Q&AA: Steve Stoute on The Record Label of the Future (He's Starting It)

When Steve Stoute left the music industry to create independent advertising agency Translation in 2004, he says he was determined to take what he learned from the record business and bring it to the ad world. Now, the entrepreneur is squaring the circle with his new venture, UnitedMasters. The company, which has received $70 million in funding from investors including Google parent company Alphabet, Andreessen Horowitz and 21st Century Fox, will sign and distribute artists, help them nurture and monetize a fan base and then identify brands for them to work with. Ad Age sat down with Stoute to find out more about UnitedMasters and what it means for both the advertising and music industries. Our conversation has been edited. If Translation is an agency about translating culture for brands, what does the UnitedMasters name mean? Charlie Chaplin created United Artists [with Douglas Fairbanks, D.W. Griffith and Mary Pickford] to bring artists together to go against that studio system. At that time, because the studios owned the theaters, if you were in a Paramount movie, you only played in Paramount theaters and you were signed to a long-term contract. Those things had to change, so they created United Artists as a vehicle for change. UnitedMasters is an iteration of that. It's about artists coming together to change the system. Our purpose is to operationalize independence and give advertisers a much clearer opportunity to work with artists. Is this a revolt against the major labels? Or are they doomed? I don't think it's fair that anybody should kill this idea while it's still in the cradle, nor do I think you should assume the incumbent is dead. There's a lot of room between the two places. What do people get wrong in the music industry? The legacy labels have been late to building out digital technology to help the artists. I think others have done it, like MTV, the iPod, Napster, Garage Band, Spotify, Apple. Others have built digital technology to amplify the business, but not legacy labels. So, enter UnitedMasters? The idea in its origin came to me maybe 14 or 15 years ago. When I was at Interscope Records, [producer] Jimmy Iovine and I would marvel at the fact that we never knew who our customer was. We would sell millions of physical CDs, but never knew who was buying them, which was common. But we said, "Imagine if you took a CD out and on the back tray we etched a logo on it, like Nike or Apple, and wrote copy on the back and said this was brought to you by Nike or by Apple." It was an idea called CD media and it never got off the ground, but it was the notion of targeting an ad with the physical packaging that's in the hands of a music fan. And now fans tend to download or stream music, so the physical component is gone. I had to go through the cons of making less money per song on digital, and that people can buy a song and not the entire album, and there's no artwork, so it's hard to get people to buy into a body of work. Albums and themes of albums don't matter any longer. But the pros are that we now have the power that the digital economy provides, so we can build CRM systems, which allow us to know your customers and build ways to communicate and drive affinity with those customers. Meaning, the music industry can better target fans now? When I looked at the music landscape, while it should be the case, it wasn't the case. In fact, an album like Beyoncé's "Lemonade" can sell five million albums, let's say, but if she came out six months later with an album called "Iced Tea," she'd have to find those same five million people over again. This is about the need for the industry to innovate with digital technology. Play out a scenario of how you propose to do this. We can find an artist, help that artist grow his or her audience and, when they grow that audience, we can build a CRM system around that audience so they know exactly who their casual fans and super-engaged fans are. Once you can identify those fans, you can build out the best ways to monetize them. You can sell tickets or sell merchandise, but on top of all of that, I believe that when those artists reach a certain scale, we can allow brands to target their audience directly. I look at the artists as mini media companies, like if Beyoncé is ESPN and Lady Gaga is Discovery. You start building out those brands because the artists have just as much reach as the brands, but they don't have a way to monetize their audience like brands do, and now they will. What types of artists will you work with? Any particular genre? Some of them can be legacy artists but 90 to 95 percent will be new digital-native artists who are from the internet era and probably never even used a CD player or recorded on tape before. They have learned the digital economy and how to navigate it. We're looking to distribute those artists who need distribution services and want it with the benefits of data-driven decisions, real, actionable insights and, ultimately, the ability to use their audiences to work with brands. What's the endgame for you? Translation and UnitedMasters, which is all one company, is my vision and my dream, and I think it's today's reality of the convergence between storytelling, technology and culture. If you're in business for tomorrow, you must have that convergence within your organization to move forward. It's critical. As an advertising agency, I'm really proud of the stories we've told and the creative we've put into the world, but I think creative advertising agencies and media agencies need to be able to offer more services. The advertising industry needs to keep evolving. Is UnitedMasters meant to combat these issues? This is a win for the ad industry. I want agencies to see this and think, "Yes. We matter. Yes. We have value." It's a new innovative way for the industry to move forward. What sort of talent are you looking for to work on UnitedMasters? If you look at the body of employees right now, it's data scientists, engineers, product folks, creatives, storytellers, design teams and writers, and then there's A&R and digital sales. It's about bringing all those skill sets together. The most important thing is the convergence of storytelling, culture and technology. That's the world we live in right now. How so? It's everything we admire—all of the tech platforms taking off, the way we engage with things, like bringing technology to the Starbucks experience. That's why we're seeing the industry going wide. All those services are needed, but they're hard to find in one place because it's expensive. I think Interscope Records and Def Jam would have been great advertising agencies. Why's that? They were always on the cultural front lines. They never built the infrastructure to work with a brand at scale, but they definitely had the ingredients to help move a brand's initiative forward. So the fact that I ran record companies for years and I built an advertising agency, and now I'm combining music insights, storytelling and data, to me, that's just the next evolution. Where do brands come into this? Brands make big investments in music that are wasteful. Music has always been and will always be a strong gateway to connect with consumers in an emotional hot state. However, the current way in which money is spent to do that is a bunch of wasted sponsorships and poorly invested dollars with no return.

Q&AA: Steve Stoute on The Record Label of the Future (He's Starting It)

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