How To Launch a Music Startup: Market Size

image from media.linkedin.com This post is part of the How To Launch a Music Startup series by Brenden Mulligan, which focuses on building a company that creates online products for musicians. Mulligan founded ArtistData, which was recently acquired by Sonicbids, and can be found on Twitter at @bmull.

image from writetoright.com As mentioned in the previous post, I'm going to start out this series establishing key metrics to think about when building a music startup. The first of our three integral metrics is market size.

  The question "how many artists are there" is often debated. I've gone over it time and time again over the past few years and the truth is, there's no exact way to tell. People are starting to play music every day. Bands are forming. Bands are breaking up. It's an ever fluctuating number, so my strategy was to make a logical guess that I felt like I could back up.

Before picking a number, I thought "what type of musicians am I defining?" Am I looking at any human who is playing an instrument? Or just people who want to make it their career? Or just musicians who tour? This is where the subtleties of your product's vision can come in, but I generally define my target market as musicians who are serious enough about music to consider paying for a service that will help them build a music-focused career.

Then I moved to looking at numbers claimed by services and products that serve the needs of the artist market. This was tricky because each service I looked at had to be weighed:

  • MySpace claims something like 13 million artists, but we all have seen "artist" pages for restaurant, companies, etc… And it's free. So that number is way out of proportion with reality.
  • Reverbnation claims 810,000+ bands. That sounds a lot more reasonable. But again, this is a free service that no one needs to cancel if their band breaks up. So it's probably a bit high as well. Plus, they might consider every member of the band an artist, so if a band has 4 members, that's 4 artists.
  • Sonicbids has around 250,000 registered artists. It's typical that Sonicbids would have a smaller number because they don't offer a free service. So Sonicbids' number is lower than the real market size.
  • Yahoo Music has about 500,000 artist pages, but that number is low because indie artists can't create their own profiles there. At the same time, it's high because they list a lot of legacy acts that aren't still active.
  • CD Baby claims 230,000 artists, which is a great metric because these are bands selling albums through their service, so you know they are motivated to pay for a service to move their career forward. But these are only indie artists, so they're missing a big chunk.
  • Next Big Sound tracks 720,000+ artist profiles. They key word here is "profiles", so if an artist has 10 profiles, they count 10, not 1. Plus, they are most definitely grabbing band pages of acts that are no longer active.
  • Bandcamp's full artist index lists about 484 bands per page and has 109 pages, which puts their community above 50,000 bands.
  • Services similar to ArtistData and Bandzoogle are all in the 5,000 – 35,000 range. These are just smaller companies, and I didn't think were relevant for this number.

In the end, it's a judgement call. The way I've always described it is a lot less than MySpace but plenty more than Sonicbids and CD Baby. So the number I chose, and have always used for this, is 500,000. I believe that there are at most, 500,000 relevant artists who could potentially find a internet service valuable enough to pay for. And since these services generally don't geographically discriminate, that's the worldwide market potential.

I know, some might think that's really low, and others may think it's way too high. Well, you might be right, but this is where I ended up and I think it's both reasonable and justifiable. And to be honest, I ran this number by people doing similar analysis at much larger companies, including MySpace and Yahoo Music. We all thought it was reasonable when we discussed it.

The problem with this number is that in the grand scheme, it's tiny. Even if you double it, it's still a very small total available market (TAM). When investors want to see market sizes, most want to see the TAM in the tens to hundreds of millions. They want to know there are tons and tons of potential customers and as the product improves and the footprint widens, the site will grow exponentially to millions of people. The artist market isn't attractive to most investors.

Unless, of course, that small niche market has a high willingness to pay.

We will cover that in the next post. Until then, I'd love to know your comments about the reasonability of this market size analysis. Pass this around to people, and let's get some good conversation going around this number. Tear it apart, only if you build it back up.

Previous Post In Series: Establishing Key Metrics.

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  1. What is interesting about the 500,000 figure is that if they all pay $10 a year, that’s $5 million, which is a pretty nice annual figure for a small company.
    And yet, you know they won’t all pay $10 a year. We’ll all easily drop that on a meal, and yet many of us won’t spend that for a magazine subscription. So $10 isn’t too much to pay for a meal in a restaurant, and yet it’s too much to pay for something if we don’t think we need it or if we aren’t sure it is worth $10.

  2. I’m surprised that it’s only 500,000. If you say they are relevant artists who could potentially find an internet service valuable enough to pay for it, don’t you agree that you’re ignoring their willingness to pay? I mean, if you’re offering a service for $1/year, there will be more “relevant artists” who would pay for such a service than at $50/year.
    Of course, if you’re offering your service at $1/year, they might as well think it’s not of a high quality. You might want to check out the Van Westendorp method of determining willingness to pay.
    In conclusion, I believe that number could be more refined. But, of course, everything’s debatable 🙂
    I really like how the posts are turning out, Brenden!
    Talk soon,

  3. Really interesting and very useful.
    We count labels in our potential market, from tiny bedroom labels to majors, but that doesn’t increase total market size that much. All the same, 500k is a good figure for us

  4. I appreciate this post Brenden as I am a new music business model startup. Check F.R.E.E. Records out at freemusicrevolution.com. In writing our business plan, it seems difficult to judge how many artists are in the market and are willing to pay for a service that contributes to the success of their career. Realistically, is it possible to gain a profit from service-based models like ours?

