TWIST NEWS: AI Music, Circle’s IPO, TWIST500 and more! | E1972

28:07I loved it when it was going to go out via SPAC. It raised that price and then moved back from that, filed privately. And I'm counting down to when it lists. This is going to be such a cool company to see, Jason, because interest rates have gone up so much since 2021 when it tried to list via SPAC that I presume it's grown dramatically. Because think about it,$32 billion worth of stablecoins under its belt. Now call it, I don't know, 4 % or 5 % interest on that. It's a billion, billion, five a year in revenue because rates are - It's incredible. And this is, I think, what people who own a stablecoin have to realize.

28:42You buy a stablecoin, you get no interest. You're just getting a stable coin so every year as inflation goes up the value of that stable coin is going down the hedge against that obviously is what the stable coin provider gets for giving you that technological service and so tether which had a myriad of questionable assets according to multiple sources and was only doing testations a very light form of verification by dare i say unknown accounting firms on islands. Lesser known, obscure perhaps. Lesser perhaps, yeah. You know, Circle is doing it all right. They're got, you know, major audits going on as opposed to attestations and that kind of stuff.

29:26And so the devil's in the details. If you have, I think Tether got up to 70, was it 70 billion, 80 billion? It was a pretty large amount of money. And people were really concerned that maybe their holdings were in Chinese commercial paper because that's where you used to be able to get a return. So maybe they're getting 70 % on that Chinese commercial paper loans, essentially, in China. But maybe it's not that stable. Then all of a sudden, we have inflation. Interest rates go up. Tether started bragging that they've got billions of dollars in revenue a year. So you're the sucker at the table, perhaps, if you're keeping your money in stablecoins, because you're not getting that interest that you could get if you kept it in a money market.

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31:48A couple of small quibbles though. I just pulled it up. There's now$112.8 billion dollars worth of tethers out there. Wow. Yeah. Right. I thought it was 75, 82. Yeah. That was the last number I heard last year, but they've grown significantly. And I was doing some research on this and I ran into a really interesting question because if you hold USDC on Coinbase and Coinbase is a partner company with Circle in the USDC universe, they will give you, I think about 5 % yield on your held USDC. And I was like, wait a minute, is Circle just paying people to hold it? And then does that take away all their revenue?

32:25So I chased this down through Coinbase's last earnings report. And what we found out is that the company in the second quarter expects$150 to$180 million in sales and marketing costs, quote, driven by significantly higher USDC customer reward. So I think that Coinbase is using its sales and marketing money to pay a yield on USDC holdings to incentivize people to use it. But that doesn't mean circle is, which means their business, I think, is going to be stellar because they don't have to have a lot of staff to have an account with a lot of money. One of the things people have learned over time, and this was one of the value propositions of Robinhood, is it's hard to get somebody to open a brokerage account or a bank account or a credit card.

33:12And probably a brokerage account is really hard. A bank account is less hard and a credit card hard. And so that's why the rewards that you give, like the affiliate fee or the cost of acquisition to those things is typically hundreds of dollars. So to get somebody to open an E-Trade account, if you were to do that through an affiliate network or you were to spend money on television ads, you might spend$200,$300 doing it,$400 to do it. So that's why Robinhood was like, hey, give your friend a free share. You get a free share. We'll give you$10 worth of an Uber share or an Apple share or something.

33:47And they basically said, instead of paying CNBC to put E-Trade ads on or Robinhood ads on, we'll just give the money directly to you and your friend and it will spread virally. And you may have seen Robinhood now. It's like, if you move your money into Robinhood and you move your equities into Robinhood from another service, I think they give you like a one or 2 % one-time fee for onboarding. So if you move$100 ,000 in shares from your whatever account, they just give you two grand or something. If you move 500, you get 10K free? Exactly. So if you move a certain amount of money, you get like this free money, but you have to keep it on file there for X number of years, two years, three years, you have to pay it back or something.

