Stack Them High, Sell Them Low: Can Creators ‘Get Lucky’ By Selling Merchandise?

Spotify has recently announced the ability for artists to offer merchandise to fans through their platform without taking any commission. Is this a valuable opportunity for creators or, as some have claimed, simply a cynical attempt by Spotify to improve its sometimes shaky relationship with artists? Is merchandising actually useful as a source of revenue?

All sorts of goods have been offered for sale by creators over the years. The American band Kiss has sold coffins; Boy band One Direction have their own line of toothpaste and toothbrushes; and recent Grammy award-winning band Daft Punk last year released a range of condoms packaged with the distinctive art of their hit record “Get Lucky” (although, as one commentator noted, they missed the golden opportunity to brand after their song “Harder Better Faster” instead ). The opportunities are endless.

When done well these offerings can make huge sums for their original creators. Pixar, for example, produced a follow up to their animated film Cars on the back of an estimated US $10 billion in revenue generated from merchandise associated with the first instalment. Even smaller movies such as the Australian work Beached Whale have been able to raise over US $2 million through such channels despite being made on a budget of only fifteen Australian dollars and being freely distributed on YouTube. With the decline of traditional revenue streams, such as licensing, merchandising is only likely to continue to be an important part of monetising works such as animation. Indeed capitalising on the market for merchandise will arguably be critical to long term success: it can even make money from beyond the grave!

This is not a new concept. For generations musicians have sold t-shirts and other goods at gigs while many museums over the years have found that free access to their collection can be offset by revenues gained from selling merchandise in the gift shop. Merchandising has long played a part in the business models of creators from across the spectrum of pursuits.

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Available under CC BY-NC-ND 2.0 by Christopher S. Penn

It has however become an increasing topic of discussion in recent years as the traditionally dominant revenue streams in some industries have dwindled. The recorded music industry in particular has seen increased attention paid to merchandise as falling record sales have been met with an increase in record labels signing artists to so called ‘360 degree deals’: deals in which the label takes a share of a several of their artist’s revenue streams rather than solely record sales. Merchandising is often included.

These kinds of deals leave the signed musician in an uncomfortable position. While the record labels see ‘360 degree’ contracts as a partnership with artists for mutual benefit it can be argued that for many artists they are not a good idea. Merchandising is one way in which a band can compensate for the fact that record contracts rarely provide the band with much revenue. Giving the labels a slice of merchandising revenue on top of the traditional record sales can therefore erode musicians’ earnings.

This is only compounded by the fact that the sums raised from merchandise do not appear to be large to begin with for most artists. Some studies have found that as few as five percent of musicians are able to earn more than a tenth of their income from the sale of merchandise and it seems clear that merchandise, while a nice bonus, simply doesn’t earn enough to play the bills for the majority. To lose a portion of this already meagre income may be painful.

One Direction Merchandise

Not all merchandising is this successful … Available under CC BY-SA 2.0 by Eva Rinaldi

In other sectors creators may even need to think carefully about whether some types of merchandise can be useful at all. For traditional visual artists, for example, the sale of merchandise may harm more than it helps. If merchandise bearing an image of an artwork is sold in close proximity to the original work sales may be cannibalised: Replicas can be a substitute for the original for some. If not carefully thought through therefore some types of merchandise may actually lose a creator money.

Even where selling merchandise doesn’t make an artist rich however it can still be worth doing. Merchandise can play a significant role in the building of a brand around a creator and their works and thus can benefit their career overall even if it contributes little financial return in the short term. A creators’ brand can have a big impact on their chances of success and some industry players have even gone so far as to argue that it is an essential consideration.

Overall therefore it appears that merchandising has many upsides and few downsides. While for most it may not prove to be a huge earner it can help to grow a brand and, if carefully thought through, will likely contribute at least a small increase to net revenue. While it is possible to assign cynical motives to recent efforts by Spotify to allow the sale of merchandise it therefore nonetheless offers a valuable avenue for creators to exploit.

DRMs: Securing Copyright or Invading Privacy? A Music Industry Approach.

By Guest Blogger: Jesus Manuel Niebla Zatarain

Is DRM really the answer to the need to strike a balance between the protection of a creators’ copyright and the interests of the consumer? Is it a good option for creators? A brief look at the history of DRM in the music industry highlights some concerns …

There are few human creations that have had such a huge impact on everyday life as the internet. It has reshaped the way we see the world, making it smaller, more connected, and providing an electronic highway that has allowed human creations to be shared with a wider spectrum of people than ever before. It has been used to provide access to a broad range of services such as e-mail, electronic transactions, educational sessions, and even government services.

