For anyone just tuning in, I've been publishing select excerpts from my upcoming book, Crowdsourcing: How the Power of Crowds is Driving the Future of Business. The published book will include the most trenchant comments in an appendix. Here's the final bit from Chapter 4:
The New Distribution Network
The members of Hawthorne Heights have no business being rock stars. They play a strain of punk that has consigned innumerable bands to the obscurity of dive bars and pirate radio. For the past three decades, a devotion to this stripped-down, anti-commercial music has meant never quitting your day job. And yet here they were on a dusty summer day in Pomona, California, playing for thousands of adoring fans. The kids in the audience - a multiracial mix of teens from across the SoCal region – were in a transcendent state, crashing against each other like pin balls and screaming each lyric with red-faced intensity. They’d memorized the entire set.
In the summer of 2005 I followed Hawthorne Heights to concerts in Pomona and Cleveland. The band was a big draw for that year’s Warped Tour, in which more than 300 bands play some 48 concerts at venues across America. I flew coach, but the members of Hawthorne Heights toured the country in a plush tour bus. The quintet’s debut album, The Silence in Black and White, had already sold 500,000 copies, a healthy performance for a down market. The group had recently appeared on “Jimmy Kimmel Live” and MTV. These five young men from Dayton, Ohio had achieved the rock’n’roll dream, but like M dot Strange they had taken an unorthodox route to success. The band achieved its popularity without significant radio or TV airplay, a feat unheard-of a few years earlier. They weren’t signed to a major label and they didn’t have an industrial-strength, multi-platform marketing campaigns. Further, they didn’t have fleets of trucks delivering CDs to Wal-Marts across the country. “A major label can be thought of as a bank with trucks,” says longtime industry veteran Jim Griffin. “The bank loans the money to the band to make and promote the album, and the trucks carry the product to the stores.” Distribution used to be the point in the supply chain at which big companies could control the market. If smaller players couldn’t get their product to retailers, they couldn’t compete. The Internet turned this upside down by making the distribution of anything capable of being digitized as easy as hitting send on an email. Hawthorne Heights didn’t need the bank or the trucks. Instead it had the crowd.
Making Friends, Influencing People
For Eron Bucciarelli, the earnest, mop-headed drummer of Hawthorne Heights, a degree in communications from Ohio's University of Dayton seemed like a dead end. His heart was in punk rock. In 2001, he took a job with the local cable company and joined an unsigned pop punk quintet called A Day in the Life, after the Beatles song of the same name. The members devoted themselves to the band, gigging out at every opportunity. It was grueling: lousy venues, seedy hotels, and long road trips. "We went on tour every weekend," Bucciarelli explains. "We'd pack up the van right after work on Friday, play a show that night in Pittsburgh, play the next night in Philly, wind up in Delaware somewhere on Sunday, and then drive all night to get back to Dayton by Monday morning."
Before long, the punishing regime of day jobs and weekend tours took its toll. A brief flirtation with the indie label Drive-Thru Records fizzled. The band's lead singer, J. T. Woodruff, was disenchanted and exhausted; he had two jobs and attended night school. When the bassist quit, the other members were ready to follow his lead. But Bucciarelli wouldn't let go. He convinced his bandmates to hire another bass player, and they continued under a new name: Hawthorne Heights. "We used to tell people it was because we liked Nathaniel Hawthorne," he laughs, "but that's bullshit. We just thought it sounded cool."
The band decided to reinvent itself. "We agreed this would be our last shot," he says. "We didn't want to be in our late 20s playing some Elks hall. We'd be geezers." The first element in need of overhaul, they decided, was the music. A Day in the Life played pop punk built on catchy guitar riffs. "We dropped the classic rock influence and added breakdowns and screaming," he says. It pushed their sound closer to the post-punk genre known as screamo.
On the strength of their new sound, Hawthorne Heights soon scored a recording contract with the indie rock label Victory Records—but though the deal provided a morale boost, it didn't do much to improve the group's financial situation. "We cut a very, very different deal than we would have gotten with a major label," Bucciarelli says. In fact, the band received a paltry advance. "We got about $5,000, and that immediately went to pay off our minivan."
But Bucciarelli wasn't looking for a big check. "We could have gotten a million dollars up front and all lived large for a while," he says, "but we'd have spent the rest of our careers trying to recoup." That's the way a standard-issue major label contract works: Any label's outlay associated with a band - from studio time to radio promotions - is billed against the band's advance. Instead, Hawthorne Heights kept costs low. They spent $20,000 to record their debut LP and another $5,000 on a video. And because Victory budgets a fraction of what the majors do on marketing and promotion, Hawthorne Heights needed a cheap way to build demand for their June 2004 album release.
