The music industry is changing. Actually, it has already changed. Sure, there is still plenty of money in ultra-mainstream mass-produced pop music targeted at pre-teens and tweens who don't know any better. But overall, the industry is moving towards a more interesting model of independent artists who want nothing to do with the major labels. These artists are self-promoting and staking out new avenues for supporting their music careers.
Today's cutting-edge independents are more concerned with having control over their art, giving marketing a backseat to creativity. Rather than taking a traditional big-money approach to marketing (massive advertising of CDs, relying on CD sales for revenue, demanding royalties), there are increasing numbers of independent artists who self-produce, self-promote, and give away their recorded works for free in order to build a following of die-hard fans who will pay money for truly limited goods, such as live shows, merchandise, and limited runs of special edition CDs, DVDs, and other unique products.
While this model may sound radical, it has already been proven to work quite well. For example, Trent Reznor, of Nine Inch Nails, has found great success promoting his own artistic releases and giving away recordings via his website. His true fans are still paying top dollar for limited goods and tickets to live performances. Reznor says he made more money in the first week of his recent release, Ghosts I-IV, which made over $1.6 million in a single week with no big-money advertising or marketing. And the entire project was free to download and licensed under the Creative Commons License which allows derivative works and free redistribution.
Another striking example of independent profitability is Radiohead, who's 2008 release of In Rainbows was given away for free in digital format on their website, with an option to pay any amount you wanted for the downloads. Naturally, not everyone paid, but enough people did that the record was still a great success, and many more CDs and downloads were sold through other avenues like iTunes and at record stores. Overall, according to a report from Warner Chappell, pre-release sales of In Rainbows were more profitable than the total money sales from their previous release Hail to the Thief.
The whole concept here is that, basically, an artist's fans are divided, more or less, into two distinct groups: Leechers and Valued Fans. Leechers aren't going to pay--they were never going to pay. They were going to listen to your CD at a friend's house, or find a torrent for it on The Pirate Bay, or just make a copy from someone's CD or iPod. If they couldn't get their hands on it illegally, they weren't going to buy it anyway. In short, these fans offer no money directly regardless of the distribution options, but that doesn't make them worthless. By making copies and listening to the music anyway, they increase a band's exposure and share the art with their friends and acquaintances, which ultimately amounts to free promotion.
Then we have the Valued Fans. These are the people who will buy your CD regardless of whether you give the downloads away for free or not. They want the cover art, they want the physical item in their hands that they can look at and add to their collections. These fans want to go to your shows, they want to own t-shirts and posters, and they'll shell out $300 for the limited edition DVD set of your best live performances and interviews. These people are paying Radiohead $5 for the free downloads because they want Radiohead to succeed and they value the artistic creativity and contribution to society.
When you really think about it, trying to squeeze money out of those Leechers is a complete waste of time. Instead, give the Leechers what they want, give them the music and the reduced-size images on websites, and let them promote your work for you. They aren't worthless, they just need to be exploited for what they are: carriers of your art who have great potential to give you exposure to Valued Fans who will bring revenues back to you.
With this in mind, it becomes easier to understand the value of giving away the work for free. Leechers will get their hands on it regardless, and they will increase your exposure overall. Increased exposure means greater chance at building a base of Valued Fans who will actually pay money for your scarce goods and printed CDs.
If you would like further reading on this topic, Mike Masnick of Techdirt covers current trends and news on a daily basis. He is essentially the de-facto authority on monetizing bands and "free" services. It's all about real value, and there is plenty of value in art beyond just recorded media.
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