Could Change the Music Business

| 16 Feb 2015 | 04:53

    The more he learned, the more he realized that Wasatch had a terrific research department. Their stock picks were excellent. Wasatch's performance record was every bit as good as some of the better-known "name" funds. The problem was that no one outside of the Salt Lake City area code had any idea who or what Wasatch was.

    And they were never going to find out, because the top management of the firm had no idea how to market their product. Which meant that no one who worked at Wasatch was ever going to make serious money, unless someone changed the deal. So Jim Milligan volunteered to change the deal.

    The partners thought it nice that this ski bum was offering to change the deal (you could almost see them rolling their eyes) but they figured, "What the hell, give the kid a try." They even agreed to Milligan's terms, which were generous indeed, 30 basis points on gross revenues.

    If you're selling mutual funds, there are really just two targets: Big Dogs (like Charles Schwab) and money managers. Money managers won't even acknowledge your existence until you've sold at least one mutual fund to a Big Dog. So Jim Milligan figured: "Charles Schwab is the biggest of the Big Dogs out West; why not just go to San Francisco and hang out for a couple of weeks and see what happens?"

    So he does, literally, that. He hangs out in the lobby of the building where Charles Schwab is headquartered and "bumps into" Schwab executives as they're going to work. He does this for two weeks, day after day, greeting the suits. Finally one of the Schwab suits figures, "we've got to get this kid out of the lobby," and invites Milligan up for a meeting. They got along famously.

    A few months later, Schwab hosts a conference in Phoenix, which brings together mutual funds under the Schwab umbrella and a gaggle of money managers from across the country, all there in one hotel. Milligan crashes the conference and throws a party. The party features an open bar and some journalist friends of Milligan who have agreed to speak to the money management guys. No one's ever heard of Wasatch Advisers or Jim Milligan, but the prospect of free drinks and free publicity (money managers are nothing if not vain!) draws a big crowd. And Milligan ends up the evening with about 50 or 60 business cards and a ton of goodwill.

    A couple of months later, Milligan gets the call he's been waiting for. Schwab has agreed to include Wasatch in its Schwab One family of funds. And in less than five years, Wasatch Advisers is suddenly a billion-dollar money management firm. Jim Milligan, once the company's lowest-paid employee, is now its highest-paid employee and a partner to boot.

    Right around the time of his 30th birthday, having put Wasatch Advisers on the map, Jim Milligan quit his job. Why not? He had money, money enough to sail around the world for a couple of years while he figured out what to do next. He was planning to do just that, until he woke up one morning with a golfball sticking out from his throat. Went to bed at 11 looking normal, woke up the next morning with what looked like a golfball stretching out the skin on the right side of his throat.

    He went to the doctor and it was cancer, Hodgkin's disease. The doctors put Milligan through the whole chemotherapy drill?one year of getting blasted and treated?and it was just miserable. Sick as a dog for days on end. All his hair was gone. But it worked. He had his health and, knock on wood, he had beaten the bullet. So now he really wanted to sail around the world. And he set about to make all the arrangements.

    Before he ventured off to sea, Milligan and his wife and a group of friends decided to attend a weekend music festival in Washington state; lots of bands, lots of fun. They piled into his mother-in-law's Winnebago, fired up the boombox and hit the road. The festival was fine, everybody had a good time. But the most compelling talent was actually a guy playing his guitar in the parking lot. The guy in the parking lot was way better than any of the supposedly hot bands on the stage.

    Milligan being Milligan, he befriended the guitarist, got to know him, came to like him, came to admire him, came to invite him to live with the Milligans back in Utah. The Milligans had a guest cottage on their property that they called the Freedom Zone. The parking lot guitarist moved in soon after the festival ended.

    Now Milligan wasn't so sure he wanted to set sail. He started thinking about the record business, the artist business, the whole business of creative talent. He thought about his friend, the best musician at the music festival, playing in the parking lot. He thought about all the unrecognized talent out there?like Tracy Chapman before she was discovered?playing guitars and singing songs in subways and roadhouse bars and on college campuses and in barrios and in nightclubs and after-hours joints. And he thought to himself, what if you recorded these artists? What if you made it possible for them to be heard? And then he thought to himself, imagine how much money you could make if you actually pulled off something like that.

    So he created FreedomZone. com, which is, on one level, a record company and, on a number of other levels, a creative talent company that leverages the Internet and converging digital technologies for the benefit of all kinds of creative people, not least Jim Milligan. The FreedomZone business model is based on a very simple premise: the first million are free. Artists of all kinds agree to donate the first million CDs or prints or movies or documentaries or whatever at no cost. And FreedomZone gives them away. Consumers go to the website (www.freedomzone. com), order a basket of these things?a mutual fund of artistic talent?and FreedomZone sends you the CDs, the prints and whatever else for free. The only cost is shipping and handling, which is $1.75 for CDs and $2.75 for prints and video cassettes.

    The amazing thing is, the quality is really quite good. FreedomZone has 10 musicians and 12 artists under long-term contracts. Once those artists "sell" their first million CDs or prints, they get 60 percent of the gross from that point forward, six times what a normal recording or "artistic" contract would return. FreedomZone gets 40 percent. And the promotional and marketing opportunities commence.

    For as long as anyone can remember, the music business has been a lousy deal for all but the most popular artists. There were really only two distribution chains, the radio and record stores, and the whole business was stacked so that all revenue flowed back to the companies. As the business grew with the baby boomers, it consolidated into five major companies (Sony, Warner, Virgin, RCA and Polygram) and a handful of major radio conglomerates. The two worked hand-in-hand to narrow the spectrum of choices and taste.

    The Internet changes all that. suddenly there is a global distribution system for anyone talented enough to find an audience. The bandwidth to support this distribution system isn't quite there yet, but in a couple of years, it will be. In the meantime, Internet technology makes possible a whole new business model for the distribution of artistic talent. And sooner rather than later, a "star" is going to take advantage of the new model. And when that "star," whoever it is, decides not to renew with his or her record company and decides instead to sign with FreedomZone, or something like FreedomZone, then the old order will begin to crumble.

    Jim Milligan figures the day a major talent walks away from a major label is not far off. It probably won't be a superstar, but it'll be someone big, someone who doesn't need Sony or Virgin or Warner anymore. And when that day comes, when that major talent signs on with FreedomZone, then the whole command-and-control structure of the music business will collapse. Because at that point, everybody else on the talent side of the music business will say to themselves: "Sixty percent is six times better than I'm doing now. Why not go with FreedomZone?"

    And the more you think about it, the more you realize just how anachronistic the music business has become. All those people, all that real estate, all those huge advertising and marketing budgets, all those expense accounts, all that waste and graft and payola could easily be trumped by a guy who has fewer than 10 employees, 1200 square feet of office space in Salt Lake City and a website called

    It's possible that FreedomZone won't work out. But it's not probable. This summer, the FreedomZone tour, with the support of Levi's, will be playing across the country. Soon, you'll be able to buy FreedomZone CDs for a buck out of vending machines at malls and discount stores. And one of Milligan's bands, the Given, seems on the verge of breaking out and becoming famous. Word about FreedomZone is spreading throughout the creative community. More and more artists are coming to Milligan and asking for his help.

    But even if it doesn't work out, something like it will. It is by now a cliche, but it bears repeating: The Internet changes everything it touches and it touches almost everything. Thanks to guys like Jim Milligan, it's about to change the music business forever.