“How important is a record deal now? Bieber was one of the first discovered through social media, then he went off and signed the record deals and the rest, but I wonder how important those deals are now, and in the future?”
Jeff Smith, chief executive of music apps developer Smule, is mulling a question from Music Ally about the role its 25m-strong community can play in discovering new singers, and whether the next logical step for those people will be label deals.
It’s not a silly question: in May, British singer Tom Bleasby claimed to be fielding calls from labels after his virtual duet with Jessie J using Smule’s Sing! Karaoke app went viral on Facebook and YouTube.
But back to Smith. “I’ve got nothing against the labels: I think they’ve played an important role, but I think they’re increasingly less relevant. Certainly from a marketing standpoint because artist management has taken that over.”
“And from a distribution standpoint, if you look at the companies competing to be number one in streaming – Spotify, Deezer, Apple, Google, Amazon – none of those is a label, right? We once said the music industry was the labels, but it’s really not. It’s a new era: an exciting time.”
This, admittedly, comes from the head of a company that does not depend on those labels for licensing deals. Smule’s apps – Sing! but also Guitar!, Magic Piano, AutoRap and Ocarina – use compositions rather than master recordings, so its licensing relationships are with publishers not labels.
When an artist does take part in a campaign, as Jessie J, The Wombats and Cody Simpson have done to name but three, the deal will usually be brokered with their management and involve them performing a live version of a song for fans to sing and/or play along with.
“We’re a social network that’s as much about creation as consumption. It’s not a karaoke company per se: we’re building a network around music and performance. Part of our philosophy is that not everyone has a degree in music, not everyone studies it, but music is intrinsic to who we are,” says Smith.
“Apple Music or Spotify is a different animal to us, because they’re distributing artist recordings, they’re dealing with the labels, they’re licensing the master recordings. But we’re licensing the copyright to the creation of the composition, and dealing with the publisher and the songwriter.”
“And it’s not Beyoncé’s voice, it’s your voice. So it’s a fundamentally different licensing structure and cost structure, but it’s also just a fundamentally different user experience and value proposition to the streaming services.”
It’s proving popular: those 25m monthly active users across Smule’s apps are singing, playing and rapping around 10m songs a day, while the company’s $2.99-a-week unlimited subscription for access to its catalogue of compositions brought in $40m of revenues in 2014, double its income the year before.
The quality of those performances, many of which are shared on YouTube as well as within Smule’s apps, is variable. But Smith points out that the good stuff – Bleasby’s duet with Jessie J being the most recent example – is travelling far and wide.
That does make Smule a competitor of sorts for the streaming music services, in terms of the time people spend with music. Jeannie Yang, chief product and design officer at Smule, shows Music Ally a slide-deck of previous partnerships with artists.
For one, their track had been played 283,000 times on Spotify while performances by Smule users had been played 241,000 times. “It’s about having a new way for artists to engage with their fans, with the whole premise of the business being for you to be able to join and collaborate and make music,” says Yang, adding that more than 72,000 people had sung with Jessie J so far.
Smith thinks that statistics like these suggest that Smule – even though it’s a “different animal” to Spotify – is becoming a player in that streaming space, but with raw, fan-generated versions of songs rather than the polished studio versions.
He compares it to the appeal of YouTube vloggers over traditional TV stars for young people. “I’m not sure that YouTube is replacing the programming that people have on their television sets, but it is competing for those engagement minutes,” he says.
“That would be where we compete indirectly with an Apple Music or a Spotify: it comes down to what music are you listening to and what music are you creating? Ours is a different animal, it really is, just like YouTube is a different animal [to TV]. But does YouTube compete with the television and its defined programming? Yeah, it starts to over time.”
Tom Bleasby may have been the biggest success story from Smule’s Jessie J campaign, but there were others: millions of views and plays for duets recorded by fans in the Philippines, Indonesia and Singapore for example.
Smule is hoping that more artists will follow in her footsteps. “We need more people to understand what’s going on, because most of them don’t. If you’re an artist, how do you make money? You make money really by engaging with your fans,” says Smith.
He qualifies the argument by agreeing that this engagement can be live gigs and selling merchandise for fans, as well as noting that artists with the most engaged fanbases are also the most appealing for sponsors.
“It’s a very different world for an artist now, and if you look at how they’re creating that brand, it’s primarily through social media. It’s not just radio plays and it’s not the labels doing it in fact: it’s the artist managers who are taking the lead in marketing the artists now,” says Smith.
“We know these management teams: Katy Perry’s team, Justin Bieber’s team. Scooter Braun’s CMO Brad Haugen is a more gifted CMO than pretty much anyone in tech. So it’s not a surprise he’s able to launch these artists and attract a following on Facebook, Twitter and now Smule.”