Enter the crowd. In spring 2004, the band posted a few songs on MySpace, which was already becoming a hub for the indie music community. They lavished attention on their budding fan base. Crowdsourcing can be a labor-intensive endeavor: On tour, each musician would spend four to five hours online every day, engaging their fans in banter and generally making themselves accessible. “The fans love it,” notes Bucciarelli. “They can’t believe they’re getting a response. You’ve got a fan for life.” When their album, The Silence in Black and White, came out, they already had 20,000 “friends” on MySpace. And by frequently updating their blog and swapping in new songs on their MySpace profile, Hawthorne Heights was able to give fans a reason to return. The online buzz increased exponentially: by spring 2008, the band’s MySpace fan club numbered 500,000. That’s a direct marketing list any major label would kill for. And every time someone opens that page, another Hawthorne Heights song blares forth. Small wonder their sophomore album, If Only You Were Lonely, debuted at number 3 on the Billboard charts.
Until recently, such a feat would have been inconceivable. Music labels exercised control over the market through two bottlenecks: radio and distribution. If the label wanted to make a hit, it paid radio stations to spin the track, and shipped the album in bulk to major retailers. Without radio support and a distribution deal, an artist couldn’t begin to make headway in the marketplace. Most albums failed regardless, but at least under the old regime a few blockbusters could be counted on to finance dozens of expensive failures. This model hasn’t worked too well in the digital age—music industry revenues have declined precipitously since their peak in 1999, from roughly $15 billion to $10 billion in 2007.
By contrast, bands like Hawthorne Heights keeps production and promotion costs as low as possible. They give away their best two or three songs as Internet downloads or streams, and they use social networking sites and email blasts to reach an audience hungry for new music. Converts become zealots, downloading the latest releases from the band as soon as they appear on the peer-to-peer networks. The resulting loss in sales is more than made up for through concert ticket sales, T-shirts, hoodies, messenger bags, posters, and bumper stickers. Electronic word of mouth becomes a marketing strategy which doubles as a distribution strategy, as more and more potential customers download the group’s music and in turn—the band hopes—share it with their friends as well.
This is the music industry’s first serious business model in the post-Napster era. With little fanfare, groups like Hawthorne Heights are making a full-time living selling a modest number of discs—about 50,000 to 500,000 per release. As the music business is overwhelmed by crowdsourcing the crucial functions once performed by the labels have been taken over by the fans. In a digital ecosystem, the music becomes a loss leader whose purpose is simply to create more fans, more evangelists, more ticket buyers. Most up-and-coming bands don’t regard illegal peer-to-peer file sharing as piracy; they view it as a promotional and distribution channel. And while CD sales still comprise the bulk of industry revenues, digital retailers like iTunes, Rhapsody and eMusic are gaining in market share. The cost of making copies of and distributing digital product is negligible.
Like Belmont, Hawthorne Heights didn’t cop their strategy from a book. There was no history of crowdsourcing key functions like marketing or distribution. Instead, Belmont and Hawthorne Heights acted on instinct: treating their community of fans like the invaluable resource it really is. In response, the fans did what came naturally to them, expressing their pop cultural interests by spreading the word—and the MP3 files—far and wide. This approach to distributing product has grown quickly. When I was out attending Hawthorne Heights shows, some 400,000 bands had profile pages on MySpace. That number has now passed 3 million.
Ultimately, the success of an M dot Strange or a Hawthorne Heights is inconsequential. They’re merely the advance sortie of a much larger force. A hyper-competitive marketplace in consumer electronics is eager to serve a market increasingly interested in making things rather than simply consuming them. And it isn’t just the means of producing and distributing entertainment that have become affordable—thought this is how the phenomenon has first manifested—but the means of producing anything.
Sound dubious? Witness two fairly obscure technological developments: custom fabrication and the evolution of 3D modeling programs. Twenty years ago just about any durable good followed a predictable path to market. First it was designed by a highly trained engineer using CAD (Computer Aided Design) software. Once the design was finalized the product itself had to be manufactured—a capital-intensive process that insured that only products intended for the mass market reached the consumer, leaving little room for grassroots innovation, which is to say, the crowd.
Enter custom fabrication—or the “fab revolution,” as it’s sometimes called—which uses machines that either create objects through the accretion of thousands of thin layers of metallic powders or plastics—in much the same fashion as an inkjet printer—or uses lasers to cut them from a block of some material. All that’s needed to create a new model airplane or an electric guitar body or a funky Frisbee design, to use but three real life examples, is to send a digital file to the fabrication machine. And this, as it happens, is becoming easier than ever too. CAD programs once required users to scale a daunting learning curve, and could take years to use well. But the latest 3D modeling software program, Google’s Sketchup, can be mastered in days and is available as a free download. Custom fabrication machines aren’t cheap, running around $10,000. Of course flat screen TVs cost that much just three years ago. By 2008 a mid-range model cost less than a grand.
One day in the not distant future, says Neil Gershenfeld—head of MIT’s Center for Bits and Atoms and “fab lab” evangelist—people will one day have personal fabricators in their home capable of creating just about anything they can dream up. When they do, it will be as easy for an amateur product designer to go up against the professionals as it was for M dot Strange to make his own movie.