The Business of Culture

[Steve Stoute:]
Thank you and good morning to everybody.

So I'd like to say that I believe that in today's world the most powerful force of creating financial capital is cultural capital. And, like, it's clear to me, it's not lost on me is that I'm sitting here with a bunch of people from Silicon Valley and, yesterday, I sat in the audience and heard Vinod say very clearly: “I tell all my portfolio companies ‘do not hire advertising agencies.’” I mean I heard that, I was sitting right there actually and I was like, “shit, I'm speaking tomorrow morning, why the fuck is he doing this to me?” But I undеrstood where he was coming from. I rеally did, because if you ask me what the most important force in creating financial capital is, I expect very few in this room to say cultural capital, and you're probably looking at me furring your eyebrows going “really, Steve?” But, you know what, this is exactly what I'd like to address this morning. Very simple belief – that cultural capital has grown from the beginning of my career.

I started in the music business in 1992 as a road manager. It's what you do when you drop out of five colleges and you just try to look busy so your parents won't get pissed off at you. You say that you're working with a famous act and you go on the road and call from different cities and either they think you're selling drugs or doing something important. But what I would like to do is share a snapshot with you of some key moments throughout history that started in the beginning of my career and show you how cultural capital has manifested from then till now. And I'm going to start with 1986.

I don't know what this photo means to a lot of you guys in this room, but I'll tell you what this photo means in culture. So Run DMC, famous rap group in 1986, had a song called ‘My Adidas’ and this song spoke very proudly about where their sneakers had taken them and the journey that they've been on with their sneakers. The song became a top-ten hit, but more importantly adidas the brand was at 2 percent market share in America, they were at the bottom of all the major footwear companies, and of that 2 percent market share in America, 80 percent of those sales was coming from the Northeast region. There was an executive there, an Italian executive named Angelo Anastasio who came over to America to sort of interrogate why this was coming from – this 2% market share was where it was – and why was it coming from the Northeast? What was the pulse there? And the first thing he realizes, not only are guys buying these shoes, this one particular SKU, the shell top adidas, but they seemed to be throwing the shoe laces away. Why do the shoes have no shoelaces? Why were they discarding the shoelaces? And I'm gonna get to this later, but this was an important insight back in July 1986 that led to him going to a concert and watching Run & Run DMC perform the song my adidas at Madison Square Garden. And this shot here is when Run performed the song, he took off his shoe and 18,000 kids took off their shoe and held their adidas in the air. Italian executive finds and he sees this and it leads to a very important insight.

When you guys look at this photo you probably see Tommy Lee, Men in Black, Will Smith, “getting jiggy wit it” – however I was a record executive at that time. I worked at Sony in 1997, and I signed Will Smith and the Men in Black soundtrack. And Will Smith had actually gotten dropped from his prior record company they discarded him because culture was moving in this way of Wu-tang and Biggie Smalls and these much more hardcore rap, and the kind of rap that Will Smith was doing had sort of been discarded and treated as something of the past and they let him go. I had known Will Smith for many years and I signed him, and I signed him on the strength of Men in Black.

Well, we sold 10 million copies of Men in Black and that was back when you were buying CDs for $16.99 so we did really well. But what was astounding to me and what changed my career was not that we sold 10 million copies. It was that those glasses sold 14 million. The glasses sold more than the album and the glasses paid nothing to be a part of the campaign. Very important insight that we’re going to cut to later. Not to beat up the Will Smith topic, but this is Will Smith and this is from the movie Bad Boys, 1995. You guys familiar with the movie Bad Boys, anybody? Alright cool, so Bad Boys came out in 1995 and in the movie business they used trailing data that the movie studios used, because they're geniuses right, and they use some conventional wisdom that said that Black actors can't open up movies globally. So literally Sony did not send Will Smith and Martin Lawrence on the road internationally to open up this movie. It was a blockbuster in the US, but they said “why would we send these guys overseas? Nobody's gonna pay 10 euros or 8 euros” – or whatever it was at the time – “to see an African-American open up a movie. That makes no sense and we have the data to prove it.” So no tools to measure cultural impact and they had no idea what they were missing. This is 1995, okay.

