Stack Them High, Sell Them Low: Can Creators ‘Get Lucky’ By Selling Merchandise?

Spotify has recently announced the ability for artists to offer merchandise to fans through their platform without taking any commission. Is this a valuable opportunity for creators or, as some have claimed, simply a cynical attempt by Spotify to improve its sometimes shaky relationship with artists? Is merchandising actually useful as a source of revenue?

All sorts of goods have been offered for sale by creators over the years. The American band Kiss has sold coffins; Boy band One Direction have their own line of toothpaste and toothbrushes; and recent Grammy award-winning band Daft Punk last year released a range of condoms packaged with the distinctive art of their hit record “Get Lucky” (although, as one commentator noted, they missed the golden opportunity to brand after their song “Harder Better Faster” instead ). The opportunities are endless.

When done well these offerings can make huge sums for their original creators. Pixar, for example, produced a follow up to their animated film Cars on the back of an estimated US $10 billion in revenue generated from merchandise associated with the first instalment. Even smaller movies such as the Australian work Beached Whale have been able to raise over US $2 million through such channels despite being made on a budget of only fifteen Australian dollars and being freely distributed on YouTube. With the decline of traditional revenue streams, such as licensing, merchandising is only likely to continue to be an important part of monetising works such as animation. Indeed capitalising on the market for merchandise will arguably be critical to long term success: it can even make money from beyond the grave!

This is not a new concept. For generations musicians have sold t-shirts and other goods at gigs while many museums over the years have found that free access to their collection can be offset by revenues gained from selling merchandise in the gift shop. Merchandising has long played a part in the business models of creators from across the spectrum of pursuits.

Old Money

Available under CC BY-NC-ND 2.0 by Christopher S. Penn

It has however become an increasing topic of discussion in recent years as the traditionally dominant revenue streams in some industries have dwindled. The recorded music industry in particular has seen increased attention paid to merchandise as falling record sales have been met with an increase in record labels signing artists to so called ‘360 degree deals’: deals in which the label takes a share of a several of their artist’s revenue streams rather than solely record sales. Merchandising is often included.

These kinds of deals leave the signed musician in an uncomfortable position. While the record labels see ‘360 degree’ contracts as a partnership with artists for mutual benefit it can be argued that for many artists they are not a good idea. Merchandising is one way in which a band can compensate for the fact that record contracts rarely provide the band with much revenue. Giving the labels a slice of merchandising revenue on top of the traditional record sales can therefore erode musicians’ earnings.

This is only compounded by the fact that the sums raised from merchandise do not appear to be large to begin with for most artists. Some studies have found that as few as five percent of musicians are able to earn more than a tenth of their income from the sale of merchandise and it seems clear that merchandise, while a nice bonus, simply doesn’t earn enough to play the bills for the majority. To lose a portion of this already meagre income may be painful.

One Direction Merchandise

Not all merchandising is this successful … Available under CC BY-SA 2.0 by Eva Rinaldi

In other sectors creators may even need to think carefully about whether some types of merchandise can be useful at all. For traditional visual artists, for example, the sale of merchandise may harm more than it helps. If merchandise bearing an image of an artwork is sold in close proximity to the original work sales may be cannibalised: Replicas can be a substitute for the original for some. If not carefully thought through therefore some types of merchandise may actually lose a creator money.

Even where selling merchandise doesn’t make an artist rich however it can still be worth doing. Merchandise can play a significant role in the building of a brand around a creator and their works and thus can benefit their career overall even if it contributes little financial return in the short term. A creators’ brand can have a big impact on their chances of success and some industry players have even gone so far as to argue that it is an essential consideration.

Overall therefore it appears that merchandising has many upsides and few downsides. While for most it may not prove to be a huge earner it can help to grow a brand and, if carefully thought through, will likely contribute at least a small increase to net revenue. While it is possible to assign cynical motives to recent efforts by Spotify to allow the sale of merchandise it therefore nonetheless offers a valuable avenue for creators to exploit.

YouTube or TheyTube?

By Guest Blogger: David Komuves


Recent efforts by the video-sharing website YouTube – such as the introduction of original channels and paid subscriptions – show that it is increasingly becoming a distribution network for professional content. Ever since its purchase by Google in 2006 YouTube has been on the path of commercialisation and its place in the online economy has been defined by tensions between copyright, content and revenues. Whilst YouTube still has the potential to be a platform for amateurs and independent artists the growing dominance of commercial content risks marginalising their creations.



