Generate $100,000 In Annual Net Income Exclusively From Digital Music Revenue
Bruce Warila | Mon, April 21, 2008 | Alternative Music Marketing, Business Advice For Artists, Promotion, The Free Music Option, The Substitution Challenge What would it take for an independent artist that is not on the radio to generate $100,000 a year in net income from digital music revenue? The answer is 5,000,000 P-SPINS.
SPINS ON THE RADIO
A spin on FM, satellite or Internet radio occurs when a radio station plays a song. Every spin generates a number of impressions. For example, if 50,000 listeners on average are tuned in to a radio station when an artist’s song is “spun”, the artist receives 50,000 impressions from that one spin. On that same radio station 20 spins would yield 1,000,000 overlapping and/or unique impressions.
CONVERTING LISTENERS TO FANS
People are listeners first; they become fans through repeated exposure, filtering and imprinting. The conversion from listener to fan is a complex process. 100% of the people that are repeatedly exposed to a song do not become fans and buyers of a particular song.
- The number of exposures during a given time period is called Frequency.
- The rate that listeners convert to fans is called the Conversion Rate.
- Listeners * Frequency * Conversion Rate = Fans.
- 500,000 Listeners * 10 (spins within a time period) * 2% Conversion Rate = 100,000 Fans
SPINS OFF THE RADIO ARE P-SPINS
Getting on mass-market radio isn’t easy. Most artists have to rely on Personal Play Spins or P-SPINS for exposure. A P-SPIN can occur anywhere there’s a PLAY button tethered to one of your songs. A P-SPIN can occur on MySpace, FaceBook, ReverbNation, Last.FM, iLike, your website, or within any widget carrying your music. The easiest place for a P-SPIN to occur FREQUENTLY is on a listener’s laptop or iPod.
P-SPINS ARE MORE VALUABLE THAN RADIO IMPRESSIONS
Presumably, a listener is already motivated to press the PLAY button that causes a P-SPIN to occur. The listener has found or obtained your song, and/or some level of filtering and/or imprinting has already occurred. In addition, the effort required to purchase your song is minimal, as the ability to convert from a listener to a fan/purchaser is just a click away.
UN-TETHERED P-SPINS DRIVE FREQUENCY
Remember this equation: Listeners * Frequency * Conversion Rate = Fans. It’s always nice to see your P-SPIN numbers going up on a site where you don’t have to give your music away. However, to convert many listeners to fans you need the FREQUENCY that only comes from un-tethered P-SPINS. Un-tethered P-SPINS are the spins that occur on laptops or iPods that can be disconnected from the Internet. When it comes to racking up P-SPINS nothing beats being in “heavy rotation” (most frequently played) on devices that can be used anytime/anyplace.
DIGITAL MUSIC CONSUMERS BUY DIGITAL MUSIC
I have not seen survey or statistical data that demonstrates what percentage of FANS actually purchase digital music instead of test-driving it. There’s lots of information that shows that consumers have lots of stolen (for the purpose of trying) music, but what about those consumers that become fans? At what rate do FANS convert to purchasers of music? For the analysis I did here, I used 50% as the percentage of FANS that will eventually buy your music.
AVERAGE FAN SPENDING PER ARTIST PER YEAR ON DIGITAL MUSIC
For this analysis I am carrying $3.00 per artist, per year. Given that most digital music consumers are spending less than $250 per year on all artists, I believe that it’s safe to assume that $3.00 per year is an appropriate average for all artists combined.
THE MATH
Click here to download the spreadsheet. Try your own assumptions.
THINGS YOU HAVE CONTROL OVER
Listeners * Frequency * Conversion Rate = Fans
- Listeners - one of the simplest strategies you can pursue to increase listeners is to be everywhere and anywhere on the Internet.
- Frequency - set your songs free. You need frequency/spins to convert listeners into fans. The best way to increase frequency is to be in as many un-tethered devices (MP3 players for example) as possible.
- Conversion Rate - the percentage rate in which listeners convert to fans - you can improve this rate by improving your songs. I have always maintained that a great producer is invaluable to improving the quality of your music.
- % Paid to a digital aggregator - try to push your fans to the store that charges you a flat annual fee instead of stores that extract percentages from your sales (coming soon).
THE SUBSTITUTION PROBLEM
I have been talking about how substitution is a far greater challenge to the music industry than replication. As the use of digital music grows you will have less and less control over reaching Listeners and/or boosting Frequency (from the equation above). The number of Listener will grow, but so will the number of songs attached to the shuffle, reverse and forward buttons. Since we are talking about multiplication, you could argue that the equation will balance out. However, the number of places digital music consumers hang out already challenges your ability to REACH listeners; this challenge is also part of the solution (hint).
DISCLAIMER
I am not an expert on radio promotion (not even close). The purpose of my writing is to test my assumptions. If you have any contradictory facts, figures or thoughts - blast away. I intentionally left off all other revenue sources. However, you should expect the potential for other revenue sources to be substantial when you have reached 5,000,000 P-SPINS. Create your own projections by counting your P-SPINS to date and comparing that number to the digital music revenue you generated over the same time period.
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Reader Comments (10)
That there's actually a pretty good point, Bruce. Kind of similar to a formula I developed a while back to illustrate how music marketing converts to sales.
I do have to point out a major problem here: the conversion rate should really be considered in terms of listener to buyer. You do mention the question of how many people will actually buy the songs, but it's a bit more complicated.