Now as meaningful as these historical moments was and were happening in the business, it is actually telling on how advanced and how much has changed, the compounded effect of cultural impact from those moments I spoke about in ‘86, ‘95 and ‘97 to today. These were watershed moments that were misunderstood and at the time they pale in comparison to the truisms that apply today. So let's go back to sneakers. February 2015 adidas does a deal with Kanye West. Now outside of all of our personal opinions of Kanye West, that's not the point here. The point here is since February 2015, when he first released his shoe, adidas stock up 250 percent. Nike – flat. These are facts. This is cultural capital giving financial return. He's clearly accretive to their business. Now this is not about how many sneakers he sold, because it's very easy to say “Kanye put out a big sneaker, the sneaker sold a bunch of shoes” – no. They were releasing three thousand at a time, these were not changing the bottom line, the actual sale of the shoes. The halo effect that he had on a brand changed perception that led to this outsized outcome. Again, how cultural capital affects a public company.

Now, Beats. The most valuable company in the world buys Beats for three billion dollars. I don't know what everyone in this room thought at the time of that transaction, I'm sure somebody goes “why would Apple pay for headphones?” Like “why would they buy a headphone company? The headphones aren't even that good” Who cares? They break, whatever. They didn't buy a headphone company, they're not lucky, Apple. They’re a smart company led by great executives. They knew what they were buying – they had to buy into culture, they had to buy into tomorrow. They could not compete in the streaming music business without having a foothold in culture – who moves culture, what moves culture, who are the people that drive contagion. They needed to be in business with those folks. So although the headphones were profitable, did about $250 million dollars of EBITDA a year, they didn't buy headphones. They were actually buying a culture to launch their streaming business. These are facts.

And then you look at Bad Boys not going on the road and, today, Black Panther passing the Titanic to become the third biggest movie in US history. So yesterday's ethnic insight is today's total market dominance. And I just, while we’re on this topic, I want you guys to give it up for the writer and director of Black Panther, Mr. Ryan Coogler is in the back. [Applause] And of course, his beautiful wife is right there holding it down as she does. I could go – listen, I could go off on a rant similar to what Astra did yesterday and start flipping out, there's not enough black people in this room, but we could do that later, I can get Ryan– [Laughter] So what historically were moments within the pockets of culture, what were pockets and moments in pockets of culture is now transforming businesses, but why?

What you see in these three recent moments that I just shared is like “why is it important for cultural capital that has accelerated so much in my career? What was the trigger that made cultural capital compound this way?” And we're gonna get through this. There's three reasons: the decline of demography, the misunderstood attention economy, and essentially the speed of fame. And these are the three reasons that I want to highlight. So let's talk about the decline of demography. This is a census form and what this form is supposed to do, at some point, outside of counting Americans, it’s supposed to give you some insight on who you are, like what person's race, White, Black, African-American or Negro, American-Indian or Alaska native, Asian, Indian, Chinese, Filipino, Japanese. None of these things have nothing to do with sort of giving an insight to who you are, but these are exactly the same boxes that media segmentation is based off of. You see these boxes are meant to divide people into neat packages. “If you fit in this box, you fit into this box.” Boxes are easy, but in truth these boxes are absolutely misleading.

In the music industry, we were among the first to begin to see the decline of demography. And what we would see is we're releasing an album, it has no radio play in Kansas City or no radio play in Idaho, but all of a sudden what we see is the sales skyrocketing. And the reason why there was no radio play in that market is because the local radio programmers thought “why would these kids listen to this music? They don't want to hear that.” Meanwhile they love that, but the boxes actually said, “this is not for them, we're gonna program them more Michael Bolton.” [Laughs] Sorry I didn't mean to do that to Michael Bolton, but I did because they were actually programming wrong, because they were programming based off of segmentation. Like in the 60s, AM radio played the hits. You'd go from Curtis Mayfield right to Bob Dylan like they didn't care, they played the hits. And then like FM, the advent of FM radio, was obviously FM, you guys know, is a technology that would split signals and when they could split the signals they use that to then create these stations that basically played songs based off of demographics. So it was an R&B station or this station or this station or this station and it basically segmented people, but this was a way for advertisers to actually sell different audiences – this was not necessarily true about the audience taste. And that's exactly what we found out in the music business, how the way the market was segmenting individuals had nothing to do with the truth about individuals’ taste and we knew, and I knew specifically, there was no turning back. And then we got, you know, the truth about music. And you know, Tim Westergreen, you here? There he goes in the back. Tim knows about this all from his days at Pandora, but literally, you can take someone's listening habits of music and actually determine who they’re gonna vote for, what jean are they gonna buy. In fact, your music listening habits tell you more than your race, your household income, or your zip code. And that is the thesis that I'm building my new company, UnitedMasters, on. The fact is music succeeds where politics, religion, and – clearly – demography fails.