The impact of this digital shift was also embraced by a number of content industries including the movie, music, literature, and video games sectors. As access expanded so too did both the number of potential clients and available business opportunities. As a result, and within only a short period of time, many providers moved from solely selling their products through physical devices to selling them in digital forms also.

However the initial implementation of digital technologies lacked a proper means to deal with the unwanted aspects of the new distribution channel. Chief amongst there was the proliferation of unauthorized copies – more commonly referred to as digital piracy. Several industries quickly came to realize that implementing digital sales channels may, in actual fact, turn out to be prejudicial to their businesses if it was not possible to find some way to limit the spread of illegal copies.

The music industry however arguably failed to adapt to this new technological reality in a timely manner. Experts state that the music industry hesitated when presented with the realities of the new situation and did not take a definitive position in relation to the online market early on. This made it an easy target when it came to accessing and distributing their material illegally.  The lack of a coherent security strategy prevented the music business from being able to make an efficient stand against illegal distribution. Instead the industry, with misplaced confidence, relied on their belief that that illegal copying would soon become controlled and that, as was the case in the previous vinyl and cassette era’s, the quality of the original products would continue to be superior to that of the illegal copies.

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Available under CC BY-SA 2.0 by g4ll4is

Indeed before the arrival of Compact Disks (CD’s) the making of unauthorized copies was much less convenient due to the amount and size of the equipment needed to do so. CDs changed this as they meant that practically every person that owned a personal computer owned all the necessary equipment for creating copies (see p.7-8).  This brought about a late attempt to increase the security of music distributed on the Internet in order to counteract the ease with which consumers could take such music and produce potentially unlimited perfect copies of it on CDs.

The growth of P2P networks and the mobility of the servers however made preventing the dissemination of files almost impossible to accomplish once they were in the wild. As a result, and after dealing with several different positions, music industry managers decided to adopt an approach centred upon preventing the file from being copied in the first place. With no copy, the logic ran, there would be nothing to distribute. To this end tools based around the concept of a digital ‘lock’ were developed to help defend creations against unwanted uses. Such tools were known as Digital Rights Management – or DRM for short. The expectations surrounding these technologies were initially very high, with authors such as Samuelson stating that: “Copyright industries are hoping that digital rights management (DRM) technologies will prevent infringement of commercially valuable digital content, such as music and movies”.

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Image placed in the public domain by Operation Payback

However this new security approach had setbacks from the very beginning. In addition to being technically ineffective, customers were unhappy with the boundaries that the technology imposed upon them, complaining that the technology was limiting their use of the product. DRM technologies restricted, for example the number of times a file could be transferred, played, or even the devices with which it was compatible.

The FairPlay DRM, attached to songs downloaded from Apple’s ITunes before 2009, serves as a good example of the issues that many consumers had with the concept. The system worked by creating a key that authorized the user to play the file that had just been purchased. This key identified the system on which the file was downloaded and allowed the DRM system to keep track of how many times the song had been copied. As Persson and Nordfelth state this approach limited the number of times a user was able to distribute the file (up to five times) – much to the displeasure of many consumers. Furthermore it only allowed these music files to be played on Apple devices, locking out users of other manufacturers.

Along similar lines the Open MG system, designed by Sony BMG to protect the audio files downloaded from its store, limited the playback of the files to Microsoft Media Player, Sony PCs, and Sony music players. In order to be played on Linux systems such as Red Hat or Fedora the file needed direct authorization: it could not be directly installed in the same way as it could for consumers using Windows. Some consumers therefore faced hurdles to the use of their legally purchased songs.

Music_Pirate_by_Skullyvan89

Available under CC BY-SA 3.0 by Skullyvan89

Over and above the consumer backlash, these DRM implementations also suffered from several fundamental design flaws. Firstly, they were based on the concept of ‘checking in – checking out’. This however proved to be a very risky approach from a technical perspective as it left the hosting PC vulnerable to attacks by any moderately-competent programmer. Moreover, such implementations were not able to identify corrupted files making it not only highly insecure but also unlikely to be maintained by the customer. Some DRM implementations caused the crashing of users’ operating systems and even allowed in instances the creation of illegal software entries that could be used by hackers to gain access to personal information.

Overall therefore it can be argued that not only does the framework of today’s DRM lack effective protection for works but that it can also be considered intrusive and can damage the client-producer relationship that is at the base of, amongst many others, the music industry. DRM can also be considered a security hazard due to its deployment of software on the users system which may introduce back-doors and vulnerabilities that would otherwise not be present. For creators therefore DRM offers few upsides: incomplete protection is combined with consumer irritation and security issues.

