In one of my recent posts I wrote how everybody in the music industry should re-evaluate his business model and how the business model canvas of Alex Osterwalder can help you to do this exercise. Recently I experienced myself how a publishing company missed an opportunity by not adapting to the new digital environment. There old school thinking actually prevented them from earning some money.

Some time ago I had the luck to work with some very talented flash designers. During their internship at Amai Jan and Dries made a very cool video explaining the concept of Motion Music Manager. I thought we agreed to use copyleft music as background music, but unfortunately there was some misunderstanding there. I was very satisfied with the great video and I liked the song very much. When I asked who made the song, it appeared that it was a track by Apparat, Hailin from the Edge. Not copyleft of course. So, I couldn’t use the movie to promote Motion Music Manager on a large scale without asking permission to use the music, especially because I made some statements about copyright issues on this blog. Infringing copyright would be very stupid.

So, I tried to contact the artist and finally wrote an email to his (German) label to explain the situation. After a while I got an answer from the Belgian department of the publishing company. They asked me for more information: how exactly would the music be used, how long is the fragment, where would it be published, etc. I explained that it was meant as background music for a short (50 seconds) educational video about our service, that we were a very early start-up, that we didn’t have that much reach yet and that we were a service that tries to make life easier for musicians. I also offered to make a win-win agreement: Apparat could make use of our services if we made a beneficiary deal about using the music. After a couple days I got an answer: if I wanted a license for the music, I should pay € 1,500 per year for the licensing rights and € 1,500 per year for the master rights. It was not really possible to make a better deal because we didn’t have enough reach as a starting project and we couldn’t guarantee exposure that would benefit the artist.

As we are a start-up, we think twice about spending every penny. € 3,000 PER YEAR for the background music of a promotion video is absolutely a no-go. Especially because the other aspects of the video (the animation, the voice-over) cost (almost) nothing. It was done by a couple of friends who liked the project and wanted to help me.

So, what did I do? I made a new song MYSELF. It was a nice challenge. Because the animation was completely matched to the tempo and the rhythm of the song, I had to imitate all the elements of the original track, but still produce a new musical creation. I finished all the composing, recording (yes, that’s me singing!), producing and mixing in one day. And it cost me absolutely nothing. You could say I made a financial gain of € 3,000 with one day of work, a never seen accomplishment in my life (and in fact it’s a gain of € 3,000 PER YEAR).

Eventually, I wrote back to the licensing company to explain that their offer was completely out of reach for us and that I decided to make my own song instead. Their answer: ‘Yeah, that’s probably the best idea. But you must understand that we were obliged to propose SOMETHING.’

I was quite flabbergasted. Is that their understanding of customer relationships? Apparently they don’t have a model to answer this type of customer questions. Probably they are only used to making licensing deals with big companies who have a couple of thousand euros in their pockets (as we learned at Unconvention). They prefer that the music of their portfolio is not used and that potential customers like me go elsewhere and they would rather earn nothing than make a small deal. You could argue that negotiating such a deal costs more than they would earn with it at the end of the day. On the other hand, I think that this type of questions will occur more and more in a digital environment: small content publishers who want to license music in a legal way, but who can’t pay the usual heavy up-front cost, because these amounts of money are not in balance with the expected revenues. If I were in the shoes of the publishing company, I would propose a flexible licensing deal. You start with a small up-front cost and if the video goes viral, you pay extra to use the music. If a video of a content publishers gets hundred thousands of views, it is quite obvious that the publisher took commercial advantage of the video and that the owner of the music copyrights should be awarded accordingly. If the reach of such a video was limited, there isn’t any substantial gain for the publisher and the author of the song only gets the limited up-front cost. Not much, but better than nothing. I don’t think it is difficult to make standard contracts for these cases.

Moral of the story: there is no music of Apparat in the Motion Music Manager video, because the publishing company could not make a viable proposal for this type of potential customers. It lost a business opportunity because it could not adapt to a new commercial environment. I really hope that the Motion Music Manager video goes viral, with my own music in it, to prove the point that Apparat and the publishing company might have missed an important opportunity to earn money. So, feel free to pass along this story, the video and the music

Below you find the video. I want to thank Jef from Amai and Jan & Dries for making the video, Hannes for recording the voice-over and Floris for the help with mixing the song. Really great, guys!

The second panel which I attended at Unconvention, focused on making money with music in a business-to-business (B2B) environment. In plain English this means: selling licenses to companies for the use of your music. It was very interesting to hear quite honest statements about financial earnings and the panelists also came up with some useful tips.

