Music League

Serial entrepreneurs Jeff and Rich Sloan of Birmingham have taken the popularity of fantasy sports leagues and applied it to the entertainment industry.
Renee Blair, Kylie Morgan
Recording artists Renee Blair and Kylie Morgan are among dozens of entertainers who are part of FanLabel, a new digital platform created in Birmingham where participants run a fantasy record label.

For years, millions of Americans have experienced a measure of owning a professional football team, including the ability to draft players and deploy lineups on a weekly basis.

Through fantasy sports leagues, throngs of fans become “virtual” owners every season. And fantasy sports are a big business, with high-profile corporate sponsors and entire companies devoted to assisting users in drafting players and running their leagues.

Studying the strength and growth potential of fantasy leagues, serial entrepreneur Jeff Sloan sensed opportunity. As founder and CEO of Birmingham-based StartupNation, an innovative business incubator firm that — at any given time — provides guidance and support services for companies that have the potential for growth and eventual value in the market, Sloan saw an opening for a different kind of digital league.

Betting that Americans’ love of music is as intense as their passion for sports, Sloan predicts that just as sports fans check game results and standings every week, music fans will check the charts for the ascendancy of their favorite songs and artists. He also knows that, just as sports fans crave access to game tickets, music fans jump at the opportunity to attend concerts and be close to their favorite artists.

So, he wondered, why couldn’t the fantasy concept work for music the way it works for sports? Out of that notion came FanLabel, which launched in May as one of the nation’s hottest music apps. It’s attracted impressive fan usage, major industry sponsors, and big names eager to be part of the action.

In addition to drawing music fans, Sloan and his partners, including his brother Rich, built in plenty of ways for FanLabel to earn money. It starts with a simple concept for users.

“You’re given a pool of songs, and you sign songs to your label you think would perform best in the real world,” Sloan says. “We have data from metric streams, and your label would earn points from these songs on your label, or versus other songs on other labels.”

Via the app, leaderboards show who’s on top of various contests, which can last a day, a week, or longer. As a measure of its potential, two days after the launch on May 6, FanLabel went from nowhere to 39th among the world’s most popular music apps available on the Apple App Store.

“It’s free to play,” Sloan says. “We make our money from advertising and sponsorships, so a company could sponsor a contest on the platform and it may be rebranded under their name, such as a beer company sponsoring a summer contest. Secondly, we have the capability to do in-app purchasing.”

Players can pay for premium services, such as the ability to swap out a song that’s not performing as they had hoped. Players can also use FanLabel points — described as virtual royalties — to purchase artist merchandise or concert tickets.

Jeff and Rich Sloan with Kylie Morgan
FanLabel co-founders Jeff and Rich Sloan (with recording artist Kylie Morgan), say their new app was inspired, in part, by the popularity of fantasy football leagues.

Another way the firm drives revenue is by giving sponsors the opportunity to create and administer contests under the FanLabel banner. That’s where the strength of the technology has been crucial, as an easy-to-use back-end dashboard allows sponsors to essentially create and manage their contests.

“Either FanLabel directly or our brand partners can craft contests that can vary by duration, type, genre, prizing, and other details, so contests can be customized indefinitely,” Sloan says.

As sponsors run and promote contests they can offer users something conventional, like concert tickets, or something more creative, like backstage meet-and-greet opportunities with artists. What’s more, the ability to offer contests on the FanLabel platform gives sponsors an opportunity to reach both new and existing customers with a branded experience.

“We’re creating music discovery through people previewing songs in the app to determine if they want to sign them to their label,” Sloan says, “and we’re creating music consumption every time a song is played on FanLabel. We’re also creating new revenue events for the labels and the artists, and we’re gathering extremely high-value data on age, sex, and the location of every player.”

User data alone is in heavy demand, especially among companies looking to push any sort of product or service to consumers in the digital space. FanLabel’s user data — knowing the age and sex of every user — allows them to match the songs picked by certain demographics and further define them on a market-by-market basis. That offers insight, for example, on where a new song or band should be launched or not launched, because interest may not be as strong for a major event or a live tour booking.

While it may seem obvious that a “fantasy music league” would garner as much interest as fantasy sports, Sloan didn’t commit to the investment on intuition alone. He researched the space extensively, and structured FanLabel’s offerings to match the likely preferences of the users. From there, he determined that engaging music lovers isn’t exactly the same as sports fans.

“We convert passive listeners of music into actual promoters of music,” Sloan says. “We turn them into micro-influencers of the music they love. Unlike fantasy sports, where players can’t influence the outcome of the football games played on Sundays, players in FanLabel can actually help their chances to win by promoting their songs.”

They can do that in numerous ways, such as sharing on social media or sending the songs to direct contacts. That extra attention creates more streams of the song and generates added points, to move them up the leaderboards.

At the same time, artists and record labels receive additional attention because FanLabel users are sharing their songs. “The response from the marketplace has been significantly better than we projected in the business plan,” Sloan says, “and the cost to acquire customers has been about one-sixth of what we projected. I’ve never been associated with a company where the market has responded as feverishly as it has to this.”

And it’s not as if Sloan doesn’t have some serious experience launching companies. StartupNation’s larger business model is to house startup companies — providing them with everything from office space and clerical support to guidance and access to angel funding — in exchange for a stake in the companies as they’re eventually positioned for sale.

Mick Brege, creative director; Mars Ashton, project manager; and Steven Zavala, senior front end developer
The FanLabel development team includes Mick Brege, creative director; Mars Ashton, project manager; and Steven Zavala, senior front end developer.

