Startup Sets Out to Put Money in Artists’ Hands Without Taking Their Music

(Bloomberg) -- Record labels started calling rapper Lil Donald as soon as his song, “Do Better,” found an audience online.

A trap-music hit released in 2018, “Do Better” has been streamed tens of million of times. But when Lil Donald needed about $150,000 to fund a full marketing campaign for his new music, he had a problem. To get the money from record labels, he would have to cede ownership of his work on terms he might regret.

“The price of money would become really, really expensive,” said Wendy Day, Lil Donald’s manager. Day has devoted her career to helping hip-hop acts avoid getting exploited by lenders and record labels, and she urged Lil Donald to remain independent.

So Lil Donald turned instead to the Los Angeles-based startup Stem Disintermedia Inc., which is offering musicians money they can use to go on tour, record new songs or market their work -- without demanding ownership.

Stem has created a flat-fee service called Scale that offers financing in the form of a revolving credit line. It’s backed by investment firm CoVenture and plans to lend more than $100 million in advances to artists and independent labels. Scale launches on Thursday following tests with musicians such as Brent Faiyaz and Justine Skye. Fees range from 5% to 25%, and Stem also collects a cut when artists use its platform to distribute their music.

It’s the latest effort to rethink a music business that’s already been transformed in the past 10 years. Streaming services such as Spotify now account for nearly 80% of U.S. music sales, up from a tiny fraction a decade ago. And more artists have a direct relationship with their listeners -- something Stem looks to capitalize on with Scale.

Payback Calculator

The service lets users pick how large a monetary advance they want, as well as what percentage of their revenue from streaming services they want to contribute to pay that back (within limits). The product also involves a calculator that allows artists to look up how long it would take them to pay back their advance based on its size and their past earnings.

If artists can’t pay back the loan, their credit may suffer, but they won’t lose their music.

For decades, artists have signed over ownership of their work in exchange for an upfront advance and then received little visibility into the process of paying that off.

“We want to completely change the way artists can access capital,” said Milana Rabkin Lewis, Stem’s chief executive officer. Many artists never back pay the advances they receive from labels and are in debt for years.

Rabkin Lewis founded Stem after a stint at United Talent Agency. The idea was to give artists a way to distribute their music and track royalties in the fractured online economy. Artists such as Childish Gambino and Keith Urban have used its tools.

But Rabkin Lewis noticed a lot of her clients were struggling to access the money they needed. Their options were to sign with a major label or use a third-party distributor that would give an advance. Either way, they gave up a large share of their future earnings and had little say in shaping their deals.

“Artists should have the flexibility to choose what they need,” Rabkin Lewis said. “What were doing here is trying to incentivize artists to take less money.”

‘Payday’ Advances

Day was skeptical of Stem at first because so many other companies were trying to sign her artists to bad deals. These businesses, which she labels “payday advance companies,” will often message her clients on social media offering terms that could crush her acts in interest payments. Day knows some artists who are about to lose their homes.

She warmed to Scale once she heard it offered terms that artists could set. Lil Donald borrowed $100,000 to buttress $50,000 of his own money, some of which he is using for a campaign on the video app TikTok. He’s also staging a small promotional tour around the Southeast. The Atlanta-based rapper, born Donald Brooks, is getting ready to send his new music to radio stations nationwide.

In return for the money, he’s contributing 75% of his streaming revenue until it’s paid off.

“Our weak spot in music is money,” Day said. “If funding was more available and easier to obtain, artists wouldn’t need to sign to record labels. It’s our No. 1 pain point.”

To contact the reporter on this story: Lucas Shaw in Los Angeles at lshaw31@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Rob Golum

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