The music industry has lost billions of dollars in revenue over the last decade. Nielsen says the industry can use generated at least a half billion in incremental revenue by allowing fans to better connect with artists.
Nielsen's study was unveiled Tuesday at a SXSW panel titled "The Buyer and the Beats: The Music Fan and How to Reach Them." A survey of 4,000 music consumers, which included PledgeMusic users and SXSW attendees, examined the degree to which different types of consumers want to connect with artists through exclusive music merchandise.
The bottom line: Nielsen found there could be potential incremental revenue of $450 million to $2.6 billion if artists, managers and labels offered a better set of products and experiences to fans.
"Fans want more," said Barara Zack, Chief Analytics Officer at Nielsen Entertainment Measurement. "There is an unmet need there. There is a desire to engage at a different level than what they have."
The idea behind this study is familiar to many people. A site like Kickstarter allows artists to raise money from fans for a project. Artists offer a variety of goods and experiences that segment customers by willingness to pay. Instead of getting $15 from an serious fan, an artist could get $300 for a CD, a T-shirt and a 30-minute conversation on Skype, for example.
This study's conclusion isn't limited to crowdfunding and superfans. Nielsen found that fans of varying degrees are willing to pay for content if given the opportunity. Over half (53%) of Aficionados (the most active music buyers) said they would be willing to pay to get exclusive content while a favorite band is recording a new album. Less active buyers were predictably less likely to show an interest in spending for exclusive content, but even the group Nielsen calls Ambivalent Consumers (22% of the population, spend on average $73 a year) said they would buy exclusive content if given the opportunity.
Nielsen estimates the industry's incremental revenue potential from selling exclusive content is $564 million, as an individual buys content from only one band. That number jumps to $2.6 billion of incremental revenue if the individual buys exclusive content from all other favorite bands as well.
These findings bring up a number of questions. Will fans' purchase actions match their stated purchase intent? Will fans be willing to support major label artists as well as independent artists? Or will major label artists need to use a model like PledgeMusic that highlights the fan-artist connection greater over the fundraising aspect of the platform?
Zack said most respondents who said they would pay extra for exclusive content had major label artists in mind when they answered the question. High-spending aficionados were more likely to have an independent artist in mind, but the overall split was about 80% major label artist to 20% independent artist, she said. That suggests that direct-to-fan revenue opportunities present an opportunity, if activated correctly, for labels to engage differently with fans for their signed artists.
One popular way to sell products and experiences is through crowdfunding sites like Kickstarter. Artists establish a fundraising goal and work toward that target. But what if dozens or hundreds of artists are simultaneously working toward their fundraising goals? Benji Rogers, CEO of PledgeMusic, a participant in the study, warned that "donor fatigue" could take hold if too many artists are constantly requesting money for their projects. "I think we have to change the conversation. Part of what we did different at PledgeMusic was we didn't show the financial target. One of the reasons was is I don't think it's about the money. They want experience."