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Date/Time:
10/16/2016 12:00:09 AM
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ListenSmart.com Business Plan

 

I had this archived on DocStoc, but sadly it shut down.

 

I’m now archiving this business plan – IMHO, my personal best – for posterity here on Abovo42.com :-)

 

SPF

 

 

 

 

Business Plan

ListenSmart.com, LLC

 

 

 

logo5

 

 

 

 

 

 

Prepared on:

 

 

March 29, 2000

 

 

 

Prepared by:

 

 

 

Sean P. Fenlon

President & CEO


TABLE OF CONTENTS

TABLE OF CONTENTS. 2

TABLE OF FIGURES. 5

EXECUTIVE SUMMARY.. 6

Introduction. 6

“The Elevator Pitch”. 6

The Market 6

The Issues & The Business Models. 6

Building a Better “Mousetrap”. 7

Artist & Repertoire Promotion. 7

ListenSmart.com.. 8

SyncSmart.com.. 8

SmartAandR.com.. 8

Management. 8

Sean P. Fenlon, President & CEO.. 8

Peter Lubin, VP of A&R.. 8

Hyun Lee, CTO.. 9

David Seidl, VP Strategic Development 9

Board of Directors. 9

Corporate Infrastructure & Capitalization. 9

BUILDING A BETTER “MOUSETRAP”. 10

Finding Enjoyable Music. 10

What & Where. 10

What Do You Like?. 12

What Do Other People Like?. 12

Charts & Ranking. 15

Functionality. 17

Page Customization. 17

Drop-down Menu Bar Navigation. 19

Streaming. 20

Downloads. 21

Song Reviews. 21

Song Ratings. 21

Community. 21

Free Member User Pages. 21

Bulletin Boards. 23

Chat Rooms. 25

ICQ.. 26

Learn about music…... 27

Artist collaboration. 29

BUILDING A BETTER BUSINESS MODEL.. 30

Advertising Sales. 30

Affiliate Link Advertising. 31

CD Sales. 31

SmartLabel CDs. 31

SmartCompliation CDs. 31

Consignment CD Sales. 32

Artist Merchandise Sales. 32

Music Publishing. 32

Relationship with Independent Artists. 32

Exposure & Promotion. 33

Immediate Revenues. 35

Future Revenues. 36

ARTIST & REPERTOIRE PROMOTION.. 37

ListenSmart.com.. 37

SyncSmart.com.. 37

SmartAandR.com.. 38

Projections & Assumptions. 40

Projections Summary At-a-Glance. 40

Site Traffic. 41

Site Visitors. 41

Artist Enrollment 41

Publishing Revenue. 43

Key Assumptions. 43

Methodology. 44

Pro Rata. 52

Synchronization. 54

Advertising Revenue. 54

Banner Advertising Revenue. 54

Rich Media Advertising. 55

Newsletter Sponsorships. 56

Sale of Email Addresses to Opt-In Affiliates. 58

CD & Merchandise Sales + Affiliate Link Commissions. 59

Affiliate Link Commissions. 59

CD Sales. 60

Artist Merchandise Sales. 60

Two Year Revenue Totals. 61

Marketing. 62

Acquisition Costs. 62

Affiliate Marketing. 63

Misc. Forecast Notes. 65

Potential Increases to Revenue Projections. 65

Number of MP3.com artists signed. 66

MANAGEMENT.. 68

Sean P. Fenlon, President & CEO.. 68

Peter Lubin, VP of A&R.. 68

Hyun Lee, CTO.. 69

David Seidl, VP Strategic Development/Legal Counsel. 69

BOARD OF DIRECTORS. 69

Jim Griffin. 69

Ted Cohen. 70

Paul Bandrowski 70

CAPITALIZATION.. 71

Current Status & General Need for Capital. 71

Market Position & Opportunity. 71

Exit Strategy& Use of Startup Capital. 71

APPENDIX.. 73

Competition Analysis. 73

Music Publishing. 76

Intro. 76

Performing Rights Payments. 76

CD, Tape, & Record Sales. 77

Controlled Composition Clauses. 77

Television. 78

Motion Pictures. 79

Home Video. 80

Commercials. 80

Broadway Musicals. 81

Recording Artists Royalties. 81

Foreign Country Royalties. 82

Conclusion. 82

Single Song Royalties Example. 83

Advertising Royalties Formula. 84

Reversion Clause Flowchart. 85

Artist Meta-Data Collected by ListenSmart. 86

Song Meta-Data Collected by ListenSmart. 88

 


TABLE OF FIGURES

Figure 1: Sample Genre Home Page (w/Description) 11

Figure 2: Sample Artist Home Page. 14

Figure 3: Sample Popularity Chart Page for Alternative. 15

Figure 4: Home Page with Side Column Modules Collapsed. 18

Figure 5: Home Page with Side Column Modules Open. 19

Figure 6: Example of Drop-down Style Menu Bar. 20

Figure 7: Sample Free Member User Page. 22

Figure 8: Example of User Page Customization Functions. 23

Figure 9: Sample Bulletin Board. 24

Figure 10: Different Bulletin Board "Forums". 25

Figure 11: Sample Avatar Chat Room.. 26

Figure 12: ICQ Screenshot. 27

Figure 13: Sample Artist Signup Interview Procedures. 34

Figure 14: ListenSmart Business Model Flow Chart. 39

Figure 15: Sample 468x60  Banner Ad. 54

Figure 16: Sample 100x100 Promo Banner Ad. 54

Figure 17: Download/Stream Request Dialog Box Screenshot. 57

Figure 18: NMPA Survey of Music Publishing Revenue Growth.. 65

Figure 19: Advertising Royalties Formula. 84

Figure 20: Reversion Clause Flowchart. 85

 


EXECUTIVE SUMMARY

Introduction

“The Elevator Pitch”

ListenSmart.com is an Internet portal for independent musicians with a business model whereby the artists will share 50% of the revenues generated by the site based on the popularity of their music.   In exchange for this “revenue-sharing” status, independent artists establish ListenSmart.com as their contractual music publisher on a song-by-song basis, thus creating potentially explosive revenue growth through music publishing royalties.  For each “revenue sharing” song or composition, the artist will sign a standard single-song publishing contract that will entitle ListenSmart.com to 50% of the music publishing royalties generated by the song for the life of the contract, including broadcast royalties (i.e. radio), synchronization royalties (i.e. TV, Film, etc.), mechanical royalties (the selling of CD's, sheet music, etc.), grand rights (theater), and foreign royalties.   Another fundamental key to the plan is to create sophisticated filtration technologies – much more sophisticated than had ever been introduced before – that would allow listeners a much greater chance to find new music they are likely to enjoy, quickly and easily.  Finally, the revenue potential from publishing royalties would be maximized with two “sister” business-to-business Internet web sites, SyncSmart.com (for synchronization music licensing, i.e. movie & TV producers) and SmartAandR.com (for record labels, A&R representatives, and record producers), as well as a conventional offline artist promotion/music publishing staff.

The Market

The music publishing industry is a $6+ billion per year market and has shown steady and consistent growth.  The key to music publishing royalties is quality content.  ListenSmart.com’s primary focus is to aggregate the highest quality content of independent musicians – it’s core constituency.

 

There are an estimated 67+ million amateur musicians in the U.S. alone, and more than 1 million with recorded content (NAMM 1998).  Furthermore, there are only an estimated 100,000 artists who have made their content available on the Internet for distribution.  Thus, a major goal is to capture a significant portion of the offline artist community as they are entering into the space of online digital music – a space we believe that all artists will occupy at some point in the near future. 

The Issues & The Business Models

Through the use of digital compression schemes (such as MP3 technology) and the Internet, all musicians now are able to have their music listened to by anyone in the world with a computer and Internet access without any of the filters or barriers represented by the traditional recording industry.  The keys for the artists, however, is finding the audience that will appreciate and enjoy their work, developing relationships with those listeners, then maximizing the monetization of their relationships.  Please note, however, that these keys are functions that many artists are either incapable of or uninterested in performing themselves – or at least without help.

 

Within the changing online music landscape, two basic business models have taken shape, neither of which has been particularly favorable to the independent artist in general.  The first model is an e-commerce play, i.e. sell “stuff” online.  “Stuff” could take the form of physically produced CD’s (i.e. CDnow.com) or music in downloadable form (i.e. Emusic.com).  For artists without the immediate name recognition and immediate appeal to consumers, this is an ineffective model. 

 

The other model is an advertising-only play such as MP3.com.  Not only does this model typically eliminate the content-creating/traffic-driving artists from the primary revenue stream, but it also a model that continues to be criticized as one to build a viable, robust business.  The genius of the ListenSmart.com business model, however, is its ability to combine several online and offline profit centers, while still allowing the cost to consumers to remain at zero, and while still appropriately sharing the primary revenue streams with artist 50/50.

 

The five profit centers of the ListenSmart.com business model are:

  1. Advertising Sales
  2. CD Sales (through automated production and consignment sales)
  3. Artist Merchandise Sales (through outsourced/automated production and consignment sales)
  4. Affiliate Link Advertising Commissions
  5. Music Publishing Royalties – Clearly the “crown jewel” of the business model

Building a Better “Mousetrap”

In addition to a much more robust and viable business model than those that have been introduced thus far, ListenSmart.com expects to become the premiere destination for online music through its sophisticated functionality and user-friendly design.  Moreover, a strong emphasis will be placed on creating a sense of “community” amongst the artists and the listeners.  Site features will include:

  • Fully customizable home page for artists and listeners
  • Sophisticated music “filtration” technologies
  • Simple navigation techniques that will allow even first time users to find music that they are likely to enjoy quickly and easily

Artist & Repertoire Promotion

The key to maximizing the business relationship with the independent artists is to maximize their royalty-earning potential using a three-pronged attack – affectionately referred to as the “SmartSuite” – with two business-to-business plays supporting the main business to consumer play.

ListenSmart.com

ListenSmart.com is clearly a business-to-consumer (or artist-to-consumer) play.  Thus, ListenSmart.com will become a “clearinghouse” for market tested artists and repertoire that will then be promoted in the “sister” business-to-business plays, SyncSmart.com and SmartAandR.com.

SyncSmart.com

ListenSmart.com’s "Revenue Sharing" artists will have their music included in the SyncSmart.com database of music for movie, TV, film, or commercial synchronization material.  This business-to-business service will be promoted to film and video producers, advertising agencies, and music supervisors worldwide as an efficient means to find appropriate synchronization material for their project based on their specific criteria and budget. 

SmartAandR.com

The second sister business-to-business play will be directed toward record labels, A&R representatives, and record producers looking for new material or to sign new talent.  Visitors will be able to utilize the clearinghouse function of ListenSmart.com by creating their own “success-factor index” based on the popularity charts found on ListenSmart.com.  By applying customizable algorithms to their search criteria, a perfect match can be found.  Results will also display pertinent business information such as management, legal representation, touring experience/ability, etc. along with direct contact information.

Management

The management team of ListenSmart.com, LLC brings together a wealth of experience and accomplishments in the business, music, Internet, e-commerce, finance, and high technology industries. 

Sean P. Fenlon, President & CEO

Sean P. Fenlon is a lifelong hi-tech musician who has studied with the finest teachers at the finest institutions including The Peabody Institute of Music where he earned his Doctorate in Musical Arts.  Mr. Fenlon has had experience with the Internet in the digital music arena from its inception.  In the business world, Mr. Fenlon spent two years as the Director of Business Operations of Investors Mortgage Corporation (Columbia, MD) where he managed over forty employees and helped to increase the gross revenues from $2,000,000 to $5,000,000 per annum.  Mr. Fenlon is the creative visionary and the driving force behind the ListenSmart.com model and function.

Peter Lubin, VP of A&R

Mr. Lubin is a veteran Artist & Repertoire executive in the recording industry, where he served as Senior Vice-President of A&R for Mercury, RCA, and Elektra until 1997.  He was responsible for the signing of many established and emerging artists including The Moody Blues, Peter Gabriel, Michelle Shocked, Robert Cray, The Pixies, The Breeders, They Might Be Giants, Phish, and The Refreshments.  Prior to joining ListenSmart.com, Mr. Lubin provided services as an A&R consultant to various record labels, on-line companies, and media start-ups.  He also serves on the Board of Directors of Digital Media On Demand, Inc. (DMOD).

