Andrew: Hey there Freedom Fighters. My name is Andrew Warner, founder of Mixergy.com, home of the ambitious upstart. I’m smiling because I do this, this furrow my brow thing and I didn’t notice it until just recently. I have a six-month old and he does this already. I’m starting to notice myself doing it too. He gets it from somewhere.
Anyway, here’s what we’ve got for you today. We’ve got an entrepreneur here who used to be homeless who ended up building a successful business that licenses music to video makers, that allows video makers like me to put music into their videos and do it legitimately. Paul Anthony is the founder of Rumblefish. As I said, it’s a company that licenses music for online video. I’ll explain more about what that means in a moment. I’m still now noticing my brow.
But first I should say this interview is sponsored by LeadPages.net. if you need a page to put on your site that will really convert your audience from just passive viewers into people who give you their email address and become a part of your community, you’ve got to go to Mixergy.com/LeadPages. Their page has converted over 80% for me. Actually, over 70% conversion rate, which is tremendous. Go to Mixergy.com/LeadPages. Do it.
All right. Paul, let me see if I understand this. If I, as an interviewer, wanted to put music into my video, I would go to your site and get music legitimately, put it in and then if I put it on YouTube, I won’t get penalized or harassed that what I did is wrong, right?
Paul: Basically. What happens is there are a lot of video creators out there and it’s hard to know where to go to get songs that are legal because if you don’t get a legal song, you might not be able to do with your video what you wanted to do with it.
Paul: So, we actually supply a lot of different websites and companies, some you’ve heard of and some you may not have heard of, but companies like GoPro use our music. Shutterstock is a big client of ours, which millions of users use for video footage, image licensing. Now they can also license music through Shutterstock Music. Other providers online that are very popular for wedding videographers like Animoto.
So, you can come to us and use one of our sites like FriendlyMusic, which is just FriendlyMusic.com. But we know that there’s no one destination that over a billion video creators are going to go to, so we power music for a lot of different popular locations.
Andrew: Okay. You sold the business I read for $27 million. Is that accurate?
Paul: I can’t comment on it, but we’re very happy with the transaction.
Andrew: Am I going to look ridiculous if I told my audience he sold his business for $27 million? Is it way off base? Is it close?
Paul: I think you look great, just make sure you don’t do that thing with your eyebrows when you say it.
Andrew: Here’s the other thing that you guys do. If I play music on my video without getting permission first, YouTube will say, “Well, you don’t own that music.” You can do one of a few things with it. You can take this video down or you can also monetize it through advertising and then we’ll give a portion of the money back to the musician.” You are the reason that YouTube knows that I don’t own that music. You are the intermediary that takes that money from YouTube and gives it to the musician. Am I right?
Paul: That’s right. So, we represent about three million songs, six million copyrights because there’s a sound recording and a composition copyright for every song. We register those with YouTube and we register them with other popular video sites as well. But that enables YouTube to be able to find the songs.
And then if you have a license and you’ve licensed it from us or one of our partners, you can use our license key and just tell YouTube with a strand of numbers, the same way that you use a barcode when you go to check out at a grocery store. How is a grocery store going to know what you just bought? It’s really easy to see what that item was and how much it costs, all the terms and conditions associated with you getting that.
It’s the same thing with the music license from us. So, we allow you to either monetize the video as the video creator or just to register your license so that it doesn’t get caught in the system at YouTube. That’s a way for you to be able to communicate that you got the rights that you need. The other half is as a video creator, you want people to respect your rights as a creator, just like musicians and artists want people to respect their rights as a sound recording artist.
Andrew: So, I’ve been doing video like this for about five years, teaching people who to do videos and doing interviews. One of the things that I notice is very few people actually go to a site that licenses music and license it directly. In fact, I’m looking at FriendlyMusic.com on SimilarWeb. You guys get less than 20,000 hits a month according to SimilarWeb. You get less than we get in a week here at Mixergy. So, it’s not that many people going to the site.
It’s mostly, from what I understand, someone like me saying, in fact, not someone like me, someone like Jason Calacanis who does a startup interview show who says, “You know what would be really good here? A Jay-Z song or some other song that I find really inspiring. I’m just going to play it and then we’ll deal with the consequences later.”
So, people just play it and then you come in and you say, “Hey, this music is owned by someone else. You’re playing it without permission. That barcode isn’t there. So, we need to collect money somehow,” and you work with YouTube to run an ad there and split the revenue with the musician. Am I right? It seems like that’s the majority of the cases, people just playing music.
Paul: Well, that’s a lot of the uses, where people don’t necessarily have access to a site or don’t even really need it. Because if you’re not trying to monetize the video in any way or you’re not trying to use it for professional purposes, then YouTube and YouTube alone currently already has a system in place to capture that song. That’s why we register the songs and monetize it for our artists, right? But there are over a billion video creators. You’re very keen in looking at our site and looking at the traffic. That insight we had a long time ago.
