The Fallacy of “Incremental Revenue” Part 1

Dante’s 9 Circles of Hell by the gifted folks at Cinco Design cincodesign.com/blog2010/wp-content/uploads/2010/04/9levels_rgb.jpg

When you have a hit record, everyone is your friend.  And they all have figured out how to use your hit record in a new and innovative way.  No matter how revolting the innovation, no matter how philistine the approach, the commoditizers (aka “special markets”) press ahead.

And when it comes to compensation, no matter how little money you make from the obscene commerciality of the commoditized use, you know that the reason they are asking is because they are making more money than your artist or you one way or another—free riding on someone else’s hit record while doing little to contribute to its success.  Either they are building a catalog that they will sell one day (and in which you will not participate like YouTube’s $1.65 billion sale price), they are getting a fee or other benefit that your artist does not participate in, or something.

Two examples:  Tampon premiums and YouTube. 

Back in the days of the “international hit record”, there was a record called “Everything I Do, I Do it For You.”  Let’s take an anecdote from the life of that record because the anecdote really happened and those huge records don’t come along every day, Lil Poopy notwithstanding.  (Plus it’s far enough in the past that it’s easier to keep the example from revealing too much.)

In those days, I had to deal with incoming “special markets” requests from other labels (and eventually from our own distributor which was really maddening).  I had all the incoming special markets requests put in a special file.  That made it easier to burn them later.  My strategy with special markets was to negotiate by attrition—meaning that if you just ignored the request, the important ones would result in a phone call.  Why?  Because we were busy signing artists, making records, and selling those records to fans.  This is the “real” revenue and “incremental” revenue from the typical sources will always cannibalize front line sales and bring home pennies on the dollar the “incremental” income incrementally destroys.

That special markets phone call almost always started out with this kind of argument directed at me:

[Laughing/yelling/Vomiting] is not a response to a request for a [horrendously offensive] license request because while you may not like the request, your job is to make money for the artist [and the special markets division] and however much you [laugh/yell/vomit] over the license request it results in [BIG FINISH] INCREMENTAL REVENUE for you.  It is money you would not have had but for the genius of the innovative use proposed.

Right.

For example, during the middle of the 8 week or so period that “Everything I Do” was #1 on the worldwide radio charts, I got a request to let a special markets department manufacture a cheap cassette (which they would make money on manufacturing) that would be put in millions of boxes of tampons like a charm in a box of Cracker Jack.

And sure enough, I got a call from the oily cretin at the special markets department  complaining—complaining—that I did not understand my job.  But he did, you see.  My job, you see, was to create incremental revenue for the company (and, of course, for him).  To which I replied that he misunderstood my job.

My job was to sell lots of records by happy artists.  My job was to keep people like him from whoring our artists.  And the reason I didn’t give a damn about the supposed “incremental revenue” is because there never would be enough money to pay our artist—who we had spent millions in promoting and cultivating over years and years—to do something truly vile.

So we said pass, and the use wasn’t made.

Remember that—we passed and the use was not made.  This is how an orderly market works.  God help us all if special markets departments ever qualify for the DMCA safe harbor.

If you are an artist, what should be apparent to you from this exchange is that there are people–rarely the people who sign you–who sit around and dream up ways to whore you out.  I can tell you that the worst of these people frequently come labels that have a poor front line A&R strategy—the reason they want our hits is because they have few to none of their own.

Where are these people?  The 10th circle of Hell.  But wait, you say–there were only 9 circles of Hell in the Inferno.  Right, but so they’d have somewhere to go after commoditizing Circle 9, Dante would have to create a 10^th Circle of Hell for these people where they could walk around in circles chanting “incremental revenue”—sponsored by Brylcream.

Enter YouTube

To be continued….