MUSIC x

What do you buy when you buy merch?

Posted on July 29, 2021 | by Maarten Walraven-Freeling

Merchandise is important. It’s important for fans who can express their fandom. It’s important for artists and other rightsholders who use it as an extra revenue stream. But recently I’ve been wondering what you actually buy when you buy merch as a fan. And consequently, what that means for artists who look at merch as a form of revenue. It’s important to ask what kind of merch you want to sell and who your audiences are for it. Especially in a world where platforms like Amazon Music, Instagram and Twitter improve their creator-focus by making it increasingly easy to sell merch I see three major answers to the title of this piece:

You buy something physical like a t-shirt, a mug, or a record or something virtual like a skin, an AR filter, or a digital download
You buy status, showing off your fandom and gaining access to an in-crowd of superfans
You buy into an artist and show your love and, more and more, gain access to the artist

The physical and the virtual

Let’s start by going back to 2019, pre-pandemic. atVenu, a commerce platform for selling merch while on tour, shared data showing that on average people attending concerts continued to spend more because they were buying more merch items year-over-year. This increased the average dollar amount punters spent as well. A positive trend then, but looking at what concert-goers mainly bought the data showed that the most popular item was still a t-shirt and then preferably a black one. Moreover, further data by atVenu from 2019 shows that on average artists bring 17 items to a show while only 4 items bring in 75% of all revenue. This means it’s worthwhile thinking about the combination of merch items you sell during a show. Definitely a t-shirt, preferably a record, then some other form of apparel – depending on your genre it can be a cap or a hoodie or a longsleeve, etc. – and finally something else like the aforementioned mug.

When we move from the physical to the virtual I often think about gaming more than music. That’s mostly because in gaming virtual merch-type items are already a big business. And when music flows into the world of gaming we see the results. Of course, there’s Lil Nas X his famous Roblox show. In an interview with Gamefam, Roblox global head of music Jon Vlassopulos explained how you “could dance together using custom, exclusive emotes, throw snowballs at each other, dress up in custom merch, hunt for coins, etc.” Moreover, these virtual merch items drove “seven figures in merch sales.” And it’s not just an artist like Lil Nas X who drives these sales. Oana Ruxandra, chief digital officer at Warner Music Group, told the CogX conference this year that Why Don’t We‘s Roblox concert also involved good sales of “artist skins, clothing, [and] a number of different accessories.”

The Why Don’t We scavenger hunt in Roblox, Pro Game Guide

That’s what happens when an artist hosts a concert in game. However, with more direct-to-fan strategies like setting up a Patreon or a Discord artists can open up routes to sell virtual merch items that are not necessarily connected to a live event. Moreover, there are many virtual worlds that integrate virtual merch options. All of this will grow alongside physical merch.

Status as a fandom

The reason merch sales will continue to grow is that fans will continue to seek ways to express themselves. It’s often also a status thing. How often have you walked around in your semi-obscure – probably black – band t-shirt and gotten a shout-out from someone random just because you’re wearing that band’s t-shirt. Of course, this particular example can become commoditized like with Nirvana or The Ramones due to their availability in high-street stores like H&M. Yet, this form of status can be used to more effect by many artists today. It’s not just about the t-shirt, it’s about the status that comes with having that t-shirt from that particular tour or with having the ARMY Bomb. Merch can give a fan a place within a broader fandom. Taking a Status as a Service approach, as popularized by Eugene Wei, artists need to have a twofold strategy to merch in relation to status. Items, whether physical or virtual, should provide social capital and have a high utility.

NFTs and social tokens can be one example where ownership can showcase status and thus provide social capital. These tokens also provide a utility in that they often provide access to certain things like memberships, meet-and-greets, unique tracks, etc. Examples unrelated to blockchain can be fanzines that artists recognize or, to go back to the t-shirt, simply getting a shout-out during a concert for wearing a very specific tour t-shirt. Interestingly, this kind of status-recognition can also come from the artist. Eddie Vedder famously jumped from the stage lights during Pinkpop festival in 1992 wearing a home-made Tivoli – a Dutch venue – t-shirt. In 2001 he wore that same t-shirt again at the same festival and now it’s back on his Funko doll.