34:23There goes my plan. This is called customer, you're just taking customer acquisition cost money and you're moving it around. In the same way, Uber, when they didn't, and Lyft, when they didn't have drivers, would say to the drivers, when you hit a hundred rides, we'll give you a hundred bucks. So, you know, one of them could steal drivers from the other and it goes under driver acquisition cost. So you can move these things around the balance sheet, but eventually you're going to need to pay the piper. You have to make that money back. And so be careful, folks. Yeah. But one thing that has changed is just the pace at which interest rates have gone up.

34:56We have a chart that we're going to pull up about this to show the scale of the change. And this is important because I think this is going to dictate how quickly they do go public. So if you're looking at the video, this is just the federal funds rate for five years. It's gone up very, very steeply. And it just - That's just several, right? In history, I think? I was looking at the chart to prove that, and there's been some really wild stuff over the years. At least in recent memory. In the 70s. Times used to be very different. The rates went up very dramatically very quickly recently, which made a lot of businesses better, including Robinhood, because it held a lot of cash, which it now makes a lot of money on.

35:32But here's my bet, Jason. I wrote about this for my newsletter. I think that they're going to want to go public before rates begin to come down. because right now they have rising AUM at the highest rate we're going to see for a long time. So their growth story is never going to look better than it does at this moment. So just stress test that for me to make sure I'm not insane. Yeah, you're right. If rates went back down to one or 2%, then this business would be making a lot less money and rates will go down slowly. I think most people are realizing higher for longer was the right call. A number of my friends made that call, higher for longer, to try to keep inflation from coming back and roaring back to 6, 7, 8, 9%, whatever.

36:19I think it peaked at 9.2 % or something last year. And now we're down to the three-handle, and maybe we see a two-handle soon, right? And so yeah, they'll make a cut later this year maybe two this year and yeah so it will be peak interest rates this year and then slowly we taper off and yeah the revenue will go down and then that means they have to have more assets under management to make up for that um but you know there's i think there's a lot of interesting things that these stable coins are going to allow people to do you know in the same way venmo paypal bitcoin have you know in a way this is kind of like bitcoin in that it's going to be pretty frictionless to move it around and pretty immediate so you and i have to settle a poker debt are we going to use venmo are we going to use bitcoin you know are we going to hand each other cash or in the future will there'll be a stable coin inside of twitter x.com right like maybe elon makes his own stable coin and puts it in there um you know since he's going to make banking a big part of x according to the public reports i have no inside information so well i I mean, I have to.

37:26No, no, I know you have to. It's just, it's almost like you're the guy in the commercial, like, this drug will save your life. May cause diarrhea, death, hemorrhages. Listen, I mean, just people, the re-aggregators might just say like, you know, Elon's friend Jason says stablecoin coming. And I just always have to like cut that off at the pass. I don't have inside information, but you know, he has talked about Doge and why not have an x.com stablecoin? That would be a great idea. Actually, I should tell him like to look into that because then you could just move money back and forth. after you have a meal or a poker settlement or you're chopping up a birthday present.

37:57Yeah, it's all great. And if there's no... The whole point of this crypto stuff, wasn't it supposed to be that we could transact without huge fees? And then it's huge fees? It's huge fees. Transact and gas fees. It's worse than that. It's huge fees for slow transactions. And that's not good. But people did say, this is going to be great for remittances. This is going to be great for an inflation hedge in certain economies. to me stable coins actually fit that bill bitcoin is a pretty variable asset still so to me stable is really plugged that that like crypto promise from 10 years ago hey don't tell this with our story from last week of um wells fargo letting people pay their rent on their credit cards and then having to pay three percent of that back to them in in miles if if there was a wealth cargo or used usdc then yeah no no fees there's a lot of cool stuff this is why i'm excited about this this ipo i will i will say that i have one last chart i want to bring up just to show you why this came to my attention i wrote about it this is your from visa's crypto dashboard showing essentially volume now most data sets show tether being far more active than circle but you can always strip away certain crypto transactions to see what's real what's spooked or what's essentially just bot activity but that to me shows a lot of actual usage of usdc this is a chart just comparing the two and it goes up to the right so i'm very curious what this s1 is going to show us jason i uh yeah i think i'm counting down to this one more than databricks more than stripe i think this is interesting because it has usdt which is tether kind of flatlined and it's not tracking a lot of these transactions.

