I try to post something weekly on Music Think Tank.  What’s the difference between Music Think Tank and Unsprung Media?  For me, it’s my writing style.  On this blog I kind of club you over the head, and on Music Think Tank I am trying to compose my posts as questions.  If you have a style preference, please let me know.  Here are my posts to date on Music Think Tank:

• Using a Momentum-Toward-Celebrity Strategy for Marketing Music
• 1,000 True Fans - Another Perspective
• Crowdsourcing for Hits - is it a Mistake?
• Create Validate Sell  [Don't forget to validate your music prior to growing a business around it.]
• Save The Earth Use BitTorrent

 

I read most of the music business blogs out there, and I read a lot of comments that readers post on many of these blogs.  I believe it’s a common misconception that new-music-business bloggers generally advise artists to give away all their music for free.  So, I am declaring my position here, along with guidelines for implementing a Free Song Strategy.

General Comments on Making Songs Available for Free
The day you enable fans to download your songs without paying for them - will NOT be the day you experience a massive spike in traffic.  In fact, nothing will change.  Those that really wanted to obtain your music for free already did so.

More than 50% of the population will buy your songs if they like your music.  Digital music revenue is growing not shrinking.  There is no survey or statistical evidence that demonstrates that FANS that share/borrow/demo/steal music will NEVER buy music from the artists they like.  

When people get older they have less time to share/borrow/demo/steal music; instead they opt for uniformity and convenience; this is when you will convert the other 50% of the population into purchasers.

There is a lot of dribble out there about the growth of BitTorrent/file sharing and the percentage of demonstration (stolen) music within MP3 players - ignore this.  There are bigger picture concerns that labels and artists should be focused on.  The only thing these surveys tell me is that a lot of people are test-driving a lot of music.

You are NOT training an entire generation of music consumers that music should be free.  You are declaring to the world that you may try my music prior to buying it.  However, you should also be declaring that your music is available for purchase on every digital music store on earth.  “PLEASE BUY AFTER YOU TRY” should be your message.

It is EXTREMELY difficult to run a profitable business when you are relying upon selling $.99 cent downloads that are sold by stores that take a cut of your revenue; irregardless of your size and popularity.  MP3 downloads will NOT be the last digital product this industry creates.  If you focus on seizing every bit of download revenue you can obtain, you will be hurting your chances to increase your popularity; which will hurt your chances of selling high-margin digital products when they arrive.  Focus on popularity not on selling $.99 cent MP3s.

Reasons Why You Must Make Some Music Available For Free
For a lot people - the MP3 player is their radio, and this is a rapidly growing segment of the population.  If you want to be on this radio - you have to make free songs available for download.  You cannot expect people to buy your music until they are fans of your music.

Falling in love with songs is a complex process; although widgets help, it rarely happens by listening to songs played through a widget that is tied to the Internet.  In a recent post I use this equation: Listeners * Frequency * Conversion Rate = Fans.  If you have a few minutes, you should read this post.

Someday soon every device (MP3 player, car stereo, cell phone, home stereo, computer, etc.) will be tied to music recommendation engines.  Recommendation engines will be the most convenient way to attach HUGE pools of songs to devices.  Many of these engines rely upon DATA to make recommendations.  If you the artist, or if your songs are VOID of data - it will take forever for you and your songs to FILTER their way up the data-driven recommendation ladder.  It is essential that you work to accumulate P-SPINS (plays) if you want the advantage as these systems come on line.  

Strategies For Setting Songs Free
Flood the world with versions.  This is not 1995 - it’s 2008.  Release multiple versions of your songs.  Release versions of your songs that have lower encoding rates than the versions you sell.  Some people say encoding rates don’t matter to consumers.  It does and it will.  Have you ever cranked up an MP3 encoded at 128KBPS - it sounds like shit in the car.

Release multiple mixes.  Chances are - if you are looking for a record deal - your best songs are going to be rerecorded, remixed and repackaged under the guidance of a label.  This is one of the versions/mix/packages that you will ask people to purchase.

Labeling matters.  Put your encoding rate and the word DEMO right onto the label of your MP3s.  This matters, especially to people that are freaks about uniformity and sound quality.  This segment will be happy to upgrade when they fall in love with your music.

Clip the end.  You could clip off the last ten seconds of your song.  I wouldn’t do this, but I’ve seen it done.  

Append a message.  Once again, it's 2008.  You have the tools to tag the end of a song with a five second message - try it out.  Find someone sexy to speak your name and your song names for tags that can be stitched onto the end of each song.  Get creative and make your end-tags into a puzzle.

