Andrew: Hey there freedom fighters, my name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. Have you noticed how so many entrepreneurs aim to build B2C businesses, meaning they want to create businesses for consumers: next photo app, next game, next something that consumers are going to get really excited about. But it’s tough. Consumers often don’t spend money. There isn’t a lot of logic, and there’s a lot of competition. What about the B2B market, selling business to business? Well today you’re going to find out from an entrepreneur who went both directions, tried reaching consumers with his business, and then he went B2B by reaching businesses, and we’ll see how that turned out.
His name is Darryl Ballantyne. He is the founder of LyricFind, the leader in B2B lyric licensing. What does that mean? That means when you go to Bing and so many other companies, but I’ll use Bing.com as an example, and you type in put a ring on it and you hit the search box, you don’t just discover that it’s Beyonce and get linked over to the lyrics. You actually get the lyrics right there in Bing’s search results. And the company that makes that happen, the company that allows Bing to do that is the company you’re about to find out about today, LyricFind.
And this whole thing is sponsored by HostGator. Later on I’ll tell you why if you need a good host for your website, you should to go not to HostGator, but to HostGator.com/mixergy. If you want to peek ahead you’ll see something really cool there, but for now, Darryl, welcome.
Darryl: Thank you, it’s good to be here.
Andrew: So the whole business started when you had a problem. It actually was your co-founder, right?
Andrew: What was he trying to come up with?
Darryl: It was our co-founder, Chris Book. He was trying to figure out the name of a song based on just some of the lyrics that were running through his head. And he came to me, at the time I was the guy that always seemed to know who sang what song, and what everything was called. And I didn’t actually know the answer. So he went off and tried to search online to figure out what it was, and came back and said all these lyric sites out there are terrible. None of them will let me search based on the lyrics themselves.
Andrew: Why couldn’t he just to go Google Search at the time and just say Google, put the word lyric in and put in whatever words he could remember?
Darryl: Google at the time, this was in 2000. So Google at the time was not nearly as powerful as it is now. And I believe he went to Alta Vista …
Andrew: I see.
Darryl: To search then. So the search engines weren’t quite as good. And there was definitely a lack of specialization in that area. And we were really just looking for something to do as a hobby at the time.
Andrew: I see.
Darryl: His suggestion was that we start a lyric site.
Andrew: And where were you guys in your life at the time?
Darryl: We were in first year university then at the University of Waterloo, outside of Toronto.
Andrew: Okay, and so this is 2000. You said, hey, you know what; other people must have a song stuck in their heads, too. We’ll create a site. I see what the site looked like in the year 2000, just for anyone who was around back then. There was a big fat ad there, well not a big fat ad, but relatively big on the site for …
Darryl: There’s were two of them, I think.
Andrew: CD now.
Andrew: Remember, the site that was going to do for CDs what Amazon did for books and got crushed by Amazon in the process. So you guys actually did get a website up and running. How did you get the rights to all the lyrics that you put up on LyricFind.com circa 2000?
Darryl: Well interestingly enough, we didn’t. We put the site up not really realizing what the copyright implications were at the time. It was just a hobby, just to have something to do. It was 2000. Everybody was jumping on the dotcom bandwagon. And we figured why not. We’ll do it, too. And then we quickly realized after a couple of months that this was content that needed licensing, and that had copyright issues with it.
So we took the content down and tried to negotiate licensing with the music publishers and societies, and it was an absolute disaster. The music industry at the time was dealing with Napster in its original incarnation and trying to shut down the Internet rather than work with it. So it was an administrative nightmare to be able to get licensing for something like lyrics that the publishers didn’t even know if they could license based on different writer agreements and other …
Andrew: Darryl, let me ask you this. Why bother anyway? To be honest with you, I’d interviewed entrepreneurs who were in the lyrics space back then. I mean, somewhere around there, and frankly they didn’t even bother getting licenses. The music industry wasn’t sure who had the right to enforce it, so they weren’t enforcing it. They weren’t sure if it was a problem. It was low priority for them. So they got away with it for years. And then when it was time to license, they worked out a deal. Why didn’t you guys go that route?
Darryl: We thought about it, but the big thing that was driving us was we had been approached by a lot of different large mainstream companies, like Listen.com and Yahoo and Best Buy and others to be able to provide them with lyrics. And we knew that if we wanted to reach that scale and be able to embed our content in all of these reputable companies’ services that we were going to need to make sure that legally all of our issues were dealt with.
Andrew: I see. So you were going to go B2C, and then it was companies asking you for your lyrics that made you decide to go for businesses? Was it also, and here’s what I understand. Tell me if I’ve got this wrong. But my understanding was that it was also hard to get consumers to come to the website. It was hard for them to appreciate the value you guys had. It was hard for them to care.
Darryl: Not too hard actually.
Darryl: The combination of being the first site out there that allowed people to search by the actual lyrics, and what at the time was a fairly clean design without a ton of advertising for that time period.
Andrew: I see.
Darryl: And we really built a community around it with user accounts and commenting and things like that that were very rare in music sites at the time.
Andrew: We’re talking about still Web 1.0. People having a voice and not just being consumers of websites didn’t happen until Web 2.0 a few years later.
Andrew: So I see you had all that. Now what’s the problem? Why not tell all these companies, hey, you know what, go work out your own licensing deals. We have this really successful hit business on our hands. Was it a hit business?
Darryl: It was fairly successful by university student standards.
Andrew: I see.