39:39So that means, I guess, those are off market transactions. A lot of those are going on with USDT and USDC is a lot more trackable or traceable. I'm not sure what's going on here. There's also a multi-blockchain component to this because you can buy, for example, USDC on, I think, 10 or 16 different chains. So there's a data aggregation question. But no matter what way you want to look at it, what that chart says at a minimum is that through a particular prison that visa prefers activity is going up quite a lot for usdc you want to strike while the iron's hot get the s1 out there make a bunch of money huzzah huzzah huzzah i'm stoked about this but uh this is a startup show where are they going to go out i'm waiting i'm trying to i'm trying to manifest so they filed but they haven't yeah they filed privately in january got it like it's been a minute man nearly half a year like market wants inventory so i think it'll do quite well, I mean, market is, this is the crazy thing.

40:32Everybody wants to talk about how terrible the economy is. And every time I kind of point out facts, people are like, you don't understand poor people. I'm like, what about my life being poor, lower middle class? I do understand. I worked all the worst jobs you can. Lowest unemployment of our life, real wages going up, inflation's been tempered down to three, almost in the 2 % kill zone and stock market at all time highs what am i missing so i've struggled with the exact same thing that you mentioned because when you look at the top line indicators it's going great um it's like you're in a car and there's no warning lights you're going 65 and someone in the back is getting like motion sickness and blaming you and you're like but the car is fine yeah i think we're seeing a partial k-shaped recovery so v-shaped it goes down goes up a k-shaped recovery is one with this bifurcation of the state of the economy for people.

41:24And I think that for a lot of folks, things are great. Personally, my family, doing fine. You're doing fine. You have equity exposure, you're great. If you don't, you're struggling. And I think that people have, I'm going to abuse a concept, but a lot of like inflation PTSD, I think is still going up in a lot of people's wallets. And if you haven't gotten a raise in the last two years, you're probably really hurting. So I think there's also some lag. But I mean, if this isn't a good economy for most folks, then I don't think we actually know how to define that as a species because everything looks pretty good.

41:54There is some pessimism, I think, because of the political overhang and the political rhetoric going on where people want to incessantly frame it as this is the worst economy of our lifetime when it in fact is one of the best economies of our lifetime. And you are right about inflation if inflation comes down to three percent there's still inflation it's three percent inflation so you're a hundred dollars in groceries now 103 so it's not 100 going to 109 which is sticker shock but i do think you're right in the k uh analogy because if you are a wage earner without equities yeah you're just you're only focused on that three percent right now and you you got the sticker shock of the 9 % and you've got loans.

42:42So instead of getting 5 % on your money, when you wake up and you see your money market, they're seeing their credit card bill come in or their mortgage or their variable mortgage come in or their variable car payment come in and it's higher. So yeah, that's exactly what it is. Which side of the trade are you on? Are you on the get 5 % or give 5 %? So one thing that people outside of the US might not understand is how partisan everything is in this country. And this chart shows the two major political parties and their views on the economy during different times. So during the Bush years, Republicans or people that leaned Republican thought it was doing great.

43:19The moment Obama took over, the economy is terrible, worsening of all time, did not change their mind until Trump took office, at which point Democrats began to ease off a little bit their views. So I also think that when people discuss the economy, they're really discussing their political priors in in terms of how they want the economy to be doing under an administration. So for example, right now, if you think that Biden is not a good president, you don't want the economy to be strong. Because then that goes against your narrative. And I saw the all-in segment when you were like, economy's doing good.

43:48And people were like, no. And you're like, well, let's go through it. Yeah. And I went to the facts and they got really upset. You know, Saks was really tweaked about it. And I was like, I'm sorry, but facts. Yeah. Well, I thought when people go, I don't trust the data. but then they trust it immediately when it's in their favor that is the thing about partisans you and i are both pretty independent i think um and you know i i might be starting to move back into a libertarian era i'm just kind of so tired with how oppressive it is to have these two parties constantly want to involve themselves in our lives that i'm like you know what i just less from the government it's just it's too much everybody wants the government to solve everything I'm like, I'm starting to get so frustrated.

