How to Hack the Music Industry: Part Deux
Lessons for creatives from the world’s fastest growing companies
“The most basic concern of any strategy is to increase our ability to survive on our own terms in a threatening and confusing world”
— Chet Richards
As someone with fresh eyes (i.e. limited experience) playing in the entertainment industry, I’ve noticed a common theme. It’s archaic. Everyone seems to be lost in the wilderness.
We live in a world of contradictions, so it’s fitting that the same industry built on setting cultural trends is the same one with outdated business strategies. I’m obviously not the first to notice this.
Ben Horowitz makes a strong case about why music industry executives in particular have lacked the DNA of innovation:
“By the time the Internet arrived, all of the original founders of the record companies had been bought out, retired, or died. The new, professional CEOs were unwilling to let go of the most basic assumptions driving the cost structure of their businesses. They were proficient at running the current business, but lacked both the courage and the moral authority to jeopardize the old business model by embracing the new technology.”
Paul Graham also has his own theory:
“The underlying problem with the labels and studios is that the people who run them are driven by bonuses rather than equity. If they were driven by equity they’d be looking for ways to take advantage of technological change instead of fighting it. But building new things takes too long. Their bonuses depend on this year’s revenues, and the best way to increase those is to extract more money from stuff they do already.”
As always, the truth is probably a mix of both. Regardless of why, the reality is pretty clear: The rate of innovation in the entertainment industry hovers close to 0. The whole vibe is very “Office Space,” micro-managing for metrics that don’t actually matter.
The time is now for a complete overhaul in strategy and execution. Independent artists, entertainment executives and the rest of our ecosystem need to rethink everything from the ground up. The roadmap is already there, we just need to expand our vision to see it.
Share of Fan
“There can be no expertise in innovation unless there is also expertise in demolishing the ensconced.” — Kevin Kelly
The foundation of any real marketing is authentic relationships. I suspect it’s always been this way. The previous generation simply lost its course and was forced to live through an age of “one size fits all” mass marketing.
Our society, institutions, and information were mass produced over the last few hundred years. We assume this is normal, but it isn’t. For most of human history, our culture, ideas and information were transmitted on a smaller and more personal scale.
The first and most crucial step for us now is to actually understand who our customers are and be able to reach them directly.
Every other business can do this, it’s insane that we in the music industry can’t. As it stands, whenever a creator transacts or interacts on a third party platform, it’s the platform that owns the relationship.
Apple knows every fan who has ever made a purchase on iTunes (and are expanding their empire with this info). Artists and executives don’t. When it’s time to reach all of the fans who liked your Facebook page, it’s time to dig into your pockets (hopefully they’re deep) to pay Facebook.
The name of the game is now precision data. Understand everything you can about who your fans are and own the relationship with them. Leverage social networks, don’t rely on them.
“In the 1:1 future businesses will focus less on short-term profits…and more on the kind of profits that can be realized from long-term customer retention and lifetime values.” — Don Peppers
It’s time to shift the commonly held assumptions about how a creative career is built. Share of customer is now more important than share of market.
Instead of looking to reach the masses, start with the core base of true fans. Invest time in building these relationships, as opposed to trying to reach as many people as possible in a transactional way. By definition, a relationship is collaborative, not just one way communication. It’s the “state of being connected,” which means a two way dialogue.
The fans are your lifeblood and they’re more than willing to talk to you when given an opportunity. It’s these dialogues that will guide your path to monetization and longevity.
“The lesson is clear: listening to potential future customers is the difference between the winners and losers.” — Steve Blank
This simple idea is the foundation for the “lean” movement that has swept through the startup community. The premise is that the wisdom of the crowd is greater than the wisdom of a select few.
For startups, it’s listening to real customer feedback, as opposed to sitting in a room guessing what people want. For artists, it’s engaging with fans instead of relying on gatekeepers to tell you what’s relevant.
This doesn’t involve compromising any level of artistic integrity. It means discovering who your audience really is and how they want to support you. There is also value starting with a hyper focused and localized fan base. This is what Uber did:
“Uber used intense market focus to create local network effects in their launch city, San Francisco, while fueling word of mouth growth through targeting of the early adopting Bay Area techset.” — Sean Ellis
Whether this literally means a hyper focus on your city (which is a great place to start), or in an online world, the mandate is clear. By trying to reach everyone, you reach no one. It’s this intense, localized focus that generates organic word of mouth and real growth.
It’s time to graduate from the “market share mentality” and start to focus on building collaborative, long-term relationships with fans.
25 to Life
“An organization must make a conscious decision about which segments to serve and which segments to ignore.” — Alexander Osterwalder
How much is a Jay-Z fan worth in a year? The “business man” doesn’t know. Rest assured, Jeff Bezos knows how much an Amazon Prime customer is worth — $1,500 per year.
It’s time to start prioritizing amongst your fans. You may love them all, but they don’t all support you equally. Customer Lifetime Value is a simple metric that asks:
“How much is this customer/fan worth to me over time period they’ll do business with me?” If you make awesome content, that time period is forever. This is basic shit.
