June 28th, 2007
The Margin Manifesto: How It Relates To Indie Music
A week or so ago at FoundRead, there was a great article about the singular goal for a startup company. According to Timothy Ferriss, the goal of any company should be “profit in the least time with the least effort. Not more customers, not more revenue, not more offices or more employees: more profit.” In the label terms, it shouldn’t mean more fans, a larger roster, a video on MTV or a major deal. All of that is bullshit and more or less only about the label or band ego.
I’ve taken his initial points and put my spin on the first 5 of his 11 points for the indie music biz.
I. Niche is the New Big
The indies already know this. By focusing on a particular genre of music where their promotions and branding exercises build a rabid and loyal customer base. The more you try to branch out of your core brand, the more likely is that the entire label will become weak. So kids, stick to what you know and become a player in one before you diversify. I made that mistake with Blackout! years ago, by slipping from doing what people “knew” the label for (mosh-a-holic hardcore) and trying to move into pop-punk and indie rock. While some labels (Jade Tree) seem to be able to dance between the two worlds, I wasn’t.
II: What Gets Measured Gets Managed
How many labels really pay attention to their metrics? Most of us can’t afford Soundscan and have no use for BDS as our music doesn’t get played on commercial radio. But there are things that could really help labels target their marketing better than they do.
Start with Google Analytics. It’s robust. It’s free. It can tell you the geographic location where your website traffic is coming from. You should use it and love it. All your webmaster needs to do is embed the code they give you into a page. All your traffic coming from YouTube? That’s the place to focus your efforts. Not getting anything from that blog you paid hundreds of dollars to advertise on? You’ll know.
If you want to get an excellent primer on using these tools to your best advantage, check out this comprehensive post from Mashable!
But measurement is more than web analytics. it’s looking at your financial reports and seeing just where you made money on a release. How much did you spend on recording? How many copies do you have to sell to reach a profit?
Indie labels are no longer at the point where they can ignore good ol’ fashioned ROI and basic finance… How much do you earn from what you spent? If you sold a million dollars worth of records, and spent 1.2 million to get there? Guess what? You have a broken business on it’s way to a fabulous burnout.
III: Pricing before Product – Plan Distribution First
This is especially true if you’re a new label or artist releasing your first recording to the masses. Thinking that you’re going to make money by pressing CD’s might not be the way to go, because the precious “long tail” only works for the retailer, not the producer of content. (for more on the long tail and music see this post on my old blog.) In this day and age, is the most cost effective method using a service like IODA or Tunecore for digital sales? Are you even looking to sell music and your interest is to give away music and sell t-shirts? These are the considerations for the new music economy.
Also, are you really going to make money on selling a CD? It costs $1 to manufacture them, you need to do a minimum run, and then there’s the issue of intense competition to even get them into outlets with decreasing floor space. Wahoo! $3 a unit to buy a record into Best Buy? (that’s if they’ll even consider buying it!) No guarantee of any sales? 100% return potential? Where do I sign up???
Unless you already have a mechanism set up to deal with retail or a record with huge sales potential like the new Spoon, I have three words for you.. don’t fucking bother.
My final note on this is the pricing model. There have been significant arguments over keeping CD’s at over $10 a pop and offering more mutli-media content with them. That’s utterly ridiculous. The marketplace expects music to be cheap. Just because you can’t make your margins by selling CD’s at under $10 doesn’t mean you should raise the price. It means that the CD is not a worthwhile media for music distribution anymore.
This actually leads me directly into the next point.
IV. Less Is More- Limiting Distribution To Increase Profit
Here’s where I disagree with Ferriss. Music demands ubiquity. If someone can’t find it one place, they may not look for it at another, or they’ll just steal it.