Hyun Lee, CTO

Hyun Lee is the founder of Netronics Inc., a company specializing in web application development and consulting. Having earned a degree in Electrical Engineering at Georgia Institute of Technology (Georgia Tech), Hyun Lee has years of experience as an Internet application developer and web business solution provider including Bell Atlantic intranet applications, Korean Department of Defense intranet solutions, and Koreatimes.com. Mr. Lee also has years of experience and knowledge in system architecture, programming, and network design on a variety of platforms.

David Seidl, VP Strategic Development

David Seidl has been a practicing corporate law attorney and a partner in the esteemed Baltimore law firm Miles & Stockbridge since 1983.  In addition to his law practice, Mr. Seidl has launched several successful business endeavors including a chain of "Mamma Ilardo’s" pizzeria restaurants and a thriving Internet investment group.  Mr. Seidl is also a specialist in representation of privately-held startup businesses.

Board of Directors

At this time, we have secured verbal board seat agreements from three of the most significant players in online/new-media space, Jim Griffin (President & CEO of Cherry Lane Digital/OneHouse), Ted Cohen (VP of New Media for EMI), and Paul Bandrowski (Vice-Chairman and former CEO of Reciprocal).

Corporate Infrastructure & Capitalization

ListenSmart.com, LLC was incorporated on 8/23/99 as a Limited Liability Corporation.  Our corporate headquarters is “Class A” office space in Columbia, MD (approx. ½ way between Baltimore & Washington D.C.).

The ListenSmart.com full-time staff currently numbers seven, with five members specifically assigned to the technical/development team.  We are approximate eight months into the development of a prototype web site.  We originally secured a $5 million pre-money valuation via $500,000 in angel-round investment from eight private equity-based investors, and an additional $250,000 in seed capital to support the “soft launch” of our beta site.  We will be closing a second-round equity investment (first institutional round) of $1,000,000 within the next 6-8 weeks from the PsiCon Global Accelerator Fund (a joint early-stage fund of Psilos Ventures and Constellation Ventures).  The pre-money valuation will be $6 million. We are also seeking additional beneficial working relationships with several key strategic partners.

 

BUILDING A BETTER “MOUSETRAP”

Clearly, the first generation of MP3 or other independent music sites have already made their debut.  Thus, most fans of online music have become quite familiar with the basic functions of MP3.com and other independent music sites that offer free and legal downloadable MP3 files.  However, ListenSmart.com has attempted to synthesize all of the best elements from all of these sites, effective elements from non-music sites (i.e. amazon.com), and also functions that have never been implemented before.  Many of the new implementations were created from scratch, however, months of monitoring the MP3.com and AMP3.com Artist-Only Bulletin Boards, where great ideas are posted on an almost daily basis, derived most them.  Finally, ListenSmart.com will implement a radically new business model with explosive potential – in conjunction with our “better mousetrap” – that could forever change the music business, as we know it.

Finding Enjoyable Music

Perhaps the greatest complaint of the users of independent music sites is the amount of time and effort it takes to locate music that they are likely to enjoy.  This is a genuine concern when dealing with “unfiltered” independent music of varying levels of performance and production.  A potential criticism of the unfiltered approach is that ListenSmart.com is certain to attract music of poor quality.  It is our position, however, that someone has to make that decision and we feel as though the end-user (listener/consumer) will make a better choice than that of a major recording industry professional or us. 

 

MP3.com, along with other independent music/MP3 sites, often arbitrarily “feature” or “spotlight” bands or artists on the home page or in a prominent location based on the tastes of the site administrators.  We believe this practice is outdated and misguided.  ListenSmart.com will take a different approach by trying leverage the collective opinions of an entire community to determine prominence.  Firstly, ListenSmart.com has established several sophisticated approaches to allow listeners to identify new music that they are the most likely to enjoy immediately, based on their current preferences.  Secondly, we feel that ListenSmart.com methods of popularity charts will create a true market economy for music and that "musical Darwinism" will be the music industry's model in the next millennium.

What & Where

Typically, music fans are quite familiar with identifying music by style and also by geography.  Therefore, one approach to lead listeners to music that they will enjoy is categorizing it by Genre and also by Region.

Genres, Genres, & More Genres

Most listeners can quickly identify their favorite style or genre.  Thus, ListenSmart.com has created one the most complete and sophisticated “Genre Trees” ever assembled.  At the highest level are twelve main genres.  Each main genre can contain many sub-genres, which can contain sub-sub-genres and so on.  All tallied, there are over 450 genre categories.  However, each genre will have a brief essay or description to indicate its distinction, thus neither the artist nor the listeners will ever wonder – for example – “What exactly is ‘Trance’”? 

 

Figure 1: Sample Genre Home Page (w/Description)

 

Artists will be allowed to associate up to three genres for each of their songs, although one must be identified as the Primary Genre.  Also, artists will be encouraged to submit new genre categories, however, for the request to be approved, they must also submit a description and essay to define its significance (subject to editing and verification, of course).  In today’s age of crosscurrent influences, further fragmentation of the genre structure is inevitable and should be embraced as a tool for finding music.

Regions & Local Music

Many listeners will want to find music based on their residence or based on a certain “sound” identifiable by certain geography.  These searches can also be cross-tabulated to find music that is, for instance, “Trance” in Lawrence, Kansas.

What Do You Like?

Listeners are all experts to the extent that they know what they like.  To that end, ListenSmart.com will try to leverage their own “expertise” to lead them to new music that they are likely to enjoy.

“What Artists Do You Like?”

Most listeners can quickly identify their favorite – popular – artists in an instant.  Thus, ListenSmart.com will try to connect listeners to new artists based on their current favorites.  As a new artist signs up, they are asked what “popular or famous” bands or artists their fans are likely to listen to.  The artist may select up to three “popular or famous” artists from a list provided.  Also, the list may be appended by the user with an entry that will the become part of the “master” list.

 

On each main page, a function will be displayed the prominent upper left hand column asking, “What bands/artists do you like?”  By selecting this function, the listener will be displayed a list of “popular or famous” artists such as The Beatles.  By selecting The Beatles, the listener will then see a list of ListenSmart.com artists – sorted by popularity – who have indicated that their fans are likely to also like The Beatles.   Thus, the listener is introduced to new artists based on their current preferences.

“What Songs Do You Like?”

Most listeners can also quickly identify their favorite songs in an instant.  Thus, ListenSmart.com will also try to connect listeners to new songs based on their current favorites.  As an artist signs up a new song, they are asked – fans of what “popular or famous” songs would also enjoy this new song.  The artist may select up to three “popular or famous” songs from a list provided.  Also, the list may be appended by the user with an entry that will the become part of the “master” list.

 

On each main page, a function will be displayed the prominent upper left hand column asking, “What songs do you like?”  By selecting this function, the listener will be displayed a list of “popular or famous” songs such as “Twist & Shout.”  By selecting “Twist & Shout,” the listener will then see a list of ListenSmart.com songs – sorted by popularity – that have been associated with “Twist & Shout.”   Thus, the listener is introduced to new songs based on their current preferences.

What Do Other People Like?

Harnessing the power of the Internet and a virtual community can also be an effective way to light a path for listeners to find new music that they are likely to enjoy.

“People who enjoyed this artist also enjoy these artists…”

Once a listener finds a new artist in which they enjoy, the goal is to light a path to more artists that are also likely to enjoy.  Thus, by taking a page from Amazon.com, ListenSmart.com will track download patterns of each individual to calculate the next most downloaded artist based on the aggregate of the individuals who have downloaded the current artist.  Thus, the goal is to allow listeners of similar tastes to share experiences using a technology called “collaborative filtering.”

“People who enjoy this song also enjoy these songs…”

Once a listener finds a new song in which they enjoy, the goal is to light a path to more music that are also likely to enjoy.  Thus ListenSmart.com will track download patterns of each individual song to calculate the next most downloaded songs based on the aggregate of the individuals who have downloaded the current songs.  Thus, the goal is to allow listeners of similar songs tastes to share experiences using a technology called “collaborative filtering.”.

 

Figure 2: Sample Artist Home Page

 

Comparing Favorites

Next to each song, each artist, and each genre will be a button function labeled “Add this to my list of favorites.”  Not only will this allow the member user to dynamically include that item in their own member page, but it will also allow them to compare their favorites to other member’s favorites.  On each member’s page, at the bottom of each “Favorites” list, will be a button function that will activate a query to find and display the closest matching “Favorites” from other members.  If two members share eight out of ten favorites, they should feel encouraged to listen to the two that do not match.  They are very likely to enjoy what they find.

Charts & Ranking

Perhaps the most familiar way people are presented with new music is through popularity charts.  Thus, ListenSmart.com will amplify the choices typically found in traditional charting methods.

 

Figure 3: Sample Popularity Chart Page for Alternative

 

Find Artists by Popularity

Artist popularity will be based by comparing the aggregate of the artist’s songs to the aggregate of all the other artist’s songs.

 
Most Downloads

This chart will display which artists have had the most songs or compositions downloaded from ListenSmart.com.  This rank takes into account the total of all downloads from all of the songs posted by the artist.  The chart defaults to results based on the previous day only, however, you can adjust the results by using the drop down box to view results based on the previous week, the previous month, and the previous year.

 
Most Visits to Home Page

This chart will display which artists have had the most visits to their ListenSmart.com homepage.  The chart defaults to results based on the previous day only, however, you can adjust the results by using the drop down box to view results based on the previous week, the previous month, and the previous year.

 
Most CD Sales

This chart will display which artists have sold the highest dollar amount in Compact Disc sales, including their own discs and compilation CDs.  Artists who are included on compilation CDs are credited their appropriate percentage of the sale price.  The chart defaults to results based on the previous week only, however, you can adjust the results by using the drop down box to view results based on the previous month, and the previous year, and overall.

 
Most Often Chosen for “Favorites”

This chart will display which artists have been selected the most by ListenSmart.com members to be listed on the “Favorite Artists” section of their free homepage. 

Find Songs by Popularity

Song popularity is determined on a unit-to-unit basis.

 
Most Downloads

This chart will display which songs or compositions have been downloaded the most often from ListenSmart.com.  The chart defaults to results based on the previous day only, however, you can adjust the results by using the drop down box to view results based on the previous week, the previous month, and the previous year.  This chart is useful to determine what songs ListenSmart.com listeners would like to keep or hear again.

 
Highest Rated

This chart will display which songs or compositions have been rated the highest overall by artists or by members.  Both ListenSmart.com members and artists can review and rate the songs they hear on a scale from 1-10.  Only songs that have been rated by at least five different artists or members are included in the listing.  This chart is useful to determine what songs ListenSmart.com artists and members consider to be the highest quality.  Also, to offer a more detailed perspective, the chart is further divided into two categories; “Highest Rated by Artists” and “Highest Rated by Members.”

 
Most Often Reviewed

This chart will display which songs or compositions have had the most reviews written by ListenSmart.com artists or members.  The chart defaults to results based on the previous week only, however, you can adjust the results by using the drop down box to view results based on the previous month, and the previous year, and overall.  This chart is useful to determine what songs are really creating a “buzz.”  The calculation will be based on the total row count in the SONG_REVIEW fields.

 
Most Single Song Sales

This chart will display which ListenSmart.com songs have sold the highest dollar amount in compilation Compact Disc sales, including their own discs and compilation CDs.  Artists who are included on compilation CDs are credit their appropriate percentage of the sale price.  The chart defaults to results based on the previous week only, however, you can adjust the results by using the drop down box to view results based on the previous month, and the previous year, and overall.  This chart is useful to determine the ListenSmart.com artists that listeners will pay money to hear.

 
Most Often Chosen for “Favorites”

This chart will display which songs have been selected the most by ListenSmart.com members to be listed on the “My Favorite Songs” section of their free homepage. 

