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To be sure, making money in M3.0 is a lot trickier than it was in previous stages of the music business. When you’re signed to a major label, there’s an ever-changing sea of cross-collateralization between accounts, in which big sales by the record label might still result in small royalty payments to you. Yet at the same time, things are in some ways more cut and dried than before. As an indie artist who’s without a label and is dealing directly with the fans, you know exactly how much money you’re earning and where it’s coming from. No longer tied to the fortunes of a record released by a major label and therefore the uncertainty of a royalty statement, what you see is what you get.
Although the exact recipe for making money in today’s music world is different, the ingredients pretty much remain the same. If you’re looking for a magic formula, however, you won’t find one here, I’m sorry to say. It still comes down to talent and a lot of work, same as it ever did.
Hit the Road, Jack
This means that for you to make money, you’ve got to play in front of people, and the more people you play in front of, the more you’ll make. The problem is that large crowds hardly ever happen overnight, and if they do, beware. This can be a warning sign that they’re interested in the spectacle of a media buzz or something other than the music. Any success that comes too fast will probably be short lived.
Unfortunately, developing an audience on any level is slow and time consuming. You still have to build your audience one show at a time. The formula is always the same: the more you play, the better you get at performing and the more the crowd will notice, generating bigger crowds as a result (see my book How to Make Your Band Sound Great for some performance and show tips and tricks). Things can snowball from there if you’ve got what it takes.
We often see bands that try to do too much too fast. A lot of indie labels will say, “We want the band to get in a van and we don’t want them to get out of it for three years.” At some point at the end of year one or 2 that runs its course. Virtually no band can keep on running around the country to try to build an audience indiscriminately. As much as touring is the most important thing, it has to be done strategically, concentrating on certain markets where you see the beginning of growth, then doing them often enough but not too often.
Are you playing in front of people and still not making enough money to keep it interesting or to even pay your expenses? Maybe what you’re offering just isn’t compelling, either musically or showwise. People will gladly pay to see anything that they’re passionate about, so perhaps they don’t find you enthralling enough to pay for, or maybe even to come to see for free. Then again, maybe you haven’t found your audience yet. If that’s the case, use the marketing tools outlined in chapter 4 to build that tribe. Either way, growing your live audience is always a slower process than it seems it should be.
What you still never get away from is that it’s still about a song and it’s still about a performance of that song. Can you play that song in front of your audience however large or small and create the “WOW Factor?”
First of all, an artist has to have the right attitude, which maybe is no different than it ever was. What’s new is that the artist now must also have the ability to learn, adapt, and communicate.
Describing just how to go about finding gigs, playing a show, and building your team with management and an agent is beyond the scope of this book. There are plenty of other books that focus on just that part of the biz. Suffice it to say that playing live has got to be part of your strategy for developing your tribe and making money.
Hit the Road, Jack
Swag Is Your Friend
It used to be that merch required a sizable capital outlay in order to get in the game. You had to buy enough to get some sort of economy of scale, but then you also had to worry about storing the inventory. And what if the item didn’t sell? What do you do with 4,835 custom key chains or 492 pairs of branded underwear? Luckily, there are now alternatives that make the buy-in easier on the pocketbook than ever.
Today both Café Press (cafepress.com) and Zazzle (zazzle.com) make it easy to provide quality merch of all kinds without worrying about either the up-front money or the inventory. Both companies provide a host of items that they’ll manufacture to order, and they’ll even allow you to show examples of merch on your website or store. In other words, whenever an order is placed, that’s when they’ll make the item. They’ll even drop-ship it to the customer for you so you don’t have to worry about shipping and inventory. All this comes at a cost, and so your profit won’t be as high, but it’s an easy and inexpensive way to get into the merch business.
So what kind of merch should you have? You can now get a huge variety of items branded with your logo, but typical merch items are:
Just about anything you can think of can now have your logo on it. Of course, that doesn’t necessarily mean that just because you can make it available, it’s a good idea. It’s still best to narrow things down, since offering too many types of items can actually prevent willing customers from buying anything because they can’t make up their minds. Keep the number of types of items to a maximum of 2 at first, and be sure that they will sell before you add more options.
