Entries in Business Advice For Artists (28)
Bruce Warila | 0682008 The celestial funnel will end the ability and the need to promote undiscovered artists and songs.
The Celestial Jukebox
Perhaps you’ve heard about the “Celestial Jukebox”? It’s the notion that anyone, anywhere will be able to listen to a continual and personalized stream of digital music through devices and computers connected to the Internet. By the end of 2008, the Celestial Jukebox will have just about arrived.
The Celestial Jukebox is great news for artists. The technology that powers the Celestial Jukebox will recommend you and your songs to those seeking your style of music. The same technology will ultimately generate royalties and opportunities from sources you could only dream about three years ago.
To succeed in the Celestial Jukebox, make it though the Celestial Funnel.
Before you make any money from the Celestial Jukebox, your songs will have to make it through the Celestial Funnel. The Celestial Funnel is the widespread availability of, and the pervasive and coordinated reliance upon Same Sonic Science, Social Validation, Big Brother Systems, and upon Trusted Curators (all explained below).
The Celestial Funnel is the Music 2.0 phenomenon artists have been waiting for, and it’s the absence of it, that made Music 2.0 the bitch you didn’t expect. Digital music was supposed to change everything. Instead, it ushered in an unprecedented tidal wave of crap competition and clutter that’s unlike anything anyone had ever seen before. The Celestial Funnel is game changing; it cuts out the chafe, eliminates the clutter, and it enables great artists and songs to be found…rather effortlessly.
Who will use the Celestial Funnel?
Eventually everyone. However, since most people still find out about music the old fashioned ways, all of the gatekeepers that make and break artists, such as record labels, programming directors, music supervisors, booking agents and anyone with gravity in the music industry, will use the Celestial Funnel to find the best songs and artists.
The Celestial Funnel will end music promotion, as you know it today.
By 2012, pre-popularity promotion will cease to be effective. Prior to participating in any music related opportunity that’s bigger than a backyard barbeque, you and/or your songs will have to make it through the Celestial Funnel. Artists should take note: no amount of indie promotion will take you or your songs through the funnel faster. As the Celestial Funnel envelops the marketplace, you will no longer be able to put lipstick on the proverbial pig.
Why will the Celestial Funnel work?
My job is to understand the depth and capabilities of the new technologies and services that are being built for the music industry. I can tell you that the technology that I am about to describe works well, and that it’s only getting better. Second, and more importantly, the technology doesn’t have to work perfectly; it only has to cut the size of the haystack by 80% to enable those that need to find the needles…a simpler and less-labor intensive way to find them. The people that are charged with sifting through mounds of songs and piles of artist profiles will readily embrace this timesaving technology.
Stages of the funnel. Stage One - Same Sonic Science
Same Sonic Science, also known as Music Information Retrieval, includes software and services that can:
- Recommend songs that truly sound like another song (the seed song).
- Funnel out songs that do not have the attributes that a listener is seeking.
- Measure a songs proximity to a cluster(s) of songs.
- Measure potential popularity (by counting charting-songs or by any subjective criteria) of songs in a cluster.
- And, many other related propositions via database design and user interfaces.
There’s no danger that Same Sonic Science will cause every song to sound the same. Any song is a jumping off point for seeking sameness. This technology works, it will cut out huge buckets of bad, and it’s being glued into every single digital music proposition on earth.
Stages of the funnel. Stage Two - Social Validation
Moving down the funnel, the next stage is Social Validation; it’s the first stage of the funnel that enables humans to correct the inaccuracies of, or the inconsistencies within, the Same Sonic Science. Social Validation is what happens after someone pushes the Same Sonic Button on a digital music site, or within a digital music system. It’s the next thing(s) people do after listening. In no specific order, they bookmark, they add to a playlist, they share, they recommend, they tag, they buy, they vote, they download, they steal, they play again, they leave a comment, or they basically do anything that causes an information system to record a positive or negative event. The data that’s generated from social validation will be observable everywhere.
Stages of the funnel. Stage Three - Big Brother Systems
The next stage of the funnel is the use of systems that combine Same Sonic Science with as much Social Validation data that can be collected. Huge pools of song consumption/activity data are accumulating across the Internet and elsewhere. It’s now possible to monitor the world for songs that are bubbling under the radar in every niche. It’s also possible to identify emerging trends and new niche genres. Right now, there are a few gatekeepers that are preparing to act upon this data. In the near future, every professional in the music industry will use this data to some extent. Within five years, presentations of this data, through stunning user interfaces, will be available to everyone.
Stages of the funnel. Stage Four - Trusted Curators
Stages one, two, and three of the funnel, will eliminate 80% to 90% of the songs entering the funnel each year. However, the funnel keeps getting bigger. New songs mingle with old songs, and there are still too many songs for the average consumer to listen to. Trusted Curators (refernce) are those that know how to extract the gems from the bottom of the funnel, and consumers will still rely upon these people to make recommendations. Trusted Curators are record labels (still), programming directors, music bloggers, music supervisors, talent buyers, booking agents, others, and my favorite: artists that brand together to build a brand on the Internet.
Funnel Strategies For Artists - 2010 and onward.
There will be no fooling the funnel. There are too many sites and systems, and everything can be crosschecked and correlated. Don’t waste your time buying plays or trying to find ways to game the funnel. Eventually, you will be exposed as a fraud.
Hedge your bets and create a mutual fund for songs. If you have some business sense and if you are skilled at promotion, become a Trusted Curator. Pull numerous artists into a unified brand where everyone involved shares in some of the upside.
If I were an aspiring artist today, I wouldn’t spend much effort on promotion (single artist no, multi-artist brand yes). I would wait for the funnel to evolve. Your songs are going to settle into their natural place in the funnel regardless of how much or little noise you make about yourself.
