My MidemNet Presentation: Trent Reznor And The Formula For Future Music Business Models

from the cwf-+-rtb-=-$$$ dept

A version of this post has been crossposted to the MidemNet blog.

Embedded here is the 15 minute (trust me, it goes by quickly) presentation I did at MidemNet on January 17th in Cannes, France. If you’re reading via RSS or another site like iGoogle, click through to see the full presentation. Sorry it took so long to get the video up. There were a few minor technical difficulties. Anyway, the presentation garnered an interesting reaction and a whole series of fascinating discussions over email, in person and over the phone since I presented it, and while I don’t want to repeat what’s in the video, I did want to discuss a few points raised by the presentation. The core of the presentation is the following simple “formula” that is the basis for making money in the music business (and, I’d argue, many other businesses) in the digital era:

Connect With Fans (CwF) + Reason To Buy (RtB) = The Business Model ($$$$)

There are many artists — famous and not so famous — who have been making use (on purpose, or not) of this formula to create successful strategies for building up a stronger fan base, creating wonderful new works of art, distributing them out to the community and getting paid for it at the same time. What made Reznor so interesting as a case study was the fact that he’s done it so many times in so many different ways that he, by himself, represents a great example of how you can approach this simple formula in an infinite variety of creative ways.

One of the issues I’ve had in discussing recording industry business models is that we always hear excuses for why a, b or c won’t work. “Well, that guy can make money selling t-shirts, but this guy’s fans aren’t t-shirt types.” “That guy will sell concert tickets, but this guy doesn’t like to perform.” “Maybe some fans will pay upfront, but people are so greedy that most will just free-ride.” It’s all excuses. They all want a simple model that everyone can follow, but the point here is that while the model itself is simple, executing on any business model is difficult.

It’s about applying that “simple model” in a variety of different creative ways — which Reznor has done time and time and time again. Hell, I couldn’t even include all of the examples of Reznor’s successes in this single presentation, let alone successes by other musicians who have executed differently — but all of whom connected with fans (CwF) and then gave them a real reason to buy (RtB).

A second point that needs to be discussed is that a true reason to buy (RtB) is a voluntary transaction. Too often we’ve seen musicians or other content creators think that there is some sort of obligation to buy. And, so they put something out with a price tag, but without doing a very good job convincing fans why they should buy. There was no real reason — and then they seem to lash out at their fans for hurting them. The fault, however, lies with the musician (like any business) who failed to give a proper reason to buy, and falsely assumed that fans had some sort of obligation to buy. If an artist believes there’s an obligation to buy, fans will often educate the artist very quickly.

One final point on this is the last question that people often raise: why should the musician be involved in any of this? Shouldn’t they just be creating music. There are two answers to this. First, this is exactly where a smart record label, agent or manager can come in and be quite helpful. Let the musician create the music and let the “business guys” focus on applying this business model. Second, however, is that due to the way the industry is these days, the musician does need to be somewhat involved. You cannot connect with fans if you’re in seclusion. If you don’t want to make the effort to connect with fans, then that’s fine: you won’t have that many fans. It’s a choice you make.

That said, there are tremendous opportunities allowed by new technologies, new communities and new methods of communicating today. They all enable better ways to connect with fans, and better ways to offer real reasons to buy. Those who look at the past and complain about what’s been lost need to turn around and look at the vast open fields of opportunity in front of them. There’s a lot more music to be made, a ton of new fans to make very, very happy — and, yes, through it all, an awful lot of money that can be made as well. You just need to stop worrying about what was lost and recognize all there is to be gained.

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Comments on “My MidemNet Presentation: Trent Reznor And The Formula For Future Music Business Models”

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49 Comments
AJ says:

Formula

Your formula looks wrong. It says that concentrating on either variable while making the other zero would be sufficient to make some money, although you could make more by doing both. What you actually say in the talk though is that both variables matter; if either one goes to zero the $$$$ output should also be zero, which implies that you should be multiplying CwF by RtB rather than adding them.

CwF * RtB = $$$$

Great presentation though!

Mike (profile) says:

Re: Formula

Your formula looks wrong. It says that concentrating on either variable while making the other zero would be sufficient to make some money, although you could make more by doing both. What you actually say in the talk though is that both variables matter; if either one goes to zero the $$$$ output should also be zero, which implies that you should be multiplying CwF by RtB rather than adding them.

CwF * RtB = $$$$

Damn. That’s a great point. I’ll need to make use of that.

Heh. Now I’m wishing I could go back and update the presentation.