FriendlyMusic has never been a destination. It’s more about demonstrating to the very large businesses that have tens or hundreds of millions of users because what you should be doing is putting GoPro, Shutterstock and Animoto up on Alexa next to your site. We’re capturing a funnel of tens of millions or hundreds of millions of users. Like Tango, are you familiar with the app Tango?
Paul: Tango is a very popular app. Alibaba invested over $200 million in the business. They’ve launched a new app called Tango Music Picks. What Tango does is it lets you grab a song and put it into a video and share it on any social network. It’s been a very successful app. It just launched recently in the past couple months. There’s no way that any of us would ever have the type of firepower as a huge brand to funnel that many users and creators in through different apps.
So, our goal really is to, we send people to FriendlyMusic to say, “Hey, GoPro, hey, Tango, here’s how things would work.” It helps spark their creativity. And then they build a product that really is applicable to their huge user base because it’s a big net to cast to try and capture video creators. A billion people is a lot of people.
Andrew: And all those deals are fairly new. Up until, say, July of this year, was it mostly people who were licensing music or were more people who you were working with just playing the music and then retroactively you were going in and collecting some payment for the musician.
Paul: Yes. So, the ecosystem has evolved quite a bit. We’ve been doing this for quite some time. So, early on customers like Animoto or like JumpCam, Socialcam, where it was more kind of mobile apps, YouTube has been a client for a really long time from a storefront perspective as well, they were kind of the early adopters.
But the new clients are showing the result of the carrot and stick that’s been going on, which is YouTube was the only company that had a content identification system for a long time. But now, if you look, Vimeo put together a system called Copyright Match which they just launched with our partner, Audible Magic. Dailymotion also uses Audible Magic. Facebook also has been using Audible Magic for some time as a content ID system.
So, the more that the stick side of the equation comes into play, the more demand it drives for people to license songs. So, you’re absolutely right. It really started from a kind of capture what people put in their videos perspective five or six years ago. I think you’ll see as time progresses, the same way that illegal file sharing turned into iPhones and iTunes and Spotify, it was kind of a slow progression from free to paid because paid was just simpler and easier to access. You’ll see the same thing in micro-licensing.
Andrew: I guess I’m getting so deep in the weeds right now that maybe we should go back and talk about how you got here. So, the way you got here is, I said you used to be homeless. At what point in your life were you homeless? Frankly, I used it as a hook at the top of the interview because I don’t get to interview a lot of people who are really homeless.
Paul: Yeah. Well, you know, it wasn’t the best moment of my life. I have to say, it was really a challenge. It was a period in school where I was too stubborn to accept assistance from others. I really wanted to make it on my own. I studied music at the University of Oregon, music production and orchestral film composition.
I just wasn’t doing so great because every time I got a job, I’d get a phone call from a studio or a producer and they’d say, “Hey, come down. Sarah McLachlan is in town. We need someone to produce a couple of songs.” So, I would literally drop what I was doing and go to the studio, get fired from the job that was actually paying my bills so I could pursue a career in music.
Andrew: So, you were producing for Sarah McLachlan?
Paul: I produced records and made all sorts of different music, live and otherwise, with lots of artists, both known and unknown.
Andrew: Was Sarah McLachlan one of them? I’m looking here at my notes. Background, “By age 22, Paul Anthony had produced recordings with Grammy Award-winning artist Sarah McLachlan.” Did you do that?
Andrew: Dude, that’s killer.
Paul: I did something with Sarah and George Clinton. I’ve recorded with a lot of really amazing artists. It’s been quite a privilege to work with some of them.
Andrew: So you don’t make money when you’re producing for someone like Sarah McLachlan, George Clinton?
Paul: So, I wasn’t their big fancy producer. I was a guy that brought in to do the acoustic version for the radio show or brought in to do kind of like the add-on songs. Like after they won a Grammy or were on tour, I would come in to help with new projects. But I didn’t get to do any of the big studio albums.
Andrew: I see. What’s the radio acoustic version? What does that mean?
Paul: You know when an artist goes on tour and they’ll stop by your local radio station and they’ll say, “Hey, So-and-So is in town and they’re doing an in-studio performance.” And then that radio station, they want to spin their unique, exclusive version of that song as opposed to the one that everyone’s been hearing all over the country.
Andrew: I see. So, then they need a producer for that. You go in. Nobody mentions you on the air, but you’re the reason why the music sounds so good on the radio using whatever equipment the radio station has.
Paul: Yeah. So, I do gigs like that. I would do recordings in LA where I’d come in and I would conduct or write for the string section for a big artist or I’d work with an artist as they were coming through town. I did a lot of studio albums too. But really, my path was as a film composer. When film composition, when I saw how long the road was going to be and that it wouldn’t necessarily be as fulfilling as I thought it would be creatively, I started to license music from other artists into movies and TV shows and ads. That’s how I started Rumblefish.
Andrew: Can you tilt the camera down a little bit? I want to get your whole head in there. There we go. So, how do you get into it exactly? Where do you find the need? Does it first happen with music, with movie studios who say that they need some music and then you go out and find it or is it vice versa where you get the music and you figure out that the best way to monetize it is through movie studios?
Paul: You mean how did I get started with Rumblefish?
