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 Mint.com (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.

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 LincolnMusic.com, 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.

Turn a virus into reverberation to get lasting fans

There have been a couple New York Times articles recently that have stood out to me. The first was Jon Pareles's piece on "Songs From the Heart of a Marketing Plan," discussing the licensing business's rise in recent years (thanks to DA of Chester French for the tip). The second was Gregory Schmidt's article on Broadway's use of MySpace and other viral techniques to fill theater seats. Both articles are about new ways for the arts to generate awareness.

The final quote of the Schmidt article touches on a point that I've been adamant about: “In the theater, there is only one proven marketing technique that works: to generate word of mouth,” Mr. McCollum said. “Everything else is a shot in the dark.”

Viral Marketing techniques are little more than the next generation billboard or TV ad -- they generate a bit of brand awareness if executed properly, but don't have any real lasting effects. You may see a spike in traffic as a result of a Viral Marketing campaign, but it rarely has any meaningful long-term revenue impact. Same goes for music licensing -- having your song licensed for a commercial is often good exposure, downloads of the single on iTunes will spike, as will MySpace plays, but how many new fans has it given you?

I actually admire the band Chairlift for deliberately not calling attention to the fact that their song "Bruises" was featured in the latest iPod Nano commercial ("I tried to do handstands for you..."). They knew that by making a big deal about one song being featured on TV, they'd alienate their true fans and make a big statement about their intentions as artists (to make money and get famous quickly instead of caring about their art and the fans who have supported them from the start).

As Seth Godin has posited for many years now, the best products, those that sell and that people love, are the ones with the marketing built in. Andy Sernovitz says "Advertising is the cost of being boring," and he's absolutely right. Viral Marketing is little more than a new generation of advertising -- its purpose is to generate brand awareness rather than create long-term fans and customers.

Reverberation Marketing, on the other hand, happens when a product (be it an album or a bottle of soap) is worth talking about and is properly exposed to its target audience. The first part, that it's worth talking about, must be baked into the product. The second piece, exposure to the target audience, is the job of a marketer.

Fleet Foxes have topped a vast number of Album of the Year lists (including my own), but that has nothing to do with the fact that their CD was available at Starbucks. In fact, the Starbucks deal came after they were playing sold out shows to thousands of die-hard fans around the world. They built a remarkable product, and exposed it talkers and tastemakers in their target audience (Pitchfork.com, for example). They continued to build with a tour opening for Wilco, a band with a similar target audience, and are now selling out headlining shows in Australia.

Perhaps most importantly, the fans they've made will stick with them. Viral Marketing encourages flash-in-the-pan artists or brands, whereas Reverberation Marketing builds a lasting fan-base that can be marketed to for years to come.

Fleet Foxes have focused on their fans, rather than general exposure, as they recognize the true fans will allow them to do what they love for the rest of their lives. I talked to them briefly after a sold-out show at The El Ray in October and they said they would be thrilled to play to that crowd at that venue for the rest of their lives if that's where their fans were. They even mock the marketing ploys of dollar-driven artists in a recent blog post:

"We have found the perfect place to record our next record, we've rented a barn/house in Port Townsend a few miles from where my dad used to build boats, and we're gonna build a big ole Titanic that will seem indestructible but will actually sink quite easily due to something minor that we overlooked (something like hella world beat / glitch pop influences or a continuous literal narrative). SO watch out for FORD AUTOMOTIVE PRESENTS FLEET FOXES II: TIDES OF THE UNDERDEMON, SERMON 3:16 exclusively at Best Buy, January 17th 2009!"

So what can they do next? Make the ties to their existing fans stronger. Get more direct contact routes than MySpace (email addresses, cell phone numbers, etc) in order to increase quality of communication (read: segmentation by location or depth of connection (single purchase vs large purchase and sharing)) and strengthen the connection. Understand what those fans want from them, understand who else those fans are listening to, reward the fans who help spread their message, and most of all continue to be themselves.

The true fans have come because they feel an untainted connection to the band. They will support the band for years to come. The folks who buy your single off iTunes because they heard your song on a commercial are virtually meaningless in comparison. Thinking financially of the lifetime value (LTV) of each:

• True fan: Buys 3 albums (3 x $10), 1 vinyl ($15), tickets to 5 shows (5 x $20), and 2 t-shirts (2 x $15). Also, they inspire 3 other fans, who might spend half that on average. Total LTV = $437.50
• Single purchaser: Buys one single on iTunes ($.99), likes it enough to buy the whole album (rarely happens -- perhaps 1 in 20 at best). Total LTV = $9.99

Obviously nearly every artist is going to have some of each. Exposure is not necessarily a bad thing, in fact it might help create more true fans. However, your time is much better spent targeting the true fans than worrying about a sheer number of ears you can get your music in. True fans enable reverberation for years to come.

