This story appears in the March 3, 2013 issue of Forbes. Subscribe
It's a cloudy midwinter morning at Next Big Sound's New York headquarters, and the scene is pure startup. The walls are exposed brick. The bagels are free. The music is guilty-pleasure indulgent: 'N Sync, in honor of Justin Timberlake's newly announced album.
But here they're not just listening for fun. As the singer's falsetto soars over the clatter of ergonomic keyboards, Next Big Sound's employees are quantifying the impact of Timberlake's news, counting 308,200 Twitter followers, 335,800 Wikipedia page views and 4.6 million Vevo views more than the two weeks prior--data that weren't on the radar when his last album came out in 2006.
"The consumer in that world heard 'SexyBack' on the radio and went to Virgin Megastore," says Alex White, the 26-year-old who cofounded Next Big Sound four years ago. "The consumer now goes to Spotify and streams Justin Timberlake's entire back catalog and then follows him on Twitter to see real-time updates and watch his behind-the-scenes YouTube videos. It's a totally different consumer experience, but the industry still needs to track that behavior."
White's company is the one doing the tracking. Think Moneyball , but for music. Next Big Sound takes all the data spewing into the ether--Pandora spins, Facebook likes, digital downloads--and packages them into one central dashboard. For $20 per artist per month, the Billy Beanes of the music world (managers, concert promoters and label executives) can access the service in hopes of finding the next Nick Swisher (or Justin Timberlake).
The music business is ripe for disruption. According to one study, artist discovery and development is a $4.5 billion industry, and Next Big Sound removes some of the guesswork. For example, the company has found that musicians who gain 20,000 to 50,000 Facebook fans in one month are four times more likely to eventually reach 1 million. With data like that, Next Big Sound promises to predict album sales within 20% accuracy for 85% of artists, giving labels a clearer idea of return on investment.
"The market is under pressure to become more efficient," says Foundry Group's Jason Mendelson, an investor who, along with IA Ventures and others, has helped Next Big Sound amass $7.5 million in venture funding.
Just as advanced analytics took time to infiltrate baseball's wizened ranks, Next Big Sound's numbers weren't universally accepted by executives who've long touted their "golden ears." But White's data finally have them listening. He's got multimillion-dollar deals with two of the three major record companies, and with many sublabels of the third.
"In the past year most labels have started using tools like this," says Jason Feinberg, vice president of digital strategy at Epitaph Records. "Next Big Sound is kind of leaving them all in the dust."
White, who grew up playing three musical instruments, seems ideally suited to run the show. In college at Northwestern he majored in organizational change with a minor in business and a concentration at the music school. During his senior year he came up with a site that would let anyone create his or her own fantasy label--and discover "the next big sound." The first user to sign, say, Justin Timberlake would get points for every virtual mogul who signed him subsequently.
After raising $25,000 in angel investments, White ditched a job with Pricewaterhouse Coopers to build out his brainchild. He and cofounders David Hoffman and Samir Rayani landed a slot at startup incubator Tech Stars in Boulder, Colo., but their idea died on arrival. "We didn't know how to build it into a big business," says White. "We were almost out of money, and we wanted to switch to something ... but we didn't know what we wanted to switch to."
On a whim they decided to see what would happen if they started tracking streaming music. From 2 a.m. to 8 a.m. on June 5, 2009 they recorded the number of plays for Akon on MySpace--and awoke to find the singer had logged half a million plays overnight, an order of magnitude more than they'd expected. That turned into a free weekly e-mail report to industry insiders; by the following summer they had an audience in the tens of thousands and officially launched Next Big Sound.
After Foundry led a seed round of just under $1 million in September 2009, White went to work on winning industry players like music consultant Mike "Goon" McGinley, who said Next Big Sound would never work. Then White sent him numbers that showed the inefficacy of a Live Nation ad campaign run on behalf of Tom Petty, one of McGinley's clients. Goon changed his tune. White discovered this when he received a call from an irate Live Nation executive: "How the hell did Goon get these numbers? We need to have this to be protected."
Later that year Live Nation bought Next Big Sound's chief competitor, BigChampagne, for an undisclosed sum. That makes sense: Both companies offer intelligence on where an artist's music is being played, which helps when planning tours (Jay-Z, for instance, used Spotify data to guide where to play shows in the U.K.). Next Big Sound could be an attractive buyout target, too. It's already pulling in seven figures annually and expects to be profitable by the end of 2013.
Meanwhile, there are numbers to crunch, and the company's ranks are swelling with new hires, poached from the likes of Apple, Microsoft, William Morris, the NSA and even the New York Yankees. White remains mindful of his company's Moneyball heritage--he took his board of directors to see the film the day it came out.
"Data has transformed industries before," says White. "Music's the next one."
For more on the business of music, check out my Jay-Z biography Empire State of Mind and my upcoming book on Michael Jackson. You can also follow me on Twitter.