Stop editing your own work. Find a great producer / engineer to help you make the best songs possible. Make lots of songs, and seek every bit of rip-it-apart, put-it-back-together feedback as possible.
Absolutely wipe the following thought from your brain: “If I could get a record deal and get my songs into heavy rotation on FM radio, everyone would love me.” That’s never going to happen. Record labels will be the biggest users of the funnel; especially Stage Three (Big Brother Analysis). It’s all going to be about song quality (finally). You can’t promote your way to a “deal”. Make songs, obtain super critical feedback, fix and repair songs, repeat process; this is your best option.
Prior to becoming reasonably popular, putting numerous, iteratively improved and produced songs into the Celestial Funnel will generate more career progress than going on tour. In my opinion, you are better off working the best day job you can find, and then investing in professional help to make your songs better (versus touring as an unknown).
How do I put songs into the funnel?
Make sure you have a Free Song Strategy and a Digital Manager (a human) that seeks the most efficient way to manage your presence on anything and everything on the Internet. Unfortunately, there’s no easy way to create profiles and to continually load songs into everything on the Internet, but you have to do it for now.
- TuneCore can help you move your songs around, but TuneCore’s reach is limited.
- ArtistData can help you move your data around, but not your songs.
- ReverbNation and TuneCore can help you monitor progress.
- All three of the propositions above need to be combined.
It’s early days for the funnel. 2008 is barely year one of the Celestial Funnel. It will take several years for everyone to fully adopt most of this technology. By 2011, fresh songs will take a year (one million new songs a year) to succeed or fail. I have nothing to base this upon; it's just my estimate.
A word of caution…
I am always ahead of my time. If you are 2/3 into your plan for success, you may want to ignore me and continue. If you are just starting out, hit print and read again…
Bruce Warila | 05122008 How To Reprogram Your Hyper-Competitive Manager
Where do managers come from anyways?
Consider the suddenly popular band from any city, featuring four guys banging out original rock songs that appeal to the college crowd. Who’s the manager? Where did he or she come from? The manager is probably the person in the band that knows the most about business, or he’s the mate from school that has some sort of degree in business, or she’s a friend that just knows business.
Chances are, the first manager of every band has been schooled, trained and practiced in the art of competing. And, depending on his or her personality, he or she may have the innate desire to simply snuff the life out of infringing competitors. After all, crushing the competition is what capitalist typically do.
I’ve heard more than one manager talk about blowing the doors/socks/shorts off other bands playing on the same ticket as his band. Is this the right attitude? Is this the person that you want managing your band? I believe the answers are NO and YES.
There are many instances where having a winning attitude, a competitive spirit, or even a crushing drive is important in every business. However, in the music business, more so than other businesses, I believe you have to know when to uncork your inner Gordon Gekko.
Try putting 1,000 washing machines into an iPod…
Think about this: It doesn’t matter if you sell washing machines, cars, computers, software, swimming pools, web design, or just about anything else or earth, you’re probably only going to make one sale per customer / per opportunity. In just about every product category you can think of, a sale for you…is NOT a sale for your competitor(s). Music is different. Fans are capable of loving you and dozens or your “competitors” equally and simultaneously. Moreover, music is just about the only category where customers switch between competitors every 3.6 minutes. Blogs are the only thing I can think of where switching occurs faster.
Crush your competitors if you know who they are...
If you are blowing the doors off the bands you are playing with on any given night, you are probably loosing the competition. Huh? The real competition is not between bands. The real competition is between entertainment categories. If your band is far better than the bands you gig with, you may be loosing the competition to attract fans away from other forms of entertainment. The best strategy is to put together the finest night of live music possible, a night of live entertainment that can compete with everything else in the city that’s vying for the attention of your target audience.
Who are you competing with on the Internet?
First, you have to understand what you are competing for. You are competing for the “disposable Internet time” that every consumer has. This is the time that people allocate to using the Internet for things not related to work. People spend their disposable Internet time on various forms of entertainment. In a previous post, I argued that your standalone website and your MySpace profile can’t compete on the Internet with these other forms of entertainment; that you will have to “brand together” (cooperate and partner) with other artists if you want to be entertaining / competitive on the Internet.
Battle of the bands, it’s not competition, it’s a recruiting event…
Too many young managers look at band battles as…battles. It’s nice to be liked, but the business reason to participate is not necessarily to win. Band battles are interviews for your band, and for the bands that you may want to join forces with (see previous sections). When you look at these competitions as recruiting events, everything changes; you go from being a competitive manager to the friendliest guy in the room.
Is this the person that you want managing your band? Yes
Hopefully, I have given you a new perspective to pitch to the manager of the band; without changing who he or she is inside. Competitiveness has a use when it comes to things like collecting money at the end of the night, negotiating timeslots, negotiating rates, and especially when it comes to poaching fans away from other forms of entertainment. I would love to hear your thoughts on cooperation versus competing; especially in regards to the perspective that new managers should adopt to achieve success in the music business.
Bruce Warila | 04252008 Why You Must and How to Implement a Free Song Strategy
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.
Bruce Warila | 04232008 Stop Worrying About File Sharing or You Will Be Plowed Under by The Future
Record Labels, Business Advice For Artists, Illegal File Sharing, Planning & Strategy, The Substitution Challenge 
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.
Bruce Warila | 04212008 Generate $100,000 In Annual Net Income Exclusively From Digital Music Revenue
Promotion, Business Advice For Artists, The Free Music Option, Alternative Music Marketing, The Substitution Challenge 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.
Bruce Warila | 04152008 Eleven Steps To Fixing The Problem That Occurs When You Work Harder Than Everyone Else In The Band
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
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.