Available under CC BY-SA 2.0 by Rego Korosi

YouTube was officially launched in December 2005 and although it was not the first video-sharing website it has quickly become the most popular. As of the time of writing it attracts more than 1 billion unique visitors per month making it the third most visited website on the Internet. It has often been viewed as a democratising platform that has fundamentally altered how people engage with media, with the potential to reshape the whole media landscape. However since its purchase by Google in November 2006 YouTube has been on the path of commercialisation, transitioning from a medium characterised by user generated content to a broadcasting channel dominated by professionally generated videos. Despite Google emphasising that ‘[t]he community will remain the most important part of YouTube’ forces of both legal and economic nature have forced it off this course.

Copyright infringement has always been a major topic for YouTube. These issues have however been framed differently following Google’s purchase of the service. Whereas before the conflict was seen as existing between the media conglomerates and the ‘freedom fighter’ of YouTube, afterwards it became a conflict between big corporations and a target that could afford to pay. In the wake of Viacom’s lawsuit – launched in March 2007 for more than $1 billion in damages – several class actions were filed in the U.S. on behalf of parties such as sports leagues, broadcasters, music publishers and other copyright owners all of whom claimed that YouTube should be liable for any copyright infringements committed by its users. While the Premier League and others have recently decided to drop their case Viacom v. YouTube is still on-going after 6 and a half years, concerning a version of the site that has not existed since the October 2007 date when YouTube first introduced video identification tools.

These video identification tools, known as Content ID, can automatically identify matches between files submitted by content owners and those videos uploaded to the site.  Content owners are then given the option of deciding between leaving the video unaffected, blocking it, or claiming the right to run advertising with it in a revenue splitting agreement with YouTube.

This still means that in situations where someone else owns the copyright to content in a video (such as to a song), and asks YouTube to take it down, the video will be removed. However if the copyright holder decides instead to ‘monetise’ the video, it will instead remain available and generate income from advertising. This happened for example with the song ‘Harlem Shake’ when it went viral this February, spawning thousands of cover versions uploaded daily to YouTube.  These videos hit a total of 1 billion views just 40 days after the first upload generating revenue for both the record label Mad Decent and YouTube.

Harlem Shake

Available under CC BY 2.0 by Marie. L.

Indeed popular videos are the lifeblood of the site. YouTube mainly relies on advertising to generate revenues and Google is trying everything it can to get a return on its investment. The site needs content that is popular in order to persuade advertisers to spend their money advertising through the YouTube platform. While amateur videos form the majority of content they are barely watched in contrast to the videos of major media companies: as of today all but one of the 20 most viewed videos of all time are professional music videos. Furthermore, it may very well be the case that user-generated content is not necessarily the kind of content advertisers want to be associated with: it might contain a controversial message; be low quality; or possibly infringe upon copyright.

Even before the Google buyout YouTube had attempted to partner with major media companies to provide content for the website. Warner Music Group agreed back in October 2006 to provide its library of music videos and to allow YouTube users to incorporate its music and video footage into their own videos. Their main condition was that Warner and YouTube split the income drawn from advertising that accompanied these user-generated videos. However in December 2008 Warner rescinded the agreement due to its dissatisfaction with the revenues generated.

When YouTube was forced to turn instead to smaller partners such as the NBA or Ford the decision was taken to start building its current business model: providing branded channels featuring a specific partner’s content. YouTube formed partnerships with hundreds of companies who contributed their material to the site whilst around the same time inviting those of its users with the most-viewed videos to join its revenue-sharing deals. The business model of YouTube began to shift towards becoming a distribution network for commercially produced professional content: the kind of content that will make the site profitable.

Recently YouTube continued to move further in this direction by enabling any video creator who has 10,000 subscribers to set up paid channels and charge a fee for access to their content. This follows in the trend of previous experiments by the service, including their 2011 launch of a paid video-on-demand service and their investment of over $300 million in upwards of one hundred ‘original channels’. Most of this funding went to well-known personalities (such as Madonna and Shaquille O’Neal) and content producers from the TV, film, music, news, and sports industries along with so-called multi-channel networks. With these moves Google hoped to extend its audience, attract more advertisers, and eliminate the need to negotiate with big studios for premium content.

Additionally the website layout has been changed several times to more prominently feature professionally generated and promoted videos over those of ordinary users. It can be argued that these changes do not go along with the YouTube slogan of ‘Broadcast Yourself’ as the emphasis has become more and more on distribution and consumption rather than creation. The message being portrayed is that user-generated content is not as desirable as professional content because of its inability to attract sufficient advertising to make a profit.

