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How to Get Good at Making Money
Entrepreneur Jason Fried offers the most fundamental of all small-business advice: how to get good at making money.
By Jason Fried | Mar 1, 2011
A few years ago, I decided I wanted to learn to play the drums. I've always loved the drums. Whenever I listen to music, I hear the drums first. I can listen to a great jazz drummer like Art Blakey for hours on end. I'd give up almost anything to be as good as Glenn Kotche of Wilco.
The path to learning the drums is pretty clear. You sign up for some lessons, you get some pads, you get some sticks, you learn some drills, and you practice. And you keep practicing. Every surface—your desk, your leg, your steering wheel—becomes a drum. You get better over time, but you never really stop practicing.
This is how we learn most things. Whether you want to be a writer or a musician or a painter or a baker or an accountant, the way to get there is fairly clear. Not everyone's going to be as good as he or she would like to be, but at least you know where to start. Lessons, classes, books, internships, workshops... All of these things are accessible to most people who want them.
One of the interesting things about picking up the drums was that I realized it had been some time since I had actually tried to learn something new. We spend most of our childhoods learning new things. But as you get older, the frequency with which you develop new talents slows down. Sometimes it stops completely.
That said, when I first started playing, I was bad. I sounded like someone was tripping over a drum set and knocking it on the floor. When you suck so badly at something new, it's comforting to know there are other things that you actually are good at. And being bad at drums reminded me of what I have gotten pretty good at: making money.
Today, I run 37signals, a software and design firm that I co-founded in 1999. Sales have grown at double-digit rates every year for the past decade; so have profits. (Like many private companies, we don't disclose revenue.) How did I learn how to do this? I have a degree in finance, but I don't remember taking any classes that even remotely taught me how to make money. I've read plenty of business books. Same thing—lots of talk about money, but not much about how to actually make the stuff.
One thing I do know is that making money is not the same as starting a business. For entrepreneurs, this is an important thing to understand. Most of us identify with the products we create or services we provide. I make software. He is a headhunter. She builds computer networks. But the fact is, all of us must master one skill that supersedes the others: making money. You can be the most creative software designer in the world. But if you don't know how to make money, you're never going to have much of a business or a whole lot of autonomy.
This is not about getting rich (though there's certainly nothing wrong with that). Instead, for me, making money is about freedom. When you owe people money, they own you—or, at least, they own your schedule. As long as you remain profitable, the timeline is yours to create.
It took me a long time to figure out how to make money. Here's how the lessons unfolded.
Shoes, Tennis Rackets, and More Shoes
Understanding the buyer is the key to being a strong seller
It started when I was about 14. In Illinois, that's when you can start working (with your parents' permission). So I went with my dad to get a worker's permit and got a summer job at the local grocery store. I don't remember learning much there. But a year later, at my next summer job, the lessons flowed.
I was working at Shelby's Pro Shop, a golf and tennis retailer in Deerfield, where I grew up. I sold shoes and tennis rackets. I didn't play tennis, but I learned how to be a very good tennis-shoe and tennis-racket salesman. That's because I made the discovery that people's reasons for buying things often don't match up with the company's reason for selling them.
Manufacturers used to dispatch reps to the pro shop to educate us on their latest and greatest technologies. They'd tell us about the new ethylene vinyl acetate midsoles that made shoes more comfortable; the Goodyear-brand rubber outsoles that made the shoes more durable; the new variation of Nike Air that was miles ahead of the competition.
They thought they were arming us with facts that would impress the customers. But, it turned out, none of that stuff mattered. In fact, it had a negative effect. When you describe things in terms people don't understand, they tend not to trust you as much. Trust is important. You can bluff your way into money, but for only so long.
Once I stopped slinging the technical terms, I realized that when customers shop for shoes, they do three things. They consider the look and style. They try them on to see if they're comfortable. And they consider the price. Endorsements by famous athletes help a lot, too. But the technology, the features, the special-testing labs—I can't remember a single customer who cared. I sold a boatload of shoes and tennis rackets that summer.
Understanding what people really want to know—and how that differs from what you want to tell them—is a fundamental tenet of sales. And you can't get good at making money unless you get good at selling.