Functionality

ListenSmart.com will feature some of the most sophisticated functionality found on any music-related web site.

Page Customization

Each and every page at ListenSmart.com has been developed using the same “collapsible module” technology.  This technology – for which Excite recently won the Comdex award for “Web Application of the Year” – allows a user to open and close modular “boxes” based on their preference of page functionality.  The process is familiar to any computer user accustomed to using the minimize/maximize functions of most graphical operating systems.  Moreover, when a visitor makes a change to a page, a cookie stores their change and will restore their same layout on future visits.  Below are two screen shots of the preliminary ListenSmart.com home page; one with all (side column) modules collapsed, one with all modules expanded.  This allows users to set pages throughout the entire site to their own comfort level without any additional confusion.

 

Figure 4: Home Page with Side Column Modules Collapsed

 

 

Figure 5: Home Page with Side Column Modules Open

 

Drop-down Menu Bar Navigation

For a site as large in scope as ListenSmart.com, navigation becomes a fundamental concern.  We will address this concern – in part – by implementing a sophisticated – yet familiar – drop-down menu bar to allow users to navigate to anywhere, from anywhere, using an interface they are accustomed to in just about any PC application.  In fact, our graphics were designed to emulate the drop down menus of standard Windows applications the encourage comfort with its function.

 

Below is a screenshot to demonstrate the drop-down menu that appears when a user clicks on “Genres.”  Notice the similarity to standard menu bars and the blue arrow that tracks the users mouse position within the list (next to “World/Folk”)

 

Figure 6: Example of Drop-down Style Menu Bar

 

This menu bar functionality is implemented using JavaScript and has been tested, re-tested, and debugged.  Further, users whose browsers do not support Java or have disabled Java will simply be re-directed – on click – to a static page that contains the same choices as the selections with the drop-down box.

Streaming

Users of the site will have the ability to listen to every individual song throughout the site – as well as every list of songs – as a real-time audio stream using one of the four options:

 

  • Windows Media
  • RealAudio
  • MP3 (128Kbs Stereo – “Hi Fi”)
  • MP3 (24Kbs Mono – “Lo Fi”)

 

Additionally, listeners will be able to activate play lists to listen to all of an artist’s songs or all of the songs listed on a popularity chart (i.e. the top 100 Jazz Fusion downloads).

Downloads

All songs on the site will be available for download – from the respective artists’ homepage only – in a native MP3 file format encoded at standard 128Kbs.

Song Reviews

Listeners will have the opportunity to post reviews and comments on all songs.  However, due to the cantankerous nature of some reviewers, this has been a controversial function amongst the artist community.  Thus, ListenSmart.com will let the artist determine whether or not reviews will be allowed for their songs when signing up.

Song Ratings

All songs will be available for a rating from 1 through 10.  The artist cannot de-activate this function since it will be an important popularity chart function.  However, to rate a song in any specific genre, the user must have selected that particular genre as on of their “favorite genres” on their member page.  This will lend more credibility to the rating index.

 

Further, functionally speaking, only songs with at least five reviews will appear on the charts and the single highest and the single lowest review will not be included in the calculation.

Community

"Virtual communities" are currently one of the Internet's hottest trends.  The vision behind ListenSmart.com is to become a robust "virtual community" on the Internet for consumers who want to listen and learn from the plethora of music that traditional music labels and retailers do not usually offer.  This will allow an avenue for independent artists to distribute their music and build a fan base.  This type of environment can add value and vigor to the creative music community at large.  It can showcase artists and light a path for the consumer at the same time.  It also creates a connection among people who can easily identify and navigate among musical choices and genres, creating shared listening experiences.

Free Member User Pages

In addition to artists being able to create their own homepages, registered members will also be given the opportunity to create a home page using a “EZ Builder” interface.  Members can upload pictures, insert text and messages and also customize the colors, look, and feel of the page without any design or HTML experience.  Once a member has created a page, it will become the center of functionality for the user.  Also, members can encourage others users to visit their page using an “express” URL such as www.listensmart.com/members/user-name-here.

 

Figure 7: Sample Free Member User Page

 

Making changes and administering member pages will be very simple using a graphical interface that will allow users to preview their changes or additions in real-time using simple dialog boxes, drop down selectors, and Windows-like icons in the top right corner of modules.  Notice below the drop-down box that allows a user to modify their color scheme.

 

Figure 8: Example of User Page Customization Functions

 

Featured Member Page of the Week

Members that are the most creative with their page design and customization will be awarded a prize at the end of every week.  The prize value will range from $50-100.

Most Visited Member Pages

Member page traffic will also be tracked and displayed on a “popularity chart” to encourage interaction and traffic among members.

Bulletin Boards

Creating interactive forums that let visitors talk to each other and to the artists will give visitors a reason to return.  For bulletin board functionality, ListenSmart.com will use the package offered by Ultimate Bulletin Board (www.ultimatebb.com) to provide functionality.  This robust package has become a standard on such sites as MP3.com and AMP3.com. 

 

 

 

 

 

Chat Rooms

ListenSmart.com will also offer state-of-the-art multimedia Avatar chat rooms with compelling backgrounds using The Palace Chat server (www.thepalace.com). 

 

Figure 11: Sample Avatar Chat Room

 

ICQ

The “underground” rise of MP3 popularity is virtually parallel to the “underground” popularity of instant relay chat.  Moreover, we feel as though additional communication will enhance the overall sense of virtual community to create interaction among artists and listeners.  Thus, ListenSmart.com will host and prominently encourage the use of ICQ from with the community sections of the site.

 

 

 

Learn about music…

To create the perfect music appreciation type of environment for music listeners, ListenSmart.com will offer a wealth of additional information for those visitors who feel compelled to learn more about the world of music.  Articles (approx. 500-1000 words in length) and pictures will be prepared by doctorate students of The Peabody Institute on the following topics:

1)         About Music                                                              

i)          Melody                                               

ii)         Harmony                                            

iii)        Rhythm                                               

iv)        Sound/Timbre                                    

(a)       Orchestration/Instrumentation          

v)         Texture                                              

(a)       Monophonic               

(b)       Homophonic              

(c)       Polyphonic                 

vi)        Form                           

(a)       Song Form                  

(b)       12-Bar Blues              

(c)       Sonata Forms             

(d)       Rondo Forms              

vii)       Counterpoint                                      

 

2)         Digital Music                                                             

i)          Brief History                                      

ii)         Brief Overview                                 

iii)        Advantages & Disadvantages                                   

iv)        DAC & ADC                                     

v)         Sampling/Bit Count                            

vi)        Digital Music Formats                                               

(a)       CDs    

(b)       DAT   

(c)       Mini-Disc                   

(d)       MDM 

(e)       Computer Based        

vii)       MIDI            

 

3)         Computer Music                                                        

i)          Hardware                                          

ii)         Software                                            

 

4)         Music on the Internet                                                

i)          Streaming Audio & Internet Radio                           

(a)       Real    

(b)       Windows Media        

(c)       SHOUTcast!              

(d)       Flash   

(e)       MP3 streams              

ii)         Downloadable Music Formats                                  

(a)       MP3    

(b)       .wav Files                   

(c)       QuickTime                 

(d)       Liquid Audio              

(e)       SDMI/Aris                 

(f)        a2b     

(g)       VQF   

 

5)         Music History                                                            

i)          Ancient Music                                   

(a)       Brief History & Overview                

ii)         Middle Ages                                      

(a)       Brief History & Overview                

iii)        Rennaissance                                     

(a)       Brief History & Overview                

iv)        Baroque                                             

(a)       Brief History & Overview                

(b)       Composers                 

1.         Corelli

2.         Vivaldi

3.         J.S. Bach

v)         Classical                                             

(a)       Brief History & Overview                

(b)       Composers                 

1.         Haydn

2.         Mozart

3.         Beethoven

vi)        Romantic                                            

(a)       Brief History & Overview                

(b)       Composers                 

1.         Brahms

2.         Wagner

3.         Strauss

4.         Mahler

5.         Tchaikovsky

vii)       20th Century                                      

(a)       Brief History & Overview                

(b)       Composers                 

1.         Debussy

2.         Stravinsky

3.         Bartok

4.         Gershwin

5.         Copland

6.         Schoenberg

 

 

 

 

6)         Instruments                                                                

i)          Keyboard Instruments                                               

(a)       Piano  

(b)       Synthesizers               

1.         Additive Synthesizers

2.         Subtractive Synthesizers

3.         FM Synthesizers

4.         Sample-playback synths  & Samplers

5.         Physical Modeling Synthesizers

(c)       Clavinet                      

(d)       Harpsichord               

(e)       Accordion                  

(f)        Celeste                       

(g)       Organ 

1.         Hammond B3 Organ

ii)         Stringed Instruments                          

(a)       Bowed Instruments    

1.         Violin

2.         Viola

3.         Cello

4.         Contrabass

(b)       Plucked/Strummed Instruments         

1.         Guitar

2.         Electric

3.         Acoustic

4.         Banjo

5.         Harp

6.         Sitar

7.         Bass

8.         Lute

9.         Ukulele

10.       Mandolin

iii)        Wind Instruments                              

(a)       Woodwinds                

1.         Recorder

2.         Flute

3.         Alto Flute

4.         Piccolo

5.         Oboe

6.         English Horn

7.         Clarinet

8.         Bass Clarinet

9.         Bassoon

10.       Contrabassoon

11.       Saxophone - General

12.       Soprano Sax

13.       Alto Sax

14.       Tenor Sax

15.       Bari SAx

(b)       Brass  

1.         Trumpet

2.         Fluglehorn

3.         Piccolo Trumpet

4.         Trombone

5.         Bass Trombone

6.         Valve Trombone

7.         French Horn

8.         Euphonium

9.         Tuba

iv)        Percussion                                          

(a)       Drum Set                    

(b)       Drum Percussion       

(c)       Mallet Percussion      

(d)       Aux. Percussion         

v)         Electronic                                          

(a)       Theremen / DJ Turntables                

(b)       EWI    / EVI              

vi)        Misc Instruments                               

(a)       Jaw Harp                   

(b)       Hammer Dulcimer    

(c)       Bagpipes                    

(d)       Vocals as an instrument                    

(e)       Didgeridoo                 

(f)      Harmonica

 

Furthermore, instrument articles can tie directly to the musical content on the site.  For example, a visitor reads an example on an exciting new instrument called the Flugelhorn.  He can then activate a function that will search the entire song database of songs using a flugelhorn and display the results sorted by popularity.  

Artist collaboration

As a means of encouraging a pro-artist community, part of ListenSmart.com will be devoted to artist collaboration.  Artists from around the world be able the share musical ideas by using functionality similar to a bulletin board. Rather than posting text messages, however, partial or complete collaboration-ready music will be posted using various file formats including:

  • MP3
  • General MIDI
  • Cakewalk .bun files
  • Cubase Audio VST
  • Logic Audio
  • Studio Vision (Mac)
  • Digital Performer (Mac)

 

File format sections will be further broken into main genre categories.  The overall structure of the section will be similar to a bulletin board where an artist can post an original groove and others can “reply.”  New “threads” can also branch off in different directions.  The online/MP3 artist community has already begun these types of collaboration efforts in private.  ListenSmart.com will be one the first of its kind to provide artists with an infrastructure to facilitate the online collaboration phenomenon.

BUILDING A BETTER BUSINESS MODEL

Two basic business models have taken shape in the online music arena, neither of which is particularly favorable to the independent artist in general.  The first model is an e-commerce play, i.e. sell “stuff” online.  “Stuff” could take the form of physically produced CD’s or music in downloadable form.  For artists without the immediate name recognition and immediate appeal to consumers, this is an ineffective model.  The other model is an advertising-only play such as MP3.com.  Not only does this model typically eliminate the content-creating/traffic-driving artists from the primary revenue stream, but it also a model that continues to be criticized as one to build a viable, robust business.  The genius of the ListenSmart.com business model is its ability to combine several online and offline profit centers, while still allowing the basic costs to consumers at zero, and still sharing the primary revenue streams with artist 50/50 based on their popularity.

