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.  
   

If you have not seen the movie Once, rent it and watch a great example of what I have been calling an elaborate plan.

Once was written and directed by the John Carney, the bass player for the Frames.  The movie featured unknown actors including Glen Hansard, the lead singer of the Frames.

The Once team wrote a plan, raised $160,000 and made a great independent film that featured their music.

The film Once has won numerous awards.  The song "Falling Slowly" won the 2008 Academy Award for Best Original Song, and the Once soundtrack was twice nominated for Grammy Awards.

Once has grossed over $17,000,000 (as of March 08) at the box office alone.

If you want to make it on your own, you have to be as smart as John Carney.  Great execution John.  Brilliant!  Read the NY Times movie review.

 

I am taking the advice I give to Brand Together.  You will be able to find new articles I post on Music Think Tank.  I am flattered to be part of such a great group of people.   

 

 
One Hundred Million People a Month and Growing
Three years ago nobody cared about MySpace or Facebook.  Now here we are in 2008, and one hundred million people around the globe are using social networking technology on a monthly basis.  What’s the motivation?  Alan Moore says in his recent article titled INFLUENTIALS ARE TOAST that “Human beings have an innate need to connect, communicate and collaborate.  Digitalization has revealed the true nature of humans, and that truth changes everything.”

Digitalization Has Revealed A Truth That Changes Everything
“Human beings have an innate need to connect, communicate and collaborate.  Digitalization has revealed the true nature of humans, and that truth changes everything.”  This is powerful and profound; you can’t unwind a truth; MySpace and Facebook have birthed a truth.  Obvious it is not.  Most things in life are assumptions; proof of truth is hard to come by.  The truth is, social networking technology will forever enable people to connect, communicate and collaborate - like they innately desired to, but could not easily do - in such a manner - until 2005.

Connect, Communicate and Collaborate - So What?
Moore also says “culture is created by the interaction between human beings”.  So, people are creating micro cultures or communities at a pace and via methods that were unheard of three years ago.  Good or bad - and irreversible, these communities are changing the game when it comes to music marketing and promotion; it’s communities that are dominating brands.  It’s not intense advertising, it's not celebrity endorsements, it’s not street-team marketing, it is the formation of communities that will dominate the creation, the maintenance and even the destruction of brands.

Brands Dominate The Charts
Not only do brands dominate the charts, brands dominate ticket sales.  If you are not creating music, you are probably thinking about how to create a brand.  Prior to 2005, you could build a music brand with a pile of money and a proven formula; record labels were pretty good at it; now, communities have all of the power.  Not only can members of the community try music before they buy it, a community or a micro-culture can rapidly form to breath life into a brand, or they can suck the wind out of it before it takes a second breath.

New Truth = Unlearn Old Methods
I read a printout of INFLUENTIALS ARE TOAST when I was stuck on a runway for two hours last week.  On a normal day I could have read right through this article without giving it much consideration; after all, the implications of social networking have been analyzed more than the laws of gravity.  However, it was the notion of “truth” that struck me as significant.  You can do some things in life based upon assumptions, however when you’re stoned with the truth, you have to make real adjustments.  Perhaps I have to unlearn everything I learned about marketing prior to 2005-2006?  Seriously!

Old Marketing Out - New Marketing In
Old marketing doesn’t work.  New marketing has barely been invented.  You may want to start by reading David Jenning’s book titled Net, Blogs and Rock “n” Roll.  You could also consider the next couple of paragraphs.  Moore goes on to say “communities form around values, interests and desires, not demographics.”  You should ask yourself (self) - how do you leverage the knowledge that communities are formed around values, interests and desires - and not demographics?

Hang a VID Sign
People that share your Values, Interests and Desires (VID) want - and may even have an innate need - to find and connect to you.  Making it easy for your “VID Tribe” to find you has to be an important part of your elaborate plan.

Your songs say a lot about your values, your interests and your desires.  You should post your lyrics, but unknown lyrics don’t translate well to the way people search for information; so, lyrics won’t help much in making that first connection to your tribe.  They will however, be invaluable after you’re found.  