Buying-in and showing love

Of course, buying merch is always about showing love to the artist. Besides listening to their music, going to their concerts, your fandom goes one step further and you spend that extra buck to show your support. More and more, and especially during the recent periods of lockdown, buying merch has attained a bigger status as a show of love. It’s also changed how artists sell their merch and what kind of merch they sell. This is especially true of platforms like Bandcamp, where the virtual merch table is automatically integrated during the livestream. What’s more, any buyer gets a mention in the chat allowing the performing artist to give that all important shout-out. That’s not just showing love, but getting the immediate status recognition too.

Again, blockchain-based tokens take this one step further. Not only do they allow the type of investment that will let the fans grow revenues as their beloved artist gains more prominence. More importantly, tokens can provide the privilege of access to the artist. This can be in the form of 3LAU creating a song with the highest bidder of his NFT, but it can also take the shape of a more community-driven solution. In that sense, it’s similar to offering various tiers of access through a Patreon or similar service. The positive extra of a token is that it allows a more reciprocal growth as value can increase over time seperately from the interaction between fan and artist.

Know your audiences, or what do you sell when you sell merch?

The key to understanding these various ways of engaging with merch from the perspective of the fan is to know how to approach those fans as an artist. Not every fan is the same, nor do they want the same. Realising that you have multiple audiences as an artist allows you to strategize accordingly. There’s many ways to do this. One example is terrible*, a company that takes a product management approach to physical merch and helps artists conceptualize, design and deliver products to their fans. In a similar vein, the increasing focus on utility in relation to NFTs shows how artists are thinking about adding value for specific fans. Whether it’s physical or virtual, and whether it’s about status or showing love, what matters is that merch is about more than just selling something. More and more it’s about establishing a connection and doing so with a broad variety of your fan audiences in mind.

A simple guide to disrupting the music industry

Posted on July 27, 2021 | by Bas Grasmayer | 1 Comment

The trigger: a new technology or a shift in the digital landscape. Aspiring founders are searching for a good use case to leverage that development and turn to something they’re passionate about. Music. With a vague understanding of the music business, they proudly announce their plan that will totally disrupt the industry.

People who’ve spent a decade in music have likely seen a dozen of companies promising to disrupt come and go. Disruption doesn’t sell. Solving problems does. The most common misunderstanding seems to stem from a fallacy around intermediaries and that disintermediation always improves things. The oversimplified view is that everything besides the artist & fan is ‘extra’ and both would profit if it can be successfully disrupted.

The reality is that things don’t function as an artist-management-label-distributor-DSP-fan chain. Music doesn’t always travel through it like that. Value doesn’t always travel through that chain. Instead there’s a whole network of connections where various types of value are exchanged, connected and created. In most cases it’s not linear; it’s a network.

The above may seem obvious, but this misunderstanding occurs time and time again. It leads founders to present themselves in an adversarial way to parts of the industry that actually should be their customer. If you can do X better than how a label is currently doing that, then that label might be happy to pay you for it. Artists & their management have a ton of things to do, so in many cases they’re happy to let labels or label services companies take care of some of it.

Don’t get me wrong: there are plenty of inefficiencies and practices of exploitation in the music industry that need to be disrupted. These may occur anywhere in the ecosystem (which also includes other parties like everything related to live, merch, PROs, etc) or in the connections between players. They typically don’t apply to an entire domain, e.g. ‘all labels’ or ‘all booking agencies’. Even when they do, like in the case of inefficiencies or friction, there may be other aspects of those businesses that would not benefit from complete disruption.

