Don't Believe The Hype - Part 1

The following article is written by Sam Fisher of Lucas Gambit, a full-service media and entertainment company founded to serve the developing artist and independent label community. Definitely a MUST READ! Part 2 will follow tomorrow...



A very good friend of mine forwarded the link below to Derek Webb’s tumblr blog post where Derek (formerly of Caedmon's Call) makes the argument that giving away your music ultimately leads to long-term career sustainability.  As you can imagine, I had a very strong reaction to it,  so I thought that it made more sense to state my contentions here and let the world wide web hear the other side.

Giving it Away: How Free Music Makes More Than Sense

In theory, Derek makes sense.

In theory.

The problem is the reality that artists and bands find themselves in these days.  The general public (lets call them consumers) are listening to more music than they ever have at a time when revenue from music purchases is going down.  I’m not going to bore you spouting out the same statistics that you’ve heard everywhere else.  Yes, you have more options to market yourselves than you’ve ever had.  Yes, you can create music easier and cheaper than ever.  Yes, you have access to the world through social media and the world wide inter-web.  Derek’s insistence that you give away your music for free in order to build a career in music, is disingenuous and relies on a bunch of ideals…

Derek and I have had this conversation before via twitter when I challenged the notion that giving away music could earn more money for an artist in the long run.  At one point, Derek said “Sam, you’re still on the Titanic and we’re telling you the water’s fine”.   My response:  “I’m in a row boat telling you there’s a better way”. Below, I’ve included excerpts from Derek’s post followed by my thoughts on the matter.

There has never been a better moment to be a middle-class or an independently thinking artist making and performing music than right now.  The costs and complications of creating, recording, manufacturing, and distributing music are at an all-time low, enabling more music to be made and more artists to make a living than ever before.

Derek is only half right here.  It IS easier and cheaper to create and distribute music now.  More people are making music, including you, your neighbor, the frat boy with a macbook pro, the guy at church singing Chris Tomlin tunes —  you name it.  Here’s the thing:  NONE OF YOU ARE DEREK WEBB.  Or Radiohead.  Or Nine In Nails.  Or any of the other “use to be’s” that can now sell music directly to the fan bases that their major labels paid to help them cultivate.  The former major label artists once had the largest labels with the most robust networks marketing, promoting, and selling their music.  Just because they aren’t signed to a major label doesn’t mean their fans quit buying their music and supporting them.  Now these artists, armed with FB, Twitter, tumblr, wordpress, etc, can sell and market directly to their fans.  They are the middle-class artist.  No one outside your inner-circle knows who you are.  My guess is, this is where you say “but that’s why I GIVE my music away so I can promote myself”.

True, that’s one way to do it.

Is it the best way?

NoiseTrade has enabled thousands of artists (including myself) to have and cultivate direct relationships with their fans rather than having to depend on proprietary third parties such as Facebook, Twitter, and not so long ago, MySpace, and therefore, to have a job.

How many Twitter followers do you have?  Facebook fans?  Go ahead, check.  I’ll wait.  Now, how many email addresses do you have?  Cool.  Where do YOU cultivate direct relationships?  When was the last time you had a meaningful conversation with a stranger over email?  More to the point, when was the last time you responded to an email from someone selling you something (if you read it at all)?  This whole “give away a song for an email address then you’ll have hundreds of best friends clamoring to pay you money” is a fallacy.  That’s not how folks communicate.  And furthermore, people spend more time on Facebook and Twitter than they do talking to real live human beings.

Just sayin.

Now, lets try another exercise:  go back over the past 30 days and add up how much money you made selling t-shirts and playing live.  Add in CD and digital sales too.  Next, divide that number by the number of email addresses.  What do you get?

On Twitter, I recently said, “I make more money giving records away on @NoiseTrade (in exchange for info) than selling those same records on iTunes (let alone Spotify),” which resulted in some pretty interesting discussions.  I said that in response to questions I received after criticizing streaming services like Spotify, which claim to offer a viable alternative to “piracy,” when in reality they offer artists almost no meaningful revenue or fan connection.  And while iTunes is certainly a better financial model and more equitable for artists, it does almost nothing to connect the fans to the artists in a way that yields any long-term benefit.

For example, I am paid $0.00029 per stream of a song on Spotify, and even this amount depends on whether the song is being streamed by a paid user or someone using the service for free.  This means it will take upwards of 3,500 streams of a single song on Spotify to earn $1.00 versus that same revenue for one iTunes song purchase (not to mention the fact that Spotify refuses to pay the same amount to independent artists as they pay major labels, unlike iTunes).

