Epidemic Sound: The Legal Model That Created a New Music Economy

Jakob Wredstrøm

So Tom, try to explain to me, so you are not a founder per se, like you joined very early on. Tell me about the story, like how did you get into this?

Tom Höglund

It depends on the circumstances. Sometimes I am, sometimes I'm not. It's to give you a little bit more context. Was like this. The entire story of Epidemic Sound came about 15 or 16 years ago now. Like we've been building this company for a long time. And for the younger generation, it's hard to imagine a period in time where the two biggest music companies in the world were called Pirate Bay and Napster. But that was the reality in the world around 2009 or something like that. Just pre-streaming and everybody was just downloading music and pirating it and burning CDs at home and then they were putting those in their car or their stereos at home. That was the music industry. It was cheaper than iTunes, which was the alternative where you would buy either a single track or like a digital version of an album. And it was more convenient than CDs, but like you didn't have broadband on your phone. I mean, you couldn't go around listening to music and stream it and stuff. So the music industry was pretty much in disarray. And we weren't in the music industry then. But we were rather, I was an &A lawyer doing buying and selling companies. So I was doing something completely different, but I knew even when I started that I would always want to be on the short end of the table rather than the long end of the table being one of the consultants and telling sellers and buyers how they should negotiate to mitigate risk or to get a higher price. And it was all fun and interesting and intellectually. Very demanding, but at the end of the day, I didn't have a horse in any race. I was getting paid regardless and it just really didn't make me that excited about the future of just helping other people create amazing deals or amazing companies and that kind of thing. So I would on my spare time, which I had very little of, I would help all my friends that were trying to build companies. So I would do their shareholder agreements. I would do their licensing deals. I would do like a ton of agreements.

Tom Höglund

To help people build companies. And like I would get paid in vouchers at a restaurant, sometimes in equity, sometimes in a little bit of cash. Sometimes like it was always, it was like whatever they had or whatever I felt comfortable charging, like we would always find a way to make it work. But there was one repeats business where I was doing bigger stuff and that was with my brother and this other guy. And they were running the biggest production house or the... biggest umbrella of production companies in Northern Europe called Zodiac Television. And they were creating a ton of content. And they had started talking to some music producers. And there was like, it was just a general conversation. But as we were doing more and more content and I was helping them with more and more innovative formats of how can we actually distribute these TV shows online? I was the one looking at all the music rights all the time and just getting increasingly frustrated with like, I do not know how to license something from Sweden that can be shown on a platform that is intended to be global. Even though that the content is good enough to be global, like there were separate licenses for computers, for TV, for phones. We used a version of the internet called WAP back then, which was like just a three parenthesis in technical development, but it was a separate license at the time. And we're like, okay, this isn't gonna work because every major TV station that we're producing content for, they're pushing everything more and more online all the time. And everybody was trying to launch like you had in Sweden, you had TV4, but they were launching TV4 Play. So you could look at it on demand, but the licenses for music didn't cover that use case. So it was like, There was no price list. It was extremely complicated. On the music side, like I said, everybody was just pirating. So musicians or producers and live musicians weren't making any money. What would have given you like a couple of hundred thousand bucks before barely gave you a dollar. And these were even like big artists. So if nobody was buying CDs and nobody was going onto iTunes anymore, was just, it was just.

Tom Höglund

Dismal situation for artists and musicians. So we said there must be something here. So we went to all the collecting societies throughout Europe and eventually they actually sold this production companies like two days before Lehman Brothers went bust. So it was one of the last big deals to get financed just before...

Jakob Wredstrøm

Wow.

Tom Höglund

Just before that financial crisis hits. So they're like, okay, what do we do next? It would be fun to solve this issue that we can't distribute music in the world through our TV shows or content or anything like it's just not working. So they called me and they said, look, this is what they want to do at this. Point in time, they had decided to start a company. Didn't even have a name yet. And they're like, look, Tom, we really need you to look into this. We want to build an alternative music industry. I was like, oh, Jesus Christ, that's going to take me like 2 million euros. And I'm going to have to talk to 25 lawyers across the world. And like, after that, I'll know which questions to ask. And then I can start solving it.

Jakob Wredstrøm

You

Jakob Wredstrøm

It's

Jakob Wredstrøm

One thing that's really interesting here is, again, I speak with lot of founders and one of the things that I hate the most is when people say that because that just doesn't happen. So, you know, now we're sitting 15 years later and that did happen, but that's also really a, let's be honest, fucking long shot. Okay, so just to set the scene, that is very big statement to me.

Tom Höglund

Which one of them?

Jakob Wredstrøm

Well, to change the music industry in the way that...

Tom Höglund

Yeah, and it's not for lack of trying to be a part of the traditional music industry. I literally asked every collecting society in the world to say like, look, for some use cases, it makes a ton of sense that you would act on behalf of a songwriter to collect their royalties from TV networks in Poland, radio stations in Denmark, that concert or that festival and those kinds of things. But if you're just writing for content and it's just going to be shown on a TV show and you're getting minimal, minimal royalties 18 months later when everything is processed and said and done. Or like what was happening then if you're selling something to Angry Birds or like some online video game where you can't really pay mechanicals and performance royalties in the same way. It would be way better for the musician if they were allowed to sell a song and then we can administer that song and then you can administer the hits. Like that was the that was the question. And we just got a resounding no. It's never going to happen. We are never going to relinquish our exclusivity in any kind of way. So that's when we figured like, OK, then we need to start an alternative music industry altogether. And that was a very controversial statement at the time, because We were very alone and we didn't have a lot of friends.

Jakob Wredstrøm

Yeah, and you were alone for a while. But let me just ask this question. Your interpretation of why they had that sentiment at that time, what was the reason why they did not want to relinquish exclusivity?

Tom Höglund

I mean at the time the still the PROs had a monopoly on monetizing music for over a hundred years and like don't get me wrong I have nothing against the collecting societies I think they play an extremely important role for a ton of musicians especially when it's extremely popular songs to help them get paid and that people don't steal that music and they monetize it in a great way it's amazing for parts of the music industry But for the part of the music industry that we were going after, they added more complexity than they provided value. So we were like, why should anybody else be in the relationship between us and our customer if they're not actually providing value here? That was the big question. And we tried to work with them. That didn't work. So we said, OK, well, I can't afford to look at this because I'll have to quit my job and sit in a dark room for two years just to figure out which questions to ask to be able to even come close. And they said, well, actually we sold the company two days ago. Here's the money. I was like, really? I was like, okay. So the next day I quit my job and I started just trying to figure out how can we build a...

