You might know Rachael Yamagata as a performer who’s toured with The Swell Season, Sara Bareilles, Adam Cohen, and opened for David Gray solo at Madison Square Garden.  You might also know her as a songwriter whose collaborated with Jason Mraz, Mandy Moore, Dan Wilson, Katherine McPhee, and sang on recordings by Rhett Miller, Bright Eyes, Dave Matthews, Ray LaMontagne and Ryan Adams.  Rachael has put out three full length records both on and off major labels, and this past summer she enrolled in Berkleemusic’s Online Music Marketing with Topspin course. Berkleemusic’s fall 2012 term begins on September 24th.

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Mike King:  We’re ten weeks into the online course. What has your experience been like so far?

Rachael Yamagata: It’s been so good – I feel like if I had been this engaged in college I would have done much better!  I’m super into it. There’s a bunch of people in the class that are coming from a tech background, and a variety of other musicians in there that provide great perspectives on marketing. It makes the weekly live discussions so interesting, and the material the students are posting is great.  I’m all about it.

Before I took the class, I was trying to educate myself by watching YouTube videos of different online music marketing conferences.  This course is a great master class overview on exactly what I was searching for, and it’s all super fascinating to me.  I’ve had such a roller coaster ride in industry, and there have been times where I have been completely unaware of all of the new technologies or campaign ideas or where the money is going, and not really knowing the ins and outs or whys as much as I should have. I think a lot of artists are encouraged to not worry about it; they are encouraged to keep the creative and business side of the music business separate. I love the idea of looking at music as a purely creative endeavor, but I’ve had enough years in the business to know that it has ultimately been a disservice to me to not understand how the marketing and business works.  It really changes fundamental business decisions. Having a team is great, but building up your own education is only going to help you.

MK: How did you find out about the course?

RY: My friend Kevin Salem. He’s my mentor and producer, and he’s been involved in music for 30 years. He’s seen me since the birth of career, and witnessed my experiences on two major labels to becoming independent. He’s seen all the transitions of my career, from playing for five people to playing for 1000 people.

He’s a DIY sort of guy when it comes to the business of music, and he was talking about Topspin as a great way to engage with fans, and was talking about the whole DTF idea, all terms I was sort of aware of, but because he suggested it I paid attention.  I researched what Topspin was, and who uses it, and came upon the class in my research.

I released an indie record last year, my first one working as my own label.  My team for that round was guided by management, MRI Distribution and RED.  They did a fabulous job, but to extend my experience for future releases, particularly with DTF, I wanted to learn how Topspin could help. The technology associated with Topspin can be overwhelming at first, and I was concerned about whether or not I was qualified to even take the Topspin course. I have a great philosophical background and I have a lot of experience, but I was frightened of the tech part. So I reached out to the student advisors at Berkleemusic, and ultimately just took a chance, and I’m so glad I did. If I hadn’t enrolled, I’d probably still be sitting here fishing for tips on the Internet. It’s so much more of a class than I thought it would be.

MK: How so?

RY: First, it’s a great overview of the industry in general.  The course bridges terms on the technology side, on the marketing side, and on the direct to fan side.  It really brings it all together.  Each lesson is totally focused on a particular area of marketing or business.  For example – we have discussions on areas outside of DTF marketing, like third party online retail, and we talk about things like the pros and cons of Spotify. The focus areas are things all artists should think about. You also get the ability to have educated dialogue with your classmates and your instructor about the things that affect all artists. There are so many tools now to help expand your fan base. It’s huge

Every label, or manager, or advisor, in whatever way, they all have their own system for working.  There is the old school way, and then there are the new Amanda Palmers of the world.  There are varied options for moving forward in your career. This is an objective course, and it shows you how things are changing, and why some things have failed. It also shows you the potential options for the future, and let’s you decide what is best for your own career.  The course does not have you adapt to a particular ‘one size fits all’ philosophy, as that is out dated. I find it all very empowering.

I’m working on my Spinshop online store right now, and I’m excited to have an outlet for creative releases that go beyond just the record download.  With a new knowledge of things like data tracking, merch margins, and specifics about my fan base, I can create bundles of offerings that I think will be more in tune with what my fans are craving from me.  To be able to turn my website into a supportive business platform in this way will offer more funding for things like touring and future releases.  Also, compiling things like geographical data on my fan base allows me to get a better handle on places I should be touring that I may have missed.  Again, the bird’s eye overview on your fan reach that you start to get by taking this course allows you to coordinate all sorts of campaign ideas with each other.  You learn how to see what’s working and what isn’t, and get the tools to make smarter decisions all around.

