Recording music in the Internet age is not exactly a lucrative career pursuit. The practically free nature of streaming services means that most artists and songwriters this side of Drake make very little money directly from their music. And yet a central irony of the contemporary music industry is that, as the Internet has decimated the monetary worth of recorded music, it has intensified passionate fandoms into full-blown identities (think Kanye stans and the Beyhive). It's Samuel Taylor Coleridge's iconic line, "water, water everywhere, nor any drop to drink," for the streaming era.
Since the late '90s, when music began to divorce from profitable physical distribution, record labels, artist managers, and many music tech start-ups have attempted to reduce this disparity. But how do you monetize fandom?
While touring can provide a steady source of income, it’s also an exhausting slog that can lead many artists to burnout. And while streaming giants Spotify and Apple Music provide artists with unprecedented levels of exposure, those services often offer meager paychecks.
And so in marches Vezt, trumpeting itself as the savior of the struggling performer. But can the fledgeling start-up help artists get by? And can the company itself survive?
Created by an executive team of veteran music industry bigwigs, including Andreas Carlsson, the Swedish pop savant who wrote some of the biggest hits for the Backstreet Boys, NSYNC, and Britney Spears; and Steve Stewart, the former manager of Stone Temple Pilots, the app allows anyone to purchase a portion of the royalties of a song for a designated period of time (the original rightsholder sets the time period, usually three years). They're calling the sales "Initial Song Offerings."
After paying the desired amount between $5 and $100,000, Vezt users become the temporary owner of a commensurate percentage, based on the amount paid, of the royalties earned by the song, per the rate set by the rightsholder. The rights owner pockets the money upfront, instead of waiting to make that amount in streaming royalties. "They get the power of having that money today and not having to wait two years for it," Steve Stewart, Vezt's chief executive officer says. "It's a loan. You're basically crowdfunding a loan."
Vezt launched last month, and so far has offered users rights to songs by stars like John Legend, Rihanna, Kanye West, and Lil Uzi Vert. It also runs on blockchain, the tech du jour. Ahead of the app's release, Vezt was featured in Billboard and on the digital TV network Cheddar. But coverage had been quiet since the launch, so I decided to test out the tech myself, and bought into a few songs. For $5 each, I bought 0.0167 percent of the songwriter royalties for "Black Mags" by the Cool Kids, 0.0167 percent for "Ashin' Kusher" by Kid Cudi, and 0.015 percent for "Survivor" by Mary J. Blige. Like these, most songs Vezt offers so far are from artists' back catalogues.
There's some historical precedent for this kind of investment. In 1997, David Bowie sold the coming decade's worth of future royalties for 25 of his albums for $55 million in "Bowie Bonds" to Prudential Insurance. Up to that point, Bowie's music had been such a steady earner that Prudential considered the investment a sure bet.
Bowie, though, saw the writing on the wall: "The absolute transformation of everything that we ever thought about music will take place within 10 years, and nothing is going to be able to stop it," Bowie told the New York Times in 2002, speaking in part about the bond deal. "It's like, just take advantage of these last few years because none of this is ever going to happen again." Two years later, as sales declined for Bowie and the rest of the music industry, Moody's downgraded the bonds to one step above junk status.
According to Stewart, the trick to monetizing fans is to get them to monetize themselves—by making them investors. "This platform will engender people to actually go out and promote their songs," Stewart says, "turning a fan into an advocate." (If only Prudential had advocated for its Bowie songs too!) Just as social media platforms like Facebook work by exploiting content generated for free by their users, Vezt hopes its users will generate free marketing for featured songs and artists. Presumably, the advocate fans will also need to make use of actual social media platforms to market the songs they own.
If a song whose rights you're leasing jumps in popularity, the royalty checks—paid twice a year, in April and October—will be fatter than expected. But royalty expectations are generally pretty grim: Songwriter Michelle Lewis told John Seabrook she got $17.72 when a song she co-penned was streamed three million times on Spotify. "Our aim is to give money to the creators," Stewart says. "A check from Spotify, as you know, is fractions of fractions of a penny. Those are income streams, but unless you've got tens of millions of streams, it's not enough to pay the rent."
So, unless the song you've bought into is featured in an internationally successful movie, odds aren't great that you'll end up with substantially more money than you invested at the end of the designated period. In fact, it's possible that the royalties will have paid out less than you put in. In that case, you will hold onto the rights until you break even—even if it takes 10, 50, 200 years.
Such a rate of return is a tough sell if you're investing solely for material gain, but for fans to own a portion of their musical heroes' masterpieces, $5 is pretty cheap. However, not all is as it seems.
"People are saying this benefits artists. It doesn't!" says Jeremy Gruber, a music industry professor at the University of Southern California and head of digital marketing for Friends at Work, an artist management firm. "It benefits marginal songwriters, the main demographic coming into this system right now."