“What we bring to the table is aligned with this overall goal of engagement and brand construction, because most of the monetisation is now about engagement. Because an artist can have a fan join their song, it’s just a different level of engagement than has existed before.”
He also suggests that Smule’s growth – it can now feature an artist’s new single and have up to 10m people playing with it – could put the company alongside Spotify, YouTube and other platforms. “We have this level of scale now where we can move the needle,” he says.
Smith also sees Smule fitting into another trend: a desire for music fans for something a little raw-er in their eardrums, alongside the recorded music they’re used to. “We’re developing different tastes, and different standards,” says Smith, citing the difference between the first recordings of music a century ago with today’s recordings.
“If you look at Edison’s papers, when he was inventing the recording cylinder, he didn’t think people were going to record music. He thought it was a dictation machine. Why would you record music? What’s the point?” he says.
“Yet here in this huge industry we’ve created, there are professionals deciding who to record and how to record them, and we have these new standards of perfection. If you listen to classical pianists’ recordings of very difficult pieces, in many instances it’s not even possible to play what they’re playing without having multiple takes spliced together.”
“If you listen to recordings made a century ago, there are mistakes! The tempo is all over the map and people are going crazy with vibrato, then pulling it back and slowing it down. And that’s just how people would play: if there weren’t mistakes, they wouldn’t be pushing it. It wouldn’t be fresh.”
“Through social media, and products such as ours or SoundCloud or what have you, people are finding something fresh and authentic: something real rather than this higher ideal they’re never going to measure up to,” he says.
“Maybe it’s okay to have this lower thing where there’s more diversity, more variation. I’ve caught myself doing this: I have Pandora, I have Spotify, I have Google Music and iTunes, and I love them. But my ear’s getting this taste for our content too, because it’s a little raw; it’s a little different; it’s a little bit more authentic.”
What’s the business behind it? Smule’s revenues were $12m in 2012, $20m in 2013 and $40m in 2014, with that growth including a strategic shift towards subscriptions. The idea now is a catalogue of music available across the company’s apps, with users signing up to weekly, monthly or annual subscriptions to access all of it.
It’s certainly a step on from the early days of Smule, when people could buy individual songs for $0.99 as in-app purchases, although that did evolve into bundles of songs for that price to provide better value.
Subscriptions? “We got there in a fairly random way,” admits Smith, recounting the tale of how Smule began to experiment with an in-app economy, where people could watch advertisements in order to earn virtual points to spend on songs.
“We developed that model, and it was imperfect, but Apple came to us and said ‘we really don’t like you using that model’. It’s a model that games use for the most part, but Apple really felt that the virtual currency wasn’t the best way to offer a product or service to consumers,” says Smith.
“They felt there were opportunities for consumers to get confused between the virtual currency and the real currency, or buy currency they’d never use. I almost got the impression that Apple let virtual currency through for [games] folks like Zynga at a moment in time, and if they could reverse that, they might.”
“They did not want us to go down this path of a virtual currency: they wanted to limit that to games, and cordon off that group. And around that time, they opened up subscriptions, and actually encouraged us to explore subscription as a business model, because they thought it was a better fit for our customers.”
In a typical week, Smule releases 30-40 new songs for its community, with the company firmly focused on subscriber retention as it continues to build its business. “We’ll be valued not so much on how many customers we have, or even on how much they pay, but on how long they stay on our network using our products,” says Smith.
That filters into another part of Smule’s strategy: it hasn’t released a new app for two years, but has rather focused on improving its current roster. Yang points to the recent introduction of group video performances in Sing! Karaoke, and last year’s launch of a rap-battles mode in AutoRap, as examples.
“Last year, for each app we really invested in the platform and the community. So for video, we spent the same amount of time that we would prototyping a new app figuring out how that experience would work,” says Yang.
“Everything around the business element of subscription has aligned with our vision of how users want to be happy, and stay here as long as possible. Whereas in that virtual currency model, a lot of it is about throwing up paywalls at the moment when you’re having most fun, to try to make you pay.”
The final topic of conversation when Music Ally visits Smule’s San Francisco HQ is songwriters, and that orientation towards publishing rather than label licences. Smith is forthright about Smule’s view on its value to the songwriting community.
“We count streams and we pay on streams, and the royalty that we’re paying on publishing is probably twice what Pandora will pay on publishing as a percentage of sales, so it’s legit, and it’s a significant source of income for the folks that have the talent to write songs,” he says.
“Performers are great, but writers are great too! One of the reasons why the Beatles were amazing is because they had these amazing writers in the band. I wonder if, as we as a society become a bit more authentic, whether we’re going to value those writers more over time.”
“I value performers, because I’m a performer – I play piano – but there’s something really special about tapping in to these writers, and empowering them and celebrating them. Maybe our network does that more than a network that is purely focusing on the recording, such as a Spotify.”