Ten Things To Look For In A Band And/Or Team:
1. Integrity - Is the artist in it for the right reasons? Are they chasing fame, or are the making music because “they have to”? Does the team have a track record of long-term business relationships, or one of burned bridges? Have they made the right choices and left dumb money on the table?

2. Passion - How badly do they want the success and how much do they love every aspect of the work needed to get there (live performance, recording, online, interacting with fans, writing, social media, etc.)?

3. Experience - Have they been through the process before and achieved success? Have they seen something through from beginning to end, such as an earlier album self/indie-release, even if unsuccessful. Have they booked their own tours before and earned an appreciation for the work required? Have they learned lessons in the past that they can apply to their current band? Have they developed relationships with bloggers, venues, etc.

4. Knowledge - In the tech world they call this “domain expertise”, and it comes down to knowing your market (Am I a college circuit singer/songwriter, or a Lower East Side indie rock band, or an online oriented rapper, etc.), and knowing the players (who are other successful artists in this lane, who manages them, which labels do they work with, what online outlets do they promote through, etc.).

5. Skills - Can the band put on a killer live performance? Is there enough discipline to make the studio work? Do they practice vocals and solo parts til they get it right? Can they write great songs and blog posts? Do they have additional skills that can help move the band forward (HTML, CSS, engineering, graphic design, etc.)

6. Leadership - Is there a true leader in the group that can take charge creatively? Is there a person that takes charge on the business end? Can they develop, nurture and stimulate a team around them to perform well. Can they lead a big crowd or audience into supporting them and spreading the word?

7. Commitment - Will they stick with it and make it work no matter what?

8. Vision - Do they know what they want creatively? Is there a vision of what story they want to tell, and how they would like to tell it? Are they original, or just another “me too” artist? Can they change the world?

9. Realism - Is the team dreaming ahead of its time, or are they fully aware of the dues needed to be paid, the hard work, the money they can spend, the sacrifices to make, and the disappointments to precede the eventual success?

10. Being Coachable - Can she listen and take advice. Does she accept guidance from others. Are the folks in the band team players that can compromise?

There is no way to create a perfect ten point check list that will guarantee a band or team’s success, but it’s good to be aware of what someone might be looking for when they consider whether or not they would want to work with them. There are of course times where a manager or label will see someone perform, and be so taken with that moment that they’ll decide right there and then, but for the grand majority of cases they’ll be taking a closer look at the people involved and determine how likely it is that they can help them succeed. Be prepared! Watch David S. Rose’s TED lecture below.

Related Reading In The “Artist As An Entrepreneur” Series:

• Pt. 6 – Team Dynamics (read)
• Pt. 5 – On Illegal Filesharing And Why It’s Not The Reason (read)
• Pt. 4 – Corporate Customers And Their Needs (read)
• Pt. 3 – How To Fulfill Your Customer’s Needs (read)
• Pt. 2 – Who Are Your Customers And What Are Their Needs (read)
• Pt. 1 – Introduction (read)

Paul on what he looks for in a start-up team:

“The founders are a lot more important than the idea. We have a lot of questions about the founders and the relationship between them. [We look for] people who’ve been friends for a while, have worked together on things, so they actually know one and another’s capacities. What we don’t like is people that only came together for the purposes of doing this start-up, because that means the only thing holding them together is the start-up. If they’re close friends, they’ll keep working on the start-up, even if after a while they think it seems worthless, in order to not let the other one down. And it will often turn out, they were wrong and it wasn’t worthless, even though it seemed it was doomed. Every start-up up has a point in which it seems it was doomed, so oddly enough, mistakenly continue to work out of misplayed loyalty to your pal, is good. Eventually everything gets better.”

We can draw parallels to many successful bands that were founded on top of existing friendships. The Jackson 5 (family), The Beatles (childhood friends), Radiohead (college buddies), U2 (secondary school), The Rolling Stones (childhood friends), etc. There are also plenty of examples of bands on the verge of success, with the first bits of money trickling in, only to implode under the pressures of inter-personal conflict or the famous “creative differences”. Sticking together when times are tough can be very difficult if you don’t have a supportive internal set of relationships that have you willing to fight for each other, even if you might disagree on something. It’s also important to have talked through a lot of scenarios, so that you’re emotionally prepared and can make rational decisions. People that have a history together, often work better together as well since they have an internal context that’s easier to read than with new people. They know when the other is annoyed but not letting it on. They also know each other’s strengths and weaknesses. Johnny might be an amazingly expressive front man, but he is a horrible sales person off-stage, and bass player Phil knows this so he makes sure he mans the merch booth after the gig. Manager Josh knows that a balance needs to be kept inside of the band as far as how many songs by each singer/writer should end up on the album, to keep the peace. Constant communication and the managing of expectations is key.