What I’m saying is do your research. Create a map of the industry’s domain you’re interested in and also map out everything adjacent to it, because there will be unforeseen connections. Understand how companies collaborate, what goals they’re trying to achieve, how they add value, and where frictions may occur. Read Don Passman‘s All You Need to Know About the Music Business. Speak with people to understand whether your research is based on current-day practices, because it definitely happens that people launch companies with assumptions based on early 2000s practices.

Music is complex. Part of it unnecessarily, but there’s a reason why things are structured this way. Figure out those reasons. Learn how others leverage those reasons to pioneer new businesses. Identify the trends. Understand the complexity to avoid endless pivots and repositioning. Music is in need of innovation – do it through partnership.

The non-static tipping point: how culture’s going non-linear and generative

Posted on July 20, 2021 | by Bas Grasmayer

Deepfakes, infinite albums, generative NFTs – creative pioneers are rapidly pushing technology-enabled concepts into the center of web culture. Whereas just a few years ago, it was hard to get people to care about non-static media, it’s now grabbing people’s attention and their (crypto) currency.

Problem-solving

The Infinite Album gives video game streamers a way to soundtrack their streams without risk of takedowns. The AI creates soundscapes that react to your gameplay and even lets Twitch viewers use commands in the chat in order to influence the soundtrack. The music industry as a whole has been unable to form a global approach that makes it easy for gamers to understand what music they can play on-stream. This situation has given room for new entrants, some very tech-driven, to solve a clear problem.

https://www.youtube.com/watch?v=-0KCZlvNVKw

Another example I’ve mentioned here before over the years is Endel, which provides ‘personalized soundscapes’ that help the listener focus, relax or sleep. They’ve essentially taken a common use case for music and have built a product that doesn’t neatly fit within the common formats of the music industry: a mental health app with adaptive soundscapes. Their artist collaborations include techno pioneer Plastikman (Richie Hawtin) and Grimes.

World-building

One of the most ambitious projects to recently launch is Holly Herndon‘s ‘Holly+‘. The singer, musician and frequent AI-collaborator has created a deepfake version of herself which people can then collaborate with. Another way of putting it is that Holly, through her collaboration with Never Before Heard Sounds, has created an instrument that is based on herself. She will set up a Decentralised Autonomous Organisation (DAO) to govern her likeness and is creating an NFT auction house using the Zora protocol to sell approved artworks. She describes:

“The Holly+ model creates a virtuous cycle. I release tools to allow for the creative usage of my likeness, the best artworks and license opportunities are approved by DAO members, profit from those works will be shared amongst artists using the tools, DAO members, and a treasury to fund further development of the tools.”

Other recent examples include a new release by Agoria & Ela Minus on Bronze Player, a tool that lets artists create music that recomposes itself infinitely, which in a way makes recorded music feel more like performed music in that you won’t be able to experience it exactly the same way twice. A linear version of the song was also released (embedded below).

One NFT platform I’m keeping a close eye on is Async, which sells art NFTs in layers, allowing the creator to set rules for the manipulation of the art and the buyers to reconfigure the work. After starting with visual arts, it launched Async Music:

“This is music with the ability to change its composition. It may sound different each time you come back to listen. This is achieved by breaking down a song into separate layers called Stems. Each Stem has multiple Variants for its new owner to choose from. In this way, a single Async Music track contains many unique combinations of sounds.”

Water & Music, run by Cherie Hu, estimates that Async has grossed about $650K in revenue from music NFT sales in May & June of this year, taking the third place in terms of music NFT marketplaces by revenue size.

Status-shaping

Possibly the largest non-static art projects, by revenue share, are NFT collectible avatars such as CryptoPunks and Bored Ape Yacht Club. These avatars are generated from variables like hair & skin colour, accessories and other types of character customization, leading to sets of 10,000 unique avatars. These collectibles are then sold as NFTs. Particularly CryptoPunks are highly valued due to them being minted before last year’s NFT explosion and thus being a status symbol in the budding Web3, often selling for tens of thousands of dollars. There are even cases of people paying over a hundred thousand dollars, like Jay-Z for CryptoPunk #6095.

A tipping point?

