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Artist Revenue Streams Research Project

Artist Revenue Stream Poster

My friends at the Future of Music Coalition are conducting an online survey from Sept 6 – Oct 28th to determine the variety, depth and complexity of the ways that musicians are making money these days.  Not theoretically, but actually.  We are looking for performers, songwriters, composers, band members, session players, producers, MCs and anyone else making music to join in and take the survey.

A while ago, I posted this from my friend and Berkleemusic student David Sherbow showing a pretty comprehensive list of the different ways that musicians can make money.  This might give you food for thought on taking the survey and planning your career…

The artist music business model has been in flux for years. The record deal dream that most artists sought is no longer the viable alternative that it once was.  The leveling of the music distribution playing field by the Internet is virtually complete.  Terrestrial radio is on a path towards destruction that even the major labels can’t compete with.  People now access and download music from multiple sources, usually for free.  D.I. Y solutions are everywhere, but for many artists hard to integrate into their daily lives.

Where does this leave the average independent artist? At the beginning. Every artist wants to know how they can make music, make money and survive to write and play another day. Here, in no particular order, is a list of possible income streams.

• Publishing
• Mechanical royalties
• Performance Royalties from ASCAP and BMI
• Digital Performance Royalties from Sound Exchange
• Synch rights TV, Commercials, Movies, Video Games
• Digital sales – Individual or by combination
• Music (studio & live) Album – Physical & Digital, Single – Digital, • Ringtone, Ringback, Podcasts
• Instant Post Gig Live Recording via download, mobile streaming or flash drives
• Video – Live, concept, personal,  – Physical & Digital
• Video and Internet Games featuring or about the artist
• Photographs
• Graphics and art work, screen savers, wall paper
• Lyrics
• Sheet music
• Compilations
• Merchandise – Clothes, USB packs, Posters, other things
• Live Performances
• Live Show – Gig
• Live Show – After Party
• Meet and Greet
• Personal Appearance
• Studio Session Work
• Sponsorships, and endorsements
• Advertising
• Artist newsletter emails
• Artist marketing and promotion materials
• Blog/Website
• Videos
• Music Player
• Fan Clubs
• YouTube Subscription channel for more popular artists
• Artist programmed internet radio station or specialty playlist.
• Financial Contributions of Support – Tip Jar or direct donations, Sellaband or Kickstarter
• Patronage Model – Artist Fan Exclusives – e.g. paying to sing on a song in studio or have artist write a song for you
• Mobile Apps
• Artist Specific Revenue Stream –  unique streams customized to the specific artist, e.g Amanda Palmer
• Music Teaching – Lessons and Workshops
• Music Employment – orchestras, etc, choir directors, ministers of music, etc.
• Music Production – Studio and Live
• Any job available to survive and keep making music
• Getting Help From Other Artists and Helping Them –  Whatever goes around come around. – e.g. gig swapping, songwriting, marketing and promotion

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Fighting for Future Table Scraps

The future of the profitability of the recorded music business is unquestionably in jeopardy.  One might speculate that new “access based” services like Rdio and Spotify could re-start a failing record industry.  I hope so.

But as sales have fallen to less that 1/2 their heights at the turn of the century, artists and their managers and attorney are looking to every means possible of generating revenue both now and in the future from their recorded works.

The New York Times published a great piece on the coming battles over song rights, excerpted here.  This will be a very interesting fight to watch as it has the potential of forever driving the nail into the coffin of the traditional record labels, forcing a complete restart of the business if it is to survive at all.

“When copyright law was revised in the mid-1970s, musicians, like creators of other works of art, were granted “termination rights,” which allow them to regain control of their work after 35 years, so long as they apply at least two years in advance. Recordings from 1978 are the first to fall under the purview of the law, but in a matter of months, hits from 1979, like “The Long Run” by the Eagles and “Bad Girls” by Donna Summer, will be in the same situation — and then, as the calendar advances, every other master recording once it reaches the 35-year mark.”

“The provision also permits songwriters to reclaim ownership of qualifying songs. Bob Dylan has already filed to regain some of his compositions, as have other rock, pop and country performers like Tom Petty, Bryan Adams, Loretta Lynn, Kris Kristofferson, Tom Waits and Charlie Daniels, according to records on file at the United States Copyright Office.”

“In terms of all those big acts you name, the recording industry has made a gazillion dollars on those masters, more than the artists have,” said Don Henley, a founder both of the Eagles and the Recording Artists Coalition, which seeks to protect performers’ legal rights. “So there’s an issue of parity here, of fairness. This is a bone of contention, and it’s going to get more contentious in the next couple of years.”

“My gut feeling is that the issue could even make it to the Supreme Court,” said Lita Rosario, an entertainment lawyer specializing in soul, funk and rap artists who has filed termination claims on behalf of clients, whom she declined to name. “Some lawyers and managers see this as an opportunity to go in and renegotiate a new and better deal. But I think there are going to be some artists who feel so strongly about this that they are not going to want to settle, and will insist on getting all their rights back.”

“Given the potentially huge amounts of money at stake and the delicacy of the issues, both record companies, and recording artists and their managers have been reticent in talking about termination rights. The four major record companies either declined to discuss the issue or did not respond to requests for comment, referring the matter to the industry association.”

“But a recording industry executive involved in the issue, who spoke on condition of anonymity because he is not authorized to speak for the labels, said that significant differences of opinion exist not only between the majors and smaller independent companies, but also among the big four, which has prevented them from taking a unified position. Some of the major labels, he said, favor a court battle, no matter how long or costly it might be, while others worry that taking an unyielding position could backfire if the case is lost, since musicians and songwriters would be so deeply alienated that they would refuse to negotiate new deals and insist on total control of all their recordings.”

“Right now this is kind of like a game of chicken, but with a shot clock,” said Casey Rae-Hunter, deputy director of the Future of Music Coalition, which advocates for musicians and consumers. “Everyone is adopting a wait-and-see posture. But that can only be maintained for so long, because the clock is ticking.”

Read the entire NYTimes article here.

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Words of Wisdom from Roger McNamee

My friend Roger McNamee, a founding Partner and Managing Director of Elevation Partners has been getting some great press lately on his thoughts on the new music business, investing in technology, Apple, Google, Facebook and much more.  Here is the transcript of a speech he gave at NARM earlier this summer, a must read.

“Our band – Moonalice – is inventing new opportunities in music. We would like you all to join us.

I have been a working musician for more than 30 years, and a technology investor for 29 years. I have played about 1000 concerts over the past 15 years, which means I have personally experienced everything in Spinal Tap except the exploding drummers. I also spent three years helping the Grateful Dead with technology and many more advising other bands, most notably U2.

My band is called Moonalice. We play 100 shows a year in clubs and small theaters, mostly on the coasts. Moonalice was the first band broken on social networks. What broke us was 845,000 downloads – and counting – of the single “It’s 4:20 Somewhere.” We’re the band that Mooncasts every show live, via satellite to thousands of fans on iPads, cell phones, and computers. We’re the band that has a unique psychedelic poster for every show. After four years, Moonalice has 371 poster images from the likes of Stanley Mouse, Wes Wilson, and David Singer. Licensing those images will eventually a big business for us. We’re the band that offers the EP of the Month for $5. And we’re the band that uses the latest technology to radically improve both the production cost and commercial value of the content we produce. Now I’m looking for people who want get on this bandwagon with me.

The first question I hope you ask is “Why now?” The world of technology is beginning a period of disruptive change. The old guard – represented in this case by Microsoft Windows and Google search – is under assault and hundreds of billions of dollars may become available for new and better ideas. I hope that gets your attention!!!

The biggest beneficiaries of this disruption should be the people who got the short end of Google’s business model, especially creators of differentiated content. For the past twelve years the technology of the internet has been static. Every tool commoditized content by eliminating differentiation. The most successful companies monetized content created by others. Google was king.

I believe Microsoft and Google are about to get a taste of what the music industry has been dealing with for a decade. Their world is going to change and they won’t be able to stop it. Not so long ago Microsoft’s Windows monopoly gave it control of 96% of internet connected devices. Thanks to smartphones and tables – especially the iPhone and iPad — Windows’ share of internet connected devices has fallen below 50% … and it will fall much further in the years ahead.

Consumers are abandoning Windows as fast as they can. I expect businesses to follow suit.

This is a HUGE deal. Businesses whose employees use smart phones and iPads instead of PCs will save up to $1000 per employee per year in support costs.If corporations buy fewer PCs, they will save tens, if not hundreds of billions per year.

This is happening because today’s strategic applications – email, Facebook, Twitter, LinkedIn, YouTube and other internet applications – don’t need a PC . . . in fact, they are far more useful on a phone.

Microsoft has been in trouble since it first missed the web in 1994. Then it was unable to prevent Google from taking charge in 1998. When Google showed up, the World Wide Web was a wild environment. No one was in charge. The prevailing philosophy was “open source” . . . and free software.