Andrew: Yeah. Where does the idea… I would never know that there was an opportunity to license music. How did you come across that idea?
Paul: So, I was just broke and in school and trying to figure out how to make a living with music because I kept getting fired from all my other jobs because of music. So, I was an orchestral film composition student and a recording technology double-major at the music school. So, I would use the university symphony orchestra and the recording studio at school to record music for local ads or independent films and that type of thing. The film directors or the producers would just ask me, “What about the song on the car radio or what about the song in the night club? Can you find a jazz song for the make out session?” or whatever it was.
Paul: So, I would start music supervising the songs in between the cues that I would compose. That’s how it kind of started to come up. It started to turn into a big thing. By the time I was a senior, I had 15 different interns working for me from all the over the university. All my music homework and all my recording homework was all paying work, which was eventually what got me expelled and went over to business school.
Andrew: What do you mean paying work? So, the work that you were doing wasn’t paying you?
Paul: So, my employees at the point in college were all interns. By taking internships with my company, where I was writing music that I’d turn in for my music homework, I’d record my homework and I’d sell it to pay for school.
Andrew: I see. But it wasn’t enough then to get you a place to live. It was just enough to pay for school.
Paul: Yeah. That was the point. I was just trying to pay for school and find a place to live and really make the transition, take a leap from having the day job to making music my career.
Andrew: Would tell me this, tell me that you couldn’t get a date in college because you were sleeping out of your car and you couldn’t find a shower because I couldn’t get a date in college and I was showering every day. If you were sleeping in your car, walking around dirty and still getting dates, I would be pissed.
Paul: Actually, it was quite different. The best way to get out of your car is to get a girlfriend and sleep on her couch.
Andrew: See, that’s a thing I could never pull off. I had a place to live and I was still like, “What am I even going to say to her?” And here guys like you would walk around not only getting dates but also get to live in their homes. I couldn’t even get invited to the house for like five minutes.
Paul: Hey man, there’s a lot of things we’ve all done in college that we’re not proud of.
Andrew: So, you did get to fully live college, I guess because you’re a musician. Is that the thing? You get to play some music and women swoon. I’m assuming women. But you get to make people swoon all over.
Paul: Yeah. My focus in college wasn’t on women. It was really on music. So, that’s what it was all about to me and I actually had some very generous friends that would always make sure that I was taken care of. And I didn’t want to abuse that. I wasn’t homeless for that long. But it teaches you something. It was like I had to make a decision about what I really wanted to do and if I was willing to work through that to make music my career. I’m very fortunate to be surrounded by a lot of people who really helped out, including my family and close friends. They’ve stuck by me.
So, kind of fast forward from then to now, there are people who believe in the vision before they ever should have just because they believe in you. And that’s what was so great about actually selling the company this last year is that they got to see the vision realized over a number of years. Now we have a lot more resources and SESAC has been a great parent for us.
Andrew: The acquirer.
Paul: Yeah, the acquirer. So, we can take the vision now and just think even bigger than we ever have before.
Andrew: The next step, am I right, was YouTube, bumping into them and figuring out how you could work with them?
Paul: Yeah. We tried a number of things along the way.
Andrew: What’s one thing you tried that didn’t work?
Paul: Building the world’s first music licensing store. So, we built a music licensing store for filmmakers, high-level professional filmmakers and ad agencies. We spent a lot of money on it. You could hear the wind howling through the store. We could handle a million transactions a day and we had this 30,000 song catalogue that we thought every filmmaker in the world was going to want to use this.
And when we launched the site, when we really heavily promoted it, we found out that for traditional film and TV, at that point, nobody really needed that service. They really wanted to pick up the phone or fax people or use the traditional analog methods because nothing was that broken about it.
But that set us up, when YouTube came along and when Animoto came along and when all these cool new social video apps came along, we were the only people who would spend millions of dollars figuring out how to provide a lot of music very quickly for social media.
Andrew: I read you guys were considered the iTunes for business. If businesses needed music to use for professional reasons, they would come to Rumblefish. Where did you get the millions of dollars that it took to build that business, that first version that didn’t work out?
Paul: So, a lot of it was from revenue. But we also raised money. In total, over the years we raised a little over $3 million.
Andrew: Okay. And so how much went into the first version that you said nobody came through?
Paul: A couple million bucks.
Andrew: Okay. Wow. So, when that happens, how do you feel? Take me through the emotional part of it.
Paul: Well, you feel like an entrepreneur.
Andrew: Really? At that point I often feel like maybe I’m not really an entrepreneur or maybe I’m not as good as the big guys who earn that kind of funding. Don’t you feel at that point like, “I screwed up?” No?
Paul: No. It doesn’t feel great. But what’s important, I think, to know about entrepreneurship and I only have my own experience to glean from, is that failure really is a prerequisite to success. If you fail fast and learn from your mistakes, then you can build things that people really care about. I don’t know anyone who, right out the gate, built Snapchat. You figure it out as you go.
Andrew: I see. So, when that happened to you, you just said, “All right, this is part of the process. I’m just going to accept it and it means I’m a real entrepreneur because only real skateboarders have scars from falling down and only real entrepreneurs have these kinds of mistakes.”