Which brings me to my next point, the misunderstood attention economy. You know, so much of the excitement about the advancements in tech is about the ability to market 1-to-1. Programmatic, targeting, and hyper-individualizing. Everyone has a custom, unique experience, just as I alluded to, and increasingly that same customization and uniqueness actually over time becomes isolating. As evidence, when you look at all these photos these are people standing in line all around different experiences. We are social creatures so kids are standing in line for Bieber merch or Yeezy’s and the like, Supreme. What's misunderstood about the attention economy is – because we're social creatures – how thinly-sliced individual media experiences, it's increasingly rare and downright exciting to feel connected to others. So hyper individualizing does nothing to connect you to something bigger than yourself. It just focuses on you as an individual. So that's why you have to blend “me” plus “we” – personalization plus “we” communal experiences. The brands that master both are cultural leaders and invariably more successful. Connecting people is a critical counterweight to segmenting people. It's very important as you start looking at the one-to-one, as you start looking at data and you start, we talked about I think it was Stephen Blank who spoke yesterday and talked about the power of data and how you have to read it and you have to read it on the edges, right? It's very similar conceptually. Reading hyper individualization data doesn't inform you on the factor of how you use communal data to help drive influence.

And the third and final reason is the acceleration of fame. Gone are the days where you can treat all audience the same. The speed of fame moves too fast to predict who will have the power and the crowd behind them. So I’m gonna use a quick example here and move on. This is a girl named Cardi B. I don't know how many of you guys have heard of Cardi B, but if you have a kid, you’ve definitely heard of Cardi B. Cardi B, this is 2017, like right back here, like October of 2016, Cardi B was a exotic dancer. She wasn't a rapper, she was a stripper. I'm sorry an exotic dancer [Laughs] and the former adult dancer signs a deal in February because she builds a large following on Instagram. She releases a song in June. September, the song reaches number one and passes popstar Taylor Swift. That happened. Stripper, October ‘16, number one artist, September ‘17. No formal music experience. The speed of fame. These are real things, and this is not an anomaly. I’m just using this because it's a famous example. This is not an anomaly, this is happening non-stop, and you start talking about “how am I going to be lock-step in culture? How am I gonna understand what's coming next? How am I gonna pivot my business to really get to a marketplace and a market?”

If you are in a consumer business you need to understand all of these different drivers that [are] changing and sort of create consumer opinion, and get this understanding – the underpinnings of what drives this – on your side, inside your company. You know, it's not just the cultural velocity that materializes fame fast, it's the influence these individuals have that are wide and deep, and not only the individual but also the people that they influence. You know, you don't want to be the CEO who wakes up like Evan did and see $1.7 billion knocked off your market cap because somebody said something about your service. And this is how, this is, again, not an anomaly, these are real things that somebody who had an influence on a social platform decided to say because of something that was real and people felt it. And because they could voice that opinion, because of social media, their fame and influence caused this seismic effect to the market price, market cap price, value of Snapchat. So we've seen the power of cultural capital and I want to just not give you some mysterious information or something ambiguous, but real tools that I believe you can start to apply today on how you can harness these sort of learnings and principles for your business.

