That’s according to Topspin CEO Ian Rogers, who disclosed the ratio at SF MusicTech Summit.
“Physical is 75 percent of my business,” Rogers relayed as part of a broader discussion on physical sales.
But what is ‘business,’ exactly? In a follow-up email, Rogers told Digital Music News that the 75 percent figure does indeed refer to actual revenues – meaning, dollars. In terms of actual units sold, the digital-to-physical ratio moves towards 50:50. Here’s the ratio Rogers offered:
By volume: 50/50 digital/physical
By dollars: 25/75 digital/physical
Rogers further noted that this is not a sudden blip; rather, the ratios have been remarkably steady. This is what Topspin cofounder Shamal Ranasinghe presented at Midem – in 2010.
But there’s an important clarification here. The slide compares digital-only to ‘includes physical,’ which means that the physical side oftentimes means a bundle with some digital involved. On that point, Rogers noted that physical is the main attraction for these bundles, with digital the sweetener. “I think it’s accurate to say the physical good is the primary driver of the increased value, though,” Rogers continued. “The key issue here is the physical stuff costs a lot more than $0.99.”
Which brings us to some simple math: physical items (and bundles) are typically far more pricey, and far more attractive to the die-hard fans that Topspin often serves. But this seems to completely contradict the broader trend of growing digital percentages, sinking valuations on recordings, and the difficulties that many artists are having with diversification. Spotify, for example, is handing artists fractions of pennies on streams, if they see anything at all, while widespread album markups seem mostly like a thing of the past. Meanwhile, opportunities like t-shirt sales and CD sales at shows seem to be getting talked-up more than they are getting rung-up.
Of course, Topspin is not a digital distributor to places like Spotify, so this is just part of the picture. But it still feels like selling higher-end, higher-priced stuff is a rich band’s game, though it’s hard to tell what direct-to-fan bundles and physical sales will ultimately mean to the broader community over the long term.
Report by Paul Resnikoff in San Francisco.
High-priced offers are NOT just a “rich band’s game”. First of all, “physical” does not mean “pricey”. A physical item could be a CD, a vinyl LP, or a t-shirt — all items that usually retail for under $20, and which are very popular among direct-to-fan customers, as I’ve seen in several campaigns that I’ve run. Furthermore, the D2F model allows bands to add unique, exclusive value to physical items for little or no cost (autographing a CD or making a t-shirt a limited edition, for example), which incentivizes fans to purchase. Finally, a “deluxe” bundle doesn’t have to be a $100 box-set…it can be a $40 or $50 package with a valuable add-on, like a polaroid and a personalized sketch. Small bands with hard-core fans CAN and DO sell decent numbers of these top-tier bundles.
Yes, bigger bands with richer fan bases can sell big-ticket items, but a small band with a handful of hardcore fans can still earn good money from selling physical products and deluxe offers. I’ll concede that there’s an issue of scale here…even if a small band sells 10 units of a $50 bundle, that’s only $500, whereas a bigger band selling 50 units of that same bundle will earn $2500, and that higher volume will probably cost less per-unit to produce, so the sales are at a higher margin. But that doesn’t mean the baby band’s $500 is any less valuable. It’s all about maximizing the earning potential from hard-core fans, and capitalizing on their enthusiasm for your music. You don’t have to be a “big” band to have super-passionate fans. Just make the most of the ones you’ve got, and keep builing your relationship with them, so that the size and passion of the fan base will grow along with the scale of the band.
My experience has always been that physical is the key to getting more cash and it is typically more of a price tag. Just look at vinyl and bundles with signed stuff, which raises a huge markup on basically the same music/image.
Jason, you are heading in the right direction here.
What we can learn from Topspin’s numbers is that music fans are spending money where they percieve value. That has always been the driving force of how fan’s dollars are spent; Fans still think there is more value in the physical vs. the file.
For artists of all sizes, it is still much easier to create that percived value through physical merchandise. Why? Artist’s can easily monetize an active fan base with exclusives, limited edition or personalized one-of-a-kind physical items. Artist’s can’t provide this same level of exclusivity in the digital form.
Digital does have value…but it’s a different sort of value. A signed CD or an exclusive Tshirt has high perceived value, so you can charge a higher price for it, like a meal at a fancy restaurant. Digital’s value is in its convenience…like a fast-food drive-thru, just let me order something basic & cheap and get out fast. Different types of consumers prefer one type of value over the other. For the passionate fans, offer more expensive stuff with high perceived value. For the casual fans, offer an inexpensive download (charge less than Amazon or iTunes, I recommend around $6.99) and make it a simple, straightforward deal. But keep some exclusive content, like B-sides and bonus tracks, exclusive to the higher-priced offers. That way you maximize the revenue from all audiences.
Rich Band’s Game? Hilarious if not so sad, because just look at all the TopSpin success stories — Beastie Boys, Arcade Fire, Paul McCartney which would be the already huge groups made by major labels often decades ago. Hard to scale to bundles and physical tonnage without the established fame.
