Transcript: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)

Ben: Welcome to Season 10, Episode 1. The season premiere of Acquired, the podcast about great technology companies and the stories and the 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.

David: I’m David Rosenthal and I am an angel investor based in San Francisco.

Ben: 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 2019, 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 15, 22, and now she's accomplished all of these at a still unbelievably young age of 32.

David: That was good. I like that.

Ben: You probably know her all too well. She is maniacal. You could even say she's fearless, a madwoman, or that she'll never go out of style.

David: That is true.

Ben: Today, we are telling the story of the business of Taylor Swift.

David: I have a fun opening I want to do. I thought we should guess each other's favorite T. Swift album.

Ben: Oh, let's see. I think yours used to be 1989 and now its Reputation.

David: Reputation is so good. I did not like it at all before starting the research for this and now I am such a fan, but no, 1989 is my number two. My number one is Fearless.

Ben: Fearless? An uncommon pick, my friend.

David: I know. I love it. I just love it. So good, and the song Fearless, so good.

Ben: All right, what's mine?

David: I think yours is 1989.

Ben: Mine was 1989 and I am a Folklore fan now.

David: Oh, and Folklore over Evermore.

Ben: 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 pretty special for us.

Christina: Thank you so much for having me. It's wonderful to be on Acquired. I've been listening for probably four or five years at this point.

Ben: To kick us off here in episode one, Vanta today provides the best solution in the market to get SOC 2 certified 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?

Christina: For sure. There are a handful of different versions of SOC 2 before we know what it is now, different acronyms, but it started probably 10,15 years ago with something called SOC 1 actually with the accountants and that was the financial auditing standard. Just trying to look at whether companies have the correct financial controls in place to rules around how they handle financial matters in their company and then what gets audited annually.

Accountants were doing that, I think it was a good business. Around that same time, businesses just started to digitize and come online, more in our parlance. Software started eating more and more of the world. I think the accountants saw this tremendous opportunity for market expansion, and so they started something called SOC 2, which is sort of like Java, JavaScript.

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. We just have seen this be more and more important as software has eaten the world, as we've seen more data breaches of big companies and everyone is more aware of how much data there is about all of us on the internet.

For the last five years, really the last two years, have just really taken off. There's more B2B SaaS. Large companies are buying software from smaller companies but want assurances around data security, so it just kind of snowballed.

Interesting thing is that 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, and they train their members who are CPAs on how to administer it. It's kind of this fascinating path-dependent thing where you have accountants that are looking at financial data and then over time saw an opportunity to leverage their skills in a different area. Here we are in 2021, 2022 looking at SOC 2.

Ben: Our thanks to Vanta, the leader in automated security and compliance software. If you are looking to join Vanta's 2000+ 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 10% discount.

We also want to 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 and things like that. Recently, 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.

Without further ado, David, take us in. Listeners, as always, the show is not investment advice. David and I may have investments in the companies that we discussed and this show is for informational and entertainment purposes only.

David: We may own a few music securitization deals out there. I don't know if we would recommend it. At the end of the episode, we'll decide if we recommend buying into music master securitization deals or not. Amazingly, this was shocking to me. There is no official big-book biography out there about T. Swift, but there is actually quite a good book out there. It's unofficial, of course, but it's really well researched by a man named Michael Francis Taylor, who is a Brit, and it is called Taylor Swift The Brightest Star. It formed the backbone of a lot of the research here in the story, so a big thank you to Michael for writing.

Okay, on December 13, 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.

Ben: The wonderful SouthEast Pennsylvania-Delaware region.

David: A baby girl, one Taylor Alison Swift, is born to parents, Scott Kingsley Swift and Andrea Gardner Swift, middle name Finlay. Her dad Scott is a stockbroker for Merrill Lynch.

Ben: That's sort of all I ever heard of him too.

David: Based on what I could find out, he comes from a long line of wealthy Philadelphia area family. If you've seen the Philadelphia Story, he was born on the mainline in Bryn Mawr. His great grandfather—so Taylor's great great grandfather was a guy named Charles Baldi, who was an Italian immigrant, came to Philadelphia in 1877.

We got to go back to the 1800s because it's Acquired. We can't just start in 1989. He opens a coal yard in the Philadelphia area supplying the railroads and becomes one of the biggest coal magnets for railroads in the Philadelphia area. He makes a fortune. He invested in newspapers, he invested in stocks and banks. He buys a ton of Philadelphia area real estate. Let's just say the family has a lot of properties.

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 and then decided to stay home to be a mom to Taylor and her little brother, Austin. But Andrea's childhood was pretty unique and her mom, Marjorie, had quite a different path.

Ben: Marjorie was an opera singer, is that right?

David: And more. 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. When Andrea was growing up, they lived all over the country and spent a lot of time in Cuba before the revolution and then in Puerto Rico. Her mom, Marjorie, had a college degree in music, which was pretty rare at that time. I think she was born in the '20s, I want to say. While they're living in the Caribbean, in Cuba and Puerto Rico—I believe Andrea was already born at this point in time—she decides that she wants to 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 as well, sort of like Taylor to come—not just a country singer, also sang the pop tunes. Anyway, Marjorie, and I believe also Robert, eventually ended up moving in with the Swift family in Reading and lived with Taylor and obviously had a big influence on her.

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. Supposedly, Taylor would just go up to strangers on the beach and start singing to them.

She has this great quote, "My parents have a 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." When she was six, a few years later, her parents bought her her first album, which was by LeAnn Rimes. Remember LeAnn Rimes?

Ben: Oh, no way.

David: 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, perfect for Taylor. She pretty quickly discovers Shania Twain, who in addition to being awesome and a great country artist, wrote all of her own songs. She decides why can't Taylor do this as well?

She started to go into local venues, coffee shops, bars doing open mic nights, and karaoke. 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 kind of the only country star in the area. At his Roadhouse, he would have pretty big acts come through when they were in town like Charlie Daniels, George Jones, and the likes. If you have won karaoke night, you get to open up for these acts.

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."

Ben: How old is she here? Ten, 12, 13?

David: Ten.

Ben: An enormous amount of parental support for a 10-year-old to be a fly hanging around someplace.

David: It's interesting. I was thinking a lot about this and people talk about Taylor was, in many ways, born standing on third base and had all these privileges 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 that level of ambition. Her parents weren't pushing her to do this. They were supporting her, but she was absolutely the one that was driving like, I'm going to do this. I'm going to be Shania Twain and LeAnn Rimes.

Ben: 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 before immediately focusing on whatever's next and that you cannot manufacture.

David: She's singing at the Roadhouses. She starts getting the national anthem circuit locally. She sings the national anthem for the Reading Phillies, the local minor league baseball team.

Ben: So it begins.

David: Taylor one night is watching the VH1 Behind the Music on Faith Hill and the story goes. She is watching this and realizes that Nashville is where Faith Hill was signed and discovered, and all these country artists, they're all based out of Nashville. 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 non-stop tormenting my parents, begging them on a daily basis to move there."

Of course, I read this and I'm like,0 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?

Ben: 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.

David: Not only country, but bluegrass—all of it, Nashville is the epicenter. It turns out that the reason for this is that there was an insurance company based in Nashville. This is why you can't make this up. There was an insurance company based in Nashville in the '20s called the National Life and Accident Insurance Company. Their slogan was, we shield millions. They decided that as a marketing stunt, they were going to go by a local radio station in Nashville and change the call sign of the radio station to WSM and have it be like we shield millions radio.

They do this and 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. I know people are like, where are you going with this? It becomes so popular they're like, oh, we got to build a venue for this, let's make it a show, and let's really go all out on this because we're getting tons of customer acquisition through this.

They built what became the Grand Ole Opry for this show, this insurance company, and that then became the venue for sort of early country style music and Johnny Cash, Dolly Parton, Hank Williams. They all come up in Nashville. That's why Music City, Nashville is the place to be.

Ben: Wow, I love how random. It's not that it's random, it's complexity theory. It's that there are so many factors that go into something that this unpredictable event of this insurance company sponsoring a radio station to this huge amount serves as enough of a catalyst to bring together surely a movement that was already happening but to happen there.

David: Yup. Okay, back to Taylor. She finally wears down her parents who say oh, we're not going to move there, but maybe on a school break? Why don't you record a demo, we'll go down to Nashville, we'll drive around, we'll take it to some labels, and we'll see what happens.

In March 2001, Andrea takes Taylor down to Nashville. She comes back to Pennsylvania, empty-handed, no record deal. Surprise, surprise, just walking into offices on her own, didn't get her deal, but she's undeterred. This is Taylor Swift we're talking about. The next year, in 2002, she got the chance to sing America the Beautiful at the US Open in New York.

Ben: Slight twist on the national anthem. She's branching out from her single song.

David: Amazingly, the strategy works. In the audience, in attendance at the open is a talent agent in New York named Dan Dymtrow and he hears her sing. He's part of Britney Spears's management team, and he's like, oh, that girl's got talent. He gets in touch with the open organizers. He calls her up, he gets in touch with their family, and signs her as a client. Taylor’s like, okay, great. I got an agent now. They then go back down to Nashville, back down on Music Row. Dan walks her to all the studios.

Ben: This is like the big three record label's second office that's in Nashville. They have Nashville-specific offices for the country?

David: Yup. Some of them, it's very much like the movie industry. Some of them are Capitol Records Nashville or whatever, and some of them have other labels.

Ben: If you go look up Universal Music Group, you can see that there are a thousand labels within UMG.

David: I think for a lot of these big label groups, they'll even have competing wholly owned labels. There might be two, three, or four RCA labels in Nashville, in New York, or in Hollywood.

This time, once again, Taylor does not get a record deal, but RCA offers her a development deal, which is not a record deal, obviously. It's like, hey, we're going to invest resources in you and make a record that we're then going to release. We'll get it on radio and see how you do. 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. We’ll participate in the round, we're not going to lead it though.

Ben: I assume it's limited investment but limited upside. It's more about making sure you have relationships with the right people. We can keep an eye on you should you start to really shine.

David: Exactly. I assume that there's also a row for an actual deal in there. As folks may know, Taylor does not end up signing with RCA. Let's see how that plays out. 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? She's about to start high school in the fall. God bless them, her parents, they're like okay, let's move to Nashville, which they do.

Ben: That is so crazy. It's probably like 0.01% of our audience out there is able to relate to that. The parents are moving for the kid's aspirations and career at this young of an age. It's extremely common to move because mom or dad got a new job or we want to be closer to family. Almost never is there a story of an ordinary person's life when the family picks up and moves for the kid.

David: Yeah. I mean, it happens.

Ben: It's like the stuff of Olympians and future Taylor Swifts.

David: She's so freaking smart. I think she kind of realizes this, both through her agent and now being in this world with this development deal, there are a lot of people out there trying to make it. If you want to make it, you've really got to stand out and you have to have something great that makes you, you. For her, what's the natural thing? She would say all the time that she didn't think she had the best voice, but she was an amazing songwriter.

She doubles down on songwriting. 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."

Ben: It is so true. She's got these love songs as a middle schooler that she's written, and it's so clear both from her observing the world but also 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.

David: She's really freaking good at it. Word starts to get around Nashville that there's this girl who has a development deal and shows some promise as an artist, but she's a really freaking good songwriter. In May of 2004, Taylor is still a freshman in high school and is 14 years old, Sony ATV, which is one of the big publishing labels, assigned her to a songwriting contract as their youngest songwriter ever that they have ever signed.

Ben: Again, not a record deal, but she has a deal as a songwriter.

David: It could be songs for her, it could be songs for other people. Sony doesn't care. They just want to publish her as a songwriter. The CEO of Sony ATV Nashville says, this is a quote 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."

Ben: Wow.

David: Amazing. Sony pairs her up—she's 14—with a really established songwriter in the Nashville circuit woman named Liz Rose who had 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 are Tim McGraw, Teardrops On My Guitar, Picture to Burn, Fearless, Whitehorse, You Belong With Me, and then—it's going to come up later—their final collaboration, do you know what it is?

Ben: No, I have no idea.

David: All too well.

Ben: Really?

David: Yeah. Taylor brings her back.

Ben: Current number one for Taylor Swift.

David: Oh my gosh, longest number one song in history. This is one of the most boneheaded business moves of any type. I'm going back to like the Netflix Blockbuster.

Ben: 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 error.

David: Yes, forced to make an unforced error. This is just a fully unforced error. RCA tells Taylor they see what's going on and they're like, we do like your singing. We think you're a talented singer. We're just not feeling your songwriting.