I learned this as a teenage shoe salesman, and it still drives how I operate.
To be sure, this is hardly a unique insight. But judging by the number of companies and products that totally miss the mark, day after day, it's a lesson that needs to be learned again and again.
The Middleman Years
In which I sell electronics, knives, and throwing stars—and learn that it's all about passion
After a couple more summers at the pro shop, I decided to start my own business. It hadn't taken long to notice that retail was pretty simple: The store bought stuff from distributors, marked it up, and sold it at a profit. Why couldn't I do that, too? It turned out, I could. I got a reseller's license from the state of Illinois. This allowed me to buy stuff cheaply from distributors.
This is where I learned my second key lesson: Sell only things you'd want to buy for yourself.
I originally got the reseller's license so I could buy stereo equipment, computer equipment, a cordless phone, and a radar detector. (My rusted-out Datsun 510 was held together by bungee cords and duct tape, but I still liked to drive fast.) I soon realized that if I wanted these things, my friends probably did, too. I could sell them stuff below what they'd pay in the store and still make a profit. So I picked some prices that seemed reasonable, pitched my peers, and the orders came in. I didn't sell a lot, but picking up an extra $100 here and there is a big deal when you're a teenager.
I began offering more items. Somehow I got hold of some military-supply and sporting-goods catalogs. I cut out the pictures of the stuff that looked cool—butterfly knives, throwing stars, pocketknives, and some other things I'd prefer not to mention—and created my own catalog, which I photocopied and gave to my friends. The stuff, as they say, sold itself.
I didn't have a credit card—remember, I was in high school at the time. So I ordered the items COD, cash on delivery. I'd learn when UPS would be coming and feign illness so I could stay home from school. The delivery guy rang the doorbell, I gave him the cash, and he handed over the boxes. I don't know if they do COD anymore, but man, was it exciting back then. No one got rich—and I don't think anyone was injured—but it was a great education. And the lesson stuck.
That'll Be $20, Please
How, and why, to charge real money for real products
Around my senior year of high school, I started getting interested in computers. I also liked music. My collection of tapes and CDs was growing, and I wanted a better way to keep track of what I had and what I'd loaned out to friends.
This was before the World Wide Web. So I tossed one of those junk mail AOL CDs in the computer, installed the program, and convinced my parents it was worth the monthly fee. ("It'll help me research and study!" I argued.) I started searching for tools to help organize a music collection.
There were a ton of them. Most were made with software called FileMaker Pro, a program that makes it easy to create simple databases without really knowing how to program. FileMaker also lets you design your own interface, so you can make things look any way you'd like. Most of the music-organization programs were free and pretty lousy—ugly, hard to use, loaded with unnecessary features.
I decided to figure out how to make my own. I got FileMaker Pro (I paid for it with the stash I'd saved up selling stuff to my friends) and started messing around. After a few months, I had solved the problems I had with organizing my music. I knew what music I had, where it was, whom I had loaned it to, how much I paid for it. The solution was elegant and easy to use. I called it Audiofile.
Most of the music-collection products on AOL's file section were freeware. Download them, install them, and you don't owe the author a dime. There were a few shareware options (you pay if you use them, but it's mostly an honor system), but most were free.
I'd already learned that I really enjoyed making money. And I thought that Audiofile was good. And even then, I thought that if something was good, then it was worth paying for. So before making it available to other AOL users, I added a limit in the program—people could file 25 CDs for free; after that, it would cost $20 to unlock Audiofile and remove the limit.
I remember my first customer. One day my parents gave me an envelope. It came from Germany and had those airmail stripes at the top. I opened it up, found a screenshot of Audiofile printed on a piece of paper—and a crisp $20 bill. More envelopes rolled in. Over the next few years, Audiofile probably generated $50,000—not bad for a kid in college in the early '90s.
The lesson: People are happy to pay for things that work well. Never be afraid to put a price on something. If you pour your heart into something and make it great, sell it. For real money. Even if there are free options, even if the market is flooded with free. People will pay for things they love.