You will have to go beyond lyrics and really think about how you want to STRONGLY communicate your values, your interests and your desires.  You can blog about these things, and you can post images and video that paints a picture of the community or micro-culture you belong in, or that YOU innately want to connect to.  Everything you post becomes searchable, and the more you say - the bigger the sign becomes!  

The Ends of the Battery
When you are hanging your VID Sign, remember: power comes out of the ends of the battery.  My advice would be to know who you are and strongly commit to it; don’t play the middle.  People may join lots of communities, but they will have millions of communities to choose from.  I am not talking about extremism as much as avoiding the trap of trying to appeal to the widest possible audience.  A strong commitment to your values, interests and desires powers the brightest sign.  You’ve heard of a brain dump, try a heart dump…

Be True
You can’t make the shit up.  Everything you say goes under a microscope if you’re successful.  If you manufacture the gravity you’re using to attract a community you will eventually be exposed as a fraud.  Every sentence you type is archived and searchable.  If you are taking a strong position on something, you may want to reserve your right to change your mind; you may also want to ask for feedback to shape an opinion that you are attempting to form.     

Inviting or Joining
Your hanging out your VID Sign that communicates your values, your interests and your desires - are you inviting members to your micro-culture or are you joining a community that already exists?  The answer is both.  If you enjoy things technical read this page about mesh networks.  Basically, you have to join and invite at the same time.  Nobody owns the community and the community goes on with or without you.  The marketing of artists use to involve making the artist the center of the universe, now the artist has to become a valued and accepted contributor to the community.     

How Do You Invite?
You have to become a blogger.  There’s no escaping the fact that you have to hang your sign and declare your positions if you want to be a contributing member of a community.  Declaring your positions means describing with word, image, song and video - your values, interests and desires.  Moreover, I believe this is an activity you can’t be skimpy about.  The “truth” has been revealed, and to ignore it by relying on pre-2006 methods to market and promote your music is a recipe for death by obscurity.   

How Do You Join?
Scout the earth for those that share your values, interests and desires and make real friends.  This goes beyond talking about your music, and it goes way beyond the fake-friending people do on MySpace.  Find real friends, start conversations, declare your allegiance to positions and then introduce people to your music and the interesting and COMMON things you blog about.    

Tools & Technology
Creating a blog under your own URL and using it in conjunction MySpace and/or Facebook is one option.  Facebook just launched Facebook Music.  In my mind, the right tool has not hit the market yet.  If you are going to go through the effort of “hanging a VID Sign”, “inviting” and “joining” as described above, you should strongly consider promoting your own URL; while using sites like MySpace, Facebook, iLike and Last.FM to drive traffic to your own branded blog.  If you are into messaging, you may also want to give Twitter a try.  

Communities Dominate Brands
For this post I stood on the shoulders of Alan Moore.  Alan’s blog is also called Communities Dominate Brands.  Alan’s article “Influentials Are Toast” was the inspiration for this post.

ARTISTS / BANDS SEEKING INVESTMENT CAPITAL 

 
Investing In Artists • 360-Degree Deals • Venture Capital For Bands
Do you know someone or a local business that has money to invest?  How do you obtain an investment when everyone believes music sales are dropping like a rock? 

If you place all your ideas, music and assets into a corporation YOU own, and if you pledge your rights, your services and every potential entertainment-related income stream to YOUR corporation, you may be able to sell shares to investors.

This post will show you how to create a Music Venture Investment presentation.  This post does not cover writing a business plan; I will cover that on another day.  This advice is for the artist or manager that has created a plan, and now he or she wants to know how to sell it to investors.

I have only worked on several music venture investments.  However, I have done similar deals on other non-music related projects.  This article should be regarded as general advice and it should be used as a foundation for discussion with a qualified attorney.

Your Corporation Is Your Extended Band
A corporation is a legal entity that holds all your assets.  It’s the best way I can think of to make a commitment to your bandmates, to your business team, and to your investors.  

