A Newsletter about Big Ideas in Music and Technology, by Cherie Hu
This is issue #74, published on January 16, 2020
Happy Thursday and Happy National Fig Newton Day!

As I announced last week, this marks a special edition of Water & Music: a mutual takeover with Trapital!

For those hearing about Trapital for the first time: It's an excellent newsletter founded and published by Dan Runcie about hip-hop business and strategy, and is one of my favorite music-industry newsletters out there right now. I previously interviewed Dan on my podcast about the nexus of hip-hop and venture capital, so am super excited we're working together on this takeover.

How this works: Dan and I are publishing our takes in each other's newsletters about the concept of the "fantasy record label" — i.e. an experience similar to fantasy sports whereby fans assemble their own imaginary label rosters, then compete for prizes based on their artists' real-world performance.

Dan's piece on the matter is featured below in full; my take is on the Trapital website and newsletter, which you can read by clicking here.

Since Dan is taking over this edition of Water & Music, I've added only a brief section of my own work updates at the bottom of this newsletter, with other sections (e.g. reading and listening recs) reserved for a later issue. A normal edition, with all sections included, will arrive in your inbox next week.

Hope you enjoy both of our writeups on this topic — would love to hear what you think. Thanks for reading!!

- Cherie
Why "fantasy football for music" has struggled

(Click here to read this essay in a separate window.)

Hey! I’m Dan Runcie, founder of Trapital, where hip-hop gets the coverage it deserves. Each week I break down the partnerships, strategies, and business models that shape the culture. Hip-hop’s influence continues to grow, and I’m happy to be a go-to source for music execs, marketers, the tech community, and business leaders across the world.

I’m excited that Cherie and I are swapping newsletters today. I admire her work and think she’s one of the best minds in music journalism. She and I will record a Trapital Podcast on this fantasy record label topic, so make sure you subscribe wherever you get your podcasts!

When I first played fantasy games online, I entered a nerd corner of the internet. No one cared that my school's stock market club bet the house on Sony before PlayStation 2's launch. There were no friends to ask whether I should draft Priest Holmes or LaDainian Tomlinson. Folks acted like I was out here painting Dungeons & Dragons figurines.

But a lot has changed since the early 2000s. Fantasy football now has 60 million players and the NFL's vested interest. A lot has stayed the same too though. There have been countless attempts at "fantasy football for music," but they fell flat.

Today's technology makes it easier than ever to build a game where users draft artists and producers to imaginary rosters. But expectations need to be realistic. The dynamics that drove fantasy football's mass adoption are unique. Any company that enters this space with "Yahoo! Fantasy Football" expectations is bound to repeat the same mistakes.

Fantasy football is hard to replicate

The NFL season is perfectly designed for its widespread fantasy adoption. It's an event-based game structured around a compressed schedule and an engaged audience. Hardcore players can do extensive analysis and likely get rewarded for their effort. Casual players can spend a few minutes making sure their lineup is active and still have a fighter's chance to make the league playoffs. There's value at multiple levels of participation. Fantasy football team owners also have no direct impact on the real-life NFL games, which is ideal.

It's a stark contrast to the year-round, fragmented, and subjective music industry. Sure, most artists release music on Fridays and compete for Billboard chart placement, but it's not comparable to the "event" of an NFL Sunday. Music's biggest event — The Grammys — lacks the objectivity that fantasy games thrive on. And music's "objective" categories, like album sales, streaming, or ticket sales, are directly influenced by fans. The system would get manipulated more than it already is.

There's still room for fantasy games that don't share all of football's advantages. But any company that wants to build a lasting product for music needs to take these challenges into account.

Past attempts had too high of expectations

Every few years, a new company tries its hand at the fantasy record label idea. In 2002, the Interactive Music Exchange launched.

From Billboard:

"...a music-industry simulation game in which players will decide investments based on the market value of certain artists, songs or albums. The program evaluates the changing value of these entities based on such factors as record sales, radio airplay, chart positions, and concert grosses.

Viewers can choose to buy or sell their IMX stock and will win prizes depending on the value of their portfolios. The technology for the program is provided by Los Angeles-based interactive gaming company Hollywood Stock Exchange."

On paper, it was legit! IMX's monetization plan was to attract advertisers with the show and sell that data to music execs. The game even had an associated nightly TV show with a scrolling ticker. It had the CNBC setup and everything. But despite the strong technology integration and major press coverage, it didn't last long.

In 2009, MIT Sloan Management Review evaluated its limitations:

"Weaknesses: Crowd perceptions are only useful when they have enough data to form opinions and are motivated to share them. Paying real money to successful bettors is illegal in the United States. Participant dropout rate is high."

Each point is valid. Nightly cable shows are expensive and can't sustain limited viewership—regardless of how passionate the audience may be. IMX's data was too niche to drive meaningful consumer insights. The dropout rate for individual games like this is unsurprisingly high, especially when there's no money at stake.

Let's say I had bet all my fake IMX dollars on Papoose because the media convinced me that he was the next King of New York. The day I realized that Pap wasn't gonna take the crown is the same day I would stop playing that game.

Is that admirable? No. But at least it's honest.

In 2009 there was Sony's Fantasy Festival:

"You have €1,000,000 to spend on a 15 artist line up for your Fantasy Festival. Pick your all time favourite artists or pick artists you think are up and coming. If your line up ranks highest in *Buzz points you could win some pretty awesome prizes (more about the prizes here). Each week *Buzz points are determined by what artists are getting the most online buzz based on data from, Yahoo!, Twitter and more. The competition will run for six months starting 18th November and *Buzz points scores will start rolling in on the 25th of November."

Here's a clip:

Fantasy Festival gained early traction with 13,000 users who signed up on its second day. But unsurprisingly, it suffered from similar engagement challenges.