This lesson is at the core of 37signals. There are plenty of free project management tools. There are plenty of free contact managers and customer relationship management tools. There are plenty of free chat tools and organization tools. There are plenty of free conferences and workshops. Free is everywhere. But we charge for our products. And our customers are happy to pay for them.
There's another lesson in here: Charging for something makes you want to make it better. I've found this to be really important. It's a great lesson if you want to learn how to make money.
After all, paying for something is one of the most intimate things that can occur between two people. One person is offering something for sale, and the other person is spending hard-earned cash to buy it. Both have worked hard to be able to offer the other something he or she wants. That's trust—and, dare I say, intimacy. For customers, paying for something sets a high expectation.
When you put a price on something, you get really honest feedback from customers. When entrepreneurs ask me how to get customers to tell us what they really think, I respond with two words: Charge them. They'll tell you what they think, demand excellence, and take the product seriously in a way they never would if they were just using it for free.
As an entrepreneur, you should welcome that pressure. You should want to be forced to be good at what you do.
Model Madness
There are different pathways to the same dollar
Don't just charge. Try as many different pricing models as you can. That's a great way to get better at making money.
Before I launched 37signals, I worked as a freelance Web designer. I charged clients by the hour. I work quickly. But I soon realized that charging hourly penalizes efficiency. If I can finish something in an hour that might take someone else three or four hours, why should I be penalized? So when we launched 37signals in 1999, we charged clients by the project.
It worked great. But as the projects started getting bigger and costing a lot more, I noticed that clients became more reticent about signing on. Big numbers and long time frames make people nervous. More money and more time mean more risk, and risk is something all companies would prefer to avoid.
I thought about the problem and decided to try something new. Instead of doing long, expensive projects, we'd do short, affordable ones. Instead of billing $50,000 for a 15-page website redesign that would take three months, we'd charge $3,500 per page and offer to complete the page in a week. If you want another page, it's another $3,500 and another week. We called it 37express.
It took off. It took the risk out. It let companies try us out before committing to something big. And it was a lot more fun for us—fewer meetings, less stress, fewer decisions to be made. Just a quick one-week project for a fixed price. If you want more, we'll sell you another.
We no longer design websites, so we don't offer 37express anymore. But it was a fantastic way to make money. Remove the fear, and people will be more willing to pay you. People don't like uncertainty—especially when they have to pay for it. A week and a fixed price is certain.
We've continued to experiment with pricing models. It's been a great way to get a 360-degree view of how customers think about their money and our products. Our apps, for example, are available as monthly subscriptions for $24 to $249 per month. We've sold our book Getting Real as an instant download for $19 and as a paperback for $25. We've sold tickets to our eight-hour workshops for up to $1,000. Listings on our job board are $400 for 30 days. We sell listings on Sortfolio, a service we built to help small businesses find Web designers, for $99 per month.
We've even sold promotional T-shirts, for $19, when just about everyone else in the business gives them away. People wear shirts they paid $19 for. People turn free T-shirts into rags. Rags don't promote anyone.
It's Never Too Soon to Be Hungry
The true value of bootstrapping
I began learning these things when I was 14. And I'm glad I did, because the habits entrepreneurs develop early in their careers go a long way toward determining their success.
I've borrowed money to start a business only once. My parents gave me $5,000 to buy my first computer when I went to college. I'm embarrassed to admit I never paid them back, but that's only because I knew they'd never accept the money. One day, I'll figure out how to make that happen.
But that's it. Everything else has been bootstrapped—even though dozens of venture capitalists and private equity firms have offered us lots of money. Instead, my customers have always been my investors. My goal has always been to be profitable on Day One.
I can't say enough about bootstrapping. Whether you're starting your first business or your next one, my advice is to bootstrap it. Bootstrapping forces you to think about making money on Day One. There's a fundamental difference between a bootstrapped business and a funded business. It's all about which side of the money you're on. From Day One, a bootstrapped business has no choice but to make money. There's no cushion in the bank and not much in the pockets. It's make money or go home. To a bootstrapped business, money is air.
