How to Make Money When Music is Free
Recorded music sales are dying.
The last decade has seen the record industry shrink by 64% between 1999 and 2011. The amount of money spent by the average music listener in the United States fell from $71 to $26 during that time. There have always been doomsayers predicting the end of the music industry as we know it, but it looks like this time, they’re right.
The steep decline has been fueled partially by music piracy, but that doesn’t tell the whole story. Digital downloads fundamentally changed the way music listeners purchase their music, and iTunes took a 30% cut of every sale. Instead of purchasing entire albums, fans began to purchase just one or two tracks for a dollar each. This was a heavy blow to an industry which is still sustained overwhelmingly by full album purchases. Eight years after iTunes launched, music listeners in the United States averaged only .25 downloaded albums per year per person. That’s not enough to sustain a multi-billion dollar industry.
Streaming is the newest player in the game, with services like Spotify growing in double-digits each year. These companies are helping to bring billions of dollars in revenue into the industry each year, but they do so in large part by cannibalizing music sales. Why would you purchase a CD when you can get a month of Spotify, with access to millions of tracks including the CD you were about to buy, for the same cost? It’s an easy decision to make, and it’s why so many people are changing over to streaming as their main source of music. Including myself.
Image Source: Michael DeGusta for Business Insider
None of this is good news for the recorded music industry as a whole. Streaming may eventually become a massive business fueled by tens of billions of consumer dollars, but we’re certainly not there yet. And when we get there, it’s not clear what proportion of those billions of dollars will be flowing into the pockets of the recorded music industry.
But what is bad news for the recorded music industry is not necessarily bad news for artists.
The Internet has made it possible, for the first time in history, for an artist to reach millions of listeners around the world and earn a living through their music, all without ever needing to impress the musical gatekeepers or use a million-dollar marketing budget. Artists can now be in complete control of their own careers — which includes receiving a significantly larger proportion of the revenue from sales and other income than they would have in the past.
Whether you are a major, indie, or completely independent artist, the new music industry has opened up more possibilities for success than have ever existed in the past. You just have to know how to spot them.
How is any of this possible?
In my last post on Careers in Music, I detailed the two ways that the economics of the Internet work for artists.
The Internet makes it possible to reach millions and millions of fans around the world for an astonishingly low cost. The biggest obstacle is getting their attention in the first place. This is great for the mainstream artists who can invest millions of dollars into getting that attention, and then make a little bit of money from each listener. But the Internet is also cheap enough and efficient enough for individual artists to control their own destinies. You can launch a website, market through YouTube, Twitter, and Facebook, set up an online store, and even distribute your music to all the major music retailers all for less than $100. That has never, ever been possible before, even less than a decade ago. Artists have the power now.
It’s true that digital downloads and CD sales are likely to continue declining until they’re no longer a meaningful drive of overall industry income. Instead, streaming services like Spotify or YouTube’s new Music Key are likely to become the primary way that people listen to music.
But there’s a startling amount of opportunity out there for unsigned, indie, and major label artists alike. In addition to connecting musicians with fans all over the world for nearly no cost, the Internet has enabled dozens of new possible revenue streams. One artist who’s been particularly successful at innovating in an industry stereotypically unable to innovate is Nipsey Hussle.
In 2013, Nipsey Hussle made his first attempt at an unconventional album release. The Los Angeles rapper released Crenshaw completely for free online — with a twist. He also printed 1000 CD’s of the album, filled with exclusive content and extras, which could be purchased for $100 each. Once they’d all been purchased, there would be no more sold.
The bold move inspired a trending Twitter hashtag, #Proud2Pay, and prompted Jay Z to buy 100 copies in support. As the Guardian reported, it wasn’t long before the entire run sold out.
This year, Hussle upped the ante with Mailbox Money. He released the album for free, and printed 100 copies of the album, this time with both exclusive content and his personal contact information. The new price tag? One thousand dollars each. The week his album dropped, Hussle made $60,000 from physical CD sales. This is in an industry rife with stories of artists selling hundreds of thousands of dollars worth of CDs, only to never see a dime of it because of recoupment fees owed to their label. Hussle has found a way to innovate in an industry stereotypically slow to innovate.
