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Hey! Earlier this week I finished jeen-yuhs a Kanye West trilogy. Honestly, it felt like a breath of fresh air. The directors Coodie & Chike were willing to show the good, the bad, and the ugly of a beloved yet polarizing artist.

It was unlike many recent music documentaries, which often feel like low key infomercials. Sure, it’s fun to go behind-the-scenes of a Super Bowl halftime show or a major live performance. But jeen-yuhs was a bit more authentic, which I appreciated.

Today’s Trapital memo is a breakdown on why Epic Games acquired Bandcamp. It also includes my podcast interview with former music exec and Visa’s next CMO Frank Cooper III. Let’s get to it.

Sidenote: I saw The Batman this weekend. Loved it. I’ve had Nirvana “Something In The Way” stuck in my head ever since. So if Nevermind re-enters the Billboard 200 next week, it’s cause I’m one of the ones who has had it on repeat.

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New pod: Frank Cooper, Visa’s new CMO

Frank is one of the best marketing execs in the game. His resume is no joke: Motown, Def Jam, Tommy Boy, AOL, Pepsi, BuzzFeed, BlackRock, and soon to be the next CMO of Visa. We talked about the big deals he’s worked on, like Beyonce’s $50 million Pepsi deal. We also talked about the Super Bowl halftime show, BlackRock’s goals to improve financial literacy, and a whole lot more.

Listen to the Trapital Podcast here:

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Why Epic Games and Bandcamp teamed up

Last week, Epic Games acquired Bandcamp for an undisclosed amount of money. The news sparked a wide range of reactions. Some wondered why the company behind Fortnite and Unreal Engine would want an online record store. Others were frustrated that another artist-friendly company has “sold out” to Big Business, especially given Fortnite’s past clashes over music licensing. But this move felt inevitable given the position that both companies were in.

Building the creator marketplace

In a company statement, Epic Games CEO Ethan Diamond said that this acquisition helps its “vision to build out a creator marketplace for content, technology, games, art, music, and more.” Fortnite is still a leading metaverse player. Travis Scott’s Astronomical Fortnite concert in 2020 is still one of the biggest events yet in a digital environment with 28 million attendees. Epic Games’ acquisitions of both Harmonix and Bandcamp are signs that the company is still all-in on music.

Bandcamp also has a loyal customer base. The customers who use Bandcamp are proud to pay their favorite artists and buy their products. If those same artists use Epic Games for livestream or virtual experiences, their fans may be proud to pay for products in the Metaverse too. There’s risk in treating superfans as endless pots of cash, but there’s still room to tap into that consumer surplus.

Music is still undervalued

The Tencent-backed Epic Games is the latest entertainment company to make big moves in music. In recent years, most companies have done it for two reasons.

First, they treat music a loss leader. The digital streaming providers have all used music as a means to acquire more customers to sell them more lucrative products. Second, and most relevant to Epic Games-Bandcamp, they believe music will become more valuable over time. That can value can come from increased subscribers or additional platforms that will monetize music.

This undervalued notion is especially true for a company like Bandcamp. Its business model is antithetical to the streaming era. It had “pay what you want” features before tipping-enabled platforms were a commodity. The platform was built on generosity. But in today’s music tech industry, it means that Bandcamp is leaving money on the table.

The tradeoffs of profitability

Ethan Diamond has said the company has been profitable since 2012. The Component’s Andrew Thompson estimates that the ~200 employee company made $21 million in net revenue in 2020. Bandcamp is a rare breed, but its desire for profitability may limit its ability to grow in an industry dominated by winner-take-all empire builders.

Diamond said that this move will allow Bandcamp to build livestream functionality, expand internationally, and further develop its app and other user interfaces. Bandcamp has also wanted to push back on Apple’s high 30% cut on App Store transactions. This is a fight that Epic Games is all too familiar with.​

Those are expensive goals! They are hard to achieve in the near term for a company with $21 million in annual profit. In a non-VC backed world, Bandcamp could take its time and achieve all those with its own money, but that world doesn’t exist. If Bandcamp tried to do this itself, the internet might be onto Web5 by that point.

This situation is not uncommon. Ask any recently-acquired indie record label, music distributor, or bootstrapped startup. They often reached a point where they felt limited in their ability to maximize opportunities for the artists they support. It led many founders—especially bootstrapped ones—to ask themselves some form of the following question:

Am I content running my profitable business as is, even if we can’t take advantage of all the untapped opportunities available?

Or would I rather sell the company, add some firepower to reach our potential, and accept the tradeoffs that may come with it?

There’s no right answer. It all depends on the founder’s goals. But it’s not a surprise why a VC-backed company like Bandcamp, which has turned down past acquisition offers, would capitalize on this particular moment.

Read more about Bandcamp in Andrew Thompson’s 2021 essay Why is Bandcamp Profitable and Spotify Not?​

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coming soon from Trapital

Podcast: Dazayah Walker, Quality Control Music. I had a great chat with QC’s head of investments, Dazayah Walker. The record label and entertainment company has invested in SoundCloud, RIFF, and several other companies. We talk about what QC looks for in startups and a whole lot more.

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