Darryl: So it provided a bunch of beer money and other things, and it paid for my first car. But it wasn’t wildly successful at that point. And we only ran it that way for about six months. So it was going on a very good trajectory, but we had decided that we wanted to try to provide content to these companies. And as soon as we did and approached the licensors, well we were on their radar. It was very hard to go back to infringing when we knew …
Andrew: So once you reached out to them and said, “How do we get a license,” you can’t pretend that you don’t need one.
Darryl: We’re no longer ignorant at that point. And we knew what we needed to get, and we decided to go for the bigger play. And at the time it didn’t work out. We couldn’t get the licensing deals, so we shut everything down and walked away for years.
Andrew: I see. I do see here a message on the message boards, “If this site is supposed to find lyrics, why ain’t it got no frickin lyrics?”
Darryl: Yeah, once we started negotiations with the publishers, we disabled all of the lyrics on the site.
Andrew: Yeah, and the message board was still up and running, so people still had a place to complain.
Darryl: Yeah, and interestingly enough, people kept coming back because of that message board, and because we had advertising on the site, that financed our ability to continue to at least try to negotiate licensing deals for a while.
Andrew: I see, and people were starting to share some lyrics, it looks like in the forum. They said, “If these guys aren’t going to put lyrics, then I will put lyrics up.” And they would even apologize for the mistakes they might have gotten, I guess, as they typed it in. They told others to go to other sites, like AstroWeb.com, I guess was around at the time?
Darryl: And a bunch of others at the time that were there.
Andrew: So you were going to negotiate. The negotiations weren’t going well. Here’s what I have in my notes from your pre-interview with April on the Mixergy team. You said you tried to negotiate as a B2C company. It was too much of a pain in the ass to get licensing for business to consumers. So you re-launched this business to business. The industry had organized to better allow you to get deals done as an aggregator of information. And at that point you got a call from Microsoft. They saw your old website. It still had your cell phone number on it, and that’s what allowed you to finally figure out the model, your customer.
Darryl: Yes, that’s pretty much correct in a slightly different order. The phone call from Microsoft came before we went and tried to restart and come at it as B2B. That was what spurred us to think about should we restart this and should we go back at it, and come at it as a B2B company. And will this now be a viable option now that digital music has started to become more of a norm, and more accepted. So that led to us making some calls within the industry.
I had spent a little bit of time working at EMI on the record label side doing digital deals down in L.A. And the person that I was working for there was Ted Cohen, who pretty much knows everybody in the industry. And he’s a guy that can get any door opened and any deal done. So he set up some meetings for me with EMI on the publishing side, and spent a bunch of time talking to them about is this now possible. Is this something that we can do, that they can license, because we can sell it? And we knew that we could.
As soon as they got off the phone with me they called Ted and basically asked who the hell I was and if they should license me, and if we could actually monetize it. He vouched for us and we got that deal done. And then one thing led to another and we had the rest of the deals done over a period of many, many years and have just continued to grow.
Andrew: After you got the first deal done, was that enough to get a license? Was that enough to build a business on and earn revenue for the next few years while you were getting the rest of the licenses?
Darryl: Not just one deal. EMI was the first deal that we did, and then we did a deal with the Harry Fox Agency, which aggregated a lot of indie publishers, as well as a couple other majors. Universal and BMG Publishing both ended up going through our HFA deal early on. So once we had that level, then it was more of a viable product. But right at the beginning, just with the one publisher, despite them being the largest publisher at the time, wasn’t really enough to create a viable product. So it was a long haul.
Andrew: So where did you get your money while you were trying to make this thing work?
Darryl: From a mixture of sources. We got some of it from our own savings that we had. My mother invested $50,000 in us, which was fine, because she already owned me anyway. And also, my main co-founder, Mohammed, were both still living at home with our parents. We were working for no salary essentially. And we did other small jobs on the side. While he was a developer, he did some other development projects for people, just to be able to make a little bit of money. I did some marketing and user interface design projects for people that I had worked for before, just little consulting things to keep us going.
Andrew: What made you believe in this so much that you were willing to tough it out?
Darryl: A mixture of history and stupidity. I think having run it on the consumer-facing side before, we knew that the demand was there. We knew what the economics were for the lyric websites that were out there. And we knew that there was money there, that if we could aggregate the licensing and go to these sites and give them a legal option, we knew the volume of traffic, and we knew what the advertising revenue was.
Andrew: I see. You knew they were going to get traffic. You knew, like let’s take a site like MetroLyrics. They were around at the time, right? They’re currently a client of yours.
Darryl: Yeah, MetroLyrics, they’re now restarting, yeah.
Darryl: They were around when we went back to it as B2B.
Andrew: Right. I did an interview with the founder. He was one of my first interviewees. He was a kid when he started this thing. He was just posting lyrics up on his site and making bank with it. He had no licensing agreements at the time. Why did you know? What made you believe that he was going to stick it out if he had licensing? Or why did you believe that he would accept that he would need licensing and pay you so that you can pay EMI and all the other companies?
Darryl: Well, the belief for us was that the publishers who owned the rights would want to get paid off of it. And they needed a way to make it easy for these sites to pay. We have licensing deals with over 4,000 publishers, and none of these sites would want to do 4,000 licensing deals. And none of those publishers would want to license every single site that’s out there for small amounts of money.
Andrew: I see, but they have the muscle to push them out of business if they need to, but not the time to deal with every one of these sites, so they need someone like you.