Of course, we can’t always just pick some folks that we’ve known since childhood. When founding a band or a team, we can create an atmosphere that similarly supports the creation of a good team dynamic, crafting something less strong than an old friendship, but something that has the chance to grow into one. Keep lines of communication clear, determine everyone’s strengths and weaknesses, be honest, manage expectations and keep your word. Remember you are in this together, and if you won’t fight for the others in the team, you’re just another person unknowingly fighting against your own success. Once you, as an entrepreneur artist, start approaching people to join your team and possibly invest money into the project, they will be looking at your band and team dynamic as well, and ask all these same questions. In the next article in this series I will further delve into the question: “Why Should Anyone Invest In Your Band?”

Check out Paul’s interview with TechCrunch below for some more tips from his end, all easily translatable to our music experience.

Recommended Reading:

• Another VC man, Fred Wilson, speaks on reassembling start-up teams later on for new projects in “Putting The Band Back Together.”

Related Reading In The “Artist As An Entrepreneur” Series:

• Pt. 5 – On Illegal Filesharing And Why It’s Not The Reason (read)
• Pt. 4 – Corporate Customers And Their Needs (read)
• Pt. 3 – How To Fulfill Your Customer’s Needs (read)
• Pt. 2 – Who Are Your Customers And What Are Their Needs (read)
• Pt. 1 – Introduction (read)

While these awards currently still increase awareness and provide a serious sales boost, like the past and current versions of the Billboard charts they will lose relevance as our industry becomes more and more customer-driven and artist-empowered. Artists and executives tend to have big egos, and big egos need stroking. Award shows are there to stroke, but in the end what really matters? Who cares about the tiny subset of people that votes for a Grammy, when you have millions of kids voting for your band with their Facebook Like buttons and their purchasing behavior?

Seth wrote a great post about sales charts, from Billboard to New York Times Best Sellers, and how they are easily manipulated to achieve a high ranking, and I have previously wrote on the need for new metrics in our industry in “The Post-Soundscan Era: Metrics That Matter”. Much in “show business” is still all about “show”, and not so much about “business”. I find it very satisfying to watch that change, and to do my part in helping us move away from these old ways and towards a more transparent, smart and customer/artist friendly business.

Richard Feynman on receiving honors:

“I don’t like honors. I’m appreciated for the work that I did. [...] I don’t need anything else. I don’t think there is any sense to anything else. I don’t see that it makes any point that someone in the Swedish Academy decides that this work is noble enough to receive a prize. I’ve already got the prize. The prize is the pleasure of finding out the thing. The kick and the discovery, the observation of other people using it. Those are the real things. The honors are unreal to me. I don’t believe in honors.”

Related Reading:

• Spencer Fry wrote a great post on staying Under The Radar.
• Little Brother’s Phonte wrote one of the best verses ever, tackling the topic of why he does what he does (hint: it’s not for the props). Listen to “Can’t Win For Losing” here.

Radio – As I make my way through the city I’m listening to HOT97, on my phone, and Funkmaster Flex plays the new Capone ‘N Noreaga single. I love it. He mentions I can order their new album through HOT97′s (mobile) website or via txt for $4.99, and it comes with two exclusive bonus tracks of Capone ‘N Noreage’s interview with Angie Martinez and a great 6 minute on-air freestyle they did with Peter Rosenberg. I txt CNNWar3 to HOT97 and 5 minutes later the album has downloaded to my Apple Music Locker^ in the cloud. HOT97 receives a referral fee for the sale. I switch from HOT97 to iTunes on my phone and start playing the album from the cloud. Once I  get to my apartment I switch to iTunes on my computer and continue playing it while using Not.es*, a start-up app purchased by Apple and integrated into iTunes, to nerd out and read the liner notes, lyrics and credits. Not.es also lists the samples used, and I can purchase the original songs that are being sampled right there with one click. I buy a Bobby Farin track that is listed as a sample for $0.49, and Capone ‘N Noreaga receive a referral fee.

Live Concerts & Merchandise – Last week I went to a Radiohead concert, I got my ticket through TrueTix*, the new ticketing company started by Coran Capshaw that lists tickets at their actual price, including fees, and doesn’t charge you extra if you want to print it yourself. It’s one of my favorite concerts ever and so I text the code they displayed over the merch booth, 20120618 (today’s date), to RHLIVE and I know that when I get up the next day I will automatically get a great recording of the concert, delivered into my Music Locker for $2.99, via the new artist-controlled Amazon service DLVRY*. One of my friends forgot his phone and he puts in the order at the merch booth instead. Another friend already decided in advance he wanted a recording so he was able to tack it to his ticket purchase for a discounted additional $1.99. The recording comes with 5 guest passes, which I’ll send to my friends who couldn’t make it so they can at least hear the magic.