Jakob Wredstrøm

Okay. You

Tom Höglund

A music solution for the future where we believe that content production is not just going to be centralized through a couple of hubs like London, Hollywood, Berlin, New York, where they used to make all the content that people watched. What if in the future these digital cameras were using, they can hold up to 30 seconds of video? What if they had a microphone in the future? I'm sure that's going to happen. But the common denominator for everyone making that kind of content is that none of them are going to be copyright lawyers. So none of them are going to be able to use music for any type of distribution. In our vision, the user was always going to make amazing content, no matter how niche we thought that there was going to be an audience for it in the future. If YouTube became a big thing, if in the future maybe Facebook supported video. Which it like kind of even didn't at the time. But if that future evolves, they're gonna make this content and they're gonna try and monetize it whichever way they can. They'll try to sell it to a high-end network first. If that doesn't work, they'll cut it up and put it on YouTube. If that doesn't work, cut it up even more and put it on Vine at the time. If that doesn't work, just give it away for free to build like a fan base or whatever. Point being is that we need to solve their licensing issue.

Jakob Wredstrøm

Hmm.

Jakob Wredstrøm

Mm.

Tom Höglund

When they make the content and then just give them full freedom to try and make money off of that. So that was like the big massive difference. Before it was always based on usage and how many copies and like we're like the world doesn't look like that anymore. We need to make something in Slovenia and allow them to show it to a global audience across the platform like YouTube or a website or anywhere. And they need to know that

Jakob Wredstrøm

Mm.

Tom Höglund

A viral hit isn't a massive risk for me in terms of I have to pay performance royalties or I have to do this and that because I, as a content creator, I'm not going to see that kind of money that they're going to be demanding because online video doesn't monetize as well as it would have in radio streams 10 years prior. So we were just trying to build a model that would actually work for what we thought the future of content creation was going to look like.

Jakob Wredstrøm

Hmm.

Tom Höglund

And I mean, and that's more on the perceived value or actual value for our customers. But as two of the other founders were music producers, they're just like, we're building this for musicians, not for customers. There has to be a way to make money. So we analyzed hundreds, if not thousands, of people that would have been writing for the major labels and others and more like...

Jakob Wredstrøm

Thank

Tom Höglund

Background music type stuff for years and then we derived the economic lifespan of that kind of music for each track and it turned out like they would make a hundred tracks they would put it all in this massive bank of hundreds of thousands of other tracks and if somebody by chance discovered their track and they put it in a TV show they would say see a little money 18 months later but most of them couldn't even make a living off of their music so we said

Jakob Wredstrøm

Yeah.

Tom Höglund

Well, okay, well, that's obviously a problem. We want to be able to build a system where we reward hard work. But if we're going to be able to do that, we need to take the financial risk. So we just screened thousands and thousands of the best musicians in the world. And everybody we talked to said, like, what, you're going to pay me up front and then I'm going to participate in the value created as well. We're like, yeah, that's what we want to do. They're like, where do I sign? Everybody was just like, where do I sign?

Jakob Wredstrøm

I think just to not to preempt at the end, like, because we just did have Nicholas, who's the CEO of Overtune Studios on the podcast, who's been a part of your journey as well. But obviously this turned out to be a really good model. Like there's, you know, hundreds of very wealthy musicians right now, not, you know, thousands of creators over time. But you guys were the first ones to really do this at scale. So I just wanted to preempt that for the listeners who don't know, Epidemic Sound, whoever doesn't do that. But again, I just wanted to preempt that. Okay, interesting. So you had a lot of backing, you had sort of producers that are singing for those angles. So you both had it from the musician's angle and then from you guys wanna solve a problem and make money. Did that go seamless or how did you go about this?

Tom Höglund

It's never seamless. But that was also me weaving in the story of founder or not founder. It was like, I was a part of the journey since before we had a name and I built the legal model. So I played a founder role in many aspects, but I didn't have any money at the time. I was a poor 27 year old. So I wasn't technically a founder, but everybody talks about me like a founder. Because I was there from the beginning and I pulled as much weight as any of the other in the founding team. So that's that story. It's... But was it easy? No, it never is. We had a ton of problems. The first couple of years...

Jakob Wredstrøm

Mm-hmm.

Tom Höglund

We just went out to TV networks and we said, look, we think you have a problem. You're trying to digitize distribution and push it out on multiple platforms. We think that you want to show ads on digital publishing websites, like the biggest newspapers. You want to do a few hype videos for the TV show that's coming out soon. And they were like, yeah, but we can't distribute anything. We don't know what it costs. There's no model for the licenses we have. So we just said, well, okay, well then we'll be a bad in your negotiations. 106 years of monopoly for music rights stops today. So we'll actually make it for you and we'll give you a direct license and you can use it how you can. You just pay us a subscription fee based on the amount of content that you'll be making with our music. And we just negotiated fees. And that's where we started.

Jakob Wredstrøm

And so you built the legal framework. How would you define that? Would you define it as a loophole? How did you figure out that there was an opportunity for this?

Tom Höglund

Well, we actually came at it from having the problem ourselves. I tried negotiating so many deals with, and it's like, it's one of the benefits with coming from a small insignificant country up north. Like Sweden is tiny and we don't have enough Swedes to watch enough content for us to be able to even recoup an investment in a TV show. So. We have to go down to Cannes and sell it at Meep. We have to make it in English to find a larger audience to justify the investment that we do in any given project, which I think is also why we probably punch above our weight in terms of being entrepreneurs. Mean, Skype, Spotify, SoundCloud, IKEA, Volvo, like all these massive companies that come from Sweden, like they were made to be internationalized. From the very first day because we always knew that there just aren't enough Swedes to make it profitable enough.

Jakob Wredstrøm

And the new unicorns now in Europe, like lovable and like there's so many things.

