As I was watching the news the other day, a story came on about the skyrocketing number of foreclosures that are taking place across the nation. There was an interview with a couple who blamed their situation on their commission-hungry agent who sold them a house for which they were not qualified, their unscrupulous broker who “creatively” structured a loan that they could not afford to make payments on, and their uninformed friends for giving them bad advice. They basically blamed everyone – but themselves.
It got me thinking about what the music industry can learn from the real estate industry and the parallels between the two.
Like the real estate industry, the music industry is a percentage based business. Both have their own esoteric language and both rely on a cast of revolving characters who play a variety of roles. Both are relationship driven. Both are service oriented in nature. Both thrive on deductions and hidden costs that impact price and profits. And obviously, both have ups and downs.
But there is one major difference: In real estate, nothing happens without financing.
In the real estate industry, when you are serious about buying a house, the first step is to find a lender who will secure the loan for you in order make your purchase. Once upon a time when music artists used to covet record deals, they did so because obtaining a record deal was synonymous with obtaining financing.
The chief purpose of that financing was to satisfy production and marketing costs. With the advent of the Internet and the resulting independent movement (which has been falsely promoted as the answer to the alleged oppressive business practices of record companies), many artists will never receive the kind of exposure that their predecessors have enjoyed simply because they will not have the financial means to do so.
In short, there is no longer an obvious and readily available source of funding for music artists. Record companies traditionally served this purpose, but that’s beginning to change as artists seek, and find, alternative sources of financing (e.g. Madonna and her lucrative 120 million dollar deal with Live Nation) outside of the music industry. Superstar artists that is.
Aside from the financial issues, the main problems with music – and the music industry – are value, perception and relevance.
In real estate, the mantra is: Build it and they will come – with financing to purchase it because in the end it’s not really a purchase; it’s a sound investment that will yield future dividends (in most cases). The same can’t be said for CDs which (by public consensus) only have two good songs out of 10 or 15. That’s called a bad investment…and a good business opportunity for iTunes. By now we all know iTunes is not really about the legal purchasing of music, it’s about the selling of iPods, and for people 15 – 25 (still the target age audience for the music industry) the perception is that music should be free. That’s with or without an iPod.
So how do we achieve that relevance? What pertinent lessons does the real estate industry provide to help the music industry straighten things out? Here are some:
1.) ESTABLISH VALUE
People buy houses as a commodity, but they live with their families in homes. The real commodity of the music industry is the emotional connection that people have with artists through their music, not the plastic CDs they buy. When people find an artist who provides the music that they can use as the soundtrack to their lives, they embrace them, celebrate them, and reward them. It’s the emotional experience and the guarantee of it that people associate with artists when they are purchasing their music, merchandise, concert tickets, and now as in many cases, movies tickets. It’s when that guarantee is not upheld that people feel disappointed. Greater care and greater measures need to be taken to capture, portray, and present the emotional value of an artist and their brands.
2.) BUILD EQUITY
Equity is money that is earned above the estimated value of your property. The process of earning equity – which takes place over a period of time – is called appreciation. What determines how much the value of your property appreciates is based in comparison to the rising value of surrounding properties in your area. These comps are obtained when you get your appraisals done (see 3 below). If you are a music artist or music producer, it behooves you to compare yourself to others with similar track records – not talents (talents are too subjective). Therein lies your estimated value. A track record of delivering consistent quality work over a period of time, will help to build equity in your brand that you can profit from. The same holds true for industry professionals and companies who provide products or services.