On the other hand, from Day One, a funded business is all about spending money. There's a pile in the bank, and it's not there to collect interest. Your investors want you to hire, invest, and buy. There's less—and in some cases, no—pressure to make money. While that sounds comforting, I think it ultimately hurts. It replaces the hustle, the scrap, the fight, with a false comfort of "we can worry about that later."
Anyone can spend money. Making it is the hard part, and being forced to do it early is one of the best ways to get better at it later.
Try, Try Again
A word about practicing
Like I said at the outset, it's all about practice. Whether you're playing drums or building a business, you're going to be pretty bad at something the first time you try it. The second time isn't much better. Over time, and after a lot of practice, you begin to get there.
So here's a great way to practice making money: Buy and sell the same thing over and over on Craigslist or eBay. Seriously.
Go buy something on Craigslist or eBay. Find something that's a bit of a commodity, so you know there's always plenty of supply and demand. An iPod is a good test. Buy it, and then immediately resell it. Then buy it again. Each time, try selling it for more than you paid for it. See how far you can push it. See how much profit you can make off 10 transactions.
Start tweaking the headline. Then start fiddling with the product description. Vary the photographs. Take some pictures of the thing for sale; use other photos with other items, or people, in them. Shoot really high-quality shots, and also post crappy ones from your cell-phone camera. Try every variation you can think of.
I love doing this, because there's no real risk involved. If you already have a business, you don't need to dream up a new product line or rock the boat with crazy experiments. If you don't have a business, it's a perfect way to work on your chops.
Jason Fried is co-founder of 37signals, a Chicago-based software firm, and co-author of the book Rework, which was published last March.
Cash for Covers Pt. 1: Three Easy Ways to Make Money from Releasing Cover Songs on Digital Music Stores
Limelight Blog By Alex Holz in General
There are several ways to make money from cover songs. Limelight helps clear the mechanical rights to get started.
It’s no secret Justin Bieber’s ascension to pop superstardom started with a cover song (a version of Ne-Yo’s “So Sick”). Could he have achieved an “underdog to celebrity” rise without one? Maybe, but Bieber performed a new spin on a decades-old formula readily available to any recording artist looking to acquire new fans and make additional money from their recordings.
Cover songs(a.k.a. “remakes”) provide an easy path to building audiences. Releasing one is similar to getting introduced to a new person by way of mutual friend (the song) rather than through a chance encounter (an original tune found on a Bandcamp / MySpace page). A positive introduction is more likely when there is immediate common ground.
Cover songs also provide a unique way of tapping into alternate revenue streams for only modest expense (i.e. money spent securing the required mechanical license and paying royalties via Limelight, time spent learning the song, etc.). So why is this an effective way of promoting your music? Let’s explore…
Recording Cover Songs to Meet Demand for Incomplete Catalogue
Digital music services offer instant access for consumers to a 24-hour music warehouse that never runs out of stock. The downside? Two words: incomplete catalogue. Not every track you have (or want) in your vinyl or CD collection is available to buy in digital format for any number of reasons (including licensing issues, artist reluctance, wrong brand of dijon mustard at deal signing, etc.).
Just as one person gathers what another spills – “incomplete catalogue” represents a simply supply and demand market opportunity for savvy artists and labels. If an artist’s music isn’t available via an online store, other recording artists can take advantage by recording and releasing their own cover versions to meet market demand.
For example, if you search for Kid Rock’s music on iTunes (one of several mainstream artist catalogues that aren’t available), you’ll notice an early 1990 release, a live recording of “Bawitdaba” from Woodstock ’99, and surprise, surprise, several tribute records. Why? iTunes search focuses on track popularity related to song title, artist name, album name and a variety of keywords. Since the majority of Kid Rock’s catalogue is unavailable, the closest matches are tribute recordings and cover versions of his repertoire. In fact, two separate cover recordingsof Kid Rock’s “All Summer Long” charted on the Billboard Top 100 in 2008 (The Hit Masters, The Rock Heroes) based primarily off digital sales alone. The same principle applies for AC/DC, Garth Brooks, and a several other marquee artistswhose catalogues have not seen digital release.
