Techdirt’s Michael Masnick has put together a case study on Nine Inch Nails’ business model and gave an excellent presentation discussing his conclusions. Throughout the video he argues that the new music business model comes down to this formula:

Connect With Fans (CwF)
+ Reason To Buy (RtB)
= The Business Model ($$$$)

Masnick exemplifies Trent Reznor’s tactics in relation to his equation:

1) NIN ‘Connects with Fans’ (CwF):

• NIN dropped a USB stick with a new NIN song in the bathroom at a NIN show
• NIN highlighted letters on the back of a NIN shirt that led fans to the secret site (iamtryingtobelieve.com) where they could take part in an alternative reality game
• Reznor leaked their own music on BitTorrent sites
• NIN made their 2008 release The Slip available for free – the release coincided with an announcement for their upcoming tour
• Information visualizations were made available, mapping where NIN fans who downloaded The Slip were located
• The NIN site aggregates Flickr photos and YouTube videos tagged by fans
• The band released 400GB of live HD concert footage for fans via torrents
• NIN gave away free concert tickets in a cryptic treasure-hunt game, for example one fan found tickets in an Los Angles drainpipe

2) NIN Gives Fans ‘A Reason to Buy’ (RtB):

• The Year Zero album came with a color changing disc – something that can’t be replicated by an MP3
• Ghosts I-IV was a free download, but NIN also made available 2,500 copies of a $300 “Ultra-Deluxe Limited Edition Package” that included two CDs, a Blue-ray disc and other goodies all in a package signed by Reznor himself. The package was a huge success and all 2,500 sold-out within two days, amounting to $750,000 in sales.
• NIN has connected with their fans to such a degree that NIN fans respect Reznor and want to support his initiative. This can help explain how Ghosts I-IV brought in 1.6million in the first week and was Amazon’s best selling album of 2008.

It would be great to see more case studies like this being written about musicians that follow the CwF/RtB logic. Masnick believes this model can and is working for both large and small musicians – he doesn’t mention any of these findings, but additional case studies can be found on the Creative Commons website. In conclusion Masnick adds, “there is a lot more music to be made, a ton of new fans to make very, very happy — and, yes, through it all, an awful lot of money that can be made as well.”

Posted on the NIN website over the weekend:

“As a thank you to our fans for your continued support, we are giving away the new nine inch nails album one hundred percent free, exclusively via nin.com.

The music is available in a variety of formats including high-quality MP3, FLAC or M4A lossless at CD quality and even higher-than-CD quality 24/96 WAVE. your link will include all options - all free. all downloads include a PDF with artwork and credits.

For those of you interested in physical products, fear not. we plan to make a version of this release available on CD and vinyl in july. details coming soon.”

http://theslip.nin.com/ 

Nine Inch Nails’s Ghosts I-IV earned 1.6 million in it’s first week.

Trent Reznor reported that the earnings came from 781,917 downloads – including both the free and paid transactions. If Trent had went the traditional route of distributing this album through a record label the album would have cost fans closer to $15 each, while he would have earned less than $1.00 on each unit sold. Here’s a comparison:

Through A Record Company
$15.00 album X 10% in artist royalties = $1.00 per unit sold

Self distribution
$5.00 album X 100% in artist royalties = $5.00 per unit sold

In this case, the self distribution model is better for the fans and the musicians – it only leaves out the labels. It’s uncertain whether Reznor is a music industry anarchist or just a clever entrepreneur, but what is clear is that he is no longer collecting paychecks. Reznor owns a business and not a job.

Yesterday Nine Inch Nails released their latest album “Ghosts I-IV” under a Creative Commons license. The album is 100% DRM-free, available in a wide range of formats (Apple Lossless, MP3, CD, Vinyl, DVD, Book) and can be instantly downloaded from www.ghosts.nin.com for a suggested $5 donation (meanwhile, the first nine tracks are available for free download from the website).

I believe that releasing music under a CC License will be a growing trend in the next year. The benefits of accumulating a larger fan base far outweighs any miniscule album sale profits.

By forfeiting the exclusive ‘right to copy’, NIN is allowing this new album to penetrate the market faster, and on a larger scale. Under Creative Commons he still has the right to profit from selling physical copies of his work, he will still be credited for his work, and still be paid if his music is used for commercial purposes. Again, the main difference is that people on the internet can share his music without breaking the law (aka. getting RIAA-ed)

As an added benefit, being an early adopter for a Creative Commons License is worth millions in marketing for NIN: it’s currently the #1 most dugg story; and likely to be mentioned by every other blogger citing the end of the music industry.