Pando

With the help of Ben Horowitz, rapper Ryan Leslie wants to reinvent the record label for the new music economy

By David Holmes , written on November 20, 2014

From The News Desk

I arrived a few minutes early to Open Kitchen, a cafeteria-style hangout in New York's Financial District, to meet Ryan Leslie. Leslie is a Grammy-nominated R&B/hip-hop producer and performer who's collaborated with Beyonce, Britney Spears, and Kanye West, to name a few. In fact, West once said that, along with himself, Leslie was among the only celebrities qualified to serve as a creative director for a tech company. (Kanye likening somebody else to Kanye is the highest praise the noted egomaniac could possibly give).

Unable to connect to the Wi-Fi, I decided to pass the time by texting Leslie to let him know that I was here, and that I had grabbed a seat near the back. The text I got back nine minutes later was a little strange:

Yooooo - just got your text - what's your email?
Considering I'd been emailing with Leslie back and forth in advance of our meeting, including just an hour before I sent the text, the email query didn't make a whole lot of sense. But I figured, maybe he's mobile and doesn't have my email on his phone. So I responded and, ten minutes later, received this:
Got you - thank you - would be an honor to have you as an active #Renegade - click here to activate:  let me know what you think: http://cfl.la/zBQkOR
As you might have guessed, Leslie didn't really need my email address. He wanted to show me one of many technological gambits he uses to accomplish what every performing artist, from Taylor Swift to the Thursday night house-band at a local dive bar, needs to do in 2014 to survive: Talk directly to fans. That link led to a landing page to purchase a "Renegades Club Membership" which can be redeemed for a digital copy of Leslie's latest album, last year's "Black Mozart." It was Leslie's fourth record, but the first to be produced and released entirely through his own distribution channel, selling directly to fans and bypassing iTunes and other major online stores and streaming services.

And the monetary windfall from that decision was, quite frankly, staggering.

Check this out: Leslie's first album released on Motown in 2008 sold 180,000 copies, but the royalties Leslie received from those sales did not cover the $100,000 advance he received to produce it. His new self-distributed album, however, has only sold 12,000 copies -- less than one-tenth the sales of his Motown debut -- and yet Leslie has received around $160,000 in revenue off album sales alone. When merchandise sales and concert tickets purchased through his site are taken into account, Leslie has made over $400,000 since going independent.

This is hardly the first success story of an established artist shedding ties to major distributors and seeing a massive financial boon. Amanda Palmer is perhaps the most famous example in the music space, raising over a million dollars on Kickstarter directly from fans. And Louis CK made headlines after he earned $1 million in 12 days from direct-to-consumer sales of his stand-up special "Live at the Beacon," plus another $4.5 million in ticket sales.

But no one has yet proved a consistently repeatable model for direct-to-consumer sales. More importantly, these success stories are usually limited to artists who have already built sizable audiences through traditional channels.

But Leslie wants to change all that. And with the help of supporters like superstar investor Ben Horowitz, his plan might just be crazy enough to work. [Disclosure: Ben Horowitz' partner in Andreessen Horowitz, Marc Andreessen, is an investor in Pando]

"I ended up on my dad's couch"

Leslie, who graduated from Harvard at the age of 19, first got a taste of major label success in 2003 when, as an intern in New York City for producer Younglord, he produced a track called "Keep Giving Your Love To Me," which Beyonce later performed for the "Bad Boys 2" soundtrack. That caught the attention of Sean "Puff Daddy" Combs who became his manager and gave him the opportunity to produce songs on a number of tracks on Combs' Bad Boy Records imprint.

Although Leslie spent years working with majors, and calls his deals with Universal's Motown subsidiary "my way out of homelessness," he always showed an entrepreneurial talent for working the web to his advantage. For example, in 2006, he wrote a song called "Me & U" and recorded it with vocalist Cassie, whom he later dated. The song peaked at #3 on the US Billboard's Hot 100 charts, and its success was due in part to a back-linking scheme Leslie implemented that took advantage of Google's search algorithm.

"If you searched 'music video' on Google, Cassie's Myspace page would be listed first," he said.

It may not have been ethical, and today wouldn't be advisable considering Google's penchant for punishing websites that game its algorithm. But that sense of creative hustle, often so necessary to make it in the music industry, would be something Leslie would draw on over and over again, particularly after he began his solo career and the money from the majors began to dry up.

"I got an advance for four or five records, my advance ran out, and I ended up on my dad’s couch," he said.

And Leslie wasn't alone. "The names I'll tell you from Bad Boy around that time -- Loon, Cheri Dennis, B5, records I produced on -- those people are no longer on the label."

He also suffered a major setback in 2010 when he lost a laptop in Cologne, Germany that contained tracks he was reportedly working on for the Jay-Z and Kanye West collaboration "Watch the Throne." In a YouTube clip, Leslie offered a million dollar reward for the return of the laptop. The computer was eventually recovered by an auto repair shop owner, but because the session files for the tracks were not accessible Leslie refused to pay. The shop owner took Leslie to court and won, forcing the producer to cough up the cash.

Leslie was without a label and at a career crossroads. But while so many artists have bemoaned the Internet for dashing their chances at making a buck in the music industry, Internet and mobile technology would be crucial to Leslie's comeback story.

"When Ben Horowitz offers to give you money, you take it."

Musicians often have some pretty odd obsessions. But few are as odd as Ryan Leslie's preternatural fixation on organizing his phone book.

