Exploration Year in Review – 2014

This email is the Exploration Year In Review – 2014

This review serves to explain how the year went, what statistics for the business look like, and what we tried that went well and went poorly. Its partially for our own planning purposes (which I think is a really good idea, even if you only publish to your own computer), to live by our code of transparency, to provide a platform to get advice on how we can improve, and with hopes that folks can benefit from our experience as well.

Capsule Summary: We are extremely pleased with the progress of our company.

Exploration is a media management and software company, primarily representing music publishers and labels, to get the most from YouTube. Our clients range from musical composers with only a handful of titles to multinational conglomerates, that even if you didn’t work in entertainment, you would probably be familiar with.

Rene runs the operations and administration, while I tackle the business and software development. We are aided by a staff of 6, which help with licensing, claiming (after a video has been identified to be using a client’s copyright, we ‘claim it’ on behalf of our client and apply monetization in the form of ads), software development, and all sorts of odds and ends. Everyone starts with learning to format and ingest catalogs, in addition to claiming.

We have been able to continue the development of our core search software, while taking stabs at a few experimental applications. Some of those experiments failed or became chew toy for William, while others show a measure of promise. Our service component is finding its stride. Formatting of databases and catalogs to ingest into YouTube is down to a science. Identifying claimable works is a predictable process, with challenging but attainable quotas for our staff. We saw bottlenecks in the on-boarding of clients.

We experienced growing pains in the form of losing contracts that we were quite certain we would earn. Large amounts of time and resources were devoted to these clients, preventing the same for others. We spent considerable resources on business infrastructure, that we would have preferred be paid to employees or on company growth. Thankfully, these expenses will not have to be repeated.

Education was the greatest tool we utilized in growing, not only our company, but the industry facet, YouTube, at large.

Before getting into the numbers, a bit of context about goals: For those that are unaware, Rene and I were friends outside of work before starting Exploration. Rene is keen to photograph rugby around the world and I fancy the ability to play anywhere that will have me, so we often found ourselves laughing and carrying on over cold beers after a day at the pitch. The mood changed when I broke my leg overseas and she was the first human I was fortunate enough to see upon my return stateside. I just wanted to share a laugh with a friend. That’s when I learned of challenge music publishers experience with YouTube.

I’d graduated with a degree in Business Administration and a concentration in Finance from the University of North Carolina at Wilmington and started to teach myself to code in 2005. After getting my feet wet with veritable hieroglyphic software languages, I began to work on software that interfaced with Google APIs, specifically the Adwords API, BigQuery API, YouTube Data API, and YouTube Analytics API. Rene, of course, had started knee high to a caterpillar in the music business, getting her degree in Music Business from Belmont in Nashville and working her way up first at Windswept then Bug and finally as the Director of Licensing at BMG. We both were surrounded by music in our youth with family members that were exceptional artists, alas the beat and tone genes passed us over.

I had a bit of time on my hands, after having been playing footie on the other side of the earth for an expected 2 months, then had a pretty serious injury. She was pulling the long hours managing a team of people scouring YouTube for copyrights.

An idea sparked!

I couldn’t believe that her team wasn’t using some sort of software to automate the process of identifying videos that might contain the copyrights they controlled, so I offered to take a crack at building it. The first few iterations were pretty janky…and ugly…but it worked. I shared the application with her company, but they weren’t interested. That turned out to be a good thing.

After a bit of hemming and hawing, I convinced Rene to grab my hand and jump off the metaphorical cliff with me; to start our own company helping those that needed it.

She had the publishing brain trust and relationships in the music business and I could build the software and shake to bushes to find folks that were keen for help. I am also quick to book a flight to Mars, if there is a hint of opportunity to be realized and she is just as fast to remind me that there are plenty of berries in the thicket in front of us and to keep focus. Turned out to be an awesome team, if I do say so myself.

It wasn’t long before Exploration was a going concern.

Before long, we were signing clients to represent them, getting requests to meet with investors and big umbrella companies, and taking meetings with some of the most important and storied organizations in the entertainment business.

Whoa! Pump the brakes, speedy gonzales!!!