From India Times:

"The game closed in May, and garnered more than 50,000 users who registered their interest and spent an average of over three minutes on the site. Sony claims that 20 per cent of users have visited the site more than five times and there have been 622,039 total visits."

Three minutes on a site like Buzzfeed is great. But three minutes on a fantasy game site is horrible. Fantasy pages are known to be some of the stickiest websites of the internet. But churn continued to be a problem for these platforms.

In 2012, an internet show called THE MAJORS dropped a pilot episode. It branded itself as fantasy football meets hip-hop. The label heads got strategic advice from industry vets like Just Blaze and Peter Gunz. It was like Shark Tank meets The League meets MTV.

Here's a trailer:

The concept was fun. Label heads got negative points for things like "if their artists were caught wildin' on TMZ." There was a hilarious breakdown of the pros and cons of adding TMZ fixture Chris Brown to the fantasy label. But the show's numerous elements were confusing to follow. It might have found its rhythm after a few episodes, but it never got greenlit.

These three attempts—IMX, Fantasy Festival, and The MAJORS—didn't fail because of the product. The products were actually ahead of their time. They failed because of product-market fit.

Each concept had fantasy football expectations, which put pressure on its business model to do the impossible. Each game tried to monetize its standalone product through ads and data. The user base is far too small to solely rely on ads, and the data insights are too skewed toward power-users.

The limitation of a pure-play product

ESPN and Yahoo's fantasy football games succeed because of ad revenue, but also because of the data gathered. It drives insights for the other services that both media companies offer. It's similar to what I wrote about in Why Rihanna Partnered with Amazon:

At the 2016 Vox Media Code Conference, Bezos said “We get to monetize [Prime Video] in a very unusual way. When we win a Golden Globe, it helps us sell more shoes.”

I’m not sure who the hell bought shoes after watching Manchester by the Sea, but point taken.

This rationale syncs with the Savage x Fenty fashion show. The 51-minute doc won’t win any awards—no offense—but its goal is to increases customer lifetime value in two ways:
  • Attract and retain Prime customers
  • Sell more Fenty products (and if Amazon’s lucky, other products too)
The mentality here is similar. Each fantasy football league created drives value elsewhere in their multi-faceted businesses.

Fantasy football's massive success can also subsidize the less popular fantasy sports. That's why there are few standalone, pure-play fantasy products dedicated to a sole league or sport. The product teams at Yahoo and ESPN aren't cheap. Hosting multiple games helps spread the fixed cost of employee overhead.

How it would work in music

There's a place in 2020 for models like IMX and Fantasy Festival. Any serious approach should pursue one of two options:

1. Build a standalone niche product

The best way to monetize a small yet devoted customer base is to extract value directly from those customers. That can easily be a freemium product where users pay more for an enhanced version with additional features. Costs should be kept low to justify the model. There's a new company called Jazzdaq which brands itself as the "fantasy football of music." It's still in beta mode, but could potentially go this route.

2. Integrate with a larger platform

The obvious choice is Spotify and other DSPs. Spotify has been open about its desire to earn higher profits from podcasting and other business units that aren't tied to record labels. The company has gained traction, but it pales in comparison to how Tencent has monetized its interactive karaoke game.

Could Spotify turn a fantasy music game into its lucrative opportunity? It has the data and integration capabilities, but it's not without challenges. First, the labels may push back on its content being used to encourage gambling. In the late 2000s, Hollywood pushed back on HSX's attempt to turn its Hollywood Stock Exchange game into a legalized speculative market for movie releases, similar to commodities trading. The major labels could take similar action.

The other platforms to consider are the fantasy sport powerhouses themselves— ESPN and Yahoo. ESPN's First Take is already a second home for rappers. The type of person who would play a fantasy record label game probably has an ESPN or Yahoo fantasy account too. The likelihood may seem slim since ESPN doesn't cover music, but Yahoo, Bleacher Report, and many of its competitors already do through their social media accounts. Any company with a similar customer base to another company should be seen as a potential future competitor, even if they don't compete today.

There are several reasons why fantasy for record labels is difficult to pull off. But every time I see a viral meme like this, it's a reminder of the interest:

Any successful format would have its challenges. The roadblocks aren't going anywhere. But the opportunity can only repeat the same mistakes so many times (one can only hope). As some point, a successful product will be built to mitigate the challenges. Even if it only serves the "nerd corner" of music culture, there's still an opportunity.

Sidenote: If I'm drafting a team to win in 2020 from the above chart, gimme Drake, Travis Scott, Tyler The Creator, Childish Gambino, and Pusha T. Keep the extra dollar.

Hope you enjoyed this! If you want to read more Trapital, sign up for the newsletter here. Check out a few of Dan's most popular articles:
Cherie's updates
I (Cherie) was interviewed on KPCC's Take Two about the key trends that stand out to me from Coachella's 2020 lineup. Tl;dr — Asian representation, gender imbalance, holograms, the resurgence of R&B and the lack of bands.

For NPR Music, I spent a day combing through the year- and decade-end music-data reports from Nielsen and BuzzAngle, and parsed out what I thought were the most interesting patterns and trends. My goal was to look beyond the surface-level "1 trillion streams" headline being thrown around in the media, to understand what's really going on in the music industry today. A lot has changed over the past decade, but a lot has also stayed the same. (If you're pressed for time, I summarized the article in this Twitter thread.)

For Patreon members, I premiered a brand-new framework for understanding power in the music business, which I call The Music Business Rectangle. It's modeled after the Project Management Triangle, in which, out of three advantages for a given business project, you can choose only two and have to make a tradeoff on the third. In the case of my rectangle, I lay out four kinds of competitive advantages in the music business, and argue that most music companies only have three of them at most. The rare ones that do have all four will end up running the rest of the business.  🌊
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