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Since I sat down with Epidemic Sound CEO Oscar Hoglund, I've thought a lot about why their business model works. They offer simple licensing solutions to buyers through a monthly subscription. Epidemic owns all the music in the library, yet pays each of its music creators in multiple ways:
- Upfront payouts up to $8,000 per track
- 50-50 revenue share on streaming platforms
- Performance bonuses for popular tracks
- Equity participation opportunities for their most prolific creators
As Oscar told me on the show, the company will likely add more pillars in the future.
The now-profitable Epidemic Sound has an 84% gross margin. The gap between its high gross margin and 8% EBITDA is largely due to headcount and marketing, which tracks with most growth-stage SaaS companies.
On the surface, there are some similarities to the 20th-century record label deal. Both owned all the IP paid an upfront sum for it, and often earned a 70% to 90% margin from their ability to exploit the asset to various customers over time.
But the comparisons stop there. The main problem that Epidemic Sound solves is clearance. Brands and creators will pay for top-notch, multi-territory, bulletproof clearances. For the small to mid-size creators that make an average of $60,000 to $80,000 on Epidemic, it's not the best use of time and resources to do this independently. Plus, Epidemic does offer exposure benefits for creators to reach the 650,000 paid users who license the product.
The product is a great fit for today's version of the internet, where we watch billions of videos on our devices daily, and more of those videos need the right soundtrack to take them to the next level.
Is there a future, though, where the same trends in talent gaining more leverage and ownership will eventually shift to the small-to-mid-level creators? Will future platforms offer them clearance-type benefits without giving up their IP?
While it's hard to imagine that world today, this is the natural evolution of IP ownership in today's fragmented landscape! There are plenty of major label artists who aren't household names, yet have the leverage to maintain master's ownership while licensing their music out to the labels. It's not just Taylor Swift who has that type of leverage. Epidemic Sound is likely a better fit to handle the evolution than your 1990s record label would, though. The desire to add additional payouts, plus the potential to create a true moat around its product for both creators and customers, provides its edge.
In today’s talent-friendly environment, talent-company partnerships work best when the value added exceeds what the creator can do elsewhere. The moment that a company treats it like a zero-sum game, the company often gets the short end of the stick.
Listen here: Spotify | Apple Podcasts | Overcast
Chartmetric Stat of the Week - Festival Season
If you had to guess how many music festivals worldwide there are between today and the end of May, how many would you guess? Well, Chartmetric has tracked 166 festivals between May 13 and 31. 166! Most of these are not Lollapalooza size with A-list headliners, but still, a festival is a festival.
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