Gruber downloaded the app and put $50 toward John Legend's "So Gone." What Gruber is actually leasing is 0.58333 percent of Roosevelt Harrell's songwriter royalties for the composition "So Gone," which John Legend recorded. Roosevelt Harrell is a producer who makes beats under the name Blink. He produced the beat for "So Gone," chopping up the soul sample that plays throughout the song. Legend isn't selling any of his rights. "I work for the company that manages John Legend," Gruber says. "John Legend has nothing to do with that. John Legend does not even know Vezt exists."
Similarly, I didn't buy my percentage of "Ashin' Kusher" from Kid Cudi. I bought 0.0167 of the songwriter rights that Chuck Inglish held for producing the song's beat.
This info—about Harrell, about Inglish—is available if you swipe around the app in search of the fine print, but Vezt seems to be courting the fans of the songs' performers. It's very easy to buy rights without realizing whose rights you're buying. To the benefit of the group Gruber calls "marginal songwriters," if a bit misleading.
"We paid our first artist yesterday: a guy named Chuck Inglish," Stewart says. "He picked up almost $8,500. And to him, and to me, that's a meaningful amount of money. He pays rent with that, and feeds his family. He said to us: 'I want to make $5,000 a month. I'm going to put up a different song every month, and try to raise $5,000, and make that my income stream.'"
Don Franzen, an entertainment lawyer and music professor at the University of California–Los Angeles, says that Vezt's best hope is to follow the model of Broadway musical investing. "They know nine out of 10 are going to fail, but they do it anyway because they want to be in that scene," he says. "This is like the way of almost touching the talent." Franzen also noted that these investors are generally a small group of wealthy New Yorkers "investing over and over again."
It's just the latest trend in the music industry, says Kevin Lyman, the founder of Warped Tour and co-owner of SideOneDummy Records. "There are a bunch of hedge funds running around with $25 million right now, looking for people that are interested in selling their royalties," he says.
Lyman thinks streaming royalties can pay off "not like high-flying stocks, but mutual funds," but remains unsure of the music industry's future revenue sources. "If you bet on downloads five years ago, you'd be out of business," he says. "Everyone keeps going: what's next what's next? I know in Sweden they're embedding chips in people's bodies so they can unlock their houses and things like that. Soon, they might be able to think about a song and it will play inside your head."
Another curious aspect of the app is its blockchain technology. "The purpose of blockchain is decentralization of information, and to make scarcity out of digital assets," says Gruber, who also advises a firm that has invested in other music industry blockchain start-ups. "And once you put the exchange of goods into a walled garden like an app, there's no reason for the blockchain in that situation."
Vezt's Stewart disagreed, saying that blockchain allows the app to be more transparent and indelible than it would otherwise be. But there's another major benefit that blockchain brought Vezt—a reason that start-ups are increasingly interested in blockchain: free money. "An inherent byproduct of a blockchain is cryptocurrency," Gruber says. "So instead of going out and raising money, they did an ICO." An ICO, or Initial Coin Offering, is the sale of the finite number of cryptocurrency. Vezt's cryptocurrency is largely unrelated to the app, but cryptocurrency investors snapped them up—in part thanks to Vezt's "bounty" program awarding coins to those who promoted the currency on forums like 4chan and bitcointalk.
The cryptocurrency sale netted Vezt a significant portion of its funding, but the coin dropped rapidly in value not long after the ICO, and is currently trading at around 4.5 percent of what it initially sold for. It's no longer Vezt's problem, however. "Token value is not tied to anything [about the app] directly. Our goal is not to manipulate that token in any way shape or form," Stewart told me. "That was a capital raise for us."
These kind of capital raises are on the rise. In May, CNBC reported that a blockchain start-up raised $4 billion in funding through an ICO despite not yet having a much of a business plan—or even a business concept. Until that month, the encrypted messaging app Telegram had planned to raise millions through an ICO fundraise (the sale was called off after it received more private investment than expected), according to the Wall Street Journal. Dubious advice sites for aspiring founders present ICOs as viable routes to fund your next start-up. The Balance, one such site, does urge some caution, reminding us not to "forget the dot-com bust and companies such as Pets.com." StartupGrind.com, though, appears more bullish than concerned: IPOs will go the way of the dinosaur and be replaced by the more agile and leaner ICO."
Blockchain is also trendy, and thus—at least for now—valuable as a marketing tool. And marketing is another area where Vezt hopes to find its niche. Like all other platforms, Vezt is looking to attract marketers with its users' data. Vezt gives your data to the rightsholder you've purchased your percentage from, which Stewart told me, "Spotify doesn't do, iTunes doesn't do, your label doesn't do, your publisher doesn't do. They don't even know."
Lyman is cautiously optimistic. "It's another option. There are more options being created daily on how to survive in the music industry without the traditional path. And you try to figure out what's best for you," he says. "Is it just as hard? Absolutely. Hard as ever."