Wednesday, October 21, 2009

The Music Data Problem

John Loken’s blog post a couple weeks back got me thinking about a post I’ve been meaning to do for months, but have been too swamped to actually spit out. The post, titled “More Metrics Please,” is, as the title suggests, a plea for metrics on par with the TV business.

Some of this data has been collected in the past, but for various reasons (the biggest of which being the market and channel control by the majors) almost all data points beyond Soundscan and Billboard charts seem to have been ignored. Now, however, there is a perfect storm for music data: more artists than ever before, more listeners than ever before with easier access through more channels than ever before, and more technology for data collection than ever before.

Put simply: music data is both more important and more available than ever before.

This shouldn’t come as a surprise, and John is not alone in asking for more data. Companies are springing up left and right to help answer her prayers. Companies like Next Big Sound, BandMetrics, and Music Metric are busy collecting third party data from around the web in single dashboards. Companies like Bandize and Artist Data are helping bands organize their own data. Companies like HypeMachine and are aggregating marketing/A&R data in the form of blog and Twitter charts. Companies like Songkick and Gigulate help fans track basic concert data and music news, respectively, creating interesting data sets that are sure to surface soon.

The issue isn’t in the data collection or availability, it’s in the connecting, processing, and understanding. Like all data, the points themselves are completely irrelevant without context – a MySpace play doesn’t inherently mean anything, nor does a friend on Facebook. Data can only be understood with relevant ratios.

Connecting the data might be the biggest obstacle at the moment, but I’m hopeful that will change. It’s primarily an issue of a few major players (namely, the retail channel) not having open APIs, or sharing any of the data with the artists – when a fan buys an album on iTunes, that fan data belongs to iTunes and iTunes doesn’t want to part with it.

The other obstacle in connecting the data is the breadth to which music discovery, engagement, and purchasing have spread. You used to get your discovery metrics solely from radio numbers, your engagement metrics from concert tickets, and your purchasing metrics from Soundscan. Now discovery can span blogs, P2P, internet radio, and beyond, engagement can be a play on a blog, a MySpace page, an iPod, or anywhere else, and while record purchases are still largely covered by Soundscan, records are an increasingly small portion of the overall business picture for an artist.

Pulling all that data together is not easy, but I think it can be done as long as those collecting the data are ensuring it’s clean and are willing to make it accessible. Purchases should be easiest, as long as retail channels come around. and Twones are handling engagement fairly well (though neither has all the necessary channels covered, by any stretch). Discovery is incredibly tough without having the engagement piece nailed – if you don’t have a view of all a fan’s engagement data, how do you know the first time/place they interacted with an artist?

Progress is coming, but only as a stream of one-dimensional data points. More radical change is needed in order to get to the ratios that are truly relevant and key to making informed business decisions. We need to be able to close the loop on fan data – how fans move down the funnel from discovery to engagement to purchasing. Knowing that you had a spike in MySpace plays around the same time you had a spike in iTunes sales shouldn’t be surprising, and is thus practically worthless (if you didn’t see a spike in sales, it would indicate a strong PR effort but not a high enough quality product for fans to take out their wallets, so the data isn’t totally worthless). Knowing that the majority of the folks who purchased your deluxe edition CD through Amazon first heard your song on Pitchfork and downloaded your EP through P2P is highly valuable.

The technology to make this happen is not expensive, nor particularly difficult to implement, with APIs and OpenID or OAuth. Thanks to the web's ever-expanding processing power, we have far easier access to more data than ever before – it’s no longer reserved for the major corporations who can pay hundreds of thousands of dollars to market research firms to run surveys. We just need to have the right technology implemented properly in order to make the data connection easier.

If we can connect all the data collection points properly, the processing isn’t horribly difficult – it’s merely implementing techniques that economists and social scientists have used for ages to slice and dice large data sets. Everyone should be able to be armchair statisticians (as Google Analytics has enabled web hosts to be), the winners will be the ones who have the deepest understanding how to find the most relevant data and take the most appropriate actions as a result.

