worse for it (nonrival), but if I steal your car, you will probably be upset (rival). Goods are “nonexcludable” when it becomes impractical to stop everyone from making use of the item, once one person can. It is …. very feasible to stop additional moviegoers from entering a theater (excludable).”
In a post-music digitizatization world, the music labels must find a way to deliver new value to musicians. As Jimmy Iovine once said: “Musicians believe right now that there’s very little money in the recorded music business. So a lot of them are aiming their goal to be nothing but promotion. Not every industry was meant to last forever. The record industry needs to do something that artists can’t do for themselves. Or else there’s no reason for it to exist.” In an interview at the University of Chicago Institute of Politics, Chance explained just one part of why musicians like him dislike the traditional system and are, in Iovine’s words, “doing it yourself” (DIY):
“There is what’s called a master and a publishing portion of the record. So the master is the recording of it, so if I sign a record deal or a recording deal, I sign away my masters, which means the label owns the recording of that music. On the publishing side, if I write a record, and I sign away my publishing in a publishing deal, they own the composition of work… so the idea of it, you know what I’m saying? So if I play a song on piano that you wrote, I have to pay you publishing money, because it comes from that idea. Or if I sing a line from that song, it’s from the publishing portion. If I sample the action record, if I take a piece of the actual recorded music, that’s from the master. None of that shit makes any sense right, that shit didn’t make any sense to you? ‘Cause that shit is goofy as hell.”
Why would a musician like Chance want to use a DIY approach? Here’s the lay of the land in terms of how music revenues are traditionally distributed as described by Business Insider:
“Recording artists received just 12% of the $43 billion that the music industry generated in 2017, according to a Citigroup report. Consumer spending on music generated an all-time high of more than $20 billion last year, but music businesses, including labels and publishers, took almost $10 billion, while artists received just $5.1 billion, the bulk of which came from touring.”
Chance believes he can do much better than this 12% via DIY and more importantly he can retain control of his music, merchandise, touring revenue and other aspects of his life. He knows he must replicate some things that music labels do, but is willing and able to do that work. Life is often about trade offs and Chance is willing to take on work and some risk to have the upside of the opportunity to earn greater profits, being independent and having more optionality.
- “After I made my second mixtape and gave it away online, my plan was to sign with a label and figure out my music from there. But after meeting with the three major labels, I realized my strength was being able to offer my best work to people without any limit on it. My first two projects are on places where you can get music for free.” “I think the free part of it is more of an attention grabbing thing and something that people can use as a marker to track what I’m doing. Since I was 15 or 16 passing out mixtapes outside of my high school, I always gave them away for free. I’d get in trouble with my pops, because we’d work to get this money and then I spend it on CDs, and literally give it away. I would always explain that I want to get it to as many people as possible.” “A project, an album, an EP, a mixtape or a collection of songs is way more valuable than £14.99. I was trying to prove a point [with Acid Rap] and it was really cool that even after putting it out as a mixtape it moved enough units – illegally, nothing from my camp, not with my permission – to chart.”
Chance went with a freemium approach in creating his brand and promoting his music. This go-to-market approach includes cross-selling concerts and merchandise based on a brand that was developed by removing price as a barrier to listening to music (free is priced to sell). Freemium is the friend of the DIY musician since it does not require as much cash to create a brand for the music and the musician as traditional approaches. Most importantly, Chance does not need to hope that he is discovered by a music label. His approach put him and his fans in control. He does not have a music label telling him where and when to tour, what types of music to create or what sorts of merchandise he can sell.
- “Man, I learned so much from Donald Glover. I definitely learned that when you sign off on contracts you give someone a percentage of your worth. Whether it be signing a lawyer, a business manager, a label or anybody. You’re giving them a percentage of all your earnings.”
Chance is talking about the many places where “wholesale transfer pricing” can take a slice of the profit pool and limit his share in a value chain. To understand the previous sentence, you must understand at least these two important ideas:
- Every industry has a “value chain.” This concept was introduced on Michael Porter’s influential book Competitive Advantage: Creating and Sustaining Superior Performance published in 1985. In a value chain analysis sources of customer value are identified and traced to where they reside within the business itself or in the network of companies involved in delivering the product or service. In this post I am more interested in the industry value chain than an internal company analysis. Dramatic advantages can be achieved by any participant in a value chain if they can find innovative ways to cut back on or entirely bypass certain intermediaries.