44:31I'm just like, can you just leave us alone? Do less, do a lot less. Let local governments do more. I mean, look, I haven't been really good at taking direction my entire life. You can just go look at my elementary school disciplinary records and so forth. So you're not, look, it's not popular amongst my friend group to say this, but I've never fully shed my late teenage young male libertarian streak because I've always found strictures to be kind of silly and like a lot of norms are a little ridiculous like the reason why I made fun of you wearing a tie the other day was because one I like you but also two like to me whenever you turn on like the Capitol Hill TV and you see like eight people for a podium and they're all wearing a suit and tie and I'm just like what are you proving like really like but in my youth my parents if I'm being totally honest i was gonna wear the suit and a shirt and not put the tie on i had been at a wedding and my friend bought me that gorgeous pink tom ford tie for the wedding so we all the groomsmen had the same tie and i was like you know what i noticed the other guys weren't wearing ties like this is the ultimate troll so at the last minute i turn my camera off i put the tie on we're like we're supposed to be 10 minutes from showtime well my turn my camera on the tie i was like you're wearing a tie and then everybody was like freeberg was like oh do i have to wear a tie and the everybody started second guessing their decisions that's really funny but i think i'm going to start wearing it just to troll people because they really got into this better call sol serial killer phase for me let's talk about twist 500 i mean this is coming along nicely we got the website up go to twist 500.com it's a coda website right now it's a database uh we had maybe 20 companies in there and we're every week trying to add some so here we could show it here and the goal here is for us as a community just to understand who the 500 most important private companies are we know there are probably venture backed you know some amount of backing uh for maybe 30 40 000 companies i would say active companies right and so and a couple of thousand funded every year.

46:44So to pick 500, it's probably like 1%, I think, of the pool. And so we're starting with the obvious categories, yeah? And the obvious largest ones that are not yet public. Yeah. And so one thing that I did, just because we're kind of chipping away at this week by week, it's going to take us a long time to fill the list and then we'll recycle names as we take them off. But I went and grabbed some of the most interesting companies that reached a$1 billion valuation or greater this year with the following caveat. I ripped out most biotech because I don't understand it. We'll have an expert help us with biotech.

47:16And I didn't include Chinese companies because it seems that we're discussing the world economy and Chinese tech companies are a little bit bottled into their borders. And given that, I don't think the twist audience is super concentrated in Shenzhen and Shanghai, lovely places, but probably blocked there so i'm focusing on x china so that's what we have in this i think those are two good calls for now is to leave out biotech until we have the expertise on board to do that and leave out china because they've opted out essentially yes they have said not so much so a couple of names to go through one is huntress now this is a company that's doing cyber security for smbs i like that because everyone needs to have a better cyber security posture and jason they just raised a Series D from Kleiner and Meritech, 150 out of 1.5.

48:04Seems to me a shoe-in just because it's big enough. Big backers, cool market. Yeah. And to get that valuation, they're probably in the tens of millions of dollars of revenue a year. Just so people understand in private markets, 25, 50 times revenue is possible. It may not be possible in the public markets, but people will have protective provisions on their investments. So if this is at a billion plus valuation, maybe they have 50 million, 25 million in revenue. I'm just taking a ballpark guess here in terms of how valuations work. Yeah. I was thinking like 35 to 50 would be my guess. Give it a nice solid 30X multiple.

48:44And you pay a little more because you're expecting the company to grow a lot with the money you give them. Significantly, yeah. Yeah. So you're not buying a dividend stock when you're buying a startup share. Okay, so Huntress is on. And then there's a new one. This is called Creatio. It is a low-code company. And I feel like we have not talked about low-code and no-code for years. Because I think it became like cable stakes inside of software. Like, of course, I can drag and drop and define my own logic. But I think it's still pretty cool. And this is a company that was bootstrap for a long time.

