On a panel at SF MusicTech on Monday I made reference to a fact we first published back in 2010: while the split between digital and physical sold on Topspin by number of units is 50/50, it’s 75/25 physical/digital by total dollars. This demonstrates a lesson I first learned when I re-started the merchandise division of Grand Royal nearly fifteen years ago: there’s more to the music business than just music and fans are happy to pay for valuable physical goods. I used to think the Internet’s impact on the music business would be a move to digital and away from physical. I know now the Internet’s biggest impact is consumer empowerment manifesting in both fan choice and the ability to connect directly with the artists they love. Trent Reznor opened our eyes to this when he released Ghosts in 2008. Instead of saying, “Hey stop stealing my digital album!” to his fans he give them choice, from FREE to $300, and said, “How big a fan are you?”
Digital Music News’ Paul Resnikoff reached out via email for some clarification on my statement and we went back and forth over a few emails. He ran this story which represented our exchange well with one incorrect bit of editorial. He refers to selling higher-end, high-priced products as “mostly a rich band’s game” — which simply isn’t true.
In fact, selling up-market products direct-to-consumer is *more* important for small bands than for large as it represents a much larger % of total revenue for bands with smaller fan bases (and thus less mass distribution) than large bands. When Topspin works with a top tier artist direct-to-consumer may represent only 10% of their total sales. An established yet less “pop” act with a well-run direct-to-fan business will see this in the 15-35% range. But an act just starting out will often see 90%+ of their revenue come from the direct-to-fan channel.
Take Sonoio as an example. When I asked Alessandro of Sonoio how much of his total revenue was Topspin, he laughed and said 98%. He sells via iTunes and other outlets so I was surprised to hear this, but on closer inspection it made perfect sense. While his (awesome) music is available on iTunes, Spotify, etc they are not *promoting* it. He is the one promoting his music, and when he does he drives them to Sonoio.org where he sells not just digital tracks but t-shirts, posters, and even a custom synthesizer. Even more surprising to me initially, while the total revenue number is certainly driven larger than his iTunes checks due to the physical goods Alessandro said that even when he looks at digital tracks *only*, he still sells more digital music direct from his web site than via iTunes. Kudos to Alessandro for investing in his direct-to-consumer business early on. I expect this investment to pay dividends over time — not only is the short-term revenue greater but those are customers HE owns and has a direct connection to, a perk he doesn’t get when selling a track on iTunes or streaming from a subscription service.
Also interesting, we consistently hear from the “middle tier” artists (established, touring, but not necessarily “radio” artists) that even when Topspin sales are 15-35% of units it’s often more than 50% of the revenue and even margin. Fact of the matter is, it’s more efficient to sell a $60 box direct to your fan and keep 85% of the revenue than to sell physical CDs at retail where you have a distro fee, larger markup, and greater marketing costs.
Consider this alongside the reality of a streaming media future where the business involves collecting fractions of pennies from millions of listens and it’s easy to see direct-to-consumer is NOT a nice-to-have just for big bands like Pearl Jam — it’s an important part of *every* artist’s revenue mix.
Direct-to-consumer is a new retail channel, unlocked by the Internet, still nascent but growing rapidly via companies like ours partnering with creative artists who make things people want to own. It’s also a retail channel that’s growing every quarter. This game is just getting started and important to every artist at every level. We can’t wait to show you what we have in store for artists to grow their direct connections to their fan base and make money in 2012. It’s on.
ian c rogers
Topspin
Ian, great stuff. It might be worth noting, that with the exponential rise of mobile Internet traffic, that it will be a wise choice for artists selling directly to ensure that they have a robust mobile e-commerce solution in place..
Agreed, Ian. I had the same reaction when I read Resnikoff’s piece. Thanks for laying out a detailed response. In particular, your point about SONOIO’s investment paying dividends later. One huge asset to building a solid D2F infrastructure is that it will SCALE as your audience grows. Even if you’re a baby band, setting up an ecommerce system so you can sell a few $30 super-fan packages now will help you eventually sell dozens of copies of a $100 box set, or if you really blow up, ten copies of a $1,000 package. And all along the way, you keep a BIG portion of the money you earn.
I also think it’s worth mentioning that as an artist, you can easily add value to your physical products and charge a premium for them at VERY little cost to you — thus increasing your margin even further. Instead of selling a CD for $10, sell an autographed CD for $15. Maybe create a “limited edition” set with a signed CD, a polaroid photo, and a guitar pick – make 20 sets and sell them for $30 each. These add-ons cost you practically nothing, but I GUARANTEE you, even if you’re a relatively small band, there are fans who will spend the extra money for them. It won’t make you a millionaire, but as an independent artist, any extra cash is welcome, especially if it’s pure profit.
Very timely article Ian.
Many musicians I talk to believe that DTF is the future, but wrongly assume that they either need to be techies and master every new digital platform out there or have a big budget to pay someone to do it all for them. The beauty of TopSpin and the DTF model is that it is scalable and helps an artist to budget smarter since they can actually track their ROI. It may not be the most exciting time for labels who want to preserve antiquated business models, but it is an incredibly exciting time for artists/bands of all sizes who really are in it for a love of music and who are grateful for the opportunity to build relationships directly with their fans.
Ian,
I think the point he was making is that the cost of building multiple tiers of physical goods is quite high. Small runs means high CPU and making even just a nice poster or t-shirt requires investment. At the level these bands operate even a high ratio of physical sales does not always create a profitable venture. Cd + vinyl + t-shirt + poster is not affordable for bands who aren’t at the level of profitable touring or decent iTunes sales (usually)
Hear Here for the Poor Bands!