Glue songs together.  Sandwich multiple songs together with no ID tags in-between songs.  I guess you would call this your free songcast, podcast, or song-sandwich.

Hold back some songs.  You don’t have to enable the download button on every song/version.  Use caution when applying this strategy.  If you only have one great song, you probably have to cut loose a version of this song to accumulate P-SPINS.

Find a sponsor - this may be annoying, but tagging the end of song with a soft message or placing an ad into a song-sandwich could be an interesting revenue source for you.  

Consider trading for something such as an email address for the free version of your song.  To find tools and widgets that will help you implement and manage a Free Song Strategy, check out ReverbNation.

 

Study the diagram attached to this post.  This diagram is the future.  When I say that substitution is going to be a far bigger challenge for record labels and artists than replication/file sharing - this is what I am talking about.  File sharing should be a dead issue.  Use your energy to conquer the future.

Sudden Substitution Impact
Attached to every play, forward, reverse and shuffle button will be a digital aggregator, a recommendation engine and ten million songs.  Every link on this chain is or may become a commodity.  

Devices - Commodity
Apple has a device manufactured like the one shown in the diagram for less than $50 USD.  It doesn’t matter if the thing is bolted into a cell phone or implanted in your head, the hardware to play music will be a commodity business.  Any record label or group of artists will be able to buy/sell/give-away these things by the truckload.  MP3 players will multiply like the one billion used cell phones rotting in your junk drawers.

Digital Aggregators - Commodity
Paid downloads, ad-supported music, personalized streaming, etc. - any company will be able to wrap songs into a business model that uses inexpensive point-of-sale and/or ad-coupling services; supplied by the companies that will compete to supply this low-margin, high-volume service.  It won’t be much different than seeking a company to process credit cards - it’s will be an obtainable, competitively priced commodity.

Recommendation Engines - Commodity?
It’s early days for recommendation engines.  I’m still undecided if one service will outperform another service to the extent whereby they all don’t end up competing on price?  Nevertheless, any company will have the ability to plug and unplug recommendation engines into their consumer offering.

The Song Pool - Commodity
Record labels don’t like hearing this, but the combination of device + digital aggregator + recommendation engine + ANY large pool of songs makes every pool of songs a commodity.  So what if Universal is missing from the pool - take this device (Brand Z) - it’s free.  Press the play button, press the play button again, press it again, press it again, press it again… Sounds pretty good huh?  Brand Z doesn’t need 100% of consumer mindshare to make money - no, they just need an hour or two a week of their target market’s disposable time.

It’s a Great Time To Be an Artist
Artists please take note that I did not say your song will be a commodity - it’s the pool of songs that will be the commodity.  While the eventual reality of this scenario is a problem for some, for artists that make great songs - this is the future that will cause the companies with cash to bid for your songs and services.  Every company that can offer a branded music solution will seek to differentiate itself from every other company offering a competing product.  While I stressed “commodity”, it won’t be a commodity like bananas are, it will be more like cars or television channels; switching will occur within the category less frequently than it does in the produce isle.

Strategies For Artists
Stop worrying about file sharing, forget everything you know about promotion and do nothing but make great songs.  Everything else will sort itself out.   But seriously, read about P-SPINS on my previous post and think about how to improve the odds of enabling your songs to be found within a large pool of songs connected to a recommendation engine.   Translation = great songs placed everywhere and anywhere, paid and unpaid - will increase your odds for success.
 
Strategies For Labels
Stop worrying about file sharing, clone the red square, put it under the blue container and stock your pool with the best songs.  Cut overhead, hire the Google guy and prepare to bid on the best songs and artists.  Start building/looking for products that will generate higher margins and offer a deeper level of engagement for consumers.  Pray that Live Nation isn't doing all this.  
   

What would it take for an independent artist that is not on the radio to generate $100,000 a year in net income from digital music revenue?  The answer is 5,000,000 P-SPINS.  

SPINS ON THE RADIO
A spin on FM, satellite or Internet radio occurs when a radio station plays a song. Every spin generates a number of impressions.  For example, if 50,000 listeners on average are tuned in to a radio station when an artist’s song is “spun”, the artist receives 50,000 impressions from that one spin.  On that same radio station 20 spins would yield 1,000,000 overlapping and/or unique impressions.  

CONVERTING LISTENERS TO FANS
People are listeners first; they become fans through repeated exposure, filtering and imprinting.  The conversion from listener to fan is a complex process.  100% of the people that are repeatedly exposed to a song do not become fans and buyers of a particular song. 

