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

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

Thu, Feb 5th 2009 10:21am — Mike Masnick

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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Filed Under: business models, fans, midemnet, music, nine inch nails, trent reznor

49 Comments

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Anonymous Coward, 5 Feb 2009 @ 10:47am

Mike, once more I realize how important the voice of reason should be in all of these discussions. The fact that you can present your ideas in such an upbeat manner, despite the constant negative rhetoric from so many, impresses me more evey time I read one of your posts.
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COD (profile), 5 Feb 2009 @ 10:50am

Great job Mike - I couldn't tell you were jet lagged at all! Have you heard from anybody with NiN about this? That would be some pretty cool feedback to get.
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Kenneth Younger, 5 Feb 2009 @ 10:52am

Awesome presentation
Mike,

Just have to say nice job on the presentation! You have really started to get me interested in alternative business methods where infinite supply can be exploited to sell other, less plentiful good - it ONLY requires some creativity as you mentioned. Keep up the awesome coverage of this stuff.
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- MontBlanc Watch, 17 Dec 2010 @ 6:53pm
  
  Re: Awesome presentation
  Great job Mike! Considering your idea will give the economy a new shape i think. Keep it up.
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Anonymous Coward, 5 Feb 2009 @ 11:08am

Mike, you did a fantastic job!

Congratulations!
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jonnyq, 5 Feb 2009 @ 11:36am

Great job, Mike.
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AJ, 5 Feb 2009 @ 11:47am

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!
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- Mike (profile), 5 Feb 2009 @ 11:51am
  
  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.
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- Jason Still, 5 Feb 2009 @ 12:08pm
  
  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 :P
  
  Either way, excellent presentation.
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  - Chronno S. Trigger, 5 Feb 2009 @ 12:22pm
    
    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.
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    - Mike (profile), 5 Feb 2009 @ 12:29pm
      
      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.
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      - Chronno S. Trigger, 5 Feb 2009 @ 12:44pm
        
        Re: Re: Re: Re: 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.
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      - Whisk33, 5 Feb 2009 @ 12:53pm
        
        Re: Re: Re: Re: Formula
        Wouldn't that most likely cause the Streisand Effect? Depending on how you implement your business model you could make money off that? i.e. people hate Howard Stern so they listen to him and complain which gives him more ratings...
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  - David, 19 Sep 2012 @ 7:23am
    
    Re: Re: Formula
    Borrow from Metcalfe's Rule:
    (cwf + rtb)^2 = $$$
    Due to networking, one can expect a quadratic response (or some power law response)
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Jon, 5 Feb 2009 @ 12:06pm

Presentation
Mike,
Fantastic presentation. Keep up the good work.
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ChurchHatesTucker (profile), 5 Feb 2009 @ 12:12pm

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.
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Jesse, 5 Feb 2009 @ 12:15pm

It is interesting to finally put a face to a name. Somehow I always imagined you to be this 7 foot guy with an eye patch and a peg leg. (Well maybe you have a peg leg, not sure if it was visible there.)
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Mr. LemurBoy, 5 Feb 2009 @ 12:17pm

Mike, that presentation was full of awesome. Thank you so much for both the clear reasoning and the inspiration.
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TriZz, 5 Feb 2009 @ 12:19pm

There you are!
...I've always kinda wondered what you look like.
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Whisk33, 5 Feb 2009 @ 12:58pm

Cwf
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SteveD, 5 Feb 2009 @ 1:02pm

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.
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- Mike (profile), 5 Feb 2009 @ 1:08pm
  
  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... :)
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Anonymous Coward, 5 Feb 2009 @ 1:15pm

Lose the jacket. Brown is not your color.
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- Mike (profile), 5 Feb 2009 @ 2:04pm
  
  Re:
  Lose the jacket. Brown is not your color.
  
