How creators and fans can capture the value they create
This is a weekly newsletter about tech, media, and culture. To receive this newsletter in your inbox each week, subscribe here:
By many counts, BTS is the most popular boy band since The Beatles. In 2019, the group became the first since that foursome from Liverpool to have three No. 1 albums in a single year. In the last 18 months, BTS twice broke YouTube’s record for the most-viewed video in 24 hours, first with “Boy with Luv” (75 million views) and then with “Dynamite” (101 million views). BTS has the highest social media engagements of any artist this year, and owns 17 of the top 30 most-liked tweets of all time. One research institute estimated that BTS adds $3.6 billion to the South Korean economy each year.
In October, BTS effectively IPO’d. The group’s label, Big Hit Entertainment, hit the public markets in South Korea’s biggest listing in three years. Big Hit—which has a $6 billion market cap—gets 97% of its revenue from BTS.
In some ways, Big Hit’s IPO was the first de facto IPO for an artist, influencer, or celebrity. Yet the members of BTS (who again drive 97% of sales) own only 5% of the company, while their producer owns 43%.
The system is broken: economic value is captured by executives, rather than by creators and their fans. This is an outdated structure and remnant of pre-Internet power dynamics. Fans and fellow creators want to invest in the people they believe in:
Their idea reminds me of China’s Ruhnn Holdings, a public company that incubates influencers. (Ruhnn’s most popular influencer, Zhang Dayi, does $220 million in annual gross merchandise volume.) It also reminded me of Pocket.watch (Series B, $21M raised), which incubates kid influencers, like a modern-day Disney Channel for a generation of digital natives.
Blake’s and Matt’s idea is a good one: there should be a YC-like accelerator for top creators here in the U.S. (In some ways, TikTok houses are an early iteration.) But an accelerator wouldn’t solve the problem of creators and their communities sharing too little in their economic upside. Is it fair that BTS only holds 5% of its equity? Or that fans—the drivers of BTS’ success—hold 0%?
The most interesting opportunities are for tools and platforms that let creators and their fans reap the benefits of their own success.
IPOing Taylor Swift
Let’s take an example: Taylor Swift. My Spotify Wrapped tells me that I’m in the top 0.01% of Taylor Swift listeners for 2020 (a fact that I’m not embarrassed by, but rather incredibly proud of). Why should I receive the same treatment as the fan who listens to Taylor once a year?
Moreover, I’ve been an evangelist of Taylor’s since her country days, often much to the chagrin of my friends—shouldn’t I share in Taylor’s blockbuster success? I’ve been with her through the highs and lows of her “stock”:
Let’s run some back-of-the-envelope math to make this interesting. Say that I was a high school classmate of Taylor’s, and I really believed in her. I offered her $1,000 in exchange for 1% ownership of her future income as an artist. This effectively values Taylor at $100,000—not a bad valuation for an unproven high schooler.
That 1% stake would be worth $4,000,000 today—a 4,000x return, or a 76% annualized return.
This is simplified, and maybe there’s a clause that I’m only privy to sharing in Taylor’s success for a certain timeframe or up to a certain dollar return. But still, this is an interesting proposition. Taylor’s currently in a heated legal battle over the ownership of her first six albums, because they belong to her prior label—that wouldn’t be a problem if her fans, rather than music executives, were behind her early financing.
In some ways, the music industry resembles venture capital: record labels invest in unproven talent, giving them capital to record an album; in return, they own those recordings (the artist’s “masters”) and share in the economic upside. Most artists won’t work out, but one might be Taylor Swift.
The model described above—in which I invest in Taylor as an early fan—is the exact opposite of music’s current model: an artist’s support comes bottom-up, rather than top-down, and an artist and her fans together retain full ownership.
Subscribe here to get Digital Native in your inbox every Wednesday morning:
The Creator Economy + Fintech
There are many businesses whose values are essentially bound one-to-one with the value of a celebrity or popular creator. When Kylie Jenner posts on Instagram, for instance, Kylie Cosmetics sales spike; when Kylie took a six month social media hiatus during her pregnancy, sales cratered.