Ben: No way.

David: Yes. They tell her they want to keep her in development for at least another year. They're not going to give her a record deal, but what they want to do with her in development is enough of this performing your own stuff.

Ben: Singer-songwriter stuff. We'll feed you some good music and you can sing that.

David: We will feed you teenyboppers. Oh my God.

Ben: It's this classic like underestimating young talent and it happens in every industry. I think people are so used to watching the standard path that they sort of assume that if you're one of the greatest of all time, but you're super young, well you should do what other super young people do. Do the kids bop stuff. It's not kids bop, but that sort of thing. It's almost this Taylor lyric of when you are young they assume you know nothing.

David: Literally, I've got a quote on this from her, "I didn't just want to 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, but that's what I did." What she's referring to is when RCA does this, she tells them to go F off. She walks out on her deal.

Ben: They're just stringing her along.

David: Yeah, it's not like she walked out on a record deal, which I don't even know if she could have if she'd signed it. She walks out on the development deal, but that's what she's talking about. This is crazy. Everybody's dream in Nashville is to make it and having a development deal is a huge part of it. She's just like, no, I've got a development deal with a major label, but they don't believe in what I want to do so I'm walking out.

In Brightest Star, "To understand RCA's decision," as generous as possible to them here, "is to better understand the shifting music landscape of the time. It was not exactly a golden age for country music. Teenagers were no longer buying into it in significant numbers, and the music coming out of Nashville was seen in some circles to be floundering and heavily reliant on its aging fanbase."

That was definitely true. Shoot, we were both growing up at the time. What was the number one thing that kids would say all over the country about the music they like? I like anything but country. Don't like the country.

Ben: Yes, there was a lot of alternative rock and hip hop was sort of graduating out of what hip hop had been in the '80s and '90s and becoming more pop, but it was still like heavy alt-rock.

David: Yup, and so RCA is kind of like, look, we've got a 14-, 15-year-old who we do think has talent as a performer. We're a country music label. She wants to write her own music. Obviously, that's going to be aimed at teenagers, but teenagers don't listen to country. We need to change this up here.

This is such an Acquired theme that we see all the time. Is it that there was something inherently wrong with country music or its nature that made it not appeal to teenagers? No, of course not. It's just that nobody was making country music for teenagers at the time.

Ben: I remember thinking like, I'm not like a country type of person and so it was less about the music itself and more about do I identify with the type of person who I perceive to listen to that thing. It's the same with any other sort of music. It's often the same with movies, too. It's a form of self-identification and community building that just so happens to sound like this.

David: I think that's right. What this makes me think of is the auto industry and Tesla. Before Tesla, it wasn't cool—at least in Silicon Valley—to be a car person anymore. Everybody drove a Prius because like, I don't care about cars. Was that really like cars weren't something that could be part of people's lives in the same way anymore, or just that nobody had made a car targeted at that demographic?

Ben: Right, that you could use to signal within your community.

David: Yup. T. Swift decides—in her own inimitable fashion—that she's going to host her own audition this time. 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 a legendary venue and was where Garth Brooks was discovered. She invites all the label execs in town to come see her perform.

Ben: She's the Michael Ovitz of the teen country music industry in Nashville. She's holding an auction for herself rather than trying out.

David: One of the execs who shows up—and it was, I think, apparently well-attended—is a man named Scott Borchetta. Scott is an executive at one of Universal's sub-labels in Nashville and he's planning to leave Universal and start his own label.

He finds Taylor after the show and he pitches in and says, hey, I want to sign you and I want to sign you to a real record deal. I want to make an album with you. I'm about to leave Universal though and start my own indie label. I want you to take a risk on me. I really believe in you. I believe that you can write your own songs. You can make country music for teenagers. I think this is really going to work.

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 decided 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."

Ben: 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. Both of them taking a chance on each other. 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.

David: Right. Scott Borchetta needed some financing to get this off the ground. It costs money to make an album, to distribute an album. Where does he get the money? Well, one place he gets it from a minority investor is Taylor's dad. The Swift family invests $120,000 in Big Machine for a 3% stake in the label.

Ben: Three-ish, it's been reported in a few different 3%, 4%, but somewhere in that ballpark.

David: Somewhere in there. I call it 2% to 4%. The majority of the outside capital though comes from—I don't think this has been talked about that much, this just blew my mind when I figured it out. I think I already told you who it comes from. It comes from Toby Keith, the big country singer who apparently is like a huge business mogul in Nashville and in the business of country. There's a big Forbes article from a couple of years ago talking about how he's worth half a billion dollars.

Ben: He's been a super, super savvy business person outside of his musical career.

David: 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 they're up and running.

Ben: Yup. Because history has been so antagonistic between Big Machine and Taylor based on what would end up happening, which we will definitely get to, 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.

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 and taking a chance on someone. That doesn't mean you have infinite upside from taking a small chance once, but it is worth recognizing that this was a risk.

David: Right.

Ben: David, do you think this is a good area to do a little sidebar on how music licensing works?

David: Absolutely. What does it mean when Taylor signs this record deal?

Ben: 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, trademarks, patents, and IP in general. 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?

There are a few really great sources on this if you're interested in learning more. The first is an excellent crossover podcast between The Verge and Switched On Pop, which we'll link to in the show notes.

David: Yeah, Switch On Pop, so good.

Ben: The other is a book from the legendary music attorney, Don Passman, on the music business, which is on its 10th edition. That's how many revisions there have been based on all these changes recently.

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. 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. 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. That's the first copyright.

David: It feels like the old school venture capital industry to me back in the '80s, '90s, '70s when the investors would take the majority of the company for putting up the money to do it.

Ben: Yes, and ultimately everything is a market. It's just determined by supply and demand and market terms that need to be agreed upon in order to take the appropriate risk. As you're staying with the venture capital industry, the market terms have changed tremendously to take that type of risk because of the appetite for capital, because of the returns that can be generated.

David: 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.

Ben: The second one is the musical composition copyright or the publishing rights. These are like the written lyrics and the melody, and they're traditionally held by the songwriters themselves through their music publishers. The way you can kind of think about this is sort of the idea and the execution. The musical composition copyrights, it's like something you could put down on sheet music. This is the idea of the song, but you haven't actually played a note. Then once the notes are played and recorded, that's the master.

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. Historically, these publishers would take 50% of the royalties that come through the composition copyright, but today, they actually take a lot less. For bigger songwriters, it might just be that the songwriter pays the publisher a fixed fee to do some back-office stuff.

For all intents and purposes, you can think about it like the songwriter themselves owns their own musical composition copyrights—the publishing rights, and they can make the decision on whether or not they want to license that for specific purposes. A quick aside on publishers, even though they don't have a lot of relative power today to the labels or big stars, they used to be insanely powerful in the era before recorded music when the publishing rights were the major rights.

David: Oh, right. The sheet music was like it.

Ben: Exactly. Since the singers didn't used to be the same as the songwriters, that meant that the artist and the recording labels were totally at the mercy of these publishers who own the sheet music rights, which is a fascinating little walk down history. These are the two big building blocks upon which everything else is built. Some uses of music require one of these approvals, and some other use cases require both.

There are 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. Depending on the use of the music, the splits and the income that is generated are wildly, wildly different.

One little final thing here just because it might be sort of hanging in your head, what about cowriters? Songwriting credits, interestingly enough, can be split any which way and are privately negotiated by the songwriters with each other. 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 has to sign off for that use case, and the money can flow in totally unique ways too. It could be 50/50, it could be 90/10, or 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, a 5% royalty, or something.

David: Like for Liz Rose with All too well and Tim McGraw, there's some deal between her and Taylor.

Ben: Right, but all dependently privately negotiated.

David: Interesting. You said, at the time, typically the publishers would keep 50% of the songwriting economics and the writers would keep 50%. Even that was very good from the artist’s perspective compared to the splits with the labels on the master side, right?

Ben: Exactly. 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 10%, 15%. Maybe if you're a really big artist you can get like 20%, 22%. The vast majority of those economics are going to the record label and this is where we should mention the idea of recoupment. You only get to participate in those revenues if you've recouped your—

David: The advance, the cost.

Ben: Yeah, it's like an upfront advance.

David: It's like book publishing.

Ben: Exactly. If a record label signs a deal with you and they give you $500,000, well, it doesn't matter if your CDs are flying off the shelves or your Spotify streams are happening. For the first $500,000 that should be paid out to you, the record labels are going to keep that and you only get to participate in your 10%, 15%, or whatever it is after you've recouped the advance.

David: It's like the VC preference stack on the gap table.

Ben: It is literally exactly what it is and I want to talk about that later.

David: It's so Byzantine and it's so from a different era. It costs a lot of money to make an album, and it costs even more boatload of money to get it on radio, get distribution, and get fans to do customer acquisition for it.

Ben: More important than that, and this is what represents what's often perceived as a predatory deal, most of these startups, most of these artists are going to fail. The record labels, the book publishers, or the VCs are going to have sunk all this money in to get to a point where we can even see if it's going to work. I don't know what the failure rate is in the music industry, but when 90% plus of startups fail, well, you need some kind of economic splits 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.

David: Right, just like in a VC fund. This is what I think has completely changed.

Ben: Yes.

David: 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 T. Swift. She and Big Machine started making the debut album. While they're making it, Taylor puts up a MySpace page. That's what all the teenagers are doing at the time.

Ben: Look at that, going direct to her fans.

David: Imagine that, going direct to her fans, even though she's not on the radio, even though nobody's spending any money here. Scott and Big Machine, they've got real money. They've got Toby Keith behind them, they've got Universal, 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. Most importantly, she's like, no, I want to control this. I want to control what this sounds like. I wrote these songs—together with Liz with a lot of them. I'm the songwriter, I am in control here.

In June of 2006, they released the first single from the forthcoming album, it's Tim McGraw. Thanks to MySpace, she has 20 million interactions.

Ben: Whoa, crazy.

David: 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. 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." Then little P.S., "To all the boys who thought they would be cool and break my heart, guess what? Here are 14 songs written about you. HA."

Ben: Did she say that?

David: She literally wrote that.

Ben: That's so funny. She knows where her power comes from.

David: 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."

Ben: Watching what she did for the next 14 years after that in cultivating a community on Tumblr is crazy. She has 27,000 interactions with fans on Tumblr over the years. That is her personal liking, reblogging, or commenting. She uses social media to directly interact with my community.

David: Yep, she's connected with teenagers all around the world on the internet. What are they going to do? They're going to go buy the album.

Ben: Especially in 2006 where I was frequently buying CDs.

David: It cracked the top 200 in November 2006 and then slowly built over this social media empire, I don't even know what you call it that Taylor is building.

Ben: To contextualize this, this is before Instagram has launched. I think maybe even still before Tumblr or right around the time Tumblr's starting.

David: Well over a year later, in January 2008, after 63 straight weeks in the top 200, it became the number one album in the world. It ends up, in total, on the Billboard Top 200. It spent 275 weeks on the charts. What other artist and album could do that?

Ben: Especially from a 16-year-old?

David: She was 15 when it came out.

Ben: Yeah, wild.

David: Totally wild. Taylor, she's so smart. She's building this whole direct relationship with her fans, social media, innovating, and pioneering in so many ways. She also is a master of the traditional way of doing things too. What is the traditional thing that an artist would do after they drop their first album?

Ben: Tour, you do press.

David: You're probably not on your first album going to go do a headliner tour yourself. You're going to go be the opening act for other tours. First, she starts opening for Hootie & the Blowfish. It is the first big act that she opens for, which is awesome. Then Rascal Flatts. Rascal Flatts is going to come back into Big Machine later. Then George Strait, Brad Paisley, and then finally, Tim McGraw and Faith Hill. Literally, the first single, Tim McGraw, she ends the opening act phase of her career opening for Tim McGraw and Faith Hill.

There is this unbelievable quote from Brad Paisley at the time about why he wanted Taylor to come open for him. He says, "I called my manager when I heard her album and said we have to get her out on tour. For her to have written that record at 16, it's crazy how good it is. I figured I'd hear it and think, well, it's good for 16, but it's just flat out good for any age. She is operating at a level I will never reach already in the groundbreaking way that she has taken a new audience and said, "I'm a country singer and they love it." That's amazing.

Ben: Strong words.

David: Fast forward to November 2008, the country is in the financial crisis. Lehman Brothers has gone under, it's doom and gloom, the great recession, blah, blah, blah—all that stuff.

