Older record labels sold just music, but modern labels should sell both music and "experiences." So says a Nielsen study released at South by Southwest that estimates the industry could generate additional revenue-totaling between $450 million and $2.6 billion-by better monetizing the artist-fan experience.
Nielsen's study, which was conducted with the participation of PledgeMusic and SXSW, focuses on a couple of types of direct-to-consumer business models: crowd-funding and direct-to-fan. It found that fans of any kind, from avid to ambivalent, expressed interest in buying exclusive content from a favorite artist during the recording process. The implication is clear: Artists and labels that don't take advantage of new platforms to connect with fans are leaving money on the table. But which platform should they use?
The term "direct-to-fan" has a broad definition. It can refer to a fund-raising platform that allows artists to raise money for projects as well as interact with fans during the project's development and creation--a model explored in-depth for Nielsen's study.
Direct-to-fan can also refer to monetizing the artist-fan relationship in other nontraditional ways. Using a new platform called Tunezy, for example, allows artists to hold intimate shows, sell collectible merchandise and offer backstage passes or studio hangout time directly to fans. Another platform, Stageit, allows artists to earn money from live concerts streamed online to fans. BandPage, which started on Facebook, recently launched a tool for artists to sell experiences to fans.
"Crowd-funding" refers to a type of platform that allows artists to raise money from fans to fund a new endeavor. Kickstarter, Indiegogo, RocketHub and other platforms have become highly popular with musicians, filmmakers, artists, videogame makers and inventors to finance their projects. "Direct-to-consumer" means selling music (downloads, CDs, vinyl) and merch directly to followers without relying on the usual middlemen, such as distributors or retailers. But direct-to-consumer doesn't target the most valuable segment: the fans.
This varied terminology is important because different types of artists will be attracted to different kinds of support models. For example, a completely indie artist is more likely to use a crowd-Âfunding platform that pays for studio time, marketing and other costs, because overall financing is a frequent barrier for such artists' success. An act already signed to a label, however, would likely be more apt to use a direct-to-fan pre-order campaign that can sell more product and merch.
The common thread between direct-to-fan and crowd-funding is the ability to create value from the artist-fan experience. Monetizing music has become more challenging as music becomes more ubiquitous in its online form. These types of unique experiences can help bring a sense of scarcity and, ultimately, value back to the music business.