New Music Business Models: Membership Sites Still Smart Money?

In the past I’ve been a huge fan of membership sites mainly because it was the most rudimentary way of representing the “1000 true fans model” – think about this, if you had a private membership site with 1000 members who were all happy to pay $7 per month you’d be making $7000 a month and $84,000 a year which would be pretty good, I bet it’s more than you’re making now, especially in US$.

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But don’t forget that’s just your core earning – there’d still be income from gigs and physical products and merchandise, it’s just that paid up members would have unlimited access to all digital content. The downside to this for smaller-mid sized artists is that you’d likely be under some obligation to continually add content to the site and interact with your fanbase but of course if you were smart you’d already have a company or service such as ours helping you to develop this kind of sustainable content platform.

I must admit it still sounds like a great idea. Artists are generating significant income and leveraging all their content to create the most high value proposition possible for the fans, and $7 a month does not feel like a lot to commit to an artist, it’s not too much that anyone, even if your audience are still teenage kids, can afford.

Also it narrows your audience down to a small and specific group for which to direct personalised contact between artist and fans.

What’s more, it’s highly likely that those 1000 people will also be buying – albeit discounted – physical merch and coming to gigs. They can also be incentivized to sign up more premium users and once you have that solid audience, branch into new items and services that can be provided as an affiliate marketing partner.

But the problem with the “1000 true fans” model is that it makes it sound like 1000 isn’t that much – when we’re talking about building real fans one by one, day by day. So you’ve got to recognise that in order to maintain fans and sustain growth you’re going to need a high level of engagement as well as continued interaction and that is what services such as our online artist management aims to provide.

In the beginning you’re building fans one by one and it’s manageable, but what happens when you get into triple figures and you’ve got a lot of people to keep connected? This is the real challenge, the journey from an artist who is starting out to an artist who is willing to take the time and plan the strategy to continue to leverage progress from what has been built before, and having systems in place to manage this development.

So down to the question at hand. Are membership sites the best way to leverage musical and artist brands and digital products for the most revenue?

It certainly presents a compelling model. But when addressing the needs of artists who come to me, getting organised with a solid platform, regular content and a commitment from the artist to the fans is a long way off, that’s why though I talk in 3 month chunks, most artists need a lot more time than that to take them from a myspace and a website to a cohesive fan management structure.

Because if you’ve only got 100 true fans which is more than even what most artists that come to me have, you’re still building that equity in your brand and your value with the tribe before you can seriously start trying monetize by launching and maintaining a membership site.

Membership sites maybe great once you’ve won that ground with your audience and your trained in delivering content regularly for this market, but until then, with the clients I’ve got coming to join our music marketing packages the issue is not how to make money out of 1000 true fans because membership sites are one of a number of options in delivering content and fan experience, and delivery the proposition that allows the artist to create revenue – and those two thing may not necessarily be the same transaction.

In the meantime we have to worry about how to bring an artist to that point with the right platform and the right marketing and branding process to build 1000 fans. Membership sites maybe a cool idea, a long term goal for when the time is right, but right now is still the time for doing the hard work and getting the basic foundations right.

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From Duff Mckeegan of Guns’n Roses

Up to this point in this column, I’ve been writing almost strictly about financial vehicles or wading into the economic muck that we as a nation have gotten ourselves into and trying to bring some clarity to the situation. If I may be permitted, I would like this week to go on a little rant about some things that have been going on in my business and also how the business model for music has pretty much been flipped upside down over the last 10 to 15 years.

Back when I was in GN’R, bands like us could pretty much operate at a break-even point on the road because acts were selling more records than is even imaginable these days. The reason for the dramatic downturn in record sales, of course, was the digitizing of music. Putting music on CDs meant it had to be in digital form; eventually this led to the situation where digital files like the MP3 were divorced from any physical product, making the Internet and home computers the prime means of distributing music. A rock tour back then, at the dawn of the digital era, was really just a huge commercial to sell your record. Because a larger portion of people get their music for free via piracy these days, touring, “merch” sales (mostly t-shirts, but also stickers and pins and anything else you can slap your band’s logo onto), and licensing of one’s music for ads and ringtones must support the average music act these days.

The major record labels missed the only real opportunity to get paid from illegal downloading back in 1997 or so. We all remember the Napster conundrum when Metallica sued them, right? Hey, as far as I’m concerned, Metallica had every right to demand payment for their hard-wrought recordings. But there was another deal on the table then from Napster that was never really publicized—and this where the “major labels” fucked up in my opinion.