Paul: Exactly right. That’s how you build something that’s actually sustainable and meaningful. You are honest with yourself, right? So, what we found is was it a mistake that we built a multi-million dollar store that none of the original people needed but YouTube did? It would have been a mistake if we didn’t keep going.
Andrew: So, what you did was you got the rights to sell music from a lot of different distributors, a lot of different labels, right? And then you tried to sell it to film studios. They didn’t buy. And then how did YouTube come into this?
Paul: I bumped into one of the guys at YouTube at a trade show. I started asking him a lot of questions about how many videos actually show up on YouTube every day and how do you deal with the rights. Is it really difficult for you because you need pre-cleared rights? He asked how many songs we had pre-cleared. At that point… you have to remember when we started doing this, pre-clearing songs for commercial use wasn’t popular. You’re a sellout. If you’re a label or a publisher, your fans will be pissed because you’re on an ad. That was the mindset then.
So, the fact that we had pre-cleared music and could license it instantly through a web interface was actually really useful. So, just asking them lots of questions about that and coming from that perspective, we started to see in YouTube and the adoption rate that there’s a tidal wave of a social video industry coming behind YouTube that’s much bigger and more interesting. So, we were just happy that we were paddling way ahead of the wave.
Andrew: I see. So, you partner up with them. How tough is it to get an agreement with them?
Paul: The first one is always the worst. But once you’re in, it’s a lot easier.
Andrew: What was that process to get the first one?
Paul: It was over several months. They weren’t nearly as big then as they are now. They had just been acquired by Google. But we had something they needed. So, it actually moved relatively quickly given their size. It was pretty simple mainly because the rights that we have are worldwide, all media. So, they didn’t have to try and carve out… they didn’t ask us for something we didn’t have, which is part of why they wanted to work with us.
So, we got into YouTube. We started learning from their system. And then we built a pretty substantial content ID claiming business, which is what you were talking about earlier where we rented the songs and collect the revenue. And then we built the micro-licensing side of things where we’re helping creators make more videos of the songs.
Andrew: You guys built the content ID part internally or is it a third party that does it for YouTube?
Paul: So, YouTube originally used a third party and then they brought that in-house. So, we registered content with YouTube’s content ID system, although we have a lot of third-party software that we’ve built that enhances it. And then we work with Audible Magic who provides the content ID for all the other major networks like Facebook, Vimeo, Dailymotion and others.
Andrew: I see. So, what did you learn from them in the first couple of years that allowed you to shape the software that you guys built?
Paul: Good question. So, we learned that if you can’t find a song, then it doesn’t end up in a video. So, we’re saying, “How do all these songs end up in all these videos? Where are people getting them?” We started to see that wherever people create videos, if a song was hanging out around there somehow or some video app had 10 songs that they were giving away, it would show up on YouTube like crazy.
Isn’t it easier if you’re using an interface that GoPro provides you or using an interface that Tango provides you or Twitter? We’ve done integration with Twitter. Just grab a song that they put in front of your face, right? Songs that were really well distributed showed up on YouTube all the time and monetized much better. So, we said, “Well, how do we get more songs into more videos?” So, we built a way to curate music and make it available to these apps to get more songs into more videos.
Andrew: What’s the first big partnership that you had?
Paul: You know, the first big partnership that’s worth mentioning is probably Animoto. I’d have to go back and look at who exactly was first, but Animoto definitely has blossomed-
Andrew: What year was that?
Paul: I don’t even know.
Andrew: You guys were founded in 2006, right?
Paul: We were founded on December 10th, 1996.
Andrew: 1996. Oh wow. Yeah. I see it now.
Paul: That’s me composing music. Rumblefish didn’t really start until about 2006 though.
Andrew: So then, was Animoto roughly 2010?
Paul: I have no idea.
Paul: It feels like this whole thing has taken 40 years. So, I think like two-thirds of the way in was what I think.
Paul: Animoto is a pretty visible site though. They’ve had a long, very public history. We were their first music partner.
Andrew: I am looking it up right now and all I can see is…
Paul: 2008 maybe?
Andrew: Maybe. But you know what? Animoto is mentioned so much in connection to Rumblefish that it’s hard to really see where it started in a quick glance.
Paul: The founders there are excellent. They built an incredible product. They have well over, I don’t know, eight million users now, I think. They have a lot of users. So, it’s a lot of video creation, especially wedding videographers. If you’re watching this and you’re a wedding videographer, Animoto is the place to go.
Andrew: I love Animoto. I’m surprised I don’t see them more in use by my friends. The idea with Animoto is you upload a bunch of photos which people are not going to want to flip through because it takes so long and it’s pretty boring to watch people’s family photos. So, with Animoto you upload all your photos. You pick some music and they will basically make your photos move to the music.
Paul: Yeah. They have great algorithms that synchronize the music to basically an automated video edit.
Paul: So, it makes it really engaging and interesting.
Andrew: So, the next photo doesn’t come on until the next beat and then when it does you see the next photo and the next and the next.