Ben: Airbnb and Uber are starting.

David: Taylor drops the second album, my favorite album, Fearless. Oh my gosh, there are so many bangers on this album. Fearless, Fifteen, Love Story, Hey, Stephen, Whitehorse, and You Belong With Me. Those are just the first six tracks in order on this album.

Ben: Whoa, I thought you were naming all the hits.

David: No, those are just the first six tracks. Now, they're probably the best six tracks on the album, but yeah, it's a hell of an album. Unlike the debut self-titled album, which takes a year of this slow burn social media campaign to hit number one, it debuts at number one on the Billboard Hot 200 chart where it stays for 11 weeks. The longest since Santana's Supernatural in 1999, the longest in the top 10 by a country artist ever, and she became the youngest artist to have what would go on to become the best selling album of the year and the only female country artist ever to have the best selling album of the year.

Ben: There are a couple of things about this album that I think is worth pointing out because she's more of an adult now and having real-world experiences, she is starting to shift her songwriting from being love songs and breakup songs about things that she may or may not have experienced that are sort of theoretical into I'm now doing autobiographical music.

This is about me as a mid-teenager and the things that I'm experiencing. That would go on basically until Folklore and Evermore when she starts to shift and start writing songs about fictional characters, historical characters, and other people again. She had this sort of autobiographical thing of here's what I've been going through the last couple of years of my life for the next decade of her career, and this is really where that kind of starts.

David: That's such a good point because the first album and all those quotes about how amazing she was as a songwriter were about her powers of observation, imagination, and being able to write other people's stories from her perspective, but you're right, yeah. Then there's this long—long from our perspective here in January 2022—middle period of writing about her own experiences and then she comes back to storytelling.

Ben: Yeah, and she's also starting to take a little bit of heat here for becoming less country and becoming a little bit more pop, which is a funny foreshadowing because what does she do with that? She does 1989 later, and it's like you know what? Screw it, full-on pop.

David: Back to Fearless, she wins the Album of the Year at the Grammy for Album of the Year, making her the youngest artist ever to win her Album of the Year. Then she goes back out on tour, not as the opening act this time of course, but as the headliner. Her first real tour that's her own, the Fearless Tour, playing big arenas like Staples Center, Madison Square Garden.

Most of these places of course through her online direct connection with fans. They know when tickets are available, they sell out in like a minute. The tour grossed over $63 million. She plays in front of over a million fans. Then, right in the middle of all this, on September 13, 2009 in New York City Radio City Music Hall.

Ben: Yes. I didn't realize that this happened on the 13th too.

David: Of course it did. Of course it happened on the 13th. It's Taylor Swift. Taylor wins Best Female Video for You Belong With Me.

Ben: Which to be clear is not the biggest video award of the night.

David: Nope. There is Best Overall Video still to come in the night, but somebody either is unaware about that or doesn't care.

Ben: Some drunk rapper thought this was the big prize.

David: I think we all know what happens next. It's kind of funny to talk about the Kanye andTaylor moment on Acquired, but this actually becomes such a huge part of the business story of Taylor's career.

Ben: 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. This point, it's almost like that meme where you tip over a small little thing and then a huge impact happens years later like a little domino thing. Drunk Kanye getting up and I'm going to let you finish blah, blah, blah. That was a catalyst moment that would change the economics of the music industry.

David: It would change so much.

Ben: Not to credit Kanye with that, that would piss Taylor off enough to eventually change the economics of the music industry.

David: Kanye would credit Kanye with that. This was such a butterfly flapping its wings moment in so many ways. There's Taylor's music and Kanye, his music, which forever changed probably for the better creatively. I mean, Kanye’s My Beautiful Dark Twisted Fantasy.

Ben: My Beautiful Dark Twisted Fantasy, a phenomenal tortured album. One of the all time—there's an amazing podcast.

David: Yes, Dissect, Season two.

Ben: Yes, the Dissect season on that album. It's one of the best 20 hours you can spend going and listening—if you like music—to how that album came to be. I almost feel sacrilegious speaking so fondly of Kanye on the Taylor Swift episode, but the torture that he put himself through after being an idiot or what did Obama call him?

David: A jackass.

Ben: A jackass, yeah. The President of the United States calls you a jackass for that and he goes into hiding and emerges creatively from that wounded state with that amazing album.

David: I think there are three levels of butterfly wing flapping here. One is musically creatively for Taylor and Kanye. Two is the business of the industry, which we're going to get into in the rest of the episode here. I think you could maybe argue there's also an element even bigger than that—the Obama thing. I didn't put two and two together until just this morning.

Ben: Is this the Kanye-Trump relationship?

David: Yeah, dude.

Ben: No way. Okay. How does this go?

David: Obama I think it was like either CNN, CNBC, or something. He's setting up for an interview. In the pre-show setup with the cameras rolling, somebody’s talking about the incident at the VMAs, and of course, Obama has two teenage daughters who love Taylor Swift. He says something like, she seems like a perfectly nice young lady and Kanye, he's a jackass and everybody laughs. Kanye is a dude from Chicago and there's like a real connection there in the past and he feels so betrayed by Obama. 2020 rolls around and there's a lot happening in that moment.

Ben: There are some fascinating things to watch too if you go watch the videos surrounding that moment because of course, Kanye runs up on stage, says that Taylor hears booing—everyone booing Kanye, kind of thinks they're booing her. She's kind of standing there half smiling, frozen like, what do I do?

She's of course performing right after this, so she ends up going off stage collecting herself and successfully performing. She's asked on the red carpet, she responds with such poise. They're like, what do you think of Kanye West? She's like, I don't really know the guy, and they're like were you a fan? She goes, I mean, yeah, he's Kanye.

You can just see the disappointment draining from her face of Kanye West—for as big as Taylor Swift is now, she wasn't Taylor Swift yet, but Kanye West was already Kanye West. To be a person to have Kanye say that about you on stage, it's obvious how that is so debilitating.

David: Then the deepest irony of all is that what Kanye was upset about is that he felt that Beyonce had one of the greatest videos of all time for Single Ladies, which she did, which everybody agreed on because she won Video of the Year later in the night.

Ben: Also, that video is so simple, pure, and genius that is no doubt one of the greatest videos of all time.

David: Totally. Was it all done in one take?

Ben: It sure looks like it. It's really impressive.

David: It's super impressive. The things we never thought we'd be talking about on Acquired but this is like the financial crisis. You can't understate the impact of this moment.

Ben: No, and basically, all future Taylor Swift conflicts stem from this too. We'll get into the Scooter stuff, and that, of course, comes from the fact that Scooter Braun was Kanye's manager. There's Kanye deciding to dredge up history again, which again we'll get to, but it's like all of the future conflicts really do stem from this.

Here's kind of the sick thing about it all. There was a tremendous amount of emotional turmoil and there were a lot of negatives, especially immediately afterward. Both of them are way better off today than if this never happened.

David: Absolutely. I think that's the other dynamic here of what was better for both of their follower accounts? Twitter's just starting to come up at this point in time. This is probably right around the same time as the famous raise to a million followers on Twitter?

Ben: Yup.

David: After this, the following year, Speak Now comes out, Taylor's third album. Once again, something I didn't really realize until the research, why is it called Speak Now? What is it about? Taylor wrote all of the songs on Speak Now. She wanted to prove you can't say anything about me that I get the songwriting credits, but really, Liz is writing everything or somebody else's writing everything. No.

Ben: It's to basically strip herself down, show, and say, this is all 100% me, so if you like this, you like me. There is no caveating. There is no possible way to say, but she blah, blah, blah.

David: I think people liked it because all 17 of the tracks—14 on the main album and 3 bonus tracks—chart on the Billboard Hot 100. All of them on the album with that 1.11 of the tracks concurrently on the top 100. It becomes the only album in history to have 17 Hot 100 hits, 4 of which were in the top 10

Ben: Isn’t that crazy that 17% of the most popular songs in America are from your new album and represent 100% of your new album.

David: Speaking of songwriting, right after Speak Now comes out, Taylor starts a new relationship.

Ben: My hope was to have no Taylor relationship conversation on this episode, but I think it's kind of impossible.

David: I know. I didn't want to, but we got to do this one. Well covered by the media, unfortunately, doesn't last very long. There's a big blow-up at the end of it. She turns 21 during this and the other party in the relationship famously does not come to her 21st birthday. Yeah, it's bad, so she starts writing a song about it.

This song she would write for over a year and this is the one that she brings back Liz Rose for. Even after having just done Speak Now about proving to the world, I do everything myself, there was so much in this song that she wanted to say that she felt like she needed some help from her old collaborator. Of course, we're talking about—

Ben: All Too Well, Jake Gyllenhaal.

David: This song, it's a freaking masterpiece. It's a masterpiece.

Ben: A lot of this stuff in this story is like a win-win-win for everyone, especially Taylor. I think that kind of keeps being the punch line. The Addendum is except for Jake Gyllenhaal. They had a pretty short relationship that ended up bringing him into the conversation around her life in a way that he's kind of a punching bag. The fact that she's re-releasing albums from this point in time now, it's like, why are we dredging this up again? It's just very unfortunate timing for him.

David: But this song is incredible.

Ben: I will say, I also did the Peloton Taylor Swift (Taylor's Version) ride. On the 30-minute ride, 10 minutes of it is the 10-minute version of All Too Well. It's a bold Peloton choice.

David: No, it's not 10 minutes. It's 10 minutes and 13 seconds.

Ben: Of course it is. Of course it is.

David: This is the first very, very extended songwriting session material for the new album, which would come out in 2012. Of course, we're talking about Red. They make the album, Taylor and Big Machine, and the usual, she uses Nathan Chapman again as her producer. It's all straight over tackle down the middle Taylor stuff, exactly what a label and the music industry would say to do.

You've just had this great moment, give the fans more of what they want. They make the whole album. Taylor's like, no, this is too similar to the old stuff. If I'm not learning, growing, and doing new stuff, I'm not going to do it. Big Machine wants to release the album and she's like, nope, I'm going to redo it.

Ben: Is that how it ended up with a 22-track album?

David: That could be. Maybe that's why there are so many tracks. This is when she brings in Max Martin and Shellback, the famous Swedish producers who had worked with Britney Spears and Backstreet Boys, and they just done Maroon Five's Moves Like Jagger. She's like, we're going full pop with a lot of this and we're going to have a whole new sound.

Ben: That's right. Red was super poppy even before we hit 1989.

David: Right, but it's got this schizophrenic vibe. There's some country on it still, but then there's Max Martin and Shellback on it too. I think it's great. The other thing I didn't realize about Red until now—the album title is Red, and if you look at the cover, it's Taylor sort of looking down photo of her face. It's a reference. I think there's like a double Easter egg in this.

Ben: Taylor's the whole shtick is double, triple, quadruple Easter eggs nested in the album art, again, the inside booklet of the album, and all the other crazy stuff you can research.

David: I can think of two Easter eggs. The obvious one and it's referencing Joni Mitchell's Blue album.

Ben: We got to link to that from the show notes because the thing that you sent me, the album cover is clearly modeled off of Blue.

David: Clearly, it's like both shots of their face looking down and Blue versus Red. I think the other one is probably referencing the LeAnn Rimes album.

Ben: Interesting. I think what I want to point out here is we've been on a pretty steady track to date where she releases a 15- to 20-song album every other year. You got '06, '08, 2010, 2012, and 2014. She's averaging writing and recording 10 songs a year. We'll just seed plant that for now. That was the first decade of her career and we'll come back to it.

David: Yup, and it would be again another two-year break before the next album, which is, of course, 1989.

Ben: So many bops, so many earworms. So many popular videos that come along with it all. This one, to me, was Taylor Swift hitting the mainstream and saying, I am for everyone. If you look at her Instagram follower account today of just about to hit 200 million, she is indeed for everyone. She's always trying to have a little bit of this like girl next door, everyone's friend, and trying to do the right thing vibe. Here, she's just blowing the doors off that and being like, you like apple pie in America? I have Taylor Swift for you.

David: Yup. I think everybody in the orbit on Team Taylor knew that this was going to be really big because Red was half pop, but it was really successful. Red did not win the Grammy for Album of the Year, which I think Taylor still kind of resents.

Ben: And she hadn't won one since Fearless, right?

David: Yeah, I don't think so. I don't think Speak Now won.

Ben: Red didn't win, Speak Now didn't win. It's funny we're saying we didn't win.

David: Yup.

