Digital Payments

Musicians Pick Up The Tempo On Adopting Digital Payments

How Stem Helps Musicians Handle Royalty ‘Splits’

The conventional wisdom may hold that creative types — musicians among them — are not the savviest of business mavens.

Anecdotes abound, of course, in the popular music industry of artists who had huge hits — and rarely saw much cash flow, as royalties were siphoned off by others, or simply never made it into the right accounts. Or accountants did not do much accounting.

Online platforms have done much to transform payments — especially in terms of transparency, speed and distribution — across any number of verticals from ride-hailing to food delivery.

One company, Stem, seeks to leverage the platform model to help independent musicians and the host of people who may be behind a recording (the composers, the producers and others) get paid through what’s known in the industry as the “splits” — what they’re owed when its owed as music is uploaded to streaming services such as Spotify.

In an interview with PYMNTS, Milana Rabkin Lewis, CEO, said that automating the splits of the royalties is but one component of the model, which also offers financing that helps musicians complete their projects and get on the road without giving up control of master recordings in order to tap into much-needed capital (a common practice with labels).

Stem’s target client base, said Rabkin Lewis, consists of “not just the artists, but also their management teams, the labels that work with and all the various collaborators, songwriters, producers … all of them are part of a population of creators that we see as being underserved by financial tools and technologies.”

She noted that during her previous stints with a talent agency, she observed that even the smallest of small business owners had access to online tools — through Square, Shopify and others — to build their businesses and manage their fund flows.

No such offerings existed for artists — through use of an intuitive platform and dashboard — to understand how much money they were making.

“And in a world where I could use Venmo personally to send money to anyone, there was no easy way for an artist to pay out their co-creators,” Rabkin Lewis said. “And it wasn't that the technology wasn't there, it's just that the technology wasn't built to suit their unique needs.”

To solve the payments problem in the music industry, she said, it’s imperative to solve the receivables problem — an ambitious undertaking in a space where the population is made up of a network, basically, of freelance workers.

After all, the term “gig” economy comes from the music industry. And compensation can be related to back-end participation, or representing a party while garnering a direct commission from that artist’s earnings.

Memorializing the Splits

No piece of music is done in a vacuum, and there are layers of copyrights involved, tied to the master recording and the publishing. Many times, the splits are done in conversation in the studio, divvying who owns what — and how much of a piece of it (the recording, the rights) they own.

Rabkin Lewis stated that Stem focuses primarily on the master side of the recording — which she noted is where the bulk of revenue in the industry is (it is the master that is commonly uploaded to the streaming service).

Memorializing the splits early in the process, said Rabkin Lewis, eliminates the process of remembering those conversations that take place during the creative process.

“That's a behavioral problem,” noted Rabkin Lewis. “So how do we build a product that encourages artists to capture the splits early on?"

She said that the “draft mode” of Stem’s platform allows for songs, as they are completed, to be uploaded into a dashboard that also delineates the collaborators and their splits (across currencies and international markets, too; Stem’s payments take into account foreign exchange or FX rates).

Another challenge is how to get music onto the services — in a bid to monetize those creations across Apple Music and other services. Before the days of digital streaming, noted Rabkin Lewis, the only way to get music to audiences was through record labels or other distributers with retail presence.

The labels would have to invest in physical production, manufacturing and distribution. That’s, of course, not the case today. Stem provides access to the digital supply chain, shoring up distribution, and can help artists gain visibility — and, even if they are independent artists, have infrastructure and a team at their disposal.

As to the capital that is needed — upfront — to help grow a musician’s brand and business, Rabkin Lewis contended that most traditional financial institutions (FIs) don’t really understand the needs of artists and are hesitant to extend loans. The options are limited, as musicians give up revenue — or even control of a master — to get an advance (which must then be paid down).

“Because artists were already making money within Stem, we understood their music as assets,” said Rabkin Lewis. “And we felt that we could create an offering to give them access to more capital.”

Stem offers Scale, a cash advance tool that is backed by CoVenture, and which through a $100 million artist advance fund lets borrowers pay back loans over time (the charge for the loan is a flat percentage fee, and Stem underwrites the loans). Rabkin Lewis noted that artists get to keep ownership of their masters.

“The quicker you're able to pay back the money, the lower the fee,” explained Rabkin Lewis, who added that the musicians control the sizes of the advances — and how much of their royalty income can be allocated to (automatically) pay down the loan over time.

The company said last month that it raised $10 million in an investment round led by Slow Ventures. The funds will be earmarked for product development, Rabkin Lewis told PYMNTS.

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NEW PYMNTS DATA: HOW WE SHOP – SEPTEMBER 2020 

The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.

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