Digital Audio Insider -- the economics of music and other digital content


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Digital Audio Insider is David Harrell's blog about the economics of music and other digital content. I write from the perspective of a musican who has self-released four albums with the indie rock band the Layaways.

My personal website has links to my LinkedIn and Google+ pages and you can send e-mail to david [at] thelayaways [dot] com.

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If you enjoy this site, please consider downloading a Layaways track or album from iTunes, Amazon MP3, Bandcamp, or eMusic. CDs are available from CD Baby and Amazon.

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June 30, 2006

Extinct
by David Harrell
Extinct Digital Download Services
Over the past two-and-a-half years, CD Baby has delivered our two albums to a combined total of 56 online download stores, streaming services, and other digital sellers. That includes all of the bigger names -- iTunes, eMusic, Rhapsody, and Napster -- plus quite a few that I had never heard of -- Bitmunk, Sonific, etc.

Some of them aren't around any more -- 9 of the 56 are now listed as "DEAD" in my CD Baby account info:
CatchMusic - DEAD
DiscLogic - DEAD
EMEPE3 - DEAD
Etherstream - DEAD
Iriver Media Online - DEAD
Music4Cents - DEAD
NetMusic - DEAD
OnlinePromo - DEAD
Viztas - DEAD
I suppose a 84% survival rate isn't too bad for a new industry and business model. But given that the vast majority of download sales are coming from just a few providers, it seems likely that the extinctions will continue.

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June 26, 2006

I'm iBlogging
by David Harrell
I'm iBlogging
The Chicago Tribune's Steve Johnson takes aim at the lower case phenomenon (and the iPod itself):
In the fey little vowel imposed upon us by the iPod, the self seems to be reduced to a mere whisper. I am sorry for imposing myself on you. I am insignificant. I listen to music as I walk around, but I do it with earphones on.

But it's a false humility. The essential quality of the iPod is narcissism: The world I can create in my head, through music or podcasts, is much more interesting than what you people can come up with.
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June 22, 2006

Nickeled and Dimed
by David Harrell
Nickeled and Dimed
Money managers sometimes use the mantra "maximizing shareholder value" when talking about the desired traits of stocks they want to buy. That is, they want to own the stocks of companies that have management teams that are committed to running their businesses in such a way as to maximizing the return to the investors who buy the stock.

Makes perfect sense from an investment standpoint. But when you apply that maxim to a publicly-traded record company, it sure doesn't seem to result in artist-friendly business practices. Does "maximizing shareholder value" also mean "minimizing artist income" for the musicians on the label?

From a recent Wall Street Journal story on the "new" Diana Ross album:
Diana Ross's new jazz album isn't exactly new -- she recorded it about 35 years ago.

But there's something decidedly contemporary about the CD, which goes on sale June 20 (it's already available at Starbucks). It's part of a new wave of old music, as a sales-starved industry scours its libraries for old or unreleased material it can spin into easy profits.

In 1972, Ms. Ross was riding high on the release of her Billie Holiday biopic "Lady Sings the Blues," for which she later received an Oscar nomination. In conjunction with a movie soundtrack composed of pop-influenced renditions of Billie Holiday tracks, Ms. Ross also separately recorded purer jazz versions of the same material, along with some standards. But according to Universal Music Group, which now owns Motown, the jazzier versions, arranged by Gil Askey, were rejected because the label wanted her to work on more commercial releases.

Now the economics are different. It usually costs less to hire a "vault asset specialist" to find previously recorded tracks from an existing performer than it does to record new songs or market a new artist -- especially when established musicians can be paid royalties on old music at the lower rate they typically would have been paid when it was recorded. (Universal declined to comment on Ms. Ross's royalties, but her business manager says her deals have been renegotiated several times since 1972.)

full article here (scroll down to "music")
If I were a shareholder of Vivendi, which owns Universal Music, I suppose I'd agree that paying Diana Ross the smallest possible royalty was good for the bottom line. And Ms. Ross probably isn't anyone's first choice as a poster child for starving musicians who've been deprived of their rightful royalties.

Yet there seems to be a basic lack of fairness here, if Universal is indeed paying 1972 rates for something released in 2006. Granted, Universal is dropping some bucks on the promotion of this album, mixing it, mastering it, etc. But these recordings have basically been gathering dust for 30+ years. Seems like any income from them in 2006 would be considered pure gravy from an accounting standpoint, not a reason to pinch pennies on artist royalties.

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June 21, 2006

Guest Post
by David Harrell
Guest Post Today
No, not here, but I wrote something for the excellent Shake Your Fist music blog that just went live. It's about something I've been thinking about for quite a while, but am still trying to shape into a coherent theory.

Condensed version: Until very recently, the main challenge for recorded musicians (in addition to funding the recording sessions) was getting their music in front of potential buyers. The surest way to do so was the elusive major label recording contract. Short of that, the Holy Grail was "distribution" for releases on indie labels or self-released artists. Today, via free mp3 giveaways and iTunes, eMusic, etc. (which are easy for indie artists to get into) "worldwide distribution" is available to virtually everyone, at least for downloads.

But because of sheer volume of available recorded music, which seems to be increasing exponentially, the ultimate challenge is becoming the competition for the listening hours of music fans. It seems likely that listening habits are becoming more eclectic (a wider variety of bands and albums) but not as "deep." That is, because you can only listen to so much music each day, you're going to end listening to fewer songs by each artist. (At least that's what's happening to me..)

