Way Behind The Music

January 13th, 2007

For John Legend, Gwen Stefani, and hundreds of other talents, Musictoday is the invisible machine keeping fans pumped and the money rolling in.

From: Issue 112 | February 2007 | Page 64 | By: Chuck Salter

If there's any musician who can make sense of the tectonic upheaval in the industry, it's John Legend. Before teaming with Kanye West and Snoop Dogg on his major-label debut, Get Lifted, the ultrasmooth R&B singer-songwriter worked as an associate consultant for the Boston Consulting Group (under his given name, John Stephens). When the recording sold north of 3 million copies worldwide--and snagged a trio of 2006 Grammys, including best new artist--John Stephens the consultant had some cautionary words for John Legend the musician: Protect your brand. It was some of the best advice he'd ever gotten.

Legend, who's 28, knew people would be lining up to take a piece of every dollar he could pull down, and that if he went the traditional route, there wasn't much he could do to stop them. After all, it was the label, retailers, and ticket companies in the sweet spot at the center of every transaction with his fans. "I can't let someone else have more control over the relationship people have with my music than I do," he says.

So Legend took control in a way that would have been unthinkable for a new artist just 10 years ago. He still releases music through a major label, Sony BMG, but last fall he formed John Legend Ventures with two friends and began researching how other bands were creating their own businesses and increasing their leverage in the market.

They found that the Internet has become not only a channel for distributing music but one for insinuating bands into the lives of their most enraptured fans. They found that the efficiencies of the Web are such that for very little cost, an artist can build his own online operation and outsource everything, from peddling "merch" to boosting the fan club to ticketing and marketing. And they found a full-service company that had built an infrastructure so vast and so efficient that no one could rival it.

Legend's new partner is a virtual unknown outside the industry. The machine, by design, remains invisible. It's called Musictoday.

Founded by Coran Capshaw, the storied but reticent manager of the Dave Matthews Band, Musictoday works behind the scenes to fashion an online identity for artists, then connects them with fans--and drives commerce. It feeds the sort of passion, or obsession, that turns a $20 teddy bear in a Dylan shirt or a $45 Red Hot Chili Peppers messenger bag into a necessity. It fulfills fantasies: owning Carlos Santana's black fedora, say, or playing blackjack and softball with the Backstreet Boys, or sitting in on a soundcheck with John Mayer. Musictoday can even help fans become part of the music itself, as when Christina Aguilera incorporated their voice-mail messages into "Thank You," a song on Back to Basics, her most recent release. "This is all about taking your fans behind the velvet rope," says Matt Blum, Musictoday's fan-club manager.

While the big money is still in touring, Musictoday rechannels revenue streams--merchandise margins and ticket fees that traditionally padded someone else's pocket--in the talent's direction. For new or lesser-known bands, that money could mean the difference between touring and trading in that Stratocaster for a busboy tray. "Somebody you've never heard of will sell $10 million in merchandise in two years," says Jim Kingdon, executive vice president. And for megabands like Dave Matthews, which has more than 80,000 fans paying $35 a year for fan-club membership alone, the money can snowball.

"We're heading to a do-it-yourself world where artists will be taking more control of their careers," says Michael McDonald, John Mayer's manager. Or as Legend puts it: "In the not-too-distant future, this could mean you won't need a label anymore. That's the pot of gold at the end of the rainbow."

In The Foothills of the Blue Ridge Mountains, in an unmarked former chicken-pot-pie plant outside Charlottesville, Virginia, the music revolution is humming along nicely. Here in Musictoday's 350,000-square-foot headquarters, that revolution is most visible in the plastic bins filled with stuff: shower slippers, coasters, and leather coats plastered with the Rolling Stones' wagging-tongue logo. Eminem bobbleheads. Phish onesies. Snoop Dogg rubber wrist bands. Carole King yoga pants. As harmless, even useless, as these tchotchkes may seem, they are upending the industry for one simple reason: Traditional retailers aren't selling them--the artists themselves are. "That direct interaction is unique," says Capshaw. "It's a bonding experience."