For more on how targeting true fans can benefit the bottom line more than mass exposure (and some great examples), I highly recommend Ian Rogers's recent keynote speech from the GRAMMY Northwest MusicTech Summit.

First Aid Kit: A story of discovery

Many folks ask me how I discover music. I wish I had an easy answer. I download a lot of stuff (both albums and playlists, which sometimes inform album purchases) via torrent or other filesharing options, I also read the occasional blog, and hear about a lot of good music from coworkers and friends. I don't use Pandora, I scrobble to Last.fm but never look at it, and I keep the iTunes Genius sidebar open but I'm not sure why (it's not like I look at iTunes when I listen to music--I click once and it plays).
I can speak in broad generalizations all day, but I thought it best to take you through how I found out about a couple teenage sisters from Sweden in a band called First Aid Kit. Every time I play them for someone the immediate response is "Who is this??" (in a good way). But I can't take credit for finding them.
I first found out about First Aid Kit from Peter Rauh via a Twitter message: "Some inspiration for the day: Two Swedish teenagers covering Fleet Foxes in the woods (no lie) http://tinyurl.com/5svkol" The link takes you to this video:


After I told Peter how much I loved the video, he told me he heard about it via Light In The Attic.
I downloaded the mp3 of the song for free, and checked out their MySpace profile. From there, I bought their record from Klicktrack.
After more than a few listens in a short time span, I knew others would enjoy the music, so I published an OpenTape player on my website:

I told a number of friends about the music, and my friend Britti even thought she played them on her radio show. Unfortunately, she had come across another band by the same name, this one from Spain -- goes to show you the importance of picking an original name for a band.
At any rate, I hope you all enjoy First Aid Kit as much as I do. I think they're mature beyond their years, and anyone who fashions themselves after the Fleet Foxes is A-OK in my book.

Collective Patronage: Your next advance is from your fans

Collective Patronage is not a new concept (heck, a quick Google search turned up this article from 2001 -- the author says "I can think of four local San Francisco-area bands, and one each in Minneapolis and New York, to whom I would happily give $25/year to support their music"), but only now is it beginning to be properly realized in the music industry. The idea is a return to the days of classical music, when composers were paid by their wealthy patrons to compose music that everyone could enjoy.
In a perfect world, someone richer than you would pay for your favorite bands to make lots of great music for you to enjoy for free. However, we live in a democracy with a free(ish) market, so we all have to do our part.
Artists are no longer confined by a physical medium (CD, cassette, vinyl, etc) as their flagship product, and fans have many options to avoid paying for music. Yet many, if not most, of us still pay for music that we like. In talking to others who work in the industry, the standard routine seems to be to download a number of albums without paying, take them for a few spins, and pay for the ones you like.
Had I said that 5 years ago, I would've had the RIAA all over me. As it stands, however, much of the fear of file sharing has subsided -- heck, there are even "marketing" companies who will seed your album on torrent sites.
While many of the barriers to entry for artists to produce and distribute music have diminished, they have not disappeared. Artists still need to cover recording costs, equipment costs, gas costs, etc. Claiming "oh, they can make that money on the road" only applies to a select few bands (and that number is diminished with high gas prices and harsh economic conditions).
Artists need fans, and they need some of those fans to pay some money. Yes, those "some"s are intentional. Fans can pay in many ways (eg - pay attention, pay permission to market to them, etc), but some of the fans do need to contribute money for the band's survival.
Some services have sprung up with the concept of Collective Patronage in mind -- SellABand.com, SliceThePie.com, etc -- but those are focused exclusively on unsigned, relatively unknown artists, and instead of fostering a true relationship between artists and fans, they are more of a game for the fans and a one-time "make or break" for the artists. In other words, they're not focused on long-term, sustainable growth. They also fall short in extending the concept of Collective Patronage to larger, more established artists.
"Oh, but the big artists have labels to cut them big checks!" Sure, sort of. But even large artists could do better for themselves taking checks directly from their fans rather than from labels. Think about it: with how much they're struggling, and with all their bureaucracy, would major labels make a major investment were they not almost positive they could recoup? Not likely.
Take the David Byrne - Brian Eno release Everything That Happens Will Happen Today -- by contract I can't speak to specific numbers, but the goal was to recoup recording costs and make as much as they would have made from a major label advance. Perhaps that was a bit audacious, considering the amount of marketing money a major label would have dropped, but guess what? The album hit that goal in well under the three months it's been out -- long before it even hit traditional retail outlets or iTunes/Amazon. Not only that, but both artists draw from a slightly older fanbase that isn't as likely to dig for music online.
Even ETH was a fairly traditional release -- digital only, digital plus CD, and digital plus limited edition tin with bonus disc. To move to a system truly based on Collective Patronage, a group of fans would all pay an agreed-upon sum to an artist each year to ensure that artist continues to produce music. In exchange, they receive access to all the artist's output for that year, plus maybe a few extra bonuses. Essentially, it's a subscription or membership to the artist.
Josh Rouse posts an album of some sort each month for his patrons (okay, subscribers) to download. Jubilee recorded an EP, gathered patrons based on that EP, and put the money they collected towards further recording (which, of course, the patrons receive for free).
I've probably belabored the point more than I need to, but I encourage fans to become patrons of their favorite artists, and artists to seek out patrons -- we all want to make each other a little bit happier and bring a little more beauty to the world through music. Some have the talent and inspiration, others have the money.