Recording Cover Songs to Compete with Album Only Tracks
From a consumer viewpoint, a digital release’s major advantage over its physical counterpart is the ability to purchase individual tracks without spending money on unwanted tracks. While the majority of online releases allow for a la carte downloading, many online retailers give record labels the option to carve out certain releases as “album-only” — the motivation being to increase full-album sales at the expense of individual song downloads (though sometimes done for rights clearance purposes). Needless to say, “album-only” tracks deny consumers the opportunity to download individual tracks without purchasing the entire record.
Once again, obstacles presented by some labels represent a chance for entrepreneurial-minded artists and labels in releasing cover versions. Since digital versions of television and movie soundtracks (such as Twilightand The Hangover) are routinely offered out as “Album Only”, recording cover versions of those songs in particular can present another opportunity in capitalizing on simple supply and demand. If titled via an easy search terms comparable to the soundtrack, the cover versions will appear in search results alongside the original soundtrack.
Selling Cover Songs (and Originals) By Association
Physical retailers are limited – staff on hand, hours in a day, and especially by the product real estate available to them. While Best Buy, Wal-Mart, and other brick-and-mortar shops can only shelve music via singular genre / artist name fashion, digital music stores offer sophisticated search mechanisms, including track title, album name, release year, and even lyric focus.
While many artists may already be familiar with the term “search engine optimization”for purposes of their websites, less have extended that thinking to online music stores. In the digital age, cover songs provide simple, effective music search engine optimization (especially for covering artists who don’t currently appear on iTunes, Amazon, Rhapsody, etc.). The sophisticated search mechanisms afforded by online stores over their brick-and-mortar counterparts grant artists an easy tool to sell more music.
In instances where an artist’s repertoire (such as Journey, Beyonce, Katy Perry) is available via digital music stores, cover songs can benefit by way of song title searches. While common song titles are unlikely to provide any benefit in enhancing search results, cover versions of songs with distinct titles can eclipse the original recordings in search results. For example searching for “99 Problems” (Jay-Z) on iTunes actually results in a unique cover rendition by the artist Hugo ahead of the original. Users who listen to and enjoy Hugo’s cover version are also likely to check out Hugo’s additional repertoire (including originals).
Next Step: Clear the Rights and Sell!
Before recording and releasing cover songs, you’ll need to secure a mechanical license (also known as a DPD license for digital downloads distributed via iTunes, eMusic, Amazon, etc.), which provides permission to legally record and distribute the song. For artists looking to record video versions of their cover songs for purposes of YouTube, Vimeo, and other user-generated content sites, a separate synchronization license is required.
Several entities exist to help artists and labels clear mechanical licenses and ensure songwriters get paid, including Limelight— a simple, one-stop shop to clear any cover song and secure mechanical licenses for digital downloads, interactive streaming, ringtones, and physical albums. Artists, bands and other musical groups can clear any cover song and ensure 100% of royalties are paid to the appropriate publishers and songwriters via Limelight.
Singles Vs. Albums: Which Does the Public Really Prefer?
Posted by Moses Avalon on May 5th, 2011
Big Data wants the world to believe that the album format is dead and CDs are dying a rapid death. But they have a strong vested interest in this point of view; creating services that sell or find and allow the “sharing” of singles has been the tent-pole that supports much of the internet. Could their bias be infecting our perception? Could it be that albums are actually more popular than singles?
The following is an excerpt/sample chapter from the revolutionary new book on music business survival, 100 Answers to 50 Questions on the Music Business, by industry veteran, Moses Avalon.
You’d think the answer to the title question above would be obvious: the public prefers Singles, of course. You hear story after story of people illegally downloading MP3 singles off the Internet. Who steals CDs from record stores anymore? Well, like most things, when you drill down the answer gets more interesting.
A better hypothetical question might be: Imagine two bins: One has CD singles and the other has CD albums. If nobody was watching, which bin would be emptied out quicker due to theft?
Ah . . . rephrased this way, the answer seems a bit more gray. And it is.
There has never been a definitive objective test of the public’s preference. The market research surveys that can help us here tell us that people enjoy buying more than one song at a time, and it makes sense that if they are going to buy several songs by the same artist, then it should be an album — which traditionally means a CD.
