Why Stephen Cooper Chose Web3 for His First Move After Warner Music

Even though NFTs (non-fungible tokens) are experiencing a lull in 2023 following a boom the two previous years, the companies behind NFT technology are pressing forward to prove the initial buzz wasn’t a fluke.

One of those companies, OneOf, got a boost in February when Stephen Cooper, Warner Music Group’s CEO from 2011 to the end of 2022, joined the Miami-based company’s board of directors. A little over a year after Warner Music announced a partnership with OneOf to create exclusive NFTs for its recording artists, Cooper has high praise for the company. “I think that it’s the right organization with the right vision and the right tech at the right time,” he says.

NFTs are part of a technological shift away from websites with user-generated content (Web2) to decentralized (Web3) applications that utilize blockchain technology. They landed on many people’s radars in April 2021 when NBA Top Shot sold a video of a dunk by basketball superstar LeBron James — a one-of-a-kind digital collectible on the blockchain — for a startling $387,600. Dapper Labs, which provides Top Shop’s blockchain technology, is one of many Web3 startups to receive financial backing from Warner Music Group during Cooper’s tenure as CEO. Indeed, Warner has given its stamp of approval to a bevy of forward-thinking platforms and technologies in recent years. It invested in such companies as Roblox two months before it went public in March 2021, as well as DRESSX, a digital fashion retailer, and generative music startups Authentic Artists and Lifescore.

Being the “next big thing” has come with disappointments, though. NFT sales fell from more than $6.3 billion in January 2022 to about $1 billion in February 2023, according to NFT aggregator CryptoSlam, and cryptocurrency enthusiasts have suffered through the collapses of trading platform FTX and stablecoin Terra, among other high-profile failures. Along the way, NFTs earned a reputation for being expensive digital artwork with little purpose other than to — hopefully — appreciate.

Today, Web3 and NFTs are behind everything from fractionalized ownership of music royalties to proof of attendance at concerts or virtual events. For OneOf CEO Lin Dai, Web3 has the potential to transform the way artists build communities. “I liken it to if this was 1997 and I went to either a music artist or music label or just a brand to say, ‘Hey, you have your fan club or your consumer following, and you have millions of mailing addresses that you communicate with them,’” says Dai. “‘There’s this thing called email that’s coming that’s going to make that relationship much easier and we have software to do that.’ This is kind of the stage where I’m at.”

Stephen, what attracted you to the board of OneOf?

Cooper: Well, I’ve known Lin for a number of years. Warner has invested in him. And I’ve not only liked the way that the company has been able to pivot over time as the tech space morphed, but more importantly, I think that what they’ve done and what they’re going to continue to do — by building out this blockchain technology and being able to utilize that technology in conjunction with the superfast capabilities to mint NFTs — it’ll create an amazing opportunity for utilization not only in music but across a spectrum of any number of consumer brands that are interested in building communities of their fans or followers or admirers, and utilize that capability to turbocharge the success in their businesses.

Lin, what do you think Stephen’s going to bring to the company?

Dai: I’ve always admired the amazing work Stephen has done at Warner Music. If you think about 11 years ago or 12 years ago, when he took on the job, the music industry was very much in disarray and disrupted by potentially the idea of digital transformation. It was able to turn that into a position of strength, to doubling down on digital transformation, like the Spotify deal and the partnership with YouTube. Warner, even as the smallest of the three major labels, has really done a tremendous job in taking market share. And Steve’s broader experience in his life before Warner — Steve was CEO of MGM and Krispy Kreme Doughnuts. It just spans a lot of different industries. Over the years, I always feel like every time I talked to him, we learned a lot as a young startup with hot technology. A lot of the bigger picture of how industry moves, and how our technology can apply to industry, Steve brings a wealth of knowledge [to].

Not all artists jumped on digital downloads right away. There were some notable holdouts once iTunes was out. What are your conversations with artists and their teams like? Tell me about their understanding of Web3 and where they sit? What is that education process like?

Cooper: Well, I think that it really goes across an entire spectrum, where there are people that go anywhere from not interested all the way to people that embrace it or immerse themselves more fully into it. I think that what will happen is that, like with any new technology, there’s a period of skepticism, then there’s the period of testing, then there’s the period of early adoption. And once the early adopters begin to proselytize the technology, you can see generally that it begins to accelerate at a fairly rapid pace.

The good news, I think, for Web3, is that for many artists — and again, it’s much broader than music — but for the Gen Zs, the millennials that have grown up in a digital age as opposed to people like me, that acceptance and that adoption has accelerated. There used to be a much greater mean time between the introduction and the broad acceptance of technology. Those mean times have collapsed over the last two or three decades, where new technologies are embraced much more rapidly. There are millions of people that have, primarily through gaming, immersed themselves in these new technologies and these metaverses for some length of time now. With these better foundational technologies and the ability to keep track of who’s got what at all times it’s something that people…are far better off embracing than rejecting.