Why Trent Reznor Rules

I hope this shows up decently. If not please view it at: http://www.flickr.com/photos/factoryjoe/2877586803/sizes/o/

Synchronous audio over video chat

If someone knows how to do this, please let me know...
I want to be able to play music synchronously over video chat. Meaning, I imagine, writing a simple streaming audio player on a video chat API that could either play songs from skreemr and seeqpod or from your computer (temporarily hosting them or pushing them to another hosting service) so that people on both ends can listen to the same music at the same time without the time lapses and audio overlaps that exist in playing music on one end through the computer microphone. Help?

Artist Idea #2: Dedications

This is the second in a series of relatively short posts of potentially crazy, potentially profitable ideas for musicians to use. If you use them, you don't have to give me any credit, but please do write in and tell me how it worked for you.
I don't know what it is about chatting it up with my friend Adam, but I always wind up with new artist ideas while talking with him. The next three are all from one conversation about ideas for Mondo Pr!mo's new release, 2FN HOT, and upcoming tour with The Pink Spiders.
Start by emailing all your fans and let each of them pick a song to have dedicated to them on your next tour stop nearest to them.
If you scale like crazy, it would be tougher to keep up with the dedications (perhaps start selecting fans at random, or fans with the best reasons for why they deserve the dedication), but while you're still building, the satisfaction and excitement of a personal dedication is a huge reward for your initial core fans.
Sure you might make a dedication anyway if someone asked you outside the venue before the show, but by offering the opportunity in advance, the fans will get more excited to go to the show and more excited about bringing friends to hear that song dedicated to them.
THEN you follow up with them, having brought a video camera on tour with you, by posting that song, with dedication, on youtube and email them the link.
Then they share that to all their friends who didn't go to the show, those folks hear your songs, get hooked, and, from the details of the youtube vid, know where to go to buy your stuff.

How I Landed My Dream Job

For most of my life, I had dreamed of working in the music industry. The catch? I didn't see any jobs which didn't require either a) making no money (I'm not greedy, but I don't want to live in credit card debt), or b) fucking over the artists. The latter gave me more trouble than the former. In the traditional music model, where was there room? There wasn't.

Thank God for the internet.

But even among all the technologies out there claiming to enable and ensure artist success, one stuck out to me: Topspin--they weren't just building tools, they were building solutions for how artists could legitimately ignore the traditional label structure and make a living on their own. This is the story of how I landed my dream job with Topspin.

Earlier this spring, I noticed my idol Ian Rogers had made the shift from heading Yahoo! music to heading Topspin. Here was a guy with nearly limitless options in the digital music world, and he took a position with a stealth startup with a 3-page website. Really? Surely there must be more to it.

There was. The more I learned, the more I was enthralled. Topspin was founded by Peter Gotcher (who, among MANY other things, holds an Oscar and a Grammy for creating ProTools recording software) and Shamal Ranasinghe (who managed MusicMatch for many years, including their acquisition by Yahoo!) and described themselves as enabling bands to become their own businesses. I was intrigued, to say the least.