Advertising Sales

All of the music hosted and promoted by ListenSmart.com will be offered as downloads for zero cost to the consumer. Despite many engaging and attractive features, the main attraction to the site will be the sheer entertainment value of the free music.  Virtually all of the features and functions of the site will directed towards creating a greater sense of involvement between the listener and the music.  Also, there will be compelling reasons for listeners to return do to the constant addition of content via the artist’s new music and the contributions from the "virtual community."

 

With proper marketing, this approach of free content combined with a "virtual community" is proven to generate massive amount of traffic to the site.  We feel as though our goal of 1 million unique visitors per day is quite obtainable.  Along with this high level of daily traffic comes the ability to generate significant advertising revenue.  Our advertising rates could also be particularly profitable because of the demographics we expect to serve, in addition to the personalization that will be possible by matching advertisers to community member's profiles through data mining. 

 

Moreover, ListenSmart.com will be able to offer advertisers a viable alternative to the standard banner ad.  Whenever a user of the site activates any streaming song play list (i.e. Top 100 Jazz Fusion Songs), we will offer the advertisers an opportunity utilize multimedia streaming technology to display a 10-second rich media advertising clip (using audio, video, flash, etc.) within the RealPlayer or Windows Media player at the beginning of the playback.  Due to the targeted nature of the audience and the impact of rich media, this technique will maximize advertising revenues.

Affiliate Link Advertising

Part of our "virtual community" approach will be to offer various review and/or information on products relating to music, CDs, books or audio equipment.  These reviews and/or information can come from staff-authored features or content provided by artists or members.  Most of these products will also be for sale on the Internet, and our structure will always allow a user to link to where a product is available.  Should the user purchase the item after linking from our site, the potential for commission or revenue sharing is created.  This concept has been named "Affiliate Link Advertising."  Affiliate marketing programs are one of the hottest marketing tools on the Web today.  In an affiliate arrangement, advertisers create relationships with websites that agree to place links on their pages to be paid by commissions on product sales. 

CD Sales

Another revenue stream will be created through the sales of “produced on demand” CDs.  ListenSmart.com will implement the turn-key solution for CD production offered by Rimage (www.rimage.com).  Although the music featured on the site is free in its digital state, users who wish to own the music in a physical manner will be offered CDs.  The price of CDs can actually be perceived and/or presented as a "service" charge for recording the free music to a blank CD and shipping it directly to the customer. 

SmartLabel CDs

SmartLabel CDs are similar to MP3.com’s DAM CD program where artists can create their own CD using a web-based interface.  However, artists will be given much more flexibility in terms of graphical content, text content, and a much less obtrusive logo.  Artists may also set their own unit prices from $5.99 - $18.99 and receive a 50% commission.  Moreover, shrink-wrapping and bulk discounts will be offered to musicians looking to stockpile saleable units for live events in addition to local CD retailers.

SmartCompliation CDs

"SmartCompilation CDs" will be branded as such because of its extraordinary value and the ultimate control the customer will have in its creation. 

 

What makes this approach unique, however, is the opportunity it gives to a listener to create his or her own compilation/greatest hits CD, up to 650MB of data.  Customers will have the choice to add songs or compositions that they enjoy to their SmartCompilation CD by using the "Shopping Cart" system that has become so familiar in E-commerce.  Customers can even add to their shopping cart over multiple online sessions and the "contents" of their shopping cart will be retained.  Additionally, customers will not only have a choice of all the music available on the site, but they will also have their choice of format, MP3, CD digital audio (red book standard), or both.  Should a customer select CD digital audio only, he could select up to 74 minutes of music.  Should a customer select MP3 file formats only, he could select approximately 130 songs (using 5MB as an average file size). 

 

The production of the CDs will be kept to a bare minimum of time and resources through automation.  Carefully programmed procedures will automatically record all of the customer's requests onto a blank CD and a generic CD cover with basic track information will be printed.  The package will then be shrink-wrapped and shipped within 24 hours to the customer and his credit card will be billed.

 

The ability to maximize and customize each CD by song, composition, and file format creates a tremendous value for the customer.  Furthermore, through automation, the unit cost to the company remains the same regardless of the amount or nature of their selections.  Already, music lovers are spending large sums on-line ordering mostly non-customized CDs and other recordings--an amount estimated at $70 million in 1997 and projected to balloon to $1.6 billion in 2002.

Consignment CD Sales

Artists with CDs for sale that have already be produced will be offered the opportunity to ship 5-10 units at a time to ListenSmart.com to be sold on their homepage and through our e-commerce infrastructure for a minimal 10% service charge.  Artists will set their own pricing for consignment merchandise.

Artist Merchandise Sales

For the consumers who become faithful fans to one of ListenSmart.com's artists, they will be offered to purchase misc. apparel or other merchandise featuring the logo, likeness, or trademark of the band or artist.  This product will also be effectively generated through automation and a partnership alliance with iPrint.com. 

 

During the artist’s signup procedure, artists will be asked to provide their logo, likeness, or trademark in a standard graphic file format to be used on their homepage in addition to the production of their respective merchandise.  Once a customer elects to purchase a piece of artist merchandise, the artist's graphic file is automatically applied to the merchandise, packaged, and shipped.  

 

A very strong element of the business model is how artists merchandise SmartCompilation CDs and SmartLabel CDs will utilize technology to reduce unit costs and creating a method of "inventory-on-demand," thus leaving more capital funds free for additional marketing, promotion, and growth.

Music Publishing

The greatest potential for long-term revenue, and perhaps the most aggressive element of the new business model, derives from music publishing royalties revenues.  However, the integration of this profit center is best explained in the context of the relationship with the artists below.

Relationship with Independent Artists

The quintessential element of the content of ListenSmart.com will be music of every style, genre, and sound.  The providers of this musical content will come from independent artists.   The artist's motivation for providing their music to ListenSmart.com will be:

 

  1. Exposure & Promotion
  2. Immediate Revenues
  3. Future Revenues

 

Thus, a symbiotic relationship must exist.  The business model is clearly defined with the independent artist's best interests in mind.  More so, quite frankly, than any other business model that has been launched.

Exposure & Promotion

ListenSmart.com expects to spend massive amounts of time, money, and resources to encourage music fans and listeners to its site.  The individual artists will have the opportunity to take advantage of this traffic by creating a fan base.  The company will aid the artist in building a following free of any charges in the following capacities:

 

·         Hosting of a fully customizable artist home page

·         Automated search engine submissions for their home page

·         The promotion and storage of an artist fan email database

·         Opportunity to sell songs on CD recordings and promotional merchandise without the cost of production or inventory

 

As a new artist registers for the site, they will be "walked through" an automated online interview process that will allow them to enter unique information including:

 

·         Band/Artist Name

·         Band/Artist Description

·         Band/Artist History

·         Band Roster/Instruments

·         Similar Artists

·         Musical Influences

·         Press Releases

·         Goals & Objectives

·         Home page customizations using choice of template styles, graphics, up-loadable logos, & color schemes

 

Figure 13: Sample Artist Signup Interview Procedures

 

Additionally, artists will have the capacity to edit their information at any time and can even add items to their home page such as:

 

·         Gigs/Concerts

·         Upcoming Events/Appearances

·         "Good Things People Are Saying…"

·         Links to other ListenSmart.com artists

·         Etc.

 

Also during the interview process, the artists will have the opportunity to upload their songs or compositions to the ListenSmart.com server.  During the upload, the artist will provide unique information regarding their song or composition including:

 

·         Name

·         Brief description

·         Song/composition details

·         Song Lyrics

·         Song/composition keywords (for searches)

·         Song credits

·         Song Availability (downloadable or available for "preview" and purchase only)

 

Once ListenSmart.com receives all of the artist’s home page information, a company representative to insure legal compliance and to prevent the posting of offensive text or graphics will review it.  Once reviewed, the artist's home page will be posted to the site using the URL www.listensmart.com/[artist name here].  Once their home page is posted, their presence is announced to the "virtual community" under a "new artists feature" column.  Their URL will also be automatically submitted to over 100 major search engines using the keywords provided during the interview process.

 

 

To further aid the promotional efforts of the artist, ListenSmart.com will offer to host and store a fan email distribution list.  Listener's who visit any artist's web page will find a field prompting them to be added to the artist's mailing list.  Furthermore, should a user download or purchase a song or composition of the artists, they will also be prompted as to joining the artist's mailing list.  The compiled list will be available to the artist at any time.

 

Artists will also have access to a statistics page that will allow them to evaluate their exposure and popularity on ListenSmart.com.  Artist's statistics will include:

 

·         Home page hits

·         Total number of downloads (overall, by song, by day, and by month)

·         Total number of previews (overall, by song, by day, and by month)

·         Total number of CD sales (overall, by song, by day, and by month)

·         Total number of accumulated email addresses

·         Current artist rank overall, by genre, by song, by region, and by listener rating

·         Current individual song or composition rank overall, by genre, by song, by region, and by listener rating

·         Total Merchandise Sales (by day and by month)

Immediate Revenues

In addition to these potent promotional efforts on behalf of the artist, the other motivation for their participation will be immediate and future revenues.  How an artist will be compensated will be determined by the level of participation an artist selects during the signup interview process.  The three levels an artist can elect to participate are:

 

1.      Promotion Only

2.      Commerce Participation

3.      Revenue Sharing

 

An artist that elects "Promotion Only" participation declines any revenues through any channels and provides their material only for the additional exposure and promotion it will bring.  A likely candidate for this type of participation would be an artist who has already signed a major recording contract, thus preventing them from offering merchandise, or their material via download or purchase, for fear of violating their agreement.  They could, however, post a home page and offer their material in a low-fidelity streaming preview mode only without infringing on their agreement.  Thus, they could take advantage of the exposure from the ListenSmart.com "virtual community."  Conversely, ListenSmart.com would benefit from the added traffic brought to the site.

 

Artists that elect "Commerce Participation" allow their music and merchandise to be sold by ListenSmart.com and splitting the gross revenue of the sale 50/50.   Artist earned revenues will be accumulated until the dollar amount equals or exceed $50, at which time the artist's primary contact will be sent a check for the amount.  Artists will be able to track their earned revenues using their statistics page, and may apply part or all of their credits towards other products available through ListenSmart.com (including other artist's music and merchandise).

 

The most radical element of the ListenSmart.com business model is activated when the artist elects "Revenue Sharing" participation.  Artists who elect this option effectively enter into a "partnering agreement" to make ListenSmart.com the contractual music publisher for their songs and/or compositions.   For each song or composition, the artist will sign a standard single-song publishing contract that will entitle ListenSmart.com to 50% of the royalty revenues generated by the song for the life of the contract.  This includes broadcast royalties, synchronization royalties (TV, Film, etc.), mechanical royalties (the selling of CD's, sheet music, etc.), grand rights (theater), and foreign royalties (for more on music publishing royalties, relationships, and contract, see the music publishing addendum).   

 

In exchange for releasing their publishing rights to ListenSmart.com, the artist stands to earn considerable immediate and future revenues.  In addition to the "Commerce Participation" method described above,  "Revenue Sharing" artists will be distributed 50% of all advertising revenue earned by ListenSmart.com.  Distribution amounts will be commensurate with the total amount of the artist's music that was downloaded, relative to all the other Revenue Sharing artists.   The advertising revenues will be closely monitored and audited by an outside source and the total figures will be posted on an "artist only" page of the web site.  This will create genuine excitement as the artists see their collective share continue to grow month after month.  Distributions will be paid quarterly.

Future Revenues

Additionally, "Revenue Sharing" artists will have their music included in the SyncSmart.com database of music for movie, TV, film, or commercial synchronization material.  This service will be promoted to film and video producers, advertising agencies, and music supervisors worldwide as an efficient means to find appropriate synchronization material for their project.  Should a participating artist's song or composition be used for synchronization, a synchronization royalty would be negotiated, and the songwriter composer would earn 50% of the royalty and ListenSmart.com, LLC would earn 50% of the royalty.

