ryangutierrez.com - Making Life Better One Step At A Time

I was listening to last week's MacBreak Weekly today and they spent a lot of time talking about the state of the music industry, as usual.  If you haven't heard yet, iTunes is now the #1 American music retailer, with 19% of the market, surpassing Wal-Mart's now-second place 15%.  They also mentioned a study on The Guardian that said that 95% of 18-24 year olds surveyed said that they copy music illegally.  The general consensus on the show's pundits was that we have an entire generation of people unaccustomed to paying for music because it's more convenient to download it illegally.  Of course this is a similar view that the RIAA has taken, as well as the majority of the music industry as a whole.  Unfortunately, nobody involved seems to really get what's really going on here with a few notable exceptions.

The reality is that whether you like it or not, music piracy is here to stay.  The only question now is, "What the hell are we going to do about it?"  Previous efforts by the RIAA include suing old ladies and dead people and of course the anti-piracy FBI warning labels that come on most CDs.  Unfortunately, this hasn't really stopped anybody and the piracy continues.  Anybody involved in the music industry, whether its on the artist side or the business side needs to seriously re-consider the way they think about the purpose of music from a business perspective.

Instead of clinging to the dying business model of selling a commodity that consumers are currently getting for free, everyone involved needs to embrace it.  Let's harness the power of music piracy and leverage it into something that was previously impossible.  Let's start thinking of the music as a promotional tool that helps to build a band's brand in the same way that a Coke commercial helps to build Coca Cola's brand.  Many artists make around 13% of the retail price of a CD in royalties, which can be anywhere from $1-2 per CD sold.  Not bad in a pre-internet era, but if nobody's buying CDs, everybody now thinks that there is no money to be made in the music industry and that all the artists are going to stop creating because oh god, if there's nobody buying CDs, how will artists survive?!  

Step 1: Letting Go of Your Music
Of course anybody in an independent local band will tell you that they would love to have their music heard by as many people as possible (by any means possible) and many of them have been giving away their music for free for years now.  But wait, what about the CD sales?  "How will we eat?" you say.  The reality is that anybody worried about selling CDs has never thought about the money made from touring and merchandise.  That's where the real money is.  A $15 t-shirt that you sell at one of your shows has a profit margin of anywhere between $7 and $10.  At that rate, selling t-shirts is 3.5-5x more profitable than selling CDs and the best part is: you can't download a t-shirt! 

Touring has got to be even more lucrative.  I guarantee you that if Michael Jackson were to do a North American amphitheatre tour, he could charge $100 per ticket and sell out as many dates as he cared to perform, regardless of how many little boys he's touched.  Now I don't know exactly how the profits are split between the artist, management, promoters and venue, but if you sold 5,000 tickets at $100 apiece over the course of a 50 date tour (5 nights in 10 major cities), you'd have a gross of $25 million.  Throw in the profits from Michael Jackson t-shirts, posters, beanie babies and whatever else his people can come up with and you're talking a nice chunk of change that would take years to make off of CD sales. 

By embracing what has already become embedded into our culture, it has now become easier than ever to make a living from your music.  Just because nobody wants to buy music doesn't mean that they don't want to support artists.  Aside from the past two Mars Volta CDs, I haven't bought a CD in years.  But I have gone to dozens of shows and bought a t-shirt at at least half of them. 

Step 2: Give So You Can Receive
Encouraging fans to share your music is one thing, but how can you take it to the next level?  Let's say that you're ready to release every song you write from now until forever for free.  Will that singlehandedly catapult you to fame and fortune?  A few years ago if you were the Arctic Monkeys, that might have been enough, but Trent Reznor of Ninch Inch Nails fame has recently upped the ante.  With the recent release of Ghosts I-V, Reznor has taken the idea of freeing the music to the next level and singlehandedly invented the future of music distribution. 

Recently freed from his major label recording contract, Reznor decided to put out his latest album as a soft of hybrid digital download/CD release.  Instead of just giving the album away for free like Radiohead did with In Rainbows, Reznor upped the ante by introducing an innovative method for maximizing the revenue that can be made from one album's worth of material.  In addition to giving away half of the album for free, you can buy the whole release for a mere $5 which includes all the tracks in either high quality 320kbps MP3 format or lossless format which preserves all the quality of a CD.  Or you can get the double CD release for $10 and you get to download the songs after you pay while you wait for the physical CDs to arrive.  Or if you're a die hard NIN fan, you can get the $75 package which includes all of that as well as a DVD with the songs in multi-track format for you to remix, edit and re-use to your heart's content.  But if that's just not enough to satisfy your NIN cravings, Trent will personally sign the whole package and you get all of that and more for $300.  Of course that offer was limited to 2,500 people but all of them sold in a matter of days.  That means that Trent brought in $750,000 JUST from selling 300 limited edition signed packages and GIVING away half of the album for absolutely free!

In case you couldn't tell already, this man is a genius and really gets it.  He managed to prove that just because you're giving away your music, doesn't mean that you're going to starve.  There are two basic lessons here. 

The first is that you can give away your music and still survive (if you want to call making $750,000 in less than a week surviving).  The second is that you need to have different price levels and products for the different levels of fans.

Just like a clothing store sells jeans in a myriad of sizes and styles, a band should also have a similar product offering for potential fans, new fans, die hard fans, and fans with the band's logo tattooed on their backs.  Imagine if he had put together a $1,000 package that included everything listed above as well as 2 front row tickets to the NIN show of your choice next time they tour.  I'm positive that if he would have limited that package to 100, he could have made an extra $100,000 in the same amount of time because he has fans that love NIN that much. 

His offering for potential fans is the 9 completely free tracks.  For existing fans, there is the $5 download or the $10 double CD.  For die hard fans who may be artists themselves, there is the $75 package, and for the die-hards, there is the $300 package.  It's pure marketing genius.  Kudos to whoever came up with it (if it wasn't Trent himself) and Trent for listening because it looks like it paid off in spades. 

Step 3: Free The Music All Over Again
So now you've come to see your music as a promotional tool that should be offered for free to as many people as possible and want to take it to the next level.  Where do you go from here?  The answer lies again with Trent Reznor and another innovative band you might have heard of called Radiohead.  In the $75 Ghosts I-V package, you get a DVD with all 36 tracks in multitrack format which means you can import them into your audio production software of choice and remix, edit and sample the individual instruments and sounds themselves.  Think the bass should have been turned up during a bridge?  Now it's yours to turn up.  Think that Trent would sound better with a Daft Punk-esque vocoder?  Now his vocals are yours to vocode. 

Allowing your fans to experience your music in a way that was not possible before means that they are engaged with your music longer which means the bond they form with it is stronger.  If you spent all afternoon remixing a NIN song, wouldn't you be anxious to share it with all of your friends so they can see what a talented producer you have become?  However, this is one area in which Trent can take a lesson from our British pals from across the pond.

On April 1, Radiohead announced that they were going to allow one of their songs from In Rainbows to be remixed.  Nude was released in "stems" on iTunes which means that you can download the individual instruments from the songs to make your own ultimate remix.  Sounds similar to what Trent was doing, except for the fact that Radiohead made an entire community out of it.  Fans were invited to purchase the "stems" from iTunes and then submit the final product to radioheadremix.com where the songs would be voted on and the most popular ones would rise to the top for everyone to hear.  Talk about user engagement.  That's about as good as it gets!