MK: Can you talk about your instructor, Chandler Coyle?

RY: Chandler is so knowledgeable about technology, and how you can use technology to work for you to do something.  Also, his overview on the broader campaign concepts is awesome.  His insights on the assignments are super thorough, and he’s always making suggestions about things I may have missed. He does a great job of adding daily updates, and because of the articles that he is posting, I am now following some really fascinating tech folks.  Coming from a place where music technology has scared me, it’s great.  I am so interested in it now.  He’s really good in showing you how technology is used effectively in the music business, and he does a great job of bringing it all forward. I think he’s been supportive of me too because I have been so engaged in the course.  He’s always willing to expand on things.

Chandler provides a constant influx of great ideas, and I think it’s really good to have somebody acting as a moderator in the course. Having someone to tie these things together is invaluable.  He’s great at bringing ideas down to earth.

MK: Can you give me a quick example of something that’s changed for you since you took the course?

RY: Sure.  There was a morning a couple weeks back where I wanted to create an email for media widget.  I’ve never pictured myself sitting back making widgets, but I built one pretty quickly, and I was able to get 100 new fans in an hour, on a Saturday.  I couldn’t believe that I had just made something like that, and received that kind of response.  The direct gratification is so important for an artist like me. I’ve always had webmasters, and I would have to wait two days to upload something.  To be able to pull something off on my own is awesome.  In the future, I can assign this sort of thing to someone else, if I want, but now I know the specifics about how it all works, and what can be done.

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Grizzly Bear was blowing up my Twitter feed this weekend after asking the question: what’s up with Spotify’s payment model?  It’s not an uncommon question lately, likely due to the fact that no one can seem to pinpoint how exactly the service pays artists.  Grizzly Bear themselves claim to get about $.001 per stream, David Harrell from Digital Audio Insider averages closer to $.004 per stream over the past three years, and this infographic, which circulated widely a while back, indicates that artists on a label are paid $.00029 per stream.  So, what’s the deal?

The confusion is warranted – the interactive streaming payment model that Spotify, Rdio, MOG and Rhapsody use is less transparent than the permanent digital download model that iTunes employs, for example. The payments are variable, and payments are made to labels who distribute to their artists directly, which further obfuscates the process.  That being said, the subscription based interactive streaming model will likely continue to play a growing part in the future of music consumption.  As the most recent 2011 RIAA Year-End Shipment Statistics outline, subscription services were up 18.9% in volume from 2010, and up 13.5% in revenue. Small numbers compared with CD and permanent digital download (MP3) revenue and units shipped, but impressive when you consider that one of the major interactive streaming companies, Spotify, has only been active in the US since July of 2011. As we move towards a world where interactively streaming music will be one of the many growing options that consumers will choose to listen to music, it makes sense to understand how the financial process behind subscription interactive streaming works.

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I’ve known D.A. Wallach for several years, after first interviewing him for my Online Music Marketing with Topspin course.  In addition to being the lead vocalist and songwriter in Chester French, D.A. works with Spotify as their “Artist in Residence.”   Below is a transcript of a conversation I had with D.A. about Spotify’s payment process.

Mike King: I feel like there’s a disconnect between artists and Spotify in regards to the mechanics behind Spotify’s payments.  There’s a lot of discussion about the deals that Spotify has with the major labels, and how the payments to indie artists vs. the payments to major labels is lopsided. Is there any difference between the payments Spotify makes to the majors, and the payments Spotify makes to indie labels or indie artist services like TuneCore or Cd Baby?

D.A. Wallach: We treat payments to indies and major labels the same way.  Let’s take a step back first and talk about some of the basics with the service.  We make money in two ways.  We make money through advertising to free users, who have access to Spotify only on computer.  The service is interrupted by ads, and the functionality is a lot like YouTube.  There is no mobile option for free ad-supported users, either.  Second, we generate revenue from selling subscriptions.  In the U.S., a subscription is $120 a year.  In the U.K. it is ₤120 a year, and in the E.U, it is €120 a year.

We aggregate all of this revenue from these two streams, and distribute back 70% in royalties based on a pro rata share in accordance with the popularity of a piece of music.  For example, if one of your songs has been streamed 1% of the total number of streams in a month, you will get 1% of the 70% of royalties we pay out to rights holders.  We pay this out to whomever owns the music.  If you are going through TuneCore, we’ll pay them directly, and because TuneCore takes no percentage on the revenue, whatever we pay TuneCore on behalf of the artist goes directly to the artist.  If you are signed to a label, we’ll pay the label, who is then responsible for paying the artist based on the contract the label has with the artist.