49:14Raised around in 21, 22. And then just raised a big$200 million round. Wow. That gave it a$1.2 billion valuation. growing it over 50 % per year, and if memory serves, might hit cashflow positivity this year. So growth, scale, I mean, it's got some great backers. To me, this is a super cool company. I don't have a use for it, so I wasn't able to test it. But clearly, Jason, people like it enough to pay for it because they wouldn't have raised that kind of capital today without a big customer. Yeah. And I think a lot of this is the consolidation of SaaS. So just looking at what they provide a lot of apps available for customization so you're running a large company and you know maybe you don't need this particular vertical sas software you don't want everybody to have to log in again you want to kind of take some off the shelf sas software and customize it and you know it's good enough right and which is what chamath is doing with this 80 90 company um which is like 80 % of the features for 90 % less cost.

50:19And so I think that'll be a trend. And some LPs and GPs are showing some concern in the SaaS space because what if my company becomes a feature set and gets 80-90'd by a company like this? Or HubSpot or Rippling or Gusto decides we're going to put expenses in there. And then what happens to Expensify? All these discussions are starting to happen where you used to want to be best of breed, and now people are bundling like Microsoft Office. And we just saw some action in the government about bundling around Microsoft's products again. And so bundling is kind of happening in SaaS. It's just your vertical SaaS company is my next feature.

51:04That's a quote that we should hold on to. I'm going to burn through a couple of these quickly. Altruist and ClearStreet. Altruist is selling software to registered investment advisors, now worth $1.5 billion, 550 % revenue growth last year. That's why it's doing well. Oh, I'm sorry. That's the company that might be cash flow positive this year, not Creative. My bad. And then ClearStreet, it's essentially selling software to brokerages, now worth$1.7 billion, raised a $165 million Series B. Proof that FinTech is still in the mix, 2024, new unicorns off the back of fast revenue. Harder than ever to get a billion dollar valuation on FinTech, I think, but still happening.

51:47Still pretty cool. Two companies to watch. And then just for the sake of time, I'm going to throw one at you that you might not want on the list. Oh, interesting. So Monad Labs or the other crypto one that I now, of course, oh yeah, Farcaster. So there's two crypto unicorns that I want to talk about. Yeah. Forecast. It's a Web3 social network raised$150 million at a flat billion-dollar valuation in May. It had 80 ,000 users at the time. Jason, would you have affixed a$1 billion valuation to a Web3 crypto social network that had 80 ,000 users? Yeah. So obviously, that's a large amount of revenue on a per-user basis.

52:26so if you had a million users and you have a billion dollar valuation i think that's a thousand dollars a user you have a hundred thousand i think that's ten thousand a user right you had a billion and it was a billion dollar valuation it'd be a dollar a user right so you can kind of do this math pretty quick here there's no way to make that money back um even if it was a subscription service uh which i do think they do have some number of early subscribers paid subscribers on their system and there's like a currency built into it and i think the founder is very clever so there's some intangibles there but it doesn't make economic sense if you were to pencil it out like that so then why would investors make an investment like this well you know then you have to start backing into some intangibles here uh what is the prize if this warp cast uh and decentralized social media does win what what do you win you win not just twitter uh you win a piece of tiktok you know facebook instagram etc the whole social media space the whole social media space you know makes hundreds of billions of dollars in advertising revenue so yeah this theoretically if you know this uh federated nobody owns your data system works it's like a very intellectual argument that's been going on for over a decade you own your social graph yeah is it worth a billion of course not is it worth a billion with 150 million in cash in the bank right they raised 100 or 150 or something i think let's see farc has to raise 150 yeah so okay so if it's a billion dollar valuation you you back out the 150 million in cash it's 850 still not worth it but you know you have the protective provision so when you place a bet like this you're placing it's going to go to 50 billion but this is going to become a 25 or 50 billion dollar asset you're making a later stage investment a series b or c level investment essentially even if they call it a series a and what they called it putting the naming aside they're betting it's going to get to 25 to 50 billion is that possible yeah is it probable no of course not that's why it's a bet yes downside protection if this gets sold for 150 million they get their 150 million back yeah and they might have a liquidation preference of 2x in there so they get 300 million so the first 300 million sold goes to these investors they've got some downside protection they believe in the founder so that's sometimes what happens here but it's a big prize if they yeah this is why these are the best of course the end is also the nature of the investment this is fred wilson and union square ventures i think are involved to some degree i think when you see a crypto round of this size it tends to have a lot of players behind it you've heard it the same way that i did which is either this is going to go to zero or it's going to become the decentralized Facebook and therefore it's going to be worth a squillion dollars.