What did we want to be? Did we want to raise funds to grow fast to eventually sell? Or did we want to bootstrap, as they say, and fund the company from our savings and hard work? What was our end game? Did we have an exit strategy?

This is what brings us full circle, with regard to goals. Ultimately, our goal is to build a company that survives us. The industry is not only moving and changing, but doing so at incredible pace. We are fortunate, in that we are nimble and independent, such that we can meet those demands. Would having lots more money be cool, sure, as a means to provide more of a buffer for our families and a bit more latitude to explore other ideas, but money, qua money, isn’t our driving force. Our allegiance is to our clients and our goal is to provide the very best service we can.

Exploration Statistics: The most important metrics we measure are catalog growth and client churn.

Catalog growth comes as a function of signing new clients to our service. This is typically about a 90 day process from initial contact to catalog delivery. It begins with the foundations of how YouTube has established itself as a revenue stream for rights holders. We’ve given this relatively basic talk about 300 times at this point. Once we’ve moved past this stage, we do our best to answer specific use cases that are unique to a particular client. More often than not, we have those answers, but pride ourselves on the willingness to explain we aren’t sure but will get right back to them. Next hop, contract negotiation. Our boiler plate contract has now survived 170+ of these negotiations, with just about as many attorneys trying to ruin the deal (teasing), whereby its pretty dead on, as far as we are concerned. As of this writing, we have signed 181 music publishers, labels, and media companies.

Finally, we take delivery of a client’s catalog.

We were very surprised to learn that that last step, taking delivery of a catalog, would be a relatively large hurdle. We surmise that this is because clients sometimes have this stored in disparate databases, are swamped for time, or simply unsure what they might own. We’ve done our best to mitigate this challenge, by offering free help to organize one’s catalog (we’ll even come to your office) to encouraging folks to submit just the known hits initially.

The opposite side of that coin is churn, or the amount of clients that decide to go in another direction and leave our service. Fortunately, we do not have much to report. Our contracts are initially for 1 (one) year and auto renew. Clients are welcome to leave with written notice. While our first signed clients are coming to the end of the initial term, no one has expressed interest in moving on.

Client acquisition has been realized from the expected channels, listed below in the order in which estimate we have realized the most success:

• Email Newsletter (4,165 Subscribers & 27% Open Rate)
• Website / Newsletter (12,712 Unique Website Visitors from 104
• Countries & 362 Views on the Best Day Ever)
• Referrals (17)
• Informational Webinars (1 Live & 2 Recorded)
• Industry Events and Lunches (AIMP, CCC, NARIP, Billboard, Hunnypot, LAWIM)
• Phone outreach (unsure about rates – a lot of calls have been made to ~750 personal relationships we have recorded in our database)
• Linkedin (unsure about rates)

What went right

• The unfailable trust and faith from our very first clients. They took the leap with us and we will be ever grateful.
• Signing relatively smaller clients, that really love us, continues to be a great source of happiness, revenue, and stability.
• Remaining extremely focused on the core responsibilities we were hired to perform.
• Remaining private in public, as to whom we represent. Our clients appreciate this policy.
• Heading back to “school” and becoming YouTube Certified, not only as individuals, but also as an organization.
• We worked the marbles out of the royalty payment process. This was not a trivial task and we continue to fine tune the process maintaining the highest level of transparency. Rene now has more has grey hair, as a result, if you can believe that.
• Blogging about our experience has been both a source of enjoyment and outreach.
• Not taking funding remains one of our more prouder accomplishments. We were invited to take money from investors thrice, and decided to go at it alone. The road has been harder, but this decision has allowed us to keep our allegiance squarely where we believe it belongs – to our clients.
• Story time 🙂 Speaking of proud moments, it was early days and we were sitting in this hot shot’s office. With an attitude that was a bit to sharp for his own good, he looks at Rene and say’s, “What’s your lean? What’s your angel? You’ll really want to gut check your relationships in this business..” with his finger pointing right at her face. The look on her face…holy $&%@! I did not envy him at that moment. Upon leaving that office, our phone rang and our second client committed to us. We were jumping around in the street. “Gut check your relationships!” has become a rallying cry ever since.