Google had a plan for organizing the web’s information that treated every piece of information as if all were equally valuable. To create order, Google ranked every page based on how many people linked to it.

What we all missed at the time is that by treating every piece of information the same, Google enforced a standard that permitted no differentiation. Every word on every Google page is in the same typeface. No brand images appear other than Google’s. This action essentially neutered the production values of every high end content creator. The Long Tail took off and the music industry got its ass kicked.

Google captured about 80% of the index search business, which gave it a huge percentage of total web advertising. Google’s success eventually filled the web with crap, so consumers began using other products to search: Wikipedia for facts, Facebook for matters of taste, time or money, Twitter for news, Yelp for restaurants, Realtor.com for places to live, LinkedIn for jobs. Over the past three years, these alternatives have gone from 10% of search volume to about half.

As if all this competition wasn’t bad enough for Google, then along came Apple with the iPhone and App Store. Apple offers a fundamentally different vision of the internet than Google. Google is about the long tail, open source, and free, but also had to remove 64 apps from the Android app store for stealing confidential information. Apple is about trusted brands, authority, security, copyright and the like. In Apple’s world, the web is just another app; it is called Safari.

People who have iPhones and iPads do far fewer Google searches than people on PCs. The reason is that Apple has branded, trustworthy apps for everything. If they want news, Apple customers use apps from the New York Times or Wall Street Journal. If they want to know which camera to buy, they ask friends on Facebook. If they want to go to dinner, they use the Yelp app. These searches have economic value and its not going to Google, even on Android.

When Apple and the app model win, Google’s search business loses. Like Microsoft, Google has plenty of business opportunities, but the era of Google controlling all content is over. Consumers compared Google’s open source web to Apple’s app model and they overwhelmingly prefer Apple’s model. Software development and innovation has shifted from “web first” to “iPad first” . . . which is a monster long term advantage. Get this: Apple may sell nearly 100 million internet connected devices this year!

Apple’s strength can be seen best in the iPhone vs. Android competition. There are many Android vendors. Together they sell more phones than Apple does. But Apple gets around $750 wholesale for an iPhone. The other guys get between $300 and $450. This means Apple’s gross margin on the iPhone is nearly as big as its competitors’ gross revenues. Game over.

The other thing that makes Apple amazing is the iPad. No electronic product in history – not even the DVD player – can match the adoption rate of the iPad. Apple may sell another 30 million this year. At this point, the competing products have not put a dent in the iPad. Image what happens if Apple’s share of the tablet market remains closer to the iPod (at 80%) than to the iPhone (20%)?

This sounds like, “Game Over, Apple wins” . . . but it’s not . . . at least, not yet. The open source World Wide Web has finally responded to Apple. A new programming language has come to market called HTML 5. HTML is the foundation of the World Wide Web. For the past decade, HTML has been static, which allowed Google to dominate.

HTML 5 is a new generation of HTML and it changes the game fundamentally. It allows web developers replicate the iPhone experience, but with many extra bells and whistles … and no App Store. One reason HTML 5 matters is because it eliminates Adobe Flash, which has been an inadvertent barrier to creativity

Creativity enables differentiation. Differentiation can be monetized. Huge differentiation can be monetized hugely. With HTML 5, creative people can now use the entire web page as a single canvas. For the first time in a dozen years, web pages will be limited only by the creativity of the people making them. They can create experiences that will be more engaging to consumers and more profitable for advertisers than network television.

New forms of entertainment will emerge. New forms of business. Companies the size of Facebook and Google will develop in categories I can’t guess at. Companies as important as Amazon, iTunes, and Netflix will emerge to support what new content comes to market.

Whether you view Apple as friend or foe, HTML 5 offers real opportunity. Why?

Because you can deliver a better experience than an app . . . without an app. HTML 5 is cheaper to build, cheaper to support, no 30% fee . . . oh, and the apps perform better, too.

I believe Apple’s best response would be to focus on selling hardware and accept that consumers will demand products that happen to bypass the app store. Based on the argument with Amazon, I sense Apple is not ready to concede the point. That’s ironic, because the only way Apple can get hurt would be if they try to force all commerce through the App Store. The would create a real reason for customers to buy a tablet other than iPad.

Let me review my key points so far:

Google and Microsoft will remain huge, but their influence is evaporating, which means we can ignore them

Apple is winning big, which means we have to support their platforms first

For people who make content, Apple is a better monopolist to deal with than Google.

HTML 5 will give you a better product than the Apple app model at a lower cost and with more value.

Now let’s figure out what we can do together. My band Moonalice exists because T Bone Burnett wanted to produce an album of new and original hippie music in the old school San Francisco style. We put together an all-star band with in late 2006 and recorded the album. T Bone was about to win the GRAMMY for the Alison Krauss/Robert Plant album, Raising Sand, so we thought we were made.

We had a budget
We had an A-list PR guy
We had a really fine manager
We had custom label deal with a nice budget
T Bone’s innovative sound technology would make the album cutting edge

Old school music is good. Old school marketing wasn’t going to work for us. About four months before release, I reviewed the media plan with our PR guy. He said, “Sorry, man, but nobody cares.”

A few moments of somber reflection followed. Then, with great regret, I let our manager go. I let our publicist go. I let our label go. For all intents and purposes, we wrote off an album everyone was extremely proud of and which accounted for half of T. Bone’s portfolio the following year when he was nominated for Producer of the Year.

But I freed up most of our operating budget. Real money. And I focused it all on Twitter and Facebook. Our goal was to build an audience of dedicated fans around a Moonalice lifestyle. Three years later, we have 57,000 fans on Facebook and 75,000 on Twitter. We learned a great truth: as hard as it is to get people to spend money, it is much harder to persuade them to spend enough time listening to you to become a long term fan. We traded our music for their time. We discovered we could build an audience by giving away stuff that costs nothing to produce and distribute. These are serious fans who engage with us dozens and often hundreds of times a year.

The first thing we invented was the Twittercast. Before us, no one had ever done a concert over Twitter. Now we have done 103. Our marginal cost is exactly zero. Next we created Moonalice Radio, which has broadcast one song every hour on Twitter for the past two years. Then our drum tech bought a video camera and started recording the shows. Then he bought more cameras, put them on mic stands and started doing live video mixes. About a year ago, he figured out how to mooncast our concerts over the net for free.

Nearly all of our past 100 shows have been mooncast live on MoonaliceTV and then archived. Because we play mostly late shows on the west coast, only 10% of the audience watches in real time. But approximately 3,000 people watch EVERY show on a time shifted basis. Fans like the Moonalice Couch tour because they can chat, make friends, and do things that are not permitted at a live venue. They even buy Couch Tour tee shirts. And they are helping us create a new ecosystem where most of the music is free, because Moonalice art and life style products have huge economic value.

Thanks to HTML 5 and a satellite dish, Mooncasts can now be viewed on a smart phone without an app. Our video quality competes favorably with the best you have seen on an iPhone, and the technology to do all this costs the equivalent of six months of our former manager. He was a really good guy, but a satellite-based tv network is more valuable.

I want to finish up by recommending a course of action for you

Step 1: Remember that HTML 5 is just getting started, but the learning curve is less expensive and more profitable for those who commit to it from the beginning. The new business is going to emerge over a few years, not overnight

Step 2: Don’t wait for the labels to figure this out. Labels are not organized to get this right, which leaves a big hole in the new music market where labels used to be.

Step 3: Don’t wait for major artists to figure it out. The great new stuff is going to come from artists who have nothing to lose. Artists who come out of nowhere will create huge value for next to no cost.

Step 4: Make sure you are successful addressing the needs of next generation content creators … not just listeners. There are WAY more of content creators than you may realize. Thanks to Moore’s Law, Karl Marx is right at last: the means of production are in the hands of the proletariat. At the peak, there were 8 million bands registered on Myspace. They weren’t playing gigs, they were creating stuff, mostly for their own entertainment. Those people spent a lot more money creating the content they posted on Myspace than they did on recorded music. Thanks to Apple’s Garageband, the population of people capable of mixing something is now measured in tens of millions. Making these people successful is the key to creating new markets and new music products.

Step 5: Do everything in your power to encourage new product ideas and new forms of content. HTML 5 is a blank canvas and there is no telling what people will do with it. For all I know, HTML 5 may produce five or even ten amazing categories of product.

Contests, prizes and publicity will give you an opportunity to associate yourself with whoever creates the cool new stuff. If you have local stores, do local events. Think Alan Freed.

Step 6: Near term, focus your platform strategy on Apple.

Step 7: Long term, focus on HTML 5. The sooner you commit to HTML 5, the more likely you will produce something of economic value.

Step 8: Remember that HTML 5 will produce companies as important as Amazon, iTunes, and Netflix. It costs musicians practically nothing to create good digital video and fantastic audio, but they need distribution systems optimized for their content.