Tom Höglund

Yeah, loveable with a claw, nah, you name it. Like we are punching massively above our weight. And I think it's because we don't have the curse of say the Germans or the Americans. Like if I would have had a whole market of a hundred people or 300 million people, like that market is big enough to build a medium sized company and become really successful by any metric.

Jakob Wredstrøm

Yeah.

Tom Höglund

But if there's just nine or 10 million people in the entire country, you know it's never gonna be big enough. So we always have a very international mindset, whatever we do, which is great. I think that's, The internet when it came is like an inherently global idea. No boundaries, no borders. Know nothing. And that was the complete opposite of what music licensing looked like. It was which country, which medium, which restrictions. And I mean, like when the internet started out, wherever I would go, content would be geo blocked because of the music rights. I like I couldn't watch state television for the Swedish state broadcaster. Even if I just went to Denmark, I just couldn't see anything. It was just geo blocked because of music rights. I was like, this can't be how the future is supposed to look. Can it? And we were just like, it needs to be global. It needs to be simple. So in terms of like the legal legwork we did, it was absolutely not a loophole, but it's an extremely difficult, cumbersome and expensive route to take. So we had to think long and hard. Like, of course, there are other companies out there that will offer similar services to what we do these days. But it's almost always that they find pre-existing music with a pre-existing right structure and they put a wrapper on top of that and they offer it to content creators or someone else rather than to do what we did. We built everything from scratch from people that were not members of collecting societies. We can prove down to which second of which day we acquired every single stem from who and which country they were in at the time of acquisition. To be able to prove that our entire library is airtight from inception of idea to releasing the track in our player. And nobody else has done that to this day because it's just very complicated and difficult. But it's what it took to be able to say that, we own all of this without any restrictions so we can give you whatever license you like. Because all of a sudden,

Tom Höglund

If you were an executive producer for TV show and you wanted to make a ton of content, like hype content around it and make the TV show and then maybe sell the format somewhere else and syndicate it to other countries. Like this was the first time when we said, no, like use your imagination. Like you can do anything. There are no restrictions anymore. Just like how much can you come up with ideas to monetize ideas, to do campaigns? Like you can do anything. I even did a deal with. With a space company and they said, sorry, worldwide rights just doesn't cut it anymore. I was like, I'll give you the universe. If you're gonna show this up at the ISS space station, like, do you need the Milky Way or universe or what do you need? I'll give you parallel dimensions. I'll give you anything. Like the rights model is not the problem anymore. And that's what we wanted to create. But we wanted to do it as like a ATM machine model. You go to an ATM machine, you just push in your card, you get some money out. Seems super simple, but behind the ATM machine is thousands and thousands of contracts that have been negotiated over multiple years to redeem that account to another account, to exchange that money into a certain currency, to a certain rate, to a lot. It's extremely complicated what happens when you get money out from an ATM machine, but it looks really simple upfront. So that's what we wanted to do.

Jakob Wredstrøm

I one of the really interesting things about that metaphor with the ATM machine is obviously with a lot of talk about epidemic sounds throughout the years, a lot that has... let's say, cost negative publicity is maybe the sentiment of music as a of something, a commodity to some degree, where even though that might not be true practically, I think the association to what you did for many people drew that emotional connection. Like these guys are just commodifying music. It's just something that, you know, you can buy from people and sell it. There's so, so I think that's really interesting because that's the sort of the pushback. When I heard about Epidemic Sound for the first time, I want to say 10 years ago. That's sort of at least how I was presented from public perception. But before we go further down that line, I think it's really important for the people who might know epidemic sound as what you do, but don't fully understand what was disruptive about that business model in the value chain. Could you a very simple way describe what is it exactly you did and what was it that was different than anyone else? Just like in the very simple statements of your model in the value chain.

Tom Höglund

Yeah, I think in the traditional music industry is an industry of maybe more representation and less ownership. So you will have multiple entities. You will have a publisher that represents the composition side of any song, which is kind of like the idea, the melody and all that. Obviously. And then you have the master recording side which is usually owned by a record label. So they're actually the people that finance the studio and press record. So up until that point you as a songwriter own pretty much everything. Once the song has been recorded it's owned by the label in most cases. And then they will market that song and they will try and push it out on radio and on do syncs for TV shows, and then you can be a live musician or a live artist and do a ton of concerts and festivals and that kind of thing. And when the music is used in that way, there's another set of organizations that are called collecting societies or performing rights organizations. And there's a lot of those that represents different rights and different songs. And then they go out and they send invoices to all of the TV networks, the radio stations, concert promoters, everybody who's using music as a part of their business, and then they take an administrative fee and then they try to distribute that money to the people who wrote the music or the people that own the tracks and that kind of thing. So what we did was we said, well... That's too complicated if you're a 16 year old making great action sports videos on your GoPro camera. You cannot negotiate with all of these people, even if you did, it would be too expensive because say that you're making four videos a month and you can't afford to license four individual tracks with 10.

Tom Höglund

stakeholders for every single track. So we just said, let's just make a completely one stop shop where we own everything. There are no, no other rights holders, no other organizations that can send you any kind of invoice for you using this. You just need to have a valid subscription with Epidemic Sound at the point in time where you publish the video and we will let you monetize it forever and ever. And we said, rather than trying to claw back value from things that have been done historically, there's so much being done tomorrow and so many people that would be willing to pay us a subscription fee that we can more than fairly remunerate the artists and the composers and everybody else, but we'll move all of the risk in-house. And at the end of the day, if our musicians or songwriters think that they can make more money in the traditional system, you just go there. I mean, there's no reason to stay more than that you'll follow your wallet and the lifestyle you want to have or the music you want to make. mean, it's we don't even have exclusive deals. was it was always open to leave if you if you wanted to. But over time, people came to realize that, wait a second, I'm getting a pretty hefty payment upfront, which I can make a living off of and. What's going to happen here is that all the major YouTubers in the world are going to use my music, which means that everybody's heard my track, which is essentially the biggest influencer marketing campaign in the world. And in the comments, everybody's going to be asking about the track. Where can I listen to it? What's it called? Who's the artist? And then. all of sudden you see a lot of traction on Spotify or Apple Music or Amazon Music, and all of a sudden you're racking up streams. So what we did there was we pulled all of the money together from both the publishing and the master side, and we said, we'll do a 50-50 split here.

