Declaration of Independents Panel, TAXI Road Rally 2006, Part 2

Moderated by Michael Laskow

Tony van Veen, Executive Vice President of Sales and Marketing (President, as of 1/6/07) for Disc Makers
Derek Sivers, Founder, President, and Programmer of CDBaby and HostBaby
Steve Corn, Co-founder, Big Fish Media LLC
Michael Colledge, Vice President and Senior Financial Advisor of Merrill Lynch

Michael, from the financial perspective, most of the people here have a day gig. The fortunate few are working musicians who in turn earn their entire living by making music. But for those of them who have a day gig and they make $50k a year, are there financial products or strategies they can use that are relative to their music to help them save money. I deduct my cable bill because I watch movies, and I want to see music supervisor credits so that I can contact them and run listings for TAXI members. So it's a legitimate deduction. What other deductions are out there?

MC: A lot of things. You can actually deduct CDs that you buy and claim it as research—things like that. I think you always want to be looking out for opportunities to be able to deduct things. Just keep all the receipts of everything you do relating to music. Your TAXI dues or renewal fee every year, that's deductible, your CDBaby setup fee, things like that, when you press your CDs at Disc Makers, all those things.

I have a day job, and I'm a musician on the side. But music is a very serious and time-consuming second career for me, so I absolutely take advantage of some of the deductions available to me as a musician. But, you're going to claim that income and those expenses on your Schedule C, and again, if you can prove profit intent to the IRS—that you're in it to make money—the first couple of years you'll probably have losses, and you can claim those losses, or use those losses to offset and reduce you taxable W2 income.

But what happens? You can't have those losses for more than a couple of years without getting an audit.

MC: It's three out of the last five years you have to show a profit, at least three out of the last five years...or prove profit intent, if you can do that, and still carry forward losses.

TV: I had a record label, and my record label's claim to fame was for two years running I had the top-selling album in Aruba. I grew up in Aruba, my wife's from Aruba, my family's still there, so you can imagine this was great because I made my mother-in-law my distributor. So, all my phone calls to Aruba I deducted, my travel when my wife and I would go down to Aruba for a vacation. I would conduct some business; I would go to visit record stores, and so on.

Have dinner with your distributor...

TV: For some reason, even though I had the top-selling record in Aruba, I never made a profit. After three years of not making a profit, I was like, "Well, I'm never gonna make a profit," so I just stopped deducting, and effectively, shut down the business, and that was it.

MC: Adding to what Steve said earlier, the whole business concept of your music career, you really have to be creative I think. And speaking from firsthand experience, with some of my musical pursuits—and by the way, I'm one of those artists that CDBaby has not helped me sell a lot of records. But that's my fault, not CDBaby's.

Derek, are there any common threads among the people who are wildly successful on CDBaby?

DS: Yeah. There is definitely this purple-cow feeling that the ones who are doing better than everybody else are doing something wildly different than everybody else, meaning they're the same as everybody else, but a little better. It's just like everybody else went this way, and they went that way. There is this beautiful comparison with NyQuil. There is a book called Positioning that's been around for 20 years by Ries and Trout, in which they use the example of NyQuil. Imagine before NyQuil existed that you had come up with a cold medicine that you felt did a really good job of reducing coughs and fever and stuffy noses, but you look at the shelves at the grocery store and there are all these cold medicines. You think, "How can we be cold medicine #35?" And they said, "I know, we'll put a little bit of sedative in there and we'll be the nighttime medicine." And all of a sudden, they captured that mind share. It's kind of like imagining a pie chart with like 35 cold medicines taking a little piece of the pie. Then all of a sudden by you saying, "Yeah, but we're for nighttime, all those other guys, they're for the daytime. But when it's nighttime, you need us." What it did then was cut that whole pie chart into half, and it pushed all the other 35 onto this half, and NyQuil got that whole half to themselves.

So, it's a mindset thing. Like say you're running a recording studio, and you're in Chicago and there are 100 recording studios in Chicago. You can say, "All those other guys, go to them for anything else, but when it comes to drums, drums are us. We are the best place to go for drums. They're not specialists in drums like we are. Anytime you need to record drums, you come here." All of a sudden, you get this mindset. You can do this same thing with yourself as an artist. If you strongly define who you are, you can own a certain mindset. The metaphor I've been using lately is you think of the world's attention as if it's a big sloshy kind of cottage cheese and you need to cut through it. Well, you can't cut through things very well if you're well-rounded. You need to be sharply defined in order to be cut.

