Original URL: http://www.theregister.co.uk/2007/03/21/steve_gordon_myspace_maths/

Does MySpace really help artists?

Doing the maths

By Steve Gordon

Posted in Media, 21st March 2007 12:28 GMT

Column The Long Tail theory posits that the infinite shelf space made possible by the internet enhances the market value for "niche products". In the case of the music, that means indie artists. Unfortunately, the real benefit of the Long Tail flows to the distributor, not the artist.

MySpace's plan to allow indie artists to sell downloads is an example of how vendors can use the Long Tail to make money. Too bad it won't help artists very much.

The indie artists of MySpace may each make $10, or $100 or $1,000 for an entire year. There are an estimated 3 million artists actively using MySpace, and if each averages only $100, that's $300m. If MySpace takes a chunk of that, and it does - MySpace and SnoCap, which handles the back-end, share a 45c transaction fee for every download - that's a nice return. Assuming the average download is 99 cents, MySpace and SnoCap will make almost $150m.

And this doesn't even include advertising revenues. Meanwhile, the average artist will only get a little more than $50 bucks.

Similarly, aggregators such as CD Baby and Orchard also take a percentage from each sale. CD Baby only takes a nine per cent commission; the Orchard does not make its commission public. It distributes indie music to hundreds of online music stores and an increasing number of mobile providers. These are honourable businesses which account to artists fairly and promptly. They also provide distribution to prospective music customers throughout the world. And without them, particularly CD Baby, many of these artists would never receive any distribution at all.

But without a great deal of promotion and marketing, it's virtually impossible for an artist to be noticed and make significant income because of the tidal wave of music now available online.

Notwithstanding the disadvantages facing artists who use aggregators to get attention for their music, the traditional business model was even worse for artists from a financial point of view. Under the standard recording contract, the average artist only receives around 10 per cent of retail and this is before standard deductions including up to 35 per cent for packaging.

Even worse, the artist doesn't see a dime of recording royalties until the record company "recoups" recording and marketing costs. Since they recoup at the artist's royalty rate - generally less than a $1 an album after all the deductions - the artist doesn't see any recording royalties unless they sell a massive number of units.

Yet without the huge marketing and promotion machine, backed by massive spending that only the major labels continue to provide, how can artists succeed?

What we can learn from artists

Perhaps we can learn from Tila Tequia, a MySpace celebrity who currently has 1.7 million friends on the site. She is releasing her first track exclusively on iTunes.

Reportedly, Tila Tequila turned down two offers from record labels in order to make the deal with iTunes because, as her website states: "Having absolute control over the kind of music she released and how she was portrayed was more important than being part of the system."

Tequila will not have to split her royalties with a record label and can receive a greater percentage of the proceeds than if she used an aggregator. The track, I Lov U was produced by famed rap producer Lil Jon, and the video for the track will be available for free on iTunes for a two week window.

This artist has been able to do her own marketing online and make herself a brand without using a major record company, one that would take her sound recording copyright and pay her only a small royalty. And she is now able to distribute without the help of the aggregators, because iTunes is eager to help her sell her music although it usually does not deal with indie artists directly.

Another distribution model that artists can use is exemplified by Jeff "Tain" Watts, the Grammy winning American Jazz musician. Tain has just completed recording an album, Folk's Songs for less than $15,000. He has an established fan base including Europeans and Japanese jazz aficionados, and commands $100 a head for his live performances. Tain will be doing email blasts and advertising the new album on his website and MySpace page, and may sell by download on his site.

Here's the kicker.

Tain only needs to sell 1,200 full albums at $12 a download (or 1,500 at $9.99) to recoup his production costs. Additional sales represent pure profit. The labels have been widely vilified for giving us generic boy bands and teenage girls who can hardly sing. For her part, Tina Tequlia does not exactly look to be the next Miles Davis. So perhaps the internet, similar to the majors, will service the lowest common denominator, at least in terms of artists who achieve commercial success.

But at least this way, the artists will be getting the money instead of their record companies. ®

© Steve Gordon 2007. Steve is an entertainment attorney and consultant in New York, and the author of The Future Of The Music Business. He was Director of Business Affairs, TV and Video at Sony Music for ten years. His website is at www.stevegordonlaw.com.