The panel consisted of Walter Flapper from Flapper Management, who has the Dutch drum’n'bass sensation Noisia on his roster, Renger Koning (Soundbase Studio) and Dave Haynes from Soundcloud.

Noisia manages to earn a steady flow of income by licensing their music for games and advertising. Most of the time they work with a fixed price, which is about € 6,000 to € 25,000 in their case.

But how do you get such a license deal? As always, it is key to build a good network: you should know the music supervisors and be sure to give a professional impression. It is also a good idea to repackage your tracks: if you have a 3 minutes and an 8 minutes version, you can address different types of supervisors.

We also heard the advice to keep licensing rights and master recording rights in one hand. In the beginning, it is probably the best idea to manage your own publishing (i.e. licensing rights). In a later phase you can work with professional publishers to expand your scope. These people are really professional and it will not be a problem to make quick deals. So after all, you shouldn’t worry too much about keeping master recording and publishing rights together.

Working for other artists can also be a good way to grow your revenues. You can produce for other bands or make remixes. For remixes Noisia gets a fee of a couple of 1000 pounds. It is also good to know that there are a lot of smaller independent game developers. This might be a good opportunity to get your first licensing deals. After that, it can lead you to bigger deals.

A big issue, of course, are the legal aspects of licensing deals. Essentially, you can best learn by doing. It is also a good idea to ask colleagues for advice. Just remember one big rule: always keep a time limit on the contract. Don’t give a way your licensing rights for the rest or your life.

And finally we are here to write a round-up from the very interesting Unconvention in Groningen. There has been some excellent reporting by Bram Willemse (in Dutch), but I think I have still some things to add to the story.

I missed the first panel about setting up a good live show, because I was still looking for a good parking spot in Groningen.

The second panel (with the title ‘To MySpace or not to MySpace’) focused on the use of social networks. On stage we saw Pim van de Werken from the band Silence is Sexy, who made heavy use of the torrent site Mininova to distribute their songs for free. Second speaker was Lance LaBreche from Rocket Garage, a New York based music and models agency, which brings European bands to the States, and finally we had Nicolai Adolfs from Beep!Beep! Back Up the Truck, the first Dutch record label to distribute its complete discography for free under a Creative Commons license.

Let’s start with an excellent quote by Lance: “Music is a part of show business, show is what you do on stage, but there is a business behind it.” This vision explains his main perspective on the use of social networks: you should ask yourself how you make money with it. Therefore, it is key to limit your attention to about 5 networks that work for you and keep these up to date. However, in the first stage you must experiment to see which networks give the best results. It is important to understand the different types of platforms. MySpace, for instance, works great as a business card. But if you want to draw attention to the shows that you play, Last.fm and Facebook are better channels. A main advantage of Facebook is the opportunity to send location-based show announcements. You also should look at the demographics of the different networks and find out if they match with your target audience.

Let’s put this in practice and take the example of Silence is Sexy. The band experimented with ReverbNation and PureVolume, but that didn’t work for them. The last network appears to be more focused on emo and punk. The torrent site Mininova was a very interesting distribution channel for the band. They tracked the downloaders on Last.fm, approached them and asked them if they wanted to download the whole album. Jamendo was also a big success for them. It appears to be a site where listeners search actively for new music and Jamendo even asked Silence is Sexy to be featured in their newsletter.

The main strategy for the use of social networks may be best described as follows. You use the networks to catch the attention of potential fans. It’s a good way to introduce your music to the public. Afterwards, you want to draw these fans to your own website and build your own community there. From this (community) website you direct your fans to the iTunes store (or another download store). I would add an extra step to this myself: after they bought a track (or something from your merchandise store, or whatever), you give your fans the best tools to tell about it to their friends on their social networks. This is more or less the strategy I’m working on the following months with the band Arid.

We’ll end this first episode on Unconvention with some loose ends which came up during the panel. Somebody asked how you should handle new opinion makers, such as music bloggers. Lance advised that you use the positive feedback and tell about it through your own channels. It’s a way of creating new content and creating content is key to build up some tension around your music. It is also a big plus if you manage to be a bit different: find a way to set you apart from all the others. The last statement during the panel was a very straight business advice: in the first phase you should focus on a ‘business-to-consumer’ model, i.e. the relationship between the band and your fans. Afterwards, you can think about business-to-business revenue streams and start approaching publishers etc. This was exactly the topic of the next panel session, but we will save that for another blog post.