So this is very personal to me: the multilingual mandate. Most companies think about expertise in technology, culture, and storytelling, they think about separate disciplines inside the org chart. The way I feel about it is, today, that culture, storytelling and technology – it's the convergence of those three things. In fact if every employee inside your company is not prolific at least at two of the three things, I think you're ripe for disruption. That's what big companies, that's what the incumbents don't have. They isolated these features. They thought if you're a tech guy, you're the nerd guy over here in the corner and the culture guys are the cool guys way over here and like the storytellers, we use them when we need to amplify something – no. It's like when you see LeBron play he's big and fast and can shoot. Like that's what you got to have inside your company. Guys that understand culture, understand storytelling, understand technology, and have empathy, because even a discipline you don't know, you have to understand within the organization that “it's not a discipline that I'm well-versed at, but you are so let's still work together,” whereas companies of the past would separate these and put them in isolation.

You’ve seen it before where the R&D guys and the marketing guys hate each other, they don't even talk to one another. Those days are gone. Those days have to be eradicated for you not to be one of these incumbents that get disrupted. This is where the world is going and these next, this next sort of college graduates coming out right now in the workforce, they're all about this. They can speak these languages. They're trained to understand these languages. Understanding influence, not just fame. It's very important. I’ve got a short film here I want to share with you guys on a case that we utilized this principle on for an HBO documentary.

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[Chaucer Barnes:]
These days it's understandable to think that the person with the most influence is whoever has the most followers. But as easy as it is to conflate the two, marketers today must know that sheer reach and the ability to influence the purchases, preferences, priorities of others are two totally different things. So even with the star-studded cast of their docu-series, The Defiant Ones, with a combined audience in the hundreds of millions, HBO was still keen for an influencer approach that would ensure viewership, not just awareness. They achieved this by setting fame aside to emphasize and ignite true influence. By engaging a social cast of lesser-known people who were unrelated to the story but still embodied the defiance the series celebrated, HBO was able to create a vast network of credible advocates who could lift the cultural conversation around “defiance” well beyond the fan base of the show’s stars. HBO collected dozens of their stories of overcoming doubt and began publishing them just before the series premiere. This broke the significance of the show out of the gilded cage of the music industry where it was set and directly into the lives of the people they hoped would tune in. Now “defiance” wasn't just about the titans many knew of but few knew. It was about chefs, professors and single dads. People in your real life whose social proximity made them far more influential over what you watched than any rock star. These stories ignited broad social participation, licensing everyday people to share related stories. With every new story published, HBO increased the likelihood that their potential audience would find a personal connection to the series, and the resulting social pressure delivered the youngest and most diverse audience in network history.

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[Steve Stoute:]
So right here we breakdown, this is work we did that separates, and you understand, the difference between fame and influence. These are in fact two very different things, which in turn drives a different approach towards marketing. The net result of this was the most-watched documentary in HBO history, right. So finding the defiant aspect in all the influence is not just using the famous people that were in the film. We didn't even use them. We actually used people and connected influencers to the story of being – everyone in this room is defiant. If you're an entrepreneur that's exactly what you are. You’re defiant. So having your story be the story, not the famous guy's story, was what we focused on and that led to this result. So I know what Vinod thinks, but I'm just telling you this actually really works. This is not like fake stuff. Alright, so in aggregate, the cultural capital becomes much more of a powerful tool than fame alone.

ID number three. Start sentences, don't finish them. Right? That's “me” versus “we” – allow the consumer, allow the customer, allow the cohort that you're marketing your product to, allow them to partake in the conversation. You start the sentence and you allow them to finish them. I'm going to show you an example of that as a marketing tactic, I'm also going to use a film idea. The film: “Straight Outta Somewhere” – which is the movie “Straight Outta Compton” – and this is a tactic that we utilized in order to get people engaged, because Dr. Dre and NWA and all those guys they're straight out of Compton, but everybody in this room is straight out of somewhere, right. Like straight out of India, straight out of Silicon Valley, straight out of Queens straight out of whatever and, again, start the conversation and allow the customer to finish it.