Tom Höglund

And you'll just get half of everything, which in those days was roughly 10 times better than any major label deal that you could do because there you can get like if you were an unknown artist and they were investing a little bit of money in you into producing music, the deals weren't great. So we made them famous. And what would usually happen if you have a label deal is that you need to recoup all of the costs that the label has, like doing a marketing campaign like the like the influencer marketing campaign that is just a side effect of our core business will obviously never happen. You have to pay specific people to use the music. Then you pay for all of that before you start seeing any of the royalties in the split that you negotiated before. So like the deal was just financially so much better for so many artists. So they just stuck around and...

Jakob Wredstrøm

It Yeah, because you said something interesting like at the beginning is like, PROs and like all these rights organizations are also serving like a good purpose. Like there are really good functionalities. And I think that's also what you were playing with is like, have these organizations that are protecting rights for people. And that's sort of the ecosystem you're messing with. Not really directly, but at least the whole association and politics and effectiveness. And so I think that was probably, you know, where most of the pushback got from, I guess.

Tom Höglund

Yeah, I went to 20 conferences around the world and I presented this live and they were just collecting societies everywhere in the audience and the traditional music industry. And I probably can't use that kind of language in this podcast, but.

Jakob Wredstrøm

Thank

Tom Höglund

Safe to say that I wasn't making friends. They're just like, no, you're destroying the entire system. And it's just like, we're like, but the system doesn't work for a few very famous songwriters that are making a lot of money. For all the other people that we've been talking to for years now, the system doesn't work for them. Like they're not getting paid anywhere. They're like, these are extremely talented musicians. The rest of the music industry is broken over there because it's just piracy.

Jakob Wredstrøm

Mm.

Tom Höglund

And on the TV and content side, we don't believe that the future is gonna be, like not even Mr. Beast has the legal capacity to negotiate separate fees for every single track that he's gonna use.

Jakob Wredstrøm

No, that makes sense. So how did, how did this unfold for you? Like if we fast forward a bit and try to talk about sort of you launching this, you start operating, you start negotiating these fees with these production companies, how did that unfold and how fast did the company grow?

Tom Höglund

Well, we were just bootstrapping everything for the first couple of years. So in the beginning, we were just trying to weather the storm. mean, there was everybody was writing about us and a few people said that we were the savior. A few people said like we're extremely upset. And it was slow in the beginning. I think it's... what's the thing people usually say? Like it's surprising how little progress you make in a year, but it's surprising how much progress you make in five. So it didn't feel like it was going fast. And I would say my entire journey as an entrepreneur, it's never felt like a success, even though people...

Jakob Wredstrøm

Mm-mm.

Tom Höglund

Want to tell you otherwise and you read articles in the newspaper and you see those valuations and everything, it never feels like a success. It's like a pearl necklace where each pearl represents a problem and I just... get more and more pearls all the time and I try to solve them all the time and it feels like you have the headwinds, it's a really steep uphill climb and like a ton of problems all the time and then you look down and it's like, revenues are up, profitability is better, the MPS scores are up. Artists are making a ton more money. A lot of YouTubers are saying really nice things about us, but it never feels like a success. And it was the same in the first days. It was just a grind. It was just banging your head against the wall, doing four pitches a day for several years in a row, flying to every single European country and then first fighting a little bit with the maybe some incumbents and then pitching to the CFOs and the head of legals for all the big TV networks. And then and eventually at one point we said, if this is supposed to grow to anything meaningful, we need to invest more in something that scales better. And that's when we said like, okay, we love the TV channels and then the networks and they're all our clients, but we need to focus on what we think the future is gonna be and the best is gonna be YouTube. I mean, it's like, it's mostly cats and fart videos, but like it's getting better. It's like, it's gonna be a real thing.

Tom Höglund

So then we went to something called multi-channel networks, which were these companies that amassed vast amounts of youtubers and We were like, okay, let's try and make a deal here Maybe we can pay them a little bit of money and we can give them access to our music which means that when their youtubers make videos they won't be claimed which destroys all of the monetization of the videos on YouTube because

Jakob Wredstrøm

Mm.

Tom Höglund

They were just stealing music, like music they recognized and music they knew. So we're sitting in this meeting and it's we've been running the company. My brother is our CEO, has been since day one. And I've been doing special projects. Like I was the head of legal for a long time, head of sales for a long time, head of sales, marketing and legal for long time.

Jakob Wredstrøm

Yeah.

Tom Höglund

Head of both three and international expansion for a long time. Bizdev, a long time. I've done a ton of like projects, let's put it that way. And we're sitting in this meeting and we're like, okay, if we solve this, all the biggest YouTubers in the world will be exposed to our brand and like maybe they'll use it. So we do the whole pitch. We do the jazz hands, we do this and then like that. And at the end of the meeting, we're like, they probably didn't like it. And they're like, this is the best thing we've ever heard. And this is the Maker Studios and the full screens and these massive companies out in Culver City in LA. And we're like, what? They're like, is, yeah, our CMS is crashing all the time. Rights management doesn't work. Nobody can monetize everything. We're going to get sued by all the other music rights holders because we're just, everybody's just stealing their music all the time. And they're like, this solves everything. So I remember like whispering to my brother, like.

Jakob Wredstrøm

You

Tom Höglund

Instead of like giving them 10,000 bucks, should we ask for 10,000 bucks a month? And it was like, okay, try it. And we're like, and it's just 10,000 bucks a month. And they're like, deal. You're like, no, we should have asked for 100. Like if we knew how valuable this was for them, we should have asked for way, way more.