Step 9: Make music fun again”

—

And if that isn’t enough, Roger was kind enough to share with me his thoughts on investing in technology related businesses.  TechInvestingHypotheses

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Hipster Music Defined

We all need a good laugh for the weekend.

Hipster Music Diagram

From Gary Tan at Y Combinator.  Happy 4th of July Everybody!  Dave

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How Will Musicians Earn Money in the Future?

Here is an excerpt from a great piece from Wyndham Wallace of The Quietus on how the music industry is killing music and blaming the fans. This rather dark opinion is spot on in so many ways and raises some very difficult questions about the future of the music business that most people do not want to talk about.

“All the time the industry talks of money: money it’s lost, money it’s owed. It rarely talks about the effects upon artists, and even less about how music itself might suffer. But no one cares about the suits and their bank accounts except shareholders and bankers. People care about their own money, and the industry not only wanted too much of it but also failed to take care of those who had earned it for them: the musicians. And it’s the latter that people care about. Because People Still Want Good Music.”

“In March this year, for instance, the RIAA – the Recording Industry Association of America – and a group of thirteen record labels went to court in New York in pursuit of a case filed against Limewire in 2006 for copyright infringement. The money owed to them – the labels involved included Sony, Warner Brothers and BMG Music – could be, they argued, as much as $75 trillion. With the world’s GDP in 2011 expected to be around $65 trillion – $10 trillion less – this absurd figure was, quite rightly, laughed out of court by the judge. The RIAA finally announced in mid May that an out of court settlement for the considerably lower sum of $105 million had been agreed with Limewire’s founder.”

What is questionable about all of this is exactly how much of the settlement of $105 million will flow to the musicians, songwriters and producers whose work was the subject of the infringement to begin with. In previous settlements including Napster ($270 million), Bolt ($30 million), Kazaa ($130 million) and MP3.com ($100 million) it is unclear how much, if any, of the money received by the labels ever reached the pockets of the artists. I have yet to see an accounting of this and many managers I have spoken with have simply laughed when I asked the question if they ever received any payment from these settlements. I suppose that proceeds from litigation may be considered recoupable costs.

“But if the industry wants to talk money, let’s talk money, albeit the ways that developing musicians are encouraged to make up the loss of sales income in order to ply their trade. Someone’s got to bring this up, because it’s not a pretty picture. Consider, first, direct-to-fan marketing and social networking, said to involve fans so that they’re more inclined to attend shows, invest in ‘product’, and help market it. In practise this is a time-consuming affair that reaps rewards for only the few. Even the simple act of posting updates on Facebook, tweeting and whatever else is hip this week requires time, effort and imagination, and while any sales margins subsequently provoked might initially seem higher, the ratio of exertion to remuneration remains low for most. It’s also an illusion that such sales cut out the middlemen, thereby increasing income, except at the very lowest rung of the ladder: the moment that sales start to pick up, middlemen start to encroach upon the artist’s territory, if in new disguises. People are needed to provide the structure through which such activities can function, and few will work for free – and nor should they – even though musicians are now expected to.”

“Still, if an act can find time to do these things, or has the necessary capital to allow others to take care of them on their behalf, then they can hit the road. Touring’s where the money is, the mantra goes, and that’s the best way to sell merchandise too. But this is a similarly hollow promise. For starters, the sheer volume of artists now touring has saturated the market. Ticket prices have gone through the roof for established acts, while those starting out are competing for shows, splitting audiences spoilt for choice, driving down fees paid by promoters nervous about attendance figures. There’s also a finite amount of money that can be spent by most music fans, so if they’re coughing up huge wads of cash for stadium acts then that’s less money available to spend on developing artists. And for every extra show that a reputable artist takes on in order to make up his losses, that’s one show less that a new name might have won.”

“Touring is also expensive. That’s why record labels offered new artists financial backing, albeit in the form of a glorified loan known as ‘tour support’. Transport needs to be paid for, as do fuel, accommodation, food, equipment, tour managers and sound engineers. These costs can mount up very fast, and if each night you’re being paid a small guarantee, or in fact only a cut of the door, then losses incurred can be vast, rarely compensated for by merchandising sales. Again, financial backing of some sort is vital, but these days labels are struggling to provide it. In the past, income from record sales could be offset against these debts, but with that increasingly impossible, new artists will soon find it very hard to tour. Everyone’s a loser, baby.”

From Beck’s ‘Loser’

Forces of evil in a bozo nightmare
Banned all the music with a phony gas chamber
‘Cause one’s got a weasel and the other’s got a flag
One’s got on the pole shove the other in a bag
With the rerun shows and the cocaine nose job
The daytime crap of a folksinger slob
He hung himself with a guitar string

Soy un perdidor
I’m a loser baby, so why don’t you kill me?
(Know what I’m sayin?)

“Whether the industry likes it or not, music is now like water: it streams into homes, it pours forth in cafés, it trickles past in the street as it leaks from shops and restaurants. Unlike water, music isn’t a basic human right, but the public is now accustomed to its almost universal presence and accessibility. Yet the public is asked to pay for every track consumed, while the use of water tends to be charged at a fixed rate rather than drop by drop: exactly how much is consumed is less important than the fact that customers contribute to its provision. Telling people that profit margins are at stake doesn’t speak to the average music fan, but explaining how the quality of the music they enjoy is going to deteriorate, just as water would become muddy and undrinkable if no one invested in it, might encourage them to participate in the funding of its future. So since downloading music is now as easy as turning on a tap, charging for it in a similar fashion seems like a realistic, wide-reaching solution. And just as some people choose to invest in high-end water products, insisting on fancy packaging, better quality product and an enhanced experience, so some will continue to purchase a more enduring musical package. Others will settle for mp3s just as they settle for tap water. Calculating how rights holders should be accurately paid for such use of music is obviously complicated but far from impossible, and current accounting methods – which anyone who has been involved with record labels can tell you aren’t exactly failsafe – are clearly failing to bring in the cash.”

“The problem is, it’s not really the industry that is being cheated. It’s the artists and their fans. People get what they pay for, but – whatever the industry claims – most fans know that. They just don’t want to hear the businessmen fiddle while the musicians are being burnt. Revenues are unlikely ever again to reach the levels of the business’ formerly lucrative glory days, but in its stubborn refusal to recognise that both the playing field and the rules themselves have been irreversibly redefined without their permission, the industry is holding out for something that is no longer viable. Lower income is better than no income, and the industry has surely watched the money dwindling for long enough. Musicians, meanwhile, are being asked to make more and more compromises as they’re forced to put money ahead of their art on a previously unprecedented scale.”

Read the whole ugly story here at The Quietus.

The comments alone tell the sad story of the state of affairs in the music industry today.

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Quality and Talent Wins

Great content attracts attention.

Our friends Amy Heidemann and Nick Noonan are Karmin and have found amazing lightning-fast popularity with this cover of Chris Brown ft. Lil Wayne, Busta Rhymes “Look At Me Now”.

2.9 million views on YouTube as of a few minutes ago, in less than 7 days. Wow. That’s some velocity.

Nod from Ryan Seacrest adds some juice: http://tinyurl.com/3hypspf

Then appearing on the Ellen DeGeneres Show today on ABC.

Similar strategy to Pomplamoose. http://tinyurl.com/4yk9nn2

Let’s see how this plays out and what they do with it. The Internet rewards quality with hyper efficient recognition. The Future of Music.

HERE IS AN UPDATE 5/20/11

14.5 Million Views and Counting

The duo have since performed on The Ellen DeGeneres Show and On Air with Ryan Seacrest, and taken the stage with hip-hop legends The Roots. “It was basically an explosion of awareness that happened for us,” Amy says. “We didn’t see it coming and didn’t really know how to handle it, but we did our best.

They are now being courted by the major labels and publishers. More to come…

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Making a Living as an Artist in the Future

Photo by Robert Couse-Baker on Flickr

Photo by Robert Couse-Baker on Flickr

From the Wharton School, an article on the new economics of life for creators and how they will be compensated in the future.

Making a living as an artist has never been easy — whether in film, music or publishing. But the digital revolution — and to a lesser extent, the global economic crisis of the last two years — is transforming the business of content creation. One of the biggest shifts is in how filmmakers, musicians and writers are compensated. There is an evolving relationship between creator and publisher in which the artist bears a larger percentage of the upfront costs for the production and marketing of his or her work. In this new world, artists’ pay is based to a greater degree on how their product sells in the marketplace, a change that has major implications for the content creators themselves, large firms like Hollywood studios and music labels, and consumers.

“In the past, it used to be the case that content creators got paid the bulk of their salary in advance and whoever made that payment — whether it was the music label, the book publisher or the studio — would take on the risk of marketing and distributing that product,” says Kartik Hosanagar, a Wharton professor of operations and information management. “If [the project] was a success, [the publishers, studios, etc.] kept the upside, and if it was a failure, they bore that failure. Now the upside — or downside — is shared with the content creator.”

