Show Me The Money!

If you want to make money in the music business as an artist, then you must treat it like a business. Or else consider living in a Socialist country (or perhaps in France), where some people still get paid for doing nothing. There is no divine right to earn money on creative content. Content may be king, but only the truly creative rules. Those with the right to wear the Golden Crown create what people want to consume, especially on the Internet, where virtually anything can be found for free. So how can artists make money? In addition to their art, where else should they apply their creativity?

There are actually many ways for artists to make money: live performances, selling albums, selling merchandise, selling synch rights, etc. And then there is digital distribution, although selling downloads is a bit iffy. We all know that Apple makes most of its money selling its iPods--not selling tracks on iTunes. The percentage of tracks sold on download stores relative to those pirated from p2p sites (or even sold in the brick & mortar world), is small. It may not even be possible for most artists to make money through digital distribution.

Is it possible to for artists to make money on MySpace and YouTube? Music is definitely a part of the experience on such sites. Yet, other than the founders who sold their shares in these companies, who is actually making money? Not the artists. Only the entrepreneurs, the businessmen. (Yes, sad to say that they were all men--but we women will have our day!) The companies that purchased these headline-grabbing sites have bet mucho money on their ability to monetize content through advertising/distribution models that have yet to be tested. Sure, there might be a bit of money for artists if these sites start paying rights holders (as per copyright law!). And consider the advertising revenue share model offered by Revver and a few others.

There is one small catch, however: YouTube certainly wasn’t profitable before being sold to Google. And I would wager that if the revenues and costs of MySpace were segregated from Newscorp’s other businesses, MySpace just might not be profitable. Why? Because the costs of streaming and hosting, plus company overhead, are much higher than the currently-generated revenue. We don’t hear much about this in the press.

Advertising is touted as the new revenue source for artists But so far there is no profit in advertising revenue related to streaming music on social network sites, and for good reason! It’s costly to host and stream video and audio content. And the advertising rates at present are not sufficient to sustain such costs, primarily because the mostly-young audience doesn’t spend much money online.

If advertising revenues are to be made by artists on the Internet from sites like MySpace (assuming MySpace decides to share revenue with the artist--or at least pay royalties), then advertisers will have to pay higher rates. If they are to do so, they must be assured of the value of spending such advertising dollars. One major factor in determining advertising’s potential value on any site (or billboard, TV station, and other medium in the brick & mortar world) is the audience attracted and whether they are likely to buy the products being offered. Another factor, one that cannot be stated strongly enough, is the advertisers’ concerns about being associated with “inappropriate” user-generated content. Nestle is unlikely to want its ads appearing on YouTube next to a high school girl reenacting Debbie Does Dallas.

The audience attracted to a particular form of music determines the ad revenue generated, or CPM (cost per thousand impressions). But, first, sites need to profile users so that advertisers know who the audience is for any particular band. Next, musicians need to think of the audience they want to attract. Most musicians don’t have a Brian Epstein (the Beatles’ manager) so they must do it themselves. The challenge for artists, then, is to find an audience (that will earn them money) and create music that is good enough to be passed along, which is what drives success. This has done, and always will do, the job.

Older audiences with high disposable incomes will generate higher advertising than teenagers living at home with their parents. Does this mean there is no room for creativity? Absolutely not! But it does mean that all music is not created equal, especially in the new world of digital entertainment. A talented teenage West Coast rapper has a market, as well. It may just be that the artists who succeed in earning money through online advertising are those who apply their creativity not only to their music but also to creating music that appeals to people who spend money and therefore generate advertising revenue. For some artists music is almost a promo tool used to capitalize on other income streams. But that’s OK; there is still a lot of money to be made for artists who are GOOD. And there will probably be more money when major labels give consumers what they want--unrestricted MP3s and a lot of music for a lot less money. Whatever the audience, artists have to 1) be amazing, 2) build their own brand, and 3) know their audience.

None of this means homogeneity rules in digital entertainment. Making money in music, however, does mean creating more universally-appealing music--music that appeals to adults or music that appeals to niche markets that advertisers want to reach. The alternative is to stick to the old model: selling synch rights, performances, merchandise, CDs (digital revenue is only about 12% of the market). We’re going back to basics here, like life before the phonograph. Music is a service where the experience has to be monetized, rather than simply the product. All of the old world channels, however, also require the application of business principles and knowledge of the potential fan. Why should digital distribution be any different?

Posted at 10:55AM Jan 18, 2007 by shelley in Music  |  Comments[5]