And the music industry, in large part, has had a history — as far as I can tell being mostly an outsider looking in — that if they had looked at Napster in a different way, they would have controlled file sharing. If they had listened to [former Apple CEO Steve] Jobs differently, they would have controlled downloads. And if they had acquired Spotify in the early days, the industry would have controlled streaming as opposed to allowing these technical iron curtains to get between content and fandom. And I think what people will begin to realize in Web3 is that it creates another shot for the industry to converge content with distribution, where the artists and the fan are right up against each other as opposed to being separated by this tech iron curtain.

Lin, where are we on the Web3 hype cycle? You’re familiar with this curve? There’s an initial peak of buzziness followed by a trough of disillusionment. Have we fallen down into that trough right now? And what does that mean for OneOf?

Dai: I hope we have completely fallen down and rode around for a few cycles and are ready to climb out now. You know, I think in the last 18 months, the general excitement really is great for mainstream awareness of Web3 and NFT technology, but we only really used it for two use cases. One is high-end digital art. The other is how to use this technology for a profile picture on my Twitter account. If you’re talking about the internet in, like, 1997, there’s going to be 990 other use cases we haven’t even started fathoming.

We work closely with Pepsi and Anheuser Busch, and American Express is a major investor in our last round. In music, we are working on tool sets for artists and creators, but also on things that directly impact the kind of three pillars of the music business today, like how does Web3 technology enhance the experience of streaming? How does Web3 technology do a better job at ticketing? How can Web3 technology be applied in the realm of publishing and rights? So those are much deeper and more long-term kinds of use cases. The most recent hype cycle was about speculators getting involved. That’s not really a sustainable model for any industry.

You mentioned American Express. When Amex Ventures invested in OneOf, the managing director referred to brands’ involvement in NFTs as “experimenting.” So, what have brands learned from the experiments so far?

Dai: The ask is no longer, “How do we do a profile picture collection?” It’s, “How do we build entire systems that connect our data that we know about consumers to allow them to really have a full ecosystem, whether it’s rewards, whether it’s commerce, whether it’s better communication?” So, there is kind of a quiet race for Web3 by all the major Web2 companies right now — or even Web1 companies. I think it’s unlike the dot-com bust where I think most companies wrote off the internet and everybody went back to brick-and-mortar for 10 years. And that’s how you allowed Amazon to have such dominance. There were only a few companies that really stayed the course.

Now, I think every major company, whether you’re CPG [consumer packaged goods] or you are music streaming — Spotify just rolled out some new software — everybody kind of knows and believes Web3 is going to happen. They know today’s tools suck. Today’s tools are not good for beer drinkers or fans that just want to go to a festival [to] enjoy and don’t want to connect a crypto wallet. That’s why they are actively looking for solutions.

Stephen, from a label’s point of view, how is Web3 different and how do you tackle it? Is it like traditional digital marketing or promotion? There is an element of community to it. That is a different relationship than labels have typically had, maybe outside of fan clubs. What challenges does that bring to a label?

Cooper: I think it does several things. One, it does bring challenges because I think that Web3 will heighten the requirements for many artists to introduce music on a far more regular basis. There’s some artists that will adapt and adopt. There will be some artists that won’t — but the labels will also begin to attract a new generation of artists that have been immersed in the digital world since birth, have been immersed in social platforms, and will flow naturally into Web3.

The advantage that I see for labels is that even though they will be, you know, paying a tolling fee to be on these platforms — whether it’s Roblox, Sandbox, Fortnite, whatever, inside of those worlds — they will be able to create their own worlds, to draw music fans, fans of specific artists, into those worlds where they will be able not only to interact with the artists on a regular basis, but they will be able to interact with each other on an ongoing basis. So, the relationship with the artist, one, should deepen considerably. Two, the relationships between super fan to super fan ought to accelerate. The glue that holds fans’ loyalty to those artists ought to strengthen through the ramp-up of interaction, both horizontally and vertically. I think that the labels understand this.

It’s been very public at Warner that they’ve invested heavily in Web3. They are building out spaces in Web3. They are experimenting with their artists in Web3. And I think that as they refine those experiments, as they refine their approaches, they will find that this gives them a freshened opportunity to really bring content and distribution together and take advantage of a situation that they missed in the late ‘90s, the early 2000s, and in 2010.

Some people think Web3 is an opportunity for artists to gain more independence. In some Warner earnings calls, you’ve talked about the artists’ need for labels in the Web3 environment. Are both of those true?