The understanding is the place where I fear the music business will have the most catching up to do. From my personal experience, data analysis seems to be a new concept to many industry veterans. Many are excited by the prospect of data being available, but few seem to know what to do with it – it serves as little more than eye-candy, another blurry trend chart at a corporate meeting (to be fair, it's not yet easily available in relevant and easy-to-read format without some tech savvy and excel skills). Layer on top of that the fact that people in the music business seem to be among the world’s biggest optimists, and you’ve got a recipe for disaster when it comes to biased or outright incorrect interpretation of data.

The winner of the data wars among the music startups will be the one who can provide the deepest insights, not just the most data. They will preemptively answer both questions of “What does this mean?” and “What should I do?”

The biggest winner will also have the tools to power the “What should I do?” actions. This means marketing, ecommerce, and access to relevant channels. These tools need to empower the artist, but also add value. In the end, I believe success may be measured as some variation of the following equation (would love to hear your feedback on improvements to the equation), and the winners among the startups will be the ones who can prove to consistently impact the quotient the most:

(Engagement + (Investment x Demand Generation Execution))^Quality = $$$

Note that quality is hyperefficient and falls almost entirely on the artist. Even the best data analysis in the world can’t make up for a product that doesn’t appeal. But it can tell you why your product isn’t selling as well as your competitors, and what you can do to make incremental improvements from a business perspective. And that makes data incredibly valuable, and a worthwhile pursuit -- it will undoubtedly unlock a plethora of new business models for music, and allow artists to figure out their own optimal model.

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Thursday, July 9, 2009

Free is not enough

There's been a great deal of debate lately around the Freemium business model that Fred Wilson helped describe (and a commenter helped name). Many take it as an inevitability, others as a bogus and destructive force. I'm a believer, personally, but I also think it's horribly misunderstood as a model and, frankly, not very new.

The first thing to understand is that free isn't a business model, it's a piece of a business model. No company, band, or person will ever make money on free. Free = $0 income. Duh.

The second thing to understand, then, is that there's always been a piece of a business model that was value "wasted" -- generating no directly measurable return. For ages, big companies have thrown empty money at marketing departments, asking them to provide the consumer with entertainment so that they might build brand equity -- radio or tv was the medium, and ads were designed to pique the audience's interest. Advertising is entertainment for an attention-wealthy consumer base.

The problem for those companies is that the attention-wealthy consumer base is dwindling as the internet (among other things) helps put a wealth of options at the consumer's fingertips. Andy Sernovitz has one of my favorite marketing quotes of all time is "Advertising is the cost of being boring." In an attention-scarce world, advertising is a last resort.

So what replaces advertising in the marketing department? Higher quality, more targeted content. In the music world, this means digital files or streams distributed to fans and potential fans via their chosen method online. As with any other industry, you pay for quality and convenience -- you pay for cable to get more and better shows, but still get commercials; you could bypass those commercials by spending even more money on a DVR and spending the value of being among the first to watch by waiting for the program to record; you could spend more time and money to reduce commercials to a screen wipe by buying the DVDs; or you could spend more time and effort searching online and downloading the videos. All above factors being equal, experience wins: companies (read: Hulu) win when they find the right balance of quality, convenience, and monetization.

In the music industry, people began demanding the convenience of MP3s, and no content owners wanted to make them convenient or at the right price (that right price being whatever the fan thinks is fair). The content was going to get free eventually, with no cost of packaging or distribution, but "piracy" reigned as a result of the resistance of the content rights holders to provide that content conveniently and at a rate the rights holders and fans could agree upon. They didn't realize the inverse relationship between attention and necessity for convenience, nor the shift of media for their advertising dollars from endcaps and radio promo to studio and production costs, so the fans figured it out for them. Apple has won the market to this point solely on convenience -- if it weren't for the success of the iPod, there's no way iTunes would be the leading retailer after having clung to DRM and proprietary formats for so long.

It's not free that's killing businesses, it's that free is not enough. It's the inefficient use of free and the inability to find alternative methods of monetization.