I also bought a limited edition tour T-shirt for $30 , which came with an automatic download of a tour only EP of demos the band recorded on the road. If they end up recording an additional demo later on in the tour, it will automatically download to my Music Locker and notify me. It’s awesome.

Indie Labels – Since I’m a huge fan of Bloomington label Secretly Canadian I make sure to check out their blog and site regularly, often prompted by their monthly e-mail list that I signed up for. I gave them permission to market to me, because their artist selection, album curation and batting average are so strong. I even purchased a subscription which allows me to get 5 of their releases per year for a one time up-front fee of $20. I see there’s a new Antony & The Johnsons record available and I immediately download it, leaving 2 more records in my subscription for the rest of the year. It’s only June, so I decide to tack on a 3 record extension for  $12. Since I’ve linked them up with my Music Locker through my Facebook Connect the music automatically finds it’s way there. Indie labels function as valuable, identifiable brands that develop and properly identify artists, where as Major Labels function as service providers with financial clout.

Major Labels – After EMI went bankrupt, and had to sell their publishing to Sony and their masters to Universal, the majors finally set into motion what they knew was their future all along. They acknowledged their strengths (radio and promotion clout, capital, infrastructure) and their weaknesses (knowing their customers, artist development, long-term thinking), and restructured themselves more along the lines of Venture Capital firms with additional services. Jack Johnson is still with Universal, through his own label Brushfire, but now owns his own masters and has Universal handle distribution and certain forms of promotion picked off of an a la carte menu of services he can choose to use in exchange for additional points of profit split. He chose distribution (20%), radio promotion (5%), online promotion (5%) and music placement (10%), and splits the profit on the album so that 60% goes to himself and Brushfire, while Universal receives 40% (20+5+5+10).

Direct-To-Customer – Ever since Bob Dylan broke with Columbia Records and went direct-to-fan I’ve been enjoying the EP’s and singles he releases whenever inspiration strikes. His Topspin-powered web store lets me download AIFF quality recordings from Bob’s home studio, which let me hear all the little intricacies like Bob’s dog barking in the background, and a coffee mug being put down. Bob’s also been releasing his catalog in Director Cut versions, with commentary between songs, and since there are 58 albums he decided to release them as a monthly subscription service.

I hop over to the Sigur Ros website, which just put their new Anton Corbijn concert movie/documentary on sale. I debate between getting the $1 version that lets me stream it directly to my TV via my Boxee, the $2.99 digital download, or the $20 DVD version with picture book. I decide on the DVD, which actually comes with a free unlimited streaming version so I can watch it tonight with my roommate and some friends.

Offline Music Retail – Ever since Best Buy, Wal Mart and all the other companies not actually invested in the music business decided to stop selling music things have gotten much better. Slowly new style music retailers have started opening their doors in college towns and cities, offering a great music related experience. Vinyl, music related books, digital delivery to your Music Locker, a Mud coffee shop with comfortable chairs on one side, headsets that let you sample any release in the store, cool vintage and new apparel in the Urban Outfitters corner, sometimes even a comic book section, in-store performances, music film screenings at night, and more. Sometimes I go there to spend an hour or two on a day off and I love it, but mostly it’s younger kids with more free time that find themselves earlier in their music discovery journey.

Press – I feel like reading some sarcastic and slightly pompous reviews that often contain a good kernel of truth so I go over to Pitchfork. They reviewed the Best Of Wavves box set, which they laud for it’s innovative and versatile sampling of the singer’s Primavera Sound Festival melt down in 7 of the 10 new remixes. My roommate just received a new payment from his trust fund and there seems to be no more appropriate way to spend it so I get him to order the box set through Insound, via Pitchfork’s referral link. The digital version immediately downloads to his Music Locker, which he then plays over our sound system, and the physical version arrives a week later. Pitchfork has since posted a revisionist review, in which they pan the band, and my roommate was swayed, so I get to keep the box set. I guess not everything has changed.

This story is purely fictional, and set in 2012, when I hope we have figured out to make our industry healthy, artist-driven and customer-focused. When we take advantage of technology and change, rather than fight it, and where we monetize the awesome.

^ Apple will have to enter the cloud based music business at some point. I made up the name Apple Music Locker though.

* Fictional company, with a service and name I made up for the purpose of this article, but boy I hope they will exist in the future.