This shift is largely driven by the move away from shipping physical products toward increasing digital distribution. In music, the threat of digital piracy has made the business of selling songs more challenging, even as the shift from album sales to digital singles has further undermined traditional revenue streams in the music industry. In film, the decline in home entertainment revenues as consumers switch from DVD purchases to online streaming video has also put pressure on profits. And in book publishing and journalism, the move toward e-readers and online news platforms where revenue models are still in flux has created additional uncertainty. The difficulty in predicting the profitability of these products, Hosanagar notes, means that marketers are trying to shift their cost base. “A lot of firms are asking, ‘How do we move from fixed costs to variable costs?'” he adds. “That makes a lot of sense when you have unpredictable returns.”

In the music industry, the pressures on the business model have been even more intense. Ed Pierson, a Seattle-based attorney who represents musicians, says the 1990s were the heyday of big advances for musicians. According to Pierson, easy credit and a war for talent led labels to pay escalating upfront fees to musicians. But as music sales began declining, in part due to piracy and digital downloads that allowed consumers to buy just the songs they wanted and not the entire album, the flush times came to an end. The result these days, notes Pierson, is that labels are making fewer advances and the upfront money they do dole out is smaller.

Artists have responded by taking greater control of their business. “The risk is shifting away from the label and toward the artist,” says David Kusek, chief executive officer of online music school Berkleemusic.com and a digital music technologist. Some big names, including the Dave Matthews Band or the Eagles, have created their own recording labels. Lesser known artists have been forced to become entrepreneurs of sorts. Kusek points to firms like ReverbNation and Top Spin Media that have sprung up to help artists sell their music on platforms like iTunes, to promote a group or artist, or to help sell merchandise. Those firms, in many cases, will charge a small upfront fee and then get a cut of the sales the act generates. “It is a different gamble now,” adds Wharton’s Whitehouse. “The corporate players may be gambling a bit less and the artists may be gambling a bit more. But those artists can now have more control over their work than they did before.”

Read the whole article here.

Listen to the podcast here.

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Digital Music Trends from Midem

Andrea Leonelli from Digital Music Trends recorded a series of interviews with many of us from the Midem show.  You can listen to the interviews here or go to his site for lots more.  Thanks Andrea!

This Midem 2011 series includes:

http://player.soundcloud.com/player.swf?url=http%3A%2F%2Fapi.soundcloud.com%2Ftracks%2F9483455&show_comments=true&auto_play=false&color=ff7700 Episode 71 – Midem 2011 Coverage Day 1 by digitalmusictrends

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World Economic Health – 200 years of history in 4 minutes

This is a fantastic visualization of data from Dr. Hans Rosling on the growth of wealth and lifespans over the past 200 years.  A little off topic, but so interesting.

I have seen Dr. Rosling do similar presentations at TED over the years.

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Trends in Online Spending

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The Pew research team reports that most online purchasers spend about $10 per month for digital subscriptions, paid content and access to paid media.  However, the heaviest users spent much more per month.

– 65 percent of internet users have paid for online content

– 33 percent of internet users have paid for digital music online

– 33 percent have paid for software

– 21 percent have paid for apps for their cell phones or tablet computers

– 18 percent have paid for digital newspapers, magazines, or articles

– 16 percent have paid for videos, movies, or TV shows

– 10 percent have paid for e-books

Clearly the reluctance of people in the past to pay for online digital content is no longer a barrier to selling content online.  And as others are seeing in online music sales, the market is stratified and there are some people willing to pay a lot more than others in order to get their digital content.  Often 10-20 times more.

Read more from the PEW Internet and Life Project

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I am speaking at NAMM and at MIDEM

I will be speaking and schmoozing at both NAMM and MIDEM this month.  If you are going to be there, please look me up or send me an email.

NAMM –  Friday 1/14/11     2:45pm    Anaheim, CA

Namm Hot Zone – The Future of Music

MIDEM – Sunday 1/23/11   3:30pm   Cannes, France

Midem Net – Music Business 101: The future of global music

Berklee also will have a booth at both events and you can find me there as well.

Dave

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Trends in Music 2010

Photo credit: bit.ly/HXtUQx

Photo credit: bit.ly/HXtUQx

According to the latest report from Nielsen and Billboard, digital music accounted for 46% of all U.S. music purchases in 2010, up from 40% in 2009 and 32% in 2008, and digital track sales hovered around 1 billion sales a year for the third straight year.

The top-selling digital songs of 2010 sold about 4 million, while the top digital albums were around 500K.

The top selling artists of 2010, based on digital track sales,

– Eminem (15.7 million)

– Ke$ha (13.5 million)

– Lady Gaga (11.9 million)

– Katy Perry (11.8 million)

– Black Eyed Peas (11.3 million)

Read more on Digital Media Wire

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Direct to Profit – Trends in the Music Industry

Photo credit: http://bit.ly/17JbZsJ

Photo credit: http://bit.ly/17JbZsJ

Last Friday I was interviewed by Dr. Amy Vanderbilt @DrAmyVanderbilt from the Trend POV Show where we discussed the changing distribution in the music industry and what it means for businesses everywhere.  Here you go:

http://www.trendpov.com//sites/all/modules/swftools/shared/flash_media_player/player-viral.swf

Check out lots of great interviews on trends in business at Trend POV.

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Cracking the Code to Online Success

Photo credit: http://bit.ly/I1xJV7

Photo credit: http://bit.ly/I1xJV7

I did some interviews recently with Jacob Templin from Time Magazine about the realities of the music business today and what is working for some bands.

Here is one of the videos.  Unfortunately you have to endure a 15 second ad before viewing the story.

With hit songs like Code Monkey, the software developer turned musician turned internet superstar Jonathan Coulton has figured out how to market his music online. His strategy: Give music away and let people play with it.

http://c.brightcove.com/services/viewer/federated_f9?isVid=1

There are two other videos on the Time.com website.  Enjoy.

1) Progressive rock band Umphrey’s McGee gives fans a chance to take part in its live shows. All they need is a cell phone and an idea.
2) The New Orleans trombone rock band Bonerama is playing a private show for Julia Lunetta’s thirtieth birthday. It’s part of a program that offers fans unique experiences with the band at premium rates
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Will Artists Profit from Digital Distribution?

For the past 5 years I have been delivering presentations, in a wide variety of contexts including Digital Music Forum, AES, Billboard, IEBA, Music Hack Day, NAMM, Digital Hollywood and at many, many other private consulting gigs.   The essence of the presentation I have been making since 2006 is shown below with a couple of updates, roughly based on the Top 10 Truths described in our Future of Music book.  All along I have been advocating for artists, songwriters and publishers to challenge the way iTunes transactions were accounted for by the labels on the legitimacy of the splits.  The way iTunes royalties have been distributed is just wrong, a scam and a holdover from the accounting practices of the record companies past.

http://static.slidesharecdn.com/swf/ssplayer2.swf?doc=kusekkeynote-101024210138-phpapp01&stripped_title=kusek-keynote&userName=davekusek

Kusek keynote

Finally someone (Eminem’s production company), challenged Universal Music Group in the way that artists and labels split the money generated by iTunes transactions and won an initial ruling in their favor.  Just this past week Universal Music Group’s inevitable appeal was rejected meaning that the industry giant may now have to split its digital music royalties from money earned from ringtone sales and iTunes.

San Francisco’s US 9th Circuit Court of Appeals decided last month that all royalties made by the record label from such sales must be shared in higher proportions with producers. The recent court rejection will result in this case proceeding in a lower level court which will then determine exactly how much Universal owes Eminem and his producers, taking into account both damages and royalties.

This could be a very significant development for the entire recorded music industry.  When Steve Jobs and his team negotiated the original iTunes deal with the major labels, the economics of what iTunes would receive from transactions was roughly 35% of each download, a similar number as a  distributor/retailer of CDs would receive and the remaining 65% would flow to the labels and be split as with a traditional CD sale.

This was a masterful negotiation by Apple, effectively granting itself amnesty from claims of copyright infringement or inducement to infringe copyright on the part of the major labels and publishers in exchange for the promise of digital cash flow, potentially reigniting the recorded music business for the labels.  Even if most of the music contained on iPods was pirated, now the labels would have a new revenue stream and Apple would be safe from litigation.  This move paved the way for Apple to become the dominant company in the music business and one of the most valuable brands on the planet.  A transformational revenue shift was underway whereby Apple would effectively eat the labels lunch.  The ultimate iCon.

But what artists and writers failed to question at the time, was the way the 65% label share would be split.  The labels assumed that these downloads were “sales” of copies of the songs and that artists would receive their royalties based on traditional accounting practices.  In the early days of payments from iTunes, labels often continued to deduct fees from the artists share for “packaging” and “marketing” and “coop” often when there were no actual costs being incurred.  No one questioned whether iTunes downloads were “licenses” versus “sales” which would have tipped the accounting in favor of the artists.  Indeed Steve Jobs himself referred to his deal with the labels as a “license” in his rare and open “Thoughts on Music” letter posted February 6, 2007.

