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December 19, 2008
The New Music Equation, Part 2by David Harrell
Back in February, I posted "The New Music Equation," which reduced the "voluntary payment/purchase" music business model to the following equation:
(A x B x C) - E = DWhat this equation ignores, however, is the growing number of ways for musicians to receive compensation for "free" music. Not directly from the listener, but from a third party.
where
A = the total # of people who acquire the work
B = the percent who actually pay for it
C = the average amount each person pays
E = total expenses (recording, marketing, promotion, etc.)
and
D = the total revenue received
So far, it's mostly compensation for ad-supported on demand streams, such as those offered by Last.fm the free streams of paid subscription services such as Napster and Rhapsody. Lala.com also pays musicians for the free streams it offers. I'm ignoring, for now, the revamped Myspace music player, as there's not yet a way for independent/unsigned musicians to participate. There are also some models like RCRD LBL that compensate musicians for actual downloads. And TuneCore recently announced a program for corporate-sponsored downloads.
Last.fm's new artist royalty program, for example, pays artists/labels for on demand streams of individual tracks. While there's some flexibility to the payout rate, for the third quarter of 2008, the per-track rate was 0.5 cents per on demand listen. The per-song payout from Lala.com is a similar amount. Using the standard payouts from iTunes, Amazon MP3, and eMusic (a varying amount), it's easy to calculate the number of free streams needed to equal the artist compensation for a paid download:
68 listens = 1 eMusic download
However, it's important to note that it's not an either/or proposition. Free on demand listeners are also potential purchasers of the music. But even if they never buy anything, they're still adding something to the bottom line.
Incorporating this "compensated free" component within the new music equation gives us:
(A x B x C) + (A x F x G) - E = DIt seems like the key for an artist/label is to -- as much as possible -- nudge listeners toward free music where there is an artist compensation component, even if it's only a fraction of a cent per listen or download.
where
F = percent of listeners/acquirers who listen to/obtain music from an compensating source
and
G = the average amount received for each listen/download
The question is, how far do you go in steering listeners to such sources? The basic math is in favor of only offering free music via a compensating source. However, my guess is that restricting listeners to such sources would probably reduce the first component of the equation, the total number of listeners/acquirers. Some potential listeners will no doubt balk at the idea of going to Last.fm, Lala.com, or a corporate sponsor's site to stream or download music.
Obviously, there isn't a single optimal strategy for every artist and label -- what works best will vary according to the size and demographics of the audience for each specific act (not to mention the actual artistic merit of the work itself). Yet if you're willing to go "free," maximizing the total number of listeners remains paramount, and I'd be reluctant to do anything to reduce that number.
tags: digital music eMusic iTunes eMusic Last.fm Lala.com
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Part One Part Two Part Three Part Four
The Layaways (my band)
New album: "The Space Between" is now available from eMusic.
"It can't be easy to make something this basically simple sound so fulfilling; it if were, everyone would do it." -- Fingertips
"The Layaways have a unique sound with great drum fills and airy vocals that will make you tap your feet and sing along." -- VIC Radio
Keep It to Yourself - free mp3
All Around the World - free mp3
Come Back Home - free mp3
Download from eMusic, iTunes, Amazon MP3, Lala.com, or CD Baby, listen to free streams at Last.fm and Napster.
"The Layaways make fine indie pop. Hushed vocals interweave with understated buzzing guitars. The whole LP is a revelation from the start." -- Lost Music
"A wonderfully crafted recording built around tasteful songwriting and musicianship..." -- PopMatters
Silence - free mp3
The Long Night - free mp3
Download from eMusic, Amazon MP3, or iTunes, listen to free streams at Last.fm, Napster, or Rhapsody.
"These are songs that you want to take home with you, curl up with, hold them close -- and pray that they are still with you when you wake up." -- The Big Takeover
Let Me In - free mp3
Ocean Blue - free mp3
Download from eMusic, Amazon MP3, or iTunes, listen to free streams at Last.fm, Napster, or Rhapsody.
More Layaways downloads:
the layaways website
Current/Recent Reading and Listening:
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It's written as a how-to guide for those looking to become music supervisors, but I found it to be a good resource for musicians (like me) who are trying to get their music used in movies, TV, etc.