Web Masters Episode #88: Mark Chasan


Aaron Dinin:

I’ve talked with a lot of the early digital music pioneers here on Web Masters, and pretty much all of them got basically sued out of existence by the big music labels in the recording industry. Did you run into any difficult legal issues during your time running eMusic?

Mark Chasan:

Well, originally when I trademarked eMusic, E Entertainment came after me and said that somehow I was taking their trademark. And so we did get into a little trademark litigation. And I said, “You stated under penalty of perjury that you are using this mark, but you’ve never used eMusic, used the entertainment, and you don’t have a right to everything that starts with an E. And so either you’re going to go bye-bye and drop this case or we’ll just take you to court for perjury.” And they said, “Okay, we’re going to leave.” And [inaudible 00:00:53] that’s what happened.

And then we actually acquired, I think it was through the Timeless Treasures catalog, some pre-Capital Beach Boys. So we heard from Capital Records that we did an AB comparison and that you’re infringing on our copyright for these Beach Boys masters. And I said, “well, I’ve got my chain of title. I’ll show you mine and you can show me yours in court.” I never heard from them again.

So we were really clean in making sure that we had chain of title, that the masters were the property of the labels that we licensed from. And we also made sure that either we had a contract with a label where they were responsible for and indemnified us against payments of all publishing and mechanical royalties and artist royalties, et cetera. Later, we were able to actually take that task on and ensure that it got done if the label really couldn’t do that or didn’t want to do that. And I think that’s why we succeeded in many of the legal challenges that we faced in the day, because we weren’t trying to break the law, we weren’t trying to get away with taking advantage of labels, publishers or the artists. So that’s what I attribute to the success of eMusic.

Aaron Dinin:

That was Mark Chasan. And as you probably already guessed, he’s the founder of eMusic, one of the earliest popular sites on the internet for downloading songs. But unlike a lot of the digital music pioneers we’ve heard from here on Web Masters, Mark and eMusic didn’t get sued out of existence by the recording industry. And why was that? Well, it might have something to do with the fact that before becoming an internet entrepreneur, Mark was a lawyer. Are you ready to hear the story? Let’s get dialed in.

[INTRO]

Aaron Dinin:

Hi there, welcome to Web Masters. You are listening to the podcast that teaches about startups, tech and internet entrepreneurship. We do it by sharing stories from some of the internet’s most impactful innovators. I’m your host, Aaron Dinin. I’m a serial entrepreneur and I teach entrepreneurship at Duke University.

On this episode, we’re returning to the early days of the digital music industry. It’s an industry we’ve heard about a lot here on Web Masters. For example, Michael Robertson told us a lot about it in Web Masters episode number 79, when he shared the story of building mp3.com. And Jason Olim talked about selling CDs online when he built CDNow. That was Web Masters episode number 49. We also heard about it in relation to the file sharing industry, which is something we discussed with Michel Merhej, founder of Audiogalaxy in episode number 23. And with Peter Sunde, founder of The Pirate Bay in episode number 10. In this episode, you are going to hear our guest, Mark Chasan, reference some of those companies and companies like them as he explains the story of building eMusic and how it was different.

But first, you’re going to hear me tell you about this podcast sponsor. Web Masters is being brought to you thanks to the support of our partner and sponsor, Latona’s. Latona’s is a boutique mergers and acquisitions broker. They help people buy and sell cashflow positive internet businesses and digital assets. That includes things like e-commerce stores, SAS apps, Amazon FBAs, Shopify sites, popular content websites, domain portfolios, really any type of profitable online work from anywhere business you can think of. If you are running a profitable internet business and you’re looking to sell it, then you should be reaching out to Latona’s. Their team of expert brokers is going to be able to help you get your business sold for a great price. Latona’s can also help you buy an internet business if that’s something you’re interested. In fact, to see listings for all the profitable internet businesses Latona’s is currently helping to sell, you should check out their website. It’s latonas.com. That’s L-A-T-O-N-A-S.com.

At the beginning of this episode, I already told you our guest Mark Chasan, began his professional career as a lawyer. So how does a lawyer go on to launch a music tech company? The answer, not surprisingly, is that before mark was a lawyer, he was passionate about music. In fact, music is what spurred his interest in computers.

Mark Chasan:

Right around 1979, 1980, I started using synthesizers and computers in music. That was my first career was actually, as a professional musician. And so computers played a role in how to make music using synthesized sound and later sequencers. 1985, I passed the bar and had an interesting arrangement with a law firm in Manhattan Beach. And the partner founder there was very active in working with Apple on developing various software systems and applications. And so started using computers then pretty frequently.

