How to Design Testand Build Business Models and Value Propositions

“I  just  want  to  sing  and  perform.”  

?So how does one come up with successful business models?

How does the music industry create, deliver and capture value?  

BUSINESS  MODEL    

CANVAS  

THE  

Business Model Canvas

to describe, challenge, design, and invent business models more systematically

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!innovative business models may unlock new opportunities or enable things that were just not possible

with the traditional models

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

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The  Music  Industry  

The  Music  Industry  

A  dynamic  market  a  global  industry    characterized  by  many  players  and  fierce  competition  

!

Companies are quick to adopt technologies that support their business model but are slow to adopt technologies that disrupt it. - Clayton M. Christensen, The Innovators Dilemma

“

iTunes

The “traditional” music industry gave us the choice of buying singles, albums or

compilations. The digital service most favoured by

the music industry gives us the choice of buying….

singles, albums or compilations. In other

words, the music industry has offered consumers a

‘solution’ that is most like the one that went before.

Change in 10 years

2007

2008

2006

2006

2006

2013

If something is going to happen in the end, you may as well do it in the beginning.- Henry Kissinger

“Consumer trends, such as streaming and mobile phones should be seen and acted

upon. Too often companies look to the past and say, “Well, that has worked well for us” rather

than in to the future and make the changes that may be necessary to their business.

The total number of streams (UK) in 2013 (3.7bn) is more than the total number of singles sold in 60 years.

26% of all entertainment revenue is now access to content

Millions of consumers are showing entertainment industries the way they want to consume their products by signing up with

‘on-demand’ services.

BrandAmp  study,  Millward  Brown,  2007  

“Music is something most people love, that no one dislikes and that touches everyone throughout their lives”

The  role  of  music  in  peoples’  lives  

Who  is  my  customer?  

What  does  he  or  she  wants?  

What  is  he  or  she  willing  to  pay  for?  

Different  needs  

CUSTOMER SEGMENTS

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Customer  in  charge  

VALUE PROPOSITIONS

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Firms  that  record,  produce,  publish,  distribute,  and  market  music.  

Shift  from  ownership  to  access  

?what is your main target customer trying to get done?

CUSTOMER RELATIONSHIPS

images by JAM

Goals of Customer Relationship Management

1) Identify, attract and win new customers 2) Retain existing customers 3) Re-invigorate relationships with former customers

It doesn’t take a genius to realise there are clear parallels between the value of CRM for a brand or business and CRM CRM for a band or artist.

In order to have a successful music career (“business”) you need to have fans (“customers”). And those fans won’t come unless you work hard for it.

1. Identify, attract and win new fans and supporters

Most independent artists don’t have money to spend on ‘push’ advertising or PR to reach a mass audience.

Your best chance of success lies in ‘pull’ marketing where you supply your fans with compelling content and they promote you to their networks.

YYour ultimate audience is not your ‘Friends;’ it’s the ‘Friends of your friends.’ If you can burst out of your network into each of theirs, your potential audience will suddenly rocket.

So encourage and incentivise them to share your posts.

2. Successfully retain existing fans and supporters

On social media: Sometimes it’s important to remind yourself why you are growing a fanbase on Facebook or Twitter. Many bands seem to spend all their waking hours collecting new ‘Likes’ and ‘Followers’ but never interact with any of them.

FFacebook uses a system called Edgerank to prioritise the news in your feed. If you don’t interact with you fans you’ll become invisible very quickly. So when a new ‘Like’ or ‘Follower’ arrives, you have work to do.

This is important: social media quantity should always go hand in hand with quality. WithoWithout engagement those ‘Likes’ quickly become meaningless.

With mailing lists: Mailing lists are another key tool for retaining fans, but only if you use them in a smart way.

Lazy mail-outs containing a summary of old news are pointless.

Set rules for your mail-outs: “I will only ever contact fans when I can reward them, oor offer them something exclusive.” “I will never just repeat news I’ve posted on Facebook.”

Tip: The tool FanReach has made it very easy for emerging artists to grow their fanbase through newsletters.

Always be critical of the communication you send. If it doesn’t genuinely interest or excite you, why would anyone else care?

You don’t build relationships by spamming people.

Finally, don’t forget to ‘Surprise’ & ‘Delight’ your fans; it’s a proven brand tactic to retain interest.

HHow about you surprise the next three fans that contact you on Twitter with a free t-shirt or free remix?

Also, you should be able to personally name your biggest fans.

Who are the people that engage with you the most on Facebook?

Who are the people that come to all of your shows?

Who buys your music?

BBy identifying these advocates you can start to create tailored rewards to encourage continued support.

You could offer exclusive previews to a select group of Top fans.

Always be critical of the communication you send. If it doesn’t genuinely interest or excite you, why would anyone else care?

You don’t build relationships by spamming people.

