Notorious Difficulties of Business .
"It's not about fitting in, it's about standing out."
So goes Ben Horowitz's theory of music and, judging by the tone of his (very) recent book, "The Hard Thing About Hard Things," his theory on much more than just music. The co-founder of Andreessen Horowitz, which has become one of the most successful venture capital firms in Silicon Valley since its founding in 2009 managing $2.5 billion in investments from Rap Genius to Twitter, Horowitz has been on a whirlwind promotional tour, from New York to Arizona to Austin, Texas in the span of a week.
Fresh off a chat with Nas (yes, Nas) given to the Austin Convention Center's largest room, we caught up with the fascinating, frank mogul while en route to one of many industry events he had planned for his time in Austin.
Billboard: The biggest question I have, is the problems in the music tech space, in terms of drawing investors or innovations.
Ben Horowitz: Oh yeah, very problematic. There's a couple problems. One is the history -- you know, venture capitalists put in a lot of money, the labels sue the company and the company goes away. That's pretty rough. And then the very tight, central control of the content makes it so the leverage is with the content owners, which makes it scary. Now, there are guys who have seemingly started to break through, and we have an investment in a company called Rap Genius that kind of starts with music and then expands beyond it, and by doing that it makes it much more investable.
You mean with their annotation technology?
Annotating everything. Because other areas are just easier to license, and music is notoriously difficult.
It's pretty hermetically sealed on a vast scale.
A vast scale, and in a way that's weirdly disconnected from the artists. If you talk to the Spotify guys, they're like, 'We're delivering a lot of money.' If you talk to the artists they're like 'We never get any money.' So either somebody's lying or somebody's getting all the money in between the artist and the company.
Is this why you or Andreessen Horowitz haven't invested in more music tech companies?
That's basically what keeps us away. Just uncertainty with the music labels, for sure.
Do you think Bitcoin could play a part in reinvigorating that space?
There's a real interesting technical possibility -- well there's a few: One is just more ability for an artist to go direct. A very difficult problem for an artist selling directly is taking credit cards. The biggest kind of fee is going to end up being the credit card and the largest number of people being turned away is going to be due to fraud risk. Bitcoin gets around those. And particularly internationally it has some interesting properties there. But more interestingly, Bitcoin is a way to transfer, not copy, but transfer, a piece of digital property from one owner to another. And that's never been possible. So all the [past] DRM solutions, the issue was you could copy them but nobody ever knew where the copy came from . But at least it's theoretically possible now to basically have serial numbers by track, and you would know who the owner of the track was. And if somebody who had it wasn't the owner, they clearly would have stolen it. And that's never been possible to detect in any meaningful way.
How do you think traditional music executive have handled the 'hard things' in the last 15 years?
I wrote a post called 'Why We Prefer Founding CEOs' and that's, I think, a huge problem with the music industry, is that the guys who started the businesses either sold out or died. And the new guys left. So when technology changed the new guys were like way, way, way reluctant to innovate against it. It's really ironic in music because the whole industry was started with the invention of the vinyl record, and the length of songs changed when they improved the vinyl record technology and the whole business was re-birthed on the CD. So for them to get caught with their pants completely down around their ankles on the next technological shift -- it's kind of ironically tragic. And there were obviously many opportunities to handle it better than they did.
There was a moment, right before the labels decided they wanted to shut Napster down, where they were negotiating with Napster. And if you could rewind history and say 'Ok, what if they had done that deal?' It would have been very, very interesting in that everybody was on Napster. So it was the most convenient thing. The big thing that the labels did is that they tried to make all the convenient ways of getting music illegal, and the most inconvenient ways -- like crack a CD open and pull it out and all that -- legal. So it was more than just free or not-free, it was a product problem. And I think the product problem was way underestimated, bigger than the free or not-free thing. So if they had just made Napster for money, it probably would have been a 90-10 to the labels and not a 70-30 [Apple's iTunes store takes 30% off the top of most sales]. It would have just been a better outcome for sure than what they ended up doing. And in talking to the Napster people, it sure sounded like it broke down at least partially over Napster wanting to track what every artist had sold and report it, and the labels did not want them to do that.
It shocked the shit out of me when I heard it.
That's a large part of what we do at Billboard.
So the question is, right -- and you guys have to do it the hard way -- but there it was, perfect record of every sale.
And you would think the companies would want that anyways.
Unless they're stealing the money...
You think that's true?
The more I talk to people in the music industry, the more that seems like it's potentially, viably true. But I don't know if that's true.
What's an upcoming, music-focused tech company or innovation you're interested in?
This isn't necessarily one that would be a venture-backed thing, but Ryan Leslie has a kind of new theory on how to do music distribution. I was very impressed with his thinking. He's an artist, a very well-respected musician and rapper, but hasn't necessarily had a giant mega-platinum career, but he has a very good idea for a company.
Which is... like Soundcloud?
Not like Soundcloud, it's much more like, 'How does an individual artist make money in today's world?' So it's kind of rethinking what a label would be if you invented it tomorrow.
And that's on the immediate horizon?
Yes he's working on it now.
Now an easy question: What's been your favorite rap record over the last couple years? It's been an interesting time in rap.
The last couple of years? I'd have to say "Yeezus," if I"m being honest. I could make something up, but that was my actual favorite.