Chester French gained tens of thousands of email addresses by giving away an entire album's worth of content for free on their website. People were willing to exchange their contact info for the value of the mixtape, because the band made it easier than searching around on P2P networks. Most of those people went on to buy a record and/or ticket to a show, again, because they made it easy (he emailed them all a link to a page on his website) and at an appropriate price ($7.99 for digital download, $13.99 for vinyl or cd, $19.99 for vinyl or cd + tshirt + poster). They gave the fans options to self-select their level of support for his brand, and the vast majority went with one of the higher-priced options.

The only worry on an album "leaking" at this point (if anyone cares about you, it's almost inevitable) is that you don't make it more convenient for fans to get at a reasonable price. That price can be free (though I'd advise that if you're making it more convenient than other sources you should at least get some contact info) or whatever the "reasonable" price you and your fans agree upon by them transacting -- keep in mind many folks like to shop for deals, so convenience is only a relatively small markup. I've worked with a number of artists whose albums I've had on my iPod even before knowing I was going to be helping "put out" the record, and all have made significant revenues off whatever delivery channels they made convenient for the fans.

Need more evidence that free is not enough? I have spent over $1500 on music in the last year, according to (which is a severe underestimate as it doesn't account for cash purchases nor many other music-related purchases). I have almost exactly 1500 songs in my iTunes library that have zero plays, another 1415 with one play, and 5000 total (would take 14 days to play, 35.16 gb of music) with 5 or fewer plays. I can point to maybe 5 of those bands that I've ever spent money on. You can give me your music, but you can't make me listen to it.

The next stage of music, when the triviality of "free" content has passed, is getting in peoples' ears. I've said before that I think a great deal of that will be through tastemakers, and that other artists (or their brands) are likely to be the most profitable tastemakers. Tastemakers add context and relevance to convenience, and should have the ability to offer content at a fair and reasonable price, and should benefit as a result of their addition of context and relevance. Currently, blogs are compensated almost solely through ad sales (and some through promotions and concerts) as a payoff for their ability to bring in eyes and ears, and precious few are even remotely profitable that way. Sites like HypeMachine and iMeem add another level of convenience (you can find almost any track you want merely by searching), and pick up affiliate fees if the user clicks through to purchase a track on iTunes or Amazon (the biggest bottom-line difference between the two being that iMeem hosts the content and thus has to pay streaming bandwidth fees and royalties, and spend their efforts on negotiations and legal battles whereas HypeMachine can innovate great, engaging, context-adding features like Twitter charts).

As new business models emerge in the music industry (all incorporating a free component as marketing), I have little doubt that more business models will emerge for tastemakers. Major labels missed their chance at retaining their status as tastemakers, and now have to earn it all over again. As they rebuild their own reputations (and I have faith they can get there), they'll begin to start letting artists pay them to leverage their connections with the real tastemakers (as we saw today with UMG's deal with Tunecore). Someday soon, though, those tastemakers will also have methods of monetizing their connections -- and yes, free will be part of their business models too. Whomever can get people to listen has the opportunity to make money, and those who can get listeners to take actions have the greatest opportunity. Same thing goes for any business in any industry, and that's nothing new.

The interesting piece of the puzzle is not the changes in business models, but how companies and industries adjust to the changing landscape. The underlying business principles remain the same: those who can provide the highest quality content conveniently have potential for revenue, and those who select the right business model and provide the right context for the content will wind up profiting.

Sunday, March 1, 2009

What happened to my radio?: The new profitable tastemakers

In my last post, I alluded to some of my views on licensing songs and the ties (or, more accurately, lack thereof) to Lifetime Value (LTV) of fans, and thus careers for the musicians. Now I would like to clarify my thoughts on ties between bands and brands and give a sense of how I believe the most mutually beneficial relationships can be built.

I believe that bands and brands have very strong natural ties, and that bands should really be thought of as brands in their own right. The key demographic for up and coming bands is generally the teenagers and young adults, which today is Generation Y. Known as the first generation to grow up with a true comfort with technology, having known no life without computers, we are distrustful of advertising and seek deeper relationships with the organizations to whom we give our time and money.