I believe that music’s future is non-static. It gained a default characteristic of linearity in the age of the recording, meaning: a song will sound the same every time you hear it. That’s a very recent trait for music to have by default. Now with powerful connected devices and a new generation of DAWs, we’re seeing this temporary reality of the recording age unravel and become optional rather than a default.

If you’re an artist, this unraveling means greater freedom in how you approach music as an art; it can be interactive, adaptive, generative, dynamic, augmentative, 3D, etc. If you’re more interested in the business side, you may find that you can take a page or two from the gaming industry’s book and make more money by charging for features rather than the content itself. Sell features, not songs.

The web3’s user-friendliness barrier for music

Posted on July 13, 2021 | by Bas Grasmayer

Setting up a Decentralized Autonomous Organisation (DAO) is a clunky affair when compared to more centralized variants. But maybe that’s the point?

I was recently asked when DAOs will feel more like installing an app and there are definitely accessibility hurdles to be overcome for these organisations to become a common phenomenon in music. Here’s my thoughts.

Firstly, I do think we’ll see DAOs become mainstream, but not until some of the least user-friendly aspects are resolved. Setting up wallets, gas costs and treating mobile as an afterthought are 3 points of friction that come to mind. I’ll dive into them here.

Secondly, the point of a DAO is to organise as a group on your own terms, using your own tools, and participating in the value you generate together. Part of that value may be represented as shares in the project (in the form of tokens) and part of it may be cash (in the form of cryptocurrency). That’s complex and usually requires all sorts of documents, contracts and perhaps even notaries. So in that sense, the expectation to make DAOs as simple as installing an app is unrealistic, but further maturing of tooling will definitely make things easier.

Wallets

In order to participate in DAOs you’ll need a ‘wallet’. I recently recorded a 10 minute how-to, that actually turned out to be 30 minutes long, which highlights some of the complexity well.

This wallet allows you to participate on the blockchain utilized by the DAO. It lets you make transactions, interact with smart contracts, send and receive tokens (incl. NFTs), as well as cryptocurrency. It also functions like a single sign-on that you can use to interact with blockchain-based tools, platforms, and communities.

There’s a way around the wallet requirement: you could do things ‘off-chain’ for people without a wallet, which means the organisation centrally records transactions & what people are owed without writing it to a blockchain. Whoever has a wallet can move all their assets ‘on-chain’. Many tools, like Collab.land, already do this by recording your tokens alongside a user ID such as your Discord account until you withdraw them to a wallet that has a blockchain address.

🔮 I expect Facebook to eventually integrate wallets into their offering. This means that people would be able to open a wallet on the social network and be able to use Facebook’s one-click login on web3 platforms too. This will remove a lot of friction from the space (although I really don’t think you should be using Facebook).

🔮 I also expect banks and financial tools like PayPal & Cash App to eventually have wallets for Ethereum & other popular blockchains. They’re already doing Bitcoin.

Gas costs

Shortly after I published my video about how to set up a cryptowallet, the transaction fees (gas costs) on the Ethereum network climbed to around $50. That means that even if you’re trying to perform something that’s free of charge, you may still have to pay $50.

Gas costs have recently been a lot lower, but no matter the sum, it will take education to explain to people why certain interactions require money on an internet where everything has always felt like free. It depends who I’m explaining it to, but I tend to explain that instead of selling your data to advertisers in exchange for a service, you pay the network directly to process your transaction and host all the data. But how does a musician explain this to their fans?

Here, too, doing certain things ‘off-chain’ can help cut costs, but decentralization gets sacrificed.

🔮 Ethereum’s transition to Proof of Stake will help a lot. I also expect ecosystems around other blockchains like Tezos and Flow to mature, which have both found their own ways to keep gas costs low.

Mobile as an afterthought

Mobile phones are the world’s most important personal computer. For most people around the world, they’re the only real personal computer they have access to; that’s just theirs and doesn’t have to be shared.