Aaron Dinin:

Around when did you start noticing the commercial opportunities around music in relation to the internet?

Mark Chasan:

1994, I became aware that there were commercial applications. And I had thought about doing something in the era of MTV, where we could advertise a music channel and then sell CDs so that you could get the song that you wanted from the band you wanted in somewhat real time. And when I explored what was involved in that, having a satellite and a transponder and working with multisystem operators in cable and getting channel time, the 800 numbers, by the time you looked at the entire equation, it was a company destined for bankruptcy.

And so in 1994, I started sniffing around the internet. I found that there was an amazing application to sell CDs online and that I didn’t have to have a transponder and a relationship with an MSO. And that actually, it did make financial sense to do that until such time, as I had certain competitors get into the market, which at the time were CDNow and Music Boulevard, who each raised about a hundred million dollars. And at the time, internet economics was we’ll lose money on every transaction and somehow magically make it up in volume and strive to own the market share. I saw that as foolish and then realized that now bandwidth and compute had come up to a point where we could actually sell digital music files online. And then I was able to negotiate with a lot of indie labels. At the end of the day, it ended up being about 400 indie labels to have the exclusive rights to selling their music online in digital formats.

Aaron Dinin:

I guess I’m a little curious, if you were so passionate about music early on, why did you become a lawyer?

Mark Chasan:

Because I really enjoyed the whole idea of protecting the rights of musicians to get their creative projects out there and not be taken advantage by large labels and studios. And in fact, with eMusic, we either made arrangements contractually for all rights, whether it be Harry Fox or BMI ask app and the publishers to be paid by the labels or later, we actually created a system to manage that, so that we did honor the rights of the creators and the publishers and the labels.

Aaron Dinin:

By the way, a few times during this episode, you’ll hear Mark refer to something called Harry Fox. Despite my initial confusion, no, he is not talking about a fluffy woodland creature. The Harry Fox Agency is a major collector and distributor of mechanical license fees on behalf of music publishers in the United States. In other words, they help with collecting and distributing royalties when songs are sampled or reproduced or covered, things like that. Maybe you already knew that about Harry Fox, but I honestly had no idea so I thought I’d mention it. And by the way, the fact that Mark mentions a music rights management company so many times is also a pretty good indication of how he was maybe a different type of founder than some of his early digital music entrepreneurial peers.

Mark Chasan:

So Napster was one of the problems. It’s like, hey, free music. We pay no royalties. We pay no publishing. We don’t pay Harry Fox for mechanicals. Woohoo, it’s a free for all. And while it had a massive audience, which the labels really could have acquired and then turned it into advertising streaming and what is digital music today, they wanted to fight everything and control it.

So then you had the next generation Kazaa and Morpheus, which claimed to be decentralized, but it was interesting that Morpheus licensed Kazaa’s software but then did a much better job marketing it. And as a result of that, Kazaa got a little jealous and then decided to upload a software update that apparently, don’t quote me on this, but apparently then made Morpheus inoperable so that Kazaa could capture market share. And once they did that, was like, what do you mean you’re decentralized? You can shut this thing on or off with a software update. And that’s when I think things got pretty hairy. Kazaa was offshore and they were able to apparently avoid the shutdown. And as I understand it, Nicholas and Giannis, who are the founders of Kazaa used that software to create Skype and sold it for a couple billion. So they did okay.

Aaron Dinin:

So you clearly were very aware of the importance of ownership and royalties and those kinds of things, which was a tricky problem to deal with in the early days of downloadable digital music. It seems like it would’ve just been easier to sell CDs. Did you do that, or I guess I should ask, how did you still decide downloadable music was the right avenue rather than selling CDs, which of course wouldn’t have created the same kinds of potential legal issues?

Mark Chasan:

So yes, we did sell CDs, and the sort of internet economics of lose money on every transaction and make it up in volume from our competitors made it really impossible to make a living and to be profitable selling CDs. I also realized that anybody could sell CDs. Anybody could go to a one stop, cut of deal, put up an internet site and sell CDs. The other problem was that there wasn’t great internet security at the time. So there was a lot of credit card fraud. Aside from the fact that a lot of my competitors were now selling CDs at cost of free shipping and handling, there is also the fraud to deal with. It’s just a bad business, but luckily at the same time, we saw sufficient bandwidth and compute to be able to start digitally downloading the music.

And so I was able to negotiate rights with a lot of indies, who when I would call them up and say, “What’s your internet strategy? How much money are you making from digital sales of music?” And they’d be like, “Huh? What?” “How about this? I’ll pay you X for a three year exclusive all in,” and they’d go, “Great. It’s found money to me.” And so it took off very quickly. We also entered into a co-marketing deal with Michael Robertson from MP3 to sell the first MP3 players online. And the manufacturer was Sahan, which was a division of Samsung and that was pretty interesting.