Doing a bit of research on LinkedIn, I discovered my friend Mike Harkey (with whom I had chatted extensively about my attempted startups NewkBox and Scenem) had been a business school classmate of Shamal's at Stanford. I asked Mike if he would be kind enough to pass along Shamal's contact info, and he was kind enough to give me a very nice introduction.

Unfortunately, my e-mail to Shamal ended up in his spam folder. Oops. Luckily, a few weeks and a phone call later, Shamal uncovered my e-mail and shot me one in return. I then did a phone interview with a manager and with Shamal.

Then silence. Topspin was in the process of moving offices, and Shamal told me they needed a bit of time before he could come back to hiring decisions.

Luckily, being the Ian-stalker that I am, I noticed Ian posted something about a job on Twitter, so I took that as a sign that I should call Shamal again. I did, he said he'd talk to Ian the next day. Well, the next day I also received a rather lucrative job offer from a consulting firm in Dallas, so I had to apply a bit more pressure to Topspin. Within 10 minutes of my e-mailing Shamal, Ian called me (surreal, yes), sang my praises for 8 minutes, and spent 1 minute telling me they wanted me to start tomorrow. The offer letter came in 10 minutes later, with a note from Ian requesting an "I <3 TYWHITE" t-shirt (as featured in picture above).

I was sold. But I had to be absolutely positively sure they were for real (keep in mind, they were still in stealth and hadn't publically revealed any funding), so I asked them to fly me out. They said absolutely and had only rushed the offer knowing I had to make a decision on the other job soon.

When I arrived in Santa Monica, I was greeted by Shamal and a sparse office that had more musical instruments than computers. As the employees trickled in, they were all smiling, kind, and smart. They had all read my blog, been to my website, and probably knew more about me than I know about myself. Even one guy who hadn't started yet, but swung by the office briefly, had checked me out. This was a tight-knit group who knew exactly what they were doing, both with computers and with other people. Sold.

I did lunch with Ian (how many people would pay how much money for that opportunity?), where we saw his idol (ironic?) ride by on a one-speed. It was storybook. He then layed out why he chose Topspin over all the other opportunities he had. Sold.

I took an afternoon break (while Ian, Shamal, and Peter ran off to a Billboard cover shoot) to wander around Santa Monica (and take a nap) before returning to the office to sign my contract. When I returned, Ian was chatting it up with my old friend from middle school DA Wallach, whose band, Chester French, is making quite a splash even before their album drops. Unbelievable.

I signed my contract and have never looked back. I started last week and it truly has been a dream come true. These people are brilliant, creative, and highly motivated to produce the best products on the market. It's everything the digital music business should be: beautiful, powerful tools that sit behind the scenes helping the artists build their relationships with their fans. While it's been a journey to get here, the true journey lies ahead, as we play our (hopefully sizeable) role in changing the music industry forever. I'm not sure I've ever been more excited to be a part of something.

Thanks to all who have helped me get this far, and to those who will continue to help along the path to the future.

Understanding the New Economics of Music: Three Necessary Realizations for Artists

Same essay as last post, but in downloadable and shareable format. Please feel free to pass it around!


Understanding the New Economics of Music: Three Necessary Realizations for Artists - Get more Business Plans

Understanding the New Economics of Music: Three Necessary Realizations for Artists

The music industry is changing. Actually, it already has changed. Technology has transformed everything from production to marketing and distribution. The business side is still trying to catch up with technology, with major labels suddenly trailing the pack.
But if you’re anywhere near the music industry, you know all this already. The question is “How can I survive in the new music economy?” The answer is not easy. It requires a complete change of mindset from traditional music business thinking.
As an artist, there are three basic realizations you need to come to in order to understand and survive in the new economics of music: your band is a business, the traditional model is broken (for good), and your fans are your best assets.
I’ll lead you through these necessary realizations, but much of the rest is up to you. The beauty of this shift is your creativity gets to spill over from music into the business side of things more than ever before. There will be plenty of people to help you along your way, but ultimately it’s you making decisions for yourself.

