why advertising will win

My reasoning on why recorded music will mainly be sponsored by advertising in the future is that advertising by definition always makes the most money.

CDs and downloads are products which can be associated with plays just like any other product. When you hear a song on the radio and end up buying the CD because you like the song, the song is acting as a promotion for the CD.

But what if other products can have higher returns on that play? What if you can sell ten pairs of jeans for $100 profit instead of ten CDs for $50 profit? The musician who made the song will cut a deal with the jeans vendor instead of the CD vendor, obviously.

Maybe you get a one-song CD in the bag with every pair of jeans. It might be that the rock star wears a patch with the jeans brand on their jeans jacket. It might be that the jeans vendor gets a banner behind the stage at live shows. Or it might be a plain old ad-sponsored stream on a web site.

Which one of these methods you pick doesn’t matter – how the song and product are hooked together isn’t relevant to the basic argument. The argument is that

  1. The business of recording is about using recordings to move products.
  2. The most profitable products will always be able to pay musicians the most for their works.
  3. Advertising” is the word for this kind of relationship between recordings and products.

From this perspective selling CDs based on an affiliation with a song is still advertising in the sense that the product is the CD and the advertiser is the CD vendor. CD sales don’t have to go away for this point of view to be an accurate prediction of how the recording business will shake out. But CD sales do have to become an option rather than a necessity.

For example, a pop star might record a new song specifically for a marketing campaign for a new product. BMW comes out with a new model, and Barbra Streisand comes out with a new recording to be somehow associated with the car. Maybe you can only get a CD at dealerships or can only download a copy at BMW’s web site. The download is free on the site, the CD is free at the dealership. But the car isn’t free. If BMW can make more by converting Barbra’s song into into car sales than EMI can make by converting her song into CD sales, BMW can pay Barbra more, and she will move from EMI to BMW.

What it means for advertising to “win” over unit sales (in the form of downloads and CDs) is for the product associated with a recording to become flexible. The product associated with a recording should be whatever product is the most profitable. There’s nothing intrinsically CD-ish about a song. Sometimes the product should be a CD, but sometimes not.

10 thoughts on “why advertising will win

  1. You may be right on this one. I feel that a release of music on an ad/licensing business model makes sense, and yet I think that the current structures don’t yet address the need.

    I also think, though, that the issue is primarily one of marketing, as once creators can interface with commercial users, a lot of fat gets trimmed, to the economic benefit of creators.

  2. You are talking about music being feature of merchandising and branding for non-music products and services.

    Some of the interactions between music and products will involve advertising or be advertising-related, but you are really talking about a bigger sphere of interactions that just advertising.

    So, I don’t think that this is correct (quoting from your post): “‘Advertising’ is the word for this kind of relationship between recordings and products.”

    If I were going to pick one word for this, it’d likely be “marketing.” But, I think even “marketing” is a bit over-specific.

    I’d suggest the phrase: “merchandising and branding,” e.g., the new music business is about making money off music that plays an integral role in helping businesses define and sell their products.

    You could say that some music may become so integral to the future of product merchandising and branding, that musicians’ stake in product sale commissions will be greater than their stake in CD sales.

  3. I suspect, Jay, that your point could be extended. The internet and instant interaction technology are going to blur all the lines between “advertising”, “marketing”, “information” and “connecting”. The revenue streams invested in these activities will include sales, mareketing and advertising, but will also create new ideas and hybrids (perhaps in the same way that radio and TV created the 60 second commercial and the idea of advertising-sponsored content in a way more effective than the press model).

    I think that as streams of cash are used to seek to reap monetary rewards from interconnection, music, another thing which binds people into shared experiences, will be funded in one way or another. None of this means that music won’t be sold as its own product–but already the primary thrust of music revenue is changing.

    A bit brave, this new world. But a world of new possbilities for music distribution.

  4. >> The business of recording is
    >> about using recordings to move products.
    I think the business of recording, is building relationships. Which can be used to move products, or services, channel information etc.

    As an artist, if I am allowed to simply define and nurture my relationships, I am happy – that is exactly what I want to do. I don’t want to squeeze my fans for an extra penny, but rather build a trust relationship, a friendship.

  5. A related item from http://aramsinnreich.typepad.com/aram_squalls/2008/08/another-music-i.html

    The music industry is in the midst of a huge transformation. Rather than the much-repeated apocalyptic reports of its death throes, the industry is simply transitioning from one driven by B2C product revenues (e.g. music retail) to one driven by B2B service revenues (e.g. broadcasting and licensing).

    The latest evidence: MCPS-PRS (the UK’s version of ASCAP) reports that, for the first half of 2008, mechanical royalties from retail are down 9%, but licensing royalties from broadcast and online services are up 13%.

    He’s not even being as specific as calling it “advertising” or “merchandising/branding”, just saying that the immediate customers are businesses rather than CD buyers.

    The reason I think of this as advertising is that it replicates the traditional split between parties that generate attention and parties that monetize it. A newspaper generates attention, then gets the best price for that attention. The business that can pay the best price is the one that earns the most. The business monetizing the attention shifts constantly.

    I’m comfortable saying that this isn’t necessarily “advertising” and might be called “merchandising and branding” instead, I think. Need to think about that for a while.

    Eric, when you do choose to cash out, how do you pick the method? What do you have in mind for earning money?

  6. gurdonark, your comment on musicians interfacing directly with businesses made me think of all the web sites offering to host music. Those sites are cutting out the label, and to some extent becoming the label.

  7. on a conference last weekend i learned, that the first record ever published was financed by a tobacco company… so as far as we consider music hardware production, big (advertising) companies were in the “musicbizniz” from the start.

  8. >> Eric, when you do choose to cash out, how do you
    >> pick the method? What do you have in mind for
    >> earning money?
    sheesh. that’s why I subscribe to this blog.

    Regarding making money.
    (1) Direct distribution sales. physical products, digital mp3/flac/ogg
    (2) Broadcast royalties
    (3) Content licensing

    I think these are the ways to make money DIRECTLY from the creation of your music. Sounds quite traditional doesn’t it. and they all work today.

    These might be new.

    (4) Artist Subscription
    – receive all output carte blanche for a fixed incremental fee
    (5) Artist commissioning
    – fund the creation of work
    (6) sponsored streams/downloads
    – an artist receives sponsorship to make a work available for free or bundling
    (7) Loyalty/Affiliate revenue
    – a consumer can subscribe to a loyalty plan, and in turn receive free music. artist receives broadcasting revenue, affiliate revenue or sponsorship.

  9. Lucas, I agree that the websites offering to host music are in effect ‘cutting out the label’. Now if more of them could build a business model which is based on bringing in listeners, then we’d see them work a bit better.

  10. gurdonark, I agree that the bottleneck for music hosts is that a musician-focused site usually isn’t great for listeners. YouTube is the only site I can think of that serves both musicians and listeners reasonably well.

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