Category: Freemium

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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?

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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.

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.

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.