Tuesday, March 12, 2013

The business of indie - Part 1

I promised you a post on the business side of the Macklemore phenomenon, that breaks out the revenue numbers and paints at least a rough picture of what it means to be an indie artist at this level of success...from the standpoint of earnings, and also from the standpoint of all the new responsibilities that come without, in this particular case, the framework of a music label and its various apparatuses. Because there is a considerable amount of ground to cover I will do this in two parts: first the organizational aspects of being an independent artist, and then a look at revenue sources, the conventional ones and the new ones, as best as I can estimate them, in future posts.

Part 1:

Essentially this is the story, or at least one story, of what happens when we move from an industry structure that looks like this, in which there were great distances between artist and fan --

...to one that looks more like the drawing below, in which artists are able to take their wares more directly to fans, and in which fans can communicate directly with the artist, and each other. While theoretically this was possible before the advent of digital media -- usually taking the form of musicians doing small scale tours, driving themselves to shows, sending out newsletters, selling cassettes and CDs out of the back of their car -- widely distributed, inexpensive or free (or should I say "free") digital tools, services, and platforms have created a drastically different marketplace, for both producers and consumers.  This is overly simplified (as we'll start to see below, and will see even more clearly in subsequent posts), but for now, you can think of it this way:

So, what's not to like? Industry? Who needs the industry, you say. We can now do it all ourselves.

Not so fast. First off, the good news and the bad news are kind of one and the same. The good news is in the second model you don't have to deal with labels and managers and lawyers and publicity departments. The bad news is you don't have labels and managers and lawyers and publicity departments to handle the business end of the work for you. You have you, and you have whoever else you can afford to subcontract or talk into doing you some favors. The artist is not just the artist but also the agent, the band manager, the tour manager, the promoter, the roadie, the creative team, the marketing team, the merchandising team....and, don't forget, the bank. In order to fund the activities within this loop, dollars must be taken from one revenue source and applied to another, all the while keeping an eye on maintaining positive cash flow so that each link in the chain can function. This indie, self-funding model contrasts with the model of advances from the label, whether for recording, touring, or video production, followed by recoupment.

But before we go into any further discussions of business structures, I do feel the need to reiterate that the story of Macklemore is the story of the extreme end of the indie spectrum. His success is the exception, rather than the rule, but is of interest as it's an example of just how far it is possible to go while operating outside many of the conventional structures of the entertainment industry.

As a point of comparison you may want to look at the results of a study released last week by the Canadian Independent Music Association that evaluated the economic impact of the Canadian music industry on the country's GDP. There are some findings that could be interpreted as encouraging but there's also this:

"Individual artists earned an average of $7,228 per year from music-related activities in 2011, though they only spent 29 hours per week pursuing such activities."

(Note that pro-rated to 40 hours per week this still only comes out to $9000 and change per year, approximately half of what a full-time minimum wage job pays, so ladies and gentlemen, it may be best to adjust expectations).

Holding these pieces of information in our mind, let's go back to the Macklemore story as our case in point. If this is your first visit to the blog -- welcome -- but you may want to click through to this earlier post that provides an overview of Macklemore's career path. As an independent artist, without a record label, manager, booking agent, promotional team, or budget Macklemore and his musical partner Ryan Lewis knew to keep their aspirations in check. Said Macklemore in a video interview entitled "The Business of Fun" on February 1, 2013, "When we made...the album I didn't think there was any chance that we would have a shot at commercial radio whatsoever...like, if we didn't sign a major label deal, in my head, I didn't think there was a percentage of a chance it would take off at radio." (So much for that hunch...the song went to #1 in countries around the world and currently enjoys quadruple platinum status -- 4 million downloads and counting -- on iTunes.)

After years of doing almost everything themselves -- writing, recording, booking, touring, producing videos, designing and selling merchandise, doing marketing and promo -- Macklemore said he and Lewis were "grinding so hard" but realized, around 2010 or so, that they may have reached an impasse. They had complete control of their career, they had successfully developed a loyal fan base, but to kick things up a notch more was needed, and that more was beyond the reach of the two of them. As Macklemore put it in "The Business of Fun" interview, "If you're an artist, in order to get shows, in order to travel, in order to accumulate some sort of fan base, an imperative step in that process is getting a booking agent....You're out there doing your shows at sports bars...performing in front of 75 people at weird restaurants and you're like, what is this? This is not a career."

Booking agent Zach Quillen enters the picture, a booker with The Agency Group, a company that specializes in matching artists to venues. Within a couple of years of booking Macklemore one of those aha moments occurs, and both parties realize it makes perfect sense for Zach to become manager, handling the growing list of day-to-day tasks that an artist with a career on the rise is confronted with. In other words, with a burgeoning career more capacity is required on the part of the artist, creating a need for some intermediaries.

As manager, Zach Quillen had a definite plan. It was to build on the solid foundation and great fan relationships -- somewhat counterintuitively -- by creating a sense of scarcity to increase demand. "I'll never put [them] in a venue they can't sell out", he saidEditor's note: on the topic of great fan relationships, check out this video, from an annual fan appreciation event Macklemore has been staging for the past few years, a pizza party with photobooth, where it's all about the fans relating to the artist as one of their own.

But back to our story. With Quillen now acting as manager an opening had popped up for a new booking agent, and Peter Schwartz, also from The Agency Group, moved into the role. He loved the strategy of booking Macklemore into small venues and making them bulge at the seams. "The idea is to have 300 people at a 300-capacity venue who loved it, then the next time there we can do 600 to 1,000 and you can grow from there. That's really what happened. We started really small and didn't want to skip any steps", said Schwartz.

This all ads up to a methodical approach, driven by the artist and a small core team, with the artist-to-fan diagram we saw above starting to add some new and necessary elements. And while it was probably possible to book Macklemore into slightly bigger rooms and sell a few more tickets every night both Quillen and Schwartz viewed that as short term thinking. Instead they wanted people to respond to the question "How was the Macklemore show you went to last night?" with an incredulous "It was amazing...it was unbelievably packed...the energy in the room was so cool...and the band put on such a great show!!"  This kind of response is like getting a 5-star review on TripAdvisor. Just try to keep people away next time around. Upon hearing about the sold-out, high energy show people tell their friends about it, post to their social networks, and so the strategy of creating scarcity actually creates abundance down the road.

The whole thing ended up playing out magically, said Quillen. “Our ad budgets are barely getting spent. It’s a very young demographic with an artist who understands social media very well, and understands marketing very well. I’d say that our efforts with social media and our own online marketing are the primary drivers of ticket sales...[we're] spending very little money on traditional advertising.”

Stay tuned for Part 2 of this post in which we'll look at how the core team has developed as audience size has grown.