Now fast forward to 2010.  Although not directly listed in the UMG suit, Eminem could benefit from the results, as he could get a much larger share of the payments. The case is being touted as a landmark decision for the music industry as it could determine a precedent that could see 90 per cent of contracts signed before 2000 change for the benefit of the artists and songwriters.  If this ruling holds up and is widely interpreted, it will destroy the traditional record labels.

The ruling will hinge on the standard record deal contract, which predates the digital era and changes that have come with it. New rulings will most likely govern how digital royalties will be accounted for.

In the most recent decision the court has defined record companies’ deals with such firms as Verizon and iTunes as ‘licensing’ contracts as opposed to music sales, meaning the 50/50 split would apply.  This will be devastating for the labels and great for artists.

When I commented on this issue in an earlier post, one of my readers wrote “if Eminem eventually prevails it will be the end of discovering and nurturing new talent by record companies and will throw the music scene into more disarray that P2P ever did.”  While this may be true, I am completely convinced that the old record company model must change, will change, and will eventually be replaced by something more clearly aligned with the times and the new digital reality.  There is no doubt that these times are truly wrenching for the music industry – but music will prevail and the interests will realign into something sustainable.

Read more here and stay tuned to see how this all turns out.

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What’s working in music today

From the Economist

“The music business is surprisingly healthy, and becoming more so. Will Page of PRS for Music, which collects royalties on behalf of writers and publishers, has added up the entire British music business. He reckons it turned over £3.9 billion ($6.1 billion) in 2009, 5% more than in 2008. It was the second consecutive year of growth. Much of the money bypassed the record companies. But even they managed to pull in £1.1 billion last year, up 2% from 2008. A surprising number of things are making money for artists and music firms, and others show great promise. The music business is not dying. But it is changing profoundly.

live sales chart

The loudest boom is in live music. Between 1999 and 2009 concert-ticket sales in America tripled in value, from $1.5 billion to $4.6 billion. Ticket sales wobbled in America during the summer of 2010, but that was partly because some big-selling acts took a break. One of the most reliable earners, Bono, U2’s singer, was put out of action when he injured his back in May. Next year many of the big acts will be on the road again, and a bumper year is expected.

Music’s cachet and emotional pull also make it a potent weapon for businesses that want to build their own brands. The Rolling Stones (again) led the way in recruiting tour sponsors, from Sprint, a phone company, to Ameriquest, which sold mortgages. Sponsorship can lead to musicians wearing a company’s clothes and naming songs after it: Rascall Flatts, a country music band, has done both for American Living, a label carried by JCPenney. IEG, a firm that tracks the market, estimates that the value of tour sponsorships in North America will reach $1.74 billion this year, up from $1.38 billion in 2006.

Because it derives revenues from business as well as consumers, publishing is much more stable than recording. Record companies’ publishing departments, which once seemed rather dowdy next to sexy, talent-spotting A&R, have become vital cash machines. Publishing supplied 29% of EMI’s revenues and 45% of its profits in the year to March 2010. The outfit’s new boss, Roger Faxon, comes from that side of the business—a reflection of how the economics of music have shifted.

Many of the acts that now draw huge crowds emerged in an era of multi-album record contracts, lavish marketing and radio airplay. They built their brands gradually, overcoming the occasional lousy album. They “invaded” other countries when they felt the time was right. As a result, they have legions of fans who are prepared to stump up for concert tickets. Because their songs appeal to several generations of listeners, they are attractive to advertisers and TV programme-makers. The young dreamers in shows like “The X-Factor” commonly perform songs that are more than a quarter of a century old.

Some music executives fret that the stadium-filling acts will not be replaced. It is true that the starmaking machines run by the record companies are creaking. But this does not mean there will be no more popular acts. Musicians will build fan bases in other ways—through social networks, by recording music for TV or simply by trekking from gig to gig (which is how bands became famous for much of the 20th century). Some will rise with a speed that would have shocked their predecessors—witness Lady Gaga or Justin Bieber, a 16-year-old singer who was almost unknown a year ago. Those who doubt their staying power may wish to consider that adults have long believed the music their teenage children listen to will not endure as long as the tunes they grew up with.”

Read more from The Economist.

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Music Software for the Future – Reactable

There is a lot of innovation happening with electronic music instruments and new interfaces.  Reactable is one of the latest in music technology fusing DJ culture, touch screen topography and electro-pop showmanship. Coming to an iPad near you.  Reactable says their company “is about the promotion of creativity and the mediation of culture through the application of the latest technologies in human computer interaction, music technology, graphics and computer vision.”  Check it out.

Reactable Systems is a spin-off company of the Pompeu Fabra University and is collaborating with its Music Technology Group, one of the worlds largest research labs in music technology.

More info: http://www.reactable.com/mobile

More videos here: http://www.youtube.com/reactable

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Get Ripped

I just started to read Ripped from Greg Kot and I can tell you already that I am going to make this required reading for my online course on the Future of Music.  Greg really has done his homework.

Ripped presents a definitive account of the digital music revolution, which changed the way music fans have sought and acquired music. With firsthand access to artists such as Radiohead, Nine Inch Nails, Metallica, Death Cab for Cutie and Arcade Fire, Ripped chronicles the music industry’s decline and the rise of a worldwide grassroots community.

From Publishers Weekly:

In what has become a growing field, Kot’s account of the music industry’s massive struggles and glimmers of success in the digital age stands out for its sturdily constructed prose and command of up-to-date facts. The narrative moves chronologically from the late 1990s to the late 200s, pivoting deftly from such subjects as the havoc deregulation wreaked on mainstream radio, the recording industry’s attempted shock and awe-style crackdown on downloading and the recent pay-what-you-want online selling model pioneered by Radiohead and Nine Inch Nails. One of Kot’s great strengths is that he is an able and passionate chronicler of the independent labels, musicians and critics whose rise in influence has been the definite upside of the old power structure’s collapse. Kot gives us the first essential, critical account of the ever-expanding reach of the indie music Web site Pitchfork Media, a well informed analysis of the history and recent hyperdevelopment of sample-based music and self-contained portraits of new model artists such as Arcade Fire and Bright Eyes. The book thankfully avoids the technology and industry gossip possibilities inherent in the subject and instead focuses on the sometimes unexpectedly wonderful mutations in the way that musicians and listeners think about popular music.

Greg’s blog – Turn it Up

Interview with Greg at Hypebot

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New Sheriff in Town

WASHINGTON, D.C. —  The wild, wild West of Internet anarchy that was the first decade of the new century has a new sheriff.  And she paid a visit to the 10th annual Future of Music Policy Summit with a  badge bearing a 33-point strategy for restoring law and order.

The summit concluded Tuesday after three days of presentations and spirited dialogue among tech heads, policy makers, artists and recored-label executives plotting a new future for the music industry. But it was a visit by President Barack Obama’s new copyright czar, Victoria Espinel, that was the talk of the conference.

The music industry’s implosion has become a cause that even the federal government can’t ignore because the same issue – unfettered exchange of Internet files – has bled into the movie and publishing industries. Now any intellectual property that can be digitized can also be shared/stolen/cannabalized within seconds of hitting the Internet, and multibillion-dollar businesses — most of them with roots firmly planted in the pre-digital 20th Century — are crying foul.

At the Future of Music summit, Espinel waxed rhapsodic about the artistic community, echoing the Obama adminstration line that American innovation and intellectual property are key to its economic recovery.  But without directly indicting consumers, she outlined a strategy for containing file-sharing that suggested that many digital music fans will need to alter their behavior or else risk being cut off from the Internet at the very least.

Espinel noted that 95 percent of file-sharers consume music “illegally” — that is, they traffic in copyrighted music files that are readily available on the Internet. Does that mean tens of millions of Americans are technically “criminals” by federal standards? Espinel didn’t directly answer.

When questioned about the apparent disconnect between government policy and the way many American citizens behave when using their computers or cellphones, she merely insisted that there is “no inherent conflict” and that “the majority of consumers don’t want to engage in illegal content.”

She added that the administration would focus its crackdown on Web sites distributing illegal content, particularly those attempting to profit from it via advertising or subscriptions. But that’s a small percentage of the problem.

The rest of the conference took a more conciliatory approach, attempting to engage the way ordinary citizens/music consumers actually behave (regularly downloading music in their homes without checking into the nuances of copryight) and searching for ways to turn that behavior into a revenue stream that could eventually trickle down to artists.

“Everyone here is a file sharer,” said David Touve, a professor at Washington and Lee University. To restrict people from sharing files would compete against the basic design of the Internet — “and good luck with that,” he added.

“The last thing we need is more sticks” to beat down file sharers, said Eddie Schwartz, president of the Songwriters Association of Canada. “We need to find legal ways to file-share.”

