As a do-it-yourself “label” and a startup music business, you need to have an idea going in regarding your potential incomes. While this topic will be explored in greater depth in part 3 of this course, here’s a small preview, because it WILL – to some extent at least – inform your creative endeavors. So let’s break it down somewhat.
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In the traditional music business model, the objective of a professional artist’s job was to sell records. If the records sold well – on the strength of the music and the accompanying promotion – the artist (or rather, the artist’s label) would further try to “monetize the fan-base” through the sales of merchandise (e.g. T-shirts, posters, gadgets, etc), through fan-club memberships, and then through product endorsements, public appearances and, gigs, licensing rights, and so on. It was unthinkable to even consider achieving all these sales without FIRST having a solid track record of music sales.
Today, the situation is almost exactly the reverse. Music recordings sell pathetically little even for the biggest superstars – and yet the achievable aggregate incomes are actually greater than ever. So don’t fall for that “piracy hurts the music business” crap! Would you rather that your fans didn’t feel like stealing your music?
Would you prefer to sell a few thousand copies of your record – or have a fan-list of 100,000 members?
Don’t worry about piracy. On the contrary – ask people to share your music, allow them to tape your shows, and tell them where to get more! You can even help them out by releasing “unauthorized” albums and so forth. It’s a whole new paradigm out there now. (Unless you’re planning to license some of your music, in which case hold it back.)
Today the most successful artists make money by giving their music away and building a LIST (audience, fans) as they go.
You can even advertise your “free” license. And as for “selling”, you can only really do that with things that can’t be copied.
It’s a situation that is comparable to all those free newspapers and magazines you can get all over the place these days. You seem to be getting something for nothing. The newspaper owners spend a ton of money on editorials, printing and distribution, and yet – everybody’s happy somehow. And most of them (the good ones anyway) don’t seem to be going out of business. Why? Because these newspapers are entirely ad-supported (recall the “who will build the roads” example from a previous chapter).
The advertisers agree to pay rates which are proportional to the popularity and circulation numbers of the given paper, because they understand the laws of averages and statistics. For every X readers, Y% will look at the ads with interest, and of those, Z% will either buy the product or visit the website, sign up, and so on. If the number of the thus-converted readers is capable of generating sufficient sales to offset the cost of the ads – then all is well and everyone’s happy.
The same is true of the MAJORITY of informative websites out there. They’re full of priceless content which someone had to pay for developing, and yet they’re giving it away for free – it would appear. They’re there for all to enjoy and they don’t SEEM to monetize in any clear way. The secret is in their ads or their list-marketing strategies. Much more on that in the next part of this course.
All told then, “the FREE model” is how music is used to generate sales today. The sooner you get used to it, the better!
In other words, recorded music is increasingly seen as something to be given away in order to build an audience of fans – people who wouldn’t be interested in you if you didn’t have that music in the first place.
Of that audience, some will actually buy the recordings, others will buy merchandise, others still will only come to concerts while yet others will be so enamored with the artist that they will follow their lead and purchase whatever they recommend. Even MP3’s. And unrelated products.
Once you start crunching the numbers, you’ll soon see that the new model can be vastly more profitable than the former one, if everything is organized well. And it has the added advantage of monetizing the fan-bases on an entirely voluntary basis. No squeezing them for money for over-priced CDs. On the contrary, the fans are showered with gifts (which the artist pays for) and yet somehow it all ads up and the artist emerges not only financially better off, but also much more “ethically satisfied”.
Like it or not, this is the reason why today almost all labels only ever sign the so-called “360 deals” with artists, whereby they’re entitled to a cut on EVERYTHING the artist does. While in the old days concerts would typically be the exclusive domain of the artist, or product endorsements, or fan-club fees – today the label wants a cut on ALL of that. And it can be a huge cut too – and usually is. This is because they know that their recording, production and distribution costs can never be recouped without having access to all those other income sources which those recordings enable.