55:14And if you have a thesis that crypto is coming for the mainstream and the mainstream consumer, there will be a social play. This one has momentum. Okay. I love to see a bet that I look at and go, no, because that to me is venture capital, not bank. And SaaS got a little boring there for a while. All right. Some other names we're going to throw on the list include Weka and QI Tech, Cognition, and Sierra and Monad Labs. We'll have notes about all those in the Twist 500 newsletter tomorrow morning. So if you want to get that, make sure to grab that. Now, with the last time that we have left, Jason, can we talk about AI music, please?

55:49Please. Yes. The music industry is one of the most protective of their rights. I would say the most protective, the most litigious. If you've run a startup that in any way bumped into the music industry like Peloton did, it can be lethal. Or like Spotify did. And the majority of Spotify's revenue goes to musicians, right? It's just a very hard group of people to align yourself with because they are savvy. Some people might say cutthroat. And if there's a dollar of revenue, they're going to squeeze every cent out of that. you know uh and you're gonna get pennies on the dollar uh if you're involved with music industry of course it's probably one of the easiest things to replicate with ai so now you've got a great paradox what could ai be the most disruptive to and who's the most litigious okay it's going to be the most disruptive to music and coding uh you know and writing you know today okay who's the most litigious well writers are the least they're suckers at the table journalism and media suckers they never defend their rights we're poor sir we don't have you're also uncoordinated right they've always they've always been uncoordinated they don't fight as one group i thought you meant physically uncoordinated i'm like how'd you know my basketball team was absolutely yes turnover central no i mean look vox jim bankoff's like i'm sorry how much money are you going to give us open ai we'll take it and then new york times was like how much money are you going to give us we'll fight it which jim bankoff and the salzburg should have gotten together and said how much can we extract out of these guys how much can we take them to the cleaners for let's file a lawsuit let's have our starting negotiation be we're shutting you down with an injunction that's what the music industry does and that's not what journalists and media companies do no generally speaking well there's also the the public benefit element of journalism and how the debates about should it always be free or not and blah blah blah the thing is these ai music startups especially suno and udio you have talked about on the show with sunny oh that's trying to get people a taste i want to play the clip from you sunny and suno because i think it's illustrative of the quality and kind of state of the art so just uh listen to this clip everybody Okay, here we go.

58:16We say here a rock song in the progressive rock style with finger picking electric guitar about a rock band playing in a dive bar. I'm kind of alluding to Sultans of Swing here. Okay. Mmm.

58:38That is literally. it doesn't sound like mark exactly like mark knoffler but it is definitely like a bluesy it's more john mayer who is influenced by i i was kind of blown away by that clip because there's even little flubs in this finger picked guitar to make it sound like a person's doing it yep personally as a big music guy myself much like you i am very uh emotionally wedded to certain records, certain artists, and certain sounds and times of music. I know that I'm a freak, right? Most people just want tunes, they just play whatever's up. So to me, I can see that really coming into this. But there's been a news item past the RIAA lawsuit, which is that the FT reports that YouTube is working right now with record labels to give them a bunch of money up front so they can build their own model, so they can offer this to consumers.

