CHALLENGE

Larry Peryer, President LP Visions, started out on the retail end of the content industry, selling books and music at his own independent bookstore in New Haven in the early '90s.

To increase revenues, he also launched a store mail order catalog and then an ecommerce site in 1994. As what he calls the "Barnes & Noble phenomenon" of superstores swept America in the mid-90s, Peryer found it was harder and harder to make a living in independent retail.

"I loved doing it, but I always made just enough money to keep on doing it. I was surviving, not thriving."

On the other hand, loads of people were begging for his help with their Web sites. "It was so much easier to make money as the Internet guy than it was building a store." Many of his clients were in the music space, including CD Universe.

In May 2001, Peryer landed his biggest client yet: Ultrastar Entertainment.

Co-founded by David Bowie, Ultrastar creates and manages official fan sites for a variety of artists including the Hansens, the Rolling Stones, and Christian music site GaitherNet.

Although Ultrastar had been selling subscriptions online since 1998, they wanted to concentrate in their areas of strength: Artist relations development, and content and tech management systems. Basically they lined up the deals and built the sites.

Peryer's team was handed the other half of the equation: Develop and market the sites to get more paying subscribers and increase ancillary revenues such as ecommerce and sponsorships.

CAMPAIGN

It would be oh so easy to sell subscriptions to a famous artist's site if behind-the-paid-barrier was the only place to get insider-info about that artist.

That is not possible. The record company wants to publicly post album info, the tour operator wants to publicly post show dates, dozens of entertainment media sites post public content, and hundreds of independent fan sites are also churning out rumors, reviews, and blogs.

How does the private paid-only area compete? You have to have content so sexy that people will pay for it despite the plethora of no-cost alternatives. Ultrastar's sites often contain:

- Net radio stations programmed by the artist
- Exclusive video footage, freshened frequently
- Members-only boards that artists participate on
- Live chats with the artist occasionally
- Backstage diaries (written, photos and video)
- Webcasts of live events
- Early mixes from albums prior to release
- Cuts of songs that didn't make the album
- Insider news during album development cycles
- Email addresses such as @davidbowie.com

As Peryer explains, "Our proposition is pretty simple. It's the topmost level of access to the artist. People join clubs mainly because they can't get enough. They really, really love the idea of getting insider looks at content. Early mixes and studio photos, that's must-have stuff for the real fan."

"Real fans" are a necessarily limited pool to draw subscribers from, so Ultrastar has broadened its reach to what Peryer calls "the next circle" of fans. While these fans may not yearn to know about every breath an artist takes, they are eager to get their hands on tickets for good seats at shows.

In fact, ticket access is so critical a part of the offer that Ultrastar has two price points for the RollingStones.com site. North American fans can pay $95 for site access plus the ability to score early bird tickets, or $50 for just the site.

However, Peryer stresses, "We don't position the offer as a tickets club. This is a fan club with a ticket opportunity."

The tour operators agree to reserve a group of high-quality seats at each venue to be offered to club members a few days to a few weeks before anyone else can buy tickets. These are all sold via traditional channels such as Ticketmaster.

Club members get a special password to use when buying their tickets, and they are limited to two-four tickets depending on the size of the venue.

Along with exclusive content and reserved tickets, Peryer usually adds a gift to the offer to get the highest possible conversion rate. Gifts have included embossed hats, posters, and exclusive CD-ROMs.

Peryer's rule is that gifts are only available to members, and to get extra copies consumers have to buy extra memberships. Which means some people have more than one membership.

To get your gift and ticket access, you must be a paid member. All of the sites do offer 30-day trial memberships, requiring an active credit card, to entice fans to try them out. (Peryer has considered shorter terms but feels you can not get a true appreciation of the value of membership until you have been involved for a month.)

Aside from the Stones' site, the other sites are priced at $6.95 a month, charged on a quarterly basis, or $64.99 a year. "We applied advanced pricing science," laughs Peryer, "We put our palms in the air and felt what does it feel like? It feels like $64.99."

As you can imagine, even without active marketing at times club site traffic can "get really intense" because there is so much other buzz going on about the artist elsewhere. Over the past year Peryer's team and Ultrastar have worked with the artists to make their sites' home page design work better for converting this traffic to buyers.

"Artist-based design was heavier on bells and whistles in the past. It was driven by fun creative energy as opposed to the marketing function," explains Peryer.

That does not mean the sites, especially for edgier artists, are not creative. However, artists are dissuaded from doing things like Flash intros which can substantially reduce conversions.

Older audiences in particular may need far more usability, and less oblique instructions. "This may be their first online purchase. Even design concepts we think are obvious, such as the shopping cart metaphor, can be scary the first time."

Aside from relying on natural traffic, Peryer's team have tested a zillion ways to market the sites to fans, including:

#1. Offline marketing tactics

- Club membership with ticket purchase: Every single ticket sold for the Rolling Stones current worldwide tour, which started in May 2002, includes complimentary club membership until the end of the tour. Buyers must go online to type a special code into the site to start using it.

- Materials at the shows themselves such as giant signs with the site URL, flyers, and ads in the printed program.

