Business benefits of Twitter deserve consideration
April 4, 2008

Kiruba Shankar: Business of free music

While the music industry is playing ostrich, a few music bands are smartly embracing the internet by giving their music away for free… and in the process, making money!

In 1998, major music companies worldwide earned a whopping Rs 1,52,000 crore ($38 billion) in revenues from sales of music. Ten years later, in 2008, that revenue will halve to Rs 68,000 crores ($17 billion). The reason? Well, it’s the free exchange of music over the internet… something that all of us have done one time or the other.

A report from Jupiter Research states that for every song that is legally bought, about 100 songs are illegally exchanged over the internet. About 94% of the folks surveyed have vehemently stated that they dislike paying for music.

Sadly, the music industry doesn’t seem to be realising the trend. They don’t realise that it’s very difficult to compete with free. Fortunately, some smart music bands have sensed the pulse and are going with the flow. What do they do? They give their music away for free.

This week, Nine Inch Nails, a music band that I haven’t heard of until recently, released their album Ghosts I for free on their website. What followed was tremendous online buzz. In the week alone, over 800,000 people downloaded their music.

What follows next might surprise you. They ended up making a direct profit of Rs 6.4 crore ($1.6 million) in just the week alone. Isn’t it ironic? How can a music band make money when they are giving their music away for free?

Here’s how. While they had a free download option, they also gave a choice to their users. For Rs 200 ($5), users could go to the Amazon store and buy all the four digital albums instead of just getting their first album free. For Rs 3000 ($75), you can get two audio CDs, one data DVD with all 36 tracks in multi-track format, a Blu-ray disc in high-definition stereo and two hardcover books. It appears there was sizeable interest from people willing to pay money. Rs.6.4 crores in one week isn’t too bad!

But that’s not the real benefit.  The biggest benefit is the positive buzz and publicity for the band. A quick search in blog search engines like Technorati and Google will show so much is being talked about this band. Companies would kill for such kind of positive buzz for their products. They gained a lot more new audience which can be very vital for the success of their future music productions.

Another popular rock band, RadioHead, cancelled their contract with their music label and gave their new album In Rainbows for “whatever price you are willing to pay”. That’s right. They ask you to name the price you are willing to pay for the album and yes, it includes ‘free’ as well. Guess what? They ended up making an estimated Rs 24 crore ($6 million) in sales.

This reminds me of the volunteer-run South Indian restaurant called Annalakshmi in Chennai who chooses to remove the prices on their menu on their founder’s day. They say, “You can eat whatever you want and pay as much as you like”. Interestingly, the restaurant’s collection on that day is twice than on any other normal day.  How do I know? Because, I used to volunteer at this restaurant.

I wish the music industry woke up to reality. There are some naysayers who argue that both the bands, Nine Inch Nails and RadioHead, lost millions of potential dollars because they gave their music for free. What these people don’t get is that just because someone downloaded their music for free does not mean that he or she would have paid for it. This is an audience who prefers NOT to pay. Instead of letting them rip the music illegally off torrent sites, the bands make it easy for them and in return they earn their goodwill, loyalty and support, something that’s vital for any successful music band.

Now, Nine Inch Nails has tied up with YouTube to let their fans use their music for videos that they create. Great buzz marketing technique. It’s customer engagement.

It’s no surprise that both these bands top the charts in Amazon’s MP3 store. Being on this elite list means even more sales. And to think all this started when they decided to give it all away!