Aaron Dinin:

Wait, so I actually interviewed Michael Robertson about mp3.com. Why were you partnering with him? Wasn’t he basically a direct competitor?

Mark Chasan:

Not exactly. There was potential competition, but Michael Robertson was really trying to get artists and creators of music to download their songs. Most of the time, songs have completely unknown artists, and this is some 23, 24 years ago. So my recollection may be a little hazy on this, but he was sued by the labels when he decided to create the locker system, where you could take your collection that you had purchased and put it in your own locker on MP3. Anyhow, he gave up on that when he got sued and I think was a hundred million dollars settlement of some kind. And what was interesting was I actually think he should have spent that money on litigation because he probably would’ve won, but where I think Michael didn’t see the power of mp3.com was in serving the artist and what their needs were. What do you need to promote in market and sell your song rather than the audience of music consumers? So there were times where we got a little competitive, but it was Michael that brought the Sahan deal to us. We did that deal together.

Aaron Dinin:

So as you mentioned, mp3.com’s business model was that locker system that got them in so much trouble. It was where people could, I guess, upload the songs they owned and then stream them anywhere. Could you explain what the eMusic business model was for selling music?

Mark Chasan:

Yeah, generally what you have is the label already had contracts and the machinery in place to be able to pay their artists royalties, Harry Fox for mechanicals, publishers for the publishing rights, and the performance societies like BMI and ASCAP. Then we just did a deal with the label. We paid the label, but ensured that they would account for all of the royalties that needed to be paid. Later, we actually developed the system when we took money in on a download, and after there was standards created, we started to pay those royalties out ourself.

Aaron Dinin:

Based on some of my other conversations about this space, my understanding is that, at the time, lots of people were still skeptical that downloadable music and listening to music on computers would ever become a big thing. So how’d you get your earliest customers? How did you convince people to basically start listening to music on their computers?

Mark Chasan:

Well, in the early, early days, ’95 until our merger with Good Noise, there were some search engines out there like Excite@Home, Infoseek, Yahoo. And so we utilized search engine deals and also engaged in cross publishing advertising on our site and other sites. So that’s generally how we got the word out. It was so novel at the time too that we were able to get a lot of press and it was kind of like we were a skyscraper in the desert. So it was very press worthy and the PR was pretty easy. It was not the overly crowded space that it became probably starting 1998. It was about ’99 that it became really crowded, lots of money being poured into internet companies. And as we know, by 2000, we started seeing dot com turn to dot bomb.

Aaron Dinin:

You got out before that though, right? You actually mentioned a merger with another company, Good noise, I believe you called it. Is that how eMusic survived the dot bomb?

Mark Chasan:

Well, I think one, we could have done a lot better and this is one of the reasons why Bob and Jean and I went our separate ways, was I felt that we could actually be acquiring real assets and real companies rather than spending our money on Madison Avenue and advertising and big billboards on Sunset Strip. But from a standpoint of getting the word out for the purposes of the public markets, I guess it was effective at doing that.

But once 2000 hit, when I left in, I want to say it was right around November of ’99, the stock was trading at about a half a billion market cap, and right around a June of 2000, again, don’t quote me on this, I think it was trading at somewhere around 50, 60 million. And then Universal acquired it, I believe for 27 million. And later, Universal came back around to me and said, “Do you want to buy it for six, but you have to accept all the liabilities we put into the company?” And I’m like, “No.” But then I believe David Pakman acquired it somewhere around 2003, 2004. And I think he built some more value into it. I forget the name of the private equity company. I believe it was JDS Capital. And then I think right around 2015, there was an Israeli group that acquired it and now owns it.

Aaron Dinin:

So it sounds like in retrospect, you are not a huge fan of how that merger turned out and what ultimately happened to eMusic, or at least maybe it could have been bigger than it ultimately was. Is that kind of your thought?

Mark Chasan:

I think that maybe doing the merger and acquisition with Bob and Jean who tried to bury me as the founder of eMusic was rough on me and that I could have put more protection layers into our agreement regarding credit and regarding what would happen if we didn’t agree. And to their credit, they did some really good things and eMusic would not have become the success that it became without them. So I think that we both brought value to the table and it’s because of our merger that eMusic did become a success. I think that if I knew then what I know now, I probably wouldn’t have done it, at least not the CD part, because there wasn’t a business or margins in it because the price that was charged wholesale by the record labels was so high that it didn’t really leave much in the way of any margins. On the digital music front, it made a lot of sense.

