97. How to Scale, Adapt, and Win in a Broken Market | Rio Caraeff

James Reed: all about business

James Reed interviews Rio Caraeff, Co-President of Musixmatch, about the evolution of the music industry through technology. The conversatio

Key takeaways

• Rio CaraFF's father captured the iconic photo of Jimi Hendrix lighting his guitar on fire at age 17.
• The music business is described as a '$10 business stuck in a $5 bag' due to fractured copyrights between compositions and recordings.

Main topics

• History of music technology
• Copyright fragmentation

Notable quotes

I often call the music business a $10 business stuck in a $5 bag.

Conclusion

The episode offers a strategic look at how technological shifts requir

Transcript preview

Speaker 1 (0:00) Welcome to All About Business with me, James Reid, the podcast that covers everything about business, management, and leadership. Every episode, I sit down with different guests who have bootstrapped companies, masterminded investment models, or built a business empire. They're leaders in their field, and they're here to give you top insights and actionable advice so that you can apply their ideas to your own career or business venture. Speaker 1 (0:29) AI is transforming the music industry. But who owns the data, the lyrics, and ultimately the value behind the songs we listen to every day? Today on All About Business, I'm joined by Rio Caraf, co-president of Musixmatch, the company helping power music attribution, lyrics, and rights management at global scale. In this episode, we discuss the hidden infrastructure behind the music industry, how AI is changing the way music is discovered and monetized, and why the future of music may depend as much on data as creativity itself. Speaker 1 (1:12) Well, today on All About Business, I'm really delighted to welcome Rio Caraf, who's traveled all the way from Austin in Texas to talk to me today. Thanks so much for coming, Rio. Speaker 2 (1:21) Thank you for having me. Speaker 1 (1:22) It's a real pleasure. Rio's the co-president of Music Match, a global lyrics and music data platform. So you know a lot about music and tech. Speaker 2 (1:31) Yeah, it's been about 30 years, you know, I've been in music and tech and since about 1993. Speaker 1 (1:38) So, so, so what, yeah, what, what first attracted you to that space? This intersection of music and technology? Speaker 2 (1:44) I'm always, uh, you know, you always, I always like to go back and say, you know, what are the deep psychological reasons, you know, that you're attracted to such a irrational and illogical and crazy business? That's an interesting Speaker 1 (1:56) question. Yeah. What is that? And I think, Speaker 2 (1:58) you know, the honest answer is my father, you know, was in the music business from 1967 to 1983. Right. And he was, you know, basically became a very famous rock and roll photographer. Right. And when he was 17 years old, just a kid in school in 1967, he went up to a rock concert in Monterey, California. And he was just, you know, no credentials, no backstage pass. 17-year-old Monterey. 17-year-old, you know, high school kid and went to the Monterey Pop and Jazz, you know, festival. standing on his seat, taking pictures. And he shot a photo of Jimi Hendrix lighting his guitar on fire, which became a very famous photo. Yeah, I know it. I was just thinking that's where that happened. It's Speaker 1 (2:46) been Speaker 2 (2:46) on Speaker 1 (2:46) the Speaker 2 (2:46) cover Speaker 1 (2:47) of Rolling Stone two Speaker 2 (2:48) or three times, Life Magazine. So your dad took that picture at the age of 17? He Speaker 1 (2:54) did, Speaker 2 (2:54) yeah. He was not a Speaker 1 (2:55) professional. He was just a kid. Speaker 2 (2:56) All the professionals were on stage and they got the same photo, but from the side. And he was just a kid standing on his chair and he got the frontal, the full frontal shot. The Speaker 1 (3:09) best Speaker 2 (3:09) shot. The best Speaker 1 (3:09) shot. And Speaker 2 (3:10) also, I find it interesting. Remember, before digital cameras, there was just 32 shots on the roll, film. And it was the last shot on the roll. It was the 32nd shot. And so things moved a little slower then. So it wasn't like he instantly became a big photographer. It took a couple of years. But that essentially ignited his passion for rock and roll photography. And then that became later, you know, a famous photo. And in 1987, you know, 20 years later, Jan Venner, the founder of Rolling Stone, called it the most famous rock and roll photo of all time. But basically, from 1967 to 1983, he photographed, art directed, designed and produced, you know, nearly a thousand. rock and roll album covers. So basically every Elton John album, every Steely Dan album, every Bee Gees album, every Neil Diamond album, every Dolly Parton album. you know, Marvin Gaye, George Harrison. Album covers Speaker 1 (4:13) for younger listeners were like works of art. Yeah, yeah. Everyone waited to see what they were like. You Speaker 2 (4:18) can't Speaker 1 (4:18) assume Speaker 2 (4:18) everybody knows what an album cover is anymore. Yeah, but I mean, I know what they are. And I'm thinking Speaker 1 (4:22) these are really some iconic things you're talking Speaker 2 (4:24) about. Speaker 1 (4:24) They're the little Speaker 2 (4:24) pictures you see on your phone, you know, on Spotify. Speaker 1 (4:27) But these were works of