 

Furthermore, major recording labels, producers, and other publishers, will be solicited and encouraged to frequent the ListenSmart.com community when searching for artists or material for new endeavors.  Should a ListenSmart.com song/composition or artist be selected, the royalties from such an endeavor would be split 50% to the artist and 50% to ListenSmart.com, LLC, the music publisher of record.

 

As a bonus service to "Revenue Sharing" artists, ListenSmart.com will post the artists songs and information on every other MP3 or independent music site available, thus leveraging our own competition to promote our participating artists.  We will also constantly monitor the Internet landscape for new sites or new opportunities to circulate our artist's songs and information.  Should a worthy new site spring up, we will automatically submit our participating artists information.  It is our feeling that the apparent contradiction of supporting our competition is far outweighed by the added exposure for our participating artists and the greater chance for music publishing royalties in the future.  Also, this philanthropic approach will firmly ingratiate ListenSmart.com as the premiere tool and service for the development of rising artists.  This approach of leveraging competitor’s resources for gain truly represents a rare example of "unfair competitive advantage" so often sought by investors.

ARTIST & REPERTOIRE PROMOTION

To fully maximize the potential of the ListenSmart.com business model, every effort must be made to exploit each revenue-sharing artist’s song to the maximum amount of revenue earning potential.  This is achieved using a three-pronged attack from three different Internet websites (affectionately referred to as “SmartSuite”).

ListenSmart.com

The ListenSmart.com site proper is clearly a business-to-consumer (or artist-to-consumer) play.  It has been demonstrated by MP3.com that a business cannot be sustained by the sale of individual CDs to consumer by relatively unknown artists.  However, by eliminating the cost of obtaining music and by using the function of the virtual community, it will provide an environment of “musical Darwinism” where the music with the most inherent entertainment value will rise to the top.  Thus, ListenSmart.com will become a clearinghouse for market tested artists and repertoire that will then be promoted in the “sister” business-to-business plays, SyncSmart.com and SmartAandR.com.

SyncSmart.com

ListenSmart.com’s "Revenue Sharing" participants will have their music included in the SyncSmart.com database of music for movie, TV, film, or commercial synchronization material.  Similar to LicenseMusic.com, this business-to-business service will be promoted to film and video producers, advertising agencies, and music supervisors worldwide as an efficient means to find appropriate synchronization material for their project based on their specific criteria and budget.  Information specific to songs is gathered in advance during the song signup procedure (i.e. mood, tempo, subject matter, language, etc.) that will facilitate the functionality of the site.  Thus, a movie producer could visit the site looking for material that used the accordion, was a medium tempo, sung in Spanish, and pertained to beer and ghosts.  Once the results are presented, the producer could preview each song then move forward the licensing process.  Should a participating artist's song or composition be used for synchronization, a synchronization royalty would be negotiated, and the songwriter composer would earn 50% of the royalty and ListenSmart.com would earn 50% of the royalty.

SmartAandR.com

The second sister business-to-business play will be directed toward record labels, A&R representatives, and record producers looking for new material or to sign new talent.  Visitors to the site will be able to search for new acts and songs by using criteria such as genre, region, touring ability, similar artists etc.  Additionally, visitors will be able to utilize the clearinghouse function of ListenSmart.com by creating their own “success-factor index” based on the popularity charts found on ListenSmart.com.  Thus, for example, a record producer could assign a value from 1-10 to indicate the importance of all the tracking functions:

  • Top Downloads
  • Highest Rated By Members
  • Highest Rated By Artists
  • Most Often Reviewed
  • Most CD Sales
  • Chosen Most for "Favorites"
  • Most Home Page Visits

By applying this custom algorithm to their search criteria a perfect match can be found.  Results will also display pertinent business information such as management, legal representation, touring experience/ability, etc. along with direct contact information.

 


The diagram below summarizes the ListenSmart.com business model.

 

LS Diagram

Figure 14: ListenSmart Business Model Flow Chart


Projections & Assumptions

Projections Summary At-a-Glance

Below is a snapshot summary of the significant ListenSmart projections.  Each projection is thoroughly explained in the forecast notes later in the document.

First Year Website Traffic (Unique Visitors per Day)*

 

Month 1

Month 2

Month 3

Month 4

Month 5

Month 6

Month 7

Month 8

Month 9

Month 10

Month 11

Month 12

ListenSmart

4,800

9,600

14,400

19,200

24,000

28,800

33,600

38,400

43,200

48,000

52,800

56,000

*See page 4 for more details

 

Second Year Website Traffic (Unique Visitors per Day)*

 

Month 13

Month 14

Month 15

Month 16

Month 17

Month 18

Month 19

Month 20

Month 21

Month 22

Month 23

Month 24

ListenSmart

60,800

65,600

70,400

75,200

80,000

84,800

89,600

94,400

99,200

104,000

108,800

125,000

*See page 4 for more details

 

 

ListenSmart Projected Artist Enrollment*

 

Projected "Revenue Sharing" Artists*

Registered Artists end of 2 Years

60,000

X 50% =

Revenue Sharing Artists end of 2 Years

30,000

Registered Artists end of 3 Years

160,000

X 50% =

Revenue Sharing Artists end of 3 Years

80,000

Registered Artists end of 4 Years

300,000

X 50% =

Revenue Sharing Artists end of 4 Years

150,000

*See pages 4-5 for more details

 

 

ListenSmart Five Year Revenue Projections*

 

Year 1

Year 2

Year 3

Year 4

Year 5

Music Publishing Revenue

$0

$0

$3,483,897

$10,490,320

$21,819,222

Banner Advertising Revenue

$992,250

$4,179,000

$7,365,750

$10,552,500

$13,739,250

Rich Media Advertising Revenue

$177,188

$746,250

$1,315,312

$1,884,374

$2,453,436

Newletter Sponsorship Revenue

$354,375

$746,250

$1,138,125

$1,530,000

$1,921,875

Opt-In Email Affiliate Revenue

$175,688

$746,250

$1,316,812

$1,887,374

$2,457,936

Affiliate Link Commission Revenue

$10,631

$44,775

$78,919

$113,063

$147,207

CD SalesRevenue

$63,788

$268,650

$473,512

$678,374

$883,236

Artist Merchandise Sales Revenue

$15,000

$22,500

$30,000

$37,500

$45,000

TOTAL

$1,788,920

$6,753,675

$15,202,327

$27,173,505

$43,467,162

*See pages 6-22 for more details

 

 

Key Assumptions*

Average Number of Revenue Sharing Songs per R/S Artist

3

Percentage of Professionally Competitive R/S Songs/Artists

15%

Percentage of Prof. Competitive R/S Songs/Artists That Will Be Signed

5%

Average Synchronization License Fee

$1,000.00

Average Mechanical Royalty per Song

$      0.06

*See page 6-16 for more details


Site Traffic

Our key to credible projections of both artist enrollment and general website traffic is to utilize the metrics of the most similar comparable.  We believe that MP3.com – despite a fundamentally different business model – offers the best choice for comparison based on functional and categorical similarities.  However, we are not insensitive to the vast branding advantage MP3.com has enjoyed by sheer choice of their domain name.  Thus, projections and forecasts using MP3.com as a model have been reasonably adjusted downward to account for this phenomenon.  Each respective adjustment is identified and described as they are applied to specific calculations herein.

Site Visitors

For this metric, we have put significant weight upon the vast branding advantage MP3.com has enjoyed by their domain name in attracting traffic to their site.  Thus, we project to achieve only 20% of their reported traffic as demonstrated in the charts below.

 

First Year Website Traffic (Unique Visitors per Day)

 

Month 1

Month 2

Month 3

Month 4

Month 5

Month 6

Month 7

Month 8

Month 9

Month 10

Month 11

Month 12

MP3.com

24,000

48,000

72,000

96,000

120,000

144,000

168,000

192,000

216,000

240,000

264,000

280,000

ListenSmart

4,800

9,600

14,400

19,200

24,000

28,800

33,600

38,400

43,200

48,000

52,800

56,000

Table 1: First Year Website Traffic

 

Second Year Website Traffic (Unique Visitors per Day)

 

Month 13

Month 14

Month 15

Month 16

Month 17

Month 18

Month 19

Month 20

Month 21

Month 22

Month 23

Month 24

MP3.com

304,000

328,000

352,000

376,000

400,000

424,000

448,000

472,000

496,000

520,000

544,000

596,000

ListenSmart

60,800

65,600

70,400

75,200

80,000

84,800

89,600

94,400

99,200

104,000

108,800

125,000

Table 2: Second Year Website Traffic

Site Visitor-to-Artist Ratio

Trying to determine whether more website traffic attracts more artists, or more artists attract more website traffic presents a “chicken or the egg” predicament.  Nevertheless, there is relatively consistent ratio of 5-10 daily visitors to every enrolled artist with MP3.com and also among other music sites that feature independent artists (i.e. Riffage.com, IUMA.com, AMP3.com, etc.).  Nevertheless, we have conservatively factored a ratio of only 2 daily visitors for each registered artist in our website traffic forecasts.

Artist Enrollment

One of the key components to the ListenSmart forecasts and projections revolve around the number of bands and artists that elect to upload their music and material to the ListenSmart.com website for distribution.  MP3.com was the first significant player to offer such a service, which it began in August, 1998.  As of July 2000, MP3.com has registered approximately 88,000 artists over the course of 24 months[1].  Although their overall website traffic, their first-mover advantage, and the inherent branding of their domain name has most certainly been a factor in achieving these numbers, ListenSmart has its own unique advantage.  These 88,000 artists have already made their transition into the online music space for the sake of exposure and promotion.  Furthermore, common sense suggests that their promotional efforts could be enhanced through an additional presence on ListenSmart, and at no cost to them.  Also, part of the service ListenSmart will offer to incoming artists is to merely duplicate their information from another site to ListenSmart, thus requiring only their permission, and virtually no time or effort from the artist.  Nonetheless, we reasonably expect to achieve 70% of the MP3.com artist enrollment metrics over our first 24 months.  Thus, we project approximately 60,000 registered artist with ListenSmart.com at the end our second year.

Growth Rate

It is convenient to use the two operating years of MP3.com as a model for our two-year projections.  However, to complete projections out through five years, we have to make certain assumptions with regards to the growth rate of new artists entering the online music space.  By analyzing MP3.com’s total artist enrollment from the end of its first year (26,700) to the total artist enrollment from the end of its second year (88,000), a growth rate of 330% is determined.

 

MP3.com Artist Enrollment Growth Rate

 

Artists

Growth

End of first year

26,700

N/A

End of second year

88,000

+330%

Table 3: MP3.com Artist Enrollment Growth Rate

There is significant evidence to suggest that this growth rate will not only sustain, but also actually increase in the near future.  For example, there are 64 million amateur musicians and over 1 million recording artists in the U.S. alone.[2]  Common sense suggests that at some point in the future, all of these recording artists will have their music available on the Internet in some capacity, and currently less than 100,000 have made their transition.  Nonetheless, we have conservatively applied only 75% of the MP3.com growth rate to our years 3-5.

Artist Enrollment Summary

Thus, by using our projections of 60,000 registered artists after two years (based on 70% of the MP3.com total after two years) and applying 75% of MP3.com’s growth to subsequent years, we can determine the following projections for ListenSmart artist enrollment:

 

ListenSmart Projected Artist Enrollment

Number of Registered Artists end of 2 Years

60,000

Number of Registered Artists end of 3 Years

160,000

Number of Registered Artists end of 4 Years

300,000

Table 4: ListenSmart Projected Artist Enrollment

Revenue Sharing Artists

Since the artists are given an option whether or not to assign one or more of their songs to the ListenSmart music publishing relationship, an assumption must be made with regards to the percentage of enrolled artists that will chose to do so.  Anecdotal evidence from the current artist community suggests a high percentage will elect the publishing option, as these artists cite their motivation for registering with ListenSmart in the first place to be the unique music publishing and revenue sharing aspects.  Nonetheless, we are conservatively projecting that at least 50% of enrolled artists will participate in the music publishing relationship for at least one song, thus becoming a “revenue sharing” artist.