Ben: It's as if it's some kind of loss if the album that you released that year didn't become the album of the year.

David: Which I think is how Taylor views it.

Ben: That is totally how Taylor views it. In fact, that's the opening scene of Miss Americana 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. That's okay, I'll make a better record.

David: Not only it didn't win, but it wasn't even nominated. That's like oof.

Ben: Which, in retrospect, that was a mistake.

David: Yes.

Ben: 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.

David: She's always pushing the boundaries. 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 engagement on social media, how engaged they are in social media. 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.

Ben: Incredible.

David: Of course, photographs and videos, the whole thing, and posts it on social media. Just freakin' brilliant.

Ben: 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.

David: Totally. In July.

Ben: What year are we in?

David: 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, the music streaming industry, and that she believes that everything about the way streaming is happening is hurting artists.

She says, "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 their 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 when an album price point is. I hope they don't underestimate themselves or undervalue their art."

Now, what's she saying here? Her specific beef is with Spotify's free tier.

Ben: 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.

David: I think there are two levels to Taylor's objection here. One is, yeah, about the money. 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.

Ben: Very, very little.

David: I think the other is she genuinely, as he says in this piece, has an issue with people thinking that music should be free. She's like, no, I made this. This is art and it's valuable, and nobody should get to consume it without paying for it.

Ben: Yes, this is where we're really starting to see Taylor viewing herself as the poster child for the music industry. When I say music industry, I mean the artists. She's even referred to herself on camera, which is great, as the resident loud person of the music industry, which I think is such a great and then a little bit self-effacing way to put it where she's looking around and she says, I believe this, we're going to hell in a handbasket here. Someone's got to do something, it's going to be me again. This is the first time that she's really embracing that role.

David: Yup.

Ben: Let's take a moment to talk about the decline of the music industry and then I want to talk a little bit about how the royalties actually work in streaming. First of all, the music industry peaked in 1999 with about $14, $15 billion in recorded music revenues. This is shipping CDs, basically. When you look at this line, and we'll link to the RIAA's wonderful tableau diagram of this, it is 90% plus shipping CDs. That was a goldmine for the music industry and then it started declining.

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. There's just no money being made, and the all-time low for the entire music industry for recorded revenues was $7 billion in 2014 and 2015. It's right around this time where streaming hasn't started generating real revenues yet, the industry has basically been flat to declining for the last six, seven years. It's brutal out there.

What Taylor’s sort of looking at is if we continue to put all our eggs in the streaming basket, I don't know. Why is she saying, I don't know? Let's resume our previous conversation from when we were talking about the different types of licenses and the different types of copyrights.

David: I can't wait, let's do it.

Ben: All right. I talked earlier about the publishing right and the master right, which you can think of as publishing is like the songwriting, the master is like the recording. Now let's talk about the different ways each song could be played, which licenses are actually required for each, and what the typical economic breakdown is for each one. While we're on the topic of streaming, let's start with that.

When you stream a song on Spotify, the vast majority of the payout goes to the master recording, so think the label. When I say vast majority, let's call it 80%. A much smaller portion—12% on average—goes to the owner of the publishing right, typically the songwriter. That 80% goes to the label, which then gets distributed to the artist, the singer, or the band, depending on the royalty rate that they negotiated, which, as I mentioned, tends to be 10% to 20% going to the artists.

David: So you're thinking like 8% to 10%?

Ben: Right, exactly. You get 10% of the 80%. So then, if they're also the songwriter, which Taylor frequently is, let's say that they take home the vast majority of the 12%, so let's call it 10%. From a Spotify play, it's reasonable to assume that a singer-songwriter would receive about 18% for both of those credits. It's sort of useful to know that figure and what licenses get used in streaming.

David: And is the balance of the, so you said, 80% to the master license holder and then 12-ish percent to the—

Ben: Yeah, I don't totally know where the balance goes. It might be like BMI and ASCAP or something.

David: I'm [...]. Is the balance to Spotify or…?

Ben: No, this is the balance of what ends up getting paid out on a play. It's like 92% to license holders and 8% to I don't know who.

David: Got it.

Ben: Radio, even though you kind of feel like you're doing the same thing when you're listening to a song on the radio versus listening to it on Spotify, it's actually totally different, which is really stupid but the way it is. A song played on the radio is technically a performance. The rights associated with that are similar to if you decided to go on tour and play your song. In traditional radio, the split is totally flipped from what we just talked about in streaming rights.

David: No way.

Ben: The majority of the revenue actually goes to the songwriter, believe it or not.

David: Interesting.

Ben: But the recording artists actually don't make that much. In the old world, if you were a songwriter, you wanted a chart-topper because that's how you would make your money. If you were the singer or the artist, you wanted it too, but you wanted it for marketing purposes because then people would go buy your CDs, which is where the artists and the record labels would actually make their real money.

David: Interesting. Of course, Taylor is getting both of these but feels rightly so like she should be getting more of each.

Ben: Right. And in any songwriter economics, she gets way more of the split than in any master's related economics. Another example is songs that are played as a part of movies or commercials, these are granted via something called a synchronization license or sync rights. There's a split between both the publishing and the master right for this one. I think they're about even or they're closer together.

Importantly, both copyright owners need to agree to grant this license. This is why even if an artist doesn't own their masters, but they didn't write the song. They can still decide if it gets used in a commercial. It's like a veto right. This is a smaller overall revenue stream for the industry, but there's a fascinating element to it where even if you don't participate meaningfully in the economics of something, you still have a veto right over it.

David: Interesting.

Ben: We have all heard this notion—streaming doesn't pay. Taylor's loud about it here. I think a lot of people know, in the music industry, streaming doesn't make the money, but things like touring do. Let's put some numbers around that, at least on Spotify and Spotify-like services. It's about 0.4¢ per stream, and then that 0.4¢ gets cut up between the label, rights organization, et cetera before the artists and so it's reasonable—this is a crazy thing—ballpark to say that a million streams can net about $4000 for the artist and their label in revenue. If you have a 10% royalty, that means as an artist, you make $400 for a million streams.

David: That's so brutal.

Ben: And that is if you are recouped against your advance, otherwise it's zero.

David: Wow.

Ben: So for a very popular artist, you could 2X this by having a 20% royalty or if the streams were on Apple Music where it's subscription only and therefore a higher payout per song, that could further double it. But even if you have a 20% royalty on Apple Music streams, you make $1600 for a million streams as the artist.

David: Taylor is not wrong here. This is bad.

Ben: Yeah, and if you compare this to the old world, artists used to make like $1 per CD sold. If you did 10% royalty on a $10 CD, there's some retail stuff you pay, but you make around $1. A million people listening to one song in the old world, or more accurately because you were buying the CDs, 100,000 people buying your album would be like $100,000 for the artist. You're used to people listening to your recorded music netting you real dollars if you're coming from the old music industry.

David: Right.

Ben: The line I wrote in my notes, David—you can kill me later—is, an artist is never ever, ever going a lot of money from streaming, like ever.

David: Grown. I love it. I love it. I love it. Oh, man.

Ben: All right. Taylor Swift, 2017, right before her Reputation Tour—we’re flashing forward a little bit. She's Taylor freaking Swift at this point. Only $2.4 million of her total income from everything she does comes from streaming, which might sound like a lot, but she's the number one artist at this point.

David: Yeah, she's making between $50 to $150 million a year depending on whether she's touring or not.

Ben: Yeah, and for even a better illustration, U2 that same year made $54 million total and only $600,000 of it came from streaming.

David: Wow.

Ben: Like ever.

David: Ever. Okay. So we were talking about 1989. Taylor drops the album on October 27th, 2014. It sells 1.3 million copies of physical and digital. In the first week, it's huge on streaming. Taylor had written the op-ed in the Wall Street Journal back in July. Before this, everybody's kind of on edge like what's going to happen here? She drops the album. A week later, on November 3rd, after having been out for a week, Taylor pulls her entire catalog off of Spotify—not just 1989, but all of her albums gone off of Spotify.

Ben: Power move.

David: Totally power move. It would take until over two years later in late 2017 when T. Swift would come back to Spotify before the Reputation release. Actually, I think it was just about two years.

Ben: I think it was three.

David: You're right. It was three years. Quote from Daniel Eck when T. Swift finally comes back, "I should have done a much better job communicating this, so I take full ownership of that. I went to Nashville many, many times to talk to Taylor's team. Spent more time explaining the model why streaming mattered. And the great news is I think she saw how streaming was growing. I think she saw the fans were asking for it. So eventually when the new album," being Reputation, "came out, she came to Stockholm and spent some time here figuring out a way that made sense to her."

Ben: Wow.

David: This is the CEO of Spotify. Obviously, he gets involved here.

Ben: By the way, when he says her team, there's an organization that's pretty big. I don't know if it's 20 employees, 15 employees, or something like that, but it's called 13 Management. It's her whole team. There are other entities associated with it—one for merchandise, one for the fan club. There are all these real businesses that are surrounding Taylor Swift, the artist, and there are a lot of people that work on those.

David: We're going to come back a little later to talk about why she changed her mind on streaming and what streaming can do for her now, but there's one more thing in this chapter.

Ben: Apple Music?

David: Yeah, Apple Music didn't exist back then. It was Beats, and she was cool with Beats because Beats was paid. There was no free tier in Beats. After Apple bought Beats, and we covered this back on our Beats episode way back in the day, this is so fun, when they were going to relaunch it as Apple Music in June 2015, they announced that everybody's going to get a three month free trial of Apple Music before you have to pay.

What they didn't announce to the world was that the back end of that for artists was going to look just like Spotify's ad tier. The artists weren't going to get paid during those three months. Taylor's like, oh, no, no, no, no, no.

Ben: Taylor's comment on this, which is un-freaking-believable is, "We don't ask you for free iPhones. Please don't ask us to provide you with our music for no compensation."

David: The two sentences before that in the quote, which of course she posts to Twitter and Tumblr on her own social media to her own audience. "I find it to be shocking, disappointing, and completely unlike this historically progressive and generous company. Three months is a long time to go unpaid and it is unfair to ask anyone to work for nothing." Then Ben, as you said, "We don't ask you for free iPhones. Please don't ask us to provide you with our music for no compensation."

Ben: Here she is taking on her role of industry loud person again. The best part is that Eddy Cue tweets back at her.

David: Oh my God, this is so great. Literally within 24 hours, Apple changes its stance because of Taylor. Apple doesn't change its stance for freaking anybody. It's Apple. It's the biggest company in the world. Tim Sweeney can't get them to change their developer. This is unbelievable.

Less than 24 hours, Eddy Cue tweets, "We hear you @taylorswift13." Because of course, her Twitter handle is @taylorswift13, "and indie artists." I don't know where the indie artist comes from. No, this is about Taylor. So then later that day in an interview, he says, "When I woke up this morning and I saw Taylor's note that she had written, it really solidified that we needed to make a change." Overnight, they changed it and they said we're going to eat the cost during the three-month free trial for customers and pay artists.

Ben: Taylor Swift vs. Apple, Taylor Swift wins. That's a rare, rare thing.

David: You might be wondering, well, how does Taylor make all this money if it's not from streaming? Obviously, digital album sales, she makes a good amount of money from that. She makes money from endorsements, various merch, and other stuff. The 1989 Tour grossed $250 million. That's a quarter billion dollars from the tour. Now that's gross and it is quite expensive to put a tour on. You got to pay for the arena, you got fireworks, crew, and other musicians. This is not high margin revenue, but—

Ben: This ain't software.

David: Not software, but still, $250 million is a lot for one tour for one album. It became the highest grossing US tour of all time beating the Rolling Stones. Sadly for the 1989 Tour, but not sadly for Taylor, that record would be broken a couple of years later by the Reputation Tour.

Ben: Which grossed $266 million.

David: In the US and $345 million worldwide.

Ben: Whoa.

David: Yeah, that's a lot of money.

Ben: And I have to imagine, that's still the highest grossing tour today because who would have performed after that with COVID?

David: No, it is not. This is where it's interesting. You can't really do apples to apples with different artists' tours. Actually, it gets eclipsed by Ed Sheeran, T. Swift's bestie, with his, I think, Divide Tour. But I think the Reputation tour—I'm going to get this wrong. I don’t want to say it had, call it 50 dates, 40, 50 dates, or something like that. The Divide Tour went on for years and had like 200 dates or something like that.

Ben: I think she still holds the record for the highest single-year grossing tour.

David: That is also hard because how often do you perform? You could perform 200 times in a year.