Paul: And there are a bunch of drum hits and the images kind of flash by. They have a really interesting technology and they’ve done very well.
Andrew: Do you remember when you hit the first $1 million in sales?
Paul: It was pretty early on. I don’t remember the exact day or anything. I didn’t put the dollar on the wall.
Andrew: You didn’t?
Paul: I didn’t put the first dollar on the wall. I was just happy to be getting customers.
Andrew: Here’s one of the big things that you do remember. You were really tenacious about it getting new clients, you told Jeremy Weisz our pre-interviewer. You said, “I would go to somebody’s office unscheduled. If I made phone calls to them and they weren’t taking my call, I’d just go into their office unscheduled, walk in and walk them to their car.”
Paul: Yeah. I’d go towards the end of the day and walk them to their car.
Andrew: Tell me how that would work. Sorry. The connection is a little bit funky here. So, how would that work? You try to call. Give me an example of someone who you tried to call who wouldn’t take your call.
Paul: So, there’s an ad agency in Eugene. I kept calling them because I wanted to write music for their ads. They wouldn’t listen to me. They wouldn’t respond to my calls. So, I went and met the founder as he was walking to his car and said, “Hey, I really want to do this for you.” I said, “Why don’t I take one of your spots and I’ll rewrite the music for you?” He’s like, “Fine.” So, I went home and did it that night and sent the music to them the next day. He loved it. He thought it was great. He thought it was better than the original music.
So, it’s just a way to get in the door. You have to be tenacious if you want to get things going when you have no experience or reference point for people to know the quality of your work.
Andrew: That’s impressive.
Paul: So, my goal was just start working. Even if they didn’t ask me to, just do the work anyways. I had a 70-piece orchestra and a full recording studio to work with from the university.
Andrew: Where did you get a 70-piece orchestra?
Paul: From the University of Oregon.
Andrew: Ah, okay. It helps if you’re doing this in school. What about the investor who wouldn’t talk to you?
Paul: Yeah. So, I actually took a flight on a private plane with an investor who said he didn’t have time to talk with me because he was flying around on his fancy jet. So, I asked him. I said, “Well, why don’t I just fly with you and I could talk to you while you’re on your jet?”
Andrew: And he said yes?
Paul: He said he thought it was funny and said sure. So, I got to pitch him in the air. As soon as 7,000 or 8,000 feet your cell phone goes out. So, he was talking on his phone. His cell phone would go out and then I got to pitch him until we were back in cell range.
Andrew: Wow. How did it go?
Paul: Terrible. He didn’t invest. But it’s a really good investor story. Of all the investors that you talk to, you have to know that 1 in 50 or 1 in 20 are actually going to write a check until you have some meaningful metrics to speak of.
Andrew: Who is the first investor that actually came in and did write the check?
Paul: Rob Thibert was our first investor and behind him David Van Wie from Eugene, Oregon.
Andrew: How did you get them?
Paul: Rob Thibert was a friend, a friend of my sister. He was very interested in what I’d been doing and he was intrigued that I had completely taken the lead and I was using my school to start a business. David Van Wie, who was an angel investor and on our board for quite some time, he built the company as one of the co-founders of InterTrust back in the day and really understood the issues with rights and was impressed with our model and gave it a go.
Andrew: And this was after you had shifted towards online content creators?
Paul: This was kind of on the way there. So, I was telling them, “I think this is a thing but I need some money to pursue it.”
Andrew: I see.
Paul: “Get out your check book. Let’s do it.”
Andrew: I see. So, you still needed the money to build that first version, that big market place that we talked about. So, they helped fund that marketplace. Then you saw that it didn’t work and you shifted towards online, which you were getting the sense already was the way to go.
Paul: That’s right. Really, it’s the same product, different customer, right? So, instead of a small universe of 10,000 very high-end video creators, we had, at that point, hundreds of millions of smaller video creators.
Andrew: I see. So, by then you already knew this was the direction. So, that’s why you weren’t so upset about the fall of the deals with the movie studios. You said, “I have this other thing in my head.”
Paul: Yeah. At that point it was still very unproven.
Andrew: But you believed in it. From what I can see, you believed in it. You said to Jeremy, “I wanted to bet the farm on micro-licensing. This was five years before it seemed like a good idea. I believed in it.” How did you know it was going to be such a big thing?
Paul: Well, everything gets smaller. What gave me the real conviction for it is I’d been in record production and recording studios ever since I was 14 years old. What happens in studios? Things get smaller and cheaper in terms of gear. So, now the things you can do with an iPhone are completely insane. When I started making records back in my day, it was two-inch tape and when you mixed a record, the whole band would reach their hands over the console and anyone who moved the faders when you wanted to automate the mix.
So, why wouldn’t the same thing happen in video? Why wouldn’t anybody eventually, which has come faster than we thought, anybody who has a phone is a filmmaker. So, that was the fundamental insight and truth that I believed if anybody who has a phone is a filmmaker, then what kind of films are the best films? The ones with a great soundtrack.
