Long Tails and True Fans and my theory

I mentioned a few days ago an article written by Kevin Kelly, about the new revenue model for this-generation artists: what’s being nicknamed as “1000 True Fans.” The gist of it is this, in Kevin’s words:

Assume conservatively that your True Fans will each spend one day’s wages per year in support of what you do. That “one-day-wage” is an average, because of course your truest fans will spend a lot more than that. Let’s peg that per diem each True Fan spends at $100 per year. If you have 1,000 fans that sums up to $100,000 per year, which minus some modest expenses, is a living for most folks.

This goes up against the grain of another popular distribution and business theory that’s been kicking around the ‘net for a few years now (fitting, as the internet is exactly where this sort of model thrives, as keenly noted by my friend Colin): The Long Tail.

The theory is this: if you were to model a demand curve for a certain market, like books or movies, there will be some products that garner a lot of attention (your Godfathers or Kite Runners or *shudder* The Secrets), but also a “long tail” of niche-based demands (your Faster Pussycat Kill Kills and Night on Earths and Complete works of Charles Bukowskis, for example). The Long Tail takes an 80-20 split: looking at the top 20% of titles (the “hits”) versus the rest of the titles (the “long tail,” or “niches”). Used to be that resource restrictions like space and inventory would force most conventional stores to cater primarily to the safer 20% “hits” sector, leaving the other 80% “niches” by the wayside. Now, due to the myriad of technology improvements seen in the past ten years, companies like Amazon and Netflix and Apple’s iTunes can do good business by catering to the niches of the world, and for good reason: research suggests that with a large enough market (such as the world’s online demand for music and books) the 80% actually takes up a substantially larger part of the whole than the top 20%. To translate that to the True Fan theory, this could mean finding the right balance between being a long-tailer and a superstar, right on the cusp of that 80-20 split. For more on this, see Kelly’s article.

The Guardian in the UK recently posted a rebuttal to Kevin Kelly’s theorem: the article, written by economist Will Paige, criticizes Kelly’s simplicity. Paige notes that this theory doesn’t reconcile a lot of the realities of the music business. For example, this $100,000 in raw income (1000 fans x $100 a year) does not incorporate the costs of doing business in the entertainment world: sure, fans may be willing to pay $100 to an artist in a given year (I’m pretty sure I’ve done that with Tom Waits, for example), but how much of that does he see? Let’s break it down.

- Let’s say I see Tom at a show (which is super rare). I pay $45 to “him.” But that $45 doesn’t go to Tom’s wallet. It gets taken into a pool of revenue gathered from the show, and from that all of the expenses of the show are taken out of (Tom’s flight and hotel and dinner and the cost of the venue and so forth). Now, Tom will probably get some sum of money up front plus a backend on the profits. Let’s say he’s walking out of here with a $50,000 guarantee and 50% of the backend (he probably could push for double that if he wanted, but he’d also be splitting that with his band if he’s nice, so let’s leave it at that). In a 2000-seat theater that’s $25 per head. Factor in another $30,000 in expenses ($15 per head), and that leaves $5 to split 50/50 with the promoter. Tom leaves with $27.50 out of my $45.

- I buy a used vinyl copy of “Swordfishtrombones” for $5. It’s a secondary market, so he doesn’t see any of that money. Not judging on whether or not that’s fair – just telling you how it is. $0 to Tom.

- I buy “Rain Dogs” on iTunes – $10. I know the actual splits on this one: $3.15 goes to iTunes, $5.75 goes to the record company, and $1 goes to the publisher. Tom will probably get 50 cents from that dollar given to the publisher, and perhaps $2 to $3 from the record company (unless, of course, his album didn’t recoup, in which case all of that money goes to the record company). $10 from me turns into perhaps $2.50 to $3.50 for Tom.

- I buy a Tom Waits shirt at that show. $20. Tom gets most of this money, less the $1 it took to make the shirt and the 20% cut the venue will take from selling the shirt at the show. $15.20 to Tom.