Realization #1: Your band is a business
Take a minute, let it sink it, get comfortable with it. It’s difficult because you think of yourself as an artist—don’t lose that! The key is that you are an artist who needs to make a living. You are an employee of your band. Pretty sweet job, eh?
Traditionally, bands have at best been brands in a larger corporate label structure (yes, even the indie labels). If you weren’t in one of those structures, you weren’t a professional musician. Well guess what-- labels, in the traditional sense, are irrelevant today (a point we will hit in greater depth later). With the labels gone, you are your own entity.
The thought might be scary at first, but the fear should become an element of excitement for the opportunities this freedom affords you. You now have complete control over everything related to your music, and for the first time you can realistically make a living while keeping that control—there are no more middlemen.
Sure, you will have to learn more about the business aspects of music, but there are many of us here to help. Just remember, as your own business you are no longer fighting for the attention of a few label execs who will magically make you huge, you are fighting for the individual ears of every possible fan out there.

Realization #2: The traditional business model is broken. For good.
In the traditional model, a band worked for the attention of major labels, as the labels collectively had near monopolistic control of all distribution channels. This control allowed them to essentially dictate who succeeded and who did not.[1] Additionally, the only way an artist could get a quality recording made was with the financial backing major labels offered.
The result of all this control was a set of contracts that meant any band that was good enough to get signed, but not good enough to sell literally millions of records wound up in debt to the labels. For an overview of how a band can sell 250,000 copies and still lose money, see: http://www.negativland.com/albini.html[2]
I added the “For good” part to the section title because major labels still seem to be desperately grasping for every element of the old model that still remains. They don’t understand the new economics. In fact, Doug Morris, CEO of Universal Music admitted in an interview with Wired:
"There's no one in the record industry that's a technologist," Morris explains. "That's a misconception writers make all the time, that the record industry missed this. They didn't. They just didn't know what to do. It's like if you were suddenly asked to operate on your dog to remove his kidney. What would you do?"[3]
Now is your opportunity to get ahead of the majors. Kick them while they’re down and reclaim total control in the name of artists everywhere.

• Talking Point #1: You don’t need a label
  This is a tough one for most bands to realize—all your favorite bands growing up were on labels, and you may have dreamed of being on the same label as they were. But think of what a label’s primary functions are: financing recording, handling distribution, and providing marketing support. Well guess what: you don’t need any of that anymore.
  Recording is practically free. Yes, you still can shell out loads of money for studio time at the best studios with the most famous producers, but with the advent of Pro Tools and other recording software, the costs of doing so now generally outweigh the benefits.
  Distribution is practically free. Self-distribution options, selling directly to your own fans, are coming very soon. In the meantime, you can pay TuneCore what you’ll make on two or three copies of your record and they’ll distribute your music to all the major online retailers (I’ll hit on the advantages of self-distribution later, but both options are important).
  Why has the traditional distribution structure broken down? Simple: physical space in stores (and in warehouses and delivery trucks) costs money, digital space on servers essentially doesn’t. What does this mean to you? It means that instead of getting at best 7-10% of record sale profits (after paying back the record label in full for recording and distribution investments) through royalties, you get about 70% of all sales. Period. In a best case scenario on a major label, you still have to sell upwards of 10 times more copies to make the same amount of money.
  Marketing is dead. At least in the traditional sense. Marketing is no longer direct advertising, as labels still believe it to be—people have become immune to traditional advertising. Andy Sernovitz, author of Word of Mouth Marketing, states “Advertising is the price of being boring.”[4]
  So what are the new goals of music marketing? Enable and encourage existing fans to help build your brand, and know your potential fans better than they know themselves, so as to get them to discover you in the way in which they are most susceptible to being hooked. Are people finding you through MySpace? Are they passing mp3s around between each other? Are they avid blog readers? What blogs? I’ll touch more on the importance of your fans later, but it’s your job now to know them as well as you possibly can.
  