Darryl: They needed an agent and an aggregator to manage it all for them, both from a business and a technical standpoint. None of the publishers were equipped to deliver the content and manage the royalties on a technical basis.
Andrew: I see, and you knew that these lyric sites were making enough money from advertising that they would have something to give the publishers to pay for and still be able to more than survive; still make good money?
Darryl: Right …
Andrew: Got it.
Darryl: We knew very well from having been there ourselves in the years before.
Andrew: And can you tell me again the reason why if you’d already been there as a consumer site and we know that there’s money in the consumer business for lyrics, why didn’t you say, you know, we’re going to stick with the consumer-facing business? My mother will be able to go on there when she has a song stuck in her head. All my friends will know what I do when I tell them. I’m going to stick with consumers. Why didn’t you go that path?
Darryl: Two reasons, one was because we when we tried to get licensing we were on the radar of the publishers. So they knew that we knew that we needed licensing. And also we believed that taking the B2B route was a bigger play. If we were just operating B2C, our fortunes are tied to our single product and we’re making revenue only off of our single product. By going into the B2B side, we’re now tied to every lyrics product that is out there, and we generate revenue off of every lyrics product that is there. And if one of them fails and one succeeds, then we’re going to win either way. We have a piece of really every lyrics integration that is out there, so we believe in lyrics as an overall product.
Darryl: And being able to just be attached to lyrics content in every facet is what we feel is the bigger play overall.
Andrew: Gotcha, and your entry into this was you worked at EMI. You didn’t really have that top a job at EMI. We’re talking about right out of school. In your LinkedIn profile you say, “I did everything that Ted,” who was your boss, “Didn’t want to do while drinking his Red Bull. So basically what kind of work did you do there?
Darryl: Essentially I was a glorified intern. It was my last work term from school at university. And I did work on a lot of music licensing contracts. I did a lot of financial forecasting and things like that for growth of digital music in a particular services to try to see if the numbers that were coming in from potential licensees made sense. And a lot of the grunt work, a lot of the stuff that Ted didn’t want to do with spreadsheets or writing documentation or reviewing contracts to see what makes sense and what doesn’t or …
Andrew: You know what, what’s impressive about that is that you’re in with something that simple. You didn’t have to rise up at EMI before you could get an opportunity to make a deal with them. You just had an in because you worked for them. And then once you had that, other companies could take you seriously. Let me ask you this. Why is it that your co-founder, Mohammed, is holding an egg in his LinkedIn profile? What’s the reference there?
Darryl: There actually is really no reference, at least not that he has revealed publicly.
Andrew: It’s just him holding up an egg for some reason. All right, I should do a quick sponsorship message right now. And the sponsorship message is for HostGator. Let me ask you this, Darryl. Have you ever had your website in the early days just crash on you?
Darryl: Many, many times.
Andrew: Me too, and there were days that I would have to do it myself. Was Mohammed the guy who got the site back up?
Andrew: I didn’t have a Mohammed guy. It was me. I had to try to figure it out. And often what would happen to me is I’d have to figure it out by myself, and there was no one I could call, because all of these hosting companies are so good at obscuring their phone numbers, not having tech support numbers at all, and having nothing but email tickets, which you know what. When I need to talk to you about my site being down, I can’t email you, get a response, then email back, and email back and forth. It just won’t work, which is what I love about HostGator.
In addition to being a company that will keep your site up, and having unlimited disk space, unlimited bandwidth, unlimited email, free site building tools, free shopping cart software, forums, all that stuff that you need. One of the things that’s most impressive about them is they have a tech support number. Now in a past interview I actually, while I was talking to my guest, called their tech support number at HostGator to prove right there on the fly that if you called tech support you’re not going to get just a random machine. You’re going to get a real human being who knows what she or he is talking about. And I did it in about 60 seconds. I got through to a human being. That’s how fast it is with HostGator.
If you need a new hosting company, HostGator will keep you up and running and have a human being in case you ever have any problems, issues, questions. That is so unusual in the hosting space.
And if you want to get a big, big discount on them, I want you to go to HostGator.com/mixergy, M-I-X-E-R-G-Y. Sign up now for a limited time, because they’re basically frankly trying to test out to see how effective my ads are. They are giving my audience a big discount if they sign up now while we’re testing out how effective HostGator is. So all you have to do is go to HostGator.com/mixergy and you’ll see the big discount. It’s not 10%, it’s not 20%, not 25%; in the true spirit of Ron Popeil, I would say it’s not 26%, not 27%, it is 30% off. And you get all of that good stuff, including that tech support by phone available to you. Go to HostGator.com/mixergy.
So Darryl, you now have your first deal. I know that you were working to get more deals. It was tough going at that period. What about the tech part of things? When you and I talked before I hit record you said, “Andrew, one thing that people don’t understand is the software complexity of our business.” When you just started with that EMI deal, how complicated was the software?
Darryl: It was not that complicated at the time.
Andrew: Okay, what was it at the time?
Darryl: It was a database running off of … We had different things running off of PHP and Java, and a MySQL database. And at the time we were only managing two countries, the U.S. and Canada. And we were dealing with a limited number of publishers and people that we were paying. So it was fairly streamlined. And then we had one data source for music metadata, and that was AllMusic Guide, that we were attaching the lyrics data to and the publishing ownership to.
Andrew: What is that part, the music guide?