What does this all mean for individual creators? Although the increasing number of professional videos does not automatically wipe out user-generated content, and YouTube still has the potential to be a platform for amateurs and independent artists, the growing dominance of commercial content might very well overshadow and marginalise their creations. Additionally the current payment mechanisms structured around professional level content may benefit Google and its corporate partners but not generate enough revenue to support independent creators. Although the revenue sharing program was expanded last April – allowing anyone who meets certain criteria to become a ‘YouTube partner’ and monetise their videos – many contributors have remained disappointed by their earnings

This raised a key question: Will YouTube continue to be a home for individuals to share their content, or will it increasingly become dominated by major corporations? We might find out soon…


For Better or For Worse – Do New Technologies Actually Benefit Artists?

Over recent years we have seen a number of innovative new technologies, from iTunes to the iPlayer, released that promise to benefit both creators and users alike. Unsurprisingly these new arrivals meet with frosty receptions from the artists whose works they sell. Claims that these technologies will hurt rather than help are thrown against the claims of the companies running the services, who for their part argue that they will give artists a better deal than anything that has gone before. So who is in the right?

Over recent months this running war between the two sides has once again seized the headlines as prominent musicians and industry bodies have hit out at online music streaming services Spotify and Pandora. Last month artist David Byrne followed in the footsteps of Radiohead frontman Thom Yorke and Radiohead  producer Nigel Godrich  by pulling a large part of his works from Spotify amid wider claims by artists that such services give them a raw deal. Music superstars Pink Floyd even came out publically in opposition to the online radio service Pandora, accusing them of trying to trick artists into supporting an 85% pay cut.

Indeed Godrich claimed on twitter that the Spotify model was actively harmful to small labels and new artists. The most prominent complaint put forward by artists has been the unsustainably low amounts that they have been paid for their online radio plays. As an example one songwriter, David Lowery, made only U.S. $16.89 in royalties despite his band’s track receiving over 1.15 million plays on Pandora: He claims to make more than this through the sale of a single T-shirt in some venues. In contrast Lowery received over $1500 from terrestrial radio royalties for the same song over the same time period.

Industry lobbying groups have likewise come out guns blazing against online radio services. The purchase by Pandora of a terrestrial radio station in a bid to pay lower rates was branded a “sick joke” by music industry groups who claim that Pandora are attempting to cheat artists out of money. David Israelite, CEO of the National Music Publishers Association, has outright accused Pandora of being “at war with songwriters”.


Available under CC BY-NC-SA 2.0 by the justified sinner

The companies behind these services are not taking such claims lying down however. They have claimed that these figures are grossly misleading, if not outright lies, and that far from harming artists their services actually offer them a better deal than their traditional counterparts. Pandora replied to Pink Floyd by arguing that they were being misled by an industry lobbying campaign led by the RIAA: that Pandora payouts to artists are 4.5 times more generous per listener than that paid by terrestrial radio, and greater in total than any other form of radio. The industry position that Pandora seeks an 85% reduction in artist royalties is dismissed as “a lie manufactured by the RIAA”. Spotify likewise points out that while its business model is still in its early stages it has already paid out over $500 million to artists, and is on track pay out $1 billion by the end of 2013.

With such an emotive issue it can be hard to look beyond the rhetoric to consider the issues objectively. One thing that is clear is that the numbers being thrown around by both sides are exaggerated and unhelpful. For example Michael DeGusta, a tech blogger and businessman, looked at Lowrey’s payout figures (discussed above) and calculated the actual pay-out by Pandora for the song at over $1300, with Lowery actually receiving a total closer to $234 than the headline figure of $16.89. While $16.89 did represent a payout received it was (predictably) not the whole of the story. It only represented one of the royalty streams – songwriting and performance – that Lowery was due; it represented the smallest of these two streams; and it represented only around 40% of that smaller stream as other players, including record companies and other band members, took their cuts. Indeed in a recent op-ed for the Guardian newspaper Billy Bragg argues that the problem is not the payouts themselves, but the fact that record label contracts often take a huge cut from the funds before they ever reach the pockets of artists.

On the other hand however the $500 million to $1 billion payout figures trumpeted by Spotify does ignore the fact that the underlying payout rates are measured in fractions of a penny and that even if the whole sum made its way directly to the artists the number of plays required just to make the minimum wage would still be in the order of tens, if not hundreds, of thousands of plays each and every month. For all but the biggest of artists these royalties will never even pay the bills, let alone make their fortunes.

Overall however it can be argued that the current rhetoric is perhaps missing the real point. While the situation is often described as a fight between artists and technologies, the reality is that the changing technologies are themselves often simply reflecting an underlying shift in consumer expectations. Consumers have long since left behind a world where they were the passive recipients of music. Instead they seek on-demand flexible access to the music they choose at a time and place convenient to them.  Perhaps instead of railing at the business models of the new technologies, artists should be looking to seize the advantages that they can offer.