Let's do an experiment. Let's see how many audience members are prepared to describe their music. What kind of music do you do?

Musician: I'm doing a singer/songwriter album for domestic-violence prevention education that comes with a video.

Very differentiated. OK, what kind of music do you do?

Musician: Mainstream Pop/Rock for adults.

We're two for two today. OK, but what makes it different?

TV: What Derek's talking about is a concept called a Unique Selling Proposition—what really makes you unique that nobody else can really say about them. Unfortunately, while you know what you are, it doesn't really make me want to give it a listen, because there's nothing really that grabs me.

DS: It could be sharper. The domestic violence one was very sharply defined. For adults, you could take it a little further and define it sharper.

Musician: I'm writing music which is to be used for people who are either in the throes of dying, or their family members are, with a video to help them traverse over that bridge and be able to communicate better. It's going to go to hospice people, to people who work with people in hospitals who are in the throes. I haven't developed by base yet, but that's where I'm going.

DS: That's a great niche.

It is, but you need to make it even more focused in the presentation—music for people who are dying.

TV: Just don't expect any Top 40 airplay.

I don't know. I think people are dying to buy that music! That was a cheap shot.

DS: I'll tell ya, there were a couple of examples. One of the first top sellers we had on CDBaby was a woman named Eileen Quinn, whose album was called Songs for Sailors, and all of the songs were about the west winds, the Florida Keys, and the yo-ho-ho, the waters and the salts, and the what-not. And you'd think that, OK, here's an obscure little niche project, but she ended up selling thousands of copies because it was so sharply defined that every single sailor everywhere had to have her album.

David M. Bailey is one of our top sellers ever, and he does music for brain cancer survivors. He's a brain cancer survivor himself and goes places and talks about it and then sings his songs. And brain cancer survivors everywhere talk about David M. Bailey.

So, that leads to my next point that I see the top sellers doing, which is breaking out of the traditional ways of telling the world about music. Don't do it through music press. Don't think that having a little one-paragraph review in a music magazine is going to do you any good whatsoever, except to make a little clipping. Instead, find a way to reach outside the traditional places that are already filled with music. Eileen Quinn, the Songs for Sailors, she got an article in Boat U.S. magazine that was amazing because it was about her lifestyle, about how she's a full-time sailor doing songs about sailing and putting out her own album. And what was amazing, they put her 800 number at the end of the article, so we got to actually talk to these people calling in from boat docks in the Florida Keys. And here's what's amazing, they'd say things like, "Wow, I just think it's amazing that people are putting out their own music. I didn't know that she's releasing a record by herself. That's amazing." Because to a sailor, they've never heard of this kind of thing, whereas, if you tried to take that same story and put it into CMJ New Music Monthly... But if you take your story—and perhaps you're really into horses—you should be talking to Equestrian magazine about how you combine your horsey lifestyle with your music lifestyle. Or, here's a brain cancer survivor that instead of going through the usual routes and saying, "Oh, P.S., I survived brain cancer," he's going around talking to brain cancer survivors. What I'm getting at is that the main point becomes you as a person, your story, the kind of thing that Oprah would talk about. Get people into you as a person, then as a side effect they will love your music for the rest of their life because they've touched them as a person.

Steve, you had a point?

SC: Derek just touched on something that there. People who read music industry press are not buyers. They won't buy your CD. There are a lot of newsletters out there—and Billboard is certainly great—but the people who buy your CD don't read Billboard, they don't read MI?, they don't read Digital Music News, they don't read Spin. They are the horse lovers, the brain cancer survivors. I'm doing an album for people with high cholesterol, by the way. I think it's a pretty good demographic.

It's got to be half of us in the room.

SC: Yeah. It's designed to help you cope with the loss of eating donuts. But the idea is, you've gotta reach outside the little iconoclastic industry that we're in. We are very myopic, we love talking to each other about our business, but the people you sell to are the general public, or subsection. You reach out to them, and there are a lot of creative ways to do that. A boat magazine will be much more likely to feature Songs for Sailors than Spin.

