MusicWeek – Viewpoint: INgrooves

The Network Effect of Digital Distribution ( PDF )

Why music companies should think about more than just the obvious online outlets for their product

By Robb McDaniels, founder and CEO of INgrooves.

I get asked all the time by labels and artists, “Why do I need a distributor to reach over 600 online and mobile outlets around the world when I can just go direct to iTunes, Amazon and Spotify and cover 80-85% of the digital market?”

While it might seem like an uncomplicated way to go, the reality is that approaching the digital market this way potentially leaves A LOT more revenue on the table than just the other 15-20%. Here’s why: the network effect of digital distribution significantly increases the probability that all of your music assets will reach their maximum earnings and fan-impact potential.

Here’s how that happens…

Let’s assume that 80% of your historical sales have come from the “Big Three” (note: the actual share of the overall digital pie can be much less and is often impacted by genre, artist location and general fan demographics). That means 20% of your current fans are enjoying your music on another retail service. If those 20 out of 100 fans each tell ten friends about your great song or album (assuming that they are telling new fans who purchase music legally), then 80% of those 200 new fans are likely to purchase your music on one of the Big Three retailers. That’s another 160 new fans that you otherwise may not have ever found! So the irony is that the fans who discover your music on some of these “other” retailers make the overall slice of the pie for the Big Three even bigger, which may serve to further distort the overall percentage of the Big Three, making the whole case for broad-based digital distribution even more difficult to get your arms around!

But there are other benefits too…

Some of the fans that find your music on the “other” retailers, or their friends that went and bought your latest release on one of the Big Three, will go to your show. Some will buy a T-shirt. Others will buy your back catalogue. Some will follow you on Twitter, friend you on Facebook, subscribe to your YouTube channel….YouTube, wait a minute!

Which country was the fan from that first uploaded a parody of “The Harlem Shake”? Which music service did they first hear the song on? Beatport? Deezer? Who knows!?!?

The fire was lit and it triggered a fan-generated tidal wave of promotion and monetization that was not controlled by the artist, label or distribution company. What a concept – you gain control over your career as an artist by relinquishing control to your fans. Don’t dictate when or where they can enjoy your art – let them have it however, wherever and
whenever they want.

Some fans like downloading, others like streaming; some subscribe, some go a la carte; some prefer their mobile device or their game console, some prefer their home entertainment system; so why limit the possibilities of the impact your music can have on the world?

Why narrow your focus at just the time when you should be broadening your horizons?

Digital distribution pays for itself and then some; and if it isn’t doing so currently for you, then something else might be the cause because the likely culprit is almost certainly not broad-based, global digital distribution.