Darryl: AllMusic Guide, which is now part of a company called Rovi. It’s basically all of the artists and album and song title information to be able to browse through a complete library of music. So Rovi data is what a large chunk of the music services out there are using to give them all the album and artist information to structure their service around.
Andrew: Got it, okay. So are the ones when, actually I don’t know if they are or not. When I put a CD into my computer and I rip it and …
Darryl: That’s Gracenote.
Andrew: That’s Gracenote, and now you guys own them?
Darryl: We acquired their lyrics division a few years ago. So Gracenote also provides metadata as well. Between the two of them, Rovi and Gracenote, they’re really the two major metadata providers …
Darryl: … in the world for that type of content.
Andrew: So what’s the deal that you had to work out with them?
Darryl: We needed a base set of data to build off of. When we originally did our deal with EMI, we naively thought that they would tell us all of the times that their songs had been recorded and would give us artist and song name information that we could build a database off of. They gave us none of that. We got a song name and song writer; no artist information, no album information, nothing. And that was impossible to use to provide a service to a company that is built off of artist and song name.
So we talked to AllMusic Guide and got them to provide their data to us so that we could match the publishing ownership to their database of recordings, and then use their recording database to match to our clients.
Andrew: I see.
Darryl: So that was an unforeseen complexity. But at the time we were working off of one data source with just two countries, and it was, compared to now, very simple. If we fast forward to our situation now, we’re supporting 30 different countries, and six different languages, and over 4,000 publishers that we have licenses with around the world. So we have to deal with different character sets. We have to deal with publishing ownership shares. And one of the big things that people don’t necessarily understand about music publishing, especially if they’re outside of the industry, is that there isn’t one owner for every song. There can be 15 different companies that each own a percentage of a song, because of different writers and representation and sampling and that.
And then what happens with those 15 companies is there may be 15 companies in the U.S. that own that song. But each of those 15 companies can have an agreement with another company in every other territory to represent their rights in that territory.
Andrew: This is madness. I’m losing track just as you’re talking about how complicated this is.
Darryl: It is. So you end up with for one song across 30 territories, you could have hundreds of different people that you have to pay to pay the correct publisher in each territory.
Andrew: Let’s go back to a simpler day, just so I can understand how you got here. When you were doing that first deal, were there that many players involved? Or at that point was it straightforward? You just have to serve up the lyrics and the money goes to your one company, to EMI?
Darryl: Well, we had early on. When we had our launch with our first clients, we had essentially two people that we were paying. We were either paying EMI, or we were paying Harry Fox. And Harry Fox was providing licensing for us for at the time about 800 publishers. But they gave us all of the data from those 800, so we were able to treat them as one source. So we would send a check to EMI and a check to HFA, and Harry Fox would divide it up, based on all of the royalty splits.
Andrew: Got it. And your revenue was coming in at the time, was it from Microsoft?
Darryl: No, we didn’t actually end up doing a Microsoft deal until many years later.
Andrew: So they were just the impetus, impetus? But the catalyst, but they did end up being your first client?
Darryl: Right. Our first client was actually a really small company out of Nashville called ZOE, that was building search technology and other things and they needed a dataset to develop off of, and to do a lot of testing with music. So they actually didn’t really care that we had a limited catalog. So they paid us $200 a month for that, and that was our first client.
Andrew: And just so I understand this, the money went to both Harry Fox and EMI, or was it an either or situation?
Darryl: Depending on who owned the song.
Andrew: Got it, all right.
Darryl: To whichever one was representing those rights.
Andrew: Simple. And then your next client was a mobile company called xRinger.
Andrew: What did xRinger do?
Darryl: They had different mobile services. They were built off of ringtones initially, but then they did a bunch of other mobile music apps and things back in the day before they were really truly apps as we know them now. They were pre-loaded onto phones.
Andrew: So they needed some lyrics for their mobile apps, for those little tiny flip-phone screens?
Darryl: Yeah, basically; not quite what we’re used to now.
Andrew: Then RealNetworks was a huge company in the music business. They came to you, or actually how did you end up connecting with them?
Darryl: We’d known some of the people there for a while. And they were looking for a service to add lyrics into Rhapsody, which they owned at the time. And the crazy part of that story was that one of our board members, Andrew Stess, was actually stuck on a plane in the airport coming back from France. He worked for All Media Guide and the people there initially thought that he was working for Gracenote, because he had worked for Gracenote in the past. And they casually mentioned to him that, “Oh, we’re just finishing up our lyrics deal with you guys.” And he said, “Oh, wait. What lyrics deal?” And then spent the rest of that plane ride and a bunch of time afterwards getting them to use us instead of Gracenote for that deal. So it was kind of a lot of luck that that happened. Otherwise we might not have known, and a lot of work by Andrew to get them.
Andrew: How did you get a board member when you don’t have any funding outside of your mom?
Darryl: Well, initially Ted Cohen joined our board because of the connection there of me having worked for him and his ability to help us. And then Andrew, at the time that that happened with RealNetworks, was not on our board. He was our contact at All Media Guide. And then after he did that we said, you know, we’ve got to have this guy more involved. He’s really helpful to us. So we asked him to join the board and he said yes.
Andrew: So what do you give him in exchange for being on the board?
Darryl: They both had stock options.
Andrew: Okay, so he’s helping you get these deals. RealNetworks with Rhapsody was huge, as I said, in the music business. Rhapsody was an MP3 player, kind of like … actually more than an MP3 player. It was also a video player.