art. Yeah, yeah. There Speaker 2 (4:29) was a time they were big gatefold, you know, LPs with pictures and words and lyrics in Speaker 1 (4:35) them. Speaker 2 (4:36) So, so, That launched essential, that was his career in music. And, you know, so that was born, you know, in the middle of that in 1975. You know, and when I had hair, you know, my first haircut was Olivia Newton-John, you know, gave it to me. And Dolly Parton helped, you know, teach me to read, you know, there. Yeah. And so I grew up in Speaker 1 (4:58) the- Speaker 2 (4:58) So Olivia Newton-John Speaker 1 (4:59) gave you your first haircut. Yeah, yeah, yeah. Speaker 2 (5:01) I don't think many people can claim that. Dolly Speaker 1 (5:03) Parton taught you to read. I love it. And so- That was the first book you read with her. Speaker 2 (5:07) I don't remember. Why would you quite? Yeah. But the, so you grow up in that era of, you know, of, I grew up essentially in visual music, you know, photography and images and music and creativity and art. And this was, he was not like an executive in a office tower, you know, somewhere he was, uh, essentially, you know, uh, on the road, you know, with artists and traveling with, with the rock stars. And they were all at our house at our studio. And So it was also a tumultuous time, lots of, as you can imagine, what the lifestyle would be like in the 70s there. So a lot of ups and downs, but that's really what I was born into. And so it would be, getting back to the question, if I'm honest and you're open, that's probably where the seeds were planted and the passion was started, even though it's unconscious and you don't know it at the time. And then he got out of music in 1983. He burned out. And his last album, I think, was Hall & Oates, Privatize, there. And then he reinvented himself as a chef and restaurateur and opened up some restaurants. But basically, years later, I got into music. I got into music technology very early, in the early 90s. I built... websites for Michael Jackson and the Beatles. And I sold the first song over the internet from a major music company, which was Duran Duran in 1997, when I worked at Capitol Records. I helped- That was the first song over Speaker 1 (6:45) the internet. Speaker 2 (6:45) That was the first Speaker 1 (6:45) song ever sold commercially over Speaker 2 (6:47) the internet from a major music company. What year was that? 1997. Right. Very early. Yeah. And then- I helped drive the 99 cent download business with Steve Jobs and Apple. I helped conceive the subscription model that's used today by nearly a billion people, which is turning music from a product into a service. I helped create the licensing model for music videos to turn music videos from what I call the movie trailer of the music business into a multi-billion dollar revenue stream. And so, you know, I've been a part of nearly every inflection and change point in the music business in the last 30 years. And that's been where my passion is. Speaker 1 (7:34) So there's been huge change over that 30-year period. And looking back, what do you think the music industry maybe initially misunderstood about digital or digital platforms? Speaker 2 (7:45) Yeah, I think... Well, the first thing I try to remember is there's a difference between the business of music and music, right? It's easy for people to conflate them. I always try to remember, let's go back millennia. Let's go back in thousands of years and think about what are the things that are hard-coded into our cellular DNA that make us human, right? Why does everybody love sports? And why does everybody love music? And why do people love... movies and television shows and books, right? Narrative storytelling. Good questions. And religion, right? And so there are a handful of things that we unconsciously gravitate towards and we resonate with. And those are what I call pipelines to the soul, right? They create a pure emotional connection. They bypass the rational mind. And so it's why brand advertisers love sports. because sports is a vessel to an irrational decision with which they can wrap their automotive brand or their lager. An irrational decision. Yeah. I want that Lexus. I'll buy that. Yeah, I want that. Is that right? Okay, that's interesting. Yeah, and it's why they love music. It's why they love sports, right? It's why advertisers and marketers love these things because people have passion for music. They have passion for sports. They have passion for whatever. whatever story you're telling. So these are fertile ground for businesses, of course. Whenever you have something that billions of people love, what are the opportunities to create value on top of that? And so you're not going to wake up one morning and find a continent of people who just don't like sports or music or storytelling. And so those are always the best places to start businesses, I find. And so... Speaker 2 (9:45) That's where I start. And then I get into, to get to your question about what is the music business doing or what have they learned? But I always try to remember, the business of music or the business of sports are in constant change, right? They don't have a God-given right to exist, right? There's no fundamental reason even why they should exist, right? And so you shouldn't be too precious or too... hold on too tight and say, I wish people still bought CDs, or I wish that the cable television business still existed. You should