Today, as an independent artist, you have access to exactly the same income sources and options as the majors do. The only difference is SCALE – and how economically you can do it vs how uneconomically they typically do it. If you’re well organized and your music rocks – and you have a little good fortune on your side – you too can scale vastly and relatively easily outperform all but the biggest superstars signed on to major label deals.
But, it needs to be said, not all income opportunities are equally available at all stages of your “market development“. Clearly, when you’re an unknown you’ll not get a product endorsement opportunity nor manage to fill even a small venue. So things progress in stages.
Let’s compare the “free” model with the “traditional” and “360” models, using a hypothetical (but nevertheless entirely probable) example:
|
Traditional |
360-Deal |
Free/Indie |
|
| Records sold (single) |
1,000,000 |
1,000,000 |
1,000 |
| Cost per MP3 sale |
$0.99 |
$0.99 |
$0.99 |
| Artist’s final cut (on a GOOD deal) |
10% |
10% |
100% |
| Artist’s earnings, MP3 sales |
$99,000 |
$99,000 |
$990 |
| Label gross earnings, MP3 sales |
$901,000 |
$901,000 |
– |
| If cost of sales for the label is… |
50% |
50% |
– |
| Then their earnings would be |
$450,500 |
$450,500 |
– |
| Concerts per year |
50 |
50 |
50 |
| Concerts profit/loss average per gig |
$5,000 |
$5,000 |
$1,000 |
| Gross profit on concerts, year |
$250,000 |
$250,000 |
$50,000 |
| Artist’s concert cut |
50% |
10% |
100% |
| Artist’s concert earnings |
$125,000 |
$25,000 |
$50,000 |
| Management concert earnings |
$125,000 |
– |
– |
| Label concert earnings |
– |
$225,000 |
– |
| Merchandise sold, units, year |
10,000 |
10,000 |
1,000 |
| Per unit profit |
$5.00 |
$5.00 |
$5.00 |
| Merchandise sales, year |
$50,000 |
$50,000 |
$5,000 |
| Artist’s cut in merch profits |
30% |
10% |
100% |
| Artist’s cut in merch earnings |
$15,000 |
$5,000 |
$5,000 |
| Management cut in merch earnings |
$35,000 |
– |
– |
| Label cut in merch earnings |
– |
$45,000 |
– |
| Total artist’s earnings before tax, year |
$259,000 |
$129,000 |
$55,990 |
| Registered fans after 1 year |
– |
– |
50,000 |
| Conversion rate, annual per-fan average |
– |
– |
10% |
| Average direct-to-fan online sale profit |
– |
– |
$25 |
| Total artist’s earnings online |
$125,000 |
||
| FINAL Artist’s Earnings |
$259,000 |
$129,000 |
$180,990 |
Note also that the two hypothetical label examples assume a HUGE HIT, whereas the indie deal is based only on very modest popularity. Additionally, the artist controls EVERYTHING in the indie model, whereas virtually ALL controls are in the labels’ hands in the other two examples. Granted, the above example is very over-simplified. But – it should give you a good, if slightly skewed, overview. But things are actually a LOT better than that!
So, let’s now have a look at some of income-generating ideas which become possible as your market and opportunities continue to grow.
