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FEBRUARY 20, 2003 NEWSMAKER Q&A File Trading as CD Sales Predictor? That's how CEO Eric Garland of market researcher BigChampagne looks at music downloading behavior on KaZaA and its brethren
50 Cent's sales sensation came as no surprise to Eric Garland, CEO of market research firm BigChampagne, which analyzes traffic patterns on file-sharing services such as KaZaA, Morpheus, and Gnutella. Garland knew that the incessant downloading of bootlegged copies of 50 Cent's single In Da Club -- as well as other songs scheduled to be on the album were telltale signs that 50 Cent (Curtis Jackson) would be the music industry's next superstar –- no matter when the album was released. BigChampagne was founded in the middle of 2000 -– at the height of the Napster craze. The name is a tribute to a reggae song called Downpresser Man by Peter Tosh, which warns of a coming revolution that will unseat the powers that be: "You drink your big champagne and laugh all day long but where you gonna run to?" the chorus goes. "That was what Napster meant to us. It was when the balance of power shifted," Garland says. BigChampagne's plan then, and now, is to help unearth a new business model for the music industry by providing data about the patterns and trends on file-sharing networks. Its client roster includes all five major record labels, which use BigChampagne's numbers to try to connect the dots between radio airplay, online file trading, and CD sales. On Feb. 12, Garland spoke with BusinessWeek Online technology reporter Jane Black about what file-sharing trends can teach the music industry and about how the labels can reshape their business model for the digital world. Edited excerpts follow: Q: What does BigChampagne offer to record labels? A: We watch the traffic over peer-to-peer networks like KaZaA and Gnutella. Our models try to get to the heart of what does this behavior -– this stealing online -- really mean? What can we learn? Our models show that it's not the volume of interest online that points to a sales success story but the nature of that interest. Q: What types of online behavior are good predictors of a record's fate? A: It's remarkably predictable. In our view, there are three scenarios. The first is a picture-perfect success story. [This scenario] has three characteristics: One, that an artist has mindshare -– that north of 10% or 15% of people are downloading songs by a particular artist. Two, that people are downloading three, four, or five songs by that artist, not just the one that's getting played on the radio. Three, that people are typing the artist's name, not the song name, into a search. This shows that a huge number of people know or care about who performs the songs they're looking for. We've seen this with Avril Lavigne, Kid Rock, Eminem, and 50 Cent. The second scenario is when a song, rather than an artist, is popular. In these cases, any two of the conditions [from the first scenario] are met. Maybe the song is downloaded by 15% of file traders, but they're downloading only one song. Or they're searching the artist's name but only downloading one song. That's no guarantee anyone will buy anything. In fact, it probably indicates a one-hit wonder. You can see these types of records coming online a mile away because there's no demonstrated interest in the artist's body of work. The third scenario is when a song gets massive airplay but no one downloads it. They play the song 80 times a week on major commercial stations, and no one downloads the song because no one likes it, and no one cares. Examples of this are songs like I Do by Toya or Heaven by DJ Sammy. If they won't take it for free, who's going to pay for it? Q: That seems sort of counterintuitive. After all, if more people download more songs, who will go buy the album? A: It does seem counterintuitive. But the reality is that you never see a sales phenomenon like Avril Lavigne or Eminem or 50 Cent when you don't see huge interest in the artist's entire body of work online. Look at Nora Jones, and you'll observe there are hundreds of thousands of people who are downloading 5, 7, or 10 songs. [Norah Jones's Come Away With Me has been on Billboard's top 100 chart for 50 weeks.] There's a connection here. Instead of being afraid, the industry needs to look at [file-sharing] as a tool. We now have a reliable predictor of what's a real hit and what's just a turntable hit -– something that's successful in getting airtime without managing to convert those radio plays to sales. Q: How can record companies use this data to sell more? A: As a rule, we do an excellent job as an industry of measuring our efforts, not consumer interest. That's what airplay is. It's measuring expenditures and efforts, and to sell to our gatekeeper, which in this case is radio. When we see that we're No. 1 in terms of airplay, we know we've been successful at getting in the race. But we leave to chance the question of whether consumers will show up and purchase something. Then we do a good job of looking [back]. Once the consumer has spoken, we agonize over [sales] numbers. And we try to match them up with airplay numbers. "We got airplay but no sales, what's happening?" The missing piece is the sampling base. We see online data as the dotted line between recognition and sales. Q: Based on your data, what changes should the industry make? A: The first question is why does every artist deserve a compact disk? Why record 13 songs? Why spend on the video and radio promotion just to find out that we didn't sell any albums? Labels should record one song or three songs [and try to get them on the radio or put them online for free]. We need to start with a spark and see if there's a fire before we douse the whole thing in gasoline. At the end of the day, the question is how we get there, not where we're going. The industry needs to start behaving like a service, not a product industry. We need to make a limited investment on which we expect a limited return. Maybe you only produce three or four songs before you decide that it's an artist that you want to record an entire album with and promote. We need a market-based solution to a market-based opportunity.  Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | FEBRUARY |
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