MK: Can you talk a little bit more about the revenue split between publishers and master rights holders?  How is the 70% of revenue you pay out split between publishing and the master side?

D.A.: With the publishing side, it’s a bit of a complicated formula. The rates are statutory, and have been negotiated with the PROs.  [NOTE: A good starting point to understanding how the interactive streaming services pay publishing royalties is this article from The Future of Music Coalition. Boiled down to basics, interactive streaming services pay a mechanical royalty rate of 10.5% on the revenue they generate, MINUS any amounts for performance royalties. In other words, services like Rhapsody and Spotify are subject to both a mechanical and performance royalty, but the entire compensation for songwriters and publishers from any limited download or interactive streaming site is "capped" at 10.5% of the site's revenue.]  In the U.S., we use Harry Fox as our service provider, and they do the distribution to the publishers.

MK: So there are no differences between what you pay a major label and what you pay an indie label?

D.A.: We have thousands of deals with all sorts of entities including distributors like the Orchard and TuneCore, the majors like UMG, and thousands of other independents.  The basic principle of the deals and the rough numbers are within a small margin in all of these deals. At the end of the day, the indie artist is not at a disadvantage compared to a major label artist, and we feel that all artists are being compensated fairly.

MK: Why do you think that there is so much confusion about how Spotify pays artists, and a general concern from artists about the payments they are seeing?

D.A.: I think there are three answers to this question.  First, we’re not a big company.  We have four million subscribers, and 15 million active users at the moment.  These are satisfying numbers but they are not staggering numbers.  We’ve paid out a good amount in royalties so far, close to $200 million dollars.  I think that people are comparing what we are doing to iTunes, which is not a legitimate comparison.  iTunes is orders of magnitude larger than we are.  People are expecting to see iTunes numbers, but we’re not there yet.  The second answer is that people need to transition from unit-based thinking to consumption-based thinking in terms of royalties.  We feel the metric of success should be based on how many people are listening to your music over a period of years, as opposed to looking at how many units are shipping in one week.  People are used to seeing big numbers from a unit-based model, but that’s really front loading what is happening. Comparing iTunes sales with Spotify payments over a two month period of time is not a great way to look at things.  What we are trying to create is a system in which you earn royalties forever for good music, and the time horizon is simply different than what folks are familiar with now. One can actually think about a download sale as a down payment on all future listening that a fan will do. If you took the effective per play rate that I’ve paid for every time I’ve listened to my Dark Side of The Moon CD, it would be trivial compared to what I’d have generated if I’d done all that listening on Spotify. The third answer is that it’s a confusing model since it is unfamiliar.  There is no fixed play rate, and as we grow, our royalty base constantly expands, driving higher and higher royalty payments. There is also confusion that arises from the fact that we pay royalties (just like iTunes, by the way) to whomever owns the music. In the case of a band on a label, the label generally mediates the accounting of those royalties. My band was on UMG, and when I look at my statement, as one example, it’s confusing. I personally hope that the conversations about Spotify royalties actually lead to efforts at increasing transparency in the entire digital music system. We’re very proud of the hundreds of millions in royalties that we’ve been able to pay out to the creative community, and we want the flows of revenue to be clear to artists.

MK: So to reiterate, as Spotify grows, the pool of revenue will increase, and the royalty rate will increase for rights holders.

D.A.: Yes, the larger Spotify gets, the larger the royalty rates should be. The royalty rates we’ve paid out have been growing at an exponential rate, and we expect this to continue.  If we can get to the scale of Netflix – which has 20 million subscribers – we estimate we’d be paying out to artists what iTunes is paying out on a year to year basis. This is a simple calculation based on the average download consumer spending $60 a year with iTunes, and the average premium subscriber paying $120 a year with Spotify.

MK: Do you think that Spotify is cannibalizing other revenue streams, such a downloads or physical sales?