Until the mid-1960s everyone bought singles. Then labels introduced collections of singles on one large “long-playing” record, called an LP. But, with the “singles market” revitalized again due to iTunes and P2P, the public, for the first time in history, will get to decide the bundling (or un-bundling) of music instead of Execs, accountants, managers, and even the artists. And what does the public want..?
YOU MAY WANT, WHAT YOU ALREADY GOT
The votes so far seem to indicate a split decision. While singles are clearly a choice for the young or those new to the technology, as soon as iTunes began to offer albums, people began to buy them with almost the same fervor as singles.
In addition, cloud based digital “music lockers” may create a new need for CDs. Labels are trying to enforce restrictions on the types of files that can be loaded into these new services for fear that these same services might encourage theft. These restrictions will likely include terms stating that only those songs purchased legally, via CD and through approved vendors such as iTunes, Amazon, etc. are allowed to be uploaded on these premium cloud services.
Given the wholesale nature of the music locker concept, people might increasingly turn to mediums that naturally grouped songs together legally under one license, for easy upload — the CD or digital album.
BIG STARS WILL RIDE THE MARKET
Another influencing factor is that labels are going to begin insisting that marque acts be sold exclusively on CD for the first few months or “album only” in digital stores. In fact, this has already happened, but you probably didn’t hear about it.
In 2008 AC/DC and Kid Rock, two of that year’s biggest rock acts, insisted on CD “album-only” sales. Did this insistence pay off? Yep.
Kid Rock’s and his label decided to forgo a digital release altogether and released Rock N Roll Jesus only on CD. It wasn’t until a year had past, and over 1.7 million albums had sold, that they finally issued a digital license to Amazon MP3 to sell the record but in an “album only” format. Oddly absent from his chosen digital retailers is iTunes who were excluded by Kid Rock as they don’t allow artists to sell complete albums in the “album only” format. Kid Rock’s Rock N Roll Jesus was one of the top five albums of that year and has sold over 5 million units to date.
And AC/DC’s Black Ice album was released exclusively on CD and was only available at Wal-Mart (in North America), and trailed right behind Kid Rock’s as the fourth best-selling album of 2008, with 1.6 million copies sold. It charted number 1 in over 29 countries and has since shipped over 6 million copies… and not one of those copies was a single or a download.
Okay, that was 3 years ago: a lifetime in the world of digital music distribution. And then here come the hip, Facebook generation “experts.” Many claimed that Rock and AC/DC left a lot of money on the table by denying digital sales of singles. Their consensus seemed to feel that this type of “old school” move is only achievable by larger acts with very strong followings. A newer act wouldn’t dare experiment with this type of strategy.
They were and are still wrong.
In the indie world, sites like Bandcamp claim that their artists albums to singles on a 6:1 ratio in CD albums favor. And in the major label land, thier entire music business economy is based on the album configuration. (Both CD and download) and that will not change anytime soon. Artist advances are inextricably designed around and connected to the album format. A fact kept from the public.
So my money says expect to see more “album only” demands for new releases by those artists that can see the writing on the wall and afford to alienate few die-hard singles-only fans.
Yet, another reason albums will survive for quite some time; albums are cool! It’s a cohesive, 50-minute sound vision. Singles were created as an economic reality of selling albums, not as a substitute for them.
And as fo
r albums in CD form, we can be sure that the CD format is not going to die anytime soon if we just look at the number of new CD players/recorders manufactured every day: well over 100,000! We use these players/recorders to archive favorite releases which helps ensure the formats place… at least for the near future.
THE HATERS
Technology innovators like Steve Jobs, don’t care about the integrity of music as art. No human who invented the best way to buy, catalog, and “share” music as individual tracks, can be a real fan of music as an art form. (Sorry Steve, I love your brain, but your heart..?)
I remember trying to get my mother to join the iPod generation years ago by telling her that it could hold her entire Classical collection. She said “But it cuts up the symphony into little bits.” (old iPods/iTunes used to treat movements as if they were singles and wouldn’t play them seamlessly.