Once formed, your corporation is your extended band and you should show it as much “love”, dedication and commitment as you did your unincorporated band.  It’s your legal bond to the people that support you and invested in you.  It’s been said that forming a corporation is like getting married; in many ways, that’s true.  Don’t accept someone’s money and don’t make promises to your corporation unless you are willing to put responsibility to your corporation first.

Because you must provide leadership and unwavering commitment to your own corporation, hammering out the agreements that govern your corporation, that specify how revenue and profits will be split, and the details that specify everyone’s obligations to your corporation are as important as anything you will ever do on the business side of the music industry.  

The Goals of Your Presentation
If you really want to attract investment capital you should demonstrate - by what you write and by the words coming out of your mouth - that you understand the gravity of the previous section titled “Your Corporation Is Your Extended Band”.  Beyond a great business plan, nothing pleases an investor more than dealing with someone that understands what RESPONSIBILITY TO YOUR CORPORATION means.  Here are some other things you want to demonstrate in your investor presentation:

• Honesty and integrity - It helps to have genuine recommendations from people that know you as an honest and dedicated person.  It also helps to have known and respected members of the community write you recommendations.
• Transparency - Show that you understand that information will never be withheld from those that you are obligated to share it with.
• Minimal bullshit - Don’t be afraid to admit you don’t know the answer to something.  Ask for assistance or volunteer to obtain the answer within the next 24 hours.
• Respect for money - You are asking for an investment; don’t say you don’t care about money!  If you did not care about it, you would not need it.  
• Demonstrate that you are a leader that can ALIGN EVERYONE’S INCENTIVES.  Aligning incentives is the most important part of creating your extended band.

Mutual Alignment of Incentives
One of the biggest problems in the music industry is the fact that the incentives of artists are typically not aligned with the incentives of record labels or investors.  For example:

• An investor or a label may propose to profit from music sales.  However, you may choose to give music away to drive traffic to your shows.  This puts you and the investor at odds.    
• Another example is when labels lobby to push down royalties.  Labels argue that exposure sells music and that higher royalties reduce exposure.  Alternatively, artists argue that royalties are the only way to earn a living.

When you negotiate a deal with an investor, you want to make sure that there are no hidden incentives; you should want 100% mutual alignment of incentives between you and your investors.

Achieving Alignment of Incentives
The easiest way to achieve alignment of incentives is for you (the artist) to assign all of your rights, services and income streams to a corporation that you and ultimately your investor(s) own together.  To do this, you will be asking an attorney to form a corporation and then you and your bandmates will be signing a Rights & Services Agreement that pledges all of your ENTERTAINMENT-related assets and services to YOUR OWN corporation.  Once you have placed all of your “incentives” into your own corporation, you are almost ready take on an investor.    

Letter of Intent (LOI)
As part of your presentation to an investor you are going to offer a DRAFT Letter Of Intent (LOI) to the investor.  The reason you are offering the LOI is to give investors an “inventory” of what they are getting for their money.  Remember, everyone has the general notion (right or wrong) that music sales are plummeting; so it’s important that you tell people, beyond your business plan, what it is they are investing in.   

Who To Include In Your Letter of Intent
The language of your LOI may have account for more people than yourself and your band.  Your LOI may have to include your manager, your illustrator, your band’s filmmaker, and everyone that is currently part of your elaborate plan (team).  Don’t worry; you can always include other people later.  I will cover how to expand your organization and how to divide up stock (equity) in another post. The bottom line: you are looking to prove to investors that everyone involved is 100% committed to your venture / corporation.

A Sample Letter of Intent
Here’s a ROUGH sample of a LOI written for a fictional band called Long Alley.

Put the words NON-BINDING DRAFT PROPOSAL at the top of your letter of intent.

To Whom It May Concern:

Thank you for taking the time to consider making an investment in our soon-to-formed corporation called Long Alley Incorporated.  

Long Alley is a team that includes (list band members and team members - one per line with proposed ownership percentages before each name.) 

Note: Young artists have a tendency to want to split everything evenly.  In a few weeks I will show you why this is not in the best interest of your team.  If you can’t wait, consider dividing up shares based upon individual commitments of time per year.