Although it seemed like a big leap of faith when you still needed a big production budget to make a video anyone would watch, look at the YouTube stars now. They have very limited gear. They have their enthusiasm, their creativity and great music to garner an audience of tens or hundreds of millions of subscribers.
Andrew: Yeah. I’m seeing that.
Paul: It’s like you, right? That’s what you’re doing. But you have a nice camera though.
Andrew: And a good mic.
Paul: You do.
Andrew: It’s a decent mic, actually. It turns out a decent mic doesn’t cost that much but it’s worth the investment.
Paul: What mic is that?
Andrew: This is the Rode Podcaster.
Paul: Oh, yeah. Rode’s good.
Andrew: What about the fire? Things were going well and then there was a fire.
Paul: Yeah. We had a fire in 2004. At that point we still had a recording facility. The recording facility, there was an artist in the facility that was an R&B artist that was making a very romantic love song. She lit a bunch of candles and they stayed lit after everyone was gone. So, that turned into the most expensive R&B song ever recorded at Rumblefish studios because it turned into a huge fire.
Paul: So, it was pretty devastating and caused almost half a million dollars’ worth of damage. That’s when the entrepreneurial community in Portland really stepped up. We got free office space, new equipment all from the different CEOs in Portland that really kind of banded together to help us out, to help us keep cranking and keep going.
Andrew: They gave you equipment to use to record?
Paul: They gave us equipment. They gave us computers. They gave us free office space. It took us six months to rebuild. And then once we got there we did our best to repay everyone. But that’s something where as an entrepreneur, if there are any entrepreneurs watching this, one of the best things you can do for yourself is build a really great community of other entrepreneurs and really try and help one another. When the shit hits the fan, those are the people that you want to reach out to.
Andrew: How did you get to know so many entrepreneurs? It feels like a tough thing to do.
Paul: So, just networking in town. We have a lot of great groups here. But I co-founded a group called Starve Ups with other startups. We basically created a vendor-free entrepreneur only environment. It’s been a very successful nonprofit and it’s still going on today with an incredible success rate. The success rate of startups going into Starve Ups is actually higher than the Y Combinators and the other kind of fancy accelerators of today.
Andrew: I see it here, StarveUps.com.
Paul: Yeah. So, if you have a business and you’re in Portland and we have a chapter in Eugene as well, then feel free to apply to Starve Ups. It’s a great community.
Andrew: And that’s how you got to know so many entrepreneurs, because they knew you, they were there for you when you needed them.
Paul: Yeah, and vice versa. I was there for them as well. It’s a lonely job when you’re building a business. It’s great to have others to commiserate with and learn from, especially those that are a little bit farther down the road than you. After that I joined a group called YPO when the business got bigger.
Andrew: I’ve heard really good things about that. Is that the group where you need to have $1 million in sales or a certain amount in funding to be a part of?
Paul: It’s over $14 million in sales and 50 employees to qualify to join.
Andrew: Oh, $14 million now? Wow.
Paul: The numbers have increased over the years.
Andrew: So, what do you get out of being a part of YPO?
Paul: The mission for YPO is to improve the quality of its members’ lives. They focus on personal, business and family. So, their philosophy, which I think is fantastic, is it’s all about if you feed the person then whatever they hope to achieve, they’ll have more tools to be successful. And if you’re successful in family, personal and business than rising tide raises all ships. So, that’s an international organization. It has about 18,000 members. I’m a member of the Oregon chapter, the Oregon Evergreen Chapter.
Andrew: What’s the part of the group that allows you to do that? Is this like a mastermind where you meet in person in a conference room, there’s a facilitator that helps lead the group, makes sure that everyone has some time to talk? Is that right?
Paul: There are two elements to it. One is what’s called forum. That’s a smaller group of CEOs, presidents that meet every month for 4 to 6 hours. We actually had a forum meeting today. Presidents from all different types of walks of life. It can either be a hired gun, a family business or an entrepreneur, like a startup entrepreneur like me. You basically try and help each other out. You get updates and that type of thing.
And then there’s your chapter events where some chapters have 20, 30, 40 people. Others have 100 or 200. And you have events where you can educate each other on different business skills or kind of just network with each other to try and facilitate deals. And then they have a network where I can connect with anybody else in my industry anywhere in the world. So, if I’m trying to get a deal done or open a door, I can leverage my YPO network to grow the business.
Andrew: Yeah. I hear really good things about it in my interviews.
Paul: It’s a fantastic organization.
Andrew: What do you get out of the meeting that you had this morning or earlier today, I should say?
Paul: So, that’s another thing that’s really fantastic about it is that it’s 100% confidential.
Andrew: What’s the process, though, that allows you to get value out of it? How many meetings do you try not to have? This is one that you don’t have to have but you embrace and you make time for. What is it about the structure?
Paul: Have you ever run a business with a board of directors?
Andrew: No, never.
Paul: Okay. So, your board of directors is always beating you up. They’re like, “We want more. You can do better.” A good board will both motivate you and beat you up. But they’re very wise. They have usually more resources and more experience than you. They’re aligned with you to grow the business, right?