  5. I think musicians will pay lots of money (thousands of dollars) if you can guarantee a return on that investment. If you can show that for every dollar they pay you, they will receive at a minimum of $1.10 back and more likely $2.00 to $3.00 back, then they have an incentive to go out and borrow the money if need be.
    The trouble is that it is really difficult to guarantee that anyone will turn a profit in music. And if you see a sure thing, chances are you are going to invest or at least manage them yourself so that you can participate in that cash flow.
    What you can do is supply a service or product for a reasonable price and explain its value to them. That doesn’t necessarily mean it will make them money, but if you deliver what you promise, then those who want what you promise will probably be potential customers, unless they find someone who they think will either do a better job or a cheaper job or both.

  6. Well said Suzanne. It’s a tricky market. If a musician is a pro they will easily pay for a service that provides genuine value for their business. Musicians who aren’t making money see things quite differently. They are generally looking for something that will jettison their career to a pro level, to somehow get them valuable exposure. This isn’t something a technology company can reliably guarantee.
    These are two very different markets. The challenge is figuring out where people are in their careers so you can target your services and pricing. Musicians who are not yet making money may not really understand what they are doing from a business perspective. They tend to sign up for free or inexpensive services without really utilizing them strategically. When they don’t start making money right away they either lose interest or move on to the next thing.
    Pros are a much smaller segment of the market but it is easier to identify what they need.
    Thanks for this series Brenden. This is good stuff.

  7. I’m trying to figure out how many independant artists there are in Australia, but not having much luck.
    Any ideas on how to search for this elusive number? The live scene in Australia is quite healthy.

  8. Thank you very much, great post.
    I’ll try to add an error bar to your estimate.
    The lower limit is clear (< 250.000 can't be, because of CD Baby), but the upper limit is not. Myspace sets an upper limit of 13 millions artists, but this number is not trustable, because of multiple profiles and not-artist profiles. Another attempt could be to sum up all the numbers you have found but Myspace, in a kind of unreasonable no-overlap hypothesis. In this case we arrive to 2.5M. So I think that a likely error bar for your estimate could be: 250k < x < 2.5M. ...that basically confirms your bottom line that this is a small market. I am looking forward for your next post! 🙂 Ciao, Gabriele

  9. just to clarify – do you believe that the number of bands that are willing to *pay* for something is 500,000, meaning that there are many more (perhaps up to 13m) that aren’t?

  10. I’m not sure what the purpose of this metric is. Because it leaves out the TAM that most online music startups are actually concerned with: the fans of those artists.
    You don’t get 500,000 artists signed up to your online service and then ignore the people that gives you access to.
    Far better to make an average of 10c off each fan than $10 off each artist, I’d have thought. This is why transactions are generally the point where monetisation occurs (eg: percentage on sales) rather than a one-off fee for a single service.

  11. The purpose of this post is to figure out how many artists there are that would pay, because the purpose of the series is how to launch a music service that artists pay for, not necessarily music fans.
    I’m focusing on this because it’s my experience from ArtistData, and it’s the approach I feel qualified to talk about. I totally agree that music services that make money by taking a percentage of sales to bands (Topspin, Bandcamp, etc…) are a great direction, and we’ll get these a bit in the series. But right now it’s valuable to know how many artists there are, so then we can talk about fans from there.

  12. Very interesting numbers, and really difficult to lock down. According to the US census there are approx. 220,000 music artists in the US. According to a Gallup poll 58% of US households have 1 or more intsruments being played in it 43% have 2 or more. There are roughly 122mil US households which means there are at least 60m with an instrument being played. An incredible number when you think about it. Of course, the vast majority of those people do not consider or label themselves “Artists” but many of them are “Wannabe” artists. The big question is what do you think the percent of Wannabe’s is? This group is looking for services and tools to help them move to a higher level of playing, maybe even to artist level. Most of these are currently paying to improve their skills.

  13. Does Sonicbids have 250,000 actively subscribed artists or is that the total number who have subscribed since launch?
    Do we know how many active subscibers there are at this time?

  14. Thx, Brenden, for the great info!
    Topspin CEO Ian Rogers was just quoted this week in the L.A. Times as saying:
    “There are fewer than 50,000 artists whose main gig is their music… My belief is that number will grow. If we work hard as a company to make it possible for artists to make a living we can grow that number to 100,000. Music is a $60-billion business. If half of that is generated by that middle class of 100,000 artists, that’s a sizable market.”
    (see last paragraph)

  15. That seems really small, but I guess I’d need to know what they consider “Active” .. Does that mean the artists are updating them? Or fans are visiting? Or fans are commenting?

  16. Exactly – It’s tough to guarantee anything in the creative field. There are so many factors. Some companies choose to go the route of charging a flat rate, others take a % of sales. Both have their pluses and minusus on both sides.

  17. I saw that too, and really appreciate Ian’s perspective on this. The number I’m talking about is more musicians who would pay for a service, whether or not it’s their main gig. So that might be why there’s a discrepancy.
    Incidentally, I think those that who do music as their main gig are most likely more willing to pay for services. This is Topspin’s market, and they’re smart to focus on this.

  18. All the numbers in this article were total registered artists, not necessarily active. That varies by company, and few share it.
    Sonicbids isn’t my company, so I’m not at liberty to reveal that number, but I will say for the times I’ve been privy to information like that for other internet companies (music and non-music), Sonicbids active user-base is a much higher percentage than others I’ve seen.

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