59:33And this sets up this really kind of crappy thing when And YouTube is doing it right because they're rich. And Suno and Udio went around the legal system because they weren't. And so we're in a situation, it's almost like music is anti-innovation because they are so extractive, as we said, that now we're going to see Suno and Udio, in my view, probably lose these suits. And then we're going to end up with Google, YouTube, and their bank account getting the AI music business for themselves, which just is not what I want to see as a guy who really like startup and i also don't see a way to fix that jason uh this is going to come down to training data and so if soon it's called suno right that one that we were just demoing yes and that's the one that's been sued uh they've both been sued you know and udi have both been sued so what suno needs to do is license some music and tag it and train it if they want to do that there's a very simple way to do that you raise a hundred million dollars you hire a bunch of artists you have them sign work for hire agreements and you say play whatever the hell you damn want from this list of blues folk country etc and uh put it into our database and we'll sell your music as a license so people can take that clip so just play the blues now they sign a work for hire agreement they also sign an indemnification agreement that it's their music they're playing it you tell them do not play john mayer or dire straight play your own stuff come up with your own licks come up with your own songs just sit in a studio we'll pay you know 500 bucks a day as a studio musician to just jam out and train based on that and then you're in the clear and then you can go tell the music industry to f off right that's not what they did would that be as good though because in the other clip if we don't time to play actually eventually after two or three years of doing it yes they just chose to cheat is my guess and they went to the open crawl and they went to one of these open crawls and said just find every mp3 put it into this music thing or it could have been even more sinister they could have just gone to bittorrent or spotify or radio stations and said just play radio stations pull the metadata you know like there are all these now that i'm getting into high fidelity stuff with my name uh n-a-i-m you know digital audio thing that i plug my high-end headphones into and they play this high bit rate there's like infinite number of high flack incredible radio stations that are streaming and they have the metadata they could have just taken all those streams and just fed it into their language model and that's they said i saw in the documents that in their response that they couldn't tell them what we trained on because it's proprietary data that's not gonna work no you can't say business secrets when the thing behind this curtain is my stuff um no but there was an interesting quote from the uh the uh antonio rodriguez um over at matrix uh venture firm that we've all heard of of course and it goes something like honestly if we had deals with labels when this company got started i probably wouldn't have invested in it i think that they needed to make this product without the constraints, essentially arguing for freedom of operation, if you will, for these companies to mess around.

1:02:57And we'll see how this plays out. YouTube, of course, is going to get this right because Google already has relationships with labels through Google Music or Apple or Android, whatever the hell the Google thing is. I don't use it. I use Spotify because I'm boring. But I just hope that this sets a precedent of proper compensation for training data because it would be pretty much a bummer, I think, if it worked out for music and then no one else's copyright was treated with similar respect. So could there be a precedent setting here, Jason? I think there's going to be some precedents set if these things aren't settled for large amounts of money.

1:03:34So usually what the music industry does is they'll go to the startup and they'll say, we caught you. Here's all the infractions. You now owe us$17 million. How would you like to pay us? And you say, well, we've got 8 million in the bank. They're like, great. So now you owe us 9 million. How would you like to pay us to nine? And this is pretty much their approach. You say, well, I'm going to shut the company down. They're like, okay, that's great. We'll just have a judgment against your company. And I guess sell the IP and we'll get whatever the IP is worth. That literally is their approach. They will just, you know, and they've got a lot of people stealing their music and using it illegally in all kinds of different ways.

1:04:09And yeah, you got to pay to play and they're smart and they're savvy and they're organized and you know the the voxes and vices and washington posts and you know news corps they don't have their own like united front and so since they're not united in the way the music industry is they all cut their side deals and they divide and they get conquered we'll see if the new york times takes their case to the mat that's the case to watch and we should put it on our docket to just keep an eye on jason i have to say of all the shows we've done together this is the first time that i'm leaving one kind of bummed out because i think you're dead right on the media world and their lack of a united front i hadn't quite pieced it together in that way why do we always get bullied around why did we always lose and uh yeah i i think that's correct and i don't see a way to fix it they take the quick check so what happens is somebody like sam altman or google or facebook they go or you know they go to buzzfeed and they're like, Facebook's like, hey, here's like$5 million to make some videos for us.

1:05:14And they're like, oh my God,$5 million. That's a big ad buy. And they're not thinking about the value of Facebook and how much of Facebook's value is based off of their content being shared on the Facebook network. And what would Facebook's value be if they couldn't share a New York Times story? They couldn't share a BuzzFeed story. And those people said, you know what? You can't share any of our content on your platform. That would be enormously useful for the world of media economics. And we haven't done that. And that's why the RIAA is feared and no one else really is. We have to leave now, guys.

1:05:50We will be back with a lot more. ChatGPT is out for Mac users. We've been testing that. We got to talk about Baiju's write-down. That's super interesting. More Twist 500. And we'll see you all next time on This Week in Startup. See ya.