Unfortunately, many web3 projects highly prioritize the desktop experience. It’s understandable why: that’s the environment in which builders are creating, so especially in this early stage it’s hard to expect everything to be perfect on mobile phones. There’s a thin line between afterthought and neglect however and if we’re serious about onboarding people to web3, we have to do a lot better on mobile.

🔮 The size of the opportunity of making the web3 accessible to the mainstream will drive organisations to prioritize mobile. Currently, a lot of the pieces are still being put in place, but I expect a period of growth to follow especially once some of the other clunky aspects mentioned in this article get ironed out. That’s when the web3 goes mobile.

What does it mean for music?

My guess is we’re about 1.5 to 2 years away from things like NFTs and DAOs going mainstream. The biggest obstacle is user-friendliness. DAOs don’t have to be as easy to install as an app, but right now it will be hard for artists to onboard their audience to a fanbase DAO. While artists with ‘crypto native’ fanbases may be able to gain traction with a DAO, the barriers will remain high for most other artists. What those artists could do is tap into creator economy trends and tooling in order to set up the foundation of their community in a more centralized way and then extend it with web3 aspects that may not appeal to everyone straight away. The same goes for event organisers.

Wait, is Spotify trying to make all musicians creators?

Posted on July 1, 2021 | by Maarten Walraven-Freeling | 1 Comment

Most of you will know that it’s Spotify‘s core mission to give a million creative artists the opportunity to live off their art. There’s a couple of narratives around this:

It’s a lovely goal, but currently only 7500 artists actually make more than $100k per year. Moreover, this means they won’t reach their goal in this century.
Spotify isn’t capable of creating value for the vast majority of musicians, nor can they generate profit through music. Therefore, they focus on audio-first and podcasts because they can create profit through that.

In a recent Means of Creation podcast Spotify’s Chief R&D Officer Gustav Söderström spoke about how all of their creator tools are also aimed at musicians. Let’s unpack what that means and how it can play out.

Audio isn’t one thing

Li Jin starts off with a question aimed at the second narrative I mentioned above. She points out that Spotify’s recent acquisitions and new tools point to podcasters and podcast monetization. Gustav is strong in his response that all of these acquisitions and tools are also done with musicians as part of their thinking. I’m immediately drawn to the oft-mentioned quote by Daniel Ek that musicians should release more music, more regularly. Of course, it’s easy to place these two things side by side. However, if we start to think of musicians as creators, then there might be some truth in the idea of a musician getting value out of a new podcast monetization feature.

Musicians are, in a way, the first creators and, in another way, too bound by their copyright tie-ups to be a creator. For a musicians to truly become a creator means that they need to take ownership of their IP. One way of doing this is by broadening the scope of what that is. The more regular ‘drops’ don’t always need to be finished songs, EPs, or albums. This is sSimilar to how artists who succeed at livestreaming havea regular performance schedule or musicians who have a successful direct-to-fan subscription model create regular content. The former don’t always necessarily livestream fully-fledged concerts, but sometimes just jam or sip tea. The latter do livestreams, offer merch, provide access into their creative process and much more. Similarly, audio isn’t one thing. Currently, for Spotify, it can be live audio in Greenroom, a podcast, a song. And each element can be different things again.

Future audio formats

Before I think about what those different things can be I want to point out that during the podcast Li pointed out that not all creators are the same, they exist on a gradient. In a similar vein, not all fans are the same either.

To accommodate these differences Gustav talks about feedback loops and the importance of having them. They focus on live audio versus time-shifted audio. Both of those seem to focus heavily on podcasting again. A great insight is that looking at the development of live audio has shown that there’s a demand to talk from people (like there was a demand to do video with YouTube and the TikTok or how everyone suddenly became a photographer with Instagram). This demand shows there will be more and more creators as formats change and the friction to create shifts. If we then start to blend the gradients of creators and fans together you can see how tools like Anchor and Greenroom can allow fans to turns into creators.

Yet the same is happening in music with the abundance of creator tools and the changing funnel that creates.