Aaron Dinin:

Have you kept up with the digital music industry much since then? Do you have any thoughts on how that’s going to continue changing, particularly in relation to things like web three and blockchain and NFTs?

Mark Chasan:

I would say I really pivoted from music and content more into the types of things that are going to transform our planet at the core level of needs like water, food, energy, housing, biomimetic renewable materials, things like that. But yes, I still keep up on it and I have been pretty heavily involved in blockchain and crypto and looking at where the regulatory environment is going and which jurisdictions in the world, which seems to be shifting constantly are the most favorable.

With regard to NFTs, it’s interesting that in many ways, the market so quickly became what appears to be saturated by NFTs. And of course, clear winners are OpenSea and some of the NFTs that were able to garner mass adoption and demand and attract big numbers. I’m not so sure that’s going to continue. However, from a standpoint of music and film being exchanged inside of an NFT, my sense is that’s still to come. And I think that there’s still a lot of blue sky left for that. I believe there’s also going to be some interesting things happening in the metaverse and how various digital assets and content get monetized in the metaverses that are now being built, and how people might adopt a certain theme song or an avatar using certain artwork. And so I still think there’s a lot of room in the metaverse for digital assets and creation of value there.

Aaron Dinin:

But that’s not really where your head at is these days. Is that right? Would you mind talking a bit about where your entrepreneurial priorities have shifted now, because I would say those new priorities are possibly more important than digital music?

Mark Chasan:

Since eMusic, I’ve been also heavily involved in the areas of renewable energy, project development and finance, and mentoring eco-social entrepreneurs to really help accelerate and exponential the changes that we need to see in the world. And my sense is that innovation has always had a big impact on culture. And I’m seeing that really there are so many things happening in our world today, that innovation often doesn’t have ethics wrapped around it and that we sometimes just innovate to innovate and we innovate things that are often destructive. And so I do put a governor on that, which is living systems innovation that actually increases the health and quality of life for humans and for ecosystemic thriving. And that’s pretty much in a nutshell what I’m devoted to.

Aaron Dinin:

That’s a pretty big nutshell.

Mark Chasan:

It’s definitely more of a horizontal than a vertical.

Aaron Dinin:

And could you maybe expand a bit on the type of work you’re doing now? And that probably goes without saying, why that work is so important to you?

Mark Chasan:

Well, what I would say is, again going back to the idea that I feel that the world, our society needs some urgent transformation. I look at what I believe are the two longest Archimedes lovers of change. One, our environment, and two, innovation. So if we change the environment from which beliefs, behaviors and culture arises, we can actually make long-lasting, permanent and fairly rapid change in culture. The other is if we focus on innovation that really does support and foster human health and quality of life, but not at the expense of nature and eco-systemic thriving, so that we’re actually supporting nature and humans as part of that whole, then I believe that we can actually transform our world.

However, we sort of have built this economy and our society on fear and scarcity as a model. Like currency derives its value from scarcity and from the confidence that little piece of paper with the ink on it has actual value. And so, as a result of that, I believe that we can actually change the economy. And quite frankly, we’ve sort of waged war on the earth and have destroyed ecosystems.

And so how can we use new technologies to rapidly make the changes to rebuild and to regenerate and to heal ecosystems? And if you want to look at an economy, I believe that the regenerative economy will be a multi multi-trillion dollar economy. It’s more of a horizontal than a vertical. And that I believe that there’s more money in actually building a house than destroying one. And so we’ve already done a lot of damage. Now, if we can repair and heal and regenerate that damage, I think that there’s 500 years of a great economy and also the sustainability of humankind. And if we don’t do it, I give us maybe 100 years.

Aaron Dinin:

I really love that phrase you used. What was it? It was more money in building a house than destroying one. I guess I hadn’t really thought about environmental entrepreneurship in that way before. I think that’s a really great framework and way of thinking about the opportunities there. And out of curiosity, considering it’s such a big shift in focus from what you were doing with eMusic to what you’re doing now, how exactly did that shift come about?

Mark Chasan:

I would say it actually started when I was about five years old, when my parents took me to these tide pools near Palos Verdes called Abalone Cove. And it was flourishing. There was hundreds of abalone shells, hundreds of sea and enemies and thousands of little sideways walking crabs, seahorse bobbing around. And by the time I was 12, LA, through all of the oil refining being done there, turned into a horrible smog pit. There was raw sewage and hazardous waste being dumped into Santa Monica Bay. And literally, there wasn’t a single living thing in a period of about seven or eight years. And I didn’t know what to do about that for a really long time, just like I loved music and I try beating my head up against the wall to get into and succeed in the music industry.