:: MW
Just because you didn’t bother to do any research, doesn’t mean you have a valid point dude. I could reel off a bunch of “Topspin success stories” (or successes on Bandcamp, Nimbit, etc) who you’ve never heard of, but who do quite well as niche artists — or who are on a slow & steady path towards greater fame & notoriety. It’s hard to grow any independent enterprise, band or otherwise. And yes, 90% of those who try will probably fail. But that doesn’t mean there’s a problem with the tools they use, or the best practices they employ.
Is this surprising?
I can confirm that we see a very similar breakdown of digital/physical for Bandzoogle members that use our store features, with an average checkout total just below $30.
We have all types and genres, but our typical customer definitely has a smaller fanbase and exposure than Topspin bands, and label budgets, past or present, very rarely play a role.
I’ve posted this comment several times, and it never shows up. I’m trying a difference browser this time. Forgive me in advance if six copies show up.
Physical goods (e.g., merchandise, collectibles) is a separate business than music. Galleries and limited edition companies have been selling to this market for decades. You don’t really even need the music. It’s just a branding opportunity or a way to reach an audience that happens to like music and is willing to spend to acquire items which have some sort of meaningful connection to the purchaser. The person who collects music items is fairly similar to the person who collects sports items or comic books.
And another aspect which helps to drive these purchases is a secondary market. If the initial purchaser anticipates a rise in value over time, there’s more urgency in buying the item as it hits the market.
I think there should be far more discussion among musicians on how to sell limited editions and collectibles because there’s really no need to reinvent the wheel. Learn from people who specialize in this.
And one other point I will toss out is that as musicians depend on making their money from expensive physical items, it shifts their attention to catering to fans with money. It’s a different mentality than just hoping to move a democratically priced album.
Sweet!
A result of higher price points of course, but quite interesting.
Actually, I think I really didn’t articulate my question properly. Certainly, higher-end bundling and smart packaging – as pushed by Topspin and others – is having a big impact for {x} number of artists, rich, poor, or in-between. But, the real questions I’m driving at are:
(a) how many at this stage are either dramatically increasing their revenues as a result of this
(b) able to execute against this without broader support or marketing firepower, or
(c) are even aware of the possibilities (another issue entirely), and
(d) what does this all mean from a dollar (or pound, or euro) perspective?
So, ‘rich band’s game’ was really only part of the question, so I wanted to jump back into the thread to further articulate and defend what I was driving at. I want to believe this is dramatically changing the artist landscape and making artists more well-off, but I can’t definitively say that. So naturally I’m just asking questions with limited information.
/paul
Paul, the real problem here is your totally misguided assumption (or as you call it, “simple math”) that “physical” means “high-end, pricey, deluxe bundle”. Big-ticket items are one component of a good D2F offer, but they only account for a portion of the success. Sub-$20-items like CDs, Vinyl, T-shirts, and Posters also count as “physical”, and if you look at some of the D2F case studies out there, you’ll find these “mid-tier” products drive a significant portion of sales. In this one, 50% of all orders were for a physical product that was NOT the deluxe bundle.
Here’s the point I think Topspin is trying to make: fans will pay for physical products. Some fans will pay top dollar for high-end stuff, but many more will gladly drop $20 on a CD or a shirt…maybe even $30 if you add a little extra value like autographing the CD or making the shirt limited-edition and throw in some exclusive digital bonus tracks as a sweetener. Having a good mix of offers at different price ranges is key to D2F success. Don’t just assume that D2F ecommerce is only for high-end deluxe packages.
But, physical is on the whole more expensive, garners a higher markup, and typically allows far greater bundling while boosting revenue. Even vinyl represents a return to the bundle of tracks, and fetches a great price relative to most other recordings.
/paul
Also, to answer your questions:
1) I can’t give you a big overarching number, but of the bands I’ve worked with and the campaigns I’ve seen, their D2F revenues contribute between 10% and 40% of their total revenue in a given year, and that money comes in at about a 40%-50% margin after all costs are accounted for.
2) Many bands can execute a basic D2F strategy by themselves, but I will say, it really helps to hire someone who knows exactly what they’re doing and can focus all their attention on it. A D2F operation is truly its own small business, and it requires some dedication to run it effectively and optimize it. That said, it doesn’t take a lot of “marketing firepower”…just build a big email list and market to directly to your fans in smart, targeted ways. Email is incredibly cheap, and it’s still the best marketing channel for driving sales conversions.
3) I don’t know if very many artists are aware of the possibilities. It can be a weird concept to wrap their head around. But I’ve had lots of discussions with bands where it dawns on them, and once they “get it”, they definitely see the value. Since it’s a relatively new model, and there aren’t a lot of published case studies aside from big artists like Trent Reznor, the concept is taking a while filtering down to the majority of artists out there. But give it time.
4) “What this all means from a dollar perspective” is simple — MARGIN. An artist can add unique value to their offers, charge fans a premium for it, and keep the majority of the money they make. Anyone who understands business knows that a high profit margin is the key to sustainable growth.