Jason Still (profile) says:

Re: Formula

I see what you’re saying, but I’m not sure I totally agree. If you do an incredible job connecting with fans but don’t put any effort whatsoever into giving them reasons to buy, some will still buy anyway. Likewise, you can be a complete recluse and never connect with your fans but still find ways to give at least a few of them a reason to buy. As you say, though, doing both together would seem to have more of a multiplicative effect than simply an additive effect, so maybe the formula needs to be something more like:

CwF + RtB + (CwF * RtB)

Then again, maybe I’m over analyzing it 😛

Either way, excellent presentation.

Chronno S. Trigger says:

Re: Re: Formula

To continue to over analyze this…

The public existence of a band is step number one to connect with the fans so since one exists than CwF = 1 already.

Just the existence of anything is one reason to buy so just by putting out a CD RtB = 1. You don’t even need to put out a CD. There is a chance people will just walk up to you and give you donations.

So without doing much of anything we already have 1 * 1. So if a band puts all their effort into one end of the spectrum than we still have that number times 1. Thus we don’t end up with a possibility of CwF * RtB = 0.

Mike (profile) says:

Re: Re: Re: Formula

To continue to over analyze this..

Actually, this is pretty interesting… 🙂


The public existence of a band is step number one to connect with the fans so since one exists than CwF = 1 already.

Sure, but there are things bands (or their labels) can do that lower that number. Some of the anti-fan actions, for example. However, I think you’re right that if a band does nothing, it can start at “1”. But a good band will increase that, while a bad band (or label) will decrease it.

Chronno S. Trigger says:

Re: Re: Re:2 Formula

“it can start at “1”. But a good band will increase that, while a bad band (or label) will decrease it.”

Agreed, but one would assume that to decrease their standing then they would have to get their name out there even more witch would increase it initially. And as we have all seen from the stories of the RIAA lawyers (and people like Angry Dude) no matter how bad it gets, no matter how stupid it is, someone likes it.

So, yes, I could see a situation where one number could end up as 0, but it would have to be one hell of an effort. And even in the RIAA’s utopia, doing that would equal $0 anyways.

ChurchHatesTucker (profile) says:

Alternate Reality Stardom?

“You cannot connect with fans if you’re in seclusion. “

I don’t know about that. Musicians like Kompressor have developed a fanbase without much interaction (in fact, the secretiveness probably lent an ARG aspect to the whole thing.) I’m not sure you could get mainstream big that way, but you could probably get big enough.

Mike (profile) says:

Re: Re:

Great stuff Mike, I don’t suppose there was any Q&A at the end? Would love to hear what sort of things the music industry types were coming back with after listening to that.

No Q&A, but did end up talking to a bunch of people at the event, and then since then via email and phone. The response was almost universally positive, which surprises me. I guess the people who disagree don’t bother talking to me about it.

They definitely claimed to understand the message, but then as you talk to them, they still would fall back on the whole “but we need to stop pirates” thing. That was part of what led to my frustration in this post: http://www.techdirt.com/articles/20090119/1924063457.shtml

They all claimed to love the “simple message” of my presentation, but couldn’t square that with the idea that “pirates” aren’t the enemy.

I’ll keep hammering away though. One of these days… 🙂

Anonymous Coward says:

Re: Re: Re:

“What happened to your claim that you only comment here to correct factual inaccuracies?”

I made an exception here only because this was the first time I had the opportunity to see you and hear what you had to say. Of course, my comment was in jest.

As for the above quote concerning what I generally comment upon, you might want to take a look at a comment relating to the “AP – Obama Poster” and my attempt to try and explain how the term “transformative” is used in the context of copyright law, i.e., that it is used in assessing the first of the four Fair Use factors under 17 USC 107 of the Copyright Act.

Mogilny says:

Well Said

Nice engaging power point presentation. I agree with your presentation. The only thing i would add to it is that the free music model might only work for more established bands with a rabid following. NIN can sell $300 sets but i doubt that would work for an indie band. So, not unlike any other business plan, it isn’t bullet proof and there are always conditions.

Mike (user link) says:

Re: Well Said

Nice engaging power point presentation. I agree with your presentation. The only thing i would add to it is that the free music model might only work for more established bands with a rabid following. NIN can sell $300 sets but i doubt that would work for an indie band. So, not unlike any other business plan, it isn’t bullet proof and there are always conditions.

http://www.techdirt.com/articles/20090120/1942463468.shtml

and

http://www.techdirt.com/articles/20090114/0645323402.shtml

and

http://www.techdirt.com/articles/20090119/1924063457.shtml

and

http://www.techdirt.com/articles/20080115/095022.shtml

and

http://www.techdirt.com/articles/20060208/1030213.shtml

and

http://www.techdirt.com/articles/20080620/1132211463.shtml

and

http://www.techdirt.com/articles/20080907/1602562186.shtml

So, I think we’ve addressed that issue. And, in the presentation, I thought I made it clear that when I was talking about small bands doing this, it wasn’t about selling $300 box sets. But about connecting in other ways, as all the examples above have shown.