Music is a well-known key to human emotion. It also influences relationships - people who like the same music are almost instantaneous friends, thanks to a connection felt at a more primal level. Friends are also known to enjoy similar products and brands - they make similar connections influenced by shared experiences and compatible ideologies.

The key, then, is finding where these connections (between consumer and brand, and between that consumer and band) have potential overlap, and leveraging that connection to benefit both parties.

Your car commercial has a catchy tune in it, don't you think some folks might catch onto that (don't you want them to?) and want a download of that song? They would, and they would appreciate you for being the one to recommend it to them. You're building customer loyalty among people who aren't even necessarily your customers yet.

Afternoons had a song in a Lincoln commercial that premiered during The Grammys. I would love to have that mp3 by going to, would be thankful to Lincoln for introducing me to it, and while I'm not in the market for a car right now, I'd have a slightly more favorable opinion of Lincoln. Lincoln, in turn, would have my email address (which they could use to introduce me to more music and further build my trust and respect, NOT to spam my inbox with nonstop car ads), my potential to spread the word to more friends (and thus fans of Lincoln), and a potential lifetime fan of their brand (bringing them perhaps as many as five to twenty purchases).

Traditionally, radio has made a living off being intermediaries -- brokering these relationships through their professional tastemaking and controlling the distribution channel (the AM and FM frequencies of our car and personal stereos). Thanks to the Internet and digital music, the distribution channels are no longer restricted -- brands and bands have access to each other and to the fans through a single channel with no need for intermediaries. (In fact, the Gen-Y fans would prefer not to have intermediaries.)

Many brands, of course, will be slow to understand these benefits. Corporations aren't often used to the concepts of direct ROI from marketing spends -- the people working the income sheets and the people spending the marketing money are on different floors and probably have never met. The onus (and thus, business), then, is on consultancies like Brands + Music to show the finance departments why they should be hired to project manage the marketing department's relationships regarding music. In the future, however, it would in no way surprise me to see brands whose target audience is largely Gen-Y starting music departments to help identify and build relationships with bands with similar demographic fanbases.

While brands may be somewhat sluggish to realize the potential of deeper relationships with artists and mutual fans, successful artists (remember, an artist is a brand, too) can coin themselves as tastemakers and built their own brands. You already see it happening, both with an increased number of vanity imprints (artists starting their own labels to help bring legitimacy to their friends and other bands they like) and with artists like Kanye West, whose blog mentions send page views through the roof for anyone fortunate enough to be on the receiving end of a link. In both cases, the artists leverage their existing fans' trust of their brand to become tastemakers and drive benefits for other b(r)ands, and in turn themselves.

The hope, of course, is to be able to automate some of the identification process for all parties involved -- many of the biggest changes to come about in the Internet era have come as a result of taking manual effort out of business processes. The technology will soon exist to have your brand grow many times in size by being the modern equivalent of the cool DJ in town, an opportunity you may not immediately think relevant. Of course, technology is just a tool, and the brands and artists who employ the tools make their own fates and fortunes with their usage -- technology will never be a substitute for genuinely identifying with the brand you sell and using your own passion to connect with the fans of your brand and desire to add value to their lives.

As a side-note, I'm sure questions will arise as to the potential of "regular" individuals to become tastemakers. To some extent, there is, but it will have to be through a channel they define for themselves (generally through blogs), rather than through sites like SUURGE. Musicane's (and many others) original business model presupposed fans would appreciate being rewarded for their music recommendations to friends. What they failed to realize was how pithy rewards from not having a substantially large sphere of influence is actually a demotivator (people would rather recommend out of passion than see a couple pennies). Where Amie Street separates themselves is by becoming a tastemaker in their own right by aggregating fan inputs (their biggest sales driver is moderated weekly emails with personal recommendations) -- their users buy based on their view of Amie St as a tastemaker, and getting small discounts is a nice side benefit that makes them feel good for being a part of the community.