How about monetizing File-Sharing?

Now and then we’re led to reflect on the legal, ethical and financial impact of the file-sharing in the Music Industry. While there are many parties affected by these practices in many different ways (either good or bad), I do think the Music Business is the one business the can take most advantage from it and that there are effective ways to use Peer-to-Peer Services for the benefit of all of the parties. In times when technology reigns and rules the future, rather than fighting against customers and struggling to control distribution by all means, why not give up some control and use some strategy to monetize technology and interaction?

This is not meant to be one more discussion on whether File-Sharing is good or bad, ethical or unethical, beneficial or prejudicial. Neither will I try to make a point defending or attacking entities, practices or opinions on this subject. A lot has been said and discussed about it over the past several years and many interesting, reasonable articles have been written by people who certainly have a deeper and more empirical understanding of this issue than I do, so this is not my point. Rather, this is a reflection on the hidden (or at least not yet potentially explored) opportunity that File-Sharing offers in most Music Business endeavors.

First let’s face two facts:

1. The Record Business is no longer the big fish in the Music Business.
2. The highest value within music is in the experience, not in the products.

That said, and considering all those discussions on the pointless fight of Record Industry entities against P2P Services, it’s clear that recorded music still can generate revenue, but its potential lies on the indirect relation with sales and direct relation with marketing.

Let’s use a hypothetical example of a record label with 100 albums in its catalog, having sold 1 million records in one year of activity. If we use the 20/80 theory and assume that 20% of the albums generated 80% of this amount, we have an average of 40,000 units sold per album. But maybe these 20 albums have been shared through P2P networks and the downloaded copies have amounted in 10 million over that same year. The label owns the rights to all that music for which people haven’t paid, and the CEO starts wondering how much the label could have profited if P2P networks didn’t exist. Yet the CEO knows they do exist and don’t seem to be going anywhere anytime soon, and realizes the label’s music has been exposed, for free, to ten times more people than it has through the label’s costly marketing campaigns.

To capitalize on these downloads, one thing the label could do is create an online environment that 1) centralizes the sales of all its products and concert tickets, offering different products at different prices to tailor fans’ needs and affordability, and 2) allows fans to interact. By rewarding fans with discounts for making recommendations, this system would encourage fans to spread the word-of-mouth around the label’s music, thus creating a buzz, massively increasing sales and driving more fans to concerts. Also, the label could make cross-promotional campaigns and link the label’s website to the artists’ website. If each artist would develop a direct relationship with the fans and encourage them to purchase through the label’s website, the 40,000 fans of the artist could be multiplied, who knows, ten times? A hundred times? Well, the label’s online environment is now a powerful viral marketing tool for them to achieve that exposure.

While this is just one example, it illustrates the idea of how to monetize fans’ interaction, looking to obtain the following results:

• Growth of product sales through a broader variety that can fulfil different demands;
• Growth of ticket sales;
• Increased exposure;
• Larger profit margin through lower marketing and distribution costs;
• Increased website traffic, generating better results in search engines.

And this is just for a start. Of course, there are more complex issues to be handled (i.e. legal), but the point is: file-sharing offers real opportunities for those who are willing to innovate and break paradigms, taking controlled risks. The trick is that larger achievements require giving up certain things and leaving the comfort zone. How many are willing to do so? Well, if you are, please drop me a message and we can discuss the countless existent opportunities.