Having raised $12.5m to date, Stem quits DIY distribution, increases its fees and focuses on ‘top performing artists’

Since being founded in 2015, Los Angeles-based Stem has been one of the most talked (and written) about startups in the digital music space.

That’s partly because of the high-profile artists whose work it has distributed – including Frank Ocean (for 2016’s Blonde) and Childish Gambino. It’s partly because of the firm’s tech, which collects streaming royalty money for a track and then pays it out separately to individual collaborators based on a pre-agreed split.

And it’s partly because of the high-profile industry execs who have joined investment rounds in the company – including manager Scooter Braun, lawyer Dina LaPolt, songwriter Savan Kotecha and Red Light Management’s Bruce Flohr. (These investment rounds have been worth $12.5m in total, with $4.5m raised in 2016 and a further $8m raised in 2017.)

Now, Stem is going through a major change. Since launching, the company has offered any artist the chance to directly upload their music to the likes of Spotify, Apple Music and Pandora via its platform – making it a direct rival to the likes of TuneCore, Distrokid, Ditto Music and CD Baby.

This is no longer the case: In an announcement issued Friday (May 31), Stem confirmed that it was getting out of the DIY distribution game.

Instead, from now on, the company will curate the artists it works with, picking a select number of VIPs from an online membership application system – not dissimilar to the approach adopted by companies like AWAL or Create Music Group.

Stem is branding this pivot as ‘Stem Direct’, which it calls ‘a concierge member service to support our top talent’.

It says that ‘Stem Direct’ customers – including those existing Stem clients who are considered sufficiently ‘top performing artists’ – will now receive new benefits like ‘a dedicated account representative who they can call, text or email’.

However, this also means that non-‘top performing artists’ – ie. the majority of the tens of thousands of DIY acts currently using Stem – are being asked to kindly vacate the platform.

Stem has struck a partnership with TuneCore to provide what it calls ‘a seamless transition’ of these artists’ music to the latter platform. TuneCore will host the transferred content of Stem users for 3 months free of charge.

That’s not the only big transformation at Stem, either.

Since launching, the company has charged its acts a very competitive fee of 5% (of their royalties), in return for services including distribution and royalty collection.

That number is now being upped – with Stem’s standard fee for new clients moving from 5% to 10% from July 1 this year.

Existing Stem artists who are upgraded to ‘Stem Direct’ will continue to pay 5% on any content previously distributed by Stem, and a discounted rate of 8% for new releases.

Stem explained why it’s dumped DIY distribution services in a Q&A for indie artists, stating: “While we’d love to build relationships with every single current Stem user, providing best-in-class service to tens of thousands of artists simply isn’t realistic.

“All creators deserve partners that provide the best they have to offer; we are making this move to ensure that holds true for everyone in the Stem ecosystem.”

“We know that this news may come as a bit of a shock… Stem didn’t make this decision solely on earnings.”

Stem, speaking to DIY artists

On Twitter, where it’s faced some predictably angry reaction from indie artists now being asked to leave its platform, Stem further explained: “We know that this news may come as a bit of a shock. But please know that we put a lot of thought and preparation into making this decision and it’s a necessary step for us to continue to make a meaningful difference in the music industry at large.”

It added: “Stem didn’t make this decision solely on earnings. As we are increasing the level of servicing (an account manager for each member), we looked at each account to be sure that we could fully support you (resources, enthusiasm, strategy/feedback) and the content being uploaded.”

It’s interesting that Stem is getting out of the self-releasing artist game just as major money is being made in the space elsewhere.

It is expected that over $1 billion will be generated by DIY artists worldwide this year alone.

Downtown Holdings recently acquired CD Baby and its parent, AVL, for circa $200m. Downtown already owns a service which is very popular amongst the DIY community in Songtrust, which specializes in collecting publishing royalties for songwriters at all stages of their career.

Meanwhile, TuneCore just posted financials which showed that its artists earned over $500m in the prior 18 months.

And in October last year, Distrokid accepted an investment from Spotify in exchange for a minority stake in the company.Music Business Worldwide

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