I was ashamed. My mother “got it” long before I did: music is about creativity, not the technology you play it on. Anyone who tries to tell you otherwise is a music hater, even if they don’t know it. They have sold their souls to the tech-gods if they truly believe that artists should start making three-minute singles and forget about their album vision just because a digital retailer has decided that music is easirer to sell in bite sized chunks. That’s what radio tried to do to music, but albums survived that effort and they will survive this one too.
Music lives! Albums live! And for now, the sales numbers prove it.
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Marie Osmond remarries 1st husband in Vegas
By OSKAR GARCIA, Associated Press – Wed May 4, 6:00 pm ET
LAS VEGAS – Marie Osmond has remarried her first husband in a private ceremony at a Mormon temple in Las Vegas.
Osmond said in a statement that the 51-year-old singer and 54-year-old Stephen Craig, a former professional basketball player wed on Wednesday. She says the day is special because it marks the birthdays of both her late mother and her late son Michael Bryan.
Osmond says it was important for both relatives to be with her and her husband on their special day.
Bryan committed suicide last year.
Osmond wore the same Ret Turner wedding dress that she wore during her first ceremony with Craig.
The couple first married in 1982 but divorced three years later. They also have a 28-year-old son, Stephen.
Is Music Research Obsolete?
By Richard Harker
Richard Harker
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For over 30 years now, leading music stations have been creating music libraries with the help of Auditorium Music Tests (AMT) for library product and Call-Out for new music.
But given new developments like PPM and the success of Internet music services like Pandora, is music research still as useful today as it was in the past?
Does it still provide broadcast stations an edge over the competition, even new Internet competitors? To answer the question, let’s look at some of the alternatives.
Pandora’s Music Genome Project
With 80 million registered users, and 30 million regular users, Pandora’s success is undeniable. And Pandora doesn’t test its music.
The music chosen for each of Pandora’s 1.4 billion channels is decided using Pandora’s Music Genome Project (MGP). Musicologists code each song in the music library using 400 musicological variables such as music key, instrumentation, and tempo.
A user creates a new station by choosing a “seed” artist or song. Using the seed’s MGP codes, the service then chooses what other songs to play based on the profile similarities to the seed song.
Pandora is succeeding using MGP, but it is succeeding because of MGP?
Can broadcast radio better compete against Pandora by emulating Pandora and using its own version of coding, or should radio offer a better designed alternative product?
On-line ratings show that Pandora has very low Time Spent Listening (TSL). The service may be extremely popular, but users don’t seem to spend much time with it.
Pandora’s average session length is about 50 minutes. Compare that to Clear Channel’s 70 minutes or Cox Radio’s 90 minutes.
If Pandora’s MGP were a better approach to picking songs than the music testing done by its broadcast competitors, we would expect above average TSL, not brief listening spans well below its broadcast stream competitors.
So should radio stations use musicological similarities rather than popularity to schedule music, therefore eliminating the need to test music? Pandora’s low TSL suggests not.
Radio already beats Pandora TSL with playlists crafted through music research.
Crowd Sourcing
An alternative to Pandora’s academic top-down approach to picking songs is turning over control of the music to listeners, crowdsourcing the music.
First popularized by James Surowiecki in his book Wisdom of Crowds, crowdsourcing says that a diverse group of individuals can make more accurate decisions than individuals or even experts.
In our case, it raises the question whether the collective wisdom of the audience might be better able to choose the right songs to play. If we turn over the decision to our audience, we don’t need to test the music beforehand.
While it is an intriguing alternative to pre-programming the music, the reality of crowdsourcing is considerably different from the concept.
The problem is that within any crowd, active participants make up a very small proportion of the crowd.
For example, a study of Amazon users found that only 5% of Amazon users ever vote on any product. What happens instead is that a handful of Amazon users rate hundreds of products.
Wikipedia, an often cited example of crowdsourcing, is anything but. Only 1% of the site’s users edit half of Wikipedia’s content.
The only way crowdsourcing could work for radio is if we had a significant proportion of the audience contributing.
If Amazon can’t get more than 5% of their users to rate their products, if Wikipedia relies on just 1% of its users to do half the work, can we expect the majority of a radio station’s listeners to help crowdsource the music?