Ben: Right. Yeah, it's really hard to normalize these. You need to do the same thing that people do in retail where they do same-store sales. You're like, what's your average price per arena or per show?

David: Yup.

Ben: Okay, interesting on touring. That's the Reputation Tour. We did 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 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. There was a whole year that she did some reflecting, some changing, some grieving, some being angry. What on earth happened that predated Reputation?

David: First, I have a confession to make. Until like 24, 48 hours ago, I was still in the camp that—I know all this context and whatnot, but just me personally enjoying the music, I didn't like Reputation. I was with the majority when it came out that it was a weaker album.

As you brought up the opening scene of Miss Americana is Reputation not even getting nominated for a Grammy, 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.

Ben: How dare you bring Kanye into this. I will say, Reputation has some just amazing songs—Ready For It, I Did Something Bad, Look What You Made Me Do.

David: 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.

Ben: Yeah, it's interesting when some albums are better after years go by.

David: I really like End Game.

Ben: Yeah, also great.

David: With Ed Sheeran, of course.

Ben: By the way, David and I are not music critics. There are four Rolling Stone podcasts linked in the sources that are an amazing music columnist discussion of each of these albums if you want to do some real musical analysis on it. But anyway, okay, what inspired Reputation?

David: Okay, yeah, 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 The Life of Pablo all the way through, but I think it's probably a pretty good album. But of course, it has the song, Famous, which has the famous line in it. I don't think we need to say it here, I think people know what it is, right?

Ben: Absolutely not. It's a pretty offensive line made more offensive by a music video where Kanye finds a—

David: Doll that...

Ben: Is it a doll? Is it a model? But something that looks a lot like Taylor Swift and it's nude in the video. So much about this is so offensive and cringe-worthy to look at. The album comes out and I don't think we need to go into the whole 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. You can't ship an album without a lot of people signing off on it, including your manager, and things were signed off on.

David: Literally, in the video of the famous phone call, Rick Rubin, the famous producer is in the background. I don't know if he produced that song, but he was there.

Ben: Yes.

David: Lots of people were involved.

Ben: I guess we should allude to at least what it is. There's this terrible lyric that Kanye, after the album comes out, says, oh, Taylor and I actually talked about this and she approved it. Taylor's like, no, I didn't. Then later on, Kim Kardashian releases some Snapchats that are like, I secretly taped or Kanye secretly taped this conversation. 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.

David: It's controversy.

Ben: There's lots of discrepancy over this. Taylor's like, what the hell, I thought this thing was dead and buried five, six years ago, and here we are dredging it up again?

David: Again, yeah.

Ben: Again, how could this not send you into some emotional duress such that you're not really seeing your next album when you thought you were, that it changes where you are creatively, that it inspires a whole new look, feel, and tone to your music?

David: A lot of popular opinion turned against Taylor and that's got to be hurtful too. That's got to be really hurtful.

Ben: Totally. Popular opinion kind of fairly turned against her. I don't know if she exactly said we never talked, but she kind of implied like there was no agreement. What the Snapchat showed is like, you definitely had a conversation, you were very thoughtful about how this is going to come across when this gets released. You may not have heard that one lyric, but you totally talked. So then Taylor sort of has to change her positioning to the public after she's getting lambasted and people are turning on her and saying like, well, I didn't hear that line and that's what I meant, and it's not a great look.

David: No, it's not.

Ben: For the first big time, a person who derives a lot of her pride, a lot of her sense of self, and has always gotten largely positive feedback from fans is now seeing an immense amount of negative feedback. She talks about this in Miss Americana. It really requires a psyche reset, where she has to retrain herself on who I am in the world, why I'm a person of value, why I need to value myself, and how I should think of myself that is not connected from, did a million people tell me I'm great today?

David: Because a lot more than a million people were telling her she was not great at that point.

Ben: Yes.

David: Yeah, that's the background for Reputation. Other than this being hugely influencing the creative aspect of the work, this comes up in a really big way very soon in the business aspect of Taylor Swift.

Ben: Okay. 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.

David: Oh my goodness, are they ever? One of my, one of our, one of all 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.

Ben: Let me just say, before David gets fully into this, we're going to do a little bit different this season with Vouch. I know a lot of you've heard a lot about Vouch before, but listen on before what we're going to do.

David: Vouch, as you may remember from back in season eight, I think it was.

Ben: Sounds right.

David: Yeah, it was during Berkshire, talking about all the insurance.

Ben: That's right.

David: 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, this was so painful. There was not a good option out there for getting this. Trust me, it was really painful.

Ben: Totally.

David: Every other category, you had at least something like Stripe for payments or AWS for the cloud. There was a service to take care of this for you, not with insurance.

Ben: Yeah, and I'm sure lots of you are out there and can attest to how you have gotten your business insurance, D&O insurance, or anything like that to date. It is not a modern experience unless you're with Vouch.

David: But now, thankfully, there's Vouch. Vouch is business insurance engineered for the modern tech industry. Whether you're a bootstrapper, 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. It is not how it used to be for sure. 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. 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. They have great clients like Pipe, Neighbor, Bid Desk, and of course, Acquired itself dating back to season eight.

Ben: Yup, proud customers.

David: Indeed, we're so excited. Vouch is continuing to sponsor Acquired in season 10. Ben, just like you alluded to, instead of running a bunch more reads like this one, we are going to do a little bit of an insurance one-on-one 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's some really good stuff in there. We are excited for that to come. Acquired listeners can get an extra 5% off on all your coverages by going to vouch.us/acquired, or as always, by clicking the link in the show notes.

Ben: Thank you Vouch. All right, David, I think Taylor's six-record deal is up.

David: Yeah, so that's the other thing about Reputation. Reputation was such a landmark.

Ben: It's a turning point in the career in a huge way.

David: But I think this is the thing about Taylor that we're going to talk about much more in playbook, but every album is a turning point in her career. She reinvents herself every single time and I just have so much respect for that. That is so hard to do.

Ben: We've talked about the rights that you license when you give your masters away. The way these record deals work is they sign you for a certain number of albums. They're saying, look, if I'm going to 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.

David: Yeah, I was going to ask, is that normal?

Ben: I think so. It actually used to be more. It's like 8 to 10, but it's come down in recent years.

David: 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, but the industry is like, well, this is going to 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 now that this deal is expiring. 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 going to take a 10% to 15% 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.

They say, there are 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 full stack company around yourself, and that takes a lot of time and energy. 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.

Ben: There's way more stuff involved in the back office of music than you can fathom. Of course, we need to make sure it gets on all the streaming services, but you also need to be in retail, even though there are 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 want to 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, make sure that they're listening for that, and making sure there's a matching license, and if not, sending them the invoice for it. There's an unbelievable amount of things that if you go through the traditional value chain through the record labels that you get.

The other big component that I failed to realize until reading—again, reading Donald Passman's book is just so enlightening. It's the venture deals of the music industry 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—for the indie artist who dealt with you individually, 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 work as a group.

You want to make sure that you're getting the right playlists on Spotify. There are all these ways where it's really helpful to be a part of something really big for negotiations.

David: Maybe this is part of the unsaid point in this Variety article is that Taylor is really one of the few artists, maybe the only one who could do that. That second point that you're mentioning, I think, applies to almost every artist, but literally, she made Apple change their policies in 24 hours. So she could, but it's unlikely that she's going to 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. Remember, Big Machine, her label, is part of the Universal heritage and ecosystem. Taylor could jump to Warner Music Group, Sony, or one of the other big groups, and she already has the Sony relationship for songwriting. That's not unreasonable. Probably going to come down to just economics and who's willing to pay the most in that arena.

Three, she could leave Big Machine but stay in the Universal ecosystem and sign with the parent label itself or one of the other sub-labels within Universal. Option four is she could stay with Big Machine. Now ultimately, as we all know, she chooses option three.

Ben: She does explore staying with Big Machine.

David: She definitely does.

Ben: They even published what looks like some screenshots of legal document going back and forth and having proposed changes. It seems like from those, what Big Machine is angling for is, if you signed with us for, they want 10 years, Taylor says 7, then by staying with us, you earn back the rights to all your masters. If you stay with us through this second term, then the masters from your first term become yours.

There's no way to know what the economic splits were or any of the other terms of this agreement. We don't even have it substantiated that that screenshot that Big Machine decided to put out is real. But what we do know is that Big Machine was willing to let her have her masters from the first six albums if she signed with them again and we don't know what the terms were.

David: She signs with Republic Records, which is another Universal sub-label, and specifically, it's Universal's pop sub-label. Now, this makes tons of sense. Big Machine is a country label and independently owned but in the Universal ecosystem. Republic is a pop label. This really is what makes sense.

Not only that, but Taylor and Big Machine had been working super closely with Republic to get all of Taylor's songs that when they wanted pop radio play to get on pop radio stations, Republic was the one handling that because obviously, Big Machine didn't have those relationships. When this is all announced, it's very amicable, at least that's what this is presented as. Taylor is staying in the Universal family.

Ben: She's moving from a country label to a pop, it makes lots of sense.

David: Again, we don't know what the tenor and tone of the negotiations were up to this point. But once this happens, this really, really changes the business dynamic for Big Machine. Again, we don't know how much people knew this was going to happen beforehand, but here's the reality. It's estimated that revenue from Taylor's work was 80% of Big Machine's total revenue.

They had other artists. They had Rascal Flatts, they had other folks, both current and past and they own the masters in the past. But Taylor was so big it was 80% of the revenue of the company. While Taylor is still signed with them, that's like operating revenue.

Ben: Even after Taylor's not signed with them, it's still your operating revenue because—

David: Well, the nature of what this asset is, it really goes from—I think in my view, this is all my interpretation—80% of Big Machine's revenue turns from being operating revenue into being like a cash flow streaming asset revenue. The whole nature of the company changes. You were a label who worked with Taylor Swift, and you're actively producing music with her, distributing, and everything, to now you've got her library. That's very different.

Ben: Right. That's a great point. Yeah, it's now an income-producing asset.

David: Yes, for sure. To your point, you need people to answer the phones when somebody wants to use it in a commercial and have the relationships with the label, but probably, I don't know, 80%, 90% of your operating activities around the Taylor Swift aspect of your business now just disappear.

Ben: Right.

David: It changes the nature of what Big Machine as a company is and specifically turns it into this like, at the time, you would think probably predictable cash flow asset.

Ben: By the way, this cash-flowing asset that you own is subject to someone else having strong feelings about the cash flow ability of that asset.

David: Exactly.

Ben: What's the first thing that comes out in terms of some scuttlebutt on this deal?

David: It's an extended period of time before all the drama, 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 became evident. It now becomes pretty clear that 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 T. Swift masters, but there's not that much else going on that Big Machine has a label. It's now this cash flow asset. The market is hot for securitized IP licensing deals.

Ben: Hotter than ever.

David: Probably he's going to sell. The reason I think this 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?

Ben: Much less likely to sell.

David: Yeah, exactly. But when she made the decision to leave, now that kicks off the sale process. Now, lots of people are interested, they run an auction. Reportedly, Evan Spiegel, who I didn't realize the day that Taylor Swift briefly, is interested in buying lots of PE shots or buying—

Ben: I think for Snap, but the idea was to build music into the discover tab that they owned or something.

David: Interesting. 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 the value of Big Machine?

Ben: Either yes, she could have outright if she was the highest bidder or she could have lined up financing to become the highest bidder.

David: Taylor's current net worth is $550 million, just over half a billion. This is according to Forbes, at the time, Forbes thought it was probably around $360 million. The ultimate sale ends up happening for between $300 to $330 million. It would have been like most of her net worth [...], but she would have lined up financing just like everybody else lined up financing to do this.

Ben: Did they pick up the phone, call her, and say, do you want to make a bid? That, we don't know.

David: She claims that she was never offered the chance to outright buy either Big Machine or the masters themselves.

Ben: 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, David and I couldn’t find in the research, and then, of course, the fifth is Scott Swift.

In order to make a sale, it's not that you need Scott's vote. What apparently happened is because there was a nondisclosure 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 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...

David: Everybody knows this is going to happen. Taylor even says that she knew that once she went somewhere else, it was obvious that Big Machine was going to get sold.

Ben: Yes. Now, who did it get sold to?

David: As you 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.

Ben: David, whose Ithaca Holdings managed by?

David: The CEO of Ithaca Holdings is Scooter Braun. Scooter, himself, is very well-known. Famous talent manager in the industry of artists like Justin Bieber and for a time, Kanye West.

