Tom Silverman on 90-degree deals, breaking the US and a $100bn music business

March 4, 2015 10:36 am

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Tom Silverman

Interview by Eamonn Forde, reports editor at Music Ally and freelance music business writer.

 Tom Silverman entered the music business in the disco era, setting up Dance Music Report magazine for DJs that grew to 3,000 recipients in North America. Drawing on his burgeoning network and sensing a tumultuous change in music, he set up Tommy Boy Records in 1981. His first signing was Afrika Bambaataa.

Bambaataa’s second single for Tommy Boy was the towering ‘Planet Rock’ in 1982 – released on 12-inch and swiftly selling 600,000 copies at around $4 each, exploding not just his career but also that of Silverman and his label.

The nascent rap and hip-hop scene was driven by independent labels such as Tommy Boy, Sugarhill Records and Enjoy Records, with the majors (initially) disinterested, meaning the indies could dominate. Just as the larger labels were ignorant of hip-hop, so too was radio. “There was no radio format that played this music,” recalls Silverman. “I would take records with rapping on it to radio stations and they said they couldn’t play it because there were people talking on the record – not even signing.”

Overheads were comparatively low: ‘Planet Rock’ cost $800 to make and even by 1989, it cost just $28,000 to make De La Soul’s million-selling Three Feet High & Rising album. That level of success and profitability saw the majors wake up. In 1986, Silverman sold half of Tommy Boy to Warner Music, taking on an executive role there.

Tom also had a keen eye on the future, co-founding the New Music Seminar that ran from 1980 to 1994. He re-launched the New Music Seminar in 2009 to address the question of what would replace the old record business and how artists and their investors would expose and monetise their music in the new era.

Silverman took Tommy Boy independent again in 2002 and was a founding board member of A2IM and Merlin. We speak to him about what indie labels need to know today, how Nordic acts can break the US and why he truly believes music can be a $100bn business.

What advice would you give anyone setting up an independent label today?

 Just about everyone who has been successful in the independent business started with nothing; I mean no money, no relationships, no expertise, no experience. They were naïve people, usually in their 20s, who loved music and wanted to start a label. Other people have come with millions of dollars and not been successful. Being successful as a label has nothing to do with the amount of money you have, the expertise you have, your relationships or your knowledge of the business – nothing. Only a passion for the music and vision is required.

If you are right in your belief that your music needs a voice but doesn’t have a voice in the business today, you have a great shot.

If you are out there trying to make records that sound exactly like the records the majors are making – top 40 records or the big hit records on radio – I would say you don’t have that much of a shot because the competition is enormous and the costs are enormous.

Speaking to people who want to start a new label, I cannot impress on them enough that if they are concerned about money, power, relationships, whatever – they are making a big mistake. Doing stuff that no one else is doing and standing for something is much more important. Identify a niche and context for your music and you can be successful.

You were in the major system for a long time at Warner Music – through the glory days of the CD and the disruption of Napster and then iTunes. Did anyone see all that coming?

At the time, Warner was the #1 label in the world. I would hear the discussion in the SVPs’ meetings that would happen every week about marketing and promotion. Later on I stopped going to those meetings and, although they still owned half of my company, our relationship changed a little bit.

At the time Napster happened, I wasn’t really inside at Warner. I was still running the New Music Seminar for the first six years of my time at Warner so I had a broad view of what was happening and all the changes that were going on. I was sitting on the board of AFIM [Association For Independent Music] – the independent label association that preceded A2IM. I could see what these various indies were doing at the time and I could see what the majors were doing. You could see that something was changing.

Like any other industry, our industry was trying to figure out a way to stabilise the past and the way the business was. They weren’t looking to identify new opportunities in the future. The big watchword was cannibalism. Would this cannibalise the old business? Would CDs cannibalise LPs? Would downloads cannibalise CDs? And would streams cannibalise downloads?

The cannibalisation mentality comes from the perspective of the past. Always. How to protect what was – rather than how to celebrate what is or plant seeds for what is next. When you talk about cannibalisation, you are ripe for disruption as you are looking behind you. You are driving in the rear view mirror. You have to look forward otherwise Napster, YouTube, Pandora, SiriusXM and Spotify will look ahead for you. These are companies who have found a way to monetise the attention around our artists better than we have.

Amid falling sales and the new economy of streaming, is the old record business sustainable? And if not, how does it need to change?

The music business does not generate enough bottom line revenue to substantiate signing as many artists as it does – let alone more artists. It would be great if we could sign more artists, but the traditional models don’t allow that to happen.

At Tommy Boy we are looking at non-traditional models and new ways of viewing the business. It is too early to see results as we are just introducing these models and it takes three-to-five years before new models start to bear fruit. The majors have experimented with the 360 deal. It costs them so much to do what they do and they can only reduce their overheads by so much so they need to increase their upside on those rare hits.