IDEAS |
Ideal as giveaways |
For sale or VIP giveaways |
Incomes with no sales |
Non-scalable incomes |
Scalable incomes and premium |
Ideal when members > than |
|
Release-ready mp3 singles |
Yes |
Yes |
1+ |
|||
|
Release-ready mp3 albums |
Yes |
Yes |
Yes |
1+ |
||
|
Pre-release songs |
Yes |
1+ |
||||
|
In-studio videos |
Yes |
1+ |
||||
|
Interviews |
Yes |
1+ |
||||
|
Audiophile versions |
Yes |
1+ |
||||
|
Live tapes |
Yes |
1+ |
||||
|
Rehearsal tapes |
Yes |
1+ |
||||
|
Backstage and on tour reports, artist at home vids |
Yes |
1+ |
||||
|
Photos |
Yes |
Yes |
Yes |
1+ |
||
|
Posters |
Yes |
Yes |
1+ |
|||
|
Merchandise |
Yes |
1,000+ |
||||
|
Artwork |
Yes |
Yes |
1+ |
|||
|
Concert Tickets |
Yes |
Yes |
1,000+ |
|||
|
Memberships |
Yes |
Yes |
Yes |
1+ |
||
|
Online books, articles, reports, analyses, philosophical messages |
Yes |
Yes |
Yes |
1+ |
||
|
CPA offers |
Yes |
Yes |
1+ |
|||
|
Ad hosting |
Yes |
Yes |
10,000+ |
|||
|
Coupons |
Yes |
Yes |
1+ |
|||
|
Music lessons |
Yes |
1+ |
||||
|
Repairs or tuning services |
Yes |
1+ |
||||
|
Licensing music for film, TV, ads |
Yes |
50,000+ |
||||
|
Licensing image, logo, artwork |
Yes |
10,000+ |
||||
|
Affiliate products |
Yes |
1+ |
||||
|
Original products, reports |
Yes |
1,000+ |
||||
|
Product endorsements |
Yes |
100,000+ |
||||
|
Musician services |
Yes |
1+ |
||||
|
Custom playlists |
Yes |
1+ |
||||
|
Solo Ads |
Yes |
5,000+ |
||||
|
Custom songwriting |
Yes |
1+ |
||||
|
Arrangements |
Yes |
1+ |
||||
|
Session playing |
Yes |
1+ |
By way of explanation, the “non-scalable incomes” column refers to any services where your personal participation is needed – so you can only scale up to a point and then you’ll simply not be able to deliver. On the other hand, the “scalable incomes” are those which have no practical ceiling and don’t require your personal participation. As you can see, some of the above ideas can be implemented rather easily, while others may need to wait until you’ve built up a sufficiently large membership.
The above list is deliberately jumbled up, more like a brainstorm than anything else. My idea was to open you up to further creative thinking along those lines.
And I didn’t mention many other potential income models. Publishing, airplay royalties, management for other artists under your umbrella, DJ’ing, street performances, phone or personal sales perhaps offering special deals (e.g. “2 for the price of 1”, “bring a friend”, or whatever), partnering with other successful artists, taking part in contests or competitions which have monetary payouts, and so on. I’m sure you’ll be able to come up with dozens more ideas on your own.
I also didn’t mention many “non-musical” income sources (which will be hugely important to you – they may even be your “only” source of actual revenues eventually) – which we’ll get to in part 3. Remember that the idea is to have multiple income streams so as to free yourself up to just be creative!
Since we’re still on the “music-related sales” side, let me just finish off by saying that in considering the above ideas you’ll find – especially when dealing with your fans/prospects directly – that you will continue to get better at grabbing their attention, overcoming objections, and generally presenting yourself. These kind of experiences are invaluable not merely commercially but also artistically. Artists are supposed to be master communicators. And you’ll find many cross-over points between that and “sales.”
All these considerations – if you’re weighing some of them in your mind even before you’ve started building your music business in earnest – will not only inform the way you plan the business side of your activity, but to some extent also the artistic and creative side.
And now a parting shot: always be on the lookout for ideas which are slightly out-of-the-box. Sweeten your deals whenever possible. Not just a VIP ticket, but a “VIP ticket for you and guest.” Not just merch, but “exclusive merch” for fan-members of your site. Not just blogging about things, but also not forgetting to “mention at least some fans by name.” That sort of thing!
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| Book 2 – Chapter 10 Your Music vs Your Business |
Course Overview | Book 2 – Chapter 12 Turbo-Charging Sales |
Book 2: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 14b, 15, 16, 17, 18, 19, Overview