Slide from Mark Mulligan’s keynote at Music Tectonics 2020

What you see here is changing friction ranging from production to distribution. Of those 60,000 daily uploaded tracks, I would happily bet that most are home-recorded instead of created and mastered in purpose-built studios. When musician and fan get together, and whether that’s through Spotify’s tools or something like Patreon, and start to create feedback loops the lines start to blur between creator and fan. Moreover, as they get together artist and fans, or simply fans amongst each other, new audio formats can and will create new formats along the way.

Business models and monetization

Whenever talk turns to Spotify and business models there’s a handbreak moment. Should the company not simply pay more to artists. Of course, it’s more complicated than that. On the one hand, Spotify exists to create value for its shareholders. On the other hand, there’s a line of thought that they can only continue to grow that revenue if they also succeed at creating value for their creators. Content is still king. By claiming that musicians are also creators, what Spotify seems to be doing is pulling those musicians into their ring of creating value through IP and ownership. This has two major benefits:

If IP ownership stays with the creators who then monetize through Spotify, the company has diminishing revenue splits with the major labels
If IP ownership stays with the creators they retain control of what they can do with their music/audio

Spotify’s open platform

Spotify is vocal against Apple‘s walled garden approach. Now, through it’s Open Access Platform they seem to put their money where their mouth is, at least for podcasters. But considering the above, the creators that Open Access is for also include musicians. What it might take, is a shift in format, a different type of audio IP that musicians can start to create, perhaps even with their fans.

Throughout the podcast Gustav keeps reiterating how Spotify kind of wants to be an audio browser. In their ideal world their icon is what you tap or click when you want audio, in the broadest sense of that term. By making the platform behind that browser open (and there’s a similar feeling here that I get with Epic’s vision and design), they allow creators to take their music – if they own the copyright to it – and spread it out while having various monetization strategies ranging from ads to subscriptions and royalties.

Abundance versus scarcity

Spotify’s business model, and that of the recorded music industry in general, is all about abundance. We expect all music ever created to be available for a small monthly subscription fee. Yet, there are opportunities abound to create scarcity. From exclusive subscription models to NFTs, there’s plenty to optimize. In the end, it’s all about price discrimination and there’s two ways to do that.

Bundling brings together all music into a single subscription. Bundling often has a negative connotation, but it allows maximization of revenues by letting people pay small amounts for many things with a single fee.
Unbundling then allows maximization of revenues for a single asset or service. There can be a negative connotation here too, for example the unbundling of the hook from the song through new formats such as TikTok videos.

Going back to those gradients of fans and creators, it’s important to focus your strategy when it comes to price discrimination. Spotify has achieved massive scale through its bundled offer. Now, creators can use that scale to offer unbundled access to anything ranging from a live audio chat to paid subscription. The latter assumes that platforms like Patreon will also integrate with Open Access, but I feel that will happen.

Another benefit of unbundling is that it creates scarcity, the value of which has shown in the recent music NFT boom. Perhaps more interesting than the sheer value of scarcity, what the blockchain allows is for cooperation. In other words, many of the things discussed above could easily be transposed to blockchain-based solutions and protocols. While Gustav expressed personal enthusiasm about this prospect – he talked about it in the form of cooperation on a non-trust platform – he did not indicate any movement in this space from Spotify.

In sum

While Spotify remains beholden to the major labels, their sheer scale now allows them to experiment without immediate fear of upsetting their main partners. At the same time, it still seems that if they want to turn a profit they will need to continue to work on ways to diminish their revenue share to those major rights holders. It looks like they want to do this by creating an open platform where creators can keep their own IP and monetize it. At first glance, this seems like a move designed for audio creators only, but Spotify seems adament that musicians should be part of that group. The crude reading of that is that it’s a play to help reduce their dependancy on the major labels by getting to deal with more, and smaller, IP owners. The positive reading is that this is another opportunity for musicians to move away from the old-school music industry and step into a world where they do, indeed, retain full ownership of their work and the accompanying copyrights.

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