Snapchat should be a perfect fit for music. It reaches the same young, hip demographic that labels are interested in, its ephemeral snaps make piracy a non-issue, and the company's LA origins give it a natural entry point into the industry. The company has already experimented with promoting specific bands in promotional snaps; the only question is how to turn it into a business.
Snapchat considered starting a music label
Leaked emails show that Snapchat CEO Evan Spiegel has considered a range of ideas for integrating music into Snapchat, including starting a music label and using the app to promote up-and-coming acts. But it's unclear how those projects might fit into the current product, and leaked emails also show a disconnect between Snapchat and the music industry that presents major problems to the project as currently conceived.
The emails come from Sony Pictures CEO Michael Lynton, who's also an investor and member of Snapchat's board. (Snapchat declined to comment on the leaks.) Messages from early this summer show Spiegel taking meetings with Sony Music executives and industry luminaries like LA Reid, helped along by Lynton’s ample industry connections. Spiegel mused openly about the advantages of starting a music label, which would allow Snapchat to capture some of the financial benefits of the acts it promotes. The only missing piece was a music service — someone to sell the music Snapchat was creating buzz for. Spiegel was gun-shy about starting his own music service, so he set out to find a partner that could play a part in Snapchat's evolving plans.
"I think it will be challenging for them to sign up a lot of premium video partners with this particular stance."
In July, Spiegel wrote to Lynton looking for an introduction to Vevo executives. "We're working on a new product and I think Vevo would be a great fit," he tells Lynton. But by August, the deal seemed to have collapsed. Vevo CEO Rio Caraeff writes back to Lynton saying the deal has hit a snag, which appears to be over the amount of advertising revenue that Snapchat would share with Vevo. "They want 40 percent of gross [revenue], which is just not workable for us," Caraeff writes. "We've proposed other percentage shares but they've all been rejected." In short, Snapchat is driving a hard bargain, and is willing to wait for music video services to come around. "Not asking you to do anything," Caraeff continues, "just keeping you appraised as I think it will be challenging for them to sign up a lot of premium video partners with this particular stance."
"We'd be losing money."
The biggest problem is the stark difference between the economics of the music industry and the tech world. A 40-percent revenue share isn't unheard of for app stores or platforms like YouTube, which typically takes 45 percent of ad revenue. Vevo itself has to share revenues with artists and labels, and negotiated a special deal with YouTube as a result. Snapchat's proposal comes out looking impossible by comparison. "We'd be losing money," one Vevo executive said in an email, offering a blunt take on Snapchat's proposal. "As discussed, our margins are fairly challenged."
The result is a stalemate not just with Vevo, but the industry at large. Services like iTunes and Google Music are in the same position as Vevo, without the profit margins to accommodate Snapchat's ambitions. If Snapchat gave in, lowering the revenue share to the standards of the music industry, it would likely find the result too meager to impress software-minded tech investors. The result is a standoff, with Snapchat expecting the same profit margins as platforms like YouTube and the industry seeing Snapchat as one more marketing channel. As long as neither side budges, we're unlikely to see a partnership any time soon.