Selling "Stuff" Part One: Direct-to-Fan

Artists/bands have traditionally made their income from three sources: recorded music, performance, and merchandise.

Because digital music can be copied so easily and fans can find ways to get it for free, recorded music is no longer as reliable as a source of income as it once was. To make up the difference, bands are now looking to sell more goods/services/experiences that can't be easily copied.

For the next few blog posts, I'm going to be exploring different aspects of hard good sales.

Let's start with what is now being called "direct-to-fan" marketing. It's not exactly new. Some bands have been doing this since the earliest days of online commerce (and, of course, at shows well before that). They have been selling T-shirts, CDs, and merchandise from their websites. What appears to have changed is that rather than this being a side business, some artists/bands are viewing it as a primary business.

Lately I have been telling people that direct-to-fan sales is just another name for direct marketing. Why? Because there are already significant resources available within this sector. If the future of the music business is selling stuff directly to fans, music marketers should take advantage of the decades of experience and research already out there. Whatever merchandising and marketing services, products, or advice you may need, you will likely find it in the direct marketing industry.

Sure, there are some areas of direct-to-fan marketing that are more music-specific (e.g., music files, fan communities and interaction, ticket sales). But other tools (e.g., email marketing, shopping carts) aren't industry specific.

One topic which gets discussed a lot within direct marketing circles, but not so much during direct-to-fan discussions, is database marketing. Much of music marketing still operates at a basic level (e.g., capturing fan names, addresses, and emails). Music business articles and conferences aren't addressing more complex issues (e.g., purchase behavior, lifetime customer value, retention rates). One reason for this, I am sure, is that a lot of bands have short life spans, so people aren't thinking of selling to fans over a period of years.

But a few music marketing companies have grown into fairly complex operations that can outlive individual bands. Therefore they have reason to develop relationships with fans that might last for years and to utilize more sophisticated tools.

Madison House, for example, started as a booking agency. It expanded into a management company for String Cheese Incident. Over time it created a record label, a ticketing agency, a merchandise company, a travel agency, a design company, and a PR firm.

An even bigger operation is Musictoday, which was started in 2000 by Dave Matthews's manager, Coran Chapshaw.

Along the way, Capshaw built the mechanism for recording live shows (ATO Records, which now boasts more than a dozen acts, including David Gray and My Morning Jacket) and selling shirts, CDs, and tickets (Red Light Management).

Those early CDs contained the seed of what Musictoday would eventually become, in the form of a mail-order insert for merchandise. Capshaw and the band were designing and selling their own goods and pocketing "the retail spread." As that business expanded, it outgrew the spare room at Trax. Then, in the late 1990s, they began offering items online--and the bigger picture revealed itself. The infrastructure had fallen into place for a much bigger operation. "I realized that we could do it with more than just Dave Matthews," says Capshaw. "We had the potential to help other bands." "Way Behind The Music," Fast Company, 12/19/07

The article describes what the company does: "Musictoday's 200 employees are responsible for emailing fans, processing orders, printing tickets, mailing merchandise, fielding complaints, monitoring message boards--all of it."

What distinguishes Musictoday's approach from more traditional direct marketing is its emphasis on band personality.

"We believe that direct-to-fan relationship is stronger, more loyal, more long lasting,” says [chief of staff Nathan] Hubbard. “Coran had the vision to say, ‘Passionate music fans want to interact directly with the artist, both at the show, but also online,’ and so built the infrastructure to help not just the Dave Matthews Band fans, but ultimately fans of all kinds of artists.”

Part of what appeals to artists in this deal is Musictoday’s discretion: Rarely is it obvious that some company in Crozet is running the online store. Look carefully on the official Internet stores for artists as diverse as Bob Dylan, Eminem, Christina Aguilera or Le Tigre—scroll to the bottom and you’ll find an unobtrusive tag, “Powered by Musictoday.” That’s it, though. There’s no other evidence that the poster, the t-shirt, the cd you bought will be shipped to your door from the humble ConAgra building. "The music machine," C-Ville, 8/28/06

Still, even with the personalization of marketing services, Musictoday is about database marketing.

... there's a compelling lesson here for any company that makes a product: If you control a piece of the transaction, you understand more about your customers. By aggregating fan data that artists haven't usually been privy to, Musictoday can help shape decisions such as where to tour, advertise, or deploy superfans to evangelize. Considering that an estimated 60% of concert tickets typically go unsold every year, that kind of targeting is no small contribution. "We're able to say to artists, 'We know more about your fans than you do,'" says Nathan Hubbard, 31, who runs Musictoday as Capshaw's chief of staff. "'Let's put our heads together and figure out how to monetize this relationship.'" "Way Behind The Music," Fast Company, 12/19/07

Live Nation wanted access to those fan relationships and databases, so it bought 51% of Musictoday in 2006. Said Live Nation CEO Michael Rapino:

We're doing more consumer segmentation. We know that the average fan went to one or two shows last year, and the avid fan went to five. We know 30% of the population attended a live show. Who are they? What's the commonality between the teens and 40-year-olds? What else do those fans want to consume? "The Music Man," Fast Company, 12/19/07

A new company that is also going after some of this market is Topspin Media. It's developing online tools to help artists/bands to do more direct marketing themselves.

But unlike Musictoday, it doesn't mail out packages. According to its website, "Topspin is more about demand generation than demand fulfillment. We approach marketing on three fronts: direct (email and the like), viral (quality driving organic person-to-person marketing), and targeted (such as targeted paid placement)."

I will be covering fulfillment and other aspects of hard goods sales in upcoming blog entries.

Suzanne Lainson
@slainson on Twitter