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January 27, 2014

Beware the trap of fixed ongoing service fees - Mouthzoff column

This is my sixth column for Mouthzoff magazine. It was published in September. This topic doesn't seem important to a lot of Indies, who just want as much cash as they can get quickly. But it's vital to make smart choices about this issue to build a sustainable career with credibiity as well as ethics.

Last edition I wrote about technologies that can help artists build and manage their music business. There are plenty of these, and I highlighted several that are fundamental to building a music business: social media, email management, a gig guide, and an online shop.

There are too many organisations offering these services for me to catalogue and discuss them here. But they broadly fall into three categories: ones that are free or open source, ones that charge a fee to help you out, and ones that offer a limited version for free but then charge when your needs get beyond a certain size.

Similarly, when it comes to paying for these services there are almost as many variations in fees structures as there are service providers. Some are great and cheap, some are great and expensive, some are not worth paying and some are downright shonky. It's up to the artist or band to do their homework and choose carefully.

However, in Independent music land, there's one important ethical consideration to bear in mind when it comes to choosing which services to hire: some of them are geared to share your risk and grow with you while others insist on taking up-front fees and leaving you to sink or swim. This is most obviously seen in the digital distribution fee structures of Tunecore and CDBaby.

As at the time of writing, Tunecore is a digital-only distributor and charges a flat $29.99 per album for the first year and $49.99 each year thereafter ($9.99 per single). Their main sales pitch is that they do not charge a commission on digital income - the artist gets to keep 100% of the income they generate.

CDBaby charges a flat, once-off $49 per album release ($12.95 per single) to set up the shop page, plus $4 per copy (CD or Vinyl) sent to a customer and 9% of digital distribution income. Both companies ofer various options and extras, but that's the basic package for their distribution services. All figures are in $US.

The most important difference in this the percentage charge CDBaby takes from digital sales vs the flat annual fee Tunecore takes. Essentially, this means that, after initial setup costs have been recovered from either service, CDBaby will pay the artist something for every sale, while Tunecore will pay 100% of every sale over a fixed amount every year. In other words, CDBaby will share in a Muso's sales outcomes - good or bad - while Tunecore will only help them if they exceed a certain size. Then they give the artist all the proceeds.

The Tunecore approach sounds appealing to the ambitious-but-inexperienced Muso right up until they realize that most releases will NEVER exceed Tunecore's threshold amount and thus the artist will make nothing from them. On the other hand, those using the CDBaby approach will at least make something.

Tunecore are not the only ones who use this flat annual fee. In fact, as far as I know, CDBaby are the only digital distributors who take a percentage. Although other companies are willing to take a percentage - and thus share in the artist's risk -for other services, it is a constant disappointment that this structure is not used more widely and the Independent music community are worse off because of it.

The other important aspect of this equation is that musical releases do not sell a consistent amount every year. They sell very few at first, then grow for a while and then tail away to sell very few for the rest of their time. This is called the "product lifecycle" and this means that even a release that sells very well for a while will spend most of its lifecycle selling below the annual fee threshold. The artist will lose money every year that release is available but selling below the fixed amount.

More important than the math is the ethical position: CDBaby has adopted the view (as I discussed with Derek in 2005) that they will share Independent Musos' risk and make more or less money as their artists do. Tunecore and other companies do not. It is essential for small-but-growing Musos to work with services that share their risk wherever possible because that works best for the artist, the service and the community as a whole. Personally, when the good times roll in I have no problem rewarding the company that has at least given me something when sales are not so good.

The lesson? Musos should seek out services that will share their risk and their rewards wherever possible. The flat-fee approach works well for a finite service like a marketing campaign for a release but should be avoided where it requires a commitment to ongoing fees. It also means independent artists need to have back catalogue available that will also sell when their new material is released - but that's a topic for another column.

Posted by DrHuge at January 27, 2014 1:42 PM

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