Earn Money Because Of Your Music, Not From It Part II

Nine Inch Nails @ Independent Days Festival 2007

Photo Credit: Uglynoid

The basis of using Complementary Goods in you career relies on the understanding of complimentary and substitute goods. Below I explain it in context to the old and new music industry.

In relation to the original work, usually a song recording, a substitute item is something that can replace the original usually for a lesser value or cost to the consumer.

Examples include mix tapes, mix cds, and more recently the internet and file sharing; all as substitutes for an original Album or CD.

In relation to the original work, a compliment or complimentary good is something that economically completes the original work. “A decrease in the price of one, leads into the increase in demand for the other.” (File Sharing and Copyright, 2009).

Examples include merchandise and gigs tickets.

If you look at gigs ticket prices over the last few decades they have been steadily on the rise. The demand still remains, which suggests the consumers are more than happy to pay more.

Substitute Items

If your music is downloaded without your authorisation (i.e. ‘illegally’), then the consumer has obtained a substitute item for you record. By which I mean, the mp3 they grabbed from The Pirate Bay takes place of the CD you are trying to sell.

If they considering the mp3 to be as good as the CD, or good enough for them (compared to the option of purchasing the CD) then odds are they will keep the substitute.

A 2005 survey by Oberholzer-Gee and Strumpf reported that 65% of respondents acknowledged they did not buy an album because they had downloaded it. However 80% claimed they had paid for at least one album because they had first heard the music by downloading it.

What these figures suggest is that yes, a very large portion of people will in fact go and buy an album after hearing it if they like it. But it also throws out what is on the surface a scary figure that 60% of people were happy with the substitute they obtained via the internet.

As I said though, on the surface that is scary. If you dig deeper it actually becomes rather exciting. For you see, if someone discovers you from a less than desirable source and decides there copy is good enough for them to not purchase your music, you potentially may have lost a sale (assuming they could afford your music) - you've still gained a fan. Which is potentially more valuable than one sale.

Complementary Items

By allowing your fans easy access to your original work, or a reasonable substitute you let them become familiar with it. If they like it, they will, as statistically proven above, search out and compensate you for it. It is the nature in which that compensation comes that completes the Complimentary Economic Model.

In this case, your song/album is a complementary album to you gigs and merchandise, and vice versa. So if we follow the concept of complementary items by increasing the demand for your songs/albums you also increase demand for you gigs and merchandise.

The successful formula is this:

(Decreased price + higher availability = Increased demand for albums) = Increased demand in gigs and merchandise

This doesn’t mean you have to give you music away for free though. You have to decide how much potential profit you are willing to lose on your albums to generate enough demand for your gigs and merchandise.

You could essentially give your music away free and create such an enormous demand for it that your gigs in turn sell out. As happened to Prince in Britian in July of 2007.

Prince gave away 2.8 million units of his most recent album for free by bundling them with The Mail on Sunday. The The Mail on Sunday paid a 36-cent licensing fee for each CD. As such, Prince earned approximately $1 million in licensing fees and in turn, sold out 21 August concerts in London which grossed $23.4 million (a record for the region). (The Mail on Sunday also increased its circulation by 20% for the day.)

http://www.wired.com/techbiz/it/magazine/16-03/ff_free

You of course, don’t need to be so high profile or have that much capital to achieve the same level of success. Prince succeeded because he created such a demand for his music that everyone had to get a copy. If its free they have nothing to lose, but everything to gain.

After everyone had a copy of his latest album, naturally he would have been a hot topic spurring Organic and Synthetic growth. Such a big demand in one good complemented the other (gigs) by increasing the demand.

The next post in this series will explain what you can do to create demand for you music in order to complement your gigs and merchandise.