Ben Gilbert: belief

Transcript context

…Fair enough, fair enough. All right. The last one that I want to dive into a little bit here is that advances interestingly are a clear sign of a power law dynamic where you mentioned it's like book publishing, we talked about how it's like venture. It's the same thing in all these things—music, books, and startups—where having the big winners in your portfolio is really what matters. At one point, I had a book agent tell me that America basically picks one book a year to all read together. It's the Michelle Obama book or it's whatever it's going to be. You don't know what that's going to be ahead of time. You don't really care that much about recouping your advances on the losers. All you care about is making it so that in your portfolio, you get the book that America reads every year. It's just so similar to venture capital. The way that the payback works is so similar to where, okay, an advance and then you recoup against the royalties. What's preferred stock? The first X amount goes to the capital provider in exchange for the capital they've provided and then they participate with some split in whatever outcome is after that. I don't want to quite get into the nuances of participating preferred and how it's slightly different, but the fact of the matter is, these contracts that seem predatory, and I'm not going to argue yet that they're not predatory, but what they're doing is basically making sure that they cover their losses. There's this interesting human nature thing where if you look around and you're the winner, and you realize you're the one subsidizing everyone else, it's really easy to forget that you had an equal chance of failing if someone was to underwrite you. You're like, why am I paying so much back to this original capital provider? I hate being locked into this deal. But that deal was theoretically whatever the market clearing price was in order to take the risk on you as a young startup, author, or artist. The only place where this falls down—which I think is what I want to do this episode instead of value creation, value capture—is in order for this really to be fair, in order for these terms to truly be market price, you need the labels to not be making a ton of profit. If they're very profitable on a free cash flow basis, all the way, full bottom line, if they're printing money, then what you can say is, jeez, is this an oligopoly? There are only three people here, so there's not actually a good competition among the people that want to give you money as an advance in order to do all the stuff that a record label does. These businesses aren't that good of businesses, but— It's an oligopoly.…

Stored transcript either side of the excerpt. The highlighted words are the published quote; the surrounding text is unedited source, never generated.