What's Your Model?

I read a lot of articles about music industry issues, and when I recently read this headline: "How Many Subscribers Does a Digital Music Service Need to be Profitable?", something struck me. Before I could even get to the body of the piece I thought: "Oh, another article about their music business model—but, what is your music business model?"

If you're a musician (or any entrepreneur for that matter), stop and ask yourself that question. What is your model?

I've heard the music publishing business described as "a business of pennies"—but that is now true more generally. Nobody has to point out that the music business is an increasingly fragmented marketplace, and so, capturing every available revenue stream is (or should be) every musician's goal.

As an artist manager and record label consultant I ask myself the same question on behalf of my clients every day.

A musician's profits are increasingly derived from multiple—but separate—revenue streams, yet all of them have one thing in common: the musician at the center of the business. The key is to identify the revenue streams as they pertain to you, the musician, and then develop a plan that exploits your talents in ways that will not only leverage those streams, but make them work together and form a coherent business model. What kinds of merch do your fans buy? Would sheet music sales generate new income? Is there a market for a limited-edition version of your next recording? These questions are vital to anyone's business and by asking and answering them you can zero in on what it is you do and how that will make you money.

So, what's your model?

Pandora's Box

News about Pandora seemed to explode this week as several artists wrote high-profile pieces expressing their dissatisfaction with the internet radio company's royalty rates as well as the company's attempts to lobby for what appear to be even lower rates.

On Sunday, members of Pink Floyd penned a well-annotated op-ed in USA Todayand on Monday, David Lowery (from Cracker) posted statements showing that he makes less from Pandora than from a t-shirt sale. These two pieces are in addition to the recent and well-publicized email exchange between Blake Morgan and Pandora founder Tim Westergren. On Wednesday, Westergren responded with a lengthy blog post.

While I think that the conversation that is starting to happen is very important for the entire streaming business, it represents the opening of a Pandora's box for Westergren. Over the past couple of months, Pandora's attempts to advocate for lower rates have increased, and with them, so has publicity about their efforts. For Pandora, what began with a letter inviting artists to have a conversation about the rates, has now backfired as these high-profile artists turn against them. Also, Pandoa's purchase of a terrestrial radio station in an attempt to become eligible for the lower rates paid by terrestrial broadcasters smacks of avoiding the conversation altogether.

There should be no mystery about my feelings toward streaming music services. While I'm not satisfied with the absolute value of current payouts to artists, I consider these services to be terrestrial radio replacements. As such, I would argue that the payouts are in line with the audience. (Or at the very least, we should be more clear about what each of these revenue streams represents in terms of audience and therefore potential revenue.) All of that said, I'm an optimist here—this is a new market, and a growing one—so my expectation is that these amounts will grow in the future.

Streaming music represents a new model that needs to be nurtured, if not wholly embraced. Consumers are less and less satisfied with a music consumption model based upon ownership. The tide is turning toward one of access. Streaming represents the future, and the money will come as listeners become more accustomed to the idea of streaming and sign up for particular services they like.

In may ways, opening Pandora's box could actually be the tipping point in the conversation about streaming royalty rates specifically—and public performance rates in general. While no terrestrial public performance rate for sound recordings even exists, the other rates form a confusing jumble that no longer makes sense for the music industry. Starting this conversation will go a long way toward fixing that. What might be bad for Pandora may actually be good for the industry as a whole.