Finally, don’t forget to ‘Surprise’ & ‘Delight’ your fans; it’s a proven brand tactic to retain interest.

HHow about you surprise the next three fans that contact you on Twitter with a free t-shirt or free remix?

3. Reinvigorate relationships with former fans and supporters

Make full use of the analytics provided to you by Facebook and YouTube. If you don’t already know, take time to find out (learn more about Facebook Insights and YouTube Analytics):

Find out which 10 Facebook posts had:

The greatest ‘Reach’ in the past three months The most ‘Engaged Users’ Were the ‘Most talked about’ The highest levels of ‘Virality’

What are your most engaging (based on % of video watched)videos on YouTube?

Next, note down the commonalities to identify what an engaging post looks like. E.g.,

Posted on a Monday morning Personal, warm friendly style Contain a question Include a good quality photo Contains a video

Once you understand the rules of engagement you can repeat the trick, and hopefully win back some of the people who have switched off in response to your less engaging posts.

Bonus tip: Get organised.Create a basic Excel database, to collect and manage your relationships. Start with a separate tab for:

Artists Blogs Labels P Promoters Publishers Radio stations

Then whenever you come across a new contact, add their key details: Name, Company, Job Title, Email, Phone.These 3 additional details take this from being a flat database into an active, useful CRM tool:

When: Date last contacted Why: Reason for last contact What: Outcome of last contact

Keeping a track of when, why and what ensures you can tailor your response and follow up in the most appropriate way, only sharing information which is relevant to them.

Don’t be afraid to follow up. If someone really has no interest they will tell you so.

Don’t assume a non-reply is a no; it is often just a sign they are busy or disorganized. As a blogger I welcome reminders “Have you had a chance to check out our track yet?” Often a reminder will be enough to guarantee you a review (if the music is great).

A little thought and planning can really help improve the effectiveness of your ffan communication, so don’t be in a rush to promote until you are ready.

RECURRING  REVENUES

Is  every  sales  a  new  effort  or  will  it  result  in  follow-­‐up  revenues  and  purchases?  How  evenly  distributed  are  your  revenues  through  the  year?

CHANNELS

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Channel1. Awareness

2. Evaluation - How do we help customers evaluateour value proposition

3. Purchase - How do we allow customers to purchase specific products and services

4. Delivery - How do we deliver a value proposition tocustomers

5. After sales - How do we provide post purchase customer support

REVENUE STREAMS

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44 SONGWRITER AND COMPOSER REVENUE STREAMS

1. Publisher AdvanceBulk payment to songwriter/composer as part of a publishing deal.

Paid to songwriter/composer by publishing company.

2. Mechanical RoyaltiesRoyalties generated through the licensed reproduction of recordings of your

songssongs — either physical or digital. Paid to songwriter/composer by publisher, label, Harry Fox, or digital aggregator like CD Baby or Tunecore.

3. CommissionsTypically a request from an ensemble, presenter, orchestra or other entity for a composer to create an original work for them.

4. Public Performance (PRO) RoyaltiesRevenue generated when your songs are played on radio, TV, in clubs and rerestaurants. Paid to songwriter/composer/publisher by ASCAP/BMI/SESAC.

5. Streaming Mechanical RoyaltiesRevenue generated when your songs are streamed on on-demand services (Rhapsody, Spotify, Rdio). Paid to publisher by Harry Fox or other mechanical licensing agent. Publisher then pays songwriter/composer.

6. Composing Original Works for BroadcastTypically a commercial request to compose an original jingle, soundtrack, score, oor other musical work for a film, TV or cable show, or an ad agency. Paid to songwriter/composer by agency requesting the work.

7. Synch LicensesTypically involves licensing an existing work for use in a movie, documentary, TV, video games, internet, or a commercial. Paid to songwriters/composers

either via publisher or record label, or via a direct licensing deal with the licensee (movie studio, ad agency, etc) if you are self-published.

8. 8. Sheet Music SalesRevenue generated by the sale or licensed reproduction of songs/compositions

as sheet music. Paid to songwriter/composer by publisher, or directly from purchasers if you are selling it on your website or at performances.

9. Lyric DisplayRevenue generated by the licensed display of song lyrics. Online lyric sites pay publishers, which then pay songwriter/composer.

10. Ringtones RevenueGenerated from licensing your songs/compositions for use as ringtones.

PPaid to songwriter/composer via your publisher, your label or Harry Fox.

11. ASCAPLUS Awards ProgramAwarded by ASCAP to writer members of any genre whose performances are primarily in venues outside of broadcast media.

12. Publisher SettlementPayment from publishers to writers for litigation settlements.

PERFORMER AND RECORDING ARTIST REVENUE13. Record Label AdvancePaid to artist as part of signing a deal.