Darryl: RealPlayer was the MP3 player. Rhapsody was the subscription service like it is now. It was one of the first music streaming subscription services. They had …
Andrew: Did they do video too?
Darryl: Not in Rhapsody.
Darryl: In RealPlayer, RealNetworks did a lot of video, but it wasn’t as part of the Rhapsody service.
Darryl: Rhapsody was music only.
Andrew: I see, and was it a monthly service?
Darryl: Yeah, very similar to how it is now. And how Spotify is and that. They were sort of the original on-demand streaming service.
Andrew: I see. I might have been a member of that at the time, and they would let you even listen off line and even on your Trio.
Andrew: Which was a cool feature.
Darryl: Sure, if you say so. I didn’t have a Trio myself at the time.
Andrew: And all of this is with you not having a lot of data sources, right? It’s just you getting going and they needed some lyrics and you were the one who had some. And even if they can’t get all, they were happy to get started?
Darryl: Yeah, it was a start. And RealNetworks really took a leap of faith in going with us that we would be able to get the rest of the major publishing deals done. They believed in us enough to sign a deal with us. And that led to us being able to actually get things done. And if they hadn’t, who knows? We might have not been able to keep going, and we might not have been as persistent as we were. But them believing in us really helped us make it through all of those early days much more easily.
Andrew: Ted Cohen has an impressive career. I was just looking him up just to get a sense of him. He was at 14 years old on the “Mike Douglas Show.” Am I right? He got to meet the Rolling Stones, according to Wikipedia, the Beach Boys, the Birds. He then became manager in high school of bands.
Darryl: He managed Eric Carmen in high school.
Andrew: The Eric Carmen who would later form Raspberries?
Darryl: He had a solo career as well.
Andrew: He promoted Woodstock, am I right?
Darryl: Yeah, he’s been everywhere. There’s a fun video on YouTube of Pete Townsend and people talking about how Ted took him to his first concert and it was bad ass.
Darryl: It’s really impressive. He has a very interesting and storied career, and storied probably being the right word. He has a story to go with everything.
Andrew: How’d you get to work for him, even as, as you call it, a glorified intern? How’d you get to work with him?
Darryl: I first met Ted when we were trying to do the consumer-facing segment. We started talking through a digital music and entertainment email discussion list called the [inaudible 00:32:26] list.
Andrew: On a mailing list, is that what it was?
Darryl: Yeah, on a mailing list.
Darryl: That’s run by Jim Griffin and John Powers.
Darryl: And so we had met a little bit through that and talked. And then we first met in person at Canadian Music Week in March of 2003. I was on a panel there, sort of representing the students, you know, showing people my MP3 player that could hold a CD full of MP3s and play 500 songs. And he was there as Ted Cohen from EMI. We ended up spending a couple hours talking about digital music and with him asking me what I would pay for, and me asking him what he would license, and back and forth. And we just really hit it off.
So I had another co-op term coming up in the fall of 2003. So I gave him a call and said, “Hey, I’ve got this work term coming up. I want to come work for you.” And he said, “Okay.” And so I packed everything into my car and drove down to L.A. and spent four months there working for him.
Andrew: That’s really cool. You are a hustler, a hustler and a geek is what I see throughout your life. Like I heard that as a kid you ran a bulletin board service via dial-up.
Andrew: I wonder how many people really know what that is. What is a bulletin board via dial-up?
Darryl: It was basically a dial-up sort of chat and games and file exchange service. People would call into over a dial-up modem and so I had a dedicated phone line installed into my mom’s basement on an old computer that I had. And people would call into it and they could play games on it against other people, though only one person could be online at a time.
Darryl: They could post messages on the chat board there, and then once they logged off, other people could log in and respond.
Andrew: So if your mom got a phone call in the middle of the day, would it knock your server off your portal?
Darryl: I got a second phone line.
Andrew: A second line. And there’s no money in that. It seems like you tried to turn it into a business. You wanted to be an Internet service provider, and your dad said what when you asked him to invest?
Darryl: That was after running the original BVS. I decided that there was a lot more potential if I could really just go big with it because it was when things were just starting to take off with people having actual email addresses. This was early ’90s at the time. And I had a real Internet email address from another BVS that I would dial into that had multiple lines and they started putting in Internet connectivity. And I wanted to really blow it up into more of a multi-line system. So I wrote a business plan to try to get my dad to invest and try to convert his basement into a server farm that would have 10 phone lines coming into it so that people could dial up and then access the Internet. And this was in the days of CompuServe and things like that, but to have more direct dial-up Internet access.
Andrew: You were going to give not the CompuServe little island. You were going to give them the world of the Internet, direct access.
Andrew: And your dad didn’t invest?
Andrew: [inaudible 00:36:07].
Darryl: I don’t really remember actually. But I’m sure I was mildly upset, but understood that he didn’t want to put a pile of money into it. I was probably 14 at the time or something like that. And I probably should have been concentrating on school.
Andrew: Is that really true? Looking back, do you really think you should have concentrated on school? Or don’t you think it would have been better if you’d concentrated on the ISP?
Darryl: I don’t know. It’s hard to say. I think probably overall I’m better off for having gone to school. And if I hadn’t gone through it and ended up at Waterloo, I wouldn’t have met my co-founders here, and I wouldn’t have ended up with LyricFind.
Andrew: You wouldn’t have needed co-founders. Maybe you would have started your own business and kept 100% of it.
Darryl: Maybe. But all I can say is that I’m very happy with how things have ended up. So I try not to second guess it.