Jakob Wredstrøm

You

Tom Höglund

But we didn't. So we said, OK, let's make sure that we can provide a ton of value and become a household name in the creator economy. And we did. We supplied music to all of these creators. So these days we probably have... way more than three billion impressions a day just on YouTube alone, which probably makes us one of the biggest music companies in the world in terms of like people listening to our music every day. It's probably as big on meta platforms and TikTok is huge as well. So that was really the first time when we tried to leverage the legal model and what we had built and push it into a larger setting to make sure that like we can grow outside of just like helping TVs do the transition from broadcast to digital. Now we can actually be the soundtracking partner for every content creator in the world. And when we saw how well received that was, we started doubling down on hiring, obviously consistently throughout all the years, we've been contracting better and better musicians and bigger and better and more well-known artists and... constantly trying to be the best possible music provider that we can be. But in those days, that's when we said it's no longer sales in a music company now. It needs to be a product company. Developers need to have as much say as the salespeople or the music team. And that's the first time I really felt the transition that now we're morphing into something else. All of a sudden we had engineers doing pretty advanced math on churn rates on the subscription services that we had launched and big developer teams where I didn't know everybody personally and that's like the big transition.

Jakob Wredstrøm

Mm.

Jakob Wredstrøm

At what point did you sort of become more of this tech startup, like raising capital, I guess, and how far were you into the journey there?

Tom Höglund

The first capital that we took in was from Creandam, known from these days from the biggest early investor in Lovable. They were also one of the first investors in Spotify, so they did have a little bit of music pedigree in the end.

Jakob Wredstrøm

I've looked at their portfolio website and it's just insane. Like the jackpots they've had over the years.

Tom Höglund

Yeah, they were extremely competent and extremely nice people and they really believed in the vision. Yeah, I mean, they always gave us a ton of freedom, obviously, on some of the financial and corporate stuff. It was it was really valuable, but they didn't know how to build a music company in the creator economy. Nobody did. I mean, when we launched our creator subscription, there didn't that didn't exist in the world anywhere. Like nobody was selling music that way and nobody had, we called it B2P. So business to prosumer because B2C didn't really fit because like if you're a YouTuber and you're trying to make money off of your channel, you're not a consumer per se, but you're also not a business because you're just a YouTuber trying to do stuff and sometimes you work, sometimes you don't. So we're like, what are they then? So we came up like, let's call it B2P. Let's price it like, this may be a small premium compared to what Spotify charges and then we'll just like see if it works. So yeah, we managed to scrape by for the first five years I think. And then we had run out of money so many times. The founders were broke. I was broke. I was borrowing money to just pay my electrical bills. I got kids when I was pretty young, so I had small kids at home. My wife was taking care of them and the only breadwinner in the family. It was when we got that money in, was that or just get a job and just stop doing everything. So it was...

Jakob Wredstrøm

That's so interesting. Obviously I've been doing my homework before this, but then I've also sort of relied on perception over time going to this interview. And obviously you guys are a unicorn now, if you want to sort of go by your last race. I think there is, especially now, like a big illusion about how you come about becoming that. Know, Lovable is a great example, right? You know, they officially launched their... let's say the new effort in the company a year ago, and I can't remember the latest valuation, but let's say it's a couple billion and probably towards like a decade long. So I think there's a very misunderstood notion about how these companies become those companies. And five years of that struggle and also hearing that, you know, your brother and the founders also had a successful ex-boyfriend before. I think you have this automatic assumption that, you know, yeah, we could definitely hear that it's hard and it's a struggle. But like to the point you're describing where everyone was broke, I think that's surprising too many. Did you...

Tom Höglund

Yeah, it was, we never had explosive growth. I mean, like I said, we've been around for 16 years now. And we've had, if you look at the revenue charts, it's like literally like this, the entire way, very even, like a little bit of explosive growth during COVID when everybody was home. But the only thing that happened was that we took like two years worth of growth for the first six months and then tapered off. There was a little downwards and then it went up again on the exact same trajectory so it was always It was always just how can we deploy our revenues back into the business as efficiently as possible to continue to build this company. That was always the thing. So there was no high salaries, no fancy travel, no business class, no nothing. We actually had the opposite. Had a competition, who can stay the cheapest at a hotel or a motel when we're out doing business travel? And yeah, that was actually Nicholas who you interviewed quite recently. He won that competition. He and I worked together for many years. Think he was almost stabbed at the Grand Hostel in Barcelona when he was staying there for 25 euros a night. And after that, I had bed bugs twice, so I couldn't even take my bag into my apartment. I had to burn it outside eventually after keeping it just outside.

Jakob Wredstrøm

Yeah.

Tom Höglund

So no, was tough. There was no money except for investing back into new employees and into technology. In the beginning, before we had the platform, we actually biked around with hard drives in our backpacks to the production companies and we delivered them personally because we couldn't afford people to deliver them for us. So, I mean, it's always been just like grit, determination and just longevity, just keeping at it, keeping at it and having enough conviction to think that it's good enough that it's going to work. But I've doubted it many times to be serious. Is the business idea good enough? Is the team strong enough? Is the time big enough?

Jakob Wredstrøm

So.

Tom Höglund

All of the things you in the darkness when you have small kids at home, especially, and you're thinking like, why did I quit my cushy lawyer job where I was making a killing and go into this unproven industry where everything's opaque, nothing is transparent. You don't know and try to leverage everything you have into this one Hail Mary. Like, why did I do that? Yeah, I've thought about it many, many times. But like you said, now we're a unicorn and everything turned out super nice or like we're still in the middle of it. Like we haven't even launched our best products yet, I'm sure. Maybe these new AI tools, but yeah.

Jakob Wredstrøm

Yeah, no, we'll also cover them a bit, but I think the interesting contrast here is, I think every founder's journey will be a struggle, but you had a few different things around the company that made it even more tasty. The thing is that previous success, you know, that's one thing. You've tasted success, the team has tasted success from before, and then going into a long battle. But then also, one thing is the struggle, then also the, let's call it what it is, the amount of hate you also receive. That there's multiple arguments for why this would not be worth pursuing. What do you believe was the thing that made you pursue it? Was it primarily stubbornness or was there another element to it?

