Signing musicians to recording deals is like playing big-league baseball: Even future Hall of Famers retire with far more strikeouts than home runs.
Alex White, the co-founder and CEO of Next Big Sound, learned this firsthand during an internship at Motown Records the summer after his freshman year at Northwestern University. A multi-instrumentalist, he'd abandoned his dream of making a living playing music after realizing he didn't enjoy performing before crowds. "If I couldn't be the rock star, I wanted to sign the rock stars," White says.
Stapling the weekly CD sales reports at Motown got White thinking about why some artists break big while others fizzle. Back at Northwestern, he took up this question with two friends, Samir Rayani and David Hoffman. Rayani and White worked together on the programming board that booked musicians to play concerts on campus, while Hoffman and White shared classes in their major, organizational change.
The three came up with an idea for a website that would essentially be a fantasy league for the music industry, letting anyone play the role of A&R executive. "What we were most interested in was how we could map the flow of how music and artists break and reverse-engineer it," White says. They raised $25,000 from friends and family to build it out, and applied to the TechStars incubator. Rejected on their first attempt in 2008, they applied again in 2009 and got in.
"Our idea sucks"
Jason Mendelson, a venture capitalist at Foundry Group, was a mentor at Techstars. He met with White and his co-founders on the first day of the three-month program. "They said, 'We think our idea sucks. We want to do something completely different,'" Mendelson recalls.
That "something different" is what would become the core business of Next Big Sound: using big data to help make sense of the music industry and other chaotic-seeming and hit-driven businesses. By analyzing everything from Pandora plays and YouTube views to Twitter followers and Facebook shares, Next Big Sound is able to predict album sales with a degree of accuracy that's never been possible. The company claims its forecasts are accurate to within a 20 percent margin of error for 85 percent of artists. It successfully predicted more than 80 percent of the 386 artists that appeared on the Billboard 200 in 2014, pegging some of them more than a year before they charted.
A Next Big Sound account quickly became a must-have for record labels, which pay for an annual subscription; cost varies depending on service level. As the company has grown, however--it now has 23 employees and booked $2.6 million in revenue last year--it has shifted focus to a new category of clients: brands. As the economics of the music business has undergone tectonic change, sponsorships have come to trump traditionally more important revenue streams like ticket sales and merchandise for many artists. "You're not selling music to become rich in the music industry anymore," says Mendelson, who now sits on Next Big Sound's board. "You're selling everything else."
Marketing to brands
Next Big Sound's analytics can help client brands like Pepsi, American Express, and Absolut figure out which artists are likely to blow up in a few months or whose fans skew heavily toward a desired demographic. If you want to license a No. 1 single as the music for your car commercial, it's a lot cheaper to do it six months before it hits the charts. Eventually, White says, the company will be able to do much the same for TV shows, video games, movies, and many other types of products. "One by one, these verticals are being overwhelmed with data," he says. "We see it as our role to help shepherd and understand how these new metrics tie to their core businesses."
Telling multibillion-dollar media conglomerates and marketers their business requires a certain degree of chutzpah from entrepreneurs technically still in their first job out of college. White says being written off as a kid was a big concern when he was starting Next Big Sound. "I looked super young," he says. "I didn't think any investors would put money into a company run by someone so young."
But they did--$7.4 million to date--and over time, White has come realize that, when it comes to spotting trends and understanding new platforms, clients often want nothing more than the wisdom of youth: "The very thing I was most afraid of, my age working against me, actually played to my advantage."