Of course, this direct interaction involves some sleight of hand. Behind any given band's online store, it's Musictoday that actually performs the "unfun, unsexy part of the business," says Bruce Flohr, an executive with Red Light Management, one of Capshaw's many ventures. Musictoday's 200 employees are responsible for emailing fans, processing orders, printing tickets, mailing merchandise, fielding complaints, monitoring message boards--all of it. "When you stand in that warehouse, you realize the industry is healthy," says Flohr, who also manages several bands. "It no longer hinges on a silver disc."

But there's a compelling lesson here for any company that makes a product: If you control a piece of the transaction, you understand more about your customers. By aggregating fan data that artists haven't usually been privy to, Musictoday can help shape decisions such as where to tour, advertise, or deploy superfans to evangelize. Considering that an estimated 60% of concert tickets typically go unsold every year, that kind of targeting is no small contribution. "We're able to say to artists, 'We know more about your fans than you do,'" says Nathan Hubbard, 31, who runs Musictoday as Capshaw's chief of staff. "Let's put our heads together and figure out how to monetize this relationship."

Musictoday works behind the scenes to fashion an online identity for artists, then connects them with fans--and drives commerce.

Monetize it they have. Musictoday's roster now counts more than 700 clients using some combination of its services. ("We're a little embarrassed by our scale," says Hubbard, "but it helps.") That list includes newcomers like Legend, legacy bands like the Doors, and everyone in between--Kenny Chesney, Justin Timberlake, Taylor Hicks, Janet Jackson, Britney Spears. The company has also begun expanding beyond music, nabbing Tiger Woods, the Miami Heat's Dwyane Wade, Maria Sharapova, the New York Knicks, comedian Dane Cook, and CNN chatterbox Glenn Beck. "We're genre agnostic," says Hubbard. Fans are fans.
And revenue is revenue. By the end of 2006, Musictoday was on pace to sell more than $200 million worth of concert tickets, CDs, merchandise, and fan-club memberships, roughly twice what it sold the previous year.

In keeping with its low profile, the seven-year-old company remains tight-lipped about earnings and its cut of online purchases, other than to say it has been profitable for several years and expects to keep growing. That seems a safe bet given that in September, Live Nation, the industry's largest concert promoter, acquired a majority stake in Musictoday (it won't disclose the purchase price). Live Nation, which does about $3 billion in annual sales and produces more than 33,000 shows a year, is eager to keep moving into live recordings and other concert-related goods. "There's a lot of fragmentation right now, a lot of new products," says Michael Rapino, CEO of Live Nation. "Artists are looking for partners who can deliver these products to their fan base. It's what the labels did for so long. Musictoday is a mile ahead of anyone else."

Capshaw's long, strange journey from fan to mogul began years earlier with the Grateful Dead. "I went to a lot of their shows," he says, "and was exposed to the do-it-yourself model." Jerry Garcia and the boys, whose instrumental jams shot the bird at the radio-hit formula, were a touring tour de force. But behind the reefer haze was a larger, iconoclastic strategy. Deadheads were encouraged to tape shows, which fostered a tribe of bootleggers. The Dead shrugged at the lost record revenue and cashed in by selling its tickets and merchandise directly to fans.

Capshaw didn't consider managing until the early 1990s, when the Dave Matthews Band became a Tuesday night fixture at Trax, one of his two clubs in Charlottesville. He'd gotten into the business as a student at the University of Virginia back in the late 1970s, booking bands for fraternity parties. Eventually, he became a nightclub owner, one with an innate sense of how to take care of the talent: Ann Jones Donohue, now director of sales at Musictoday, started out by researching the artists' favorite foods and preparing home-cooked meals. Grilled seafood for the Neville Brothers. Barbecue for Jane's Addiction's Perry Farrell. "They came to town expecting a deli tray," she says.

Dave Matthews's crew reminded Capshaw of the Dead. How they thrived onstage, improvising, giving a different performance each night. How the crowds grew, attracting fans from around the state. How they taped shows, which Capshaw and the band encouraged to gin up word of mouth. It was a prototypical social network. "I remember talking to Coran once, and he held his phone outside his office for me to hear them," says Donohue. "He said they were going to be huge."