Not likely.
Any Program Director who has tried to run an all-request hour knows how difficult this is. Only a small handful of listeners actually end up requesting a song.
Request lines were crowdsourcing before crowdsourcing existed, and they never provided a consistently reliable source of music information.
Jelli is the best known radio crowdsourcer. Jelli’s creator, Jateen Parekh, calls it social broadcasting and radio democracy.
In the same way all-request hours are popular despite limited active participation, Jelli works not because a large proportion of the audience participates, but instead because a large proportion of the audience vicariously participates through passive listening.
That’s why Jelli’s radio democracy can be valuable specialty program, and a good way to differentiate your station.
In the end, however, turning over the music to a handful of active listeners via crowdsourcing is just as risky as an all-request hour that really plays requests.
Letting PPM decide
Arbitron’s ability to generate minute by minute PPM data has created interest in using ratings to make programming decisions.
If the ratings go up, it must mean that listeners like what they are hearing. If the ratings go down, it must mean they dislike what they are hearing. So PPM should be able to tell us what songs to play.
At least that’s the argument, but how true is it?
First there’s the issue of panel sizes. Most radio stations outside the highest rated stations in the largest markets generally have no more than a handful of panelists listening at any given time.
A single panelist turning off his or her radio, walking out of a room where the radio is playing, or even a bus driving by the car can give the illusion of massive tune-out.
PPM panels (at least in the largest markets) are theoretically large enough to reliably estimate audience levels in broad demographics during entire dayparts, but as you slice and dice PPM numbers looking at narrower demos and smaller time increments, the reliability of the numbers plummets.
`The panel sizes are just too small to provide reliable estimates within brief time periods like the length of a song or spot set..
But the problems go well beyond panel size.
Theoretically, the meter can identify an encoded source in seconds. However, because of noise interference (that bus) and audibility issues, Arbitron gives the meter up to three minutes to figure out what the source is.
This window means that the meter may not always register changes in exposure in precise synchronicity with actual changes in exposure.
This means what appears to be a reaction to one element may actually be the reaction to an element before or after it. This is why listeners appear to sit through commercials, and seem to react to things minutes after they occur.
While it would be great if PPM could give us a minute by minute report card, the device was not designed, nor the technology implemented in such a way to be accurate to a single minute.
So despite the fact that many programmers have embraced the idea that they can make programming decisions based on PPM, it is not the breakthrough programmers hoped for.
The Bottom Line
Radio programmed by professionals using research, remains the gold standard attracting over 200 million users, seven times Pandora’s active user base.
Each week listeners consume 3.5 billion hours of broadcast radio across fewer than ten-thousand stations compared to Pandora’s 200 million hours across 1.4 billion stations.
Consumption of commercial radio is over 17 times Pandora consumption.
Professionally crafted programming based on research continues to be radio’s edge even today when listeners have more choices than ever.
Music research in the hands of a creative program director will continue to help create a compelling product that can successfully compete against tomorrow’s threats.
Unique players like Pandora, Jelli and other specialty online formats will have an impact beyond their audience size by offering listeners something different. They will raise the expectation bar for every station and every format.
Ultimately, however, the heavy-lifting will be done by formats playing popularity-based music chosen with the help of music research.
While music research has served radio well for over 30 years, it has continually evolved to keep pace with an ever growing sophistication of radio and its audience.
Music research will continue to evolve to maintain its key role in a radio station’s success. As options proliferate, radio stations will have to better target, super-serving a well-defined audience.
And music research will be ready.
As more listening migrates to the Internet, radio groups will be able to expand their stable of offerings, serving multiple niches across stations rather than a few stations serving broad audiences.
As radio adapts to the new reality of the Internet, research, and music research in particular will play a critical role in helping radio continue to be audio entertainment’s benchmark.
Richard Harker is President of Harker Research, a company providing a wide range of research services to radio stations in North America and Europe. Twenty-years of research experience combined with Richard's 15 years as a programmer and general manager helps Harker Research provide practical actionable solutions to ratings problems. Visit www.harkerresearch or contact Richard at (919) 954-8300.