Music Business and Trend Mongering

It’s likely that you’ve heard of Jonathan Coulton. Profiled by NPR and the New York Times, Coulton has been a full time independent musician since he quit his computer programming gig in 2005. After initiating an ambitious project of releasing a new song a week, Coulton started to gain momentum, making what he described as “a reasonable middle-class living” — between $3,000 and $5,000 a month — by selling CDs and digital downloads of his work on his own site and iTunes.

Coulton is prolific in his conversations with his fans online, spending time each day personally answering every email he receives. While his direct to fan approach to sales and marketing includes a partnership with CD Baby (who warehouse and ship his physical CD, as well as get his music to the online retailers like iTunes and Amazon), Coulton’s most lucrative source of income is selling online from his Website.

Check out an audio interview that Scott Kirsner, author of the new book, Fans, Friends & Followers, did with Jonathan Coulton. Interesting ideas on communicating with fans, how Jonathan is using Creative Commons, his primary sources of revenue, his trepidation about signing to a label, and more.

Pay particular attention to Coulton’s recipe for success:

• Solo artist = low overhead when touring
• Records in a home studio = low production costs
• Distributes most of his music digitally = no co-op fees at retail, lower distribution fee
• Fosters a direct connection to his fans = fans are more emotionally involved in what he does
• Few middlemen involved in the chain = most of his income is his alone

Check out the audio interview here:

Some really interesting comments in the NYT article this afternoon on Atlantic Records statement that their digital sales are surpassing their CD sales. What really struck me was how Atlantic is going about increasing their digital sales. Good quote here:

“I think we’ve figured it out,” said Julie Greenwald, president of Atlantic Records. “It used to be that you could connect five dots and sell a million records. Now there are 20 dots you can connect to sell a million records.”

I really think the same can be said for developing artists. A common thread in my course (as well as the other business courses that we’re teaching here online) is that diversifying your revenue streams and engaging in niche marketing is a big part of making it work for musicians these days. Check out what Atlantic is doing:

Replacing compact disc sales are small bits of revenue from many sources: Atlantic Records’ digital sales include ring tones, ringbacks, satellite radio, iTunes sales and subscription services. At the same time, record labels — Atlantic included — are spending less money to market artists. In the pre-Internet days, said Ms. Greenwald, “we were so flush, we did everything in the name of promotion.” Among the cutbacks are less spending to produce videos and to support publicity tours when a new album is released.

The same principles can be (must be) applied to developing artists. Get your music out to Pandora (who accept indie submissions), start selling ringtones, start selling merch off of your own site, use TuneCore or CD Baby to get your music up on iTunes. Be aggressive with your outreach, and targeted with your outlets.

I’ve talked at length about the fact that it’s certainly easier (and cheaper!) than ever to sell your music online using CD Baby or TuneCore as a digital distributor. And while I think it makes all the sense in the world to get your music out to iTunes, AmazonMP3, and the other online retailers, it’s also important to sell directly to the fans that are visiting your own site or blog. Selling from your own site not only provides you with the opportunity for a higher percentage of income than selling through a third party site, but it also affords you the ability to creatively price your music, offer higher quality FLAC or lossless files, put songs up for a limited period of time, or engage in other subscription pricing models (like what Ari Hest is doing) that is not easily possible with third party online retailers.

Where do you sign up, right? Well, that’s the catch. The process of setting up an e-commerce store on your site is not necessarily the most straightforward thing to do. Andrew Dubber, whom I first heard about when he published his free e-book 20 Things You Music Know About Music Online, has a great post on his blog outlining his research on selling music online. He outlines several options from straight up outsourcing it (easiest option of course, but also most expensive), to open-source e-commerce platforms and plug-ins (the most interesting being this free WordPress plug in).

Check out Dubber’s complete post here.

Well, there’s certainly no shortage of news from the major labels lately. Following recent announcements from Warner (who are presenting a vague idea to charge people a flat fee for all the music they care to download from peer-to-peer sites), and Sony/BMG (who’s head, Rolf Schmidt-Holtz, revealed that he supports the idea of a DRM-free unlimited music service), The New York Times today reported that three of the four major labels (EMI is rumored to join soon) have struck a deal with MySpace to launch “MySpace Music.” The deal will be set up as a joint venture, where the labels will receive an equity stake, and MySpace will control and operate the organization. Reuters news service claims the service could launch in days.