Ben: For a time Kanye West and for a time, Kanye West put out Famous, Kanye West.

David: Yes, you made the point. Lots of people knew that Famous was being worked on and was coming out. There are people in that video that obviously were there. Certainly, Scooter probably knew about it. Would any of that change Kanye doing this? I don't know.

Ben: 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. What's not totally clear, and it doesn't need to be public because 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 decided that that was true, made a gigantic deal about that. I have no value judgment on that, but this served as an explosive point for her and her fan base.

David: 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.

Ben: Taylor owns not the recording copyrights, the masters, but the songwriting copyrights. She has been vetoing all these opportunities to use them in sick licenses. It's like, oh, you want to use them in that commercial and that can make a bunch of money for the people that own the masters? Nope.

David: Meanwhile, all this is playing out in the court of public opinion.

Ben: Lots of people are listening to Taylor Swift. That's definitely happening.

David: On July 13th, singer Kelly Clarkson tweets, "@taylorswift13 just a thought, U should go in & re-record all the songs that U don't own the masters on exactly how U did them but put brand new art & 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." 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? It turns out that aside from being a great country artist herself, her mother-in-law at the time—I think she'd since gotten divorced—was Reba McEntire. Reba did this.

Ben: No way.

David: 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 going to get more of the upside on that.

Ben: It's amazing. Then on 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 because 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?

David: Poor Jake.

Ben: But Taylor is maniacal and on a warpath, and she does it.

David: A couple of weeks later, in August of 2019, Taylor goes on Good Morning America and announces that she's going to do this. She doesn't reference the Kelly Clarkson tweet, but I think it's just as plausible as not that this is where the idea comes from.

Ben: Not probable cause, but plausible cause.

David: But Ben, to your point, other artists—famously Prince—had threatened to do this before, but this isn't something you do on a weekend. It's like making a whole new album. It is a lot of work.

Ben: And the release and the promotion. Taylor's time on this earth is short and her time of being a celebrity is shorter, unless she manages to constantly keep reinventing herself. For her to dedicate prime years of her career to this project going and spending all the time doing this instead of creating the next album, that shows how much she wants this.

David: It's completely implausible that Taylor could recreate her old albums and keep making new albums, even anything close to the pace that she had been doing, right?

Ben: Yes. David, you're referring to this chart that I made last night. I made a rolling two-year average graph of the number of songs Taylor released to smooth out the curve, basically, since she used to release albums every other year. Basically, 2006 to 2019, it's right around 10 songs per year that she was releasing. Then in 2020, she released 25 and in 2021, she released 46. She managed to release two brand new albums while also doing two re-releases during the pandemic.

David: Best thing that ever happened to Taylor Swift, I guess.

Ben: Lover's the first album on the new label, is that right, on Republic?

David: Yup, Miss Americana comes out in January 2020. It's also really good. Go watch it if you haven't. But then there was a big tour planned for Lover—Lover Fest—that was going to take all of 2020. That tour gets canceled.

Ben: The crazy thing is she announced the re-recording plan even while Lover was going to happen, the Lover Fest tour. She was like, oh, yeah, sure, I'll be on tour all year and I'm going to do this.

David: I think this is one of the really good things that come from the pandemic.

Ben: Do you mean like Folklore and Nevermore?

David: Yeah, Folklore, Evermore, Fearless, Red, and The Long Pond Sessions.

Ben: I'm always torn in trying to decide why is she recording? Is it vindictive and emotional or is it because there's an enormous amount of money at stake if she does? It's both.

David: Definitely both.

Ben: But it is fascinating that she has this kind of dual motivation here where one of them is, I definitely wanted to buy my masters. I'm bummed that I couldn't get them, but, oh my God, now Scooter has them, so I must wreck and destroy.

David: 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 there together. Right around the same time in 2020, irony of ironies, Ithaca, Scooter, and Big Machine sells the asset of the masters of the first six albums.

Ben: Just Taylor's.

David: 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 $300 million, so about the same price that they paid for all of Big Machine a year earlier.

Ben: Assuming that 80% of the revenue in that, so they're still left with some 20% chunk of the value. It's a nice little markup in a year.

David: There's some Rascal Flatts stuff and some others. I think there might be some Tim McGraw work that they have. The private equity firm that they sell it to is Shamrock Capital.

Ben: Which sounds innocent enough.

David: The minute I saw this, I was like, oh my God, because I used to work and media investment banking, and 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.

Ben: So crazy.

David: There's no direct connection anymore. This is more just coincidence, but like, wow.

Ben: It's Roy E. Disney, which is the son of Roy O. Disney. I think I have that right. He was the one who was kind of agitating on the board and the CEO transition if you've read The Ride of a Lifetime.

Interestingly enough, they did this without talking to Taylor. If I were doing diligence on an asset where someone has announced that they intend to, on a warpath, 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?

David: Can we find a way to work together?

Ben: Apparently that doesn't happen. 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 old records, and her fans will do the rest." But then she dropped Red.

David: Ben wrote that when the Fearless (Taylor's Version) came out, which again wasn't until April 2021. Back in December 2020 when Evermore came out—because Folklore had come out just a few months before and was obviously huge—T. Swift has concurrently (from these two albums) 22 of the top 50 songs on the Billboard charts.

Ben: It is remarkable too as you go and listen how good the re-recordings are. They're both faithful to the originals and all the ways you'd want them to be.

David: No, that's just Evermore and Folklore.

Ben: This doesn't include Red?

David: That does not include Fearless yet.

Ben: Whoa. I do want to make that point, but it's not related. They're both faithful and better because she's matured so much as a singer.

David: April 2021, Fearless (Taylor's Version) comes out, debuts at number one, as did Folklore, as did Evermore. Taylor becomes the first artist in history to have three albums come out and debut at number one in less than a year.

Ben: All graphs of Taylor Swift look compounding.

David: There's never been a more up as it goes to the right, at least in her industry. We got to talk about what she calls Taylor's Version. It's brilliant.

Ben: It's so brilliant.

David: Because what else are you going to call it? 2021 version, remake, or remaster.

Ben: If you want to identify with Taylor, this is the version for you. Dear fan base, I've been cultivating for 16 years. If you love me, you'll listen to my version.

David: Then in November of this year, on November 12th, Taylor sent me a birthday present. Thank you, Taylor. It was a really, really nice birthday present. I didn't notice at the time because I had a one-month-old, but released Red (Taylor's Version). The Fearless (Taylor's Version) was so good. It's my favorite album. I loved it.

Ben: This has the 10-minute version of All Too Well.

David: The 10-minute version.

Ben: The video associated with that, the other music video that came out, and it's directed by Blake Lively.

David: The Saturday Night Live performance.

Ben: Yes.

David: Jake Gyllenhaal may have been a jerk to her 10 years ago, but come on, give the guy a break.

Ben: He had bad timing.

David: That was bad timing indeed.

Ben: There are a couple of points before we round out the story here that are worth making about her deal with UMG. One of them will be straightforward and one of them will be a fun deep dive into Spotify history. Here's the straightforward one. Taylor negotiated maybe the best most artist favorable record contract of all time. The way that her deal with UMG works is she actually maintains the ownership of her future master recording rights and she licenses them to the label. I own this the minute we press the album and you can use them, but that is not an unlimited period of time. UMG only has the license up to 10 years, at which point she will regain full control.

David: So they could go make UMG's version of Folklore and Evermore.

Ben: Actually, they couldn't because she owns the songwriting credits.

David: That's right, yes.

Ben: Taylor has cut this just un-freaking-believable deal. Taylor is quick to point out, well, actually, the bigger part of the negotiation for me was this thing that I negotiated that involves all other artists benefiting from my contract. What does that mean? This is where we have to take a quick trip down memory lane.

Think back to 2008. If you lived in the UK, you could use Spotify, I think maybe Germany. If you lived in the US, you couldn't. It's this young emerging thing. It's got about 2 million users in the UK. Brush metal is in vogue. It kind of looks like dark iTunes. Spotify really, really needs the labels to play ball.

What are they going to do? Go SoundCloud's route and list a bunch of indie music on there? Daniel Ek has a specific vision for mainstream music listening happening in a streaming way. The three big labels and some indie labels, collectively together, get offered the opportunity to buy Spotify shares at an extremely favorable price. Whatever the basis is, it's trivially low, and they own 18% of the company. Huge amount. They're as big as a VC or bigger than any VC on the cap table.

They're incentivized to play ball for the foreseeable future and make this asset go up. They, from what I can tell, made a balance sheet investment, so it comes out of the shareholders' coffers. Fast forward to today, Universal Music Group is estimated to own about 3.5%.

David: Wow.

Ben: That today is worth about $1.5 billion at the current market cap, which is basically all the capital gains since it was super, super low basis, super early investment. UMG, unlike the others, never sold its share. That's been great for the Spotify stock because it's appreciated the last few years since their IPO. What did the other two big labels do? Warner moved first and they gave some of the money to artists. They gave 25%.

David: When they sold, they gave 25% of the proceeds.

Ben: Yes, of the sale proceeds of Spotify stock. You might think, why are they giving any? Which is kind of a reasonable thing to think because they made a balance sheet investment, from what I can tell. They may have been given the shares, but I think it was an investment.

David: Yeah, right. That seems awfully generous in an industry that isn't exactly renowned for generosity.

Ben: Right. You might say, well, why are we transferring value from our shareholders to our suppliers effectively? Artists aren't just suppliers. This is a much tighter relationship. In some ways, if by doing this, the labels actually accelerated the move to streaming and it may not have happened otherwise, then the artists as a stakeholder group were sort of hurt by the labels deciding to collude, really, and do this because all three of them did it.

Interestingly enough, Warner does this. They only give 25% of the appreciation, but they do it as a credit that will be recouped against earnings from albums. They sell it and they say, this is great. You can have this basically as an additional advance and you can pay us back for it. That's kind of [...].

Sony was kinder. They said that the money that they gave to artists was non-recoupable, totaling $250 million of a total windfall for all of the artists. This is about a third of their stake, so it's more than what Warner did, and it's non-recoupable.

In Taylor's negotiation, as a sticking point in her contract with UMG, she forced their hand to do the best deal of any of the labels by far. It's not public but people think it's at least the same thing that Warner did, 25%, but non-recoupable. Given the size of the UMG stake from the holding, that would mean something like $700 million would get distributed to artists with zero need to pay it back.

David: That's leverage.

Ben: That is some new customer coming to you and saying, by the way, in order to do business with us, not only do you need to give us a screaming deal, but you need to kind of change the way that your other existing contracts work that I have nothing to do with.

David: And pledge this asset that has nothing to do with me.

Ben: Yes. Of course, she's going to make some money, but I think other people actually will be much larger recipients of the $750 million when it ultimately does get distributed.

David: And certainly in terms of impacts to those other artists who don't make as much as Taylor on an ongoing basis. I said earlier that Taylor came around on streaming and streaming has actually been good to Taylor and Taylor has been good to streaming. What is the biggest part of that? This was not in the works when Taylor did come back to Spotify, but has been huge for her. The Taylor Versions, right?

Imagine a world where streaming was not the primary paradigm through which customers consume music. Even the brilliant calling them Taylor Version, she'd still have to go convince people who already owned Fearless and Red to go rebuy the CDs.

Ben: Now it's very easy to swap out your playlist or if you're not a playlister, you're just searching. You're like, oh, good, the newest one, Taylor's Version, that sounds right.

David: I've noticed, I can't imagine this is just for me. But if you ask your favorite virtual assistant to play Red, Fearless, or All Too Well—

Ben: Are they playing Taylor's Versions?

David: Of course they're playing Taylor's Versions.

Ben: Whoa.

David: It was yet another factor that enabled Taylor to really do this remake strategy in a big way.

Ben: Taylor Swift has an astonishing 200 million followers on Instagram, which makes her the 14th most followed in the world. But there are four people from a single family that are ahead of her, who are they?

David: Kardashians?

Ben: Yes. There's stardom and then there's ludicrous stardom. It is amazing that there are so many places in the story where it's Taylor and her crew versus Kanye and his. As I was just looking through, who has the most influence on Instagram that just did total reach that the Kardashian, Jenner, West, I know they're not together anymore, but that team Kanye has his nuts?

David: Yeah, wow.

Ben: I mentioned to you that Matsushita Electric came up again.

David: Oh, yes.

Ben: In the research and I'm sure at this point, you can probably guess why.

David: Universal Music Group?