• The number of exposures during a given time period is called Frequency.  
• The rate that listeners convert to fans is called the Conversion Rate.
• Listeners * Frequency * Conversion Rate = Fans.
• 500,000 Listeners * 10 (spins within a time period) * 2% Conversion Rate = 100,000 Fans

SPINS OFF THE RADIO ARE P-SPINS
Getting on mass-market radio isn’t easy. Most artists have to rely on Personal Play Spins or P-SPINS for exposure.  A P-SPIN can occur anywhere there’s a PLAY button tethered to one of your songs.  A P-SPIN can occur on MySpace, FaceBook, ReverbNation, Last.FM, iLike, your website, or within any widget carrying your music. The easiest place for a P-SPIN to occur FREQUENTLY is on a listener’s laptop or iPod.  

P-SPINS ARE MORE VALUABLE THAN RADIO IMPRESSIONS
Presumably, a listener is already motivated to press the PLAY button that causes a P-SPIN to occur.  The listener has found or obtained your song, and/or some level of filtering and/or imprinting has already occurred.  In addition, the effort required to purchase your song is minimal, as the ability to convert from a listener to a fan/purchaser is just a click away. 

UN-TETHERED P-SPINS DRIVE FREQUENCY
Remember this equation: Listeners * Frequency * Conversion Rate = Fans.  It’s always nice to see your P-SPIN numbers going up on a site where you don’t have to give your music away.  However, to convert many listeners to fans you need the FREQUENCY that only comes from un-tethered P-SPINS.  Un-tethered P-SPINS are the spins that occur on laptops or iPods that can be disconnected from the Internet.  When it comes to racking up P-SPINS nothing beats being in “heavy rotation” (most frequently played) on devices that can be used anytime/anyplace.

DIGITAL MUSIC CONSUMERS BUY DIGITAL MUSIC
I have not seen survey or statistical data that demonstrates what percentage of FANS actually purchase digital music instead of test-driving it.  There’s lots of information that shows that consumers have lots of stolen (for the purpose of trying) music, but what about those consumers that become fans?  At what rate do FANS convert to purchasers of music?  For the analysis I did here, I used 50% as the percentage of FANS that will eventually buy your music.  

AVERAGE FAN SPENDING PER ARTIST PER YEAR ON DIGITAL MUSIC
For this analysis I am carrying $3.00 per artist, per year.  Given that most digital music consumers are spending less than $250 per year on all artists, I believe that it’s safe to assume that $3.00 per year is an appropriate average for all artists combined.

THE MATH
Click here to download the spreadsheet.  Try your own assumptions.

THINGS YOU HAVE CONTROL OVER
Listeners * Frequency * Conversion Rate = Fans

• Listeners - one of the simplest strategies you can pursue to increase listeners is to be everywhere and anywhere on the Internet.  
• Frequency - set your songs free.  You need frequency/spins to convert listeners into fans.  The best way to increase frequency is to be in as many un-tethered devices (MP3 players for example) as possible.
• Conversion Rate - the percentage rate in which listeners convert to fans - you can improve this rate by improving your songs.  I have always maintained that a great producer is invaluable to improving the quality of your music.
• % Paid to a digital aggregator - try to push your fans to the store that charges you a flat annual fee instead of stores that extract percentages from your sales (coming soon).

THE SUBSTITUTION PROBLEM
I have been talking about how substitution is a far greater challenge to the music industry than replication.  As the use of digital music grows you will have less and less control over reaching Listeners and/or boosting Frequency (from the equation above).  The number of Listener will grow, but so will the number of songs attached to the shuffle, reverse and forward buttons.  Since we are talking about multiplication, you could argue that the equation will balance out.  However, the number of places digital music consumers hang out already challenges your ability to REACH listeners; this challenge is also part of the solution (hint).

DISCLAIMER
I am not an expert on radio promotion (not even close).  The purpose of my writing is to test my assumptions.  If you have any contradictory facts, figures or thoughts - blast away.  I intentionally left off all other revenue sources.  However, you should expect the potential for other revenue sources to be substantial when you have reached 5,000,000 P-SPINS.  Create your own projections by counting your P-SPINS to date and comparing that number to the digital music revenue you generated over the same time period.

 

 

The day the band (company) was formed, band members voted to split ownership evenly; now you find yourself doing much more work or creating far more value than your bandmates.  Perhaps you started out as a band, but the band has also become a business.  You don’t want to appear greedy and it’s not your style to change the rules once the game has started.  However, it doesn’t seem fair that everyone benefits evenly when you’re doing more work than everyone else.

This is one of the most common problems in small businesses - ownership and reward is divided evenly, but the work and/or the value creating capability are not.  Here are eleven easy steps to fix the problem.

Step One - Form a Plan
Read the following steps. Do the math yourself first (download the spreadsheet).  Determine if your plan is fair and just by presenting your plan to an outside businessperson that can impartially advise you.  Possibly arrange to bring a facilitator/advisor or an impartial/experienced mediator to the meeting with your bandmates.  The no-boyfriend/girlfriend/husband/wife rule should be enforced on the day(s) of the meeting(s).

Step Two - Valuate The Band  
Come to an agreement on the present financial value of the band/business.  The band should do this annually.  It’s a great exercise for bands that are looking for investors, for bands that are looking for a record deal, and for artists that may be compensating others with equity.  (Tip - assign a value to each fan, to each song and to your brand.)  I am going to call this value the Band Value (used in calculations below).

Step Three - Revisit Day One
Revisit the day you divided ownership evenly.  Sit down with the band and talk about that day.  List all of the things that were collectively on your agendas when you formed the band.  If that list had more than five things on it, you planned more than most.  

• Have fun
• Rehearse as needed
• Record an album
• Put on a great live show
• Build a fan base

When you created that list, dividing ownership evenly made perfect sense, and if 100% of your current activities were still confined to that list - it still makes perfect sense.  However, something happened since day one - the list has grown to ninety-five things and you’re doing eighty-five of them.  The deal (the game) has already changed.  So, you’re not changing the rules midstream, you are asking to update the rules based upon the “game” that is being played now.

Step Four - Revert To Day One
Express you willingness (and happiness) to revert to the original deal that was negotiated the day the band was formed - nothing more and nothing less; your not renegotiating, you’re reverting to the beginning.

Step Five - Present Some Logic
A.  Admit your mistakes.  You never realized how much work goes into the business of being a band.
B.  Organizations work far better when everyone feels they are justly compensated.
C.  Creativity flows when stress is reduced.
D.  It’s far better to fix things now than to wait until the day when the band is bigger.
E.  Friendship is more important than ownership or compensation; therefore you find it necessary to revert to day one - the day when friendship and music were the basis for forming the band.
F.  The energy required to do all the things you are doing for the band is taking time and energy away from the other things you need to do to move your own life forward.

Step Six - Present Your List
Unfurl the list of things you are currently doing for the band which are over and above the list of things you never bargained for on day one.  You should be perfectly willing to discontinue doing the things on this expanded list, as you are about to give your bandmates the option of outsourcing or delegating everything on the list to someone else.

Step Seven - Assign Value/Cost to Each Item on the List
Work with the band to assign a value/cost to each of the items on the list.  (Tip - What would it truly cost you to outsource each item annually; assuming quality and time commitment are equal?)  Once again, you should express your willingness to give these items up to someone else - although that probably won’t happen.

Now add up the total value of all of the items on your list.  This total should represent the true annual cost/value of the services you perform.   I am going to call this number the Service-Value.

Step Eight - Create a Multi-Year Deal
I recommend putting this subject to bed for no less than two years and for no more than three years.  You should not have to renegotiate with your band every year, so a two-year deal seams reasonable.  Three years works - however the value of the band should have changed significantly by the end of year three.

Take the Service-Value number from step seven and multiply it by two or three (years) to get what I will call your Multi-Year-Service-Value.

Step Nine - Getting Paid For The Extra Work You Do
There are two ways to get paid - cash and equity (stock).  

To receive cash for the Multi-Year-Service-Value you provide - divide the Multi-Year-Service-Value by the number of months in the deal (24 or 36) to come up with a Monthly Service Value Fee (call it whatever you want).  The band may be perfectly willing and able to pay this monthly fee prior to dividing up what’s left over between all of you - including YOU.  (Note - this is NOT double dipping.  You are essentially being paid once as an “employee/contractor” and a second time as an owner.  Remember, you are completely willing to compensate an outside contractor/manager/participant; you’re just doing the work instead.)

To receive equity (stock) for the services you render - divide the Multi-Year-Service-Value by the Band Value (step two) to arrive at the additional percentage of the company/band that you should receive.  Every owner, including you, will have to shave off this percentage to give you your additional percentage points.  Why do YOU have to shave off points?  Once again, look at yourself as TWO people - owner and employee.  All owners should share the burden of dilution equally when you make deals that use your equity as capital/compensation.  And, if the band does additional equity deals - the “TWO” of you (see example) will have to burden the dilution required by any new deal that uses equity as a form of payment or compensation.