Anonymous Coward says:

Re: Well Said

If I like a band, I’m as likely to buy a $300 box set from them as from anyone. That NIN has more fans just means they can sell more sets. Yeah, as a complete unknown you won’t beable to convince many people that you’re worth paying that much for, but that’s why you connect with fans: once people decide they like you, they’ll buy what you’re selling.

Matt (user link) says:

Re: Re:

“Why is there never any mention in these pieces of the cost per fan breakdown of the marketing and promotional expenses by TVT, Interscope and UMG”

Maybe because TVT called Trent’s first album an abortion, Interscope/Universal fought nearly every creative decision Trent made, and declined to fund tours (which is part of why NIN played Lollapalooza, and why the Fragility tour was co-sponsored)

Wikipedia is your friend. If you read the history of Trent Reznor and Nine Inch Nails, you’ll see this guy has been butting heads with the industry ever since he realized he signed a terrible contract. It took him nearly two decades to get out from under that.

Andrew (user link) says:

Re: CwF

Thanks for thinking of us. I decided to expand on what you wrote and put up a blog entry. You can read it here; http://cherrypeel.com/#p=/b/blog.

I’ll paste it below to keep the conversation going:

“If you’ve read our philosophy you know that we here at Cherrypeel believe digital technology has changed the music business forever. We see the need for recording financing and access to traditional distribution networks diminishing. One thing that hasn’t changed is that artists still need to be paid for their craft; they need to put food on the table and buy the luxuries everyone else can afford. The romantic idea of a ‘starving artist’ isn’t nearly as romantic when it becomes a reality. So what is the future of making money out of music that is given away for free almost everywhere?

According to Michael Masnick from Techdirt, it is connecting with you fans and then giving them a reason to buy or as he puts it; CwF * RtB = $$$. That sounds simple enough. Cherrypeel is well positioned to help bands and fans connect. There aren’t too many communities online where if you comment on a song you can be fairly certain to either get a response or at least know the artist read it.

I encourage all artists on Cherrypeel to reach out to their fans and make that connection and then figure out what you can offer them above just your tracks. Is it a T-shirt or a box set or dinner with you and your family? And let us know about any successes… or failures, you encounter along the way.”

Wolfgang Senges (profile) says:

Thx for implicitly confirming my recent articles!

Referring to Marjorie Scardino’s (CEO at Pearson, publisher of Financial Times) keynote at SIIA this year, I compared her business model to music business.

Result: 1) Provide service and involvement of fans, 2) Offer a product exceeding generic content that otherwise might get illicitly distributed, 3) Generate profit from added value and motivation of fans.

However, you nailed it.

The presentation really struck me (since I posted my article just a few days ago), so I featured it on my ContentSphere blog.

Keep up the brilliant work.

Matt Cheuvront (user link) says:

Awesome Presentation

I thoroughly enjoyed watching this and reading your thoughts. I am a passionate believer in Trent Reznor as an innovator and business mastermind. He is an anomaly in that he has fully embraced the new wave of technology, rather than focusing all his efforts on combating it (like the rest of the music industry). He has proven that ‘the power of free’ can be embraced and defeated, and he has paved the way for many creative future endeavors.

kse (profile) says:

Trent Reznor & NIN

Dead on article.

Trent Reznor & NIN did what all indie artist should do: Build & connect to their fan base.

Music World 1.0 is dead; Music World 2.0 is coming on strong. Anyone wanting to know more about this should read and follow Gerd Leonhard. His thoughts and suggestions are right on.

If you have time check out our blog for our thoughts & suggestions on the Future of Music.

Thank you…KleerStreem Entertainment

Alex Burns (user link) says:

NIN

Mike,

A great presentation, thanks for sharing.

I have a 2008 conference presentation and paper here on NIN that may interest you:

Slides:
http://www.slideshare.net/alexburns/cprf08-presentation-radiohead-nine-inch-nails-presentation

Paper:
http://www.alexburns.net/Files/CPRF08AlexBurns.pdf

Three motivating factors for Reznor may have been:
(1) his label’s M&A integration problems – artists leave,
(2) internal battles over the release of albums and DVDs,
(3) he was in the ‘label shopping’ phase of deal negotiations.

Alex Burns

Tanghead says:

Marketing trash

I don’t know how I ended up on this website but this article is an affront to creative music. Reason to Buy? How about that you like the sounds? This seems to have worked quite well so far, in the history of recorded music. Follow your ears and buy what you like, not because some advertising suit has thought up a smart-arse marketing campaign in between polishing his Audi and obsessive-compulsivelly checking his bank balance. The greatness of an album isn’t dependent on its sales figures. Put your pie charts up your arse.

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