The first time he met Capshaw, Flohr recalls, "I was scared s--tless." It was 1993. Flohr was then vice president of A&R (artists and repertoire) at RCA and had come to Charlottesville hoping to sign Matthews. Capshaw had deliberately avoided a recording contract; the band was playing 200 or so gigs a year across the Southeast, building a rabid, mostly collegiate audience. "We needed them more than they needed us," Flohr admits. At dinner, Capshaw wavered, but eventually the two hammered out a deal largely influenced by the Dead's philosophy. "Rather than the label's saying, 'Here's what we're going to do with you,' they called the shots," Flohr recalls. "They said, 'We'll take some of your money, we'll put out an independent record, and we'll tour--boom, boom, boom.'" Boom is right: Under the Table and Dreaming, the group's first album for RCA, has sold nearly 7 million copies to date, and the band has become one of the industry's top-grossing concert acts.

The incident revealed what has become a recurring theme in Capshaw's career: a tenacity and talent for challenging the status quo, finding a soft spot in the industry's armor, and ultimately exploiting it to secure power for the artist. RCA got recording rights, but Dave Matthews retained merchandise and online rights. Later, the band negotiated the ability to release its own live recordings. Piece by piece, Capshaw was crafting a highly profitable and largely independent operation. Within a few years of teaming up with RCA, Matthews had produced three multimillion-selling albums and was filling football stadiums (and selling half of those tickets). Along the way, Capshaw built the mechanism for recording live shows (ATO Records, which now boasts more than a dozen acts, including David Gray and My Morning Jacket) and selling shirts, CDs, and tickets (Red Light Management).

Those early CDs contained the seed of what Musictoday would eventually become, in the form of a mail-order insert for merchandise. Capshaw and the band were designing and selling their own goods and pocketing "the retail spread." As that business expanded, it outgrew the spare room at Trax. Then, in the late 1990s, they began offering items online--and the bigger picture revealed itself. The infrastructure had fallen into place for a much bigger operation. "I realized that we could do it with more than just Dave Matthews," says Capshaw. "We had the potential to help other bands."

It wasn't just the artists' interests he was thinking of; Capshaw's a fan himself and wanted to change an industry that all too often took people like him for granted. His "pre-sale," for example, was a reward for a band's most loyal fans, a way of giving them the first shot at great seats for a few bucks less (typically, half the usual surcharge) before the public sale. By winning over more bands to the concept, Capshaw was in position to propel broader changes in the industry. But not before encountering big-time resistance. In 2002, Ticketmaster--the Microsoft in that space--sensed a potentially lethal threat and deployed its lawyers. "They tried to shut down the artist-to-fan concept," Capshaw says matter-of-factly. "There was a series of letters they sent to promoters and venues, some back and forth there." Pause. "But we worked it out."

Ulysses S. Grant couldn't have said it better. As part of an exclusive agreement, Ticketmaster would allow Musictoday to sell 10% of tickets for its clients' shows. That sounds modest, but it represented a seismic power shift, as even Ticketmaster will tell you: "Musictoday went up against a big entrenched company and got it done," says David Marcus, Ticketmaster's vice president of music. "That requires a serious amount of fighting and skirmishing. You have to give them credit for shining a light on the path to the future. Coran's an aggressive, smart entrepreneur. Sometimes it takes small innovators to get mature companies back to innovating again."

Capshaw doesn't come across as the skirmishing type. Sitting in the top-floor conference room of Red Light Management, in downtown Charlottesville, he seems every bit the 48-year-old Deadhead, as laid-back as his black Lab Emmy (as in singer Emmylou Harris). He has thick, bushy gray hair, a reflective manner, and a deep voice softened by a slight drawl. C-Ville Weekly, a local paper, once called Capshaw the Donald of Charlottesville because of his many real estate projects, which include this very office building, an amphitheater, various apartments, several restaurants, a club, and a microbrewery. ("We joke that Coran pays you on Friday, and you give it back to him over the weekend," says Donohue.)