Some interesting points:

• The major’s entire catalogs would be available.
• The labels will stream their music for free, and be paid through advertising dollars (MySpace apparently makes $70 million a month in advertising revenue currently).
• Tracks will be available for download DRM-free, so they can play on any MP3 player.
• The labels will also use the outlet to sell artist’s merch, ringtones, and tickets (which, thanks to the 360 deals the majors are going for now, will provide additional revenue streams for them).
• There is also a possibility of a subscription-based component that would allow users to pay a monthly amount for unlimited downloads (likely through subscription DRM).

It looks to be a real win-win situation for the labels (as well as consumers), apparently made possible through Universal settling their 2006 lawsuit against MySpace for roughly $100 million (which is rumored to be part of the deal).

The only wild card is if folks can be convinced to actually purchase music through MySpace. Shawn Fanning’s Snocap, which folks can currently use to create an online store on MySpace, has not been popular (check out what Derek Sivers, CEO of CD Baby, said about their past arrangement here).

I’ve talked a lot about how TuneCore and CD Baby are great online distribution options for independent bands. The two are set up differently, with CD Baby taking 9% of sales, and TuneCore making money on a $19.98 annual fee plus $.99 per store per record upfront costs. We run the numbers in my course on which is the better option for online distribution, and at low sales, there is very little difference between the two services. But at higher sales figures, there’s quite a bit of difference.

Eliot Van Buskirk at Wired’s great music blog just wrote a quick piece on what Trent Reznor likely paid to distribute his new record, ‘Ghosts I-V’ to Amazon. It’s really pretty amazing:

“Trent Reznor found a great deal for distributing his comprehensive new Nine Inch Nails album to the Amazon MP3 store: going through TuneCore, while keeping ownership of the master recordings and 100 percent of royalties. Now we can see why he was so eager to leave his record label.

This is assuming TuneCore charged Reznor its standard for delivering a 36-song album on the Amazon MP3 store for the first year; I have a question in with TuneCore to try to confirm:

$35.64 ($0.99 per track)

$0.99 to put one album in one online music store

$19.98 charge per album

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$56.61: Total cost to distribute Ghosts I-V to Amazon MP3

That’s not the only efficient aspect of Reznor’s plan. He’s using BitTorrent to distribute the first 8-song volume of the album to fans for free, and the innovative aspect of the release generated lots of (deserved) press attention.”

Trent is using a Creative Commons license with this current release, which I also think is noteworthy

With everything that is happening right now with the Copyright Royalty Board and the new mechanical royalty rate discussions (which will be the first time ever that rates are set for digital products such as digital downloads, subscription services and ringtones – more here from Eric Beall), I thought it might make sense to talk about how you, as an independent musician, can get into the digital music retail game. I did a quick interview for CNN/Fortune last week on the topic of digital distribution, which is a fair enough primer on the basics. Text is below, and shortened interview can be found here.

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The good news is that a lot of what independent labels did for artist in the past can now be accomplished by the artists themselves. Distribution is key among the tasks that in the past were monopolized by labels and are now open to almost anyone through forward-thinking online distributors. Two companies in particular have empowered artists to get their music on iTunes, Rhapsody, eMusic, and the other online retailers: CD Baby and TuneCore. Essentially these online distributors do exactly the same thing – they have direct relationships with the digital retailers and provide a bridge to get your music into the stores. However, they operate slightly differently. CD Baby charges a small fee (currently 9%) for every sale that generates online. Tunecore charges no fee on sales, but instead charges a one-time fee, per store, per album for delivering the music, and one-time charge per song you upload (both charges are currently $.99), plus a $20 annual fee. You’ll need to run the numbers to see which one works best for your particular situation. There are other online distributors popping up all the time, but these two are the most established and have a proven track record of success.

One important factor to note: distribution follows marketing. One does not market their music by getting on iTunes. The key is to generate interest outside of these retailers and to drive folks to the outlet so they will buy your music. This is best done though a fully integrated marketing campaign that focuses on effective traditional outlets, and also takes advantage of the marketing outlets and technologies that are now available to the independent musician (Internet marketing is a big part of this, of course). Quick advice: be sure to have your own Web page to start (do not make the mistake of only having a MySpace page), and tour, tour, tour. Of course, checking out my Music Marketing 201 course wont hurt either. ☺