Five Lessons From Dave Chappelle

... the first lesson from Dave Chappelle’s latest release on Instagram, Unforgiven, is that one best not compete with Chappelle when it comes to story-telling; the way in which the comedian weaves together multiple stories from his childhood on up to the present to make his argument about why he should be paid for the rights to stream Chappelle’s Show is truly extraordinary.

To that end, I thought a more prosaic approach might be in order: Chappelle’s 18-minute special, which I highly suggest you watch in full, is chock-full of insights about how the Internet has transformed the entertainment industry specifically, and business broadly; my goal is to, in my own clumsy way, highlight and expand on those insights. (...)

Lesson Two: Talent in an Analog World

Chappelle may have been preternaturally gifted, but that wasn’t enough to avoid being broke in the early 2000s when he signed that contract with Comedy Central. Granted, Chappelle was almost certainly scratching out a living doing standup, but to truly make it big meant signing up with a network (or, in the case of music, a label), because they controlled distribution at scale.

That’s the big difference between stand-up and something like Chappelle’s Show: when it comes to the former your income is directly tied to your output; if you do a live show, you get paid, and if you don’t, you don’t. A TV show or record, on the other hand, only needs to be made once, at which point it can not only be shown across the country or across the world, but can also be shown again and again.

It’s the latter that is the key to getting rich as a creator, but in the analog world there were two big obstacles facing creators: first, the cost of creating a show or record was very high, and second, it was impossible to get said show or record distributed even if you managed to get it made. The networks and labels were the ones that had actual access to customers, whether that be via theaters, cable TV, record stores, or whatever physical channel existed.

Over the last two decades, though, technology has demolished both obstacles: anyone with access to a computer has access to the tools necessary to create compelling content, and, more importantly, the Internet has made distribution free. Of course the Internet did exist when Chappelle signed that contract, but there are two further differences: first, the advent of broadband, which makes far richer content accessible, and second, social networks, which provide far more reach than traditional channels, for free. Today it is far more viable for talent to not only create content and distribute it, but also promote it in a way that has tangible economic benefits.

Lesson Three: The House Wins

What is noteworthy about Chappelle’s argument is that he is quite ready to admit that everyone involved is acting legally:

From the perspective of 2020, and Chappelle’s overall point about how he feels his content was taken from him, this seems blatantly unfair. At the same time, from a network’s perspective, Chappelle’s success pays for all of the other shows that failed. It’s the same idea as the music industry: yes, record companies claim rights to your recordings forever, but for the vast majority of artists those rights are worthless. In fact, for that vast majority of artists, they represent a loss, because the money the network or label spent on making the show or record, promoting it, and distributing it, is gone forever.

There is an analogy to venture capital here, which I made five years ago in the context of Tidal:

This is why, by the way, I’m generally quite unsympathetic to artists belly-aching about how unfair their labels are. Is it unfair that all of the artists who don’t break through are not compelled to repay the labels the money that was invested in them? No one begrudges venture capitalists for profiting when a startup IPOs, because that return pays for all the other startups in the portfolio that failed.

It’s not a perfect analogy, in part because the output is very different: a founder will typically only ever have one company, so of course they retain a much more meaningful ownership stake from the beginning; an artist, on the other hand, will hopefully produce new art, which they will be in a much stronger position to monetize if their initial efforts are successful. Chappelle, for example, earns around $20 million per stand-up special on Netflix; Taylor Swift, another artist embroiled in an ongoing controversy around rights to her original work, fully owns the rights for her two most recent records.

The lesson to be learned, though, is that for many years venture capitalists, networks, and record labels could ensure that the expected value of their bets was firmly in their favor. There were more entrepreneurs that wanted to start companies, more comedians that wanted to make TV shows, and more musicians that wanted to make records than there was money to fund them, which meant the house always came out ahead: sure, money was lost on companies, comedians, and musicians that failed, but the upside earned by those that succeeded more than made up for it.

Over the last two decades venture has been flooded with new sources of capital, resulting in far more founder-friendly terms than before; comedy, meanwhile, has been a particularly notable beneficiary of the podcast boom, as more and more artists create shows that are inexpensive to produce yet extremely lucrative for the artist. Music has seen its own independent artists emerge, although the labels, thanks in part to the power of their back catalogs, have retained their power longer than many expected. Still, the inevitable outcome of Lesson Two is that Lesson Three is shakier than ever.

Lesson Four: Aggregators and the Individual

The one company that comes out looking great is Netflix:

Technically speaking, Netflix did exist when Chappelle negotiated that contract with Comedy Central, but the company was a DVD-by-mail service; the streaming iteration that Chappelle is referring to wasn’t viable back then. Indeed, the entire premise of the streaming company is that it takes advantage of the changes wrought by the Internet to achieve distribution that is not simply equivalent to a TV network, but actually superior, both in terms of reaching the entire world and also in digitizing time. On Netflix, everything is available at anytime anywhere, because of the Internet.

Netflix’s integration of distribution and production also means that they are incentivized to care more about the perspective of an individual artist than a network; that is the optimal point of modularity for the streaming company. At the same time, it is worth noting that Netflix is actually claiming even more rights for their original content than networks ever did, in exchange for larger up-front payments. This makes sense given Netflix’s model, which is even more deeply predicated on leveraging fixed cost investments in content than networks ever were, not simply to retain users but also to decrease the cost of acquiring new ones.

by Ben Thompson, Stratechery |  Read more:

Image: YouTube