• Talking Point #2: The pricing model is broken as well
  You’ll see this more in the next section with “The 80/20 Rule,” but static pricing is not reflective of the real value of music.
  Let’s look at an example: One fan listens to your album multiple times daily, it’s struck such a chord that she knows every line and her MySpace screen name is one of your lyrics. She’d drive hundreds of miles and pay hundreds of dollars to see you live (she already watches all your live videos on YouTube, over and over). Another fan had your music recommended via Pandora, heard a song, decided to buy the album on iTunes, put it on his iPod, and listens to it about as often as anything else. If you come to town, he might go if he has nothing else going that night.
  In the end, both fans paid $10 for your album and $20 to go to your concert. For one, it was every penny he was ready to invest in you (if you put on a great show, maybe he bought a $20 t-shirt as well, and maybe you began to convert him to be more like Fan #1—each individual product he buys (music, live show, t-shirt) strengthens his ties to you). For the other, she would’ve gladly spent hundreds more dollars on you had she been given the opportunity (you only print 3 styles of t-shirts and she owns them all already).
  The situation with Fan #1, which happens far more often than bands realize, is called Consumer Surplus—in economic terms, the demand exceeds the supply. In real terms, this means lost revenue for the band.
  The ideal solution is a sliding scale pricing model. The issue with adopting such a model initially is that fans wouldn’t know where to start—they are unsure of how to value your music as well. A compromise is to offer more options—sell your B-sides, make a live DVD, print collectors-edition posters. Unfortunately, those kinds of compromises are just that: compromises.
  One possible implementation of a sliding scale involves touring. With gas prices rising, more bands are going to have to get more monetary support to justify going on the road. Now say they asked their fans to help them come on the road. The top fans, like Fan #1, those who would stop at nothing to see the band succeed and to see them live personally, would donate. The fans like Fan #2 would not.
  Beyond simply asking for donations, the band could offer simple rewards for donations and let the fans know how their money is being spent—say, everyone who donates money gets a personalized picture of the band using your money (holding a sign with your name on it—it could be in the tour van if they spent it on gas, or in a restaurant if they needed food). To help the fans visualize what their money will be used for, you can set up some suggested donation levels and examples of expenditures from each: $5 buys a band member a burger, $20 buys new guitar strings (if you don’t get them free), $50 fills up the van with gas (okay, maybe closer to $150), etc. Perhaps the bigger donations warrant a phone call from the band as they spend the money. Perhaps an extra-large donation gets a private acoustic session for you and your friends. None of these interactions inflict any extra cost on the band, but they let the fans know how their money is spent and make them feel wanted, which in turn makes them more likely to spread your word even further.
  

Realization #3: Your fans are your biggest asset
“But wait,” you say, “how can someone I’m just selling stuff to be an asset to me?” And there’s the trap: you don’t have to merely engage in single, one-sided transactions. Your relationship with your fans shouldn’t end when they put you on their iPod—if they like your music, they don’t want it to end there, and neither should you.
There’s a phenomenon in Economics that goes by a number of names: The 80/20 Rule, Pareto’s Curve, Zipf’s Law. Traditionally the rule meant that the top 20 percent of companies in a given market controls 80 percent of the revenues in the market. But as distribution has changed in music, so too has The 80/20 Rule. Now the rule takes on new meaning: your top fans are responsible for the majority of your marketing. As a rule of thumb, the top 10 percent of your fans carry about 90 percent of the weight.
So who are those 10 percent and what can you do with them?
Have you looked in the front row of your concerts lately? Have you seen those screaming fans who melt when you make eye contact with them or hit that high note in the bridge of their favorite song? Do you have any idea how early they bought tickets, how early they got to the concert to make sure they were as close to you as possible, how late they’ll stay after the show in the hopes of catching another glimpse of you as you disappear into your tour van? Do you know how many friends they’ve told about you and how many message boards they’ve posted on about you…in the last week? They would do anything for you.
All you have to do is ask. Help them help you.
How can they help you? We already established that traditional marketing is dead. Your existing fans are your best outlet for generating new fans. They’ll put your songs on mixes, bring friends to shows, talk you up on blogs and message boards, and anything else they can do to spread the word. Additionally, they are likely to be your best individual sources of revenue.
Up to today, much of online distribution has mimicked physical distribution, just in a more accessible format. However, as previously stated, there’s no reason the relationship between artist and fan should end when the music is purchased and put on the fan’s iPod—neither side wants it to end there.
Think of the information Amazon, iTunes, and Ticketmaster get from the fans that you as artists never get to see: e-mail addresses, locations, what else the same fans bought (or listened to and didn’t buy). Many fans want you to have some of that information so you can best stay in contact with them and cater to them, but they don’t want to go through the hassle of looking for where and how to give it to you.
iTunes recently started releasing specifics of sales by zip codes through a service on TuneCore.com. This data can help you get a better idea of where people who are buying your music are located, but it still doesn’t give you statistics across all mediums of consumption (ie-Amazon, MySpace, imeem, etc), nor any way to get in contact with those individuals apart from booking a tour nearby and hoping they find out about a show and come.
Soon artists will be able to sell their music and other wares directly to the fans, possibly on a sliding scale, and receive and maintain the personal information the fans want to share. Artists will be able to utilize that information to increase communication to their existing fan base and maximize their reach to new fans.
However, ditching the existing outlets in favor of nothing but selling directly is also generally a mistake. Remember what we said was the new marketing ideal? Know your potential fans better than they know themselves, so as to get them to discover you in the way in which they are most susceptible to being hooked. This means you need your music to be accessible to as many of your potential fans as possible—forcing them into a single distribution method puts you in the same trap the major labels fell into, and you’ll lose many potential fans in the process.
You can try to influence new fans to see the advantages of doing business directly with you (via links on your MySpace and YouTube videos, and encouraging your existing fans to drive their friends to your site, among other ways), but if they don’t want to go beyond simply buying mp3s through their favorite retailer and throwing it on their iPods, they’re frankly not worth your time and effort. Yes, it’s great that they bought your music, and it would be great if they came to a show, but remember our version of The 80/20 Rule—if they aren’t willing to put in the effort to count themselves among your top fans, they have a relatively low utility to you.
Concentrate on your top fans—they will help you the most in any number of ways.