The most popular trend is to insist the Internet service providers become part of the solution. A number of European countries have enlisted service providers to police their customers; those who engage in illegal file-sharing have their Internet access restricted or cut off.

“You can’t get revenue until you get the ISP’s to the table, by force if necessary,” said David Basskin, president of the Canadian Musical Reproduction Rights Association. His agitation was palpable, reflecting the attitude of many license holders and content providers tiring of seeing certain technology companies profit from music without cutting in content providers on their profits. Among the many examples derisively cited were the Google search engine that leads consumers to an illegal music file, or the Apple iPod that stores countless music files of dubious origin.

“If you are making money off artist content you have to ask yourself whether you are helping that artist pay his mortgage,” said Jesse von Doom of CASH Music, a nonprofit that creates tech tools for artists.

Steve Marks of the Recording Industry Association of America, which represents the major labels, said, “It’s not a secret that all content holders are interested in pursuing deals with ISP’s that make sense.”

That could mean the imposition of additional fees on Internet users, which opens up another set of issues: Who would collect the fees and who would distribute them not only to license-holders but to the artists themselves — often the bottom of any revenue food chain? Those questions are crucial, said Jim Griffin, a longtime tech consultant.

“Until we know how to properly distribute the money, is it even worth doing?” he asked.

These reasonable doubts clamored for space with anxious content creators and license holders who want to see revenue streams open up as soon as possible. No one questioned that music still has considerable value — more people are listening to more music than at any time in history. But how to turn that stream into a river of green for artists remains unresolved.

Wading into the middle of this decade-long debate is Victoria Espinel, copyright czar. Though she wields considerable power, she has a daunting job ahead of her reconciling a legion of business interests all looking for a stake in the new digital money pool and a nation of consumers who are used to getting their music for free.

Espinel was appointed by Obama earlier this year as the nation’s first-ever U.S. intellectual property enforcement coordinator.  A few months ago she introduced a strategy for dealing with Internet file-sharing  (or “smash and grab” as it was described by Vice President Joe Biden), which has been linked to a 50 percent decline in music-industry revenue over the last decade.

From Greg Kot – Chicago Tribune

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Are iTunes downloads actually “licenses” rather than “sales”?

I have been arguing this point for years as anyone taking one of my classes at Berklee can testify.  This past week, rapper Eminem and his former production company F.B.T Productions won a significant digital royalties lawsuit granting the artist and production company a 50% split of revenue from digital downloads and ringtones. Universal Music Group will be required to pay a higher share of royalties for downloaded music or on ringtone sales according to a recent ruling by a federal appeals court.

This is a potentially HUGE change from how the recorded music industry’s business model works.  This new ruling may now mean that digital copies of  music are digital “masters,” which command a much higher royalty share than single or album “sales” do.

When consumers purchase a download from iTunes, they are actually “licensing” the song for playback within certain boundaries. According to many label contracts, licenses are to be treated as splits, perhaps split 50/50 between artist and label. To date, that has not been the case as downloads via iTunes and other sites have been treated as “sales” of copies of the song, rather than a license of the “master recording”.  Eminem and company challenged that assumption.

The labels have been accounting as if a download was the same as the sale of a single, using the existing contract language to define the payments.

Publishing and licensing may turn out to be of great benefit to artists and writers for digital music.   If songwriters and artists band together, they can leverage the licensing provisions in their existing contracts to extract their fair share of  digital revenue.  New contracts and constructs can approach the transaction from a licensing point of view.  Artists and writer have the upper hand when it comes to new music and new deals.

This ruling could truly be revolutionary for the creators of content if it holds up.  Think of it this way.  If an artist can directly license their music to iTunes and keep approximately 70% of the proceeds from each transaction, then why should they be paid 8-12% for music that their label licenses to iTunes?  Shouldn’t the money paid to the label at least be split 50/50?  If this ruling stands up to appeal and becomes more broadly interpreted, artists and writers will benefit greatly, and deservedly.

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Psychographics and Fan Retention

My friend George Howard recently wrote a great article for Berklee’s Music Business Journal.  In it he explains how music marketers can connect more closely with the fans that matter as they try and propel their band forward.  Here is an excerpt from the article and solid advice for any marketeer.  The complete text can be found here.

The Life Cycle Curve

In order to find your audience you must consider several details. The first is to accept the fact that you cannot market to the majority; you can’t afford it, and even if you could you would fail because of issues related to frequency of contact with these gatekeepers (i.e. radio/press).

Take the Mavens and Early Adopters and focus on these two groups. The Mavens, a term popularized by Malcolm Gladwell in his book The Tipping Point, applies to people who actively and aggressively seek out new things. They are the ones who are not only the most connected to the information channels, but are also most predisposed to discover new things, and new channels as well.

These mavens have a personality type that generates deep satisfaction from not only the seeking out and discovery of new material, but also the sharing of this material. The first class of people with whom they will share are so-called Early Adopters.

These Early Adopters are one standard deviation closer to the majority than the Mavens, and thus there are more of them. However, while they will adopt new things more quickly, they are not typically at ground zero of discovery. If the mavens are the bloggers, the Early Adopters are the readers of these blogs, and — to a degree — the re-bloggers. Again, these Early Adopters are a more populated class, and thus their influence is potentially greater than the Mavens.

There is crossover between the two groups. The area of focus is detailed below:

In every product category there are Mavens and Early Adopters. Whether you are dealing with music or any other product or service, you must find a way to bring your product to both groups.

Pyschographic Modeling

In an era of interconnectivity, demographics and geographics, while still important, are less important than the habits, trends, personality of a customer; i.e. their psychographic profile. Finding your audience requires you to understand profoundly the psychographic profile of your customers. What do they look like, where do they shop, what type of food do they like, etc.?

Determining these factors allows you to create a “model” customer. This is the person who, if you could get your music to her, would deeply embrace it. Also, given the fact that she is a Maven/Early Adopter, she will likely share what she has discovered with her network. Significantly, defining this Model Customer allows you to determine where this customer is likely to congregate, and thus where you must bring your music.

The Straddle: Offline and Online

We do not make profound connections with products, services or people online. Profound connections occur offline — in person. The genius of Facebook, and why it has eclipsed networks such as MySpace, is that it represents a Straddle of offline and online; we upload pictures and detailed stories of our offline activity so that our friends and family can be aware of these offline experiences. In this manner, you must understand that technology is simply an accelerator of your offline activity. By locating the Mavens/Early Adopters within your psychographic landscape, and taking your music to them — in person — you greatly increase the odds of these people developing an emotional attachment to your work.

Architecture of Participation

One of our most primal urges is to share information; this is why babies make the massive cognitive leap to learn language skills. Your job, once the initial offline experience has been established, is to create an architecture of participation; a method for frictionless sharing of information so that those Mavens/Early Adopters who have discovered you offline can begin to share their discovery with their network (i.e. online).

This requires a series of steps related to value exchange. Your first task is to establish four things:

1. Your own site
2. A Facebook Fan Page
3. A Twitter Account
4. An email newsletter

Your Site

On your site you must present a value proposition that begins with exchanging some type of content for an email address. Email is your currency; the more of it you have, the more likely you will be to convert what is essentially a non-scarce resource (i.e. your music) into something of tangible value. Do not be fooled into thinking you can get away using a third-party site as “your” site. While, undeniably, service providers such as Reverb Nation and Bandcamp provide value, you do not own these sites, and fundamentally your participation does more to increase the value of these sites than increase your own value. This is not to say you cannot extract value from these third-party sites; however, this requires using them like Facebook, Twitter, and others, to drive potential customers to your own proprietary site.

Facebook

Your FB fan page, similarly, must also represent a value proposition. The value here relates to engagement. FB allows for easy engagement via its makeup. Consider contests, polls, short videos, or other ploys that will keep your fans not only engaged with you on FB, but will encourage them to direct those in their network to your FB fan page. Of course, you must use FB to direct customers to the value proposition that exists only on your site: a content-for-email exchange, and other site-specific offerings (chats with the artist, etc.).

Twitter

Twitter should be used to establish your voice and to direct people to your site. The establishment of the voice comes as much from your affiliations — who you link to, who you follow — as it does from your actual tweets. As above, use it to engage and to direct traffic to your site. Employ time-sensitive offers and offers only available to those who follow you on Twitter. The goal is to inter-connect these tools, and to leverage them to enhance the offline experience. In all mediums you must encourage and facilitate sharing. Your site must have a FB “Like” button and a share on Twitter so that whenever you post content, your constituents can share with their network.

Email Newsletters

The single best tool for conversion of fan to customer is email. While email is an increasingly ineffective tool for communication it still yields a higher return with respect to sales than any other tool.

Therefore it is imperative that you use your email newsletter wisely.