Keep in mind that a purchase is only one type of support. There are different levels of value exchange. Your biggest fan could be a director who will shoot your next video for free. But you’d never know if there wasn’t an opportunity for dialogue in the first place.
“Great merchants have never had the opportunity to understand their customers in a truly individualized way. E-commerce is going to make that possible.” — Jeff Bezos
It’s estimated that Prime members spend about “150% more at Amazon after they become Prime members.”
By collaborating with customers and adding value with Prime, Amazon was able to increase the spending of their current base. Artists can do the same by offering “patronage products” to fans they already have a relationship with. Aside from the vanity factor, it makes no sense to scale if you don’t understand your current fan base.
This is the type of strategy that allows you to build a creative career, whether you have a million or a 1,000 true fans.
“To raise your sales out of the flatline of the long tail you need to connect with your True Fans directly. Another way to state this is, you need to convert a thousand Lesser Fans into a thousand True Fans.” — Kevin Kelly
The focus needs to be on adding more value, and by extension, generating more money from the top fans. Airlines do this. Frequent flyer programs exist to separate the best customers from the average, and incentivize the best to spend more.
I’m sure this power law has always been true in entertainment, as it is in every other business. A disproportionate amount of revenue is going to come from a small percentage of fans. Focus your energy on them.
You do this by offering “patronage products” — exclusive experiences and offerings that allow fans to support at a higher level. How can a fan spend $100 a year on you when all you’re offering them is a $10 digital download?
This is where collaborating with fans and understanding how they want to support you will start to pay dividends. But strategizing around “share of customer” and “patronage products” relies on data, both qualitative and quantitative.
Real Relationships are Based on Love (and Data)
“Increasingly, there are only two kinds of companies: brave and dead.” — Seth Godin
Seth Godin coined the term “permission marketing” in his 1999 book as marketing that is:
“Anticipated — people look forward to hearing from you. Personal — the messages are directly related to the individual. Relevant — the marketing is about something the prospect is interested in.”
Permission marketing is how you build authentic relationships with fans over time. It’s how you create “lifetime value.” It’s somewhat counterintuitive that artists haven’t utilized a strategy that’s predicated on being “anticipated, personal, and relevant.”
The more precision data you have, the stronger relationship you can build. Think about the info required to have an Apple ID. This is the level of detail needed.
Most artists are currently gathering email addresses — this was cool in the early 2000s. Would you say you had a real relationship with somebody if you only had their email? What about their Twitter handle?
Social media doesn’t provide the layer of precision data necessary to speak to fans in personal way. Why do I care about a Tweet for a show in LA when I’m in NYC?
It’s unlikely that I’ll even see that Tweet due to the amount of noise on Twitter. The average engagement for a Tweet is below 1 % — that’s comparable to an old school banner ad. Yet, artists continue to focus intensely on “growing their Twitter following.”
Rihanna has 81 million likes on Facebook. She didn’t get paid when Facebook did their IPO. They own that relationship with her fans, not her. And as a result, she doesn’t participate in the monetization of it, despite the fact that it’s her brand and content that keeps people engaged on the site, thus increasing the value of Facebook.
“Fundamentally, marketing must refocus away from selling product and toward creating relationships” — Geoffrey Moore
I’m talking about building a relationship and a direct line of communication beyond noisy social channels. Being able to capitalize and take part in the upside of an artist or personal brand is predicated on owning the relationship with the fan.
You don’t even get someone’s first name on Twitter. What type of authentic relationship can you own without that basic level of information? As is often said, the medium is the message. Do your friends email you to make plans for Saturday night? Probably not.
Mobile is eating the world, and authentic interactions happen on that 10 inch screen that’s never out of arm’s reach. This is quickly becoming the most valuable real estate in the world.
When you can text a fan directly to let them know you’re in their town for a show, that’s when you know you’re on the right path. It may sound extreme, but that’s what it takes. Technology is just now making this possible.
Once you own the relationship with fans, it opens up a world of possibilities to build a creative career in any vertical.
The Elephant in the Room
“The best — maybe the only? — real, direct measure of “innovation” is change in human behaviour.” — Stewart Butterfield
At the end of the day, these strategic shifts don’t matter if the product itself isn’t sticky. If the music and content isn’t good. Just like the best entrepreneurs are product focused, the best artists are content focused. It doesn’t matter how many people hear your music once, it matters who keeps coming back. Engagement is more important than reach.
Having this mental frame-work isn’t a shortcut around dope content and insane levels of hustle to make it happen. It just allows you to hustle smarter. Before diving into execution in future posts, we need to first shift our mindset. Strategy always proceeds tactics.
Strategy is about survival and living life on your terms. No matter what part of the entertainment ecosystem you occupy, it’s a jungle out here. Just make sure you sharpen your machete before proceeding any deeper.
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dannyquick.nyc // yo@dannyquick.nyc // @DQuick215