In fact, Capshaw, Pollstar's manager of the year in 2004, is notoriously media shy. It took more than a year to arrange this interview, which proceeds with all the brio of a Quaker meeting. However detached he may seem, Capshaw is intimately familiar with every gear in the machine. "He gets the same reports every day that I do," Hubbard says. Capshaw will weigh in on the wording of a fan email, the timing of a promotion. "He'll ask, 'What was Robert Randolph's ticket count Saturday night in DC?'" says Flohr. "'What was Trey Anastasio's pre-sale?'"

Flohr's so confident in Capshaw's model that he switched sides. Four years ago, he left RCA and came to work for him.

What the Musictoday machine does particularly well is tame the chaos inherent in the unfun, unsexy part of the business. In early November, once again it's fans of the Dave Matthews Band triggering a frenzy in the warehouse, this time with pre-orders for its latest live compilation, The Best of What's Around, Volume 1. Tens of thousands of orders pile in, many to be delivered on the exact release date. (In the past, as many as 70,000 of the 470,000 or so CDs sold in the first week were purchased through the band's site.)

This massive facility, with white-tile walls from its days as a frozen-food factory, is the clincher for visiting band managers, agents, and artists--the part of the tour that seals the deal. Often, bands have come after trying to run their own stores and getting overwhelmed. "Sometimes we're competing against somebody's uncle who makes the band's T-shirts in his garage," says Hubbard. "In many ways, this is still an unsophisticated business."

Musictoday couldn't possibly coordinate orders of this scale, complexity, and precision without state-of-the-art warehouse-management software and equipment, such as handheld scanners and a $200,000 automated packing machine. The logistics are made even gnarlier by the special offers that bundle in exclusive knick-knacks and routinely turn the sale of a single CD into a shopping spree. It's a fine example of Capshaw's vision of the symbiotic artist-fan relationship--fans get special items, the artist gets the profits. But that kind of customization creates a fulfillment nightmare that would challenge any retailer--and bring a hungover band to its knees. All the more amazing that Musictoday boasts "a 98.4% to 99.8% accuracy rate," according to COO Del Wood.

The other side of the warehouse is like the stash of some obsessive-compulsive collector: 30,000 items from about 400 clients. The shelves, lined with different-colored bins, keep going and going. Ramones flip-flops. Cans of Arnold Palmer iced tea. AC/DC boxer shorts. And behind a locked door, pricier items, like a $5,000 lithograph signed by the Stones. The inventory, too, is organized for maximum efficiency, with the fastest-moving items on the front racks, within easy reach--"nose to knees," as Hubbard says.

Logistically, selling tickets is equally complex, with even less room for error. Just ask U2, not a Musictoday client. In 2005, it had to issue an apology when fans were left in the lurch by scalpers who'd infiltrated its site. "When we screw up, fans don't blame Musictoday," says Hubbard. "They blame the artist." So the company's system is built to handle near-instantaneous sell-outs as well as several hundred simultaneous events. It sells tickets for its clients as well as handling all the ticketing for certain arenas. The arena business is sure to grow since Live Nation owns, operates, or has booking rights at 170 venues worldwide, and its Ticketmaster contract expires next year. "Our system runs like a Ferrari," says Wood. For an Eric Clapton concert in October, it allocated 15,000 seats in 15 seconds.

Before acquiring Musictoday, Rapino, Live Nation's CEO, visited Charlottesville. "I was blown away," he says. "This is not a business you can dabble in. You have to invest in the infrastructure or you can't execute, and they have." The company's remote location has built-in cost advantages, namely affordable space and a top-flight young talent pool at UVA. In that sense, says Rapino, Musictoday "is impossible to replicate."

A few years ago, Nikki Vinci heard a song by a little-known rock band called the Damnwells and "fell in love." She went to the group's site and bought a T-shirt. "I felt like I was supporting them," she says. Without knowing it, though, Vinci had become a Musictoday customer. Now she manages dozens of Musictoday online stores--for Tiger Woods, Led Zeppelin, the Bonnaroo Music & Arts Festival (Capshaw is an investor; for more, see "The Temptation of Superfly"), even her beloved Damnwells. "I never forget what it feels like to be a fan," she says.