Derek isn’t being totally forthright here.  He’s claiming that he’s one of you but then he quotes a royalty rate when comparing his iTunes revenue to Spotify revenue.  He’s right, you’ll get paid less than 3 one thousandths of a penny for every stream on Spotify, Slacker, Pandora, etc.  But iTunes pays out 70% of gross sales.


Period.

When Derek was signed to Columbia, he was more than likely making roughly 12-18% of net sales.  Which means if Columbia sold his album for $12.99 on iTunes, they would’ve received $9.09.  Let’s say Derek got paid 12% of that as a royalty.  He would net $1.09 for that album sale.

But he’s indie now, so he actually gets to keep all of the 70% that iTunes sends him.  UPDATE:  via Twitter, Derek reminded me that he is not an indie (and has never been an indie) and therefore makes the $1 per album he claims to make.   Fair enough.  YOU will make 5-7 times more than that because you’re not signed to a major label.  Why give away your music when you can make 5-7 times more than Derek makes?

FYI, Spotify pays the same amount per stream to EVERYONE.  However, they paid licensing fees to the majors in order to have the rights to stream their content.  Indie artists weren’t paid squat for giving their music to Spotify.  Wanna know why?  Spotify doesnt have to.  Indie artists gave it to ‘em. Why’s that you ask?  Its simple.  Spotify has 10 million subscribers and you have 200 Twitter followers.  They have the leverage, you don’t. Don’t hate the game, hate the playa.

Most would argue that it’s apples and oranges (no pun intended): iTunes is a digital storefront for artists while services like Spotify are about discovery.  People will argue that low-cost streaming is good for the market, that it’s good for the artists, and that it’s still better than people taking your music for free from BitTorrent.  But I tend to disagree on almost every point, mainly because it’s just not that simple.  It’s true that iTunes is a place for people to purchase music, but it offers all the same benefits of Spotify in terms of discovery.  And while Spotify is claiming to occupy the discovery space, it’s clear that the service is operating functionally as a storefront, since people are streaming music as an alternative to purchasing that same music.

I’ll go even further to say that I actually prefer illegal downloading over Spotify because when you get music illegally it’s at least implicit in the transaction that what you’re doing is potentially harmful to the artist.  But with Spotify, your conscience is clear because you’re either enduring ads or paying to use the service and access the music.  But from the blue-collar artist’s perspective, they’re not receiving any meaningful payment (there’s little discernible difference between $0.00029 and $0.00) and they are learning nothing about their fans, not to mention that music readily available on Spotify for little to no payment completely poaches the record sales upon which middle-class musicians are depending for survival (which is why I will withhold any new releases from Spotify in the future).

Derek is 100% right here.  Hard numbers:  sales have dropped for my releases by 25-35% since those releases became available on Spotify.  Streams have shot through the roof.  For instance, we received a $123 check for 34000 streams.  Consumers are starving artists by streaming their music.

If someone buys my music on iTunes, Amazon, or in a record store (remember those?), let alone streams it on Spotify, it’s all short-term money.  That might be the last interaction I have with that particular fan.  But if I give that fan the same record for free in exchange for a connection (an e-mail and a zip code), I can make that same money, if not double or triple that amount, over time.  And “over time” is key, since the ultimate career success is sustainability.  Longevity.  See, the reality is that out of a $10 iTunes album sale, I probably net around a dollar.  So if I give that record away, and as a result am able to get that fan out to a concert (I can use their zip code to specifically promote my shows in their area), I make approximately $10 back, and twice that if they visit the merch table.  I can sell them an older/newer album and make approximately $10 back.  The point is, if I can find some organic way to creatively engage them in a paid follow-up transaction, I increase my revenue 10 times on any one of these interactions.
This is all an equation of scale. I might be able to outright sell 20,000 albums for $10 each (again, netting around $1 each).  Or I can remove any barrier from someone hearing about or discovering my music by giving it away, which will result in an order of magnitude more albums distributed, maybe around 100,000.  If I can then convert 20% of those free downloads into paid transactions of any kind over time, I have probably well over doubled or tripled my money.  And I can do this repeatedly as I continue to grow, and learn more about and invest in my tribe, to whom I now have a direct connection (rather than having to go through Facebook, Twitter, or Lord forbid, MySpace to access them).