- Every industry also has a “profit pool.” Everyone in the value chain is trying to extract the largest possible share of the profit pool for itself. Michael Mauboussin writes:
“A profit pool shows how an industry’s value creation is distributed at a particular point in time. The horizontal axis is the percentage of the industry, typically measured as invested capital or sales, and the vertical axis is a measure of economic profitability… Profit pools are particularly effective because they allow you to trace the increases or decreases in the components of the value-added pie.
Chance is clearly not a fan of the traditional industry structure which looks like this graphic below. Note that this graphic is simplified. For example, it does not include businesses that Chance mentions in the quote above like lawyers and business managers. In this traditional value chain, the music label is in the center and can reap large profits via transfer prices paid and received from other members:
Creating a value chain graphic like this is very useful in understanding the current situation and future prospects of any business. If you want to learn more about this value chain analysis process I suggest you read’s Michael Porter’s book mentioned above. In Chance’s case, the music industry value chain has been altered by removing the music labels and looks like this graphic below (again it is simplified for purposes of this blog post). In this new structure there are fewer businesses taking a share of the revenue from the profit pool and the share Chance receives is higher.
- “I don’t agree with the way labels are set up. I don’t agree that anybody should sign 360 deals or sign away their publishing or take most of the infrastructure that’s included in a formal deal.”
Music labels figured out that digitized music was harder to monetize profitably so they have placed an increasing focus on creating “360 deals” with musicians. A 360 deal not only grants music labels the lion’s share of a musician’s music revenues, but also a percentage of revenues from ticket sales, merchandise sales, book sales, acting and appearance fees. The battle between musicians and music labels over 360 revenues is ongoing and in many cases is pitched.
- “With Coloring Book, Apple had it on their streaming service exclusively for two weeks for free—and then it was available on all the places my earlier work is still available on.” “It’s not about the music being free. It’s about how it is displayed and made accessible and about artistic power.” “It’s dope people want to partner up, but I’m a very tunnel vision guy.” “I’ve learned to not be like, “f-ck this company, f-ck this company.” Even though a lot of those people tried to make it really hard for me to release my projects.”
Chance believed he owed it to his fans to let them know exactly what he received from Apple, since being a no-music label musician is part of his brand. He did not want anyone to think he had sold out or was being in inconsistent with his “no labels” philosophy.
Apple is an interesting case since it is clearly a retailer but if they pay Chance directly are they a music label too? Apple isn’t really a music label in a traditional sense since there are many things that they do that Apple does not do.
- “My thought process is if I’m going to give them the music away for free, there is a strong chance they’ll take it and a slight chance that they’ll listen to it. If I’m selling it to them and they have a choice between my music and a happy meal, they’re gonna choose the happy meal. They’re gonna spend their money on something that they know they want to consume.” “I make money from touring and selling merchandise, and I honestly believe if you put effort into something and you execute properly, you don’t necessarily have to go through the traditional ways. “I sell merchandise online, at ChanceRaps.com. That’s my main revenue.”
Rich Barton said to me once that it is very hard to get people to pay for something that they previously received for free. He also said that it is easier to get people to pay for what they have traditionally purchased. Merchandise and concerts are something people are accustomed to paying for. Musicians have really been clever in increasing profits made by selling merchandise by doing things like creating custom t-shirts and other merchandise for each event. Fans today want to have something that proves they were at a specific concert. As just one example of how this approach stokes demand, at a recent Pearl Jam concert I am told the line to buy t-shirts was an hour and a half long.
7. “I need consumers right?… But also, I just wanted people to notice that, you know, there was something that was being created that no one other than the face of it had control over.” “I don’t make songs for free, I make em for freedom.” “Build a business where you’re the upper management. Where you’re the creative, and you are the last decision maker and you don’t ever have to feel compromised.”
As I wrote on my 25IQ blog post on Oprah Winfrey, consumers increasingly today want a brand and products that are authentic. The younger the consumer, the higher value they place on authenticity. Chance has struck gold with his fans on authenticity and the reason he can do so is that he is the owner of his own business. He is not just upper management of his business, but is instead the CEO.
- “I think the music industry is something that’s very separate from music. So, by always staying on the music side of it, I’ve found success.” “Sometimes the truth don’t rhyme.” “The whole point of ‘Acid Rap’ was just to ask people a question: does the music business side of this dictate what type of project this is? If it’s all original music and it’s got this much emotion around it and it connects this way with this many people, is it a mixtape? What’s an ‘album’ these days, anyways?”