My favorite topic of late has been the whole “labels pulling out of eMusic” debate. Sure, you make more at iTunes, $.65 per track gross. Label logic is that by pulling out of eMusic, they keep their margins higher, and if the poor little punters can’t get it at eMusic, they’ll pay the download price or buy the CD. I don’t see it that way. The alternative to low-cost sites like eMusic isn’t paying the upgraded price, it’s either STEALING it -or- NOT MAKING THE PURCHASE AT ALL. I’d rather sell 5,000 downloads at .25 ($1250 gross) than 500 at .65. ($325) But that’s me, and my label isn’t even active anymore.
V. Create Demand
Ferris says it best: “Focus on creating end-user demand so you can dictate terms.”
Many moons ago I released the debut album from H2O on my label. I was able to get amazing terms with the distributors because at that point everyone wanted that record, and retail was still in full swing. I gave discounts for COD payment and was even able to set up many direct-to-retail accounts and avoid the distributors alltogether.
But that was the old days. At this point, there’s not too much that can be done on the CD level. There aren’t all that many (any?) records out there with that kind of demand that aren’t already in long term agreements with larger distributors. Then there’s the ones and zeroes. The good thing is, with digital, there is no manufacturing and there are no returns. The bad thing is that there’s no wiggle room in pricing for digital stores. The best thing demand can do is shave off a few points of an overall distribution fee.
Your comments are greatly appreciated.
Written by Bill Wilson
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On June 28th, 2007 at 11:08 am
Rev said:
Amen to your thoughts. The only way for the business to move forward is to think in new ways and try new things. The money is still there, we just have to find a different way to make it.
On the indie vs major comments: I think more importantly than being genre specific, is maintaining a relationship with the fans aka THE CUSTOMER. They drive the business and should be treated with respect in a fashion they want.
On June 28th, 2007 at 11:12 am
Bill said:
You’re right about that. Most labels make the fans play second banana to retail and radio. Part of the reason labels like Trustkill are so successful is that they know the power of direct, permission-based marketing.
On June 28th, 2007 at 1:40 pm
Virgil Dickerson said:
Bill, great post. I agree with you on labels leaving Emusic. Loyal Emusic customers are not going to spend $10.00 on an album when they are used to paying $3.00; they will most likely not purchase it or steal it. If they really wanted it, maybe they might buy a song or two on Itunes, but in very rare cases will they purchase the album.
We have made many efforts to lower our retail prices at nearly every level of distribution and I have noticed the strongest results coming from my own webstore where fans can buy any 5 suburban home releases for $25.00; people always write saying they appreciate us doing that.
On July 8th, 2007 at 12:38 pm
dos said:
i think this is interesting and want to break down my thoughts below.
I. EMUSIC: A GREAT ALTERNATIVE TO FREE?
i have really mixed feelings about emusic. obviously it’s great for the consumer but it’s not adding up to much as a source of revenue and, frankly, for my label, whether it’s 500 or 1,000 emusic downloads, it’s not giving artists much security to know that it’s generated them half of a few hundred bucks. if it’s the case that emusic is the only way to compete with FREE, then that’s troubling. maybe there’s a more appropriate place to discuss the matter of p2p and stolen downloads so i’ll save it.
II. CDS ARE A NECESSARY PART OF A BROKEN SYSTEM
A. PRESS / RADIO
the other point i would take some issue with - even though i WISH it were as easy as you suggest - is the production of cds. I’m a vinyl guy. i always have been. i grew up with it. i love it, care for it, etc. In fact, i don’t think i’ve ever gotten past the awkwardness of cds - in appearance, as display items, etc. - but what makes me nuts, and it’s a point you didn’t touch on, is that the press and radio still demand to have physical product or else your music will get no real traction. I have offered to send downloads of an upcoming release through yousendit or one of those sites and these guys can’t be bothered. they have to have the physical product and with that you’ve got your added costs of postage, mailers and time - bringing costs up to,say:
$2 bucks a unit per cd
$1.82 per unit for mail
$.25 for your mailer
plus whatever other printed crap you add.