What YPO is is your personal board of directors. What they care about is your career path, having a healthy family and personal type of experience and just growing you as an individual. You can imagine with the requirements to get in, sitting at a table with six to seven of your peers where all they care about is helping you, it’s a pretty powerful group of people to have to give you insight and their experiences.
So, I really crave working with that group. It’s very powerful. I can call anyone in the world in YPO and they’ll pick up the phone if I say, “Hey, Paul Anthony, YPO, Oregon Evergreen, I have a question for you.” And I do the same for them. I’ve helped numerous other members. It’s like anything else. These people are qualified. There’s a large vetting process. It’s invite-only. I just recommend anyone if your business is really starting to get to that level, to look for your local chapter or the international chapter.
Andrew: Why did you decide to sell?
Paul: Well, a couple reasons. There are two, really. The business reason first is that I could see the world of social video accelerating faster than we thought it would, where you see, the world used to be all about YouTube just recently. Now there’s a number of different websites and applications for social video.
So, in order for us to keep up with that, we either have to raise a bunch of money or become a part of a larger organization. So, what I call it is I was looking for a slingshot, right? So, I needed something where we could get an infusion of capital and we could be a part of a bigger organization that would help us expand both domestically and globally very quickly.
We had been getting a lot of inbound interest. We’ve always gotten inbound interest over the past three or four years at least. So, we started to take that interest more seriously and qualify it against what our objectives are. So, that’s the business reason.
The personal reason is I got married last October. It was a great economic opportunity for our family. It gave us an even bigger kind of second bite at the apple if we continued to really execute like we have, then we could win several times.
Andrew: Because you can get even more after the sale?
Paul: Yeah. Exactly. I’m still an equity holder in Rumblefish. We compensate all of our employees with stock options. So, it’s important not just to me but to the team to give ourselves the best fighting chance. The acquisition wasn’t a finish line. It was a starting line.
Andrew: It wasn’t an acquisition of the whole company? You still have shares in the business and SESAC has shares?
Paul: Yeah. We’ve done lots of transactions and we can’t talk too much about the details. But a lot of private equity firms were acquired by Rizvi Traverse, who owns SESAC or the private equity firm that owns SESAC. You can roll stock. So, I’m very bullish on the future opportunities of Rumblefish and didn’t want to lose out-
Andrew: What does it mean to roll stock?
Paul: It just means like if I were to buy your company, I can either buy all your stock right now and you basically would just have a job or I could buy most of it and you could roll from the company you have now to the new company that I would own if I own most of it so that we both would be shareholders in the new company.
Andrew: I see.
Paul: So, you basically would roll it forward from old co to new co so that you would have meaningful upside the next time around if it would pay dividends or if the company went public.
Andrew: So, do you own shares in SESAC? You sold for shares, not for cash.
Paul: I can’t talk about the deal specifics, but yeah, I’m an equity holder in the going concern. I can say that.
Andrew: All right. As long as I’m in the prying place, and then I promise I’ll get out of this, here’s what I was trying to get at before. I was doing my research on you and what I discovered is that there are some organizations that say, “Look, this whole thing of when a kid plays some music in a YouTube video and it takes off, yes, the artist should get some money, but the company that collects that money is basically doing administration. All they’re doing is collecting the money that would have been there anyway. They’re not encouraging the kid to pay the music. They’re not facilitating it. The kid would have played it anyway.”
So, for something like that, other companies pay out 80% and keep 20% for themselves. You guys do roughly a 50/50 split, which seems higher than your competition. The reason that I’m hearing you guys can do that is because the way you promote yourselves to musicians is as the company that encourages people who are doing video to place that audio into their videos. So, artists say, “All right, if they’re going to encourage people to play our music, if they’re going to facilitate it and promote it, of course they should get 50%.”
So, basically what I’m saying is musicians expect you guys to do a lot of the promotion, but in fact mostly this stuff happens even without you because people will play their music no matter what.
Paul: So, two things, one, that brings up the question of integrity because we’re very honest about what our offering is. Where I’m assuming you got that information from is one of our competitors who was very dishonest about what our offer is because that’s actually not what we do. So, we don’t try to paint any of our competitors in any sort of negative light. We actually just like to win business based on the merit of our abilities.
So, for micro-licensing, we split license fees 50/50, which is where they start to try and create confusion. But for content ID, we have similar rates to everyone else, which is paying anywhere from 70 to 80%. So, it’s actually not accurate. More importantly, what you were talking about is genuinely true with our competitors, which is they’re just catching the revenue that’s already there. Now, we just talked quite in depth about our micro-licensing business. So, we’re licensing over 100,000 songs a day into social videos.
Andrew: Where people actively say, “I’d like to play this music. I’m going to pay up front for it.”
Paul: Yeah. “I’d like to use this song in my video.”
Andrew: That’s 100,000 a day?
Paul: Over 100,000 a day. Sometimes it spikes up to 150,000. So, we’ve licensed over 75 million videos with music that then show up on YouTube. So, it’s pretty hard to say or make any case whatsoever that we actually don’t do way more than just capture revenue that shows up on YouTube. We’ve actually built the largest micro-licensing infrastructure in the world. We’re actually licensing more music than any company ever has into social video, which creates, and this is the most important part, 5 to 10 times as much revenue on YouTube.