 

ListenSmart Projected Artist Enrollment

 

Projected "Revenue Sharing" Artists

Registered Artists end of 2 Years

60,000

X 50% =

Revenue Sharing Artists end of 2 Years

30,000

Registered Artists end of 3 Years

160,000

X 50% =

Revenue Sharing Artists end of 3 Years

80,000

Registered Artists end of 4 Years

300,000

X 50% =

Revenue Sharing Artists end of 4 Years

150,000

Table 5: ListenSmart Projected Revenue Sharing Artists

Publishing Revenue

Although the processes above help to determine general site traffic and the total number of artists that will elect the revenue sharing/music publishing option, additional assumptions must be made to credibly project music publishing revenues.  When dealing with the “unfiltered” songwriter constituency as whole (that ListenSmart will attract to the site), it is virtually impossible to establish a single perfect formula that could indicate the "average" or "potential" level of success.  Ultimately, however, our projections need to make this determination, thus we have built our projections upon several key assumptions, but also tied them to measurable benchmarks such as comparable metrics and SoundScan reports.

Key Assumptions

Our first step in projecting publishing revenues is to make several credible assumptions.

Average Number of Revenue Sharing Songs

Since a music publisher operates on a song-unit basis, an assumption must be made to determine the number of songs ListenSmart will add to its music publishing catalog.  Anecdotal evidence from the current ListenSmart artist community suggests that most artists will participate in an all-or-nothing basis with regards to the publishing option of their songs, even though the option is on a song-by-song basis.  Additionally, the average ListenSmart artist uploads 5.5 songs.  Moreover, the average MP3.com artist uploads over 6 songs.  Nevertheless, we have conservatively set the average number of revenue sharing songs (per revenue sharing artist) at 3 for the purpose of our publishing revenue projections.

 

Projected "Revenue Sharing" Artists

# of Songs

Projected "Revenue Sharing" Songs

End of 2 Years

30,000

X 3 =

End of 2 Years

90,000

End of 3 Years

80,000

X 3 =

End of 3 Years

240,000

End of 4 Years

150,000

X 3 =

End of 4 Years

450,000

Table 6: Projected Revenue Sharing Songs

Percentage of Professionally Competitive Songs/Artists

Based on the operating experience of ListenSmart.com, as well as other independent music sites such as MP3.com, Riffage.com, and IUMA.com, a case could be made by industry veterans that 15% of the music uploaded to these sites (without a screening or filtration mechanism) could at least compete in a professional market space.  Thus the 15% mark is considered our “target.”

 

Total "Revenue Sharing" Artists

Competitive

Competitive "Revenue Sharing" Artists

End of 2 Years

30,000

X 15% =

End of 2 Years

4,500

End of 3 Years

80,000

X 15% =

End of 3 Years

12,000

End of 4 Years

150,000

X 15% =

End of 4 Years

22,500

Table 7: Competitive Revenue Sharing Artists

Percentage of Competitive Artists Signed

Of this narrowed-down 15% pool of artists, we must make another assumption of the percentage of these artists that will procure recording contracts or similar deals from either major or independent labels.  These signings may come from our own online and offline promotional efforts, or they may also occur independent of our efforts.  We are projecting that 5% of the (15%) commercially competitive artist pool will procure recording contracts or similar deals from either major or independent labels.

 

Competitive  "Revenue Sharing" Artists

% of Deals

Total Signed to Recording Contracts

End of 2 Years

4,500

X 5% =

End of 2 Years

225

 End of 3 Years

12,000

X 5% =

End of 3 Years

600

 End of 4 Years

22,500

X 5% =

End of 4 Years

1,125

Table 8: Total Artists Signed to Recording Contracts

Methodology

There are many revenue segments to the music publishing industry including mechanical royalties, performance royalties, synchronization royalties, and print royalties. The calculations above have focused on recording contracts, which have a direct relationship to mechanical royalties.  Our approach is to first project U.S. CD sales from the pool of ListenSmart artists that become signed to recording contracts using SoundScan reports as a benchmark, thereby projecting revenues from U.S. mechanical royalties.  We then use the U.S. mechanical royalty revenue as a constant to pro rate the additional segments of U.S. music publishing royalties (performance royalties, synchronization royalties, print royalties, etc.) based upon the relative percentages reported by the NMPA[3].  We assume that the forces that drive the existence of mechanical royalties also drive the royalty generation of these other segments.  Once we have established this total for all U.S. music publishing royalties, we then use this amount as a constant to pro-rate the projected publishing royalty revenue from the world market based upon the relative percentages reported by the NMPA[4].  The diagram below illustrates the key steps in our methodology.

 

 

# of

Enrolled

Artists

Purple mesh

# of

Purple meshCompetitive

Artists

 

# of

Competive

Artists

Signed

Purple mesh

Sound-

Purple meshscan

Bench-

Mark

 

U.S.

Purple meshMechanical

Royalty

Revenue

 

U.S.

Total

Publishing

Revenue

Purple mesh

World Total Publishing Revenue

 

We have already determined projections up through the third step (# of competitive and signed ListenSmart artists), however, each subsequent step is given a greater explanation below.

Using SoundScan Reports as Success Benchmark

Soundscan Inc. tracks 85 percent of all retail music sales in the U.S. Its computers register sales information every time a compact disc, cassette or record is passed across a bar-code scanner at more than 15,000 outlets.[5] The table below is from a Soundscan report of the 38,857 CDs released in 1999 and their breakdown by unit sales.

 

First Year Release Sales (for 1999)

# of Unit Sales

# of Releases

% of Total

1,000,000

52

0.13%

500,000

71

0.18%

250,000

110

0.28%

100,000

204

0.53%

50,000

261

0.67%

25,000

397

1.02%

20,000

189

0.49%

15,000

284

0.73%

10,000

531

1.37%

9,000

163

0.42%

8,000

208

0.54%

7,000

250

0.64%

6,000

318

0.82%

5,000

368

0.95%

4,000

571

1.47%

3,000

797

2.05%

2,000

1,283

3.30%

1,000

32,800

84.41%

TOTAL

38,857

100%

Table 9: SoundScan First Year Release Sales Data for 1999

Thus, only 52 of the 38,857 (or .13%) CDs released in 1999 sold at least 1 million copies.  The key figures for our calculations is the far right-hand column and their relationship to the tiers of the far left-hand column, which gives us a benchmark of individual CD sales performance from among the aggregate of all releases. 


Applied to ListenSmart Song/Artist Assumptions

Since we have already projected the number of ListenSmart revenue sharing artists that will procure recording contracts in Table 8, we can then apply the SoundScan benchmark to these number – one year at a time – to predict CD sales performance. 

 

Thus, the table below duplicates the SoundScan report from above, but with the addition of the two right-hand columns to indicate the number of ListenSmart revenue sharing artist and their respective CD sales. 

 

The ListenSmart Artists column is determined by multiplying the “ % of Total” column by the Total of signed ListenSmart Artists (225).  ListenSmart CD Sales column is then determined by multiplying the ListenSmart Artists column by the “# of Unit Sales” column (note: odd values in this column are caused by the rounding of decimal points in the Artists column).

 

3rd Year Projected CD Sales (first year releases)

 

 

 

ListenSmart

# of Unit Sales

# of Releases

% of Total

Artists

CD Sales

1,000,000

52

0.13%

0.30

301,104

500,000

71

0.18%

0.41

205,561

250,000

110

0.28%

1

159,238

100,000

204

0.53%

1

118,125

50,000

261

0.67%

2

75,566

25,000

397

1.02%

2

57,470

20,000

189

0.49%

1

21,888

15,000

284

0.73%

2

24,667

10,000

531

1.37%

3

30,747

9,000

163

0.42%

1

8,495

8,000

208

0.54%

1

9,635

7,000

250

0.64%

1

10,133

6,000

318

0.82%

2

11,048

5,000

368

0.95%

2

10,654

4,000

571

1.47%

3

13,225

3,000

797

2.05%

5

13,845

2,000

1,283

3.30%

7

14,858

1,000

32,800

84.41%

190

189,927

TOTAL

38,857

100%

225

  1,276,189

Table 10: 3rd Year Projected CD Sales (first year releases)


We then repeat this process for the fourth year, where in Table 8 we have already determined 600 ListenSmart revenue sharing artists would be signed to recording contracts…

 

4th Year Projected CD Sales (first year releases)

 

 

 

ListenSmart

# of Unit Sales

# of Releases

% of Total

Artists

CD Sales

1,000,000

52

0.13%

1

802,944

500,000

71

0.18%

1

548,164

250,000

110

0.28%

2

424,634

100,000

204

0.53%

3

315,001

50,000

261

0.67%

4

201,508

25,000

397

1.02%

6

153,254

20,000

189

0.49%

3

58,368

15,000

284

0.73%

4

65,780

10,000

531

1.37%

8

81,993

9,000

163

0.42%

3

22,652

8,000

208

0.54%

3

25,694

7,000

250

0.64%

4

27,022

6,000

318

0.82%

5

29,462

5,000

368

0.95%

6

28,412

4,000

571

1.47%

9

35,268

3,000

797

2.05%

12

36,920

2,000

1,283

3.30%

20

39,622

1,000

32,800

84.41%

506

506,472

TOTAL

38,857

100%

600

  3,403,171

Table 11: 4th Year Projected CD Sales (first year releases)


And finally, we repeat this process for the fifth year where we have already determined in Table 8 that 1,125 ListenSmart revenue sharing artists would be signed to recording contracts…

 

5th Year Projected CD Sales (first year releases)

 

 

 

ListenSmart

# of Unit Sales

# of Releases

% of Total

Artists

CD Sales

1,000,000

52

0.13%

2

1,505,520

500,000

71

0.18%

2

1,027,807

250,000

110

0.28%

3

796,189

100,000

204

0.53%

6

590,627

50,000

261

0.67%

8

377,828

25,000

397

1.02%

11

287,352

20,000

189

0.49%

5

109,440

15,000

284

0.73%

8

123,337

10,000

531

1.37%

15

153,737

9,000

163

0.42%

5

42,473

8,000

208

0.54%

6

48,177

7,000

250

0.64%

7

50,667

6,000

318

0.82%

9

55,241

5,000

368

0.95%

11

53,272

4,000

571

1.47%

17

66,127

3,000

797

2.05%

23

69,225

2,000

1,283

3.30%

37

74,292

1,000

32,800

84.41%

950

949,636

TOTAL

38,857

100%

1,125

  6,380,945

Table 12: 5th Year Projected CD Sales (first year releases)

All the above projections are based upon the assumption that a signed ListenSmart artist will release a new recording every year, and therefore we apply the SoundScan metrics of first year releases to each year (3,4, & 5).  However, SoundScan also reports on back catalog sales.  They define back catalog as any recording that is not its first year of release.  Thus, to be completely accurate we need to repeat the process above for forecast years 4 & 5 to reflect the ListenSmart artists’ back catalog sales from releases in years 3 & 4.


Repeat Process for Back Catalog Sales in Years 4 & 5

Since our calculations begin with year 3, there is no back catalog to calculate in year 3.  However in addition to the year 4 projections of first year releases from above, we now calculate below the back catalog sales of ListenSmart artists based upon the releases from year 3.  Notice the changes to the benchmark for back catalog sales in “ # of Releases” column, as compared to the values from the first year releases benchmarks.

 

4th Year Projected CD Sales (Back Catalog Sales)

 

 

 

ListenSmart

# of Unit Sales

# of Releases

% of Total

Artists

CD Sales

1,000,000

88

0.03%

0.08

76,916

500,000

112

0.04%

0.10

48,946

250,000

219

0.09%

0.19

47,854

100,000

599

0.23%

1

52,355

50,000

979

0.38%

1

42,784

25,000

1,728

0.67%

2

37,759

20,000

831

0.32%

1

14,527

15,000

1,289

0.50%

1

16,900

10,000

2,397

0.93%

2

20,951

9,000

745

0.29%

1

5,860

8,000

888

0.34%

1

6,209

7,000

1,047

0.41%

1

6,406

6,000

1,385

0.54%

1

7,263

5,000

1,782

0.69%

2

7,788

4,000

2,483

0.96%

2

8,681

3,000

3,619

1.41%

3

9,489

2,000

6,152

2.39%

5

10,754

1,000

13,876

5.39%

12

12,128

100

66,881

25.98%

58

5,846

TOTAL

257,425

100%

225

439,547

Table 13: 4th Year Projected CD Sales (back catalog)

 


We repeat the back catalog process one more for the 5th year.  Notice the total for the ListenSmart Artists column for the 5th year back catalog sales calculations are the sum of the releases from the 3rd year (225) and the 4th year (600), hence 825.