DRM systems can also be challenged on the further basis that they do not allow the user the full use of their permitted exemptions with regards to copyright. As the Americans would say – it restricts fair use. Users who wish to make a copy of the work for perfectly legal ends – such as to create an accessible copy for visually impaired persons – are unable to do so by DRM systems that cannot distinguish legal copying from illegal. As a result it can be argued that it would be beneficial to consider whether legal adjustments are needed in order to ensure that DRM technologies achieve a better balance between the rightful protection of creator’s copyright and the interests (legal and otherwise) of consumers such as music buyers.

 

Crowdfunding The Revolution

Once described as a revolution in funding, crowdfunding has now grown to the point where it is being used to fund revolutions itself. But is it always a good option for individual creators?

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By Villa Giulia, Public domain via Wikimedia Commons

While crowdfunding has arguably been around for generations it has shot to particular public attention in the last few years. It has gone from being described as a quiet revolution in business to funding political revolution in the form of a recent full page advert in the New York Times protesting the Turkish government.  Projects have been set up for aims as diverse as ensuring accurate reporting of controversial court cases and sending struggling artists to perform at the Edinburgh Fringe. Crowdfunding is becoming popular.

And it’s easy to see why. With the persisting financial crisis, entrepreneurs and smaller businesses have often found traditional sources of funds to be lacking. Crowdfunding has proved an attractive alternative: last year alone, over U.S. $2.7bn was sourced from backers to fund over a million successful projects. Some even raised as much as a hundred times their initial goal. Raising money from the crowd can allow individuals to start small with greatly reduced start-up costs while at the same time allowing them to retain creative control of their works. Without large investors exerting control over intellectual property rights crowdfunded artists are often able to choose freely whether to monetise them or give them over to the commons.

From the perspective of business models, crowdfunding efforts break down into three broad arch-types: lending, donation, and reward. The first of these, lending, is the one that most closely resembles traditional funding opportunities. However this route can often prove extremely difficult in practice, particularly for the individual creator. Offering shares or securities in return for investment is a complex and legally regulated field and while it is possible to arrange crowdfunded investments within this framework individuals in particular may find it challenging to make sure that they are aware of and comply with all of the necessary laws without resorting to expensive legal help.

It is unsurprising therefore that creators have turned predominately to the donation and reward approaches. The donation model is straightforward – the project is funded through contributions from backers who receive nothing in return other than the success of the project. While this has proven the most frequently used model to date there has also been significant use of a rewards based model whereby the backer receives either a financial return of their investment with interest or, more frequently, goods such as a copy of the finished work.

These approaches offer advantages to creators that extend beyond simply gaining funding. A successful funding campaign demonstrates the market value of the idea and the creator behind it to future investors, generating information about the audience and demand for the project. In addition, involving the backers in the project helps drive publicity and awareness of the creator and can help the creator to involve their audience and engage them with the creative process. Increasing fan investment in the community in this way can only help in the long term.

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(c) 2013

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(c) 2013

 

 

 

 

 

 

Therefore, as a source of capital in these cash starved times, crowdfunding can offer an attractive prospect to budding creators. But is it all as good as it seems? The potential for a successful campaign to improve a creator’s reputation is matched by the potential for an unsuccessful campaign to damage it. Over half of the projects on the largest crowdfunding site Kickstarter do not meet funding goals, often by significant amounts.

Indeed people often join projects only after it looks like they will be successful. In addition, some categories of projects are more likely to be successfully funded that others: videogames for example receive as a category six times the investment as other types of project, but very few of the extremely successful projects are in fields where individual creators predominately work. While crowdfunding sites that are more suited to creative endeavours and which specifically target the arts exist, the amount of funding available on them to date is a fraction of that available from the largest sites. The massive funding seen in some projects may simply not be obtainable, and even unnecessary, for some individual creators.

Crowdfunding campaigns also take a lot of time and energy – more than many creators realise. In order to be successful at crowdfunding, creators need to: put together a polished pitch; manage communications with backers; keep track of finances and funding allocation; and, motivate pre-existing communities of supporters to get the best chance of success. For individuals, keeping track of all of these aspects on their own can present a huge challenge. However, failing to meet it can lead to upset backers and a damaged reputation that few can afford to ignore.

While crowdfunding offers a valuable tool for funding creative endeavours it doesn’t offer a magic bullet to solve the perilous finances of many creators!