The New Rock-Star Paradigm

By Damian Kulash Jr. of OK Go for The Wall Street Journal

My rock band has leapt across treadmills, camouflaged ourselves in wallpaper, performed with the Notre Dame marching band, danced with a dozen trained dogs, made an animation with 2,300 pieces of toast, crammed a day-long continuous shot into 4½ minutes and built the first ever Rube Goldberg machine—at least that we know of—to operate in time to music. We are known for our music videos, which we make with the same passion and perseverance we do our songs. Our videos have combined views in excess of 120 million on YouTube alone, with countless millions more from television and repostings all over the Internet.

The band OK Go is no stranger to viral video success, with combined views in excess of 125 million on YouTube alone. Lead singer Damian Kulush explains how video works into the band’s strategy.

For most people, the obvious question is: Has this helped sell records? The quick answer is yes. We’ve sold more than 600,000 records over the last decade. But the more relevant answer is that doesn’t really matter. A half a million records is nothing to shake a stick at, but it’s the online statistics that set the tone of our business and, ultimately, the size of our income.

We once relied on investment and support from a major label. Now we make a comparable living raising money directly from fans and through licensing and sponsorship. Our bank accounts don’t rival Lady Gaga’s, but we’ve got more creative freedom than we did as small fish in her pond.

For a decade, analysts have been hyperventilating about the demise of the music industry. But music isn’t going away. We’re just moving out of the brief period—a flash in history’s pan—when an artist could expect to make a living selling records alone. Music is as old as humanity itself, and just as difficult to define. It’s an ephemeral, temporal and subjective experience.

For several decades, though, from about World War II until sometime in the last 10 years, the recording industry managed to successfully and profitably pin it down to a stable, if circular, definition: Music was recordings of music. Records not only made it possible for musicians to connect with listeners anywhere, at any time, but offered a discrete package for commoditization. It was the perfect bottling of lightning: A powerful experience could be packaged in plastic and then bought and sold like any other commercial product.

Then came the Internet, and in less than a decade, that system fell. With uncontrollable and infinite duplication and distribution of recordings, selling records suddenly became a lot like selling apples to people who live in orchards. In 1999, global record sales totaled $26.9 billion; in 2009, that figure, including digital purchases, which now represent 25% of sales (nearly 50% in the U.S.), is down to $17 billion. For eight of the last 10 years, the decline in revenue from record sales has gotten steeper, which is to say the business is imploding with increasing vigor.

Music is getting harder to define again. It’s becoming more of an experience and less of an object. Without records as clearly delineated receptacles of value, last century’s rules—both industrial and creative—are out the window. For those who can find an audience or a paycheck outside the traditional system, this can mean blessed freedom from the music industry’s gatekeepers.

Georgia singer/songwriter Corey Smith has never had a traditional record contract, but in 2008 he grossed about $4 million from touring, merchandise and other revenue, yielding roughly $2 million that was reinvested in the singer’s business, according to his manager, Marty Winsch. Mr. Smith makes his recordings downloadable at no cost from his website, and Mr. Winsch emphasizes that they are promotion for his live shows, not the other way around. “We don’t look at it as ‘free,’ ” he says. “When people come to the website and download the music, they’re giving us their time, their most valuable commodity.” Recently, Mr. Smith entered a partnership with a small music company, but unlike a traditional label deal, the arrangement will give him 50% of any net revenue.

Mr. Smith’s touring success, unfortunately, isn’t indicative of industry trends. Live performance, once seen as the last great hope of the music industry, now looks like anything but. Live Nation, the largest concert promoter in the U.S., recently reported that concert revenue is down 14.5% since last year. A report by Edison Research found that in 2010, 12-to-24-year-olds went to fewer than half as many concerts as they did in 2000; nearly two-thirds went to none at all.

So if vanishing record revenue isn’t being replaced by touring income, how are musicians feeding themselves? For moderately well established artists, the answer is increasingly corporate sponsorship and licensing—a return, in a sense, to the centuries-old logic of patronage. In 1995, it was rare for musicians to partner with corporations; in most corners of the music industry, it was seen as the ultimate sell-out. But with investments from labels harder to come by, attitudes towards outside corporate deals have changed.

These days, money coming from a record label often comes with more embedded creative restrictions than the marketing dollars of other industries. A record label typically measures success in number of records sold. Outside sponsors, by contrast, tend to take a broader view of success. The measuring stick could be mentions in the press, traffic to a website, email addresses collected or views of online videos. Artists have meaningful, direct, and emotional access to our fans, and at a time when capturing the public’s attention is increasingly difficult for the army of competing marketers, that access is a big asset.

