Monday, June 29, 2009

Selling Digital Content in The 21st Century (Fans are key)

Below is one of the most astute lectures I've ever seen on how content providers can make money in the changing economy. It's a keynote speech by Mike Masnick on Trent Raznor's (from Nine Inch Nails) creative approaches to making money by simply connecting with his fans... and then giving them a damned good reason to buy from him.

As I've said before, piracy is not a technological problem, and thus cannot be stopped in the long-term by making it illegal. Pirates will always outnumber policing agencies and the swiftness of digital transfers will always favor pirates over content providers. No amount of locks will keep someone from breaking into your house if they want to. Piracy is really a social problem—people pirate because they're frustrated with being gouged by $30 DVDs or $20 CDs (just to buy 1 song), or the content can't be seen or heard yet because the movie or song is (pick one: still in theatres, still on pay-per-view, not being broadcast locally, too old to find on DVD, only on a non-US region DVD, being sold for outrageous prices on Amazon due to it not being a US region DVD, not something you would usually see or listen to but are curious to sample it, etc.) Ultimately, piracy is simply a free market force in the hands of pro-active consumers. Consumers want the content and if it's easier to get that content from a pirated copy, they'll do it.

However, if you give consumers a true reason to buy your product (e.g., DVDs specifically made to glow when they spin, treasure hunts & Alternative Reality Games found on T-shirts sold at your concerts), piracy quickly becomes moot. Consumers want to experience creativity from their artists and they'll gladly reward the most creative artists with cashey money if given a chance.

Embedded here is the 15 minute (trust me, it goes by quickly) presentation I did at MidemNet on January 17th in Cannes, France. If you're reading via RSS or another site like iGoogle, click through to see the full presentation. Sorry it took so long to get the video up. There were a few minor technical difficulties. Anyway, the presentation garnered an interesting reaction and a whole series of fascinating discussions over email, in person and over the phone since I presented it, and while I don't want to repeat what's in the video, I did want to discuss a few points raised by the presentation. The core of the presentation is the following simple "formula" that is the basis for making money in the music business (and, I'd argue, many other businesses) in the digital era:

Connect With Fans (CwF) + Reason To Buy (RtB) = The Business Model ($$$$)

There are many artists—famous and not so famous—who have been making use (on purpose, or not) of this formula to create successful strategies for building up a stronger fan base, creating wonderful new works of art, distributing them out to the community and getting paid for it at the same time. What made Reznor so interesting as a case study was the fact that he's done it so many times in so many different ways that he, by himself, represents a great example of how you can approach this simple formula in an infinite variety of creative ways.

One of the issues I've had in discussing recording industry business models is that we always hear excuses for why a, b or c won't work. "Well, that guy can make money selling t-shirts, but this guy's fans aren't t-shirt types." "That guy will sell concert tickets, but this guy doesn't like to perform." "Maybe some fans will pay upfront, but people are so greedy that most will just free-ride." It's all excuses. They all want a simple model that everyone can follow, but the point here is that while the model itself is simple, executing on any business model is difficult.

It's about applying that "simple model" in a variety of different creative ways—which Reznor has done time and time and time again. Hell, I couldn't even include all of the examples of Reznor's successes in this single presentation, let alone successes by other musicians who have executed differently—but all of whom connected with fans (CwF) and then gave them a real reason to buy (RtB).

A second point that needs to be discussed is that a true reason to buy (RtB) is a voluntary transaction. Too often we've seen musicians or other content creators think that there is some sort of obligation to buy. And, so they put something out with a price tag, but without doing a very good job convincing fans why they should buy. There was no real reason—and then they seem to lash out at their fans for hurting them. The fault, however, lies with the musician (like any business) who failed to give a proper reason to buy, and falsely assumed that fans had some sort of obligation to buy. If an artist believes there's an obligation to buy, fans will often educate the artist very quickly.

One final point on this is the last question that people often raise: why should the musician be involved in any of this? Shouldn't they just be creating music. There are two answers to this. First, this is exactly where a smart record label, agent or manager can come in and be quite helpful. Let the musician create the music and let the "business guys" focus on applying this business model. Second, however, is that due to the way the industry is these days, the musician does need to be somewhat involved. You cannot connect with fans if you're in seclusion. If you don't want to make the effort to connect with fans, then that's fine: you won't have that many fans. It's a choice you make.

That said, there are tremendous opportunities allowed by new technologies, new communities and new methods of communicating today. They all enable better ways to connect with fans, and better ways to offer real reasons to buy. Those who look at the past and complain about what's been lost need to turn around and look at the vast open fields of opportunity in front of them. There's a lot more music to be made, a ton of new fans to make very, very happy—and, yes, through it all, an awful lot of money that can be made as well. You just need to stop worrying about what was lost and recognize all there is to be gained. Link.

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