- Hotlinks on the CD-ROM sections of music CDs

- Printed inserts in CDs

#2. Online marketing tactics

- Broadcast emails sent to ticket buyers via deals with the online ticketing merchants.

- Broadcast emails sent to a house list developed by sending contest offers to rented permission files such as AOL members.

- Search engine optimization

- Charity auctions on eBay that are branded by and linked to the site. (Peryer started these when he noticed that some club members were auctioning off the gifts they had gotten with membership, sometimes for more than the cost of the membership itself! The frenzied activity told him eBay could be a great promo source.)

- Links from independent fan sites. Peryer notes that it is important to make friends with the independents as they can be good sources of content and high-converting traffic. He does not advise prosecuting true fans for small copyright violations or doing anything else that would be adversarial.

"They sustain the artist during periods of inactivity, they feed us content. Some of them have been collecting stuff for 25 years! We try to work with a core set of superfans for each site."

- Live online events: For example about once a year David Bowie will do a live chat that is publicly available on his Web site for the first hour, and then he will say, "If you'd like to continue chatting for the next hour, come inside to the members-only section."

Although this is a *very* powerful marketing tool, Peryer advises other club sites to only schedule it rarely so the impact remains high.

- Referral schemes. Although Peryer does not offer fans a classic affiliate scheme as such (in fact this is something affiliate marketing experts warn against because true fans might be offended), all the sites do run a points rewards system to encourages both heavy repeat visits (this increasing trial conversions and renewals) and friend-get-a-friend referrals.

"If you log in you get points, every time you post or reply to something you get points, if you read a news article you might get a few points, if you refer a friend you get points" explains Peryer. "At the end of the quarter we tally them up and give away prizes such as signed items, a chance to meet the artist at a concert, a ticket to attend a talk show taping with the artist, etc.)"

- Email newsletters and notes. Members often pass emailed newsletters and site notes to other fans, so this is also a good steady stream of traffic.

Peryer advises that all emailed communications come from the site and not directly "from" the artist.

"If they see David's name on the email address that's problematic. People say, 'Why are you putting his name in?' They are savvy about that. He'll write a letter himself occasionally, but it's always clear we're sending it on his behalf. It's definitely not 'here's his home email address.' The site's an intermediary, a conduit to talk to people."

When it is time for their annual renewal, members are automatically charged for the following year or quarter. (Even the month-to-month buyers have annual expiration terms on their accounts.)

To maximize renewals, Peryer's team:

- Email a happy anniversary note to members after (not before) their card is charged.

- Send these renewers a gift via postal mail.

- Personally contact each account with a bounced or expired credit card. Phone calls seem to work the best, but Peryer is watching to see if the advantages outweigh their costs.



RESULTS

The various sites Ultrastar handles have tens of thousands of paying members. Peryer reports a highly satisfactory 80% average renewal rate, and that 20% non-renewing members typically rejoin the site to buy tickets the next time the artist goes on tour.

About 10% of members are incredibly active, logging in daily and posting to boards frequently. "That percent stays steady regardless of the size of the site," notes Peryer.

While offline marketing is all very well and fine, email is the real winner.

"Our single biggest most productive list is several hundred thousands addresses we got when we did a contest with AOL. Email addresses from trusted 3rd parties such as a feed from a ticket agent for people who purchased tickets also do really well. They're pre-qualified, it stands to reason. That's our biggest source percentage-wise, everything else pales."

The number of Rolling Stones concert ticket holders who have gone online to access their complimentary membership is "in the low single digits", notes Peryer. When you consider that about a million tickets will be bought over the course of the tour, that's a slice of a pie worth having.

Conversion rates averaged across all sites of traffic to membership buyers are "a very, very low percent. Low single digits."

Peryer notes, "It's really a function of how active our artists are. It's very cyclical. New memberships slip when an artist is in downtime between tours and album releases. Renewals are still pretty good through. You can't leave the community. You get hooked."

Peryer noted two headaches to running fan club sites with heavy content. He does have some problems with attempted fraud when unscrupulous consumers use their membership to get tickets or gifts and then ask for refunds claiming they never received the items. Also there will always be people who try to scam the points awarding system with robots or software instead of gaining points fairly.

The biggest pain point though is paying for bandwidth, "We have low, medium and high bandwidth options, but unfortunately people access stuff from their offices [where bandwidth is high.] Our bandwidth bills are outrageous."

85-90% of the various sites' revenues are subscription based now. The rest is from ecommerce and a few sponsorship deals. Peryer looks forward to expanding that end more in coming years.

However, he has got his eye on a much bigger opportunity for the future, "At the end of the day if it were just fan club sites, every artist's together might be several hundred million dollars."

"But, we're in the content space, this is MTV. This is just the beginning of ecommerce and sponsorships. We'll continue to grow the ways we can package the content. Potentially, it's much bigger than just a fan club offer. The sky's the limit."


Note: Are you involved in a professionally operated club site? Peryer has just started a special club so club-site pros can share tactics, tips and ideas in a private community. You can learn more at: http://www.lpvisions.com/clubbers/