- I buy a “Orphans” on CD for $20. His record company uses most of that money to recoup as well, and, without belaboring this example, you can expect Tom to walk away with about $1.25.

So there you have it – $100 from me translates to around $47 for Tom. Some costs of doing business are incorporated here, but you can bet there would be others as well, so don’t expect that $47 to be all profit, either. For example, did Tom need a manager? A lawyer? A road manager? You’d be hard pressed to find any of these folks to work pro bono (save maybe me, who would relish the opportunity to work with Tom Waits).

Now, I disagree with some of the points in Paige’s article. He seems stuck thinking about old artists in his new artist model – this 1000 true fan notion doesn’t apply to Kiss – clearly they could not and would not do this. But there are thousands of bands out there that would find this most desirable. This is where Long Tail also applies – looking at it now not as the market for “music” but the market for “any given band” – there’s going to be a tail of people who are fans for a certain, small group. There are a couple big-picture thoughts that come out of this which Paige neglects.

The methods of revenue for an artist are changing. Paige uses a lot of “old guard” models in his dismissal of Kelly. But The modern artist is (or at least should be) less interested in scoring a major-company record deal, and instead puts more content out there on their own. Now those iTunes splits are looking like $.70 instead of $.25 per song, the records and CDs only factor in costs of production (which can be steep, but not as steep as they used to be), and world marketing becomes easier: sites like iTunes and Amazon serve most of the world online, and instead of hiring marketing firms and ad agencies, use MySpace and Facebook to reach out to some of those “True Fans” to have them put up your posters on the street; make yourself available for blogs to write about you, rather than these shady payola schemes.

And let’s not forget new income sources. Web royalties, advertising, and modern licensing deals – there’s a lot of ways an artist can score big money, that we’re only starting to figure out.

Granted, I don’t see too many superstars coming out of this model, but the bands that do will have a healthier and leaner business surrounding them. No need to absorb the large overhead of record companies; a manager, an agent, a lawyer. Two of these three work off percentages on earnings anyway. If an artist needs more people, get them on board conditional to success. Avoid advance/recoup deals and the artist won’t feel the pains of a large overhead.

As for my theory, I see the true income sources for an artist as a hybrid of both Kelly an Paige. Alright artists, heads up.

Imagine a split of three sources: Niche Fan / True Fan / Big Deals. You will need to put their stuff online and out there in a variety of ways to cater to the Niche Fans: those who will spend a few bucks, maybe come to a show, and then be on their way. There’s no way of really knowing where they will find you, so make it easy for them. Get yourself on some cool blogs, and encourage artists to link up to your iTunes or Amazon content. Remember the Long Tail when considering your own demand – these buy-the-single-only sorts do amount to a lot when considered on the world scale. With the virtually nil degree of variable cost, it seems foolish to not suggest including them.

Cater to the True Fans. Kelly may be wrong in saying they will be your only source of income, but they are significant in a way Kelly only passively mentions. They are your goodwill; they’re your prizefighters, your champions, your net promoters. Make them feel special. Fan clubs and email lists and exclusives do help, but make sure and give them a lot of quality stuff to consume. Sorry, Artist of Tomorrow – no resting on your laurels.

And the third angle, which has not been considered up to this point: don’t forget about working with other professionals. Licensing deals can be a lucrative source of revenue, so hire someone to try and put your product out there on TV, movies, video games, whatever. Don’t forget their Long Tail, either. Perhaps its better to let your songs be in a bunch of niche movies than trying to land in that Scorsese film (though I’m sure it wouldn’t hurt, should the opportunity present itself).

And a free thought for someone who has a little more time to enterprise on this matter. If one could capture the modern economic needs of all artists which fall in this lower-80% tail and become a destination to facilitate a variety of revenue streams for the niche artists of the world without all the screwing associated with old record company models, that’d be quite something. TuneCore comes to mind as a company that’s starting on this road, and I have to say – it’s very exciting.