The attached business plan covers important items like target markets and promotion plans.  This draft letter covers the assets, the rights, and the services that members of Long Alley are willing to pledge to Long Alley Incorporated in consideration for obtaining the investment capital we need to execute our business plan.

 
The members of Long Alley are willing to pledge the following master recordings to Long Alley Incorporated.  (List names of recordings / completed songs.)

Long Alley intends to record the following songs within the next XXX days, and these songs will also become property of Long Alley Incorporated.  (List the songs.)

It is our intention that all of the new songs Long Alley writes and records over the next (X) years will become property of Long Alley Incorporated.

It is our intention that all of the revenue generated from (list ALL potential revenue sources covered in your business plan) will flow into Long Alley Incorporated; where it will be divided according to the terms of our agreement after subtracting the expenses also outlined in the attached business plan.

It is our intention (important) to invest XX hours of time each week (don’t over promise here) to achieve the objectives outlined in our business plan.

Note: The ability of each team member to invest TIME may vary.  Make a list of time commitments; this list should correspond to the equity splits (stock ownership) you are proposing.  You may have to value one person’s time more than another’s when you are doing your ownership calculations.

The members of Long Alley will work exclusively for Long Alley Incorporated for X years; however limited to entertainment.

 
The following assets will also become property of Long Alley Incorporated:

• Our name: Long Alley Band.
• Our website and website URL: www.longalley.com
• Our MySpace page and MySpace URL: www.myspace.com/longalley
• All Long Alley photographs and videos.
• The Long Alley logo

In consideration for pledging the rights, the services, and the assets just described, Long Alley is seeking an investment of $100,000.  The $100,000 will be used to fund our business plan and to pay the legal bills associated with securing this investment.

Note: This example letter is short and brief.  When you write your own letter, you should add enough language to make sure that the presentation goals mentioned near the top of this post are met.

 
Thank you for considering an investment in Long Alley.

 

Notes on Legal Strategy
Don’t let the attorneys suck up all your investment money negotiating your investment.  Try to iron out as much detail as possible on your own first.  If you have a sticking point with your investor, call him or her directly to resolve the issue; don’t have the attorneys do the back and forth negotiating.    

Make your best upfront effort to explain to your potential investor that your financial position requires you to have all legal fees covered as part of the deal.  You may even want to have a short signed letter that states that the investor will pay for all legal fees; even if the deal falls apart at the last minute; and with no exceptions.  Having legal bills hanging over your head is a sure way to loose control of your negotiating position.  

It is essential that you have your own attorney.  Do not represent yourself and do not use the investor’s attorney.  A smart investor will always make sure you have outside legal representation; this will also protect the investor from having you invalidate the deal due to inadequate legal counsel.

You Are Not Selling Shares, The Company Is.
I just want to make it clear that when investment capital comes in, it is not your money; the money belongs to the corporation.  You will not be able to withdraw compensation unless it was specified in your business plan and covered under the terms of your agreement.  

How Much Is The Band Worth Prior To The Investment?
If you have an interested investor that likes your plan and understands your commitment, the next hurdle to cross is how much of your company (stock) do you have to give up to obtain the cash you need to fund your plan?  For example, if an investor wants 50% of your corporation in exchange for investing $100,000 then he is valuating your company at $100,000 before his investment.  ($100,000 divided by (your $100,000 + his $100,000) gets you 50%)

There are a lot of factors that can increase your valuation, such as the genius of your plan, your current revenue, your popularity, and subjective factors such as how much the investor likes your music.  If this post is popular, I will cover this in more detail later.

Final Note
You are probably not going to be able to raise money if you plan on generating all your revenue from music sales.  You can still be an artist or a band, but you will need to have an elaborate plan that demonstrates how you are going to be entertaining on the Internet, and how you will build momentum for your brand.  The journey from here to wherever you are going will involve a multitude of people and multiple sources of revenue.  Forming a corporation, creating the RIGHT agreements, and learning how to manage the task of compensating partners with equity (stock) in lieu of cash are all part of managing in the music business in 2008.