For a certain period in history, the music industry had society in the palm of it’s hand, with permission from all to interrupt their day, tell them about the world and sell them quality products. Then the industry got bloated and arrogant, and when we had a chance to win over a new generation of music buyers, we failed. With the right approach, an ear to the street, and a penchant for innovation our industry could’ve avoided the current down turn, and we’d still have been at the forefront, rather than lagging behind several other forms of entertainment in terms of relevance and excitement. When you stop listening to your constituents, you lose. (See Rome, MySpace, New Coke, GM, etc.)

A New Dawn, A New Day, A New Hope

These days, we all live in a small town and everybody is the mayor of their own virtual neighborhood. If we do wrong by someone, even just a little bit, they will spread the word in their neighborhood. Social media has empowered everyone with a voice that can be heard. They tweet, blog, they update their status, and even if they only have 25 followers on twitter, a story can spread from there. If you blow someone away and “radically overdeliver“, they will also spread the word. So if online shoe retailer Zappos goes above and beyond their call of duty, the customer in question will first tell her friends and family, and they will tell their friends, and eventually the story makes it onto the powerful The Consumerist. This one example of doing the right thing and providing a great customer service will then become a marketing event more powerful than money could buy. But it’s a double-edged sword of course. Dave Carroll’s bad experience with United Airlines, and his subsequent viral music video led to embarrassment for the airline, forcing them to apologize and admit their mistake.

Bringing Customer Service Back

There is no reason for the music industry to be exempt from dealing directly with customers, listening to what they have to say, and adapting our business models accordingly.
As brick and mortar music retailers slowly fade away, we return to the age where record labels and artists move towards the direct-to-customer model. Partially out of necessity and budgetary constraints, but also fully by choice we at Family Records find ourselves smack-dab in the middle of this revolution. We are in constant communication with our customers via e-mail, twitter and facebook, whether they buy directly from us, or from a middle man like iTunes, Target, or Amazon. We do our best to make every customer interaction positive and memorable, and something that can help spread the word on our artists. When we make a mistake, we don’t deny, we apologize and make it right. When we’re asked for help, we try to make something happen for the customer.

Some recent examples of how we try to do our little part in the customer service revolution follow. When twelve year old Wakey!Wakey! fan Garen sent us a note expressing sadness for not being able to attend a 21+ concert, and enclosed a video of him covering “Brooklyn” at an open mic, we tweeted the video out and sent him a personal message from the band. He was ecstatic and will be a fan for life. While our customers wait for their orders to arrive, our fulfillment master Andy sends them a surprise free digital mixtape, that often sparks a nice thank you note or a tweet to their friends. When someone writes on their personal blog, we send them a thank you note, which sometimes leads to a tweet from their end spreading the Family gospel. Listening to our customers is a lot of work, it’s also very satisfying and it helps us grow our customer base. When customer service is done right, it’s the best marketing you can have. When marketing is done right, it’s not a bother. It’s a service.

Below is a video from Andy Sernovitz’s blog, where Mike Faith speaks on an extraordinary moment he had on Virgin America Airlines. Andy asks his readers “When is the last time you told everyone you know about an amazing customer service experience?” I’d like to look at the other side of that equation and ask you: When was the last time you blew your customer’s mind by providing an amazing customer service experience?

Related Reading: “How I almost ignored our single best source for customer feedback.” (read)

That all sounds nice and dandy, so why the title of this article?  Because I think the era of Soundscan and it’s relative importance is coming to an end, and for several reasons.

Record Sales Are Only One Piece Of The Pie

First of all, in today’s and tomorrow’s version of the music industry you can’t determine how successful an artist is simply by looking at record sales. Other revenues streams, all growing in importance, are not taken into account by Soundscan. The unfortunate reality is that historically record labels often determine how much support they will put behind a record based on sales in the first few weeks. If a record is slow or dead in the water, it’s not uncommon that a label pulls all support and pushes another record with a better start instead. This is not only a shame and short-sighted, but also increasingly less smart of a business decision as soundscan metrics lose weight on the relevance scale.

Maybe indie sensation Surfer Blood ‘only’ sold 28K records in the past few weeks since their release (congrats to them, that’s awesome!), but they’re tearing up the road with their successful tours, they’ve had a few sweet synch placements that paid, they sell their merch on the road, etc. OK Go‘s album is selling modestly, but they’re killing it in endorsements and synch action. There is no way you can determine whether or not these bands are successful enough to keep supporting their record based on straight up music sales. The same goes for a bunch of other great bands with enormous potential and current overall success like Local Natives, Jukebox The Ghost, Crystal Castles, Morning Benders, and I can keep going.

One great and rare example of a band where it took their label Octone 2 years of working the record before it became truly successful is multi-platinum artist Maroon 5. Thank goodness Octone believed in the album and band enough to stick with it and work single after single. Needless to say, it paid off.

