“I think this is one of the most exciting times to be in the music business.”
That’s not a sentiment I hear very often, but it’s what Smule CEO Jeff Smith told me this week. You could, I suppose, classify this as typical startup bluster — After all, Smith and I were talking about the success that Smule has been seeing with social music apps like Sing! Karaoke. (He said the company saw $40 million in sales last year, compared to $21 million in 2013. It now has 350,000 paying subscribers from a monthly active user base of 21 million.)
But Smith also made a larger point about the music industry. While it’s easy to blame the record industry’s decline on piracy and the transition to digital, he suggested that there’s another culprit: “Really, I think the bigger issue for the music industry is that they never controlled their distribution to the customer.” Among other things, he said that meant the industry had to get its data secondhand, through retailers, and that, in turn, led to bad decision-making.
Smith is someone who’s particularly interested in data about how people engage with music — in fact, he wrote a dissertation at Stanford based on Smule data, examining how cultural differences might lead to different styles of musical performances. (And yes, he managed to get his Ph.D. while also running a startup.)
Smith contrasted the record industry’s approach with Apple, which he suggested was a company that’s used audience data to improve distribution, which in turn improves the data. And naturally, that’s what he’s trying to do at Smule as well.
To illustrate the scale of the activity that the company is tracking, Smith said users are performing 10 million songs per day and, as a result, uploading 1.5 terabytes of content. (That’s a map of Smule uploads over the past two years at the top of this post.) With all that activity, Smith suggested that his team has developed a sophisticated model for understanding how to keep listeners engaged, and how to convert them into paying subscribers. For example, he said that the songs that listeners choose to sing can offer a lot of hints about who they are.
“The joke we have internally — and this is a joke, it’s not a true yet — is that after a user selects the third song they want to sing or play … we should be able to tell their mother’s maiden name,” he said.
By the way, Smule has achieved this growth despite going two and a half years without launching a new app. It has, however, launched a website where people can watch performances uploaded from the various mobile apps, and it’s also improved its apps with new features like video.
Smith told me that he wants Smule to avoid the pitfalls of the many game developers that are always relying on the success of their next big hit — that’s why all of his business projections for growth and eventual profitability (starting in 2016) are based entirely on “updating existing apps and going deeper on our networks.” That said, he still plans to launch something new in 2015.
“We know we should ship more … we haven’t had the time,” he said.
The numbers are impressive, and it does indeed seem like Smule is well on its way to achieving Smith’s vision of “building a social network around music.” But Smith also suggested that the company’s success can benefit musicians. Yes, the company isn’t paying for the actual recordings (so it avoids their high costs of companies like Pandora and Spotify), but it does pay the standard royalty to composers. And it helps the performers on Smule, too, both in the general sense of helping them connect with their fans, and in the more concrete sense of giving the top performers a cut of the revenue.
Smith said he can’t get into the details of those deals , but he pointed to the Gregory Brothers as one success story, with the group creating lots of fun, collaborative performances with fans (28,400 people created duets with Evan Gregory’s cover of “All About That Bass” — here’s one of them). And they’ve used their success on Smule to drive more sales on iTunes.
“The business model for music is engagement, and that’s nothing to be afraid of,” Smith said.