I want to go to van Veen with this because I had him down for an answer on segmentation. Market segmentation, tell the audience what that means, and how they can use it to put more money in their pocket.

TV: Well, it's really about what we've been talking about. You've got to find your niche, and defining a narrow niche—songs about sailing, or songs for people who are dying is a great niche.

But that's more like positioning versus segmentation. I'm talking about looking at the age range, and looking at socioeconomic demarcations, or regional aspects, things like that you can use.

TV: That's over-thinking it... I think. You kind of know who would be attracted to your music.

You would because you live and breathe marketing. I don't think the people behind me would think about, "Gee, if I do Country music, then I don't need to be trying to sell my product to an African-American audience that likes urban music." They would probably be better off advertising in a magazine that sells cowboy boots or saddles. That's what I'm talking about.

TV: Right. So, basically think about who would actually buy your music, and then figure out where those folks congregate, where they buy, what they read, and get your stuff there. Following up on the comment that I started to make, we have this client, a group called Electric Angel, and they play this new agey kind of music. Through just elbow grease they worked their way into these new age stores that sell candles and scents and stuff like that. They're selling boat loads of CDs, because they're the only CDs in the store. So, if you can do that, there are some real opportunities there.

Michael, I know this is a really hard question to answer. We talked about it a little bit before the panel, but because of the whole "struggling musician, I'm broke" thing, are there any ways that these guys can go out and raise money. If you don't have a good answer, I understand, but I'm tired of hearing it. After 31 years in the music industry of hearing "struggling artist." There's got to be some way for these guys who don't have the funds to record their own CD, or don't have enough money to be able to walk away from their day job to go on the road and market their stuff. What can they do?

MC: I think you just have to be creative with how you think about it. There's no one source to go to where... There's no venture capital firm for musicians—although that's not a bad idea.

TV: Yes it is.

MC: I was talking to a member yesterday during one of the classes, and he asked me the same exact question. I tried to brainstorm with him a little bit. Go out to your fan base, talk to your e-mail list—I don't think you want to go groveling for money from them. He said that he's thought about maybe doing pre-order for his CDs so he can see a little money up front to help wrap up some of the recording costs. The recording does add up, I know that, but maybe you can work out some sort of a deal with the studio or with your producer or whatever. Maybe he or she can front you some free studio time, then turn around and just agree to pay it back down the road. That can motivate you to really get your butt out there and sell more units once the CD comes out. I don't there's any simple answer, but talk to anyone you know in the music business, or anyone that's helping you with your career, with your recording, and just see if they can help you out a little bit as kind of an investor in your business. And you have to make good on paying them back somehow down the road, but...

It might give the artist a greater impetus if they borrowed money from family and friends to make the CD. Having that hanging over their heads, maybe they'd actually get out there and hustle.

MC: Exactly. You have to do it. Like we've said up here, no one's going to do it for you. The Internet may not have created a level playing field, but it certainly does pull down a lot of barriers that existed before between the majors and Indie artists. There is a lot more opportunity out there for everyone. So, I don't know. Utilize your MySpace friend list and maybe try to reach out to them and somehow...

The people who bought your last CD are a high probability target for buying your next CD. If they've already bought one, they're certainly likely to...

MC: Absolutely. Do a pre-order and look at your CDBaby record and see who the people are that did buy your first CD and give them a $2-off deal or something like that.

DS: Michael, you brought up an interesting point when you said maybe if you borrow money from relatives you'll have that extra inspiration to get your butt in gear and... You know, it's funny, every August we do this thing at CDBaby where we say, "OK everybody, from August 1 to 30, whoever sells the most CDs in this month, we're going to go to bat for you, we are going to put you on this compilation CD. So it's kind of this contest on who can be the top sellers. And we do it in August because it's kind of this notoriously slow month. And what's interesting is seeing those people whose sales go up 1,000% in August as soon as we have this contest, because all of a sudden they've pushed themselves to try harder, to contact people again to say, "Hey, if you bought it, buy it again as a gift to others." Every time we do that, I always I think, why didn't they do that all along? I mean, they know how. Do they really need that extra inspiration just to do what they knew they should be doing? Interesting mindset.