I’m spending this week in LA—mostly to meet with the founders in the latest Techstars Music cohort, and to cover their highly-anticipated demo day on Thursday. Can’t wait to see some familiar faces and meet many new ones (you perhaps?) in the audience.
Today’s newsletter draws from an article
editor-at-large Tom Foster about the increasingly crowded market of direct-to-consumer (DTC) retail brands. In particular, DTC eyewear startup Warby Parker’s success has created a chaotic legacy of hundreds of founders—many of whom took the exact same marketing class with the same Wharton professor
—racing to build analogous DTC brands for products ranging from razors
One interesting point Foster makes is that the DTC market is so saturated that many of these brands are ultimately forced to adopt the same marketing methods as the very incumbents they were trying to replace—or get acquired
by said incumbents, and consequently become nothing more than an innovation pipeline for the old guard.
The story goes as follows: many DTC brands start out with more grassroots, guerrilla-esque marketing tactics to acquire customers. But over time, they start to rely more and more on paid search and social-media ads, and consequently lean on Facebook and Google as an inseparable part of their new “digital storefronts"—undermining these brands’ own goal of removing middlemen from their operations.
As these big-tech "digital storefronts” mediate customer relationships for a growing pool of DTC competitors—many of which are targeting basically the same users—said competitors not only drive up each other’s marketing costs, but also ring the alarm for incumbents, who then pour even more money into the same ad buckets. Out of desperation, DTC brands then take two steps back and actually invest more in the highly inefficient, non-targeted ad formats that they were aiming to circumvent in the first place—i.e. subway ads, billboards and TV/radio spots—in an attempt to escape the noise and saturation that drowned them online.
Foster maps out this uneasy DTC journey to argue that entrepreneurial retail brands can be digital-first, but rarely ever stay digital-only: “They can use the internet to get around the traditional barriers of entry, but once they’ve arrived, it’s more like business as usual.”
What does this have to do with music? I wasn’t quite sure until last Wednesday, when I gave a presentation to grad students at Cornell Tech about the current state of music-tech. I was invited to speak by HBS professor John Deighton, who opened the session with a deep-dive into the 21st-century DTC brand economy at large (drawing from his extensive research with the Interactive Advertising Board
Deighton and other marketing professors and researchers are interested in the music business because they see music’s value as a guinea pig for many digital innovations and trends (e.g. content disaggregation, consumer subscription models, voice-enabled experiences) that would later impact other commercial sectors. In preparing themselves for similarly disruptive change, industries as diverse as furniture, fashion and grocery services are all looking to the music industry as a strategic guidepost.
This claim sparked a question in my head to which I haven’t found a neat answer yet: is the music industry really the best role model for how to run DTC brands? Or is it still "business as usual,” with fragments of a wholesale, broadcast mentality still dominating the conversation and pushing DTC to the fringes?
In the context of music, my understanding of DTC (more often referred to as “direct-to-fan”) is any environment in which artists own their brand narrative and have more control over their relationships with listeners and fans, with little to no intervention from middlemen.
Among the most effective physical DTC music channels in recent history are artist-owned-and-operated music festivals, such as Eaux Claires
(Bon Iver), Camp Flog Gnaw
(Tyler, the Creator) and the Roots Picnic
(The Roots). Such festivals serve as an opportunity for artists to paint more multidimensional portraits of themselves and of their inspirations and creative relationships—often integrating visual art, spoken word, activism and other elements alongside music, in a way that more traditional festival franchises might not be able to pull off.
As for digital DTC music channels, sites like Bandcamp and Patreon come to mind as exemplary platforms—allowing artists to control and customize their aesthetic and messaging, while helping them to identify and nurture fans and followers more transparently, on their own terms, and ensuring that the relevant financial transactions are motivated primarily by the artists’ own brands.
According to the vast majority of analysts, however, DTC platforms are not driving the music industry’s growth. Instead, it’s still paid music streaming—which I think is actually taking on more and more of a wholesale mentality, as social features go down the drain, big-tech companies own many of the emerging distribution channels (e.g. Amazon dominating voice, and purportedly giving little data back to labels/artists, for now) and the majors continuing to wield their influence however they can (e.g. windowing is still a thing
Spotify as a successful “consumer subscription business” that has other industries envious—but it’s important to make a distinction between consumer-facing and direct-to-consumer
. Once artists put their music on Spotify, there’s little DTC communicative potential natively on the platform, especially if you’re in the long tail. The phrase “self-driving music
,” which keeps coming up at Spotify’s press conferences, nails this point down on the head: the retailer, not the artists, has the keys to its own car and both of its hands on the steering wheel.
In my last newsletter
, I discussed the difference between subscription and membership, and the struggles that streaming services face when trying to implement a “membership culture” in an environment that fundamentally prioritizes personalization and individuality over community. DTC is an integral part of this picture, as a successful DTC strategy involves dialogue-driven customer service and relationship management, which most streaming services don’t quite enable yet on behalf of artists. Merch is one proxy for this challenge: SoundCloud has yet to implement any sort of merch sales integration, while I’ve heard that the sales coming out of Spotify’s integration with Merchbar haven’t been meaningful to date.
DTC divisions within major labels continue to expand financially: for instance, Warner Music’s Artist Services division reportedly saw 58% year-over-year growth
for their online e-commerce business in 2017. But if you look under the hood, this growth isn’t DTC at its core because it still leans heavily on traditional, wholesale retail channels. For instance, Bravado
, the division of Universal Music Group that partners with artists on branded product lines, is still earning the majority of its income through mass-market third-party sellers like Kohl’s and Urban Outfitters.
In short, I’m not sure if the mainstream music industry is the best model for DTC brands as of today. For sure, many artists in the long tail make the majority of their income from DTC channels like live shows and merch sales, but DTC strategies rarely ever make it into the music industry’s growth narrative.
This may change in the next few years: MIDiA Research recently found
that recorded-music revenue generated by artists without labels grew by 27.2% year-over-year in 2017, representing the fastest-growing creator segment in the industry. Such artists naturally embrace and thrive on a DTC philosophy, and I think tech platforms would be wise to build out more features that cater to this growing creative community. For example, while this may be logistically challenging to implement, I would love to see Spotify roll out its Fans First
segmentation and outreach capabilities to all artists—empowering artists even with only a few thousand followers to identify their top fans, reach out to them with custom messages and curate attendance for their own intimate events and experiences.
Do you think the music industry is the ideal role model for 21st-century DTC brands? Will we ever reach a point where DTC is the main driver of aggregate growth in recorded music? Or are we already there and am I missing something? Let’s talk!