 

5th Year Projected CD Sales (Back Catalog Sales)

 

 

 

ListenSmart

# of Unit Sales

# of Releases

% of Total

Artists

CD Sales

1,000,000

88

0.03%

0.28

282,024

500,000

112

0.04%

0.36

179,470

250,000

219

0.09%

0.70

175,464

100,000

599

0.23%

2

191,969

50,000

979

0.38%

3

156,876

25,000

1,728

0.67%

6

138,448

20,000

831

0.32%

3

53,264

15,000

1,289

0.50%

4

61,965

10,000

2,397

0.93%

8

76,819

9,000

745

0.29%

2

21,488

8,000

888

0.34%

3

22,767

7,000

1,047

0.41%

3

23,488

6,000

1,385

0.54%

4

26,632

5,000

1,782

0.69%

6

28,555

4,000

2,483

0.96%

8

31,830

3,000

3,619

1.41%

12

34,795

2,000

6,152

2.39%

20

39,432

1,000

13,876

5.39%

44

44,470

100

66,881

25.98%

214

21,434

1

150,325

58.40%

482

482

TOTAL

257,425

100%

825

     1,611,172

Table 14: 5th Year Projected CD Sales (back catalog)

Determine Total Unit Sales

We can now extract the total CD unit sales from the all of the SoundScan benchmark tables above to project a grand total CD unit sales that include songs by ListenSmart artists in years 3, 4, and 5.

 

Total ListenSmart CD Unit Sales

 

1st Yr. Releases

Back Catalog

Year Total

3rd Year

1,276,189

N/A

1,276,189

4th Year

3,403,171

439,547

3,842,717

5th Year

6,380,945

1,611,672

7,992,617

Table 15: Total ListenSmart CD Unit Sales

Determine Mechanical Royalty Revenue

We can multiply the total number of CD releases that include songs by ListenSmart artists by the average number of revenue sharing songs per revenue sharing artist that we determined to be 3.  Admittedly, this also assumes that each and every revenue sharing song would be included in the CD release of the signed ListenSmart artist.

 

 

Total CD Unit Sales

Avg. # of Songs per CD

Total Song Units Eligible for Mechanical Royalties

3rd Year

1,276,189

X 3 =

3,828,567

4th Year

3,842,717

X 3 =

11,528,152

5th Year

7,992,617

X 3 =

23,977,850

Table 16: Total Song Units Eligible for Mechanical Royalties

At this point, we need to determine an average mechanical royalty.  The current U.S. statutory rate for mechanical royalties for songs under five minutes in length is $.0755 per song, per recording.  However, it is an extremely common industry practice for publishers to grant “controlled composition clauses,” which typically reduces the statutory rate to ¾ of the original.  Since such a reduced rate would effectively make the mechanical royalty $.0566 per song, per recording, we have conservatively used $.06 as the average mechanical royalty when factoring in the blend of both full and reduced rates.

 

 

Total Song Units Eligible for Mechanical Royalties

Average Mechanical Royalty per Song

U.S. Mechanical Royalty Revenue

3rd Year

3,828,567

X $.06 =

$     229,714.02

4th Year

11,528,152

X $.06 =

$     691,689.14

5th Year

23,977,850

X $.06 =

$  1,438,670.99

Table 17: U.S. Mechanical Royalty Revenue

These numbers effectively represent our projected U.S. mechanical royalty revenue.

Pro Rata

As mentioned above, there are many revenue segments to the music publishing industry in addition to the mechanical royalty revenues we have now determined in Table 17, including performance royalties, synchronization royalties, and print royalties.

Pro Rata of U.S. Publishing Revenue

Our next step is to use the U.S. mechanical royalty revenue as a constant to pro rate the additional segments of U.S. music publishing royalties (performance royalties, synchronization royalties, print royalties, etc.) based upon the relative percentages reported by the NMPA[6] (again, we assume that the forces that drive mechanical royalties also largely drives the royalty generation from these other segments). 

 

According to the National Music Publishers Association’s “Ninth Annual International Survey of Music Publishing Revenues,” the following breakdown is reflected for U.S. publishing royalties.

 

  • Mechanical                  33.07%
  • Performance                44.00%
  • Synchronization            6.91%
  • Print & Misc.               15.4%

 

Thus, by using our U.S. mechanical royalties dollar values as a constant, we can effectively pro rate the other segments.

 

 

U.S. Mechanical

Royalty Revenue

U.S. Performance

Revenue

U.S. Sync

Revenue

U.S. Print & Misc.

Revenue

U.S. Publishing Revenue Year Total

 

33.07%

44.00%

6.91%

15.4%

100%

3rd Year

$     229,714.02

$     305,637.03

 $     48,478.90

 $   106,972.96

$   690,802.91

4th Year

$     691,689.14

 $     920,300.03

 $   145,974.23

 $   322,105.01

 $2,080,068.41

5th Year

$  1,438,670.99

 $  1,914,167.63

 $   303,617.44

 $   669,958.67

 $4,326,414.74

Table 18: U.S. Publishing Revenue Totals

Pro Rata of World Publishing Revenue

Now that we have established this total for U.S. music publishing revenues, we may now use these amounts as a constant to pro-rate the publishing royalties from the world market based upon the relative percentages reported by the NMPA[7].

 

According to the National Music Publishers Association’s “Ninth Annual International Survey of Music Publishing Revenues,” the following breakdown is reflected for the world publishing royalties.

 

  • Mechanical                  28.71%
  • Performance                42.14%
  • Synchronization          13.72%
  • Print & Misc.               15.44%

 

We also know that the U.S. market represents 23% of the music publishing industry revenue total.  Thus, by again using our U.S. mechanical royalties dollar values as a constant, we can effectively pro rate the world market.

 

 

World Mechanical

Royalty Revenue

World Performance

Revenue

World. Sync

Revenue

World Print & Misc.

Revenue

World Publishing Revenue Year Total

 

28.71%

42.14%

13.72%

15.44%

100%

3rd Year

$     998,756.59

 $1,465,956.21

 $   482,060.95

 $     537,123.01

$  3,483,896.76

4th Year

$  3,007,344.08

 $4,414,123.29

 $1,451,527.98

 $  1,617,324.72

 $10,490,320.08

5th Year

$  6,255,091.27

 $9,181,105.76

 $3,019,089.19

 $  3,363,936.23

 $21,819,222.46

Table 19: World Publishing Revenue Totals

 


Synchronization

Now that a total amount of revenue from synchronization royalties has been determined in Table 19, we can work backwards to determine the number of synchronization contracts that will be required to meet the target revenue numbers.  We have used $1,000 as a very conservative average fee for synchronization contracts in our assumptions.  This amount also includes the master use fee, which is a unique aspect to the publishing relationship we offer to revenue sharing artists.

 

 

Year 3

Year 4

Year 5

Assumed Total Synch Revenues

$   482,060.95

 $1,451,527.98

 $3,019,089.19

Synch Licenses Required @ $1k ea.

482

1,452

3,019

Table 20: Synchronization License Requirements

Advertising Revenue

Clearly, the long term revenue growth potential of ListenSmart is directly tied to music publishing revenues.  However, advertising revenue will play an important role in the overall business model of ListenSmart (as 50% of which will be used to compensate revenue sharing artists), as well as generating a sustainable cash flow for the first few years.

Banner Advertising Revenue

We have categorically grouped together all potential advertisements or promotions that are displayed on fixed locations in web page real estate as banner advertising.  They may include traditional 468 X 60 Banner ads (below) which may be displayed at the top and bottom of every ListenSmart page,

 

456

Figure 15: Sample 468x60  Banner Ad

 

and also special 100 x 100 promotion banners (below) that can be displayed in groups of twos and threes along the sides of web pages.

 

123

Figure 16: Sample 100x100 Promo Banner Ad

 

The tables below reflect our banner advertising revenue projections conservatively based upon having at least one 468 x 60 banner ad per page @ $15 CPM and one 100x100 promotional banner per page at $5 CPM.  We have also assumed an average of seven page views per unique visitor, based upon the monthly metrics reported by MP3.com[8].  Thus our formula for banner advertising revenue is as follows:

 

# of Monthly Visitors X  7 Page Views ea. X  ($15 + $5)/1000

 

Notice that the projections reflect a steady growth of unique daily visitor through 125,000 in month 24 that we have determined earlier in Table 1 and 2.

 

First Year Banner Advertising Revenues

 

Month 1

Month 2

Month 3

Month 4

Month 5

Month 6

Month 7

Month 8

Month 9

Month 10

Month 11

Month 12

First Year TOTAL

Visitors Per Day

2,000

3,000

4,500

6,750

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

 

Visitors Per Month

60,000

90,000

135,000

202,500

300,000

450,000

600,000

750,000

900,000

1,050,000

1,200,000

1,350,000

7,087,500

Banner Advertising Revenue

$8,400

$12,600

$18,900

$28,350

$42,000

$63,000

$84,000

$105,000

$126,000

$147,000

$168,000

$189,000

$992,250.00

Table 21: Projected First Year Banner Advertising Revenues

 

Second Year Banner Advertising Revenues

 

Month 13

Month 14

Month 15

Month 16

Month 17

Month 18

Month 19

Month 20

Month 21

Month 22

Month 23

Month 24

TOTAL

Number of Visitors Per Day

50,000

55,000

60,000

70,000

75,000

80,000

85,000

90,000

95,000

100,000

110,000

125,000

 

Number of Visitors Per Month

1,500,000

1,650,000

1,800,000

2,100,000

2,250,000

2,400,000

2,550,000

2,700,000

2,850,000

3,000,000

3,300,000

3,750,000

29,850,000

Banner Advertising Revenue

$210,000

$231,000

$252,000

$294,000

$315,000

$336,000

$357,000

$378,000

$399,000

$420,000

$462,000

$525,000

$3,969,000

Table 22: Projected Second Year Banner Advertising Revenues

Rich Media Advertising

We have categorically grouped together all potential advertisements that includes audio, video, or animation as rich media advertising.  This category of advertising is very attractive to advertisers as it allows them to break past the mundane banner ads in favor or a more compelling message.  Moreover, rich media advertising is poised for explosive growth with the proliferation of broadband technologies.  ListenSmart is poised perfectly for the delivery of rich media advertising since most of the media players that allow the for the delivery of music (i.e. RealPlayer, Windows Media Players, etc.), also allow for the delivery of audio, video, animation, and hyperlinks, all within the player’s browser window.

 

It is our plan to incorporate five-seconds of rich media advertising at the beginning of various radio-style playlists throughout the site.  We will constantly monitor the users tolerance for additional rich media advertising within the middle of the playlists (i.e. every fifth song), however we plan to begin with only ads at the beginning for now.

 

Currently, rich media advertising delivery is allowing much higher CPM rates than banner ad impressions.  The current industry standard for 5-10 second rich media spots is $50-$100 CPM.  We have conservatively used the low end of $50 for the purposes of our projections.