Another interesting idea is to offer a tour book of photos (available from blurb.com) like the one the Grateful Dead did on their recent tour. Once again, it’s on-demand printing, and the company offers a number of professional templates to make the design easy.
Don’t forget that in the end, branded items such as T-shirts, hats, beach towels, and Frisbees are for marketing you as an artist, so be sure that the design looks professional. If you’re going to spend hard cash, this is the place to do it. Find a pro or an advanced hobbyist to design it for you. Don’t forget that the true reason for selling merch is that if enough people see your intriguing logo on a T-shirt, coffee mug, or bumper sticker, some of them will be interested enough to check you out.
Price it Right
Above all, be sure that your costs are covered. Make sure that any costing includes the price of shipping, sales taxes (don’t forget those), and any labor or sales costs involved (many artists will pay someone 10 percent or more of the sale’s gross for manning the merch booth). Also don’t forget that some venues will also take a commission of between 20 and 25 percent. A good formula for pricing might be your costs (all of them) plus anywhere from 30 to 50 percent. If you’re sure the market will bear a higher price than that, go there, but make sure that you test it first. Try a lower price at one gig and a higher one at another and see which sells better. Sometimes a higher price sells better because the customer perceives a higher quality.
Make sure you round it up to a reasonable number. If you use the formula of costs plus 50 percent and it comes out to $6.38, round it up to $7.00. Stay away from change. It’s easier on everybody.
THE SECRET TO THE MERCH TABLE
By just announcing during and at the end of the show, “After our show, we’re going to be hanging out at the merch table, so come over and say ‘Hi,’” without trying to specifically sell anything, you bring your fans that much closer to an impulse buy.
By getting people the ability to casually chat with you, it becomes a low-pressure way of getting people to look at your merchandise, which is always half the battle.
This one simple act can make a big difference in your merch sales, and that’s the one place that you can be assured of making money these days, especially if you’re just starting out. Remember, you don’t have to physically sell anything yourself, just be there and talk to fans. Can you imagine what the sales would be like if Bono did that after a U2 concert?
CREDIT CARD TRANSACTIONS MADE EASY
While the ability to take credit cards for merchandise purchases at a gig can make transactions easier, it can also eat into your profits. First of all, you have to enter into a long-term contract with a bank, then pay for the card reader, and in many cases pay a monthly subscription fee. Then, after a purchase, you have to wait for the money to hit your account, with the bank taking its piece through processing and transaction fees that are like the phone bill—lots of small fees for each transaction that no one can seem to explain.
Transaction costs are frequently overlooked, and they are the secret expense that eats your profit. All credit cards charge you multiple fees. First of all, there’s a monthly transaction fee that’s a minimum of $20.00 (usually more), a “gateway” fee of between $5.00 and $20.00 for ecommerce, an authorization fee, a customer service fee, and a monthly minimum transaction total. Slip below that total and you’re charged a penalty.
Then there’s the transaction costs per sale, which can go from $0.20 to as high as $0.35 (it’s usually higher for an Internet transaction), plus a charge of between 1.5 and 3 percent of the total of the sale. Add all that up, and it means that if you only make a dozen or so song sales a month, you’ve actually lost money. Even if you’ve met your monthly minimum, you still may be only making less than half of a dollar per sale, thanks to the transaction costs involved.
But this has all changed recently as a service called Square (squareup.com) has slowly but surely made a big impression on large and small touring merchandising entities alike. With just a $10.00 reader that attaches to any iPhone 4, iPad, or iPod Touch (there’s a $10.00 rebate so it’s actually free), you can now have your customers easily pay by the card of their choice. What’s more, it’s paperless. You swipe the card, the customer uses a fingerprint to sign to the purchase by touching the screen of your IOS device, and the customer receives an email receipt later. Square takes a flat 2.75 percent transaction fee, which winds up costing less than most traditional credit card processors.
Swag Is Your Friend
The novelty of signing with your fingerprint is so cool that many acts report that their sales have increased just by the fact that people want to try it out! The best part is that you can now get the Square reader from the Apple online store, and it’s reported that it will be available soon from their retail stores as well. The transaction software is free.
