Some of the most important challenges facing the music business are centered on understanding the “correct” amount of music to release each year, the best format for those releases and the optimal way to generate money from them.
Through trial and error, I’ve learned that there isn’t one, uniform strategy that works across an entire fan base. Instead, the audience needs to be segmented into three fan groups: core, casual and new fans.
All three groups want something different. New fans just want a track or two. Casual fans want a track or the album. And the core fans want as much as we could release. It’s significant to note that no one group is more important than the other—we should be able to succeed with each type of fan and strive to feed their comfort zone of music consumption.
We then looked at formats. According to Nielsen SoundScan, about 80% of 2009 album sales in the United States were physical, so there’s still a need to sell CDs and vinyl. Digital, however, is more complex because consumers have the opportunity to unbundle the album and even to download it for free if they want.
Consider the case of the Raveonettes, a band I manage. Given a choice between purchasing the digital album of their 2008 release “Lust Lust Lust” and buying a single track, consumers have chosen the album only 24% of the time. Yet, 75% of the total revenue comes from those album sales. No secret here: Single-track sales don’t generate much money. But that doesn’t mean we should give up on them either.
This is where the strategy for the core fans comes into play. I estimate that around 10% of the total fan base are core fans who will devour additional music and video (and read every blog post and tweet). In the case of the Raveonettes, we tried to satisfy the core fans with three digital-only EPs of new material that were released within 12 months of “Lust Lust Lust.”
Looking at the total fan base, when given the choice between a $7.99 album and a 99-cent track download, 75% chose the track. This is a combination of casual fans and new fans. However, when given the choice between a $3.99 EP and the track, fewer than half chose the track. By providing different pricing and format options, we were able to increase our sales from the casual fans who want more than a track and less than an album. And there weren’t any marketing costs associated with the releases.
Such purchasing behavior has significant revenue implications. When examining the model based on the average revenue per transaction, selling the digital EP generated as much income as selling the digital album, per transaction. That said, should we consider selling full-length albums on physical formats and dividing the album into three EPs for the digital release? The evidence suggests that this would generate more money.
This can lead to a new approach to the monetization of the music. The emphasis can be placed on the average revenue per transaction, the number of transactions, the average spend per fan and ultimately the lifetime value of a fan. Since a large percentage of fans only purchase a single track, driving down the average revenue per transaction, perhaps EPs can be used as a way to increase the average revenue per transaction.
This, of course, raises a host of other related questions. What needs to be done to increase this for every segment of the audience? How many different strategies will have to be deployed to sell a single release? How do music consumption habits vary globally? All bases must be covered.
It’s a new world that we live in. There isn’t one type of customer or music fan, there isn’t one strategy that everyone should deploy, and it certainly isn’t about digital vs. physical. We live in a much more complex time where the linear model needs to be replaced by a matrix of sales, marketing, promotion and direct communication with fans.
Luckily we have ample amounts of data available, sometimes in real time, to better understand consumer purchasing habits. We must use this data to craft customized release strategies based on the type of artist, fans and amount of music we have access to.
There is no silver bullet—we need to come out firing with all guns blazing. ••••
Scott Cohen is co-founder/international VP of the Orchard.