There are thousands of examples of artists trying out unconventional methods to earn revenue in the music industry to great success. But why are fans willing to pay such a hefty price tag for an album they can get for free, minus a couple exclusive tracks?
It turns out that fans want to support artists, and they’re willing to put money on the table so long as that money reaches the artist, not a middleman. This isn’t small change, either — fans are willing to invest serious amounts of money in their favorite artists.
Fans are willing to pay billions.
It turns out that fans want to pay to support their favorite artists, and are willing to do so if only they have the opportunity. A Nielsen study found that more than half of the most active music listeners would buy exclusive content from a favorite band recording a new album. But surprisingly, 1/5 of even the least active music fans, dubbed “Ambivalent Consumers”, are willing to buy exclusive content if they have the chance. The problem isn’t that fans aren’t willing to pay — it’s that the music industry isn’t giving them enough opportunity to do so, for content they actually want. Nielsen estimated that the music industry could add between $560 million and $2.6 billion in annual revenue by giving fans better access to exclusive content.
The key is that the content must be valuable and it must be exclusive. It’s not enough to put your music on Spotify, then release the same album for sale with a bonus track. It means putting significant effort into delivering something above and beyond the standard 10-track offering.
Try Something Different
So what can you actually do to take advantage of new opportunities in the music industry? Here are four methods working for artists today:
1. Live Performance
Live performance has been the preferred way to make a living making music long before the recorded music industry ever existed. Live music is alive and well, and is managing to grow even as the rest of the music industry struggles. Performances, unlike mp3’s, can’t be duplicated. You simply have to be there to experience it. And so live performance is unlikely to go anywhere in the future. The demand is high, and the only way to fill the supply is by more and more artists performing. As long as there is music, there will be performance.
But that doesn’t mean you’re forced to perform in the traditional ways. Bars and clubs aren’t the only options. The Internet has opened up new ways to perform which didn’t exist just five years ago. One route is through live video performances, either for a small, personal audience through a service like Skype, or for a large audience through platforms like Twitch. On Twitch, you can live-stream your performance, interact with your fans through chat and video, receive payments, and sell merchandise. Some artists are using connections built through the Internet to book small house shows all over the country. The crowd is small, but intimate, and fans are willing to pay more in order to actually meet and hang out with a favorite artist.
2. Physical Goods
Digital goods aren’t perceived to have a high value, because the cost of making another copy is essentially $0. That’s not true of physical products, and that’s why fans are willing to pay a lot more for these goods. This is precisely why vinyl has had such a startling comeback in recent years. Of course, merchandise is another wonderful example of a physical good which has remained strong as a source of income for artists. This is especially true in combination with…
In almost every industry, exclusives are a primary way to increase income. People absolutely love being the very first to have something; they love having content no one else has; and they especially love having personalized items from a favorite artist. This is why small performances are so valuable, and it’s the reason that physical sales can be so effective.
For example, you can make the best of your merchandise by taking advantage of limited-release lines, including personal autographs and hand-written notes, and exclusive merch that’s not available to people who haven’t bought your music. In the Nielsen study I mentioned earlier, it was exclusive content that fans craved, and it’s exclusive content that could add more than $1 billion in revenue to the music industry each year.
Patronage is not new to the music industry. Legendary composers, including Bach, wrote their compositions under a patronage system. But the system has had a modern-day resurgence through sites like Patreon.
This system is especially powerful for acapella groups and cover artists. Individuals and groups who perform well on YouTube also tend to find success on Patreon. The key to success with patronage is through the exclusives mentioned above. You’re finding ways to deliver unique and satisfying experiences to the people who are willing to support you each month. The three suggestions above all include ideas for perks you can give your supporters, and it’s also worth looking through successful Kickstarter campaigns or top Patreon artists to see what they are offering their supporters.
The record industry is suffering from declining music sales, but things are looking up for artists. If you’re willing to take your destiny into your own hands, there’s an abundance of new ways to build a fan base and earn an income online.
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