Sloan is a veteran at assessing a startup’s viability, and at any given time StartupNation is playing host to as many as 10 different startups. Just as in the incubation process of  helping companies grow, “we learned that by providing the front-end user experience, we could deliver some really powerful things on the back end to our FanLabel stakeholders,” Sloan says.

Just who are those stakeholders? Sony Music Group, Warner Music Group, and Universal Music Group own part of the company, as does rapper Pitbull (Armando Christian Perez). Apple co-founder Steve Wozniak is also on board.

Sloan says he connected with Pitbull through a radio contact and was able to meet with him personally in Miami. Pitbull has become an adviser to the company, and the two now meet regularly. “I have a lot of conviction and a lot of confidence,” Sloan says. “When I went and talked to Pitbull, I felt like I was giving him an opportunity. Magic happens when you can talk to a key strategic adviser or a key investor or a key rainmaker, when you’re able to look him or her in the eye and give them an opportunity.”

StartupNation raised $4.2 million in an initial round of angel funding for FanLabel, and is targeting an additional round of  between $5 million and $10 million in October. Sloan says the opportunity has attracted significant interest among institutional investors.

Like other StartupNation ventures, FanLabel is a collaboration between Sloan and his brother, Rich, a Las Vegas resident and a veteran in the launch and development of companies. “Rich and I have a natural rhythm to our working relationship now,” Sloan says. “Not only do our skill sets match up in a very complementary way, but we now have the breadth of experience and a track record of success that mitigates risk and drives acceleration in the growth of our various ventures and activities.”

Rich says he instantly saw the potential for FanLabel when his brother presented the idea to him. “I could relate to it,” he says. “I love music. I know that people have this innate desire to express themselves through their music and the prowess of their musical taste. I know that people like me love to be able to say, ‘Yeah, I was listening to U2 before they were discovered.’ When you can trigger those kinds of passions in customers, it just makes a business opportunity like this very exciting.”

Rich also saw how FanLabel intersects with both entertainment and technology, along with the ability to gather user data.

“When you look closely, the music industry is becoming almost indistinguishable from the tech industry,” he notes. “This is a sea change that we are a part of. Streaming has become the No. 1 revenue source in the music business, and it has been enabled by achievements by these amazing tech companies.”

Jeff Sloan emphasizes that StartupNation sees itself as a company crafter, or “venture developers,” rather than venture capitalists investing in deals. He and his brother start with raw ideas and build companies around them if they think the ideas are strong enough.

“We raise the early funding and invest directly,” Sloan says. “We develop the business plan and fundraising strategy, put together early key team members, secure first customers, and then guide the company through its early growth all the way to exit.”

FanLabel app
The FanLabel app

Prior to FanLabel, the company has had five successful “exits,” including:

• Genego, $22.5 million

• Clarity Technologies, $17 million

• Rubicon Genomics, $75 million

• Aereous, a merger deal valued at $61 million

• Healthmaster, $20 million

Still, none of those match what Sloan has seen with FanLabel. “We’ve been involved with some really good outcomes, but we’ve never been involved with a deal with this kind of momentum and interest, ranging from the investor base to strategic partners to, frankly, our users,” Sloan says. “Everything is really brisk and active.”

The interest in FanLabel likely has to do with the large number of high-value activities crammed into the concept for stakeholders. It’s a consumer-facing business that generates music consumption every time a song is shared, new revenue events for labels and artists, and gathers high-value data on users.

“Obviously this isn’t individualized or personalized to any one player,” Sloan says. “We’re creating demographic profiling and delivering what song picks are being made by what demographic profile, by location, and we’re able to deliver that data to the record labels and artists.”

The StartupNation model is to help budding companies craft business plans, execute their launches, and implement their early business strategies and fundraising strategies. It also works with company founders to secure early customers and validate their business models. Sloan’s philosophy is that the entrepreneurs who operate in the company’s space along Woodward Avenue need more than administrative advice. They need wisdom, as well.

“There needs to be mentorship and strategic guidance,” Sloan says. “Having my brother and myself there to provide that guidance to the companies we’re working on is a key factor. We bring to bear all our experience, brand equity, reputation, and influence. I think it’s critical. We derail a lot of mistakes that would likely occur, and provide a lot of acceleration that would otherwise not occur.”

Sloan has reasons for preferring to work with angel investors for early rounds of funding, although he values venture capital in the later growth stages of ventures, when companies are more mature and proven.

“Angels tend to bring more than money,” Sloan says. “They tend to bring smart money. They have connections, and that money tends to be very friendly and patient in nature. People who manage venture funds have a lot of pressure on them to deliver a return on investments back to the investors in the fund, and sometimes that creates misalignments when venture capital enters a deal too early.”

Sloan draws on an angel investor network — national in scope — of between 80 and 100 angels. StartupNation also maintains its own seed fund, which is designed to put between $50,000 and $100,000 into each idea once it’s gone through proof-of-concept, early market testing, and a number of other qualifying factors.

Which leads one to wonder: How handsome will the payoff for FanLabel be? And would the Sloan brothers really want to let go of it? That remains to be seen.

“When (you’re building) a company, what we focus on is building a viable company that’s profitable in order to ensure great shareholder value,” Jeff Sloan says, emphasizing that this would be the priority whether the plan was to sell off the company or hang onto it.

Remember: Not every company that’s ever incubated at StartupNation has resulted in an “exit,” so it’s not a foregone conclusion that FanLabel was created to be sold. With a commitment to keeping the headquarters in Birmingham while looking to establish a presence in downtown Detroit, it certainly seems conceivable that FanLabel could remain under the ownership of the Sloan brothers and its creators.

“FanLabel is uniquely positioned as the only platform of its kind,” says Corey Welch, a local investor, “and to see it being developed right here in our region is exciting.”