What went wrong

• Catalog delivery remains to be a major bottleneck in the on-boarding of new clients.
• We underestimated the rate in which companies would adopt our service out of the gate. Toward the end of the year, things really began to tick up, but it was a slog for a while in the middle of the year.
• Misinformation is a challenge that we continually fight. A certain very popular artist manager hasn’t a clue what he is talking about or is being confusing on purpose and even today, a leader of a group that you are probably aware of got the mechanics of YouTube completely wrong in a public forum. This doesn’t make our job any easier.
• I built software to convert audio (plus an image) to a static image video, in the cloud, at scale. One could upload a database of audio and the machine would spit out a database of video ready for YouTube. We thought this was a really clever idea. So did Google and they unveiled their ‘Art Track’ software not long after we did.
• We did not win the business of several clients that we were very excited about and were certain we would. While we have our guesses, we’ve not gotten a ton of feedback on why they decided to go in another direction. For what its worth, if you are one of those clients, we would still really like to work with you and/or learn why you didn’t choose us.

YouTube

YouTube is growing like crazy. They actually just published statistics for 2014 and we wrote up a post to include a few images for fun. The figures really are mind blowing. Here’s the thing, its gonna get a whole lot bigger.

There is a significant portion of the world’s population, namely asia, africa, and latin america, that are about to come online for the first time. With the advent of the $40 Android smartphone, about 3 billion humans are about to have the full power of the internet on their person. Given that credit card penetration is relatively low in these regions, ad supported media networks will see incredible adoption. For rights holders, this will equal opportunity, as these will be markets have never been able to consume their media before, ultimately, adding to the bottom line.

Billions of new smartphones making their way into the pocket’s of the world’s population will also present challenges, as the signal to noise ratio, as it were, will decrease. Expect there to be a lot more videos of folks like me laughing about the fluffyness of William’s tail (noise) compared to premium and quality content (signal). How does one find the good stuff in the midst of that? How does a label or a publisher find that which is popular, or becoming popular fast, when over 300 hours of content are added to YouTube every minute?

YouTube is also spending considerable resources on encouraging adoption of their new streaming service, Music Key. YouTube currently has over 1 billion users and a lot of those people will adopt the new service. Its currently in Beta, so its power is yet to be seen, but Google has the data it needs to create a service that will compete with the likes of Spotify, Pandora, and the rest of the usual suspects.

SoundCloud

SoundCloud is poised to be huge, although it hasn’t really taken off yet.

While they are well healed and have a crew of very smart veterans from the advertising and music businesses, they still need travel a few more miles. I compare the process to YouTube, in that Google had the world’s most sophisticated ad sales platform cranking along when they bought Rightsflow and turned on monetization on YouTube. This allowed for rights attribution and applying advertising to be pretty seamless.

SoundCloud has partnered with Music Reports to manage their rights and they have begun to spin up ad sales. This presents somewhat of a ‘chicken or the egg’ situation, as advertisers need to be on licensed content in order for the process to be legal, while content owners really don’t care to be on the network unless its monetized or at all.

Given a similar life cycle to YouTube, I foresee opportunity for rights holders on SoundCloud in the next 12-24 months.

Goals for 2015

• Grow our team of smart and dedicated staff
• Continue to build layers of efficiency and functionality to our search software
• Iterate software that is currently in private beta, with hopes to move to public beta by Q3
• Educate – educate – educate the industry
• Organically grow client base
• Continue to save 20% of company income for emergencies and a rainy day
• Company retreat in London during the Rugby World Cup in October
• Remain open to suggestions on what we need to be doing to exceed the expectations of our clients.

These goals are somewhat vague on purpose, at this point. I believe it takes allowing the material facts listed above to marinate a bit, before being able to accurately define how they will be able to shape the future.

In summary:

2014 was an incredible learning experience and a reminder that we are doing the right things.

Our attention is laser focused on helping our clients get the most from YouTube. SoundCloud is able to be a significant contributor to a content owner’s balance sheet.

As new opportunities present themselves, we look forward to moving quickly to assess their viability and executing where prudent. Our eyes are wide and our ear are open to suggestions on how we can do more for our clients and the industry at large.

If you have anything to share or ask, please do not hesitate to reach out.

Stay close,

Rene and Aaron