Album Sales Have Been Cannibalized By Single Sales

It shouldn’t be news to anyone reading this that customers have been skewing back to singles, in favor of buying full albums, since the emergence of digital retailers like iTunes. This was the case in the 1950′s, when only a singles chart mattered, and we’re right back there once again. How relevant is an album sales chart if fewer people buy albums?

Catalog Sales Are Not Valued Enough

Watching the Wakey!Wakey! sales analysis we can see that a good percentage of our customers choose to not only buy the current new album, but are also picking up one or several catalog items. On our own web-store we’re selling nearly one catalog item for every two purchases of the new album. Current Soundscan methods don’t appreciate the overall music sales level, since the album chart split an artist’s ranking out per album. If an artist has four records out, and you add the sales of each up to determine their position, the sales chart would look quite different.

Soundscan Is Incomplete And Inaccurate

Soundscan only measures sales for albums that are pre-registered, and sold at certain retailers. Many indie music retailers and mom-and-pop stores aren’t taken into account, and tour sales often go unreported as well. For certain bands of the indie persuasion this is a major blow to their sales figures. When The National came in at #4 on the overall Soundscan chart (congrats!) it’s entirely possible they could’ve been bumped up a spot if certain indie retailers promoting the record would’ve been taken into account as well.

Record Stores Are Disappearing, Shelf Space Is Shrinking

Soundscan figures inform the decision-making process for stores that sell music when it comes to which releases to buy and stock. With shelf space rapidly shrinking in the offline world these decisions are only getting tougher to make, and many bands are missing out on being available offline based on their soundscan numbers, when a more complete metrics picture could perhaps have them stocked after all.

At the same time, physical retail is losing in relevance as sales slowly skew more towards digital or physical sales online through Amazon, Insound and others. And in the digital world, who cares about shelf space? It’s unlimited!

How Can We Improve Metric Analyses For The Future?

Metrics are extremely valuable for an artist and their team. Metrics can determine tour schedules (We’re selling in Florida? Lets go play there!). Metrics can advice which song off the record should be the next single or music video (Track 3 is selling most? let’s base our next promotion around that one!). Metrics can help in nearly every decision an artist and their team have to make. My position is that Soundscan no longer provides us with the right kind of information at the right time to help in this decision making process, and further failing to evolve will turn it into a relic method for chest thumping executives.

The more we move towards digital sales, and let us give CD’s sold through brick-and-mortar stores another 3 years, the easier it will be to track all the relevant sales data. Even with today’s technology it shouldn’t be too hard to make some improvements. A few thoughts:

• Frequency/Timeliness: Why wait a week for the correct sales data? Why not have a “Living Chart” that is updated in real-time, and is always accessible online? We could still have a final count for the day and week for those needing some sort of “finish” number.
• Completeness: Provide bands and music venues with a way to report sales online as they happen. We can even make it an iPhone app with a credit card swiper and secure data transfer to make it even easier. This technology exists! Hook your webstore into reporting as well through a Topspin, Paypal or WordPress plug-in.
• Overall Sales: Lets create an additional chart for overall sales per artist across their entire catalog to show a more complete picture. Maybe James Taylor’s latest release isn’t destroying the chart right now, but you can bet he’s selling a ton of records across his catalog. Wakey!Wakey!’s main competition on the iTunes Singer/Songwriter chart is Tracy Chapman‘ “Fast Car”, which was released in 1988!
• Measuring An Audience: OK Go’s audience and customer base is many times bigger than their record sales can indicate. They can measure this much more clearly through their tour numbers (capacity of venue, tickets sold, income per audience member in venue sales, etc.), their video views (which translates into income through advertising), and more. We should have a chart for Music Videos that aggregates views across the major video destinations, and video sales!
• Internal Metrics: Measure your overall income split out by Tour Income, Record Sales, Advertising/Endorsements (through your deal with YouTube, or mailing list sponsor, tour sponsor, etc.), Merch, and Synch Placements, and use these internal charts to see what is working and what can be improved. Also measure your web traffic in great detail (visitors, mailing list, income per mailing list sign up, social network followers, etc.)

The music industry will become more and more integrated with the social media and technology industries, and through that greatly improve this aspect of their business by learning from these other worlds that are far more advanced in tracking metrics. Perhaps Nielsen Soundscan will evolve and be part of this growth, but if they’re not someone else will knock them out of their very cushy and profitable seat on top of the metric throne.

In a free market price and sales volume are determined by supply and demand. The more demand there is for a product, the higher the price will be, assuming there is a limited supply of that product. This is called scarcity. Superbowl tickets are low in volume, high in demand, and hence very expensive. They could easily raise the price even further, and the Superbowl will still sell out. With digital music, there is no scarcity. The supply is unlimited.