All of these celebrities had access to capital in the early innings. But what about the long tail of creators? If Jessica Alba didn’t have access to capital to start Honest, could her fans have crowdsourced it and shared in the upside?
IPOs—or at least high-valued exits—will become more common for top creators. The masters for Taylor Swift’s first six albums recently sold for $300 million. After Joe Rogan’s $100M Spotify deal, Mario from The Generalist posited, “Will Joe Rogan Ever IPO?” A TikTok House recently went public.
Charli D’Amelio’s “stock” is on the rise, and she’s only 16. How long until Charli IPOs?
Creators and their fans need fintech tools to finance content in the early years and to capture economic value creation in the later years. This solves problems for both sides of the marketplace: superfans get credit for being early evangelists; creators retain more ownership and control, answering to fans rather than faceless executives in suits.
Imagine investing in your favorite creators and influencers:
Stocks appreciate and depreciate over time: since Ben Thompson often writes about anti-trust, his stock goes up when the FTC sues Facebook for anti-trust. As an investor, you might “buy the dip” if you think James Charles’ public relations scandal is just a blip in the road, or if you’re confident Serena will come back from her injury.
The Internet is already shifting power dynamics to creators, and new tools will accelerate that shift. There are startups building these tools:
Scout lets fans invest in their favorite creators with digital trading cards.
Cent uses blockchain technology to let early “discovers” of creators share in upside by sharing content. The company seems to be pivoting somewhat, but the founders explain their vision in a blog post here.
Rally lets creators use blockchain to launch their own “creator coin”. Fans then buy, donate, and hold onto creator coins.
In the music world, Royalty Exchange is essentially turning artists into publicly-traded companies. Jake Broido was a successful background-singer, but wanted to take a shot at stardom with his own album.
The problem was that he didn’t have any cash. What he did have was a steady stream of royalties from his background vocals on Wiz Kahlifa’s and Charlie Puth’s 2015 hit “See You Again”. (Royalties are contract-guaranteed percentages of earnings given out to creators.) Through Royalty Exchange, Broido auctioned off his future royalties for $102,000, giving him the cash to create an album today.
“It gave me a three-year runway to focus on my music and put out my own record,” Broido says.
Final Thought: Unlocking Creative Talent
When Amazon waded into self-publishing books, Jeff Bezos wrote:
Even well-meaning gatekeepers slow innovation. When a platform is self-service, even the improbable ideas can get tried, because there’s no expert gatekeeper ready to say “that will never work!” And guess what—many of those improbable ideas do work, and society is the beneficiary of that diversity.
Think how much innovation and creative talent will be unlocked by letting fans choose the next great creator. (To be fair, TikTok’s algorithm is already doing this to some extent.) This is the final piece in the Internet’s progression of removing barriers to access and distribution.
Of course, the model needs to be refined over time. Investing in a person has enormous “key person risk”—the concept of a business being overly reliant on a single person. (If Tesla has Elon Musk risk and Amazon has Jeff Bezos risk, just imagine the risk of investing in Musk or Bezos directly.)
I’m not sure what the right model is—it’s some intersection of the creator economy, fintech, and maybe blockchain. But this is the way the world is going. The next Taylor Swift will be funded by early supporters—whose returns may increase the more they share and evangelize her work. Fans and creator communities will pick the winners, and traditional gatekeepers won’t monopolize the economic value that results.
Sources & Additional Reading
Check these out for further reading on this subject:
Kylie Jenner and Celebrity Brands | Glossy
Will Joe Rogan Ever IPO? | Mario at The Generalist
Entertainers auction off royalties to pave future career path | Randee Dawn, LA Times
TikTok Mansions Are Publicly Traded Now | Taylor Lorenz, Peter Eavis, & Matt Phillips | NYTimes
Thanks for reading! Subscribe here to receive this newsletter in your inbox each week: