How many ways can you slice the digital music revenue pie?  Most of the companies operating in the digital music ecosystem seem to think the answer is: as many ways as you could slice the old-music-revenue-pie.  That’s the wrong answer.

Artists need every cent of a $.99 cent sale to survive.  Business models that call for extracting percentages from artists are no longer appropriate; slicing the pie is the wrong metaphor, and there is a better way.

The Old Pie Paradigm
Prior to the digital revolution, music revenue was a pie that could be sliced; $15.00 could be carved up using a formula that was negotiated upon percentages, and just about everyone made money if revenues met expectations.  Deals structured around percentages worked when the average unit sale was $15.00; percentages don’t work when the average sale is $.99 cents.  Models that extract percentages are killing the music industry.

New Metaphor = Batteries
The music industry needs a new financial metaphor.  Throw out the pie mentality and think of digital music revenue as batteries.  What happens when a machine calls for 12 volts and you give it 8.4 volts?  It doesn’t work.  You can’t run a machine with 30% less power than it needs. When you run any machine using a deficient power source - it slowly dies from overwork under inadequate power.

What happens when you ship a battery that’s worth $100?  Does UPS charge you a percentage of sales?  No, UPS charges you a shipping fee that has nothing to do with the selling price.  When you sell a battery on the Internet, should you pay a percentage of your sales to your ISP, to Dell or to Microsoft?  No, you pay a flat fee for your Internet service, for your computer and for your software - no matter how many batteries you sell.  

If the companies operating in the digital music space don’t substitute the battery metaphor for the pie metaphor, the machine is going to break down and cease up.

Charge Flat Fees - Make More Money
Size the total potential market.  There are four million artists in the English-speaking world, and that number is growing rapidly.  If artists were charged annual service fees instead of sales percentages, every nimble service provider in the digital music ecosystem would thrive.  Four million artists paying $250 a year, spread out over multiple companies, is a billion-dollar annual business for service providers.  With up-selling and tiered pricing, add another five hundred million to the total potential market.  Add the rest of the world and we are talking about a three to five billion dollar business for providing fee-based services to artists.

Flat fees or no fees are the only things that make sense in the digital music world of extremely low margins.

The Other Argument
Please don’t comment that more music sold = more bandwidth consumed.  The companies operating in the digital music space have generated billions in profits from selling digital music hardware, from selling recommended merchandise, and from selling digital music.  Every one of these companies could justify selling digital music at a loss.  It’s not a matter of redistributing wealth, it’s a matter of common sense.  Slicing the pie is killing the goose that lays the gold records.  Service providers should think about this, fans should think about this, and artists should choose services that charge flat fees instead of those that extract percentages.