Cooper: I think that people will take a shot at independence. Here’s what I see as the math problem: If you talk to YouTube, or you talk to TikTok, they will say that there 20, 25, 30, 35 million musical artists that use TikTok use YouTube [and] so on and so forth. So, you start with that number. What Web2 and Web3 have done — or will do — is democratized access. But what they can’t democratize is talent.

When you look today at the active rosters of Universal, Sony and Warner, there are probably less than 15,000 artists. Those artists — in conjunction with the catalogs [owned by] the three, plus BMG and a few others — represent 85% of all the listening on the planet. And if you think about 20 or 25 years of American Idol, of The Voice, of America’s Got Talent, after 25 or 30 years, you can name on one hand the people that have made it. When you look at TikTok, there’s only one or two or three [star] artists that have emerged over the last few years. And YouTube has been the same. Those that have emerged have ended up having the global machine of a label behind them. Because it is so hard even with extraordinary talent to be recognized and to do it on your own is almost impossible. The fact of the matter is to be able to be recognized as that talent and then have the right machine behind you with the right global footprint is just not something most young artists are capable of doing on their own.

Lin, Stephen said Web2 is not going away. This week, we saw news that Spotify is testing NFT-accessed playlists. Do you see Web2 and Web3 integrating in ways like that?

Dai: Yeah, absolutely. We did the first-ever beta with Spotify integration last year with some of our artists, that was early Web3. So Web2 companies certainly are very much embracing Web3. Web3 is not really replacing traditional businesses. But what Web3 does really well is this idea of creating community. If you think about traditional fan clubs, you used to write a letter and put $2 in there and somebody mails you back a sticker, right? That’s replaced by a kind of an email fan club. And everyone says, “Okay, here’s a link, you get to go buy our concert ticket earlier,” but it’s still kind of a one-to-many relationship. The value exchange is still a one-way street. The artist is asking the fan to please spend money for [their] product or experiences.

Web3 is interesting because it really encourages members to work with each other. Because you’re basically receiving a digital asset. That price can fluctuate based on how engaged the membership is. You’re incentivized to go out there and evangelize for your artist and really make sure you’re potentially participating in the success of the artists, whatever that may be. Now for the artists, the algorithms of Spotify really created this kind of this all-or-nothing world. You’re either one of the 500 artists that is making a killing because the algorithm just keeps feeding that or you just you don’t break through. So Web3 changes that. I can make a living only having 500 super fans. I don’t need to be the next Taylor Swift.

I grew up in China. I played the accordion. I was a very good accordion player when I was in elementary school. So, if I’m just passionate and want to play accordion, maybe I can rally up like 100, 200, 500 super fans, but it’s very, very hard for me to be on a Taylor Swift level. The reality is as a passionate musician if you just can’t make a living doing what you do now — streaming — you can’t support yourself. You have to take on a different soul-crushing job that you’re not passionate about. And at some point, life comes at you, and you have to give up your art.

But Web3 potentially enables a whole slew of creators to be able to do their art for a living, if they can use the tools to really gather and rally around just a few hundred super fans. And I think in the long run, that’s a better world, if we just have more art being created and people being happy doing what they do.

Cooper: I think Lin’s point is well taken. And I think that what will separate, whether it be at a small scale or a large scale, whether or not there’s really talent there versus just noise. And you may recall that a year or two or three ago when Spotify began to mess with their playlists and push things that they wanted to push, versus what music fans wanted to hear, they got a lot of backlash because they were pushing stuff that people just didn’t want to listen to. And people generally can differentiate what they believe is really good stuff from really bad stuff.

[Spotify CEO Daniel] Ek said, I don’t know 5, 6, 7, 8 years ago, he said you wanted a million artists to be able to make a living on Spotify. And he kind of defined that as being able to make $100,000 a year at the time. Well, it was pretty easy to do the math and figure out what that would mean by way of Spotify’s size and subscriptions and streams. Three or four months later, they quietly abandon that idea because they really don’t know how to market and promote. They know algorithms. But when you’re promoting music, an algorithm is a poor substitute for marketing and promotion to build traction. So, I think that when he abandoned that idea, it was kind of an acknowledgment that while algorithms could feed things up to people, the handoff to Web3, is that that artist may be able — to Lin’s point — [to] rally 100, 200, 300 people to make a living.

Even on TikTok, which is kind of a democratic community, even though it is Web2, all the money is being made by 1/10 of 1% at the top of the pyramid, and everybody else is just having fun. And then they end up with 1,000 or 2,000 followers, but without that talent, it’s hard to be in these environments and make a living. Web3 will actually enhance that possibility. And God bless the accordion players.