Case Study: The Format made the new economics work for them
The Format was dropped by their major label, Atlantic Records. Twice. Many bands would pack it in, but best friends Nate Ruess and Sam Means weren’t giving up on their dream. After an initial thought towards seeking another major label, they looked into the audience at their shows and saw a devoted fan base that was more than they could ever ask for. They didn’t need a major label to get their next album in the hands of those fans.
So they took their severance check from Atlantic and recorded Dog Problems the way they wanted to. And with major labels lined up out the door trying to buy the rights to their sophomore LP, they made the difficult decision to self-release it on their own aptly named Vanity Label.
Nate and Sam gave away a free acoustic EP including some of the songs from Dog Problems to their fans about two months before the LP’s release to help get them excited. Then a month before release, they posted 30 second snippets from four possible singles and had the fans vote for their favorite.
When it came time to release the LP, they paid for distribution out of their own pockets and were among the first to embrace SnoCap’s widget to let fans purchase and download MP3s directly from their MySpace page.
The result? Dog Problems debuted at #77 on the Billboard 200 in July of 2006, a chart virtually untouched at that point by bands without labels.
Then, a year later, seeing sales slow to virtually nothing, The Format did something a major label would never consider: they gave away Dog Problems for free, as long as you signed up for their mailing list (and no, you didn’t have to confirm your e-mail address—if you didn’t want to put in a valid e-mail address, you didn’t want to hear from them, so what good would it do them to e-mail you?).
Over the course of a month, 40,000 people took them up on the free album, and another 29,000 downloaded individual tracks from the album. The Format’s e-mail list grew immensely (how much would a major label pay to get 69,000 more fans on a band’s mailing list in one month?), and as a result of that their next tour had far and away the highest turnouts they had ever seen. All without spending a dime on marketing, and all profits going into their own pockets.

Conclusion: YOU can do it
Undoubtedly, this sounds like a vast amount of work and responsibility above and beyond what you anticipated when you first joined a band. Fear not—tools are on their way to help you sift through all the clutter and make your life much easier. Sure, they won’t be free (all those employees put on the street by the labels need to make money somehow), but they’ll be far preferable to signing 98% (or more) of your life away to a label. If they get their act together, labels will still be able to participate in the new music economy—but they’ll be much more like business consultants to you than corporate overlords.
Control is now in the hands of the only two crucial entities in music: the artists and the fans. How are you going to build and maintain a strong bridge between yourself and your fans?

[1] The “hit machine” of major labels is a predictive force, which only works when options are limited. When fans have all the choice in the world, hits are determined by the fans themselves—hits are made reactively to fan response and viral spreading. Instead of what the fans listen to and like being determined before an album comes out by some guys in a board room, the best albums are elevated to the top by aggregation of real fan interest.
[2] In his book Confessions of a Record Producer (Backbeat Books), Moses Avalon shows how a million-selling artist can still easily wind up in debt to a label.
[3] http://www.wired.com/entertainment/music/magazine/15-12/mf_morris
[4] Sernovitz XXV

