HEADQUARTERS: Los Angeles, CA
YEAR FOUNDED: 2015
2016 REVENUE: Undisclosed
A couple of years ago, Jeff Townes (made famous in DJ Jazzy Jeff & the Fresh Prince, the late '80s and '90s hip-hop duo with Will Smith) had a big idea. He wanted to bring together old-school DJs with newer, independent musicians to see what the older crew could learn from the next generation. So he began hosting weeklong DJ retreats at his Delaware home, where artists would share music, jam together, and learn how to drop albums in an industry undergoing a huge transition.
"A lot of the older guys thought I invited them to be mentors," Townes says. "They were surprised that I wanted the younger ones to teach them how to just release stuff online."
Townes, 52, brought in several organizations to discuss what the shift online meant for musicians. In August 2016, a startup called Stem presented a panel on how to monetize music released online. The L.A.-based software service helps indie artists distribute their work to streaming websites, tracks the streaming payments, and then pays out the earnings via PayPal to anyone who had a hand in the creative process.
"Everything I've been doing with these studio retreats was to help musicians gain as much independence as they can," Townes says. "It felt like this magical moment--the last piece of the puzzle we needed." He then suggested, as a test, that the retreat group of 39 singers, songwriters, musicians, producers, and engineers together create and distribute an album from start to finish. Had they taken the traditional route of working through a label, the timetable would have been ludicrous.
On the last day of the retreat, the group unveiled its album, Chasing Goosebumps, online. "This went straight from music maker to music lover. We got the people who make this confusing out of the way," Townes says.
These are the kinds of stories that Stem CEO and co-founder Milana Rabkin loves to hear. She came up with the idea for Stem while working as a digital talent agent at United Talent Agency in 2015. Her task was to find a way for the agency's actors, writers, and producers to expand their opportunities online. It was an exciting time to work in the talent business no matter which side you were on--YouTube was helping previously unknown performers build massive audiences and rise to fame.
But the online shakeup created new headaches for artists trying to get paid. The streaming platforms had a lot of data but few resources for figuring out who to pay and how much they were owed, particularly for collaborative projects. Rabkin thought there had to be a way to both automate this process and make it easier for independent artists to distribute their work across several platforms at once.
It turned out, it wasn't a totally original idea. Rabkin learned that Tim Luckow--a name that had come up in several conversations--was noodling on a similar idea. A former musician and band manager, he was discussing the concept with Shawn Fanning, the creator of Napster. "My heart dropped--this was exactly what I wanted to do--and the Napster guy!" Rabkin says.
In the end, however, Fanning was not interested in pursuing the idea. Rabkin decided to reach out to Luckow, because she needed a technical co-founder and Luckow needed a CEO.
After an hourlong phone conversation, Rabkin flew to New York City to meet Luckow and his co-founder Jovin Cronin-Wilesmith. Brunch turned into a six-hour meeting. Rabkin sat between the two men. "Tim is the yin to my yang," she says. "Jovin is like a translator."
The trio set up shop in L.A. But building the product was a challenge: Many streaming platforms didn't yet have well-developed back ends that a third party like Stem could easily plug into. The co-founders also decided to handpick 12 independent artists, including Grammy-winning singer Anna Wise, and build the user interface of Stem according to their feedback. "We put wireframes in their hands that didn't actually work--when they clicked through, it sent an email to us," Rabkin says.
Now the process is automated. Artists create an account, upload their files, and select where they want their work distributed. Stem currently distributes to Spotify, YouTube, Apple, SoundCloud, Amazon Music, Tidal, Pandora, Google Play, Beatport, Saavn, and Deezer. If multiple people worked on the project, no one gets paid until all parties agree on how to split the revenue.
Stem launched in invite-only beta in June 2016. The company is currently working with more than 130 talent management companies to distribute artists' work, and helped distribute Frank Ocean's recent Blonde album. Stem makes money by taking a 5 percent cut of artists' revenue. To date, the company has raised $12.5 million from investors including Mark Cuban, Gary Vaynerchuk's investment arm, Scooter Braun (who's represented Justin Bieber and Ariana Grande), Shervin Pishevar, Aspect Ventures, and Upfront Ventures.
To be sure, Stem isn't the only service catering to indie artists who want to distribute their music online. CD Baby offers online distribution and revenue splits, and Kobalt, which bills itself as a rights management platform, tracks royalties. Stem wants to differentiate itself by going after the "mid tier" of content creators, Rabkin says, meaning independent artists who also have their own following, have management support, and collaborate frequently with like-minded musicians.
Although the startup began with the idea that it could enable artists to be their own labels, the growth plan involves building out the platform so that labels and distributors can use the Stem dashboard, which would presumably offer the company a much faster way to scale and make money. There are no plans to completely open up and become a self-serve platform for anyone who wants to use it.
"It's been really rewarding to see how highly functional the relationship between labels, artists, and managers can be when they are looking at the same dashboard," Rabkin says.