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[Chaucer Barnes:]
You've probably heard of Straight Outta Compton, even if you're not a fan of gangsta rap. That's because in the Summer of 2015, Beats by Dre delivered an inescapable social campaign in support of a small budget film by the same name by creating a simple tool to allow people to make memes by typing in their city name and uploading an image. The campaign was successful and inspired contributions from some of the world's most famous names who uniformly celebrated their hometowns in step with the campaign concept – we're all straight outta somewhere. But what you may not know is why. After days of scene-setting by Beats, the campaign finally roared to life when a few users hacked the generator to tell a different story, forever changing the intent of Straight Outta from “I'm directly from” to “I've exhausted my supply.” This simple change opened the storytelling capability for the audience and empowered them not just to claim their hometown, but demonstrate their wit, their brand of social commentary, and even the soundness of their political positions. “White House tweeted Iran would be quote ‘Straight Outta Uranium’.” Conversation volume jumped 460 percent overnight and then 9,000 percent across the following 48 hours. Though most users were telling a different story than the brand, Beats had successfully created the cultural context for them to want to do so through the campaign by starting a sentence that consumers were eager to finish.

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[Steve Stoute:]
Right, so again, this is not storytelling per se, but “story starting” and allowing the brand and the customer to partake. That's “we” right. Again, there goes the KPI that we could all show our CEOs or board members or whatever on why marketing actually, when done correctly, works. Film cost twenty eight million dollars, made two hundred, and it's a movie that no one would think would make that kind of worldwide box-office given the nature of its content. However, it influenced people to get involved which led to this result. And finally I want to share something and speak about one of the brands that we work with that we put into culture and it’s this idea of like – create something to stand behind and not stand next to. When the NBA approached us it was right after the issue with the owner with the Clippers who had made very negative comments about African Americans and just immigrants in general and Adam Silver and his team had a problem. The NBA had become a league that was entertaining, but lacked a broader and deeper sense of purpose, similar to what the NFL is in right now. They weren't in that situation, but it was heading there given what was taking place and that was the concern. And it was a league of amazing shots and these amazing athletes, but what was the bigger purpose? How can we grow this sport? How could we stand behind something and use this rallying moment to do something about it? And that's what made us come up with an insight here, that we're gonna use this moment to actually supercharge and change the narrative of what the league was to where the league is going. I’m gonna play this film – it was something that I’m going to say personally I was very proud to work on and very proud to do because you know we got Martin Luther King's words in this film I’m about to play. They wouldn't do that, the estate wouldn't license this to anything, and it took time to explain to them the purpose, some of what I was talking about standing behind something and the reason why and it, sort of, getting their support led to this [I Have A Dream Speech Plays] [Applause] [Music] [Applause]

So I leave you these four ideas that I hope you'll be able to incorporate into how you – each one of you – taps into the unmatched power of cultural capital and incorporate it as an ingredient as you lead your business. When I look at what Mario's doing with Oscar and Anmol with Ginger.io, I think that mental health is extremely a topic that culture can play a deep role in removing the stigma around issues with mental health. Pat Brown what you are doing with impossible foods, you know, you guys are changing the perception of what meat is, of course culture plays a role in that. I mean your test product is a burger, like, for the right reasons, right, because of its relationship and value with culture. Adrian at Forward, again, I mean I believe that some of the insights that we share here and that I shared with you today can be a very important part of your business. I've always been on a quest my entire career, ever since that Will Smith moment, how do I take cultural capital and build a business that understands the best way to monetize it? And UnitedMasters, which is a company I built two years ago is all about taking all of these data signals that detect culture and utilizing it to build marketing platforms for brands and for artists and individuals so that they can actually maximize monetization on a one-to-one basis understanding that culture is the lead principle here. Vinod, Samir and everyone at Khosla Ventures, thank you for having me. [Applause]

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[Vinod Khosla:]
Thanks! That was awesome. [Applause] We'll take a short break. By the way, just clarifying my comments on agencies. First, I will change my mind, no. I went through this exercise with a couple of you, I said in deciding your brand values you really should do it internal to the company. Translating it into message and adoption is where agencies and external resources are really, really valuable. Those are two very different things. What you believe in and what you're trying to do is what should come from the team. Packaging of that into most effective messaging and storytelling should come from an agency. Thank you all. We'll be back.