I used to send discs outside of jewel cases in mylar bags - akin to record sleeves - and received complaints about them getting lost too easily. On a similar note, i’d send out pdfs of the 1 sheets. with many of the press guys THAT didn’t fly! Here’s what one fella from a notable publication wrote back to me:
“don’t make me have to open attachments or print emails to get tour dates and album information! we’re volume dealers here and whenever steps get added to the process, they might not actually happen. Luckily, I’m a big fan of your releases ”
B. BOOKING AGENTS
Let me add another example: I was trying to help get some artists hooked up with booking agents and one of them asked me what the soundscans were. if they didn’t exceed X amount, there’s no point in pushing the matter. What do TRADITIONAL MODELS FOR EVALUATING DEMAND like soundscans really represent today? As one example, I have an artist that has done very well in europe. they get 600 to 800 euros a gig with a packed house and fans have openly told them that they don’t pay for their music. The sense was that going to the show was making up for the fact that the music wasn’t paid for. What these kids fail to get is that there is a BUSINESS - however small - behind this that sees NO return. my label has essentially been bankrolling and promoting the development of an artist where they are organically thriving and, yet, the Italian distributors haven’t brought in more than 200 units and legit downloads haven’t picked up at all. They’ve been flown over to italy and france three times in 2007 alone and have played to hundreds of people per night!
III. THE CUSTOMER
REV, i admire and believe in the fundamental idea of respecting the customer but who is the customer today in a world of rapid consumption?
I am stupidly old school and I still try to create premiums for our mailorder clientele and show that the love is reciprocal but how do you fix a broken relationship such as the one above w/ the italian fans. i don’t respect them. I understand one message that my band reported back to me - that italian fans found the stores were to expensive. This is true. it always has been. distros in europe have always taken a much greater percentage - in italy in particular - than anywhere else and they’ve passed that on to the hungry consumer DESPITE DEMANDING LOWER AND LOWER wholesale from labels / suppliers. Nevertheless, I don’t respect them. I resent them. I resent them for their naivety and i don’t know what WE can do to change that.
On July 8th, 2007 at 2:40 pm
Bill Wilson said:
I. EMUSIC
I agree it’s troubling. However, I’m a believer that the upcoming generation of consumers think they don’t have to pay for music at all. So we need to react to the world the way it is, instead of how we want it to be. The only way to plug the hole is to offer access to a large-scale content repository at a seriously discounted cost. The eMusic model is the closest to my vision, where ISP’s would charge I all broadband customers a perpetual minimal monthly fee to access a DRM free downloadable media library, in a subscribe-to-own vs. subscribe-to-rent model. Margins on this not so good? Labels need to monetize other aspects of the artist career, and create better efficiencies in their promotion and production. I wish I could envision the high-margin widget coming back into vogue.. but i can’t. The new entertainment economy is about aggregation and filtration… not a killing on one product. Which is why in the whole model of the long tail… retailers like Amazon come out the winner, not the content producers.
II. CD’s
I believe Matador, among others, has had some exceptional success in offering their promo releases via digital only, Also there are several commercial radio service companies that deliver music without CD’s to programmers. We let radio people and press people walk all over us because the view is that “they” are the customer.. as opposed to the consumer who actually purchases music. You want the stuff for free and still write with clay tablet and a chisel? Get with it or don’t get the free stuff. Social media is more important to developing new talent than print anyway.
I also understand I’m coming from the tech-savvy world of US indie, emo and punk, where the Pitchforks, Brooklyn Vegans, and AbsolutePunks are more important than any print publication. So if your label is operating in another territory or another genre… you may still have to play the game for a bit longer.
With respect to booking agents: they’re simply the last to get on the technology train because they’re still operating under the old model, as their business has simply not been affected all that much by digital media distribution. We need to stand firm that Alexa or similar web stats on an artist can be viable barometers of potential live success as well. I think I’m actually going to do some further research on this topic and create a post about it.
Labels need to grab the bull by the balls en masse and tell the rest of the industry how it’s going to operate. They need our ears and marketing dollars. You want our music? you want our bands? it’s a brave new word. Get digital and help us all transition or bugger off.
