Making money online with your music

...There is an even bigger philosophical question—why does a hobbyist "deserve" a break in the first place? The most common argument is that big media do not play indie music, and indie artists and labels would receive free promotion they otherwise would not receive. While I wish this were true, I am just not as convinced as others that this type of promotional webcasting greatly benefits artists or labels.

There may be some anecdotal evidence that some listeners "find" new artists and then "buy" the music. But I think the point is way overblown. I am more inclined to believe—based on the experience of my artist and indie label clients—that some listeners "find" new music and then, more often than not, illegally download the music.
Think about what you just said for a moment: Following that logic, the U.S. recording industry might just as well turn off the lights and go home!

Why? Because you're implying that no matter what you do—get people excited about music again, get stellar reviews in the press for a great new band, showcase an artist on Letterman and Leno—there's no point to it, because the people who learn to like an artist's work are simply going to illegally download it.

I think that sums the essential malaise of the record industry, Jay. It seems to me—and to friends of mine who've left the major labels in recent years—that the music industry has given up on trying to sell music, and is just trying to legislate and sue its way into protecting whatever cash it can as it fades into its demise.

But it doesn't have to be that way! Let me suggest six ways the music industry could take advantage of the growth in webcasting—and other related technological developments—to maximize its health.

(First, though, I would like to circle back to your above quote for a moment. When I discovered an artist named Bruce Springsteen back in 1973, I lived in a dorm where there were more copies of Greetings from Asbury Park, N.J. dubbed onto TDK SA-90 audio cassettes floating around than there were actual copies of the LP. In other words, as you say above, "more often than not" people had an "illegal" copy. But records still sold! In fact, it was thanks to the illegal copies that Springsteen gained new fans who later went on to buy actual legal copies of his future releases! If you think about this from a lawyer's perspective instead of a marketer's perspective, things go haywire, because your instincts are to try to stop the dubbing, but if you succeed, you're worse off than if you didn't. Whoa, there's a parallel here! If you think about Internet radio royalties from a lawyer's perspective instead of a marketer's perspective, things go haywire, too, because first you get the laws worded in your favor, and then you field the more aggressive legal team, and then you win a super-high royalty rate. But it shuts down an industry that was actually good for you; so by succeeding, you're worse off than if you hadn't.)

So, trying to get back on track now, here are my six suggestions:

1) Take advantage of the Long Tail: To expand on what I wrote on Monday, Internet-delivered radio is revealing the true "long tail" of consumer demand for different musical genres. Example: Even though reggae isn't a popular enough format to deserve one of the 20 available slots on a given city's FM band, there in fact is a reasonable amount of consumer interest in a reggae-formatted radio station. (In any given city, perhaps only a few thousand people. But nationally, that's hundreds of thousands of people!) And there is a reasonable amount of interest in traditional jazz, Broadway, blues, Celtic, electronica, bluegrass, yoga music, classical oboe... This is the direction that music sales will move in—fewer sales of the big hits (which you may think is caused by casual CD burning or peer-to-peer file sharing, but very well could be primarily due to this phenomenon) and more sales of everything out there at the long tail. Labels who adjust to this change in consumer behavior will have a better chance of thriving.

2) Rethink CD pricing: A typical music CD contains about 50 minutes worth of audio and sells for about $12—and a Best Buy shopper back in 2001 might have thought that was an OK value. But in 2007, in the "TV Series on DVD" section of the store, that same Best Buy shopper now sees that somehow the video industry has managed to pack 20 hours' worth of video, plus audio, often with incredibly expensive production values (e.g., Alias season 3), into more attractive packaging, and somehow offer it at a price point of $30. So, you hold one in each hand—in your left hand, 40 minutes of audio for $12; in your right hand, 20 hours of video plus audio for $30. And you think, "Hmmm..." Other industries are learning that you have to compete on price and value, and that sometimes when you lower prices, you increase your total sales volume. Given the improved value your indirect competitors (DVDs, video games, etc.) are offering, I really don't think your clients can hold the $12 price point.

3) Rethink download pricing: Technology has handed the music industry a potentially wonderful new opportunity—tens of millions of people now own MP3 players that hold up 20,000 songs each. What a potential market for download sales! But what's the ideal price point? Let's take a teenager as our example: Jeremy owns an MP3 player that holds 20,000 songs. At the right price point, you can get him to buy a lot of songs. Is the right price point $1 or $1.30 a song? Do you reasonably think that Jeremy is a prospect to pay $20,000 or $26,000 to fill his MP3 player with music? No, he isn't! That simply cannot be the right price point. (It's also ludicrously high on its face—when there are no costs of shipping a physical product, the price should obviously be lower than when there's a physical product. Consumers know this.) Find the right price point, and you'll invigorate your industry. (BTW, I know you offer "rental" plans that can fill an MP3 player for $15/month. But they lack broad appeal because we live in an "ownership" society.)

4) Rethink your approach to peer-to-peer file sharing: Record labels in the 1930s tried to prevent radio stations from playing their LPs because they thought it would hurt sales—after all, why would someone buy the disc if the radio was playing it for free? As it turned out, airplay actually helped sales! The Bing Crosby records that got airplay sold a lot more copies than those that didn't. The same may be true of P2P. Remember, the music industry's best year ever coincided with P2P's strongest year ever (i.e., the year Napster was at its peak). People sampled vast quantities of music via P2P and they bought the stuff they liked on CD. It's counterintuitive but it might be true.

5) Quit being a jerk to your customers: Every month, the record industry causes an untold amount of pain for thousands of consumers by suing them for exposing song files via P2P services. You're causing tears, heartbreak, stress; you're taking away vacation savings and college funds. And you do it in such a way—a slow steady stream of lawsuits every month—that you derive virtually no worthwhile public relations value from it. You guys simply severely damage thousands of people's lives every month because you can. (You might respond, "They're infringers! They're not 'our customers'." But I'll bet that's not true—I'll bet they buy as many CDs as anyone else. Downloading tracks and buying CDs are not mutually exclusive activities.) You do have a point to get across: "File sharing is illegal. Don't do it." But there are better approaches that would be more effective in delivering the message and would hurt fewer people. Perhaps, for example, you could use the concept of "flighting"—if you're going to do lawsuits, do them in infrequent batches, with concomitant publicity. (Gets your message across more clearly and hurts fewer lives at the same time.)

6) Embrace your friends: Most of my recommendations above are about phenomena associated with the webcasting era but not about webcasting specifically. Here, I'd like to address that point. Virtually all Internet radio properties today were launched by music fans—people who love their genre (or genres) of music and want to see the musicians and labels involved succeed. They've designed Internet radio products that are, in fact, getting people excited about music again. (Again, see here.) Regarding this whole royalty imbroglio, to quote Jack Bauer, "You're making the wrong play." Instead of asking for a royalty rate so high that it would bankrupt webcasters and shut them down, as you did in your successful case to the Copyright Royalty Board, you'd be better off offering webcasters a livable royalty rate and a plan to work together to sell more product to consumers. If you guys do, you'll be surprised how effective working together can be!