Ben: Universal Music Group is now a totally separate entity, but at one point was part of MCA Universal, which Michael Ovitz sold to Matsushita.

David: I didn't realize that they were still together at that point in time. I thought they had already been split out.

Ben: Yeah, totally crazy. Fast-forwarding all the way to today, UMGs owners are, of course, it's publicly traded, but Vivendi still owns 10% of it. Vincent Bollore, I don't know, I'm not familiar with that, owns 18%. Pershing Square Holdings owns 10%, as the famous Bill Ackman's recent don't call it a SPAC activity. Do you know who owns 20% of UMG that we have done an Acquired episode on and is a big part of Acquired lore?

David: Tencent?

Ben: Tencent.

David: Yes, which may have come as part of a swap with Tencent Music in that IPO, I think, something like that.

Ben: Crazy how interconnected this web is.

David: We don't yet have total earnings numbers for 2021 for Taylor, but as I mentioned earlier, her net worth estimated by Forbes in August of 2021 was $550 million, up from $365 million less than a year before. I think it's fair to say she had a pretty good 2021.

Ben: Totally.

David: For a sense in the music artist industry—how she stacks up all-time—for just music sales alone—we're not including touring, we're not including merch, just literally consumption of paid consumption of the music. Now, this does include streaming. It's been accounted for here, so you can compare eras here. Taylor is 31st of all time in highest pure music sales. Now you might say like, 31, that's great, it's impressive, it feels a little low.

Ben: But I do think the way that the streams are counted is disadvantaged relative to the way that they used to count album sales because they equate 1500 streams to one album, which is a little bit like, okay, so you're saying that it's 150 listens per album, which might be a little bit generous if, did I ever listen to my CDs 150 times?

David: Yeah. Okay. She's the only artist in the top 50 who started her career after the year 2000, and she started in 2006. Everybody else in the top 50 started, at least one if not multiple decades before Taylor. Now you look at other artists who started in the 2000s decade. The only others, there are three others in the top 100, Taylor's 31, next is Adele at 66.

Ben: This is like comparing LeBron mid-career to Jordan if you're trying to compare Taylor Swift now to The Beatles.

David: The Beatles are number one. Now switching over to the touring side, the Reputation Tour is the 19th highest grossing tour of all time.

Ben: Including ones that run for multiple years.

David: That's the thing. When you factor in the number of dates on the tour, it has significantly less dates. I think it has less dates than every higher ranked tour above it. Most of them have significantly less dates. The other thing I looked at here, which was pretty hard and fluffy. Various publications have estimates on lists of high starting artists for the year and they all have different methodologies. Almost undeniably, by any measure, 2016, 2019, 2020, and probably 2021, she will be the highest earning artist.

Ben: Totally amazing.

David: Okay, that's my trivia. I tweeted the other day that the first episode of season 10 has a direct connection to Standard Oil and I bet nobody can get it.

Ben: I bet a lot of listeners at this point know exactly what the connection is.

David: But this is the most amazing part.

Ben: We gave no hints. We've told almost no one about this.

David: Almost no one, but one person...

Ben: Who guessed it outright immediately and nailed it...

David: Direct reply, nailed it, no inside knowledge, no awareness of what was happening, is Christina from Vanta.

Ben: Amazing.

David: That is how good she is.

Ben: Christina Cacioppo, that was a dead-on guest. It is scary how much you knew that The Last Great American Dynasty was indeed the linkage between the Standard Oil trust and Taylor Swift.

David: In 2013, of course, Taylor bought the property known as the Holiday House in Rhode Island that was previously owned by Rebekah Harkness and Bill Harkness, one of the direct descendants of the Rockefellers, inheritors of Standard Oil fortune.

Ben: Heir to the Standard Oil name.

David: There's a lot of fun stuff out there about Rebekah. She was eccentric. She funded lots of stuff in the arts, particularly dance. The story is in the song about stealing the dog and dying it key-lime green. Definitely did not steal a dog, may have dyed a cat key-lime green, but there was some poetic license taken in this song.

Ben: Okay, David, I'm moving us on.

David: All right, let's move on.

Ben: All right, seven powers. 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? David, I guess let's think about Taylor as a business, not about her previous rights or UMG as a business, but the business of being Taylor Swift and having all the assets she does, all the control that she does over what she controls, and not over what she doesn't control. You're Taylor, that's the analysis.

David: I think that's the only scale that we can really analyze this on. Anything else feels too small, of course. The Seven Powers are counter positioning, scale economies, switching costs, network economies, process power, branding, and cornered resource.

Ben: Branding is a no-brainer. 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, what's the song where she was pseudonymous?

David: The Rihanna, Calvin Harris song, yup.

Ben: Yes. She, of course, wrote that and is singing in that, but it's not named. I never knew that before. It brings up the value of the song to me and 100 million other people.

David: Yup.

Ben: She's definitely got branding power going on. I suspect the biggest one she's got is scale economies.

David: You think scale economies?

Ben: 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 artists 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.

David: 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.

Ben: 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.

David: Yup. Okay, I can buy that.

Ben: I think, definitionally, she also has switching costs because the CEO of Spotify, when she was not on Spotify, was flying to the US to negotiate for her to get back on. Clearly, you can't substitute a replacement and have equal value.

David: Which I think also implies cornered resource. Does she have network economies with the fans and the Swifties?

Ben: The fans with each other?

David: Maybe? I mean, to the extent that stuff like this podcast that we're doing. The fact that the fans do, there's so much YouTube content and podcast content about Taylor.

Ben: Yeah. Search Taylor Swift in a podcast player, there are a lot of Taylor Swift podcasts.

David: Yeah. Maybe, I don't think it's strong network economies, though.

Ben: If I were to take away the framework for a minute and say, where does Taylor's power come 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. 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. 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.

David: The latter of those, I think, is exactly process power, right?

Ben: It's like Packy's process power, where I can't really explain it. She even says in the NPR Tiny Desk session, she's like, by the way, this song, and 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. It's basically exactly here as you hear it on the album. It felt like cheating because usually, songwriting takes work, and then she kind of caught herself. She's like, actually, songwriting is completely different every time and there's no process for it.

David: Probably everybody listening has a smartphone has Voice Memo 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.

Ben: All right, playbook?

David: There's so much to talk about in playbook. I feel like you have a bunch. Do you want to start?

Ben: Her productivity has been skyrocketing. Her skill and the complexity of her songs have 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 10, 20, 30 is pretty loaded with recent stuff.

She's on two different axes on quality and quantity increasing, and so she has this unbelievable quadratic effect to the value that her music creates in the world, if you want to 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.

David: Amazing observation. I love the way you phrase that. I think that's Swiftie-ing.

Ben: Taylor, if you're listening, I'm sorry that I called your music value.

David: I can't recreate it.

Ben: Because so many of these are undeniably laudable for Taylor, there's one that I want to call out that's worth throwing in. She's able to bend the truth a little bit or tell a specific version of the truth a little bit that usually ends up to her benefit. Often, it benefits everyone involved, sometimes it doesn't, but there's a bunch of different examples of this. One being she initially said Kanye didn't call for approval, which we know he did, but just not the full approval. Okay, fine.

She said she woke up to finding out, at the same time the rest of the world did, that her albums were sold. According to Big Machine, they'd sent her a text the night before. Maybe she didn't see it. Of course, her dad was also a major shareholder, okay, he didn't show up to the meeting. But there's a little bit of like, she wanted to tell a clean story there.

Another example, she was never offered the chance at her masters, that she had to earn them back one at a time, not totally clear. Maybe she could have put in an offer to buy them. This is my worst-case scenario. Is it really or is that the most dramatic way to put it? And I don't think any of these things are necessarily untruthful. There's a very good chance all this is the way that she perceives these in her head so she is speaking the truth that she experiences it, but she's very good at finding the version that she can tell the world that has the most possible impact. As we've said many times, she is a tremendous storyteller.

David: You know what this is?

Ben: What?

David: There's nothing more Acquired than what this is. It's a reality distortion field.

Ben: She's the Steve Jobs of music?

David: Absolutely. She totally is.

Ben: I think she's the Michael Ovitz too. There are so many ways that she leverages her self-appointed position as the music industry's resident loud person to beat up the centralized power and benefit the artists.

David: Totally.

Ben: One big one that I have that is going to spiral here a little bit and then I'll hand it over to you afterward is the litany of disruptions that happened like actual low-end disruptions like Christians [...] that led to where we are today, and Taylor's remarkable ability to use them as catalysts for herself and jump on new things.

It's cheaper than ever to record your own music. It's cheaper than ever to produce and mix your own music. You have the opportunity by going viral to get an insane amount of free marketing on places like TikTok, where she's always commenting back and forth with fans or Spotify playlist—

David: Tumblr or Twitter, yeah.

Ben: Then, of course, distribution, in addition to marketing, is also free since you no longer need to print CDs or mail them. Then on top of that, retail stores don't really exist, so there's no retail markup. This and the rise of social media all at the same time, the fact that the VMAs incident wouldn't be the VMAs incident without Twitter, that was a catalyzing event of why everyone was talking about this.

David: It's like the tree falling in the forest problem. Kanye grabs the microphone and there's no Twitter, did it happen?

Ben: Yes. There have been a compounding set of waves that have all collapsed and she has been very effective at making sure to ride where they all peak together.

David: Yeah.

Ben: All right, that was my big long one. Over to you.

David: Okay. First, one that we talked about in the beginning of the episode is the whole teenagers don't listen to country music narrative. Who wouldn't love country music? It's music and storytelling. People love music, people love stories. It's just that nobody was making country music for teenagers. She showed up, she made country music for teenagers.

Ben: Yeah.

David: You see that all over the tech industry, startups, et cetera. To the reinvent or die, there are two aspects to this. I have so much respect for her reinventing herself literally every single time. That is so hard to do for an artist, for a company, and yet if you don't do that, you die. I think it's also even harder for women to do that, women artists specifically.

I think that male artists, bands, and the like can get away with not having to reinvent themselves for longer. And they don't have the turning 30 or turning 35 problem where they're no longer sex symbols.

Ben: This is all stuff she says in Miss Americana.

David: Yeah. Not only is she best in the world at doing this, she does it with the deck stacked against her in a lot of ways. Then three, which is totally an Acquired theme or we aspire to be, she treats her audience like they're smart.

Ben: Yes.

David: And so few other people do at the scale that she does.

Ben: She understands the power and the value of her audience. She spends a remarkable amount of time catering to them, building things for them, and interacting with them. To my original point on the way that she tells her favorite version of the truth in some of these situations to create the largest impact, I think the savviest people in her audience could be spoken to in a little bit more of a nuanced way.

David: Right. When you think of how she speaks to 200 million people versus how traditional media used to speak to 200 million people, it's very different.

Ben: Yes. Follow me on this one. The free download in '99 killed the CD sale, which was the cash cow of the industry for everyone—artists, labels, everyone. Then iTunes comes along and individual song purchases start to save it, but don't nearly make up for the lost revenue. Streaming took off like crazy and then CDs really stopped selling. So the primary revenue driver for labels and artists is gone.

Streaming makes some money, but that revenue generated from streams that goes to the labels to be divvied up doesn't nearly match what the CDs matched in revenue. There's this big missing revenue gap. All the revenue shifts toward performance royalties then. We're in this situation where in order to make money, it's touring and it's merch at this point since streaming doesn't make a lot of money and CDs are dead. Record companies then, interestingly, got obsessed with, did you hear about the concept of the 360 deal?

David: Yes.

Ben: They're trying to capture revenue even if they're not helping you create the album and you're over-producing revenue on your own on their side. They're like, oh, we're your label so we're involved in everything your brand does.

David: And we're going to help you do everything. Yeah, sure.

Ben: Where does this leave us? Basically, what it means is the industry is just going to have to make it up on volume. But because streaming pays out so much less, we're just going to need a lot more streams. Now is this going to happen? Here's where there's an interesting argument. The Donald Passman book is so good in bringing up two points in the introduction.

These two points were at the peak in 1999. An average CD buyer spends about $45 per year on CDs. Today, with streaming averaging $7 a month, that average spend per customer has gone up to $84. You have almost a 2X in terms of consumer spend. Now let's look at the number of consumers that are doing this.

In the old days, when you were done with your 20s, you basically stopped buying records and you stopped buying CDs. You had your musical taste, you had your collection, you weren't really listening to the new stuff anymore, and you certainly weren't buying it. You only ever heard it on the radio, which was free. Today, people of all ages are paying for streaming every month from four-year-olds listening to stuff that four-year-olds listen to on Spotify, all the way to grandma having a Spotify subscription.