The second model is the joint venture deal where the label is more of a VC and they invest in the artist as opposed to investing in an artist’s record. It is similar to a 360 deal, but it is a revenue share as opposed to a traditional record deal, with 10% or 20% of gross touring and merchandise revenues added on top. You look at each artist as a business you are investing in. If that artist does well, the investor/label gets revenue from all the places the artist gets business from – be it a book or a TV show.

I had signed Queen Latifah back in the day and she is a TV and movie star now and doesn’t sell many records – but it was her recording career that made it possible for her to be a TV star. There are plenty of other artists like that – such as Will Smith. If I had been in the overall Queen Latifah business, I’d be doing substantially better than I am doing now and I could afford to lose money on records with her. I could see that the Queen Latifah business could be so lucrative that it doesn’t matter if we lose money on the record side of it. Records were a loss-leader that built her brand.

That made me start thinking about developing what I call a holistic joint venture. We are not latching this to a 50-page contract that has its origins in the 1960s the way 360 deals are structured. It’s a whole new deal that is much more similar to a VC investment model or a partnership agreement. The problem with that is that it actually increases your costs and it costs you more to carry that kind of artist. You have to invest more and it takes more staff. You are in bed with the artist in every way. These deals take up so much bandwidth that you can’t do that many of them. Only so many artists break.

 The other model is what we call the artist freedom deal and that is what we are focusing on now. We do short-term deals that are 90-degree deals. We don’t take any of the other areas and the artist can get out of the deal at the end of any year. We don’t pay advances but we take a 50/50 split on revenues. We give the artist triple the amount they would make in a normal deal plus they get to own their masters. And we pay them on a monthly basis. Because they pay for their own recordings, they have a very low recoupable balance and this allows us to take more shots and give more artists an opportunity to get their music exposed – and to possibly break.

That’s our newest model and we have only been working on it for 18 months. It is singles-oriented and we ask the artists to deliver four masters a year with an option for an album. They can get out of the deal at the end of any year. It is a very trust-oriented deal and doesn’t tie the artist up for very long. If they leave at the end of a year and go somewhere else then we get a small percentage of that deal as an incubator fee for building them up to the point where they could get that deal. The artists don’t look at us as separate from them. We are part of their team and they are part of our team. It is a much different culture that makes a traditional deal look like an indentured servitude model.

Outline your vision of the $100bn music business

I believe that it is absolutely possible for there to be 1bn music subscribers in the world – possibly even more than that. There are probably 4bn unique mobile phone subscribers globally. Theoretically each one of those could come with a music subscription that would include music streaming to that device. The price would vary based on what country they are in but there is no reason why every music-capable phone – smartphones or feature phones – can’t stream music on some basis.

I do believe that, over a period of 20 or 30 years, we can get to 150m or 200m music subscribers in the US. We can probably get another 600m or 700m people around the world. It will vary from $15 a month in wealthy Scandinavian countries to 50 cents in Africa. It will be proportional to what they are paying for their mobile service and it will be proportional to the cost of living.

I don’t believe the IFPI, the RIAA and the three major labels are doing enough to meet with and talk to the top 50 mobile service providers globally and convince them to include music on some basis that works. It can’t just be Spotify, Deezer, Rhapsody and Napster going out to all of these guys and trying to lobby them. We need artists to help. We need managers to help. We need the entire music industry to mobilise behind this as a cause.

Music subscription is still a very niche thing and it has to be a mainstream thing for it to work. We need scale and we need it to be an all-out priority for the entire music industry –artists, managers, labels, everybody. This is our future and if we don’t embrace it and get the carriers to include it, we are going to have a very big problem.

For European music markets that don’t have a strong presence there already, what do they need to do to break into the US?

When I get asked that question, I always point to Sweden as the golden example. If you get great producers and songwriters, they will work with American artists and have hits. Once they start having hits then that opens the doors for domestic artists to break into the US.

For example, for music that is Norwegian-centric, you go to the places that have people of Norwegian descent, like Wisconsin and Minnesota, and try to establish a core base there to expand from. We need Norwegian Max Martins. If you have one, there will be five more within 10 years. You have to look at Sweden’s history and it really goes back to ABBA. That was all about production and songwriting. Any country can follow that, but it’s a 40-year process of building an infrastructure of world-class producers working with world-class artists to infiltrate foreign markets. The approach most countries have taken is artist-centric but the reality is that the real change happens when local producers are developed that work with international artists

What is the toughest lesson you have learned in the music business?

Don’t get attached to things. Stay detached from ideas, from artists and even from your own beliefs. It is hard as we all get addicted to our own beliefs and it limits us from seeing opportunities that are right in front of our eyes. Albert Einstein said, “Problems cannot be solved by the same level of thinking that created them.”  The problem we have in the music business is that the people who are charged with solving these problems are the people who created them.

Anyone who has made a billion dollars disrupting a business has been able to see a new reality before the people stuck in the old reality can see it – and by the time they do it’s too late. Before you are successful, your entire business model and what you think about is in the future because you are not successful yet. Once you are successful you spend most of your time trying to protect the past.