 

The tables below reflect our rich media advertising revenue projections conservatively based upon having at least 50% of all visitors to the site triggering at least one playlist on average. Thus our formula for rich media advertising revenue is as follows:

 

# of Monthly Visitors X  50% X  $50/1000

 

 

First Year Rich Media Advertising Revenues

 

Month 1

Month 2

Month 3

Month 4

Month 5

Month 6

Month 7

Month 8

Month 9

Month 10

Month 11

Month 12

First Year TOTAL

Visitors Per Day

2,000

3,000

4,500

6,750

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

 

Visitors Per Month

60,000

90,000

135,000

202,500

300,000

450,000

600,000

750,000

900,000

1,050,000

1,200,000

1,350,000

7,087,500

Rich Media Advertising Revenue

$1,500

$2,250

$3,375

$5,063

$7,500

$11,250

$15,000

$18,750

$22,500

$26,250

$30,000

$33,750

$177,188.00

Table 23: Projected First Year Rich Media Advertising Revenues

 

Second Year Rich Media Advertising Revenues

 

Month 13

Month 14

Month 15

Month 16

Month 17

Month 18

Month 19

Month 20

Month 21

Month 22

Month 23

Month 24

TOTAL

Number of Visitors Per Day

50,000

55,000

60,000

70,000

75,000

80,000

85,000

90,000

95,000

100,000

110,000

125,000

 

Number of Visitors Per Month

1,500,000

1,650,000

1,800,000

2,100,000

2,250,000

2,400,000

2,550,000

2,700,000

2,850,000

3,000,000

3,300,000

3,750,000

29,850,000

Rich Media Advertising Revenue

$37,500

$41,250

$45,000

$52,500

$56,250

$60,000

$63,750

$67,500

$71,250

$75,000

$82,500

$93,750

$746,250

Table 24: Projected Second Year Rich Media Advertising Revenues

 

Newsletter Sponsorships

In addition to collecting email addresses from registered artists and registered members, ListenSmart has built a method to aggregate the maximum number of email addresses possible for subscription to our monthly newsletter, and also for opt-in subscription to affiliate companies.  Whenever a new users first attempts to listen to music (in any format) from an artist page, they are presented with the following dialog box:

 

OptIn

Figure 17: Download/Stream Request Dialog Box Screenshot

 

The user is only asked once for this information, at which time a cookie tells our servers to not ask for the information again.  As you can see, the default options for both the monthly newsletter and also for the affiliate announcements is “yes.”  Thus, we have projected that at least 50% of the visitors to the site will provide their email address for the purpose of subscribing to our monthly newsletter.

 

Space within our monthly newsletter can be monetized through sponsorships and related promotions.  Industry standard CPM rates for such promotions are similar to, if not slightly higher, than the banner advertising rates.

 

The tables below reflect our newsletter sponsorship advertising revenue projections conservatively based upon only one advertisement at an industry standard rate of $25 per 1000 (CPM) and having at least 50% of all visitors subscribe to the monthly newsletter either by registering as a member, or completing the download/stream request dialog box. Thus our formula for newsletter sponsoship revenue is as follows:

 

# of Monthly Visitors X  50% X  $25/1000

 

 

First Year Newsletter Sponsorship Advertising Revenues

 

Month 1

Month 2

Month 3

Month 4

Month 5

Month 6

Month 7

Month 8

Month 9

Month 10

Month 11

Month 12

First Year TOTAL

Visitors Per Day

2,000

3,000

4,500

6,750

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

 

Visitors Per Month

60,000

90,000

135,000

202,500

300,000

450,000

600,000

750,000

900,000

1,050,000

1,200,000

1,350,000

7,087,500

Newsletter Advertising Revenue

$3,000

$4,500

$6,750

$10,125

$15,000

$22,500

$30,000

$37,500

$45,000

$52,500

$60,000

$67,500

$354,375.00

Table 25: Projected First Year Newsletter Sponshorship Revenues

 

Second Year Newsletter Sponsorship Advertising Revenues

 

Month 13

Month 14

Month 15

Month 16

Month 17

Month 18

Month 19

Month 20

Month 21

Month 22

Month 23

Month 24

TOTAL

Number of Visitors Per Day

50,000

55,000

60,000

70,000

75,000

80,000

85,000

90,000

95,000

100,000

110,000

125,000

 

Number of Visitors Per Month

1,500,000

1,650,000

1,800,000

2,100,000

2,250,000

2,400,000

2,550,000

2,700,000

2,850,000

3,000,000

3,300,000

3,750,000

29,850,000

Newsletter Advertising Revenue

$75,000

$82,500

$90,000

$105,000

$112,500

$120,000

$127,500

$135,000

$142,500

$150,000

$165,000

$187,500

$1,492,500

Table 26: Projected Second Year Newsletter Sponshorship Revenues

 

 

 

Sale of Email Addresses to Opt-In Affiliates

Users who leave the second option checked in the dialog box are agreeing to receive email from ListenSmart affiliate companies.  This opt-in arrangement allows ListenSmart to sell the email addresses in aggregate to qualified affiliates.  The current industry standard sale price for opt-in email addresses is $.10 per name.

 

Please note that both the newsletter and the affiliate announcement options are opt-in relationships, and users may opt-out at any time.

 

The tables below reflect our revenue projections from the sale of email addresses to opt-in affiliates, conservatively based upon an industry standard rate of $0.10 per name and having at least 25% of all visitors assign opt-in affiliate permission by either by selecting the options when registering as a member, or while completing the download/stream request dialog box. Thus our formula for revenue from the sale of email addresses to opt-in affiliates is as follows:

# of Monthly Visitors X  25% X  $0.10

 

First Year Sales to Opt-In Affiliates

 

Month 1

Month 2

Month 3

Month 4

Month 5

Month 6

Month 7

Month 8

Month 9

Month 10

Month 11

Month 12

First Year TOTAL

Visitors Per Day

2,000

3,000

4,500

6,750

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

 

Visitors Per Month

60,000

90,000

135,000

202,500

300,000

450,000

600,000

750,000

900,000

1,050,000

1,200,000

1,350,000

7,087,500

Sales to Opt-In Affiliate Revenue

$1,500

$750

$3,375

$5,063

$7,500

$11,250

$15,000

$18,750

$22,500

$26,250

$30,000

$33,750

$175,688.00

Table 27: Projected First Year Opt-In Affiliate Email Address Sales Revenues

 

Second Year Sales to Opt-In Affiliates

 

Month 13

Month 14

Month 15

Month 16

Month 17

Month 18

Month 19

Month 20

Month 21

Month 22

Month 23

Month 24

TOTAL

Number of Visitors Per Day

50,000

55,000

60,000

70,000

75,000

80,000

85,000

90,000

95,000

100,000

110,000

125,000

 

Number of Visitors Per Month

1,500,000

1,650,000

1,800,000

2,100,000

2,250,000

2,400,000

2,550,000

2,700,000

2,850,000

3,000,000

3,300,000

3,750,000

29,850,000

Sale to Opt-In Affiliate Revenue

$37,500

$41,250

$45,000

$52,500

$56,250

$60,000

$63,750

$67,500

$71,250

$75,000

$82,500

$93,750

$746,250

Table 28: Projected Second Year Opt-In Affiliate Email Address Sales Revenues

CD & Merchandise Sales + Affiliate Link Commissions

CD & Merchandise Sales + Affiliate Link Commissions represent a relatively small segment of the ListenSmart revenue projections.  We consider these to be more “value-added services” for artists and users than significant profit centers for ListenSmart.

 

Affiliate Link Commissions

The tables below reflect our revenue projections from the sale of affiliate link commissions, conservatively based upon an assumption of 1 visitor per 1,000 clicking through to an affiliate site and making an average purchase of $15. We have also assumed a 10% average affiliate link commission.  Thus our formula for affiliate link commission revenue is as follows:

 

# of Monthly Visitors X  .1% X  $15 X 10%

 

First Year Affiliate Link Commission Revenue

 

Month 1

Month 2

Month 3

Month 4

Month 5

Month 6

Month 7

Month 8

Month 9

Month 10

Month 11

Month 12

First Year TOTAL

Visitors Per Day

2,000

3,000

4,500

6,750

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

 

Visitors Per Month

60,000

90,000

135,000

202,500

300,000

450,000

600,000

750,000

900,000

1,050,000

1,200,000

1,350,000

7,087,500

Affiliate Link Commission Revenue

$90

$135

$203

$304

$450

$675

$900

$1,125

$1,350

$1,575

$1,800

$2,025

$10,631.00

Table 29: Projected First Year Affiliate Link Sales Revenues

 

Second Year Affiliate Link Commission Revenue

 

Month 13

Month 14

Month 15

Month 16

Month 17

Month 18

Month 19

Month 20

Month 21

Month 22

Month 23

Month 24

TOTAL

Number of Visitors Per Day

50,000

55,000

60,000

70,000

75,000

80,000

85,000

90,000

95,000

100,000

110,000

125,000

 

Number of Visitors Per Month

1,500,000

1,650,000

1,800,000

2,100,000

2,250,000

2,400,000

2,550,000

2,700,000

2,850,000

3,000,000

3,300,000

3,750,000

29,850,000

Affiliate Link Revenue

$2,250

$2,475

$2,700

$3,150

$3,375

$3,600

$3,825

$4,050

$4,275

$4,500

$4,950

$5,625

$44,745

Table 30: Projected Second Year Affiliate Link Sales Revenues

CD Sales

The tables below reflect our revenue projections from on-demand artist CD sales conservatively based upon an assumption of 1 visitor per 1,000 making a CD purchase with an average price of $9. Thus our formula for CD sales revenue is as follows:

 

# of Monthly Visitors X  .1% X  $9

 

First Year CD Sales Revenue

 

Month 1

Month 2

Month 3

Month 4

Month 5

Month 6

Month 7

Month 8

Month 9

Month 10

Month 11

Month 12

First Year TOTAL

Visitors Per Day

2,000

3,000

4,500

6,750

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

 

Visitors Per Month

60,000

90,000

135,000

202,500

300,000

450,000

600,000

750,000

900,000

1,050,000

1,200,000

1,350,000

7,087,500

CD Sales Revenue

$540

$810

$1,215

$1,823

$2,700

$4,050

$5,400

$6,750

$8,100

$9,450

$10,800

$12,150

$63,788.00

Table 31: Projected First Year CD Sales Revenues

 

Second Year CD Sales Revenue

 

Month 13

Month 14

Month 15

Month 16

Month 17

Month 18

Month 19

Month 20

Month 21

Month 22

Month 23

Month 24

TOTAL

Number of Visitors Per Day

50,000

55,000

60,000

70,000

75,000

80,000

85,000

90,000

95,000

100,000

110,000

125,000

 

Number of Visitors Per Month

1,500,000

1,650,000

1,800,000

2,100,000

2,250,000

2,400,000

2,550,000

2,700,000

2,850,000

3,000,000

3,300,000

3,750,000

29,850,000

CD Sales Revenue

$13,500

$14,850

$16,200

$18,900

$20,250

$21,600

$22,950

$24,300

$25,650

$27,000

$29,700

$33,750

$268,650

Table 32: Projected Second Year CD Sales Revenues

 

Artist Merchandise Sales

We project artist merchandise sales revenue to represent less than $50,000 over the first two years.


Two Year Revenue Totals

The charts below extract the total values from Tables 21-32 to indicate the two-year revenue projections for ListenSmart on a month-by-month basis.

 

First Year Revenue Projections (All Sources)

 

Month 1

Month 2

Month 3

Month 4

Month 5

Month 6

Month 7

Month 8

Month 9

Month 10

Month 11

Month 12

TOTAL

Banner Advertising Revenue

$8,400

$12,600

$18,900

$28,350

$42,000

$63,000

$84,000

$105,000

$126,000

$147,000

$168,000

$189,000

$992,250

Rich Media Advertising Revenue

$1,500

$2,250

$3,375

$5,063

$7,500

$11,250

$15,000

$18,750

$22,500

$26,250

$30,000

$33,750

$177,188

Newletter Sponsorship Revenue

$3,000

$4,500

$6,750

$10,125

$15,000

$22,500

$30,000

$37,500

$45,000

$52,500

$60,000

$67,500

$354,375

Opt-In Email Affiliate Revenue

$1,500

$750

$3,375

$5,063

$7,500

$11,250

$15,000

$18,750

$22,500

$26,250

$30,000

$33,750

$175,688

Affiliate Link Commission Revenue

$90

$135

$203

$304

$450

$675

$900

$1,125

$1,350