The reverse is also true: if demand for a product drops or the supply suddenly shoots up, the product’s price and/or quantity sold is likely to go down. Sellers will try harder to out-do each other in front of a group of potential consumers that is equally or less interested in what they are offering than before.

An implicit assumption behind the argument made by the record companies and publishers is that the market for recorded sales hasn’t fundamentally changed except for illegal downloading. In other words, it weren’t for downloads they would still be selling the same amount of albums and singles, at the same price, and with the same profit margins as before. This again seems unlikely, and we can see many other media companies also struggling with their digital alternatives. One example that comes to mind would be the newspaper industry and their online news alternatives. So what else could be going on?

The Supply Side: More Products, Better Access, So More Competition?

On the supply side, improvements in technology have increased both the amount of recorded music that is being produced, as well as consumer access. Hardware and software has become cheaper, smaller and easier to handle, bringing recording at acceptable quality within the reach of the masses. You no longer need an expensive studio with countless cables, knobs and buttons to record a decent track. For example, if you are a simple solo singer/songwriter, or even an indie rock band, more often than not you now can get by with a small laptop, a few microphones and Garageband, to record a decent sounding song. Also, recording equipment has become easier to use and the internet provides budding engineers with plenty of helpful instruction videos and message boards full of tips.

A second change on the supply-side is that the internet has greatly improved consumer access to recorded music and the artist’s ability to distribute their music. Amazon, MySpace and iTunes are not limited by shelf space or geographical proximity in the way your local record store is. Where record companies used to control what music was being distributed, this has now changed and nobody can prevent an artist from putting a few tracks on a website. There is more music available than we can possibly ever listen to and attention form consumers is more scattered than before. With more music being produced and better access to it, it is not surprising that artists and record companies are fighting harder to get their music noticed and that lowering prices is part of this. It’s even conceivable that some acts might start advertising to get people to listen to their music for free, hoping that they will “convert” to buying cds, concert tickets or merchandise later.

The Demand Side: Increasing Numbers Of Potential Customers, Decreasing Willingness To Pay

The good news can be found in demographics and economic development: as broadband penetration and middle-class incomes are increasing in various regions (e.g. urban areas in China) and hardware costs are falling, the group of people that can afford to buy music players and recorded music is likely to grow. However there is plenty of bad news. Yes, illegal downloading has hurt record sales. But there’s more. First, in a digital environment consumers are not forced to buy whole albums and are transitioning to purchasing single tracks instead. If many customers just want to buy one or two songs instead of a whole album (which we assume they do), the money they used to spend on the “unwanted” tracks will now stay in their pockets. To use a geek term, some people are saying that the so-called “atomic unit of consumption” has changed, and that we’ve gone back to the days of the 7-inch vinyl. Another characteristic of music in a standardized digital format is that consumers are using the same files when switching between hardware. Your smartphone, MP3 player and (burned) CD can all convert and play the same audio files. Replacement purchases, which were common when CDs replaced old vinyls and cassettes, are likely to be much smaller than before. A third factor affecting demand for recorded music is more of a hypothesis than a tested fact: considering the many forms of entertainment available to consumers, what if people have become less attached to recorded music than before? We know there has been a huge increase in time spent on video (Youtube), gaming (World of Warcraft, Farmville, Casual Games), and social media (Facebook, Twitter). We also know that new album releases no longer cause any real riots at retail anymore, with people queueing up in front of the record store the night before being a thing of the past. Instead they wait for Apple and Google products – remember Google Wave invites? Nexus One? IPad? The ‘stolen’ new IPhone? This doesn’t necessarily mean they like music less, but it definitely feels like there is more competition for the customer’s attention and money than before. And on top of this, a lot of these other forms of entertainment are free, or feel free per unit due to a subscription model. An example of the latter would be watching TV. Very few people break down their cable bill per program watched, or think of a single episode of The Office as $1 of the $79 monthly subscription bill.

The Same, But Different

Our problems in the music industry are similar to those in other industries. Better, cheaper and smaller camera equipment affected the bottom line for professional photographers, and film manufacturers like Kodak and Fuji. The difference was that their choice between resisting change and reinventing themselves has been easier, though not less painful. Magazine publishers are also struggling to translate their weekly or monthly physical editions and long articles into blog-like online versions. In the newspaper industry, News Corp.’s Rupert Murdoch is trying everything in his power to make a paid subscription model work and Google News is accused of “stealing” news, while at the same time people are Tweeting breaking news faster than Reuters can report it. The problem is not so much that consumers are stealing pictures, news articles or music, but that the added value of many traditional media companies has dropped significantly, often as a result of newer technologies. The worst case scenario is that raising pay walls will drive consumers away from your products and into the hands of your competitors, as there are plenty of substitutes. What would John Mayer’s Twitter followers do if they would have to pay for the guitar virtuoso’s Tweets? Might they switch over to read Ashton Kutcher’s instead, or spend more time reading other free content? Or is their brand loyalty strong enough to resist the pay wall change.