Andrew: I get that. You know, one more thing about your past and then I want to continue with the story. Here’s another cool thing that you did. You worked at a sports store in high school. And you partnered up with them.
Andrew: What did you do? What was the partnership?
Darryl: It was a sports store in Unionville, just outside of Toronto that I worked at called Old Firehouse Sports. And I’d originally set up their website for them. And then they ended up getting all sorts of access to overstock ski equipment, and snowboard equipment, and other things like that that they can get at highly discounted prices. So I partnered with them to set up a website that was Sport-outlet.com was what it was, and who knows where that goes now. Maybe that was just an advertisement for somebody else.
We had full shopping cart capabilities on that for people to be on it to order all of this overstock ski equipment and other stuff that was in stock in the store.
Andrew: I see. And this is co-owned by both of you?
Darryl: Yeah, it was a partnership between us and …
Andrew: Okay, let me see if I can find anything out about that.
Darryl: I wonder what’s there.
Andrew: Sport-outlet.com, right?
Andrew: Yeah, I think I’ve got it here. Sport-outlet.com. Oh, I see an image at the very top. Check back often. Questions, email, estimated kickoff date is September 1, 1999. Let’s see, were you able to kick it off? Let’s see, where’s the next version? Online, here we go. I think it’s coming up. Yes, there it is. No, this is the default HTML page. All right, it’s going to take me too long to find what the first version is.
Darryl: I probably still have the old website somewhere on an old computer with all the data there.
Andrew: All right, so that was your partnership. That’s the background that you brought to starting this business, LyricFind. I see now that you had the bare bones. You had some clients in place who were paying you. You had publishers. Is that what they’re called who give you the right to license their content? What happened next? Was it getting more companies to work with you?
Darryl: Yeah, continually adding more clients to work with us and getting the rest of the publishing rights done. So we eventually signed on the rest of the major publishers. Sony and Warner were the ones that were missing after EMI and HFA.
Andrew: How did you get them?
Darryl: It was a lot of help from Ted as well, because he knew everybody at all those companies. And then just educating them on the potential of lyrics and that there was actual money there. And in some ways it was easier than a lot of these digital music services that are out there, because we weren’t cannibalizing an existing revenue stream. They weren’t looking at us like a streaming service or a digital download, where they’re worried about it impacting album sales. This was brand new revenue for them. So it was very low risk for them to do, which made our educational process a lot easier, and it also made our licensing deals cheaper, because we didn’t have to account for that in advances and other payments in the deal.
So we gradually got those done. We kept building up the client roster. And then started expanding internationally. We started doing global deals with some of the major publishers, expanded into eight countries initially, then went from eight to 20 and then from 20 to 30.
Andrew: What about finding more people who need lyrics? What was your process for finding those clients?
Darryl: Some of them were easy. Obviously a lyric site that is unlicensed needs to be licensed. And those are not hard to find. Whoever shows up at the top of a Google result is pretty much …
Andrew: And they then get a call from you?
Andrew: How do you figure out what to charge them?
Darryl: Well, a lot of its on our revenue share, so it would be based on ad revenue. But also because we knew the economics of a lyric site and knew the advertising that was on there, we would do deals on a set fee per display knowing what they should be able to monetize the site at.
Andrew: I see. And if it’s a revenue share, how do you know how much revenue they’re going to make?
Darryl: They would have to report to us what the revenue is.
Andrew: You trust them.
Darryl: Somewhat. We had audit rights. And in some cases we had relationships with the advertisers, so we could verify if they were reporting correct numbers to us, or access to their advertising accounts. So it depends. We had varying levels of trust for different clients.
Darryl: You know, obviously we were dealing with a lot of people who had been kind of in hiding for a while. Most of them wanted to be legitimate. There just was no viable way for them to do it. But there were always some holdouts, and there were some that needed to get legal letters from publishers to spur them to actually execute the license and start paying. But that was part of the process. And then beyond that we looked at every other music service that was out there basically. Anybody using music or music data was a potential client for us.
Andrew: Even if they weren’t using Lyrics?
Darryl: Right, because they could add in lyrics to that service. One of our earliest clients, and our oldest and most long-standing client, is Shazam. And they’ve been with us for many, many years and they wanted to add in lyrics to their offering as a value add for their users. And it’s driven a lot of traffic for them. It’s one of the most popular features that they have. So it’s about enhancing the overall music experience.
Andrew: Is Genius.com using lyrics from you?
Darryl: No, they have direct licenses with the publishers as part of their lawsuit settlement.
Andrew: I see.
Darryl: So that was a bit of a different scenario. But it took them a little while to get licensed, but they did and now they’re …
Andrew: I think they told me that they believed they didn’t need a license, because if they’re analyzing content and then that’s fair use, but I guess that’s not the way things worked out.
Darryl: No, that’s not really a real legal argument. You can’t just show a movie and if you’re talking over the movie, then you’re not infringing on it.
Andrew: So the legal part doesn’t come from you, right? I’m looking at a Bloomberg article from 2012 about how Brad Greenspan. Here it is, “Publishers wins $6.6 million from Greenspan Lyrics websites. Brad Greenspan’s Live Universe had, I guess, a few different websites that did lyrics. And music publishers like Peermusic, Bug Music, Warner/Chappell Music sued Greenspan in August, 2009.” So they’re the ones who go in and sue if you don’t get paid?