Napster was making truckloads of dough off banner ads back then. It seemed the site was the most looked-at space on the Web and therefore a hot property. Car companies, cola bottlers, movie companies, and many others were paying top-dollar to get access to those Napster-glued eyeballs back then. Napster offered to share this ad revenue with the major labels so that artists would get paid for the downloading of songs that Napster made available for free. It now seems like the perfect business model for what was then a largely unanticipated future of digitized music. The majors balked and a huge opportunity was missed.

Again, in 2005 or so, the remaining major labels tried a lawsuit against pirate music source Kazaa. And again, the company under attack offered to share its ad revenues but were turned down. Actually one major peeled off from the lawsuit and did a deal with the Kazaa; the rest just simply dug their heels in and are still in the same spot to this day, left in limbo with neither them or their artists getting paid.

Nowadays, if a band wants an even remote shot at getting a deal with a major label, they must yield to the new business paradigm of giving up a portion of their publishing, their merch sales, and even concert receipts to the label in return for the release and marketing of the band’s music. This all seems dirty to me, but it’s the way things are now done—at least in the old corporate music world.

Back in the mid-to-late 1970s, there was a grassroots revolt against the then-bloated music industry (read the book Hit Men to get an idea of just how extreme the business had gotten). Independent record labels like IRS, Slash, SST, and Beggars Banquet began to spring up, giving new and different bands a chance to succeed and reach a national audience. The same thing has happened again in recent years as a result of Internet distribution. But right now, there’s almost too much information out there. A club booker now books bands based on how many views they get on their MySpace page. Bands have to hustle—maybe even more than in the pre-MySpace era—just to get a gig at a shitty bar. What seemed like a revolution fueled by the Web now looks somewhat tenuous.

But maybe the rest of the dominoes are ready to fall—and by that, I mean the ancillary parts of the music industry. I hope there is a true music revolution bubbling right beneath the surface of the underground that will hopefully surprise us all and get us away from, for instance, the vanilla agenda rock radio feels it has to follow these days in order to sell ads. Music blogs, internet radio, mashup sites—there’s a lot of things out there, of course. But with the possible exception of iTunes, the world is still waiting for the next wave of tools and institutions that will allow new acts to ingrain themselves into the popular consciousness the way bands like GNR were able to do—to create generational anthems, to mark moments in time for an entire nation, to unite our culture through music. Here’s hoping their arrival is right around the corner.

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We’re actually unable to place any new artists into our promotion packages until June at the earliest due to heavy demand.

In the past I would usually respond by just putting my prices up again but I’m not sure that shows much commitment to actually improving my service and getting results.

Being serious about getting results means being realistic about how that’s going to happen and even 3 months is not a great deal of time to get important platforms in place and begin conducting artist promotions in an authentic way.

I think that’s why now instead of putting my prices up I am actually asking more questions about what the artists are thinking about promotion because I can’t really help an artists who gives me $500 and then wants to come back in 3 months to discover I’ve made them internet famous.

There’s nothing authentic about conducting music marketing and promotions that don’t involve the artist relating to their fans, and without that kind of authenticity you’re not going to connect with fans.

Of course the same people who don’t need authenticity probably also do not need someone like me because they’ve got money to burn exhausting all the regular channels of music promotion.

But if you are looking for cutting edge music promotion services and revenue gathering strategies and you can accept that these things  don;t happen overnight and they very rarely in my experience happen within 3 months either.

But at the moment, our packages are pretty straightforward, we charge just US$500 for 3 months, $300 upfront and $200 at the conclusion, and for that, you get what averages out to an hour from me and my staff each week for 3 months. I manage the strategy and consult with you, and here I employ a graphic/web designer, a social media promotions person, and a content distribution person with which to co-ordinate
your campaign.

In terms of gauging success, most artists we deal with do not have a functioning online platform with which to develop fans and revenue. It often takes 3-6 months to get an artist to a point where they are

successfully attracting, engaging and developing a growing fanbase to the point where revenue strategies or other promotional goals (supporting album launch, tour etc.) can be executed in a serious of structured 3 month promotion campaigns.

Initially results can be measured in myspace friends, hits, plays, youtube plays, website traffic, email sign ups etc. but revenue obviously is the key outcome.

To me, we look to build a fanbase of 1000 core fans in 6-12 month period from having the necessary platform established. Once that core, engaged fanbase is gathered, then many viable strategies exist to provide ongoing value to that audience that result in revenue, certainly not just selling songs.

At the moment due to demand I am offering an initial downpayment of US$100 that covers:

- your secured place in the queue to take the next free space available
- establishment of your professional email management platform (this
is crucial part of long term fanbase management and is a software
service would otherwise cost US$20p/month
- initiate your myspace promotion
- begin initial discussion and preparation for your campaign