just accept that change is the only certainty and meet the customer and the artist where they are. The second thing I learned is that there's also a lot of deep-seated psychological issues which inform the way the modern music business works. Some of it is... rooted in this zero sum game, thinking like I win or you lose, or you're doing something that's gonna debit from me, or my stream is gonna debit from your stream and thus I'll make less money, you'll make money. So that is a short-sighted, myopic way of thinking. I often call the music business a $10 business stuck in a $5 bag, right? It's artificially small. What do you mean by that? Yeah. So if you think about it, the music business and music itself transcends the economics of its category. So for example... Music impacts and moves culture, right? Music is used in, you can't go to a sporting event without hearing music, right? Speaker 1 (11:31) You Speaker 2 (11:31) can't go to a fashion show without hearing music. You can't watch a movie or a television show without hearing music. You know, music moves, you can't, you can't. buy an iPhone without music as a part of it. And so music moves technology, music moves culture, music moves the economy, it moves politics, it moves fashion, it moves many categories of industry. But that's not counted as the music business even. And so then there's all of these structural elements that conspire against the scale and growth of music. So for example, it's one of the only, it's probably the only industry that has a fractured copyright. So what that means is that the underlying copyright of music is fractured and there are two parts of it. And the people who write the songs are not the same as the, that's one copyright. And the people who perform the songs, that's a different copyright. And then as music has become an asset class. bought and sold by investors, it's accelerated the fracturing of the copyright. Because one investment company may hold the underlying compositions of The Weeknd or Justin Bieber or Ariana Grande, and then another company may own the underlying sound recordings, which could be Universal or Sony or Warner. And so what that means is that... It's very hard to do new things, right? It's very hard to invent an entirely new product or an entirely new service or an entirely new category. Like, let's say you had a great idea for some amazing new music experience, you know, that was native, you know, to AI or to the web. And you couldn't just do that because no one company controls all the copyright. And so even when I ran the digital business for the world's largest music company, we were only 35%, 36 % global market share. And we only had controlled the record part or the publishing part, but not all of the parts. And so even if we wanted to do something as the world's largest music company, we would sit there and say, well, we don't control the entire market, and we don't even have the majority of the market. And then also, it's against the law to collude. with your competitors to talk about doing new things. In the US, the sports leagues enjoy what I call it's an antitrust exemption. It's legal for them to get together, all the different sports leagues, and talk about new things and set prices. But it's not legal for any other industry to do that. So it just means that things happen slowly and things are harder to do. And so... And then, so that's the root of it. The last point I'll make, I know this is a long answer. The last point I'll make is that there's also this deep-seated psychology where there's like a resentment that happens when people build businesses on top of music, and then there's no value that accrues to the underlying music companies or artists. So an example, it goes back to the 1950s when there's the creation of radio, right? radio stations played music, but they didn't pay for the music they played. It was deemed promotional. Maybe you'll sell a record one day, but I'm not going to pay for this music I'm playing. And so then the music companies, that was a fine bargain at the beginning. And then eventually the radio stations became worth a lot of money and they said, hey, that's not fair. That's not equitable. And then it was... MTV in the 80s. MTV would play music and the music companies and the artists didn't own MTV and then that was worth billions of dollars. And hey, that's not fair. And then YouTube came out and Speaker 1 (15:34) YouTube Speaker 2 (15:34) had a lot of music and then YouTube became worth a lot of money. And then everybody says, they're taking advantage of us. They're building a business on the back of our music and not paying for it. So there's a multi-generational, decades-long, deep-seated psychology of resentment. that emerges when it's all, there's always a trade and there's always a deal, but when one industry, YouTube is worth far more than the music business. And there was a time in 2009 when I think two out of every three streams on YouTube implicated a copyright that I under controlled at Universal. And now of course, YouTube is so much bigger than music. Anyway, I'll pause. So Speaker 1 (16:18) maybe it's a $100 business in a $5 bag, given what you've just been saying. Yeah, so you see why I say that. Yeah, no, and I can understand that feeling. I feel like the Speaker 2 (16:26) music business should be much bigger than it is. But there are reasons, structural reasons and psychological reasons, as to