D.A.: In no market where we exist has there been any data illustrating a downturn in physical or digital sales.  Many labels view us as an extra check, as a purely additive income stream, and I think this is an accurate way to think about what we are doing.  Our main demographic is 18-29 year olds, and in many ways, this is a generation who has never paid anything for music.  They grew up with P2P services, and most of these folks are paying for music for the first time in their lives.  It’s found money for artists and rights holders. On an individual artist level, we’re paying out royalties of $200-300 thousand dollars a month for some of the biggest acts.  The bottom line for us is that we have paid out nearly $200 million in royalties and we feel we are making a real contribution back to the music business. Not all artists are earning big checks, but this reflects a small user base and their relative level of popularity. It is also true that if not a lot of people buy your album on Amazon or iTunes, you won’t be seeing massive payments, either. That being said, we are a newcomer to the market, we’re making huge strides, and it will only get better.

 

I had Matt Stine as a student in the inaugural run of my Online Music Marketing with Topspin course, and it’s a thrill to see him put the sales and marketing tactics we discussed in the course into practice with his artist Clinton Curtis. It’s equally thrilling to see his work presented in outlets that I admire, like Mike Masnick’s Techdirt.

I’ve pasted Matt’s guest post in Techdirt below. Congratulations Matt!

Case Study: Clinton Curtis Connects With Fans And Gives Them Good Reasons To Buy His New Album

Ever since Mike Masnick introduced the concept of CwF + RtB, he has been confronted time and time again with the argument that this concept can only work for well-known artists with large established fanbases. And time after time Mike has provided evidence that CwF + RtB can work for any band or musician at any level. Clinton Curtis’ latest release campaign for his new album, 2nd Avenue Ball, is a prime example of how a new artist can use the concepts behind Mike’s formula to build a foundation for a successful career while earning money along the way from a small group of “super” fans.

Clinton Curtis’ 2nd Avenue Ball comes out today, March 22nd but it has been available for Pre-Order since March 1st. My company, 27 Sound, has been responsible for every aspect of the campaign, from producing and recording the music, to designing ClintonCurtis.com to developing the marketing and promotion strategy. Although technically this is Clinton’s second album, Clinton is still very much a new artist, and we treated this latest release as if it was his first. Clinton had been playing a lot of shows locally and regionally over the past year, and acquired a decent amount of email addresses at those shows. We knew that a small percentage of those fans would likely support Clinton going forward. Our goal was to offer something unique to those fans already in Clinton’s network and at the same time create ways for Clinton to connect with potential new fans.

In designing Clinton’s website, we wanted to make sure we were giving Clinton’s fans a reason to return to the site on a regular basis. We created two new elements — CC Radio and CC Connect. CC Radio is essentially a bi-monthly live show, broadcast directly to clintoncurtis.com. Each episode features members of Clinton’s band, guest musicians, friends and even Clinton’s fans, getting together at 27 Sound Studios to perform a solid hour of music. Powered by Ustream, it’s really simple to use, easy to integrate into the website and shareable across all major social networks. In fact, Clinton’s album release party will actually be a CC Radio episode (9:30PM EST tonight, Tuesday March 22nd) which is a much more effective use of time and money than trying to throw a big party at a NYC venue. CC Radio is an exciting way to keep fans coming back to the site and a great way for Clinton to connect directly with his them. It has been a huge success in only it’s first two months. The fans love it, and the easy sharing capability brings more traffic to Clinton’s online store.

Once fans reach Clinton’s Online store we wanted to be sure that we gave them plenty of incentive to buy directly from us. We created CC Connect, Clinton’s “VIP” fan club, to add value to all of our direct-to-fan offerings. Any package purchased through clintoncurtis.com comes bundled with a lifetime membership to CC Connect. CC Connect members get free download packs each month featuring exclusive previously unreleased music, live recordings, studio demos, audio from CC Radio episodes and more. They also get ticket and merch discounts as well as an entire fully-produced album recorded exclusively for CC Connect members each year. By doing this we add a tremendous amount of value to each package we offer through the site, giving fans a good reason to buy.

For 2nd Avenue Ball, we worked hard to come up with a variety of packages that we think will please Clinton’s fans and drive their support. I won’t go into too much detail here on each one, but there are a couple of noteworthy items in the biggest, Super Fan Deluxe Package that I think might interest Techdirt readers.

Each of the 50 Deluxe packages come with gatefold vinyl packaging but the vinyl record inside is not Clinton’s album. We don’t yet have enough demand among Clinton’s fans to warrant manufacturing and selling vinyl, but we wanted to showcase the amazing album artwork we had from an incredible young artist, Matthew Burrows. We planned on putting high quality art prints of his work inside as an insert where the vinyl record would normally go. But then we had the idea to also include an actual LP from Clinton’s personal vinyl collection. Along with the LP, each package comes with a note about what that album meant to Clinton and what significance it had to his musical upbringing. We thought this would be a cool way to make each package completely unique.

