Why $12m-backed Stem dumped DIY distribution – and why its founder worries about the music industry ‘making aggressive bets and being wrong’

“We never wanted to be a distributor.”

It’s a candid admission from Milana Rabkin Lewis, whose Los Angeles-based company Stem has become one of the most talked about entities in exactly that space of the music industry.

Yet her reasoning as to why, as delivered on the new MBW Podcast below, rings true: “There’s not an infrastructure to be able to innovate in the music business unless you’re at the source of the data.”



How has Stem satisfied its hankering for innovation? By creating fiscally-beneficial (and educational) tools for independent artists and labels.

You saw it last year with the launch of Stem Check – which enables any client to have their major label deal offer scrutinized by Stem’s team – and then earlier this year with the arrival of the $100m-backed Stem Scale, which offers auto-calculated online advances to artists, for a fee.

To get to this point, Stem had to cause a ruckus: in June 2019, after four years of rivalling the likes of TuneCore, Stem cut ties with tens of thousands of DIY/self-uploading acts, switching to exclusively focus its resources on a much smaller, handpicked roster.

Stem’s heavyweight investors were doubtlessly keen on this pivot. Stem has attracted over $12m in funding since being founded in 2015, from backers that reportedly include the likes of Scooter Braun, Mark Cuban, Vayner Capital, Upfront Ventures, Aspect Ventures, Dina LaPolt and Savan Kotecha.

Rabkin Lewis, therefore, knows a thing or two about raising capital, and about meeting the needs of venture partners. On the podcast, she casts a curious eye over the rampant M&A activity now taking place in the music rights space – and questions what the impact of COVID-19 might be on the willingness of funders to fund in the months ahead.

“Venture capital hates music – because of Napster, because of all the failed music tech companies – and it’s taken a lot of f*cking work from [parties] like myself, Spotify, Splice and many others to get venture capital comfortable with investing again.”

While calling music “a great asset class”, she says: “The multiples that are being offered today by people who do not understand how to really value music, or understand the decay curves, or to look at the data and be able to determine the value in the long-term, is scary to me. What I’m afraid of is new money coming into [the music business], making some pretty aggressive bets and being wrong. And then, again, music puts a bad taste in the mouths of the financial markets.

“Venture capital hates music – because of Napster, because of all the failed music tech companies – and it’s taken a lot of fucking work from [parties] like myself, Spotify, Splice and many others to get venture capital comfortable with investing again… I hope the deal-makers in our business are being responsible and not trying to take advantage of the new cash by inflating valuations to get as much money [as they can] upfront; that’s what scares me, because it might not be sustainable.”

Of Stem’s own economics, Rabkin Lewis comments: “We could be profitable at any point, which is nice. We have a healthy margin compared to other businesses because we get the benefit of scale through automation.

“We choose to keep raising capital because our ambitions are bigger than just being a rightsholder or distributor. It’s funny because the dollar amount you cite [$12m] is still significantly less than most tech companies have raised; people are like, ‘Oh my God, that’s so much money!’ – it’s really not. Look at companies like [music creation platform] Splice, which has raised like $90m today.

“I love to say we’re never raising – but we’re always raising.”



“Venture capital hates music…” Now there’s a tasty quote!

On this podcast, it doesn’t stand alone. Rabkin Lewis clearly isn’t afraid of expressing frank and forthright opinions about the practices of an industry which Stem is determined to shake up.

Take, for example, her views on the modern major record companies and their ability to continually commit vast sums to A&R – a gung-ho strategy which Rabkin Lewis predicts will be curbed over the next 12 months by the macro-economic effects of the Coronavirus pandemic, alongside other factors.

“I’m really curious to see how the major labels planning to go public – Warner and Universal – tighten up their budgets and what that means for investing in A&R.”

She explains that Stem Scale offers advances to artists based on their projected earnings from 4 to 18 months into the future, which she says is “pretty low risk” as an under-writing concern.

By contrast, says Rabkin Lewis: “When a label generally gives an advance to an artist they’re underwriting them for a duration of three to five years of payback, which to me is kind of silly because so much can change: five years ago, the market became flooded with cash and labels were able to really get competitive with advances and [start] paying absurd multiples… today, that’s not the world we’re living in. The world just changed within a matter of two weeks.”

Rabkin Lewis predicts that, over the next year, we may see this expenditure contract at the likes of Universal, Sony and Warner. In turn, she forecasts, this will have a marked effect on the number of artists and their managers staying independent.

“In the last two years, record labels would sign an artist off one hit – there’s been a number of artists on Today’s Top Hits or New Music Friday getting a bidding war from multiple labels,” she notes. “I don’t think we’re going to have that happen any more this year.