Tech companies, like Apple, seem better at responding to changed market conditions and behaviors in the music industry. With fresh eyes and no preconception of how the world ought to be, they are turning old industry “truths” upside down. Where traditional media companies like Sony sell their players and game consoles cheaply and make most of their money selling expensive CDs and games, Apple sells expensive hardware and provides content cheaply and seamlessly. At the same time sales of video games are dropping rapidly due to the rise of free games on Facebook and other websites. Who’s going to come out ahead here? Sony or Apple?
It’s not easy to create innovative products that customer want to pay for, but focusing all energy on illegal file-sharing instead of providing a better customer experience, is unlikely to get any artist or company ahead. If the artist helps the customer win and monetizes the relationship, the artist also wins.

(This is the fifth part in an on-going series of articles written together with McKinsey & Co’sErik Rutten*. Through regular brainstorms we will examining the music industry starting from an outsider’s perspective as business men and music lovers, and working our way through the different aspects during the next six weeks. *Erik is on sabbatical and the views expressed are his own, not his employer’s.)

Artists like the Black Eyed Peas have become tremendously successful by understanding and serving the corporate market well. Corporate customers are much more practical in their needs than Individual Consumers. Brands like Verizon or Pepsi work with the BEP’s in a corporate setting to be associated with their image and brand, not because they actually enjoy their music (though they may of course!). When dealing with Corporate Customers an artist is first and foremost expected to contribute to the corporate customer’s value chain, just like any other supplier in the production process. In that way music is treated similarly to for example, bottles of water or an ad design – and Corporate Customers will be quite unemotional in comparing price, quality and customer service. Rather than the higher-order needs like belonging or self-actualization that we identified for individual consumers, corporate consumer needs are about production, marketing, sales and HR.

Production Needs

Many companies need music as part of their own end-product. Supermarkets and other retailers need music in their stores. Gyms need music for their customers to work out to. The creative industry needs music as part of a film, video game, TV show. Serving such a production need may not seem like the sexiest of ambitions for an artist, but it can be very profitable and creatively rewarding. Junkie XL, for example, has pioneered and built a career in music production for video games. Moby once famously licensed every single song off of his album Play, before it was even released. Ingrid Michaelson’s success is largely due to some key music placements on TV. John Williams made his name by composing the scores for Star Wars. And even our own Family Records Wakey!Wakey!’s current success has a major TV component as well. In addition to the financial rewards, the ability to start a word of mouth campaign through a song placement is a serious benefit to the artists involved. Let us also point out that serving the corporate customer doesn’t necessitate changing your creative process or your song writing. While writing songs specifically with placements in mind is indeed a worthy strategy, this won’t be the right way to go for every artist and most artists that have music already appropriate for placements need to focus on getting it to the right people instead. While most movies, TV shows and commercials will be looking for music from the genres of pop, rock, hip hop and singer/songwriter, every genre has it’s place. Some video games use punk rock, or metal, certain brands use classical music, and the list goes on.

Marketing and Sales Needs

Many companies involve artists to build their brand, reach the right customers and eventually sell more of their products. Especially for companies that make consumer-focused products like mobile phones, electronics, apparel and certain food items, having the right brand in the eyes of the consumer is important. Marketing departments spend months, years and sometimes decades “loading” their brands with the right set of values. Ben and Jerry’s are all about natural ingredients and social responsibility. Coca Cola’s brand focuses on feel-good elements. Volvo radiates safety and stability. By associating themselves with an artist, companies essentially adopt part of the values that the artist stands for. Sometimes corporations can make some pretty hilarious mistakes in this arena too, eg. Royal Caribbean Cruises using Iggy Pop‘s “Lust For Life” (an ode to heroine) or Ronald Reagan utilizing Bruce Springsteen‘s critical “Born In The USA” during his presidential campaign. If you are an artist, it may be a good exercise to think about what values you represent and how that relates to corporate brands. Again, it’s not necessary to change anything about yourself or your music to fit in. Authenticity is key and it cannot be faked. We’re merely suggesting to look at your authentic self and music, and see which types of brands this might combine well with in a synergetic way.