Tom Höglund

No, we were trying to solve an actual problem that we saw. I had multiple times, I had tried to license music for global distribution and I just couldn't wrap. I was a lawyer and I was doing copyrights, but I still couldn't figure out how can I just buy this? Piece of IP or license this piece of IP and have it have roughly the same rights as the rest of the IP, like the original footage that we shot, and push that out and try to make money off the back end of it. I mean, this specific piece of IP that in this case was music was like, yes, it's worth a ton. And I'm prepared to pay. Pay for it, just give me a price list. But there was no price list. There was just more questions and more questions and more questions. And eventually it was just like, can't do this anymore. It's like copyrights have like anything's copyright. Like if you write code, it's a copyright. If you develop a new medicine, it's a copyright or a patent, and then you have the right to monetize that for a specific period of time. If you write an article for the Wall Street Journal, it's extremely successful. Like that's a copyright. But in most other copyrights, you get paid for creating those copyrights. Like that's your job. But in the music industry, for some reason, every single piece of music, regardless of how it was going to be utilized, had to be pushed into a system that for some of those copyrights, it worked and for some others, it didn't. So I was thinking more along the lines of like, well, this.

Tom Höglund

This journalist isn't getting a rev share in all of the Wall Street Journal based on how many people read his article compared to how many people read the other articles. So why can't we deploy some of those methodologies for these copyrights? mean, a ton of people would rather have a stable paycheck, which corresponds with the rent that they have to pay every single month, than to put like a lottery in a music library and then just hope somebody finds it. And then I'll pay all my rent then. Like the world doesn't work like that. You have your bills and you have your rent every single month so we're like if your music is good enough and we had a we turned down 999 musicians for every thousand applicants we have I mean the bar is extremely high but if you're that good We said, you should be able to get paid upfront for every single track that you deliver. We'll take the financial risk. And then if it's a runaway success, we'll give you half of all of the value on Spotify, Apple Music, Amazon Music. So you get to participate in the value created and the commercial success of the track. Like that must be better for a lot of people. And it was. And I think the fights that we had. with the collecting societies in the beginning, it's just natural. I change is never convenient for the people that need to change. I mean, we were the change makers. So for us, we were expecting some friction and that kind of thing. And we weren't in the business to make friends and to get cushy and to get invited to the Grammys. That's never why we did it in the first place, which we, for the record, still don't because...

Jakob Wredstrøm

Hello.

Tom Höglund

So we were just trying to solve a problem for the creators and we were trying to solve a problem for the musicians and if they were happy, we were happy. And then the people on the outside were saying like, that's bad for me. It's just like, well, why don't you give the musician a better offer and they'll choose you. It's not more difficult than that. I mean, it's competition at the end of the day is going to be better for everyone.

Jakob Wredstrøm

Makes sense.

Tom Höglund

Especially the musicians and the customers that get to benefit from the new models. I mean, if it doesn't work, we're probably going to kill this project. But if it does work and we're getting better and better musicians and higher and higher quality and more and more customers, why would we listen to the people that we disrupted?

Jakob Wredstrøm

Hmm.

Jakob Wredstrøm

So at what point did the circumstances of life change? Is that with that big first investment where you could now pull out like a livable wage or did anything change there?

Tom Höglund

Who said it changed yet? No, it's... Well, obviously it changes a little bit. Like it's... we had... We still didn't get fancy plane tickets. We still lived extremely cheaply. I mean, all of these hundreds, if not thousands of music conferences I've been to until this day, the...

Jakob Wredstrøm

I don't know what I'm asking.

Tom Höglund

80s and the South by Southwests and everything in between, we still stay at cheap hotels. We, or our staff never stay at the Four Seasons or the Kempinski. We do cheap things. We try to be as efficient and effective as possible. I think it's in our DNA that we're not like these big spenders trying to impress pop stars. It's just DNA. And I think that's maybe probably a little bit Swedish too, that we're a little Lutheran in our ways and that it doesn't feel good spending too much money on... fancy dinners and that kind of thing. I mean, we have a ton of fun and I think that employee satisfaction is really high and a lot of people think they have extremely interesting work and that they're paid fairly and all that stuff. But we don't have the mindset of like big spenders. It's not fake it till you make it. It's more the other way around. It's just make it but don't even tell anybody about it. I mean, we didn't even have a marketing department for the first eight years because

Jakob Wredstrøm

Hmm.

Tom Höglund

Again, maybe being too Swedish, but we were like, it's a great product. It creates a ton of value for the users. Our artists and musicians and songwriters love it. I'm sure they'll tell people and then we'll get more customers. And that was what we did. And there was a little bit of like, let's reach critical mass before we tell everybody what we're doing. So it becomes extremely...

Jakob Wredstrøm

Bye, baby.

Tom Höglund

difficult to finance themselves over the moat that we've already built. There was a little bit of that, but more so it was just like, can't deal with much more customers anyway. We can't grow that fast. Let's just build it from the bottom up and try and build a stable infrastructure. And then obviously failed miserably 10 times at that probably, but still we weren't boasting and... Up until a few years ago, we didn't even do podcasts. We didn't do interviews. We didn't do anything. We're just like, we're just building our company. We're not building it for fame or we're building it to provide value for like every, every YouTuber in the world knows what epidemic sound is. Like that's our crowd. Why would we, why would we need to stray outside of that pond? Like it's, it's unnecessary.

Jakob Wredstrøm

Mm-hmm. I think, for me, it's really interesting. We met last year at the music tech slide side event at Slush and I also met your brother here, I guess a week's time ago. And it was quite fascinating seeing him doing his keynote at like at such an event where like it's a very small event, really at a very small industry and still taking the time to go do a keynote of that. For me, I found that. Wow, that's really impressive that you guys invest the time to do this as well. Think there's, must also be a mentality of being present in the industry, you know, for maybe not any for-profit intentions. And that whole longevity mindset, you know, turning out to work and... Maybe to cover that briefly, you did do a raise then sort of solidifying you guys as a unicorn status as a startup. Did that change anything in your company and the way that you think or what was that event?

Tom Höglund

Yeah, it's you're talking about the 2021 raise. Yeah, exactly. It's roughly a billion and a half US dollars valuation at that time. And I think we were we were really happy to do that. I think the timing was good in terms of like how high growth companies were valued at the time.

Jakob Wredstrøm

2021, yeah.

Tom Höglund

So we got a good valuation and we could raise enough money to never have to do a raise again if we don't want to. It's like really fund something expensive and expansive. So it was great timing and then... biggest new entrants were obviously Blackstone. We had already had EQT, which is the most premier private equity company in Europe on our cap table as a majority owner even since 2017. So in terms of having extremely sophisticated owners that have a set of expectations of how reporting should look, how board meetings should be conducted, the level of professionalism that is expected from every single senior employee, I'm it's it doesn't get any there's no higher level than the expectations of EQT and Blackstone and the others and we had an extremely professional board as well so I mean that's as high as you can get and expectations are set accordingly and we consistently met those expectations and when we did

Jakob Wredstrøm

Yo.