When an industry is transformed by something like digitization, previous formats like albums sometimes no longer make any sense. This is just one example of how the industry has had to adapt to the fading of a format:
RIAA’s platinum status was once equivalent to selling one million albums or songs, but in 2013 the company began incorporating streaming from YouTube, Spotify and other digital music services to determine certification for albums and songs. Now 1,500 streams of an album is equivalent to an album sale. Also, 10 song downloads = 1 album sale.
This change by the RIAA won’t be the last time the music industry will need to change to respond to digitization.
- “I go broke a lot because I have this understanding that whatever I put out there, if I really am doing what’s right, it’s going to be rewarding, you know? If I’m working on it—if I’m diligently working on it—something will come back. And that’s how every project has been since I was in high school, since I was Instrumentality [Chance’s musical alter ego in high school] and I was giving out CDs for free. Everything has come back tenfold. I remember sitting on the back of the bus on the first day of the Social Experiment tour, with my face in my hands. I emptied out my bank account, and before I did that tour, that was the number one thing I said I’d never do. I’ll never empty out my savings. But I put all that money up, and within two weeks, when everyone was getting paid, I was like, Okay, cool, we’re good again. The same shit happened with And the same shit happened with Coloring Book. I was fucking around in this studio—like this studio is stupid expensive.”
Chance is running his own business and that inevitably involves factors like risk, expenses, capital investments and payback periods. Many of the activities the music labels do must be replicated by Chance. Capital must be put at risk and factors like expenses and cash flow managed. There is no free lunch and some musicians may not want to do any of this work or take any of this risk. As an example, one report indicated that a festival put on by Chance produced a direct loss, but overall it was an investment in his brand:
The Magnificent Coloring World [was] a Willy Wonka-inspired listening experience that included inflatable slides, Connect Four, giant murals, and, of course, coloring books. The party turned out to be a financial loss for Chance (nearly $250,000, which he tweeted out then quickly deleted), but the spirit of the event lingered among fans and spilled out into Chicago. Much like Chance’s music, unattainable by label execs, the event was priceless (and also will be repaid to Chance in some form or another — merchandise, increased ticket sales, etc. — many times over)
As Jay-Z famously once rhymed: “I’m not a businessman, I’m a business, man!” Chance took a risk on the festival and overall it paid off.
- “Get back to work.” [these four words are tattoo that is written backward on Chance’s body so it faces him in the mirror.]“My dad told me to work hard. My mom told me to work for myself. And so now I work for myself really hard.”
There was a time in Chance’s life when he believed he had lost his work ethic. He is saying in the previous quote that he never wants to go back to that time. To be more specific, Chance believed he lost the work ethic when he moved to Los Angeles and acquired an addiction to Xanax. He wrote about this time in his life in his song “Finish Line/Drown.”
I’ve been lying to my body
Can’t rely on myself
Last year got addicted to Xans
Started forgetting my name
In taking about that period in his life Chance said in an interview: “I looked up and months had passed, and I hadn’t made enough music.” As a result of this negative experience, he decided to move back to Chicago and get back to work.
11. “Some people are so poor, all they have is money.” “Dave Chappelle is just all the things that my parents instilled in me is what he exemplifies at all times. He is integrity personified. He is, ‘I don’t care how much money you have. You can’t have me,’ personified.”
There many things in life that money can’t deliver. If you don’t put value on them, you are an idiot. Having said that, money does give you better options in life. Cash is not only valuable, but at some level essential.
- “Ain’t no one prettier/Ain’t no one wiser/Ain’t no one better! better! better!”
This is a lyric to song Chance performed as a tribute to Muhammad Ali during the finale of the ESPY Awards. Rolling Stone reported that he “delivered the track, fittingly, in front of a hanging boxing ring microphone.” I am mentoring some younger people right now and when I think about ways to help people gain more confidence, I often think of Ali, who was such an inspiring personality. I believe that everyone is “pretty” in their own way, everyone can be “wise” in their own way and everyone can be their own version of the greatest like Ali.
P.s., Here are a few of Chance’s lines from “No Problem”:
“Countin’ Benjis while we meetin’, make ’em shake my other hand
Milly rockin’, scoopin’ all the blessings on my lap….
Got a pocket full of money
And a mind full of ideas
Some of this shit may sound weird
… There go Chano ridin’ through the streets, they be like, “There he go!”You don’t want no problems, want no problems with me
Say so, got problems, say so
They be like, “There he go!”
Ben Thompson: https://stratechery.com/aggregation-theory/