And then all of a sudden, these opportunities present themselves where technology and innovation opened doors that we could really do something to make a big difference. And so a lot of the renewable energy technologies, whether it be solar or wind, or being able to do geothermal and to explore geothermal with much more precision and effectiveness, controlled environment agriculture, to be able to localize it, seeing the ability to go from this centralized economy run by large corporations who pay off lobbyists and corrupt politicians to get their way with our environment, now it’s moving more toward localization and more toward distribution. You’re seeing the embrace of this in the areas of blockchain and crypto and wanting decentralized autonomous organizations.

So as we move the supply chain closer to where the actual need and consumption occurs, and to start using clean fuels and circularity in all of our manufacturing processes and in the way that we transport goods, I think is going to make a huge impact. And potentially, it may end up being what allows human kinds to actually continue to survive on this planet. And I mean, I think we’re at that point now with food shortages and wars and the way we’ve developed agriculture and cities and releasing new viruses and pandemics and zoonotic diseases, the imbalancing of ecosystems, I mean, we’ve made a mess of this. And we’re not going to save the planet. I mean, the planet will be fine without us, but we could serve the planet and save ourselves. And that’s kind of, I think, where we are now. And so I believe that if we’re driven by money and economy, there’s going to be, as I said earlier, multiple trillions of dollars of opportunity in the regenerative economy. And that we’re also going to be making money, doing good and building an economy that serves humans in the planet.

Aaron Dinin:

And as we wrap up here, any thoughts or advice about what you might tell an entrepreneur thinking about doing similar work?

Mark Chasan:

I would just say, a lot of entrepreneurs see the sun, they put on their Icarus wax wings and they’re going to fly to the sun. And they see it. And it happens literally in seconds in their imagination. And the thing they don’t see is banging out your credit cards and the massive amount of time and attention and focus that it takes to create a successful company, the commitment to success, it’s kind of an all in sort of thing.

And nowadays, when I advise and mentor eco-social entrepreneurs, I generally start with why are you doing this and why does the world need it. What’s your purpose? What is your mission statement? Okay. Now to achieve your mission statement, what are your goals and objectives? And then we break that down into time, budget and resource driven tasks. And when that list of 100 tasks comes out, a lot of them go, “I really have to do all that to succeed?” And you go, “Yeah.” They go, “Mm, maybe I want to get a job.” And there’s a joke that an entrepreneur is somebody who works 80 hours a week for free so they don’t have to get a real job.

Aaron Dinin:

Well, I’m definitely someone who’s been guilty of exactly that, working 80 hours a week for free to avoid a real job. But I’d say it’s a good thing there are people in the world willing to do that, especially considering what he’s working on now, people like Mark Chasan. So I’d like to thank him for taking a little time away from that important work to share the story of eMusic with all of us. If you’d like to follow what he’s up to these days, you can find him on Twitter, he’s @markchasan. Web Masters is on Twitter too. We are @webmasterspod. Send us whatever thoughts or feedback you have about the episode, or send them to me, I’m @aarondinin. That’s A-A-R-O-N-D-I-N-I-N. You can also find lots of other content about startups and entrepreneurship over on my website. It’s aarondenin.com.

A quick thanks to our audio engineer, Ryan Higgs, for his help pulling together this episode. And a thanks to our sponsor, Latona’s, for their continued support of Web Masters. If you’re in the market to either buy or sell an internet business, be sure to check out latonas.com.

If you’re in the market for more great podcast, episodes, check out our archives wherever you listen to podcasts. As I mentioned, at the top of the show, we’ve got lots of other interesting episodes around digital music that you might enjoy. At the very least, they should keep you busy until our next episode. If you’re subscribed, you’ll get that as soon as it’s released. If you’re not subscribed, well, why not? You can go do it right now because this episode is over and it’s time for me to sign off.

[OUTRO]

Aaron Dinin:

It’s kind of impressive you were selling the first MP3 players online. Could you talk a little more about what happened with that?

Mark Chasan:

What was great about it was I didn’t have the heavy DRM that later the iPod had installed on it and you plugged it into your computer and you could see the screen, you can move your songs back and forth very easily, you could duplicate them and there’s a lot of freedom and it was really well and really easily. I believe that Apple not needing to actually make money on music was able to get the labels to say yes to them as long as they put in this really clunky DRM. And they were able to get major label catalog, and they made their money selling iPods and later iPhones.

Aaron Dinin:

Ah, okay. So we have Apple and the iPod to thank for draconian DRM issues. That’s good to know. I’ll remember that next time I’m using my iPhone.

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