So, if you were collecting what just shows up organically, then you really probably should make even less than everybody said people are charging. But we really feel like we’re creating a whole new industry, a whole new revenue stream where we’re converting unlicensed, unmonetized music into licensing dollars on the front end and then 5 to 10 times more of the revenue on YouTube. So, that’s why our clients never really leave. Our retention rate is well over 90%. We’re adding 30,000-50,000 songs a week.
So, it’s been a very successful venture for us. There’s a lot of misinformation put out there by competitors. I would urge anyone if you’re a label or publisher to actually look at the facts that we have available through all of our-
Andrew: You know what? To be honest with you, I had a hard time wrapping my head around this industry. So, I did much more research than I ordinarily would to try understand it. And, again, to continue to be honest, I don’t fully get it. But I understand synchronization license as a phrase, I don’t yet even know the phrase, I guess content ID, you’re saying, is the phrase that we would use for the other side of it. Synchronization is, “I want to pay to have some music on my video. I’m going to pay for a synchronization license.” The other one is content ID. So, you’re saying with content ID you guys do pay out 80% to the artist.
Paul: Yeah, 70, 80, sometimes more. If you’re a really high-profile artist and you’re creating a lot of views just based on who you are, then you deserve more.
Andrew: But if I’m just a regular artist and I say, “Look, I have music that I want played in videos. I’ll partner up with you guys,” you guys will both help get my music into other people’s videos and, at the same time, if someone’s already playing my music, you will collect payment for me. If you’re collecting payment for me for audio that ordinarily would have been there anyway, I would get 80% of that. If you’re promoting it, then I get 50%.
Paul: Yes, 70 to 80%. Exactly right. We do more way more work for artists who have very little to no following. So, we charge more for that, which is fair. If you’re very popular and there’s more momentum coming from your popularity than we pay you more because there’s less effort there.
The way, if you would think about it, it’s really simple, synchronization is a license fee up front, just like you talked about. Sometimes they pay for it or if like you’re a subscriber to Animoto, your Animoto subscription includes the license fees. So, it’s either paid for or it feels free because you’re already paying for the subscription. And then on the other hand, when ads show up on a network like YouTube, that’s the collection business. That’s the content ID is what I’m talking about. So, those are the two ways-
Andrew: Is the collection business a bigger part of the business than synchronization?
Paul: Not for long. The micro-licensing is quickly going to surpass the content ID or ad revenue business because there are just so many more people out there that want the convenience of having a license tracker available inside the applications they’re using to make their videos.
And of course, the other thing to keep in mind is we still have the very vibrant traditional music licensing business. So, background music overhead in restaurants, bars and clubs, music in action sports videos, movies, TV shows, any sort of adverts or advertising, we license a significant amount of songs into those as well. So, let’s say you’re about to put an album out next week. The way to think of us is you tour and you go do your downloads and streaming thing through a distributor. We’ll take all the social video-type of business and create revenue for you there as well as film and TV and advertising.
Andrew: I thought you were saying also in person, if a store plays my music you take care of that too.
Paul: We consider that traditional licensing.
Paul: And the success rate, I’m sure that artists out there are curious, “Well, how much money do I make? Is it worth my while?” We have a lot of artists that are making anywhere from $10,000 on the low end, the ones that are really starting to get licensed up to $60,000, $70,000 or $80,000 a year just through Rumblefish. So, it’s a meaningful amount for those unknown artists. Our bigger partners are making millions.
Andrew: What’s the best part of having sold the business?
Paul: Sleeping better.
Andrew: What do you mean?
Paul: You have a lot of people relying on you when you build a business and you’re selling a dream not only to your team but to your artists and your customers, right? So, once you have a firmer foundation to build upon, you sleep a little better at night.
Andrew: I know what you mean. Even in an interview where I would tell people, “This is my vision for what Mixergy is,” there’s a part of me that goes, “Well, now that I’ve told them, what if I don’t deliver on it?” And that does weigh on entrepreneurs. It weighs on people. It must be nice to get out from that and to just focus on the business and your customers.
Paul: Absolutely. It also really helps that if you go through a challenging process to figure out what works and you have to make a lot out of very little, it makes working with a lot more efficient. So, if someone were to give me $10 million when I really only needed to raise $1 million, I’d waste most of it. But if you raise money and you grow a business and earn revenue over time, you can use the skills that you had to build the business to make better decisions when you have more resources and a much better higher-skilled team to manage. I had no business managing the team I have now like four or five or six years ago because I didn’t’ know how to do it.
Andrew: Well, the website is Rumblefish. Boy, 20 years in the making, right?
Paul: 1996, that’s 18 years, I guess. Is that right?
Andrew: 18 years in the making. Congratulations on having built this business and on the sale and on getting to finally sleep well at night.
Paul: Yeah. Thanks a lot.
Andrew: Thank you for doing this interview. Thank you all for watching.