The challenge is not tainting the fan relationship: Musictoday tries to be like a church that happens to sell communion wafers.

That sort of empathy is another key ingredient in the Musictoday formula. Employees are focused on being "artist friendly" and "fan friendly," the bedrock of Capshaw's philosophy. They're expected to be kindred spirits as well as music experts. Each band, after all, has its own subculture, with certain rules and tastes. ("Incense, rolling papers, and shot glasses won't work with Christina Aguilera," says Dave Kostelnik in client services, "but they will for the Black Crowes.") Dozens of employees play in bands of their own, including Hubbard, who's half of the acoustic duo Rockwell Church and a Musictoday client (its CDs, alas, don't qualify for "knees to nose"). They even get two "concert days" apiece every year. And they, like their boss, are discreet, refusing to dish on clients. "We're an invisible service provider," says Hubbard.

Although the music business traditionally revolves around product cycles, Musictoday takes a longer view, developing what Donohue calls "a fan for life." Staying on the radar. Creating products in between CDs and tours. Vinci follows her clients and their fans like a dogged reporter. She checks in with artist management, sometimes several times a day, to learn what the talent is up to. She reviews dozens of Google alerts on her clients. Most nights and weekends, she pores through magazines online and off (the usual suspects, plus Filter, Relix, and Paste), industry trade journals (Billboard, Pollstar), message boards, and a couple of dozen blogs (An Aquarium Drunkard, Coolfer, Stereogum). "That's why they're partners with us," she says. "They know I'll find out what's going on and call."

With the right touch, says Hubbard, this sort of micromanaged online presence can prolong a musician's career. And he's not kidding: Frank Zappa--dead since 1993--is a client. The challenge, then, is not to taint the relationship by coming on too strong. So Musictoday tries to be more like a church that happens to sell communion wafers. "It sounds schlocky," says Kingdon in corporate strategy, "but we're trying to maximize that fan relationship, not maximize sales. If you do the first part, the rest will take care of itself. But if it smacks of commerce, you risk diluting the brand."

To fend off the competition spawned by its own success, Musictoday is always looking for ways to deepen its relationship with artists. The latest is by being a "strategic consultant," says Hubbard. The company's data mining could provide customer insight to drive decisions beyond ticketing or merchandise. "There's always been a real shoot-from-the-hip mentality in this business," he says. "Gut, not data." By mapping merch or ticket sales by geography, for instance, Musictoday can identify where marketing dollars are needed or where an artist should tour. "If you know you're drawing fans from Utah to drive to shows out of state," says Hubbard, "you need to add that 43rd tour date in Salt Lake City."

The Live Nation acquisition should crank up Musictoday's volume even further, like plugging an acoustic guitar into an amp. Live Nation gives it "a broader reach," says Capshaw. Yeah, broader by about 30 million potential customers. According to Live Nation, more than half of its fans visited an artist's Web site last year. "What was it five years ago, zero?" says Rapino. "This channel is as big as you can make it."

That's music to John Legend's ears. His Musictoday paid membership site, Johnlegendnetwork.com, was slated to launch in December. In November, he posted a preview. Riding his tour bus through a snowstorm in Wisconsin, he filmed a video clip, singing a few bars of a Christmas carol and signing off: "God bless y'all, I love y'all, I appreciate y'all--Peace." Musictoday allows him to add messages himself--immediate, unfiltered access to his supporters. The idea, he says, "is to let them get to know me better."

And vice versa. Get Lifted may have sold 3 million copies, but Legend didn't own those sales data, so he had no way of contacting those fans. When people join his new club, they provide demographic information, which he hopes to build a business around. "You need to know who those people are, where they're from," Legend says. "What if you could find out what other products they like to buy? You might use that information to approach other brands--clothing and car companies that want to cater to the same market."
Legend pauses, reins in his inner consultant. "But if I don't make good music, none of this stuff is going to work. I never forget that."

Copyright © 2006 Mansueto Ventures LLC. All rights reserved.
Fast Company, 375 Lexington Avenue.,New York , NY 10017