“The level of spending that existed in the last two to three years is not sustainable, especially in a market that doesn’t have a tolerance for risk, I just can’t see it continuing.”

“The level of spending that existed in the last two to three years is not sustainable, especially in a market that doesn’t have a tolerance for risk, I just can’t see it continuing.”

Adds Rabkin Lewis: “I’m really curious to see how the major labels planning to go public – Warner and Universal – tighten up their budgets and what that means for investing in A&R. And if the money and resources [for artists] are not coming from inside the major labels, it has to come from outside.

“In a world where there are so many other options for [artists to obtain money] – not just Stem Scale, but companies like Amuse and others providing capital to the market – more than ever managers have a lot of options to pull things together a la carte.

“Over the last couple of years [managers] have had to build teams in-house to know how to service independent releases, to do content operations, marketing, social media, release plans… so now if the budgets dry up at the major labels I think managers are [better] positioned to do the work than they’ve ever been.

“My guess is that when the financial markets pick back up and the labels are liquid again, they’re probably going to have to be more aggressive about M&A – they’re going to have to acquire [rights], versus license.”



Before founding Stem, Lithuania-born Rabkin Lewis worked at talent agency UTA, specializing in the representation of emerging online creators.

This experience gave her an insight into how independent talent and their representatives often sign deals with large corporations due to a fear of handling their own economics, and a simple misunderstanding of what their assets are actually worth.

This is one key reason, she says, when Stem is gearing its focus towards tools that provide financial clarity and relief for artists who are making headway with their early career.

Doing this effectively, she says, required Stem to end its relationship with those DIY artists last year, despite the social media fallout it caused.

“I do not believe, quite frankly, that [label] services scale. Looking at the sheer volume of artists that many other distributors have to take on to be profitable, it doesn’t make any sense.”

“The problem we solve is paying people, and if your content doesn’t make money, we’re not the best platform for you,” she says. “But [the decision to end DIY] wasn’t just about the money side of it, it was about the focus of where best to invest our resources – we wanted to invest them in building a product that [provides] financial tools, rather than building distribution tools.”

The more typical model in Stem’s world is this one: a distributor takes a percentage fee from an artist, then layers on top additional ‘label services’ such as radio promotion, social media management, physical distribution and royalty collection for additional pieces of the pie.

Rabkin Lewis is skeptical about this label-aping model, she says: “I do not believe, quite frankly, that [label] services scale. Looking at the sheer volume of artists that many other distributors have to take on to be profitable, it doesn’t make any sense – you’re not actually providing the best service to the artist yet you’re charging them a mark-up on the services they’re getting.”

There’s much more where this came from on the podcast, including Rabkin Lewis’s thoughts on her competitors, plus ‘free’ distribution offerings in the market, Stem’s trusted A&R network and the difference between Scale and record label advances.


However, the passage of time may prove that the most important segment of our podcast discussion is less ‘on topic’.

MBW recently heard from a senior, global figure working in the industry that premium stream fraud on services like Spotify and others could now be costing the worldwide record industry a nine-figure amount each year.

Premium stream fraud, as typified by the ‘Bulgarian scam’, sees unscrupulous entities uploading tranches of short-form music, then rinsing playback of this music in order to claim a percentage of the total plays on a platform – and, therefore, the same percentage of payouts.

In order to get this music on the platforms in the first place, said unscrupulous entities have to use a third-party upload/distribution service with a lax attitude to fraudulent activity on their partners’ platforms.

“The streaming platforms have invested so much into anti-fraud teams, but it’s still not perfect and there’s still so much that goes undetected.”

Stem’s certainly seen it go on, says Rabkin Lewis, and clamped down on it hard.

“The platforms have invested so much into fraud teams, but it’s still not perfect and there’s still so much that goes undetected,” says Rabkin Lewis. “It’s unfair because it’s taking from the royalty pool that should be going to artists who are actually creating music with a purpose – not just for financial gain and gaming the system. That really does upset me.”

Not all stream fraud, however, is perpetrated by shady criminal types – especially when it comes to similar play-rinsing behavior on ‘free’/ad-funded services, conducted with the aim of climbing music charts.

“There are a lot of marketing agencies who [use] stream farms, who are employed by people who are very legitimate in the business,” claims Rabkin Lewis. “The platform fraud teams do not have the same level of detection on content that’s distributed by established companies – such as major labels or other arms.

“What I’m concerned about is illegitimate streaming that is being manufactured by more established parties [in order] to gain market share.”


You can listen to the MBW Podcast with Milana Rabkin Lewis on SoundCloud here, on Google Podcasts here, or on Spotify here. It will appear on Apple Podcasts soon.

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