"When I hire an intern," Leslie says, "I ask them, 'How organized are your contacts?' They usually say, 'Oh pretty organized, I got them all in the iPhone here.' Then I ask, 'Okay -- How many of them are photographers?'"

The interns never know the answer, but Leslie does. For years, he's taken pains to keep his contact list as detailed as possible. If he ever needs a graphic designer or videographer or a programmer, he can cross-reference his contacts and find out if someone fits the bill.

That's a harrowing yet manageable task when it comes to his friends, family, and colleagues. But what about his fans? Leslie wanted a way to instantly sort the names of anybody who bought an album, a hoodie, or a concert ticket by city and the amount of money they spent. He also wanted an automated yet human-driven way to reach out to fans by email or text, like the way he did prior to our meeting.

Leslie went looking for a solution, and the closest thing he could find was the customer relationship management software Salesforce. But the functionality -- and price point -- of that product was better suited to large companies, not Leslie's comparatively small artist operation. Moreover, the biggest online stores like iTunes and Amazon don't make much consumer data available to artists. That meant Leslie would have to do two things -- find someone to build a brand new app, and take the distribution of his records into his own hands.

In that way, Leslie's decision to bypass iTunes and sell "Black Mozart" directly to consumers was as much as financial play as it was a data play. Meanwhile, he hired a German developer, 20-year old Florian Erlemann who is now Leslie's CTO,* to build the app. For the communication portion of the software, which was built using Twilio's API, it was crucial that the automated messages didn't feel robotic. For example, the texts I received from Leslie that morning did not come through immediately but were delayed by five to ten minutes, creating the illusion that they were sent by a human. Furthermore, the use of phrases like "Got you" and "Yooooo" are crafted with Leslie's voice in mind.

As for the customer management side of the technology, Leslie showed me screenshots that reveal far more sophisticated insights than the ones offered even by companies that do provide consumer data to musicians, like Spotify and Pandora. For example, artists can sort fans by how much money they've spent:

Screen Shot 2014-11-20 at 5.10.09 PM

The names and numbers in the above screenshot are invented for the purpose of Leslie's slidedeck, so as to protect the anonymity of his fans, but the real app shows real names. And the screenshot below represents real numbers as of a few weeks prior to today:

Screen Shot 2014-11-20 at 5.15.06 PM

Musicians can also view fans on a map, organized by the amount of money spent in each region:

Screen Shot 2014-11-20 at 5.15.44 PM

These insights are extraordinarily powerful. Leslie can identify fans who have spent the most -- these are usually people who buy event tickets in bulk for clients -- then, depending on how much information that user has provided, he can call, text, or email them through either automated or non-automated means.

"I'm not sure that what I do is legal," Leslie laughs.

Legal or not, it attracted the attention of Walker & Company's Tristan Walker, who introduced Leslie to Ben Horowitz. Talks are still in the early going, but Horowitz offered to lead a small round to help turn Leslie's software into a proprietary product. Right now, the app is only used by a small group of Leslie's associates, including Talib Kweli, the rapper best known for his 2003 hit "Get By." Leslie, content to use the technology for his own career and those of his friends, was admittedly surprised when Horowitz offered to help him raise money.

"But when Ben Horowitz offers to give you money, you take it."

The first direct-to-consumer record label

The future of Leslie's entrepreneurial ambitions are still taking shape, but one of the goals of his company Disruptive Multimedia is to start what he calls "the first direct-to-consumer record label."

Powered by the technology Leslie already uses, and funded by a sub-$1 million Seed round Leslie is looking to raise, the record label would provide artists with small marketing advances that, while paling in comparison to the big advances Leslie used to receive, are designed to be enough to fund profitable direct-to-consumer sales campaigns. The label would take a 20 percent cut from artist revenues, which is smaller than the 30 percent cut Apple takes on iTunes, not to mention all the percentages and expenses record labels take out from an artist's royalty earnings. And again, Leslie's label would offer artists the valuable analytic and communication tools of its software.

As for the distribution model artists would use instead of iTunes, Leslie is excited about the potential of Gumroad, which only keeps 5 percent of every purchase plus $0.25 per transaction. In fact, just today, Leslie used Gumroad, along with its new integration of Twitter's "Buy Now" button, to sell VIP tickets to a New Year's Eve release show in a Vienna castle for his upcoming album, "MZRT." Leslie made a number of packages available to purchase, including ten limited edition scarves designed by one of his fans that grant VIP access to the event. The scarves cost $400 and sold out in less than an hour, Leslie's team tells me.

Screen Shot 2014-11-20 at 12.11.26 PM

With so many artists struggling to achieve popularity in the new music economy, and even well-known artists struggling for a decent pay day, success stories like Leslie's seem more like anomalies than a new model. The electronic star Tycho, for example, was able to build a profitable career, but only after spending a decade honing his skills as a developer, graphic designer, technician, businessperson, and, of course, a musician.

But while becoming a jack-of-all-trades can certainly help a person make it in this industry, it shouldn't be a requirement. And yet with less money than ever to go around, more mouths to feed thanks to platforms like Spotify and Pandora, and record labels offering less to artists than ever before, the only other option is to completely rethink the economics of this industry and the role labels should play.

That's what Leslie is trying to do: Build a label that offers technological and marketing solutions, while letting artists and cheap platforms like Gumroad do the rest. And as the rare "celebrity entrepreneur" who's as ambitious about business as he is about music, Leslie may just pull it off.

[illustration by Brad Jonas]

  • [An earlier version of this post said Erlemann was from Bulgaria. He is German, but built the software in Bulgaria]