Darryl: We don’t own the copyright technically at lyrics. So we don’t have legal standing to sue anyone, or even send a cease and desist for that content. That all comes directly from the publishers, and it’s their decision when they want to take that action. So we will occasionally help them if there are people that are infringing. We help fund the NMPA’s enforcement program so that we can get everybody licensed. And also we want to support our clients that are licensed. We don’t want unfair competition out there with people that are getting away with not paying for licensing. That’s not really fair to our existing clients who are doing the right thing.
Andrew: There was an awkward situation early on with Yahoo, it was a client in Gracenote. Can you tell us a little bit about that? What happened there?
Darryl: Yeah, that was an interesting scenario. It was one of probably the more devastating points of our evolution. And we were working on a deal with Yahoo to add lyrics to the service, and this was before we had launched with RealNetworks. So we were looking for the first big client, and it was considered a race between us and Gracenote for who would launch the first big lyric integration with a major partner. And we were talking to people at Yahoo, and talks were progressing really well.
And it was at the point where we were trading term sheets, and starting to look at the contract language. And then less than a week later all of a sudden Yahoo launched lyrics with Gracenote and not with us, and just caught us completely off guard. We woke up one morning and there was all this press coverage for it. It was all over mainstream media. It was all over at TechCrunch and all the digital media. And we just were completely blindsided by it.
But so were the people that we were dealing with at Yahoo. It was one of those things where the right hand didn’t know what the left was doing. So they were having legitimate conversations with us to add this in, but meanwhile other people at Yahoo had been having other conversations with Gracenote, and had gotten further along, got faster, or they’d started earlier, who knows. And suddenly Gracenote was the lyrics provider that was out there, that got all the press rather than us. It was tough.
Andrew: Isn’t that weird with big companies?
Darryl: Yeah, you kind of get used to it after a little while.
Andrew: I once had a big company buy from me, and then another part of their company also buy from me the exact same thing.
Andrew: And I told them, you’re buying the same thing. And they said, well yeah, it’s a different department. It’s not like we can go over there and get it from them. So we might as well just buy it directly from you.
Darryl: Yeah, it happens. And sometimes, depending on how deals are structured, we’ll have multiple deals with the same company that cover different territories.
Andrew: At that point, what were your revenues?
Darryl: Our revenues then would have been $1200 a month.
Andrew: That’s it? And so you were going for the big guns with 1200 bucks a month?
Andrew: You told April that if you could teach entrepreneurs one thing, it would be how to act big when they’re just bootstrapping and they’re small.
Andrew: What do you do? How do you do that?
Darryl: Well, we did a lot of like silly little tricks, you know. We set up a phone number that was a U.S. based phone number when we did our HFA deal to make people think that we were based in the U.S. and not worry about things being an international deal. And in our early days we had an office address listed at our student house in Waterloo. But we listed the address as Suite 700, so people would think it was an office building and we had a whole floor. And things like having three-digit extensions on the phone line that we set up even though everything was just forwarding to our cell phones. We did a whole thing with RealNetworks that is a long story that I won’t get into now. Basically, they came to vet us before signing the deal. And we went completely over the top in representing ourselves as a much bigger company than we were.
Andrew: Give me a couple of examples. How did you look bigger than you were when you were talking to RealNetworks?
Darryl: We were at the time working out of an office that was a company that my stepfather had worked for. And it was just Mo and I working out of there. And they gave us cubicle space in exchange for being their in-house tech support. So when their printer didn’t work, we would fix it.
Darryl: We brought in a whole bunch of our friends to come and fill up other cubes and be part of our thing. We had a new sign printed up to put outside. So instead of it saying Terravest Industries, it said LyricFind. We moved all of my stuff into one of the private offices and took the employees of Terravest and moved them into cubicles and had them act as though they worked for us. We brought in one of our really hot friends to sit at the reception desk and act as LyricFind.
Darryl: All these different things that was really just a big facade to get the deal done.
Andrew: And it worked.
Darryl: And it worked. But we knew that we could deliver and wouldn’t have done that if we couldn’t have actually given them what they wanted. But if they’d just come in and seen Mohammed and I sitting in cubicles, and we had one guy working for us part-time doing content at the time, they just wouldn’t have had any confidence in us.
Andrew: What was the size of the deal that you had with them? They were the first big customer.
Darryl: That was $11,400 a month.
Andrew: Wow! At that point were you guys able to quit your jobs?
Darryl: We didn’t have jobs. We’d just come out of the university.
Andrew: I thought you had little side businesses.
Darryl: Yeah, like contract stuff. Yeah, at that point we didn’t do any more contract work. But we’d stopped for a while before that.
Andrew: What’s the deal with you guys and Echo Nest? What is Echo Nest?
Darryl: Echo Nest is service that provides all sorts of different things to people. Originally they would provide music identification and fingerprinting and play listing services, and sort of find similar music and that. After they were bought by Spotify, that all kind of got shut down. But one of the big things that they do do, that they continue to do, which is very useful, is a project called Rosetta Stone that links IDs from a lot of different sources, so that you know that LyricFind ID72 is the same song as Rovi ID43. And they have all sorts of different services tied into that. So it’s a very useful partnership for us to be able to match IDs with other providers so that people can retrieve the right content. And they also do a lot of hack days and things like that.
Andrew: How do you hack on lyrics, how do you hack on music, try to find …?
Darryl: All different aspects of music. They have some really good technology there and they have a lot of partners tied into it. So they’re a really good part of the music ecosystem.