Tom Höglund

they let us build the company and continue and give us a ton of freedom in how to invest excess capital and how to deploy that in the most efficient way possible. And then do we get loaded sometimes like everybody else? Of course we do. Do we make mistakes? Of course we do. I've done more experiments that have failed miserably than anybody else in this company, but also a few of the projects I've done have worked exceptionally well. And I think for us, it's really important to realize that defense is not an option. Like the day that we try to defend our market share or just... rest and become a hyper profitable company and take dividends like I'm out the door like way before that happens. It might eventually happen and it's a decision for the broader shareholder base and the board but that's not why I came out to play. I mean this is we're on the offense. I'm sure that we can build the biggest music company in the world. Is what I'm aiming for. And is there steep competition and some amazing people and artists out there that are currently working with other companies? Yeah, sure there are, but like that's what I'm here to do.

Jakob Wredstrøm

That makes sense. Give me one second. My kid, he just came home and wants something out of the window. I'll just edit that out. There you go.

Tom Höglund

Yeah.

Jakob Wredstrøm

Amazing. Well, Tom, I think we're about to round off this podcast. You've been incredibly generous with your time and telling about the story. And, as you say, you guys on a growth journey as well, like you just launched a new products. You obviously trying to make this even easier. And with the age of AI, a lot of things are happening and you guys need to adapt and sort of serve that to users. So what's, what's sort of your new path with where you're taking it, editing it sounds and the products you're developing.

Tom Höglund

Yeah, well, the age of AI is...

Tom Höglund

I don't want to roll my eyes, but I kind of want to roll my eyes. I mean, looking at AI, I think the path that we've chosen is, and please allow me to do a little rant after that, but it's like, the path that we've chosen is very much that we want to increase productivity, but we don't necessarily want to replace creativity.

Jakob Wredstrøm

Please do.

Tom Höglund

We think that AI can be great for productiveness gains in certain parts of the soundtracking process or the music creation process, may that be. But it's not... How would you say? It's not... Generative AI has no value in itself. So the things that we're launching now is especially three major products that we've launched. Let me just see here. So the first one is Adapt, where you can upload or you can... use a track and then you can change certain elements of it to make it suit your video better, which is... what most people want to do. There's a say that there's a trumpet, but you have a voiceover and you don't want your voice in the trumpet to compete over the audio waves. So you just like, OK, well, change the trumpet to a piano and you make it more dreamy, make it more metal, make it more that kind of thing. So like adapt it a little bit more suit your needs, which means that you can adapt it. But that track will still be identified through the rights management tools of all the platforms as that track, which means that the musician and the producer and the composer and everybody still makes money the same way but you've built something highly personal so that changes a lot and then you can also say look my video is just 132 long can you just like decompose the entire track and make it 132? We do that like it's one second kind of thing and then to take that even further we have

Jakob Wredstrøm

Yep.

Tom Höglund

something called Studio where you can just upload your video and then we'll give you a suggestion based on all of the data points that we get every single day from multiple billions of views to see what works with what kind of content and we can even suggest sound effects and everything else and we'll just give you a ready version straight away. So it's an extremely efficient way of working with not just music but also editing. And then the third one is an AI assistant where you get your personalized music supervisor for every video that you're doing and they can give you suggestion based on like your prompts, just like, what do you want to do? What kind of feelings you want? And there's a ready-made song and then you can just apply adapt or studio and you just finish everything in seconds. And you'll get an extremely relevant sounding soundtrack edited to fit your video perfectly and like as fast as you can think it.

Jakob Wredstrøm

Amazing. You know, for me, I've been playing around with tools for a while now in AI and what you're describing is actually something that's not on the market. Like it's, this is not just like riding the wave. This is actually really disruptive to your own industry again. So is that something you have intentionally been pursuing for a while? Like when, when did you believe that this is actually possible for us to, to go towards?

Tom Höglund

So that's

Tom Höglund

Well, I think when you're talking about AI, it's important to make a distinction between maybe generative AI and different kinds of AI. I mean, like, you have to be a little bit careful, I think, and mindful when you're talking about the space because... A lot of people have invested the most productive years of their working life to perfect a craft, to perfect a skill, and like it's all of a sudden it's gone. I mean, it's just gone. Like a single prompt can do what you could do better. Just six months ago, like the entire value of your professional career is pretty much over. It's down the drain. Progress is always good, but I think you should still be a little bit mindful. And there has to be some kind of balancing act between like, does this benefit society in any kind of way? Is there a shortage in supply when you compare it to the demand of the problem you're trying to solve? I mean... When it comes to medicine and like building LLMs and getting proprietary data sets to actually figure out how a specific medicine is going to react to a specific kind of condition that may or may not be lethal, it makes a ton of sense in my mind to be like, I understand that a lot of researchers and medical staff are going to be out of a job now, but the value for society and the value for these sick people is so much higher. It's kind of simple in my mind. And then as you go along that scale, let's just invest as much money as possible into solving those problems. When it comes to GPT or Gemini or just general queries and helping with stuff, the demand side is so high, obviously, just by looking at how many people are actually asking things. The demand side or the supply side just needs to keep up in terms of data and data centers and smarter thinking and products. It's massive. So that one's easy too.