The New Publishing Paradigm
What has changed is that during this period in which music sales continue to take a beating, publishing is the one area of the music industry that has held its own. How does that happen when sales, and therefore mechanical royalties, are down, you ask? While it’s true that mechanical royalties are not nearly what they used to be now that CD sales are so low, they’re offset by the tremendous increase in performance royalties, because music is now played on so many more broadcasts than before. The 500-channel cable and satellite television universe, along with satellite and Internet radio, provides more opportunities for music to be played, and as a result, more performance royalties are generated.
In aggregate, people are still watching as much television as ever if not more, but they are watching it across more channels. They’re watching the cable channels more and the broadcast channels less.
As record company sales have been going down since the year 2000, publishing company income has actually been going up. What’s happened is that performance income (when a song- writer gets paid whenever the song is played) has gone up because there are many more places where music is played and used. Now you have tons of little cable stations and they have to all pay a small fee. As a result, you have the increase in synch fees offsetting and sometimes exceeding the loss of mechanicals. Publishing is still one of the few ways left to monetize intellectual property.
While publishing is sophisticated enough to easily fill an entire book (and there are many books specifically on the subject), here’s a simple breakdown of how the money is paid:
Can you make money from publishing if you’re an indie artist? Maybe. If you’re the songwriter on your own CD or digital release, then separating the songwriting money from the recording money only makes sense if you’re sharing royalties with bandmates and getting paid separately for writing. Otherwise, it’s irrelevant.
To receive any kind of significant royalties from streaming or radio airplay, you really have to have a huge hit that gets a lot of plays. So expecting any significant income is irrelevant for all but the extremely lucky indie artists.
Where you can make money is through synchronization fees. Anytime music is played with a moving picture—either on television, in a movie, or on the Internet—it requires a synchronization license. If your song is considered for a movie, you’d negotiate with the producer for a fee, which could be from 0 to $100,000 or more, depending on the placement in the film and its budget. As with everything in the entertainment business, the higher your profile, the more you’ll get paid. But if you have a song that uniquely relates to the movie, television show, or commercial (e.g., the hook of your song is the title of the movie), you can usually get a higher rate. You’ll also receive performance fees whenever it’s played on television.
Bottom line, your income from digital publishing will remain a tiny grain of sand on a beach of potential income for the foreseeable future. There is real money in synch fees, and that’s what you should be aiming for. The problem is, how do you get your songs to the people that will license them? Unless you live in New York, Nashville, Los Angeles, or Chicago (mostly for commercials) where you can network and sell yourself, your only options are to have either so much airplay or so much online visibility that you get noticed, or you get a publisher. Part of what a publisher does (besides collect the money) is to promote your work. Once again, there are lots of books and articles about this to check out. If you want to self-publish, it’s also a good idea to become a member of the Association of Independent Music Publishers, where you can network with other publishers both large and small. It’s well worth the $60.00 per year. See aimp.org for more information.
WHY USE A PUBLISHER?
Besides giving you an advance against earnings if the publisher feels your songs warrant one, a publisher does the following:
Having a publisher is just like having someone take care of your social networking: they’ll free up your time so you can make more music, and they’ll probably do a better job at administering your publishing than you can because they’re pros at what they do. What’s best is, in the right hands, they can even make some money for you.
COLLECTING DIGITAL MONEY
That being said, every artist should be registered with SoundExchange, a service created by the US Copyright Office to collect performance fees for musicians featured on a recording and a song’s copyright owners. SoundExchange collects money for the actual performers on a recording, not the songwriters. It’s not much (from .015 of a cent in 2009 rising to .025 of a cent in 2015), but it’s a good thing any time a performer makes money. Go to soundexchange.com for more information.
Yes, but there are challenges. It turns out that streaming doesn’t really work as a model for selling music. In terms of collection, the statement that the publisher gets might be as big as a phone book yet amount to only 12 bucks in royalties. The problem is it might cost the publisher $100 to input it. If the publisher is get- ting 50 percent of the $12.00, it’s cost them a lot more to input it than they’re making, but they’re obligated to account to their clients, who are the songwriters. That’s a big new problem for publishers.
The New Publishing Paradigm
A new trend in social media called crowdfunding (sometimes called fanfunding) is becoming a popular way to finance a recording project, thanks to sites such as Kickstarter, MyBandStock, indiegogo, Rockethub, and Sellaband, among others. Regardless of which site you use, the idea is the same—it allows your fans to pool their money in order to fund your project.