1. They must be short; highlight one and only one action. The total length should be less than 500 words.
2. They should be frequent; once a week on a regularly-scheduled basis.
3. They should have a call to action; tell the recipient what you want them to do: come to the site to get something, come to a show, etc.
4. They should be forwardable; ask your recipients to forward the email to someone they think will enjoy it.
5. They should have sharing functions embedded; allow people to Tweet, add to a FB status.
6. Make it easy for people to unsubscribe.

Don’t worry about overwhelming people with email blasts. If people are unsubscribing, they’re likely non-value adding “fans” any way. Instead, focus on presenting real, timely, share-able value to your current fans so that they have a tool to help you gain new ones.

Converting your Audience to Customers

It is an immutable law of business and nature that somewhere close to 80% of your activity (engagement, profit, etc.) will come from 20% of your constituents. This is referred to as the Pareto Principle or the 80/20 rule. This means that if you have 10,000 people on your email list something close to 2,000 of them will generate 80% of your total sales. The other 8,000 will be largely non-value adding.

The problem of course is that you won’t know which of the 10,000 are the true fans. Thus, you must continuously work to increase your overall amount of constituents. Rather than having 2,000 of 10,000 contributing, strive to have 20,000 of 100,000.  In order to sift through the layers of participation to find the most valuable customers, you must create a filter. Think in terms of a funnel. At the widest point of the funnel is the easiest level of engagement: a free song for an email address.

Summary: The Value of Psychographics

The key is to determine what you deeply care about; what your purpose is, what your values are. From there you can begin — via a psychographic analysis — to find fans that share these same values. At that point, your goal is to bring your music to them, and create the architecture for more participation. Straddle between an offline and an online engagement strategy, but use both.

Once you’ve aggregated these Mavens and Early adopters, you must begin converting them into both customers and evangelists. This is done by honoring the 80/20 rule and working to extract maximum value out of your loyal 20%. Always work to increase the overall pool of your fans.

By George Howard

George Howard was President of Rykodisc, is an original founder of Tunecore and  Assistant Professor and Executive in Residence in the College of Business Administration at Loyola University.

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Gasping for Breath as the Ship Goes Down – the final days of the recorded music business

Believe it or not, the National Association of Broadcasters and the Recording Industry Association of America have announced that they want new digital  devices like cellphones, iPods and music players to be legally required to incorporate FM radio receivers.  This appears to be a twisted bargain to get the radio broadcasters to agree to pay performance royalties for radio airplay to the record companies, in exchange for propping up their business models via legislation.  How bizarre.

As reported in Arstechnica, “Congress should mandate that FM radio receivers be built into cell phones, PDAs, and other portable electronics.

Radio broadcasters and music labels are at each other’s throats over the question of whether radio ought to pay performance rights to labels or artists when it plays their music on the air (currently, only songwriters get paid, not artists or labels). A bill percolating in Congress, the Performance Rights Act, would rationalize performance rights in the US; satellite radio and webcasters currently pay full performance fees to labels or artists, but radio does not, thanks to a longstanding exemption in copyright law.The bill has already passed out of committee in both the House and Senate, but it is vigorously opposed by the broadcasters; they argue that radio provides valuable promotion to artists and shouldn’t have to pay. Congress tried to force two of the main lobbying groups, the National Association of Broadcasters and musicFIRST (RIAA is a member), to hash out a solution last November. None was forthcoming, but talks have continued since then and are now close to completion.The two sides hope to strike a grand bargain: radio would agree to pay around $100 million a year (less than it feared), but in return it would get access to a larger market through the mandated FM radio chips in portable devices.”As regards the chip, this is a key issue for the radio industry,” musicFIRST told Ars today. “musicFIRST, too, likes FM chips in cell phones, PDAs, etc. It gives consumers access to more music choices.”

As the contours of this deal came into sight last week, the consumer electronics companies saw the prospect of a new government mandate, and one that was transparently about propping up a particular (and aging) business model.

“The performance royalty legislation voted out of the Senate Judiciary Committee does not include this onerous and backward-looking radio requirement,” said the CEA’s Shapiro, and he wants to keep it that way.

The deal has not been finalized, we’re told. When it is, the two sides still need to convince Congress to go along, but they’re hopeful something can be wrapped up late this year or early in 2011.

The Consumer Electronics Association, whose members build the devices that would be affected by such a directive, is incandescent with rage. “The backroom scheme of the [National Association of Broadcasters] and RIAA to have Congress mandate broadcast radios in portable devices, including mobile phones, is the height of absurdity,” thundered CEA president Gary Shapiro. Such a move is “not in our national interest.”

“Rather than adapt to the digital marketplace, NAB and RIAA act like buggy-whip industries that refuse to innovate and seek to impose penalties on those that do.”

But the music and radio industries say it’s a consumer-focused proposition, one that would provide “more music choices.”

Please.

Hypebot has lampooned this absurdity with it’s own list of “Top 10 Government Mandates Needed to Save Us.”

  1. All Videogames Come Bundled With Top 40 Albums: The RIAA would like you to believe the number one threat to the profitability of the record and music industries is file-sharing, but I think there’s another industry that deserves a little attention. Call of Duty: Modern Warfare 2 sold ten million copies in the US alone. That money could’ve been spent on albums. Let’s lobby and make it so every videogame sold is bundled with Rihanna & Lady Gaga’s latest album. Hey gamers, it’s only fair.
  2. iTunes & Amazon Can Only Sell Physical Albums: Think about it, digital singles are cannibalizing the sales of full and physical albums. If we could only get a bill passed that forces iTunes to sell only physical albums. Fans should be forced to enjoy music the way that artists intended it to be consumed and this whole idea of them having their personalized music experience needs to go away. I’m sick of fans thinking they can just cherry-pick the songs they want and never hear the other ten songs on the album. This bill needs to get passed now.
  3. MTV Must Play Music Videos During Mandated Hours: I am sick of all this reality TV junk and I bet you are too. Ever since they stopped playing our videos sales have fallen through the floor. Once we get The Hills off the air and Ke$ha’s new video back in solid rotation, fans will have no choice but to get back to watching our expensive productions. I bet we can even get Carson Daly back. Without him, no one wants to buy music anymore. To make sure our music is playing during prime hours the record industry must have jurisdiction over their programming.
  4. Music Downloaders Must Be Downgraded To Dial-Up: Screw this three strikes business, let’s just throw those evil pirates back to the stone-age and throttle every suspected pirate, as determined by our monitoring systems that we got installed on all 5 billion of net enabled devices, back to dial-up internet speeds. If they think they can steal our content then they can also wait 10 minutes for the email and Facebook to load. Who’s file-sharing my music now Mr. 28k connection? BAM!
  5. Big Towns Must Have Record Stores: Wide-spread file-sharing has decimated the profits of our record stores and forced them to close their doors. All those pirates on dial-up are going to need to buy music somewhere. I say we make it so there’s a government mandate that forces record stores to be placed across the street from Starbucks Coffee Shops in every town that has a population of over 250,000.  In the event that there is already another Starbucks across the street from the other Starbucks, our record store will be placed to the left of the shop in question.
  6. Guitar Hero, One Real Guitar For Each Fake Controller: Seriously, who do these punk college students and videogame developers think they are? Interacting with music using plastic pieces of junk; these kids need to get a life and learn how to play real music, with real instruments. I’m convinced that the only way we can ensure profitability of GuitarCenter and make sure that these varmints don’t destroy our cultural history with their little white flippers and colored buttons is if we make it so every fake Guitar Hero controller comes with a real guitar too.
  7. The Music Blog Network & Pay Wall:  All music blogs must be forced to join a subscriber network and be put behind a pay wall. If users want to read to their amateur content and get DRM encrypted, virus laden MP3 files, then, they must pay money to have access to that content. It’s only fair. They work hard to write about music and they are entitled to money if you want to read their blog.  Also, with every single subscription to the music blog network users must also opt into a year’s worth of either Rolling Stone or Spin; it’s time they learn what real music journalism is and stop getting advice from talentless strangers, failed musicians, and their college dorm buddy who thinks he’s a hipster, but really isn’t.
  8. Resale Is Prohibited, No More Used CDs: Fans should not, I repeat, fans should not be able to buy music for half price at some local store run by a hippie. We need to put a stop to this and make it so the resale of albums is prohibited. To ensure that fans are receiving the optimum experience that we intended them to have we need mandate them to buy new CDs every time. For years, fans have been buying music from these places that smell like pot and incense sticks. They buy an album and they go home and all it does is skip because of how scratched it is.  No more used CDs. Period. New music sounds better anyways.
  9. Ticket Sales Combined With Albums Sales: Fans already pay 20 different fees when they purchase a ticket to see live music so why not add a surcharge on their that they understand. The album fee. For every single show that a fan attends they will now be mandated to buy the album too. The artists work really hard on their records and live music should not be considered a substitute for professionally produced music.
  10. Home Recording & Music Production Is Outlawed: Those amateurs and indie musicians thought they were clever when they started producing music in their homes and not getting it mastered at a recording studio. With all those fly-by-night music schools that graduate sound engineers by the hundred we need to guarantee that those students, who paid good money, have jobs when they get out of college. This will also have the effect of making artists dependant of the major label system to fund the recording of their music and drastically increase the quality of all music in general. All that stuff on YouTube sounds terrible, let’s fix that.
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Peter Jenner on the Future of Music

Photo credit: http://bit.ly/18lnuFf

Photo credit: http://bit.ly/18lnuFf

Former Pink Floyd and T Rex manager Peter Jenner, now emeritus president of the International Music Managers’ Forum, talks online music, copyright and the future of the music industry.  It is very satisfying to see the ideas expressed in our Future of Music book becoming mainstream concepts in the industry.