III. The Customer
…is the kid who goes to the shows, buys a ringtone, a t-shirt, hears a game in a video soundtrack, the person who repeatedly listens to a song. he consumer is that person who brands and entertains themselves with music or parallel products.
We can’t do ANYTHING at all to change their naivety. We can only do our best to survive the death of Music Industry 1.0 and do our best to figure out if MI 2 is even worth participating in.
On July 9th, 2007 at 6:08 am
dos said:
Bill,
I.on the point of EMUSIC, i follow you the logic i think i’m reading here which is - the more legit outfits in existence, the better the chances of ANY revenue as opposed to no revenue through p2p etc, right?
II. I deal with multiple worlds. The pitchforks, etc. are one of them and it speaks wildly to me that, for instance, a positive review in pitchfork for an artist last year had far greater impact than coverage in the sunday new york times! So, yeah, i get that digital media is more powerful.
you say “Get digital and help us all transition or bugger off.” but the point that remains glaring to me is this: i know few press people who feel compelled to HELP US unless there is a mass movement demanding a certain media shift by labels because there is ALWAYS more music out there vying for coverage.
on the issue of Matador, I had heard the contrary. My sense was that while many labels admire their move - who wouldn’t - it had IN FACT caused some of their acts to suffer in radio airplay.
III. What do you propose? How does one weather the storm? BTW I disagree that the demographic is strictly of a certain age even though that has what’s traditionally popped into my head as I’ve thought about the downloader. In my earliest experiences with realizing the ‘download problem’ , i had a lot of discussions with one of the youngest artists on my roster. he’s in his early 20s, we’re separated by a decade and see things in a fundamentally different way. he openly admitted that he downloaded music indiscriminately. I told him i don’t - in large part because i didn’t have the time but also because i didn’t want to see what i already knew to be true - that much of my catalog is available on p2p sites. I asked him a question that i soon found to be very revealing: “would you go out to dinner and skip out on a meal that you just enjoyed?” He said, “depends on the restaurant”. I said, “Ok. it’s a nice mom & pop. you’re being served by the son, the mom’s the greeter and the dad is cooking in the back”. “”hmmm…no way” i said, that’s what you’re doing every time you download this music. Over time, he’s changed his tune.Bill, don’t you think that the lack of peer pressure has a lot to do with this?
another point i want to make is that i don’t believe the demographic is as age specific as we’d like to believe.
Something that really baffles me is the fact that many closed forums and blogs take an oppositional attitude towards those who are trying to prevent the free dispersal of available music. I looked at one that said something to the effect of ‘don’t fuck with my posts. i’ll log your ip and i will fuck up your life’. so, again, why respect the consumer when the consumer has no respect for the content supplier?
Curiously, there is another closed forum i was on that had 15 or so releases I’ve produced with rave remarks, etc. I spent some time looking at the discussions board and one of them was about a gray area record label from the UK that had become ostracized for putting out illegit reissues of 60s rock and psychedelic music - including a bunch of hendrix stuff. on this same site people were going off on how awful that label was and how amoral they were and, yet, there was no sense whatsoever that the volume of units of currently in print, legit releases downloaded from that forum far exceeded anything the label in question ever sold!
So, let me ask you again, how do you respect the consumer? Or, to put it in a more proactive light, how do you change the consumer’s mindset? If it’s impossible, then i suspect it’s high time to chalk it all up to time spent and move on to something else to make a real living on.
On July 16th, 2007 at 9:06 am
Vil Vodka, Vodka Tonic Media said:
Hi Bill! I enjoyed reading this a few weeks back and it actually inspired me to write about how Digital Distribution, something you note as more cost effective than manufacturing CDs, may actually NOT be nearing the cost of zero like Chris Anderson (Long Tail) suggests. Please read here:
http://www.bloglines.com/blog/VodkaTonicMedia/2007_7
feel free to email thoughts and comments