By Greg Nisbet

It’s been about half a year now since I left my former life, in which I ran an online store and community frequented by machine embroiderers and quilters, and I dove head first into the digital music business. You wouldn’t think there would be any connection between the two industries, but they actually have some very fundamental issues in common, particularly with regard to file sharing and putting a price on digital artistic content.

Let me first put this in context by giving you a very brief history of that particular community. In order for a machine embroiderer to sew a complex piece of embroidery on a garment, s/he needs to have a digital file to tell the embroidery machine what to do with the needle and thread. Our particular community started as a forum of people sharing these digital files with each other, because there was no other way or place to do it, other than purchasing bundles of design files on costly machine-specific cards.
There were plenty of places that sold such design cards, which were usually filled with a couple great designs and a whole bunch of filler designs, but new computer tools provoked both a flowering of creativity and an easy way to distribute the results, so naturally people wanted to share. Sometimes people even shared things that others had made, and had to be asked not to do so. The number of people doing it grew very quickly, so much so that it became impossible for the volunteers running the community to handle, thus requiring an organization and the corresponding need to generate revenue, which is where I came in.

Before I continue, have you noticed any similarities to the digital music business? Change some nouns and you have pretty much the same story. More music was being created than could possibly be enjoyed through the traditional record distribution channels, tools for producing music were becoming more accessible and easier to use, as were tools created to facilitate greater distribution, which then needed to be monetized because of all the money leaking from the business, or at least perceived to be leaking from the business.

Our monetization strategy was to focus on the traffic, the pipeline as it were, and push as much stuff through that pipeline as we could that people who were consumed by this particular passion would pay for, everything from thread and needles to lessons and furniture. At the same time, across the industry in general, a model developed whereby a very wide range of prices developed, based on the quality of the artistry in those digital files.

A few artists sold a whole lot of their designs, and there were two main factors that determined whether they sold enough to get rich. Firstly, how good their stuff was. A lot was free, most was cheap, and some was quite expensive indeed. Yes, you read that correctly – the price of the file depended on the quality of the work. Secondly, what their distribution and monetization channels were, and more specifically, how effectively they could make themselves part of their customers’ existing routines. Because almost all embroiderers had a specific routine, almost all of them bought from the same channel. If the designers couldn’t put their stuff somewhere where they could make a sale, they would at least try to get an audience, which distribution partners would then try to monetize separately and give them a cut. And all the while, much of the real money in the industry remained in the sale of the hardware, the embroidery machine, the most important tool for pursuing this particular creative passion.

From all this, I take several lessons over to the music business.

The Market will use a Combination of Quality and Distribution to Determine Value – There is nothing new to the notion that the success of any particular artist depends on a combination of the quality of the work and the ability to get the word out. The major labels became the major labels by identifying great talent and using ingenuity and resources to get it out to lots of people. However, when their focus shifted from the quality of the music to the quality of the distribution and monetization, the great music started moving away from the labels.

Much is made of the great tools that now exist for bands to distribute their own music, but too much of a focus on distribution (even when it’s self distribution) will threaten once again to take too much of the focus away from the music. The music service of the future is the one that maintains the balance between quality and distribution, by allowing artists to focus on the music and allowing distribution arms (not necessarily major labels, but not necessarily not major labels) to focus on distributing and monetising the great music they have found.

Hoarding is a Monetizable Human Compulsion – To enjoy music or embroidery, one does not need to hoard, in fact I would argue that hoarding can lead to lesser appreciation of an individual work of creativity. That said, there is a certain rush that comes with acquiring something that may one day give you pleasure, even though in most cases it never does. Note that I speak here of the rush of acquiring, which is not the same as the rush enjoyed by appreciating the actual item. So, first, monetize the hoarder, if you can. Of course, if the hoarder wants to gain any benefit whatsoever from whatever it is that s/he is hoarding, s/he is required to organize what has been hoarded. It is no coincidence that, in the embroidery world, one of our big sellers was a piece of software that allowed people to organize all those files that we had given them the ability to hoard. So, if you can’t monetize the hoarding, monetize something that results from it.

Giving to Get is Not a Scaleable Sales Technique – The theory goes that people will be loyal to someone who gives them something for free. In fact, this nugget is a required part of every seminar ever given on “How To Sell Stuff”. Create an obligation that the receiver will feel a moral need to reciprocate. My experience is that this works fine person to person, but it isn’t scaleable. So, yes, some people will buy music or products or consulting services from someone who has given them something of value for free, but not enough people will do it to actually make much money from it, unless there’s a whole army of people out there selling. I think this is because the giving must be accompanied by some kind of personal connection with the giver to make this tactic effective. So, don’t give people free music and expect that they will love you so much that they will buy en masse.

The Routine is Often More Important than the Content – Those hoping to make money from music need to be able to insert themselves into a potential customer’s regular routine. If you sell a necessity, like milk, your customer will structure his/her routine around buying your product. On the other hand, selling people stuff they don’t need is not really about the value of the content, it’s about integrating into the routine. The lower the need for the product, the more need to integrate it into existing routines. Buying music is no different. The more you can integrate the “call to buy” into the way that people already listen to music, the more success you will have. So, the key question for a music marketer to ask is not “What do my customers like”, it’s “What do my customers do?”. When you answer that, figure out the lowest possible barrier to monetization and jump on it.

Leverage Support Any Way you Can – Music lovers will support music any way they can. If they have money, they’ll spend money. If they have time, they’ll use that to get a deeper appreciation of the music they love. If they have an audience, they’ll evangelize. Now, appreciation and evangelicalism can’t pay the artist’s mortgage, but that doesn’t mean they have no economic value. The music distribution channel of the future needs to be able to turn the support of music lovers who are not willing or able to part with cash into a tradable commodity, and then trade that for cash, some of which will go back to the artists. If that sounds to you like the justification for a webcasting model based on advertising, that’s because it is. In fact, it’s the traditional terrestrial radio model. Except that terrestrial radio was supposed to sell records, and nobody wants those anymore, at least not the way they used to. Which means that, to support the music-making infrastructure, the costs of delivering music become more substantial, and the advertisers have to be charged more. The only way to justify that to advertisers is to provide them with a more targeted opportunity, a more effective way to sell their products.

Fortunately, technology gives those looking forward the ability to create systems in which all of the above principles apply. Of course, in order for this to happen properly,  those in the position to help build these systems, or even just allow them to be built, might need to start listening to their kids and grandkids with as much attention as they listen to their peers. When they do, they’ll hear a common theme running through the refrain.

“We love music more than ever. Let us share and support it the way we know how.”

Greg Nisbet is an Internet media entrepreneur and regular contributor to FYI on digital music trends. He can be reached by linking to GregN@mediazoic.com