The way this is done is that the artist sets the amount-of-money goal, then the length of time to reach it. There are then different levels of rewards that vary based on the amount a fan contributes towards the project, very much like the multitiered product offerings by Trent Reznor and Josh Freese as described in chapter 4.
While this sounds like a great way to fund your project, it does take a moderate amount of planning and effort, as well as a significant amount of time before you see any cash. More importantly, most funding platforms require that the entire goal be hit before the artist sees any of the money. It does work though, with high-visibility artists such as Public Enemy, Jonathan Davis from Korn, Rockwell, and Marillion having been successfully funded.
THE FOUR TIERS OF A CROWDFUNDING CAMPAIGN
1. The Basic Reward: If nothing else, the investor should receive a copy of the recording, be it a CD or a free download, along with a written credit on the project.
None of these cost very much, yet they could mean the difference between someone investing or not, or investing in a more costly tier.
THE FOUR RULES FOR CROWDFUNDING
1. Choose an attainable goal amount. Everybody would like a $100,000 budget to work with, but unless you have a large fan base to begin with, you’re probably dreaming if you think you can raise that amount. Even a once huge-selling band such as Public Enemy had to cut their goal from $250,000 to $75,000, so be realistic in both what you need and what you can raise.
Marketing Executive = 250 Parts (250x €10= €2500) All of the above plus an additional pro rata Publishing rev share of 0.01%.
Marketing President = 500 Parts (500 x €10 = €5000) All of the above plus an additional pro rata Publishing rev share of 0.02%.
Each investor also received a free CD and download of the album, and was entitled to participate in 10 percent of the revenue from the album.
4. Keep the campaign short. Kickstarter has found that the optimum campaign is 30 days, with longer campaigns performing significantly worse. The largest periods of investment come right in the beginning and right before it closes, with everything in the middle a somewhat “dead period.” If that’s the case, you might as well make the campaign short, since there’s no advantage to dragging it out.
Kickstarter also has some great additional info and data on their website that’s worth checking out.
THE CONCEPT OF “FUELERS”
The vast majority of your Fuelers will be people you already know. They are your friends, family, and fans. These are people who already know and trust you. For most projects, the number of strangers who become Fuelers is fairly low. That being said, all Fuelers will fall into one of the following three categories:
1. The Committed—already committed to supporting you when they arrive
Category #1, the Committed, will be populated with your First Degree Network of friends and family. These are folks who will sup- port you every time, regardless of the project, or its quality. Your parents are likely a good example.
Category #2, the Inspired, will be populated with other friends and family members, your Second Degree Network. These are people whom you invite to the project page. They are not committed to contributing when they arrive, but after watching your video or reading your project description, they decide that you are up to something great! They become inspired to support you. Some strangers may fall into this category, but a friend you see occasionally is likely a better example.
Category #3, the Shoppers, will be populated with everyone else (i.e., your Third Degree Network). In order for your project to grab friends- of-friends and strangers, you’ll need to grab the shoppers as well. The best way to do this is by creating rewards that are interesting and/or a good value.
Your first job as an artist is to take care of your most passionate members (the Committed or your tribe) first, since they frequently bring the Inspired or casual fan into the tribe just with their enthusiasm.
When You Need a Label
It’s easy to look at them as buffoons (like we do politicians), but most of them are surprisingly smart. This last ten years has been humbling for them. It’s shaken out the people that were only in it for the money, so most of the people at labels today are in it for the right reasons and are more entrepreneurial.
You might want to consider a label if:
In the video business, there was a conscious decision made that video was no longer going to be free anymore. How can it be promotional if MTV doesn’t play it? It has become a product, so we’re going to make money out of it. It turns out there’s a tremendous demand for music videos, and they can be monetized. Now we’re the biggest channel on YouTube. But it’s better for us to deal with YouTube on a centralized basis than as individual labels.
Unless you have a specific need for any of the above that you’re sure you can’t fill any other way, it’s best to stay independent for as long as you can as long as M3.0 is around. Who knows how long it will last? Maybe a year or two if we’re lucky, but maybe a lot less than that, which might be lucky, too, since it will spell the latest music- business evolution.
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