David: I can confirm, children like music.

Ben: There's a very real TAM expansion, both in terms of the amount consumers will spend as everyone fully shifts to streaming and the number of people who will behave that way. It's just about, okay, well then, how do we divvy up those dollars because there should be more dollars than ever flowing in?

David: Look at you. Daniel Ek should come and talk to you before he talks to Taylor.

Ben: All credit goes to Donald Passman.

David: Fair enough, fair enough.

Ben: All right. The last one that I want to dive into a little bit here is that advances interestingly are a clear sign of a power law dynamic where you mentioned it's like book publishing, we talked about how it's like venture. It's the same thing in all these things—music, books, and startups—where having the big winners in your portfolio is really what matters.

At one point, I had a book agent tell me that America basically picks one book a year to all read together. It's the Michelle Obama book or it's whatever it's going to be. You don't know what that's going to be ahead of time. You don't really care that much about recouping your advances on the losers. All you care about is making it so that in your portfolio, you get the book that America reads every year.

It's just so similar to venture capital. The way that the payback works is so similar to where, okay, an advance and then you recoup against the royalties. What's preferred stock? The first X amount goes to the capital provider in exchange for the capital they've provided and then they participate with some split in whatever outcome is after that. I don't want to quite get into the nuances of participating preferred and how it's slightly different, but the fact of the matter is, these contracts that seem predatory, and I'm not going to argue yet that they're not predatory, but what they're doing is basically making sure that they cover their losses.

There's this interesting human nature thing where if you look around and you're the winner, and you realize you're the one subsidizing everyone else, it's really easy to forget that you had an equal chance of failing if someone was to underwrite you. You're like, why am I paying so much back to this original capital provider? I hate being locked into this deal. But that deal was theoretically whatever the market clearing price was in order to take the risk on you as a young startup, author, or artist.

The only place where this falls down—which I think is what I want to do this episode instead of value creation, value capture—is in order for this really to be fair, in order for these terms to truly be market price, you need the labels to not be making a ton of profit.

If they're very profitable on a free cash flow basis, all the way, full bottom line, if they're printing money, then what you can say is, jeez, is this an oligopoly? There are only three people here, so there's not actually a good competition among the people that want to give you money as an advance in order to do all the stuff that a record label does. These businesses aren't that good of businesses, but—

David: It's an oligopoly.

Ben: It's an oligopoly.

David: Yeah. It's just like the old school VC industry when there were like five firms. Of course, they got great deals because there were five firms, and now it's way more competitive and founders get way better deals.

Ben: To underscore the power law, the status that last year, the earnings of the top 1% of artists in each music category accounted for 78% of revenue of all music sales.

David: It's power law.

Ben: It really is. It looks like 80/20 to me.

David: Yes. Before we get into grading, we want to thank the official grading sponsor of season 10, Softbank. SoftBank created the Latin America Fund with a simple thesis. The region was overflowing with innovative founders and great opportunities, but chronically short on one essential ingredient, which was capital.

David: As we were talking about.

Ben: As SoftBank LatAm Fund leader Shu and Paulo, who we've had on previous episodes, explain one of the big lessons learned along the way to investing $8 billion in over 70 companies. Technology in LatAM isn't really about disruption, it's about inclusion. That's because the vast majority of the population is so underserved in almost every category of consumption from banking to transportation to ecommerce. There are just so many businesses that are underserved by modern software solutions. This means there's so much to build for so many people, for so many businesses. There's just a ton of opportunity there.

The Softbank folks shared with us one portfolio company to highlight on this episode, and we'll pick a different one on every episode, which we're excited to do. This one is Pismo, a cloud-native all-in-one platform that helps banks and fintechs launch products for cards and payments like digital banking, digital wallets, marketplaces, and it allows them to take charge of their core data and use it intelligently.

The company was founded in 2016 by four experienced tech entrepreneurs, and Pismo's platform handles more than four billion API calls monthly making it one of the biggest financial cloud platforms in the world. This is just one example of how Softbank is partnering with great founders and the capital and expertise that they need to help build the future in Latin America now. We love these guys. We think they're super smart and we love what they're doing. To learn more, you can click the link in the show notes or go to latinamericafund.com.

David: Literally the best. Thank you, guys.

Ben: They really are. Okay, so grading.

David: It's kind of weird. We're like grading Taylor here.

Ben: Streaming did save the music industry, sort of. More money was made by the music industry in paid streaming subscriptions alone in 2020 than the entire industry made across all formats in 2015. Streaming is a gigantic revenue driver. But to be honest, none of the dollar figures in anything that we've talked about are actually that big. The music business is just small compared to the software businesses that we cover. Here is the way that I want to show that, David. Would TechCrunch even cover a $300 million exit?

David: No. If they would, nobody would read it. Right?

Ben: Right. Sure, there might be a TechCrunch article. It wouldn't be the biggest deal that day, certainly.

David: No.

Ben: There may be investment amounts into companies larger than that. Here, we hinge the whole thing on this gigantic exit of Taylor's music catalog for $300 million. It's just not that much money.

David: We had Sam, SBF, from FTX on who's younger than Taylor, awesome guy. A great episode. I love at the end when Mario asked him what he feels about our current age and we live in the age of social media. Nowhere is this more applicable than the current episode. He's the wealthiest person I think under 30 in the world because he works in technology and started a cryptocurrency firm.

Ben: He works in modestly regulated finance using technology.

David: Taylor, for everything we've just discussed over a long period of time, is worth half a billion dollars. That's a big disconnect it feels like relative to influence versus economics.

Ben: Celebrity does not equal economics. Just looking at some other deals, Bruce Springsteen's entire catalog just sold for $500 million. John Legend mid-career just sold his. There wasn't a number attached to that. Even Bob Dylan's entire catalog of more than 600 songs was around $300 million. Maybe the music royalties just aren't worth that much.

The entire industry of recorded music is only a $14 billion industry. That is less than 1/10 of the video game industry, which is $170 billion. Music just is not that big. If you look at the music industry as a whole, which includes tours, okay, it's a $40 billion industry.

David: Still not that big.

Ben: Which even that big number is about 1/10 of Apple's revenue.

David: Right.

Ben: All the money anyone makes on anything in music every year is about 10% of what Apple makes just in revenue on their products. My favorite way to tie this all off is the entire music industry's revenue—that's including all the concerts, touring, and everything—is about equivalent to Best Buy's revenue. If you want another comp, American Airlines.

David: Wow. Best Buy, actually, I feel like, has done a pretty good job as of late, staying alive and relevant, but yeah. Wow, that's such a good point.

Ben: Crazy.

David: I hear that and I feel like there's more opportunity for Taylor and other artists to do other things and make more money.

Ben: Or just got to find a better way to monetize music. It is such a meaningful part of all of our lives.

David: Maybe this is part of the motivation of Miss Americana, The Long Pond Studio Sessions, and the All Too Well short film. Taylor has tried. She's been in a bunch of movies as an actress, and that's not obviously going to be a big thing for her, but she can make her own movies, do her own deals with Netflix. Maybe that's a way to make a lot more money.

Ben: There's a thing to grade that's not like all of Taylor's career. It's probably worth doing grading Ithaca's purchase of Big Machine. There's another one that's grading Shamrock's purchase of Taylor's masters and then there's a third one, which is, what price would you pay for those masters today? Which I think is sort of a fun one. It's not quite grading, but Big Machine selling when they did was a great decision. Big Machine shareholders should be excited by that.

David: It was: a) the only decision, and b) selling while Taylor was still friendly.

Ben: Amazing.

David: Still amicable relationships with Taylor, yeah, absolutely right move.

Ben: By the way, just for fun, I did a calculation on if you own 3% of Big Machine like Scott Swift allegedly did at the time of the sale, you would have turned your $120,000 of initial investment into $9 million by selling to Scooter Braun, which represents a 75X.

David: Not bad, not bad.

Ben: Not bad. Was that a good decision for Ithaca? They made a pretty quick buck by flipping 80% of that $300 million also for a $300 million then to Shamrock.

David: They got their principal back quickly.

Ben: Yes, and more. They own whatever the value of the remaining 20% of the assets are. But now, if you're Shamrock, I don't think I would pay $300 million.

David: That feels like a pretty bad deal.

Ben: There has never been a more overvalued asset in the music industry than the masters for Taylor Swift's original albums at $300 million today. Not only is she actively devaluing them, but the whole industry is at a complete peak for what people are willing to pay for assets. Some people are even calling it a bubble in the music industry, just like they are in public equities or in startups. I think Shamrock and the Disney family are going to be left holding the bag on this investment that they'll never recoup, which is the great irony of Taylor Swift not recouping.

David: Right. Oh, boy. It certainly seems that way. Yeah, things could change, but how? Taylor is committed to this project now. Even if Taylor and Shamrock were to smooth things over and have good relationships because she's remaking them, she's going to want the new versions.

Ben: Maybe. There still may be some deal that can be cut where you're like, I want Scooter out entirely, sell me this thing or I'm going to make it worth $30 million to you, and she might be able to buy them for a bargain-basement price and stop doing this. That's what Ben Thompson thought before Red came out.

David: She's an artist. She creates and she enjoys it. It seems like she's enjoying doing this.

Ben: I think that's right.

David: It seems like a pretty bad deal for Shamrock.

Ben: All right, what do you want to grade? Taylor Swift's career, unprecedented, unbelievable, A+, like, my God, and the change that she's affecting along with it—amazing. It actually kind of reminds me of Elon Musk where people love to hate on Elon Musk because, oh my God, he's so rich and look at all this money he's making.

He's making all this positive change for the world, at least I believe that, and getting rich while doing it, which you probably should be if you're making the change on the level that he's making. Do I care that Taylor Swift is benefiting from all these deals while also advocating for artists? No, I think she should. I have no gripes with that. Shocking, the two people who host this Acquired podcast about technology and capitalism.

David: No gripes with somebody making money. Yeah.

Ben: Musically...

David: We have anti-gripes with it.

Ben: Productively, financially, and the way that she's affecting change, it's just an A+.

David: Yup, she's a genius. No other way around it.

Ben: All right, quick carve outs. I can't recommend strongly enough The Beatles documentary.

David: Oh, nice. I got to watch that.

Ben: By Peter Jackson, Get Back. It is like hanging out with ghosts is the best way I can describe it. The original footage, and it's clearly restored because it's a very high quality footage of John, Paul, George, and Ringo. You're spending eight hours, many hours cut across three parts. You're just hanging out with them while they are creating an album from nothing in a matter of a month.

It is, especially for those of us who grew up seeing pictures of The Beatles, listening to the Beatles music, and only ever seeing like a little video here or there and usually poor quality. I think for the first hour of it, I was just spending being in a state of shock that I was just hanging out in a room informally with the Beatles.

David: For mine, I've got a fun one that we've talked about much over on the LP show. Go check it out on the LP, the now newly public LP Feed for everyone, and we are both wearing right now, Italic. We did a little partnership with them for some Acquired gear for a recent guest, us, and our significant others. It's just such high quality stuff. I love it. It's great.

Ben: Yeah, totally agree. All right. Listeners, with that, if you're not in the Slack, you should be. Honestly, I've met so many awesome people there and it's really cool to learn from so many of you. If you like talking about the news of the day with an intelligent group of people who are into the stuff you're into, you should join at acquired.fm/slack.

I will take the episode off from telling you to become an LP this time to just say if you've always thought about it, but don't know what that sort of content is, that content is all public from the back catalog now. The new stuff is just available to LPs for a couple of weeks. So go look at the whole back catalog and we'll put a link in the show notes or just search Acquired LP Show in any podcast player.

David: Including Spotify.

Ben: We've got a job board. It's great. You should join that if you're looking for something new or feel free to submit jobs there. We only pick the ones that David and I think are interesting. If you want a view of what we think the interesting jobs are, go to acquired.fm/jobs. Then lastly, if you want to tweet about this, we would love that.

We actually would love it even more if you just share one-to-one with your friends because we think that strong connections are the best connections. You can find us right along Taylor Swift on Spotify and in all of your favorite podcast players.

David: Literally right next to Taylor Swift.

Ben: Immediately, next to Taylor is Acquired. With that, our thanks to Vanta, Vouch, and the SoftBank Latin America Fund. We will see you next time.

David: We'll see you next time.

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