>As physical sales decrease, how should the music industry be monetising its content?

Record companies believe that music is about selling bits of stuff to people in a retail environment. They always looked on the internet as a potentially huge retail environment and it’s actually a service environment. The record companies should be working out what services they can provide.

They should also be talking to ISPs instead of fighting them. The key thing is people are going to want music as part of what they get on their digital connections. The ISPs are going to have to invest more and more to develop better services, and in that context they will have to start charging for content, whether they charge for content directly with a meter or whether they bundle it or use advertising or sponsorship.

Another way to go would be to look at statutory licensing for different types of usage. It would be incredibly bureaucratic but it would be one way. So let people access whatever music they like and pay a set rate. The same with commercial businesses.

>Do record labels still have a role to play in the music industry?

Yes absolutely, particularly for investment and promotion and marketing. And they could become very good at licensing, at helping artists to develop their website. But they have to get away from this idea of control and instead become partners of the artists. Many of the record and film companies are very enamoured with the idea of control because it’s how their model has always worked, with in-house lawyers and copyright advisors. There is huge inertia in the way the industry licenses and administers content. We have to fight this.

>How have the sources of revenue in the music industry changed?

Until the CD came along I think artists overall got a better deal and more control and a better bite of the money. After they invented the CD the record companies increasingly fought back, decreasing artists’ revenue share and increasing their control. That’s just got worse with the advent of the internet because there is less money available. You used to be able to sell 5,000 albums, now that is incredibly hard so the industry has to look at digital options, but a lot of web services don’t pay properly. Google will pay you a share of the revenue you generate for them, but if you don’t make them money you don’t get money.

>Has social media changed the way bands are marketed and content is discovered?

Yes, but it has huge potential to do more. At the moment, because it isn’t licensable, it isn’t doing the job that it ought to be doing. But what it can do is alter the value chain. With less money available in the music business we have to instead look at what we do have. And what we have is lots of data on music fans. Marketing has always traditionally been more expensive than recording but we can cut these costs by using social sites and viral links. And maybe we can cut out advertising costs because acts can just directly email their fans.

>Can music-streaming services support the music industry?

They are good, but they don’t have all the music. I manage Billy Bragg and there are a hundred versions of his tracks online. I can get a recorded version but a lot of the times on these services there are no live versions. And globally there are billions of tracks so the problem remains of how people find a particular piece of music or if they like something how they find similar bands. People aren’t just looking to buy the music, they are looking to buy a service which is personal and recommends music and enables discovery and which saves them time. I’m not sure anyone is really offering this yet.

>Is there a future for physical music?

Yes, but its role in the industry will become less. Probably physical music, like CDs, will become very expensive and luxurious and they will be like hardback coffee table books and people will only buy maybe one or two a year. The music industry’s job is to make as much money as it can from a track or album, and that includes physical sales alongside digital sales, access services and anything else they can come up with.

>What do you think the music industry will look like in 10 years?

Probably very similar. But what we might look on as broadcasting income will hugely increase. Most revenues will come from users paying to access the content. You won’t notice that you are paying for recorded music so much.

I think the artists ought to be much more powerful, whether they will get it together is another matter. There will be record labels, but whether they will be labels that own content or just be agents I don’t know. They might be more like the Performing Rights Society and less like Universal.

Read the whole interview here from Sara Vizard at Strategy Eye

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Musician Economics 101

musicians&money

From Hypebot.  It’s no secret that the amount of money artists are earning from recorded music is declining.  But by how much? And as digital sales replace physical and streaming music gains traction do the numbers shift in the artist’s favor?  Infographic created by David McCandless of Information Is Beautiful from a spreadsheet of data.

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VideoSong Momentum – Pomplamoose powers innovation in new music formats

The entire music industry has been driven by new formats, new music and innovation over the past 70 years. This has been fueled with the passion to be a star and receive the adoration of millions.

Well, I think we might be seeing the beginning of a new music format. A format that engages audiences in experiencing and participating in the creative process in a way that is fun and unobtrusive. Insightful and funny. Playful and inspiring.  The VideoSong.

Jack Conte and Nataly Dawn are the band Pomplamoose and they are generating huge YouTube interest and views with their VideoSong format. They got tens of millions of views in a very short time with this number increasing while you read this. The VideoSong format these two produce is very inviting and addictive, providing a glimpse into the process of recording and creating music.

In the words of Jack Conte, “There’s no hidden sounds, there’s no lip-synching, there’s no overdubbing. What you see is what you hear.  Sometimes, there might be two or three Natalys harmonizing with herself, and then you’ll see those three videos juxtaposed together on the screen.

I love what they are doing here.  A glimpse into what it is to record a song and make things happen like this is so appealing.  Will Pamplamoose really be able to capitalize on their momentum?  We will see.  They are spokespeople for the YouTube’s Musicians Wanted program.  I bet their phone is ringing big time.

Is this the format for the future?  I don’t know.  What I really like is the accessibility and transparency in the creative and recording process that they bring foward.  If they can draw people in even further, that would be great.  They seem very open to audience interaction.

I hope they find a great manager because what they have is really compelling, really great raw talent.

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Step into the studio with Jill Sobule

I got this email from my friend Jill Sobule about inviting fans into the studio to watch them record.

“Hello feller fans and friends,

Wanna make a record with me? Want to see what it’s like in the studio? Wanna be a bad-ass and brag to your friends? Well…in Los Angeles on April 11th the amazing John Doe and I are each making recordings, w/ the same band, in the same day ! ! Not only would you create the good vibe–helping us get a great performance-but you would have a rare look behind the scenes, experiencing the recording process first hand, in the same room with us while we record. Does that sound good? We have a killer band, including Don Was on bass and Doug Pettibone on guitar. We’re paying for the studio & musicians by inviting fans to the session.”

Jill and John are inviting 40 fans to buy tickets to both participate and observe an exclusive recording session with Grammy-award winning producer, engineer, and mixer Dave Way on Sunday April 11th in Los Angeles. They have a couple of different paths to experiencing the studio with the artists:

ALL-DAY “MUSICIAN’S MUSICIAN” ACCESS ($200)
For recording engineers, DIY musicians or anyone that wants to see it from the ground up. Only 10 tickets are available.

HALF-DAY “CREATIVE PATRON” ACCESS ($125)

For aspiring producers, songwriters, amongst others. Only 15 tickets available.

WRAP-UP “MUSIC LOVERS” ACCESS ($75)

Here’s a level for the person who simply loves music. Only 15 tickets available.

It will be interesting to see how this turns out. Techdirt picked up on this as part of their Connect with Fans (CwF) and give them a Reason to Buy (RtB). CwF+RtB=$$$ experiment.  Interesting comments on this post from Techdirt.

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Strategies – Setting Your Expectations

As a musician in the 21st century, you need to learn how to define your expectations. Otherwise, how will you know when you have achieved your goal, or even what to aim for? For a project, for a tour, for your career, and for your life – what are you trying to accomplish?

Most people in the music business want to “make it,” but what does that really mean? What is making it for you? What does the finish line look like? How would you recognize making it? Do you want a record deal? What does that record deal look like? Do you want to sell a million CDs? Do you want a publishing deal? What does that publishing deal look like? Do you want your music played on Grey’s Anatomy or your songbook published by Hal Leonard?

Photo credit: http://bit.ly/1bNKUE5

Photo credit: http://bit.ly/1bNKUE5

Once you know what your expectations are, then you can plan accordingly and know what to shoot for. Is success for you playing huge stadiums? That would mean you have to make a plan and probably dedicate yourself to work full-time for many years to get there.

Or, is success for you to have a steady gig on weekends? This is more achievable and something you can do on a local level and perhaps as a part-time endeavor. Is recording a CD and selling 10,000 copies your definition of success? If so, you can create a plan to achieve that perhaps on a regional level.

Or, is success for you writing songs that other people play? That would require you to network with other musicians and focus on writing, publishing, and placing your songs. Or, is success for you recording an EP and playing it for your family?

What do you want to be? What does success look like for you? Be as specific as possible when setting your expectations. Don’t be vague because it won’t lead you anywhere and just breeds sloppy thinking. First, define exactly what you want to do, and then you can break it down and make a plan to do it.

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