Tom Höglund

And then you come to things that make sense but breaks my heart, like the transition to self-driving and electric cars and that kind of thing. In my mind, I know that the combustion engine doesn't stand a chance towards an EV in terms of durability, how cheap it is to make it and how good the batteries are going to get over time. And of course, autonomous driving is going to be better because we don't need traffic lights. Congestion is a thing of the past and it's way better for the environment and the greenhouse effects are going to be reduced and like it's easy. But then you come down to the arts and in my mind it's not a slam dunk anymore. Mean like if I'm looking at AI I need to see like okay well is there a Is there a demand for a lot more music right now? And I'd say, well, there kind of isn't. Mean, there's already before AI probably a couple of hundred thousand hours of new music coming out every 24 hours that I'll never be able to listen to anyways. And that gap is just going to grow and grow and grow for every single year that I live. And it's like, OK, well, there's not an issue on the supply side. In that case, is it a cost problem? Well, for most people, it isn't. An epidemic sound subscription is 15 bucks a month. And if you're running a YouTube channel, chances are you're making more. Even if you're not, it's not like it's not a cost issue. And then. I look at the other arts, so like if we step away from music, if you look at books and authors and podcasts as yourself, like. If there was. If I saw two books and it was Sam Altman and Eric Schmidt wrote one book about how to build a company in Silicon Valley and the other one was being honest about it was, this is just an AI just gathering all the insights from all the articles that I've read and just like putting them there. I would never buy the AI book because I'm not interested in that. I'm interested in like the process of a human of trying to build cool stuff and their story. And that excites me and that does something to me like in the arts.

Tom Höglund

Or if you look at Formula One drivers and you say like, I'm actually not at the races. So I don't know if one of them is an AI, because if you apply the logic of generative music AI, it's just like, it's great. It goes faster and it doesn't cost anything. I mean, yeah, well, obviously an AI generated driver would be faster and better. Because they don't make any mistakes and they would push the car to the absolute limit all the time. But at the end of the day, I would feel a little bit tricked that it was a computer and just a Gen AI video showing me some person that doesn't exist. So like at the end of the day, I don't really see why generative AI in music is getting so much like credibility and so much space in the press really because nobody's really asking for it. It doesn't solve a problem in the music industry really. Nobody really wants it. And if it's not that, then it's pretty obvious that it's just a cash grab for some tech people to just say, if I just make a couple hundred million dollars off of this, the collateral damage will be that's a couple of thousands of studio musicians are out of work and they can no longer be musicians or make music or have any feasible way of making a living off of it anymore. It's like, well, then all of a sudden the balance is kind of off in my mind. It's especially if it's kind of a fair use argument, like fair use for what? Fair use for you to make a couple of hundred million dollars because they're all going to launch commercial versions of all the stuff that they stole from people without a license. I mean, that's the whole point of it. And they're going to sell it to all the biggest brands in the world and say like nobody needs to pay for music anymore. We have better sitar players than sitar players themselves. So why would you pay them anything? And they will disappear.

Jakob Wredstrøm

Yes.

Tom Höglund

And it's a shame for me. I think it's a weird, like, you can pull it all the way. Mean, Sam Oakman just got a baby. I saw in some podcast the other day. Just like, why don't you outsource parenthood or like your friendships? I mean, it's much more effective to put the kids in a farm and have a Tesla robot take care of them until they're of working age. And then you put them out in the productive workspace. But like, how come you get to... kill music, but you're saving parenthood for yourself. It's just an efficiency like gain at the end of the day. So it's I don't know. I think for me, it's the human experience. Like I want to read my books from real people. I want to listen to music from real artists that I could actually go see live. I want to see like I want to see what people have been through and like as a human.

Jakob Wredstrøm

It's such a

Jakob Wredstrøm

Hmm.

Tom Höglund

not just doing a probability guessing game of what somebody could have theoretically been through and then write a book based on my previous books that I've read to make me cry. I would just feel cheated out of like an authentic experience because for me, parenthood, friendship, art, it's not about perfection. It's about like, I don't want to be tricked by all these AIs parading around as normal humans because none of them are actually saying that they're AI. This isn't...

Jakob Wredstrøm

Mm.

Tom Höglund

Suno song number 32 in the hip hop genre. They're saying like, no, they're using the same kind of monikers as humans to trick people into thinking that they're humans, but they aren't because they want to make money. And it's just like, well, then that's not arts. Then it's a business. And it's

Jakob Wredstrøm

Hmm.

Jakob Wredstrøm

And I think what's really interesting is, for a long time I've tried to... see from different perspectives. And I've tried to not take music side. Recently for listeners who want to do it, a few episodes ago, we did an episode with a researcher, an AI artist called Alex Briga. And that totally changed my whole mindset about this. You know, I'm very practical guy, even though I had a spiritual upbringing, I try to always not look at it from that angle. So go listen to that episode. Was transformational for me to understand exactly what you're talking about. Because it doesn't...

Tom Höglund

I did listen to it.

Jakob Wredstrøm

Really? That's good. I thought that was amazing. Like the way that I got converted during an episode, that was for me beautiful.

Tom Höglund

Yeah, and just to be very clear, is like these are my personal opinions. This is not the official view of epidemic sound. I mean, like I said, we've taken the stance that we think the user experience of being able to adapt music in a really fun and fast and interesting way and have some creativity in there is and still having the artists get paid when their art gets used. I think that's an amazing approach. Doesn't mean I'm anti-technology. I know. But still, there has to be some kind of benefit for society or some kind of productivity gain that an industry is actually asking for. When it comes to looking at paintings or reading books or relationships or music, for me, that's a like a...

Jakob Wredstrøm

Mm. You're pretty good technology.

Tom Höglund

At the very least, I would at least want to have a label that says, this is somebody wrote a book for you based on your previous search history to induce like sorrow or happiness in you. Like I would want to know at least that it's not a person that is this amazing at writing books.

Jakob Wredstrøm

Hmm.

Jakob Wredstrøm

I love that Epidemic Now after 15, 16 years... you know, throughout the whole journey you've had with being disruptors, with going through the motions, at the end of the day can build such a successful company on actually loving music and understanding what it means for people and still scaling that with, you know, huge investors like Blackstone. And if you want to talk about controversial, you know, entities, Blackstone is, you know, for profit, you know, probably the most powerful player in the world, arguably, in any context. And them also going into a company that has such a sentiment, such statements, even though it's not, you know, it's your personal statements, I'm sure that resonates throughout the organization. So, Tom, thank you so much for your time today. It's a pleasure and honor to interview you, and I wish you guys the best moving forward.

Tom Höglund

Thank you, Jacob. It was an honor being here. I've been watching the podcast for a while now and congratulations on all the growth. It feels like you understand the grind and what it takes over a long period of time to build something successful. So keep at it and I'll keep listening.

Jakob Wredstrøm

This stuff.

Jakob Wredstrøm

Appreciate it.