14. Record Label SupportMoney from label for recording or tour support.

15. Retail SalesRRevenue generated from selling physical music in retail stores or via mailorder. Paid to artist/performer by your label, or services like CD Baby or Bandcamp that help musicians sell physical product.

16. Digital SalesRevenue generated from selling music digitally/online. Paid to artist/performer by your label, or digital aggregators like CD Baby or TuneCore, or directly from fans via services like Bandcamp.

117. Sales at ShowsRevenue generated from selling recordings of music at shows/live performances. Paid to artist/performer directly by fans.

18. Interactive Service PaymentsRevenue generated when your music is streamed on on-demand services (Rhapsody, Spotify, Rdio). Paid to performer by your label, or digital aggregator like CD Baby or TuneCore.

19. Digital Performance RoyaltiesRevenue generated when your sound recordings are played on internet radio, SSirius XM, Pandora. Paid to performers by SoundExchange.

20. AARC RoyaltiesCollected for digital recording of your songs, foreign private copying levies, and foreign record rental royalties, distributed to US artists by AARC.

21. Neighboring Rights RoyaltiesCollected for the foreign performance of your recordings.

22. Film Musicians Secondary Markets FundPPaid to performers on recordings used in film, TV and other secondary uses by the Film Musicians’ Secondary Markets Fund.

PERFORMER SESSION MUSICIAN REVENUE

26. Salary as Member of Orchestra or EnsembleIncome earned as a salaried member of an orchestra, band or ensemble.

27. Shows/Performance FeesRevenue generated from playing in a live setting (for non-salaried players). Paid by concert promoter, presenter or venue to performer.

28. Session Musician28. Session Musician/Sideman Fees for Studio WorkPayments to studio musicians/freelancers/sideman for work in recording studio. paid by label, producer or artist, depending on situation.

29. Session Musician/Sideman Fees for Live WorkPayments to studio musicians/freelancers/sideman for work in a live setting/on tour. Paid by label, producer or artist, depending on situation.

30. AFM/SAG-AFTRA PaymentsPPayments from the AFM/SAG-AFTRA Intellectual Property Rights Distribution Fund, which distributes recording and performance royalties to non-featured artists.

KNOWLEDGE OF CRAFT: TEACHING AND PRODUCING

31. Music TeacherRevenue generated from teaching your musical craft.

32. ProducerPayment for producing another artists’ work in the studio or in a live setting. Paid by labels, featured artists, studios, presepresenters, or foundations, depending on situation.

33. Honoraria or Speakers FeesPayment for conducting a lecture, workshop or master class. Usually paid by school, conservatory, or presenting organization.

BRAND-RELATED REVENUE40. ActingPayments for appearances in TV, commercials, movies.

FAN, CORPORATE AND FOUNDATION FUNDING41. Fan FundingMoney directly from fans to support or pre-sell an upcomingrerecording project or tour (Kickstarter, Pledge Music, IndieGogo, Patreon).

42. SponsorshipCorporate support for a tour, or for your band/ensemble.

43. GrantsFoundation or public arts grants to support your work/project from foundations, state or federal agencies.

OTHER SOURCES OF REVENUE44.44. Arts AdministratorMoney paid to you specifically for managing the administrative aspects of a group that you are a member of.

See these revenue streams organized by Existing, Expanded and New

What are we missing? Email us.TweetArti

What  do  customers  want  (tomorrow)?  

Spotify  

Spotify  aggregates  content  from  right  holders,  distributes  it  to  consumers  through  the  technical  platform  and  monetizes  both  through  a  free,  ad  funded  service,  and  a  subscription  service.  

The  business  model  of  Spotify  

The  Business  Model  of  Spotify  

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

Access  to  music  via  

streaming  and  download  services  

Pla@orm  development  

and  maintenance  

Licensing  agreements  

SoGware  and  network  engineers  

Rightholders  (labels  and  publishers)  

Adver:sers  

Internet  +    PC  

Ad  fees  Subscrip:on  

fees  PC  

Subscrip:on  fees  PC  +  mobile  

Royal:es  to  rightholders  

Salaries  

Bandwith  costs  

Automated  online  

rela:onship  

Global  music  fans  

Adver:sing  

Pla@orm  and  brand  

Internet  +  mobile  

3rd  party  APIs   Communi:es  

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

Mass  market  Hits  and  

wannabee  hits  

Tours  and  concerts   Huge  sales  

from  a  few  ar:sts’  albums  

Merchandising  

Marke:ng  &  promo:on  

Detec:ng  &  building  talent  

Por@olio  of  star  ar:sts  

Copyrighted  content  

Distribu:on  channels  

Manufacturers  

Marke:ng  &  promo:on   Subsidizing  

unsuccessful  ar:sts  

Royalty  payments  

TV  

Radio  

Retailers  

Digital  

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