And all of this by giving the music away for free.

Again, Derek is fudging numbers.  This is the second time he’s tossed out the $1 royalty number so I’m gonna go ahead and say he’s using the royalty calculation of 12% of SRP (suggested retail price) of$12.99.  He’s also betting on a LOT of things going right “over time”.  He assumes that 20 % of folks that download a free album or song will pay $10 to see him play live.  He then assumes those same folks will “visit the merch table” and spend more money on t-shirts and merch.

Quick question:  when was the last time YOU sold 20,000 albums.

Next question:  when was the last time 100,000 people downloaded your music?
The reality is, you put your music up on Noisetrade, and Joe Music lover downloads the album then tweets “I just downloaded So and So on Noisetrade for free, get it here” with a link to the download (from Noisetrade mind you-not your website) to his 75 twitter followers.  Let’s say three of his followers pay attention to his twitter feed and click the link, two download the link and its broadcast to their 75 followers and so on and so on.  At that rate, you’ll have five people watching you play a show in Topeka KS and the club will ignore any other phone calls you make because you lost them money.  Further to that, I believe giving something away devalues the music AND you…

When you talk about free music, people who work in the music business will tell you you’ve gone too far.  They’ll say you’re devaluing the art itself, and that once you go there, there is no coming back.  I suppose I would agree if I thought that music’s only value was monetary.  But I don’t.

Music does have monetary value.  But more than its monetary value is its emotional value, its relational value, its artistic value, even its spiritual value.  When you make meaningful connections with people based on artistic self-expression, I think you’re actually increasing the value of that art based on the many ways it’s valued.

Permit an analogy if you will…  Lets say you’ve just transferred to a new college (and you’re drinking age).  In order to meet new people and hopefully make new friends, you plan a party and put up flyers announcing that you’re gonna have free beer.  That weekend, your house is packed.  Music is blaring, folks are hanging out and laughing talking about how awesome the party is.  Then about an hour in, the keg runs out.  The room clears in about ten minutes flat.  No one bothered to get your name.  So then you have a second party and order two kegs of beer.  Everyone shows up, trashes your house and bounces as soon as the kegs runs dry.  This time you were smart though.  You walked around, met people, exchanged iPhone numbers and found them on facebook.  The next week, you invite everyone over to your house for a get together.  What do they say?  Come on, you know…  “Is there gonna be free beer?”  How many people do YOU think will turn up if you say ‘no’?  Here’s the thing, humans are impressionable beings.  We’re easily conditioned.  Why on earth would someone BUY something that they can get for free?  When I ask if the consumer “values” your music, I really mean do they CARE about your music.  A very good friend of mine who gets music from Noisetrade told me that he’s got a few albums he hasn’t even unzipped yet.  You think he would’ve at least LISTENED to an album he got for FREE.  I bet if he’d paid for it, he would’ve listened.

The point is, if the only investment you’re asking folks to make is an email address and a zip code, then you’re in trouble.  I NEVER open solicitation emails.  But at least I see (we call them ‘impressions’ in the biz) a Facebook status update or a tweet.

This brings me to my final point.  I’m sure somewhere deep down Derek cares about you the indie artist.  But don’t get it twisted, Derek has to make a living.  There is value in him supporting this cause.  When someone downloads a song or album from Noisetrade, they provide their Twitter info, email and zip code.  How valuable is that to Noisetrade?  Very.  When that person tweets about your FREE music, who gets some of the credit?  Yup, Noisetrade.  Any money you get from folks leaving you tips or donations on Noisetrade is subject to a 20% fee.  That means you only get 80% of the money you earned GIVING away your music.

You’re not middle class and if you keep giving away your blood, sweat and tears for free you’ll never be middle class.

About the Author:

Sam Fisher, Jr., a second-generation musician, has been making music since the mid-1990s including a stint as the frontman of independent powerhouse, Weekend Excursion, who over the course of nine years sold over 30,000 units while touring all over the world.

After the band disbanded, Sam released his critically acclaimed solo effort, People Living in 2006 on SBMG Records. In the years since, Sam has collaborated on several side projects (Caruso – contemporary blues, Mercury Blue – R&B and The Bristol Project – Trip Hop).

On September 21, 2010 Sam released his solo follow up: From Age to Age (cd) (mp3).

Sam is a voting member of the Recording Academy and staunch advocate for independent music, and he currently serves as worship leader and music director for Summit Church‘s North Durham Campus.