  Ah, MLS, I knew you couldn't comment here without something negative to say. I guess if you can't trash the actual content, you'll complain about what I'm wearing. What happened to your claim that you only comment here to correct factual inaccuracies?
  [ link to this | view in chronology ]
  - Anonymous Coward, 5 Feb 2009 @ 3:39pm
    
    Re: Re:
    The comment was merely in jest. I am surprised it was not seen as such.
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    - SomeGuy, 6 Feb 2009 @ 4:51am
      
      Re: Re: Re:
      Mike's just too used to recieving barbs from you; burnt once, twice shy and all that. As an anonymous comment I would have seconded it (in jest), but knowing where it came from would have made me hesitate. Mike can obviously see more about us than we can see about each other.
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  - Anonymous Coward, 6 Feb 2009 @ 9:10am
    
    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.
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Crooooowwww, 5 Feb 2009 @ 2:38pm

You remind me of Joel Hodgson... just lose a bit more hair and wear a green jumpsuit and you're there. Very well done presentation by the way. Let us know if Mr. Reznor appreciates your efforts!
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Mogilny, 5 Feb 2009 @ 4:44pm

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.
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- Mike, 5 Feb 2009 @ 5:37pm
  
  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.techd irt.com/articles/20090114/0645323402.shtml
  
  and
  
  http://www.techdirt.com/articles/20090119/1924063457.shtml
  
  and
  
  http://www.techdirt.com/art icles/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.
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- Anonymous Coward, 6 Feb 2009 @ 4:54am
  
  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.
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- nasch, 6 Feb 2009 @ 8:43am
  
  Re: Well Said
  Masnick's Law strikes again!
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Derek Kerton (profile), 5 Feb 2009 @ 5:26pm

What He Said
In #25: "the free music model might only work for more established bands with a rabid following."

Yeah, Mike. I wish you'd deal with THAT issue, just once.
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Rollergirl, 6 Feb 2009 @ 12:09am

Hey Mike,

I hear Trent's load is bitter but with an aftertaste of watermelon. T/F? J/K.

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 in order to get the 1M+ fanbase to begin with?
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- Matt, 8 Feb 2009 @ 12:54pm
  
  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.
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Phillip, 6 Feb 2009 @ 7:07am

That's a great presentation, Mike. I like the Lessig-style slides. Thanks for putting up the video!
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tenminute, 6 Feb 2009 @ 7:52am

CwF
It's nice to see websites like http://Cherrypeel.com pop up to help fill the void and provide a place for artists and fans to connect. It also provides a place for the bands to get some publicity which also doesn't hurt;)
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- Andrew, 6 Feb 2009 @ 9:13am
  
  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."
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  - Mike (profile), 6 Feb 2009 @ 9:22am
    
    Re: Re: CwF
    Thanks for thinking of us
    
    Dude. Seriously. If you're going to try to astroturf for your own site by first posting a link as one person, and then pretending to be someone else, *at least* learn to change IP addresses first.
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Wolfgang Senges (profile), 6 Feb 2009 @ 11:58pm

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.
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Killer_Tofu (profile), 14 Feb 2009 @ 6:48am

The presentation
Took me a bit longer than I would have liked to get around to seeing it, but well done Mike.
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Matt Cheuvront, 11 Mar 2009 @ 4:57pm

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.
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Karen (Australia), 16 Mar 2009 @ 4:44pm

Thank you for the discussion
I am telling my music business students to have a look at your presentation. Please keep it up! This is exactly the type of discussions they need to see. Thanks for making it available!
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kse (profile), 24 Jun 2009 @ 4:02am

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
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Al Cisco, 9 Jul 2009 @ 12:31pm

Creative music or creative marketing?
I can't help but think that this model will lead to a flood of music from artists who are the most creative marketers, not the most creative artists. Which is nothing different from the current model. Are we doomed to wade through a mountain of waste to find the diamond?
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Alex Burns, 22 Sep 2009 @ 6:22pm

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-p resentation

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
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a nobody, 28 Jan 2010 @ 11:21am

Seems like some "mainstream media" liked what they saw at Midem

http://news.bbc.co.uk/1/hi/entertainment/8483665.stm

The Kiss and Opera items I found interesting, which I don't "think" have been mentioned on techdirt before. But I am too lazy to search ;)
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Tanghead, 14 May 2011 @ 12:10pm

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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davidbarcomb, 18 Nov 2014 @ 9:14pm

Awesome article. Thanks
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