Then we thought to return the favor…. If people get a piece of Clinton’s favorite music, we should give them back some of their favorite songs, too. So anyone who orders this package gets an email from Clinton asking for their favorite song, and then Clinton records that song and sends it directly to their inbox. Yes, it will be a lot of work for us to put this together, but it will give each of these 50 fans something special that they really want. And who knows, maybe some great recordings will come of it! (In fact, almost all of these Deluxe packages have sold out at the time of writing this, and the song requests have been really cool, including one person who requested an original song that his 9 year old son wrote.)

These are just a few of the things that are unique about this campaign although there are many others (including the “Turn This CD Into A Coaster” Kit that comes with each disc!). Have a look over at clintoncurtis.com to see the package offers in more detail and explore around the site to see more ways Clinton is actively connecting with his fanbase. I would love to hear people’s thoughts and ideas on what we could be doing better. I always keep reminding our team that this is all an experiment and we need to adapt and change every day as we learn from the feedback we get from our fans. So visit the site and help us out!

Some succinct thoughts in this interview from the guitar player in Radiohead who is not named Jonny Greenwood or Thom Yorke. Ed makes two good points in here, when talking about the physical release of In Rainbows. My paraphrase:

A) consumers are set in their ways, and if you are not making your product available in all formats (and stores) you are limiting your pool of potential consumers (as well as leaving money on the table). It’s a great point, and something artists need to consider on a large scale (whether to release digital only vs physical and digital) as well on a micro level (releasing music to 3rd party streaming retailers with lower pay rates, vs releasing only to higher paying permanent download options like iTunes and Amazonmp3).

B) artists need an “equitable, fair, and balanced relationship” with whomever they decide to work with to help them market and sell their music. This goes for labels, or any other artists service based company. As Ed says, many label deals are “an analog model in a digital era.”

Watch the full interview here, courtesy of paidcontent.co.uk

Ed O'Brien

It’s not all that surprising to read that some folks are making a killing from building apps for the iPhone. As of January ’09, over 500 million apps have been downloaded, and seeing that Apple takes a 30% cut on all apps (same as their fee for sales of music on iTunes), developers are taking in 70% of the revenue of these 500 million downloads. What IS interesting to me is the marketing behind these apps, and in particular, the way that some developers are using the concept of free to generate interest in their product.

The New York Times ran an article last week on Ethan Nicholas, the guy who built iShoot, an app that has generated $800,000 in sales in five months. Take a look at how his sales progressed:

After the project was finished, Mr. Nicholas sent it to Apple for approval, quickly granted, and iShoot was released into the online Apple store on Oct. 19.

When he checked his account with Apple to see how many copies the game had sold, Mr. Nicholas’s jaw dropped: On its first day, iShoot sold enough copies at $4.99 each to net him $1,000. He and Nicole were practically “dancing in the street,” he said.

The second day, his portion of the day’s sales was about $2,000.

On the third day, the figure slid down to $50, where it hovered for the next several weeks. “That’s nothing to sneeze at, but I wondered if we could do better,” Mr. Nicholas said.

In January, he released a free version of the game with fewer features, hoping to spark sales of the paid version. It worked: iShoot Lite has been downloaded more than 2 million times, and many people have upgraded to the paid version, which now costs $2.99. On its peak day — Jan. 11 — iShoot sold nearly 17,000 copies, which meant a $35,000 day’s take for Mr. Nicholas.”

Obviously, this is an extreme example of what can happen financially for app developers, but I do think that some comparisons can be made to musicians looking to generate interest in their music online. My friend John Snyder, who runs Artists House Music, once told me “the curse of the developing artist is anonymity, not piracy.” I do believe that some form of “free” makes sense for most artists; be it a download card distributed at live shows, select music available for free on your site (perhaps in exchange for an email address), live shows for download, etc.

Traditional one-size-fits-all physical retailers are failing – Virgin, Transworld, and Borders have all either closed up shop in the US, drastically cut back on music floor space, or are taking massive financial hits. I think a large part of the future of sales in the music business is online direct to fan relationships (with supporting offline components), where artists cultivate more extensive relationships with their fans, and in the process more effectively monetize traditional and non-traditional sales options. I think some part of “free” works to engage your existing fanbase, as well as turn casual fans into hard-core supporters.

Andrew Dubber has some good thoughts on the topic of free as well. Take a look at his post on “Why Give Away Music For Free.”