Another reason why companies want artists to play a role in their marketing and sales strategy is because they want to reach the artist’s audience. This is communication in the opposite direction to the previous need. Rather than locking into the values that an artist represents, they decide based on what demographic group they want to reach. Honda’s recent association with Paramore is an attempt to reach out to a younger audience of car users. Artists who know more about who their audience is (age group, sex, income bracket etc) and what they like will have a better story to tell to potential sponsors and advertisers. In this light it’s, once again, very important to keep track of your customer’s data and learn as much about them as possible. If you know that you have a huge fan base in Florida, and they’re mostly young teenage males, this will tell you that it might be more worth while to pursue a partnership Vans than with Harley Davidson. Understanding our customers at Family Records, for example, recently led us to combining forces forces with Hard Graft to bring our music and their products to the attention of more people with similar tastes.

As we did previously with Individual Customer needs, we’ve added a chart with the identified Corporate Customer needs, and associated products an artist can provide to fill these needs.

(This is the fourth part in an on-going series of articles written together with McKinsey & Co’sErik Rutten*. Through regular brainstorms we will examining the music industry starting from an outsider’s perspective as business men and music lovers, and working our way through the different aspects during the next six weeks. *Erik is on sabbatical and the views expressed are his own, not his employer’s.)

• Which Digital Retailers Should I Pay Most Attention To? — The bigger the piece of the pie a retailer is responsible for, the more attention I should give them, per the Pareto 80/20 Principle. We service every single digital retailer out there, through our distributor, but we can only spent time on developing a relationship with a handful of them. If someone is adding 0.5% to our monthly pie, I simple don’t have time to focus on improving that number when I could be talking to a retailer that gives us 90% (iTunes) or even 4% (Amie Street).
• Where Do Our Customers Live? — Some digital retailers are very popular in certain geographic areas, like Beezer in France and Spotify in Sweden and the UK. If we see increasing action from those stores it means awareness in those markets is growing for our artists, and we can start ramping up promotional activities there.
• What Kind Of Customers Do We Have? — Aside from mainstream mammoths like iTunes, we can see that digital retailers have their own niche. eMusic customers are more album and indie oriented, Amazon customers are a little bit older, Spotify customers are a bit more cutting edge and tech savvy. Knowing these things helps us tweak our promotional strategies for each band. The more we know about our customers, the better we can service them and find them. We’re not going to wait for the customer to find us, we have to go out and find our customers and be present in the spaces where they spend most of their time.

When going over these quantitative numbers with Erik Rutten today, he asked a smart question that opened up an additional way to analyze these digital revenue figures. How much does each retailer pay us per unit? For iTunes this means per song paid, for Spotify or Napster it’s per song streamed. Based on last month’s Pearl and the Beard sales figures we made a list of the 11 most prominent digital retailers for this band in terms of how much they pay us per unit. Some of these were rather shocking numbers. Spotify, with their deep market penetration in Sweden, ended up being the 5th highest dollar amount, but lands firmly on the 11th and lowest spot for payment per unit. iTunes handed us the biggest check by far, and also ended up giving us the highest amount per unit. What this number shows us is which retailers give us the most value per song. Ideally we’d want to drive as much traffic to those that also gives us the most per song in return. Something to consider when you’re developing relationships with retailers.

Digital Retailers Ranked By Revenue Per Song Sold*

1. iTunes $0.566
2. Amazon Digital $0.521
3. eMusic $0.282
4. Amie Street $0.185
5. Beezik $0.057
6. Napster $0.020
7. LaLa media $0.012
8. Real/ Rhapsody $0.0096
9. WE7 $0.0065
10. MediaNet $0.004
11. Spotify $0.0026

* These dollar figures per unit are calculated after both our distributor and the retailer in question takes their cut. This will be slightly different for each label, artist and situation, but typically in the same ballpark. Also note that “unit sold” sometimes indicates a song stream, and sometimes an mp3 sale. Streams are much cheaper, but also seemingly where people think the market is going, which would have a massive impact on income levels for artists.

Related Reading: An interesting infographic about a the same topic. (read) (Note: I don’t feel it’s 100% correct, especially on the label generalization, but it’s interesting as an abstract visualization of this conversation nonetheless.)

But back to the topic at hand, matching our customer’s needs, with products we can offer to satisfy the needs. Erik applied his powerpoint skills and created this graphic representation of our brainstorm. Did we miss anything?

In our next article we will shift our focus from Individual Customers to Corporate Customers, a distinction we made in Part Two of this series.

(This is the third part in an on-going series of articles written together with McKinsey & Co’sErik Rutten*. Through regular brainstorms we will examining the music industry starting from an outsider’s perspective as business men and music lovers, and working our way through the different aspects during the next six weeks. *Erik is on sabbatical and the views expressed are his own, not his employer’s.)