Andrew: You mentioned losing business to Gracenote earlier on. They got Yahoo, you didn’t. You eventually got them, the lyric business. How did that come about, and what did you get?
Darryl: That was really just an evolution of the lyric business as a whole. Gracenote originally started their Lyric business with an eye to licensing Apple. It was based on conversations that they had with Apple to include lyrics and iTunes. And that deal ended up not happening. So Gracenote overall is a much larger company. They do a lot of business in music recognition, and fingerprinting, and the CD recognition and all that and metadata. So lyrics never became the larger business that they expected it to, as it would have through the iTunes deal. So it was less of a focus for them. They didn’t expand their licensing deals to be global. And as a result, a lot of the companies coming in were using us, or some of their existing clients were switching to us, because we were completely focused on lyrics. But it became an afterthought for them.
So we obviously had known them for a long time as competitors, but also there were people there that we really got to know well and liked. And it just ended up that it made sense that we took over their lyric licensing business and we were tied in with them on the metadata side on the back end so they can continue to offer lyrics to all their clients. They can resell our services, so they don’t lose any functionality. And instead of having to spend a lot of money maintaining lyrics, creating the database, doing all the licensing deals, and managing all the royalty reporting, they were able to get rid of all of that and turn what at the time was a money-losing business line for them into a revenue generator and a profit generator. So it was very much a deal that was a win/win for both sides. And I think it was …
Andrew: What kind of revenues are you guys doing today?
Darryl: We don’t really say publicly.
Andrew: Are you over $20 million in sales a year?
Darryl: We are under $20 million.
Andrew: Under $20 million. Do you remember when you became a millionaire, you personally?
Darryl: You know, at the moment any wealth that I have is tied up in LyricFind stock.
Darryl: So I don’t really think of myself that way. I just think of it as maybe I am on paper, but I still think of myself as the startup guy that is not rolling in it.
Andrew: Does it bother you when you see some of your clients and other people in tech sell their businesses and cash out and end up really rich without the headaches that you still have every day?
Darryl: Not at all.
Darryl: No, I’m really happy for them. I’m happy to see the success of our clients. MetroLyrics exiting to CBS was a great moment for everyone in the lyrics business. Other companies exiting and getting a good exit out of it, it’s great. If nobody was doing that, then what are we all in this for? Any exit that the people are happy with is, I’m happy for them. I’d like to see that happen a lot more.
Andrew: What did they sell for? I don’t see that.
Darryl: They haven’t disclosed that publicly.
Andrew: I remember he was doing so well. He was, like I said, one of the first interviewees. Anyone who’s interested in the company should go back and listen to the MetroLyrics interview on Mixergy. It was really well done.
So is this one. Congratulations on building such a big business for yourselves. You guys are all profitable. Have you been profitable from the beginning?
Darryl: Well, roughly. We were break even for a long time, give or take as we were growing. We’ve been comfortably profitable for a few years now. And it continues to grow and our year-over-year growth is phenomenal these days.
Andrew: And now you guys are integrating with more and more products, Shazam on the iPhone. That’s you guys integrating, giving them lyrics. You’re expanding to London, to New York, hiring soon in Asia. Let me see, you’re at six languages where before it was just English.
Darryl: Yeah, and at least three more by the end of the year.
Andrew: Three more?
Andrew: All right, congratulations on building so much. The company is called LyricFind. Do you think you would have been as big if you would have stuck with consumer-based business?
Darryl: No, I don’t think so. I think we would have had a nice early run, and then we would have tapered off after that and sort of hit a plateau. Maybe we could have had an exit along the lines of MetroLyrics. But I think they sort of got out at the peak, they picked the right time.
Andrew: And competition just keeps growing, like I said earlier. Search engines now are just serving up the lyrics directly in the results. You end up also having companies like Genius.com which will enhance lyrics. So you have to compete with them. And then Shazam and others are going to put the lyrics on your phone, and why bother competing with all these different companies that are reaching consumers in many more ways than you ever could dream of when you could just power them?
Darryl: And then we don’t have to worry about if the search engines are taking traffic away from the lyric sites, that’s fine. We’ll license the search engines.
Andrew: And those guys then will all have to figure out how they could get past it, create apps and so on, but not you.
Andrew: You just go back to search engines.
Darryl: Just license everybody.
Andrew: Well, congratulations so much, Darryl. The website is LyricFind. Thank you all for being part of Mixergy. And let me ask you this, guys, if you’ve listened to this interview and you found it useful, and you want to listen to more, do you know that you can just subscribe to this podcast, subscribe to all my interviews and get them directly on your phone, on your computer, on whatever device you prefer, on your television? All you have to do is just search for Mixergy in your favorite podcast app. What do I use? I use Downcast. It could be Overcast. It could be the Podcast Player. Just go in and download it and subscribe, so you get each episode directly delivered to your phone.
And if you’ve got anything of value out of this interview, thank Darryl. But also frankly, help me out by adding a review to my iTunes store. I’ve never asked for that in the past, and I keep watching that NPR is asking. And I say, well, who needs to do that. Now I understand why anyone who’s podcasting needs to do that. Unless you get reviews from the audience, no one knows to listen. So if you got anything of value out of this, please go into iTunes and leave a review. And thank you all for being a part of it. Darryl, thanks for doing this interview.
Darryl: Thanks so much for having me. It’s been a blast.
Andrew: You bet. Bye everyone.