Slight Change of Heart: Lala vs Ad-supported music

At first I was totally opposed to Lala's new model of charging $0.10 for unlimited streams of a song--how on earth did they plan on competing against the free streams at imeem? Then my friend Adam started sending me albums to check out on Lala. I could listen to the whole thing straight through for free, no ad interruptions. Had he sent them to me on imeem, I would have had to put up with a 15 second audio commercial every couple songs.
On the surface, this limited interruption might not sound like a huge deal. But let me put this another way: think of your favorite album, the one you loved the second you heard it, that you listened to from start to finish and didn't multitask while doing so. If the first couple times you heard it, a McDonald's audio ad telling you to buy a Big Mac played between every other song, would it still be your favorite album? Would you have listened to it from front to back? I'll give you a "maybe," but in a lot of cases you'd give up or it at least wouldn't have struck you nearly as heavily.
At this point in time, the primary use of streaming services is still to try out music before deciding whether to buy or not. While Lala's model might not make them any money on streaming revenue, the simple fact that you can listen to the entire song or album for free or next to free and purchase it from the same page is genius. Would I like to see them drop the $0.10 rule and eat the extra costs? Yes, from a consumer standpoint, but it wouldn't be a smart business move--by adding the preventative measure of requiring people to pay to keep streaming, even if it's a trivial amount, Lala forces the user to reach for his or her wallet no matter what, and at that point they might as well invest the extra couple pennies in buying the mp3s (the actual revenue generator).
I was thinking about it the wrong way--Lala is not directly competing with imeem, they're competing with iTunes and Amazon. And kicking their asses. At least for now...
(On a side note, I have no idea who has kept Lala funded through all their different iterations (not even a year ago they were strictly a CD swapping broker), but I want them to fund my startup--they sound patient and willing to throw some cash around)

Subtle but important update for TuneCore

TuneCore, the service that allows independent artists to easily distribute their music across digital music services like iTunes and Amazon, just unveiled the ability for artists to see weekly trends and zip codes of people who buy their music through iTunes. This is HUGE in any number of ways: everything from booking tours to seeing responses to marketing efforts or big concerts. The issue, though, is how many artists truly understand the depth and importance of this data? I would love to see TuneCore either open their APIs to allow third parties to help bands manage these numbers in relation to other band activity (and internet buzz, etcetc) to try to make sense of why these numbers are showing what they are and what can be done to make the most of them.

I want a magical jukebox (that doubles as a washing machine?)

The more I pay attention and ask and read (in that order of importance), the more diversity I see in how people discover and consume music. For the first time in history, we have choice. Music is, and the forms in which to consume it are, more abundant today than ever before.
As many online music services seek to refine their methods for our music playing and discovery pleasure, I'd like to offer my own personal ideal:

• I generally prefer my standard listening and discovery modes to be separate. Then again, not always. When I want them together, I generally just have my standard listening device (for these purposes, we'll call it "myTunes") on random. Make me a checkbox when I have random on to say whether or not I want random reccomended tracks inserted (and a slide bar with 3 states: often, sometimes, rarely).
• My friends are more likely to get what songs I'll want than you are or than "other fans" are. And bands I like a lot are more likely still to get it right than my friends. Ask them--they know music pretty well, and I generally respect their opinions. Oh and hey, while you're at it, make sure I can find out why something was reccomended to me.
• Speaking of random, this state (as it has become such, rather than just a feature) should pay closer attention to me. Am I clicking to the next song often? What have I been stopping on recently? Am I clicking off certain songs nearly every time? What songs have I been playing actively recently? Pay particular attention to my reaction (play a lot vs click away from immediately) to reccomended songs and play more or fewer from the source of the reccomendation based on my reactions. Sometimes I like rating things, but not often when random is on.
• I want to be able to share my music from where I am (in myTunes). Sometimes I want to just share one song, sometimes I want to share a bunch of songs at once. The other person doesn't need an mp3, just a stream (a full stream, without having to register).
• Songs like the ones I recently shared or put into playlists or have been playing a lot recently should play more often on random (including, but only occasionally, other songs by that artist).

Get on that. If I was smarter at programming and algorithms, I'd build my own version of Songbird. Perhaps there is a market there? Looking into the future where all music is free and computers are merely portals to the internet where files exist in a cloud, will the market be in custom built music portals, tailored specifically to your listening preferences? Probably not, but it's worth throwing out there--I think you'll see a growing long tail of market-quality music players and reccomendation engines.

Note: Bonus points to anyone identifying the reference in the title.