Namely: the big debate right now is whether copyright has a place on the Internet. You yourself, in your previous posts, have frequently advocated giving music away for free (the P-SPIN idea is pretty much more of the same). Right now, the major factor that convinces people to buy music is the feeling of doing something right, rather than the fear of getting caught (the chances of that are fairly slim). If the premise that there is nothing wrong with file-sharing and free distribution of copyrighted material becomes common currency, there will be no place for selling recorded music. Period. In such a case, the whole argument about P-SPINS becomes academic.
That's what I've been saying all this time.
Krzysztof - nice to hear from you.
"the major factor that convinces people to buy music is the feeling of doing something right, rather than the fear of getting caught"
I just don't agree with that statement. Toss five songs out there for free and then put a sign up that you can purchase the sixth song by clicking this button. I think there is enough evidence out there to support that at least 50% (the number I used) of the population will click the button rather than look for the sixth, seventh, and eighth song for free.
Your argument that people would rather hunt around for the free song instead of spending 99 cents is probably true for a minority and a shrinking percent of the population.
As I said in my post - show me stats that prove that a MAJORITY of people don't buy music from artists they are FANS (key word here) of.
The debate here is whether you want to use 50% or some other number in your own projections. Make it 10% - you still need the P-SPINS to get traction.
Krzysztof - can you post your plan to generate market traction someplace. Leave me a link when you get a chance..
Also - as I always say - if the MP3 is the last digital product that the music industry creates - we all have a lot more to worry about than whether artists should set their songs free to generate P-SPINS or not..
Cheers...
Another great post Bruce cheers
Bruce,
My young brother in law (20) has no TV: he illegally downloads whichever TV series he wants to watch and views it on his computer. A whole generation is growing up without so much as a notion of the fact that music, films and TV programmes cost money to produce.
Take another look at that graph of the long tail: that is our culture you can see tapering off there.
Good stuff Bruce! I had a thought.; it seems in today's electronic market place that there are more effective means of revenue than the sale of a piece of intellectual property alone.
You made reference ( sort of) to this when you said something about endorsements or sponsorships and or "tagging" a clip with a "commercial" message in exchange for revenue or barter of services etc. It seems to me that having a dedicated web space and selling advertisement on the space would be a good source of revenue as well. You are much better educated in this area than I am so maybe you could address this and how exactly it would work outside of ones own website.
Also I am a programmer on Boise Community Radio in Boise Idaho and while we are a "Local" Community Radio station, we stream world wide on the www at www.radioboise.org. I am amazed at how overlooked this market is. There are hundreds of these types of stations throughout the world on college campuses and in foreign countries etc and the possibility of getting airplay is much higher because these stations tend to focus on the unknown and unsigned independents.
I am constantly contacting unknown artists in an attempt to obtain new music for my show "Homegrown" which focuses on the "Roots" music genre. Even more amazing to me as that it is so difficult to get artists to respond. Whether this is due to the artist just being overwhelmed ( A huge possibility) or just to their inability to grasp the vast potential of this particular market. Once I do find an artist who "gets it" and sends me a CD or authorizes an e clip for download we lose another significant number to apathy or just straight up not understanding the "Business" side of things, they never follow up to see if their song is getting airplay or to obtain info to drive fans to the station or to even say thank you.
I case you are not flabbergasted at this point, here is a little more for you, I get an overwhelming number of CDs etc with NO track info. As you may or may not know, we have to report to live365 (our carrier on the net ) the names of the track the artist and the album from which it came. This is how the artist gets paid for airplay of course.
I am not sure what is going through peoples minds when they send me a CD with multiple tracks and no song titles or info at all. Increasingly I find that I am very busy and do not have the time nor the desire to chase down this info, so the disc goes in the "who cares" pile unless I really really really like the tune and WANT to play it then I MIGHT contact the artist and try to obtain info.
Just some thoughts man... keep up the good work amigo!
Wow! Great article. I do not get to read many of these types of articles any more. But a lot of what has been posted in this blog is true and to the point. It was my web presents that landed me a recording contract. First and for most fans come first.. As far as theft of copyrighted songs this has gone on since the invention of the tape recorder. I do not believe this is right but it is an unfortunate part of this business. The trade off of one free download has been well worth it for me! My downloads are always below 128kbs. Lonnie Caldwell send me an email if you would like to get a cd from me. Great job friends this always helps all artist to hear the pros and cons.
Coy
It is my belief that each free download is a free sample. Other industries do it. I don't see that a free download stops at that point either as it often gets played to friends etc. The answer is to establish a fan base as you say Bruce, opening the way for live and other marketing situations. There is no substitute for a copy of the CD. Quality must be paramount in the production of the sample.
After all who would buy beer if the brewers free sample tasted like crap?
What a great forum, discussing stuff we artists need to know, Thanks Bruce.
Rob
what if the price of an album drops down to $5, how many more people would pay for the convenience factor. going to bittorrent has a time/quality cost, so if its cheap enough, i'll bypass torrent and download straight, i think millions of others too, maybe not.
Math question:
If 500,000 people listen to my music 10 times and I wind up with 100,000 fans...isn't that a 20% conversion rate instead of a 2% conversion?
I ask because it's not like 1 listener can become a different fan for each track out of the 10 they hear -- they either dig it or they don't, so presumably the ceiling here is still 500,000 maximum fans, not 5 million.
@ Justin, yeah the formula is a bit fucked up. The logic all applies. I completely updated this formula for on Music Think Tank (The Song Adoption Formula). Thanks and sorry about the first-grade math mistake.