Example (you are Fred)
Current Ownership:  Fred 20%,  Barney 20%,  Wilma 20%,  Betty 20%,  Dino 20%
Multi-Year-Service-Value = $30,000    Band Value = $300,000    (30,000 divided by 300,000 = 10%)
New Ownership:  Fred 10%,  Fred 18%,  Barney 18%,  Wilma 18%,  Betty 18%,  Dino 18%
Click here to download a sample spreadsheet.

Step Ten - Handing Publishing Revenue
Unless you have agreed to direct some percentage of publishing revenue into your corporation, division of publishing revenue is a separate matter.  I do recommend channeling publishing revenue into a corporation that is owned by the band.  This is something investors will prefer.  Seek qualified legal counsel when setting this up.

If your lead singer is also playing an instrument, perhaps he/she should be counted as 1.5 or 2 people when dividing (on day one) ownership/compensation (vocal = an instrument + a second instrument), especially if he/she is also the songwriter.  Once again, this depends on how you are all dividing publishing revenue.

Step Eleven - Maintain Proper Perspective
The current situation may be putting a strain on your friendships or on your ability to be creative.  You are restoring balance to the situation so that everyone can move forward without brain lock.  If your motives are honest and your valuation of the band and your services are just, you shouldn’t have much of a problem adjusting your compensation or obtaining additional equity.  If you expect one of your bandmates to be headstrong about changing the deal then I would advise you to bring in an advisor that this person trusts.  Finally, don’t try to accomplish all of this in one meeting.  Set the Band Value in week one and wait a couple of weeks to calculate your Multi-Year-Service-Value.

 

 

This post is a follow up to my last post titled The Wrong Trousers where I described substitution as a far greater challenge to the music industry than sharing/replication. 

The Substitution Dilemma 
The iPod giveth, and the iPod taketh away. The digital music technology that enables your music to be effortlessly substituted for music created by someone else is the same technology that enables someone else’s music to be effortlessly substituted for yours.

Searching For Another Emotive Spike
I’ve had this quote (below) from Karla Starr’s excellent article titled 22,000 Songs And Nothing To Listen To rolling around in my head for months.

“My iPod is like a remote control or a slot machine, flicking through 500 songs, searching for another emotive spike.  I now find myself getting bored, even in the middle of songs, because I can. The paradox of spending so much time changing songs, trying to find one that you like—without giving it time, meanwhile thinking about what else you could be listening to—is that you wind up attached to none of them.”

I can’t find any hard research on behavioral patterns of digital music consumers.  However, when someone gets around to it, I bet you’ll find “emotive spike hunting” right up there with “playlisting” and “shuffling”.  

New Technology - New Behavior Patterns
Within a couple of years one billion people will have tens of thousands of songs at their fingertips; accessible through mobile phones and iPodish devices.  Think about the new behavior patterns:

• Emotive Spike Hunting - just explained.
• Playlisting - building playlists for personal consumption and sharing.
• Shuffling - random generation from an endless list(s) of songs you have control over.
• Button Pushing - Endless fast-forwarding and reversing - because you can.
• Recommending - Machine to human and human-to-human.
• Sharing - effortlessly sharing because it’s finally acceptable.

It’s all Substitution
All these new (easier to do now than ever) behavior patterns add up to what I am going to call the Substitution Challenge.  There are so many great songs in the world, and it’s going to be so easy to skim, skip and linearly or randomly churn through thousands of songs.  It makes me wonder how much of this activity, over any given interval of spare time, will displace what was once spent on passive listening?

Substitution and Economics  
In a competitive market, where products can be easily substituted, prices get pushed down to marginal cost; thus practically eliminating the ability to generate a profit.  MP3 players (and the Internet) are the new radio (my favorite line) and every artist wants to be on the radio.  Where record labels pay to place songs on the radio today, it makes sense that artists will certainly continue to offer songs for free in exchange for placement in the new “radio” tomorrow.  Unfortunately, those that are selling songs have to compete with those that are trying so hard to get on the “radio”.  And, as the first line in this paragraph says - where products can be easily substituted (see behavior patterns above), prices get pushed down to marginal cost; thus practically eliminating the ability to generate a profit.

The Substitution Solution
If you have some time watch this video by Barry Schwartz titled The Paradox of Choice - Why More Is Less.  My solution will be forthcoming.  There are two challenges that have to be dealt with simultaneously; the first challenge is the Lack-of-Margin-Challenge (in a .99 cent sale) and the second challenge is the Substitution Challenge described here.  The solution(s) to these challenges are intertwined.