Sony Hack Reveals Snapchat Wanted a Record Label, Too Much Money From Vevo

Michael Lynton, chairman and CEO of Sony Corporation of America and Sony Pictures Entertainment

The leak of Sony Entertainment's internal documents, most recently the email account of Sony Entertainment chairman and CEO Michael Lynton, has revealed high-level talks between that company and Snapchat, the messaging service that turned down billions from Facebook earlier this year. The emails reveal Snapchat’s diffuse interests in the music space, ranging from a record label to a content partner for companies like Vevo.

A series of emails between Lynton and Snapchat co-founder and CEO Evan Spiegel show Snapchat's desire to move into the music space, with Lynton discussing the company's plans with Sony Music's president of global digital business Dennis Kooker. In an email cited by TechCrunch, Kooker writes:

Michael, 

I was only able to see Evan for about 30 minutes yesterday but that was enough time for him to express his thoughts and leave us with some things to think about if there is going to a music play within Snapchat. He didn’t end up showing some of the developments in the platform that may benefit music but referenced them in the discussion.  First, he thinks every music service in the market is shit and he wants to be a curator.  He doesn’t want to build a music service but he would like to have a record label so he could focus on the artists that he wants to use the platform to promote.  He also wants to participate in the upside that he will create by promoting them on the platform.  He later backed off a bit from being a record label to maybe testing the concept first.  Obviously he doesn’t understand some of the important nuances around the business about what rights a record label does and does not have.

I appreciate the introduction.  I am going to go back to my team with some of these concepts and see if we can get creative in how we could get something to work here that is in the direction of Evan’s vision and get him more exposed to what we can bring to Snapchat.  We have a lot of ideas of our own but I don’t think Evan will engage in our ideas until we try to move something forward that he wants to accomplish.

Please let me know if you want to discuss further

Lynton responded with doubts about how feasible Snapchat's ambitions were, with Kooker agreeing. From there Sony set up meetings between Snapchat and Manny and Ike Adler, sons of Rock and Roll Hall of Fame inductee Lou Adler, who write that they have been "meeting weekly" with Snapchat.

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As well, Lynton personally introduced Spiegel to Epic Records president LA Reid, as well as outgoing Vevo president and CEO Rio Caraeff, who wrote Lynton to say that talks between Vevo and Snapchat were faltering over financial terms of a possible deal. "They want 40% of gross which is just not workable for us," Caraeff wrote. "We've proposed other % shares but they've all been rejected. Our latest attempt to structure a deal under one of these 3 proposals that we've floated below is where we're at. #1 is our preference, followed by #2. #3 is not anyones [sic] favorite outcome." Caraeff continues by writing that, with Snapchat's hardline negotiations as a guidepost, the company will have a hard time signing up major video content partners.

A forwarded message from "Jordan" at Vevo, from Caraeff to Lynton, lays out -- while mentioning the notoriously thin margins in which Vevo operates -- the three arrangements Vevo is willing to accept, in descending order of desirability:

We have 3 options as far as the rev share component is concerned based on Snapchat's position of getting 40% of gross revenue:

1. Snapchat agrees to a revenue share based on net: As I mentioned, the revenue share you suggested (based on gross) doesn't work for us for 2 reasons. First, you'd be far the worst economic deal we have in the marketplace and we have many sizable partners. Second,, [sic] we'd be losing money. As discussed, our margins are fairly challenged. I can't share with you our exact costs, but if you google the audio services that should give you good direction for where we sit.

2. Snapchat sells all the inventory at a wholesale CPM: Belive you mentioned that your effect CPM will likely $50-$100, which is much higher than elsewhere. It isn't our practice to have other parties sell on our behalf, but we could potentially make an exception here if you committed to a high enough sell out rate, a buy back CPM that maintains our pricing integrity and packaged us in a differentiated manner (i.e., run of video v. Vevo directly or run of music).

3. Marketing channel/no revenue share: The same user experience you've laid out, but instead of brand clips Vevo would have the ability to include promo clips (e.g., to see more Vevo content download the app) and if a user chose to pull down on a 10 second content clip they'd get a 30 second clip (as opposed to the full video).

The email exchanges from Lynton are the first to reveal nuanced dealings from Sony's music wing. With so much data having been stolen, and so little reported on, they are surely not the first.