My band parted ways with the record label EMI a little less than a year ago. While we were profitable for them, our margins were smaller than those of more traditionally successful bands, because our YouTube views don’t directly generate as much revenue as record sales. Our idea of what constitutes success and how to wring income out of it eventually wound up too far apart from EMI’s.

Now when we need funding for a large project, we look for a sponsor. A couple weeks ago, my band held an eight-mile musical street parade through Los Angeles, courtesy of Range Rover. They brought no cars, signage or branding; they just asked that we credit them in the documentation of it. A few weeks earlier, we released a music video made in partnership with Samsung, and in February, one was underwritten by State Farm.

We had complete creative control in the productions. At the end of each clip we thanked the company involved, and genuinely, because we truly are thankful. We got the money we needed to make what we want, our fans enjoyed our videos for free, and our corporate Medicis got what their marketing departments were after: millions of eyes and goodwill from our fans. While most bands struggle to wrestle modest video budgets from labels that see videos as loss leaders, ours wind up making us a profit.

We’re not the only ones working with brands. Corporate sponsorship of music and musical events in North America will exceed $1 billion in 2010, up from $575 million in 2003, according to William Chipps, author of the IEG Sponsorship Report, a Chicago-based newsletter that tracks and analyzes corporate sponsorship. By comparison, the U.K. music licensing organization PPL reports that record companies’ global annual investment in developing and marketing artists stands at $5 billion. The numbers measure slightly different parts of the industry, but from an artist’s standpoint, one thing is clear: Outside corporate investment in music is rapidly climbing into the range of the traditional labels’.

Still, this model isn’t much use to unknown bands, since companies tend to bet their marketing money on the already established. This brings us to one part of the old record industry that no one seems to know how to replace: the bank. Even in the halcyon days, profitable labels were only successful with about 5% of their artists. Contracts were heavily tilted in favor of labels, so that the huge profits on the few successes paid for the legions of failures. Labels aggregated the music industry’s high risks. Even if there are newer, more efficient models for distribution and promotion in the digital era, there aren’t many new models for startup investment.

“That’s the billion-dollar question,” says Ed Donnelly of Aderra Inc., a company that helps touring bands record their live shows and, right there at the venue, sell the recordings to show-goers on custom-decorated USB flash drives (OK Go is a client). “Sure, I work with a lot of young and unheard-of bands,” Mr. Donnelly says, “but I’m not a venture capitalist, and I have no interest in trying to totally replace the infrastructure that labels used to provide. I’m trying to give tools to young bands who are doing things their own way. What labels sold were recordings, what we sell is an experience and an emotional connection with the band.”

Though his system can’t provide the six-figure advances that young bands landed in the 1990s, it can be one crucial puzzle piece in a band’s revenue. The unsigned and unmanaged Los Angeles band Killola toured last summer and offered deluxe USB packages that included full albums, live recordings and access to two future private online concerts for $40 per piece. Killola grossed $18,000 and wound up in the black for their tour. Mr. Donnelly says, “I can’t imagine they’ll be ordering their yacht anytime soon, but traditionally bands at that point in their careers aren’t even breaking even on tour.”

What Killola is learning is that making a living in music isn’t just about selling studio recordings anymore. It’s about selling the whole package: themselves. And there are plenty of pioneers leading the way. Top-shelf studio drummer Josh Freese sold his album online with a suite of add-ons. For $250, fans could have lunch with him at P.F. Chang’s; he says the 25 slots he offered sold out in a day. One fan sprung for the $20,000 option, which included a miniature golf outing with Mr. Freese and his friends.

Singer Amanda Palmer made over $6,000 in three hours—without leaving her apartment—by personally auctioning off souvenirs from tours and video shoots. The New Orleans trombone rock band Bonerama advertises online that they’ll play a show in your home for $10,000.

Not every musician takes the project of selling themselves literally, but the personality and personal lives of musicians are being more openly recognized as valuable assets. The Twitter account of rapper 50 Cent arguably has wider reach than his last album did, and Kanye West has made an art form out of existing in the public eye, holding spontaneous online press conferences and posting rambling blog entries.

This isn’t so revolutionary an idea. Pop music has always been a bigger canvas than beats, chords and lyrics alone. In his early days, Elvis’s hips were as famous as his voice, and Jimi Hendrix’s lighter fluid is as memorable as any of his riffs, but back then the only yardstick to quantify success was the Billboard charts. Now we are untethered from the studio recording as our singular medium, and we measure in Facebook fans, website hits, and—lucky for me—YouTube views.

—Mr. Kulash is the lead singer and guitarist for OK Go.