Anyway, here's a link to the post at Shake Your Fist, which includes a playlist composed of songs that I absolutely love, but where each song represents the ONLY track by that artist in my music library.

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June 16, 2006

Real Audio for Amazon Subscription Service?
by David Harrell
Real Audio for Amazon Subscription Service?
I really should stop whining about Amazon.com's stocking policies for self released CDs, as I did in this post from a couple weeks back. For someone in a relatively unknown, non-touring band, every single CD sale is more than welcome, wherever it comes from, even if keeping Amazon in stock is a minor hassle. And, as Glenn pointed out in a comment to that post, Amazon does have the biggest reach. If something's not available from Amazon, there's no guarantee that an individual customer's going to buy it elsewhere. Further, while other online retailers are selling the disc for approximately the same price, for anyone already paying for the "Amazon Prime" free shipping program, Amazon ends up being the cheapest option, at least for physical CDs.

But I'll offer one last gripe about Amazon's "just in time" inventory system. After ordering a single replacement copy of our "More Than Happy" disc on May 30th, Amazon followed up a second order for another single disc, six days later, before the previous order even showed as being in stock. And then the remaining Amazon copy of our second disc sold, and I'm still waiting on the replacement order for that one...

Anyway, complaints aside, I did notice a couple of interesting things on Amazon recently. The first makes me wonder if Amazon.com's announced music subscription service might use the dreaded Real Audio format. While Amazon.com doesn't provide audio samples for self released albums and stuff on smaller indie labels, for some reason Amazon now has Real Audio samples for all tracks from our first disc. But unlike mainstream releases, there are no samples using the Amazon format or Windows Media. As best as I can remember, Amazon never kept any of the discs it ordered from me -- all have shown up as available stock. So the audio files are coming from somewhere else. Maybe as part of whatever Amazon is cooking up for its subscription service?

Also, I noticed a few months back that Amazon.com had removed the links to free mp3 tracks from its album pages, though the files are still available via the free download section. I wondered if Amazon didn't want the free files competing with its planned music subscriptions or individual download sales. But when searching for our albums via Borders.com last week, I noticed that the Amazon pages served up DID include the associated free mp3s for the first and second Layaways discs. Same thing across the board for all of the other albums I checked from both starting points: No free mp3s listed for the Arcade Fire's Funeral if you start your search from Amazon.com, but you'll see a free mp3 for "Neighborhood #3" if you start your search from Borders.com. No free mp3s shown for Guided By Voice's "Human Amusements At Hourly Rates" collection if you start your search at Amazon.com while three free mp3s show up on the page if you start at the Border's URL. (UPDATE: Just realized that the comparisons are difficult because of some cache issues -- once you click through on a Border's link, you'll get the Border's/Amazon pages for the regular Amazon.com links as well.)

Can't think this is any sort of deliberate differentiation, though. I suspect Amazon.com decided to remove the direct links and just never updated the code for the pages served up via Borders.com.

Etc.
Received an e-mail earlier in the week about the Bandwith music and technology conference in August. It's described as a discussion of the "issues of interest to the music and technology communities, with a particular focus on the evolving musical experience." Here's a link to the conference schedule.

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June 06, 2006

TV and Online Sales
by David Harrell
TV and Online Sales, Sony vs. Apple
From Saturday's Wall Street Journal, a short piece on TV exposure and subsequent record sales:
Snow Patrol, 'Grey's Anatomy'
More than 22 million viewers heard this band's single, "Chasing Cars," in the final moments of this medical drama's season ender on ABC. The result: The song sold 21,000 downloads in the week after the finale, according to Nielsen SoundScan, compared to 1,600 downloads the week before...

Imogen Heap, 'The O.C.'
On May 18, British singer Imogen Heap's latest single, "Speeding Cars," was featured on the season finale of Fox's popular teen drama, "The O.C." In the week that followed, the song sold 7,000 downloads, up from 1,500 the week before, according to Nielsen.
Memo to self: start writing songs with "cars" in the title!

I have to think that the ability to purchase the songs as downloads leads to impulse sales that otherwise wouldn't have occurred. The option to download online minimizes any hassle factors associated with driving to the store or waiting for a CD to be delivered. And the 99 cent price at iTunes pretty much eliminates any hesitation based on cost. What I'd love to see is a day-by-day or even hour-by-hour breakdown of iTunes sales of the Snow Patrol song, starting the minute the episode ended.

---------

Based on this interview with Sony CEO Howard Stringer in today's WSJ, it doesn't sound like Sony will be challenging the iPod anytime soon, if ever:
Mr. Mossberg: Let's talk about the [Apple] iPod for a second. Is it too late to significantly dent their share? Can you bring out a digital Walkman with the kind of end-to-end experience with the software and the service that can really go after them?

Mr. Stringer: It's a mountain to climb. We're coming out with a device that uses OpenMG [a Sony copyright management technology], which is not everybody's favorite over here, [but] will do well in Japan. It will dent Apple in Japan mostly for nationalistic reasons I suspect ... If you're talking about delivering music, [there's] the Sony walkman phone. We sold three million before Christmas in Europe, but thanks to the confusing cellular system in America, we're only just bringing the Sony walkman phone into the United States. We're bringing out another Sony Ericsson phone that pushes email and that will give BlackBerry a bit of a headache. That's coming out this summer. I'm not suggesting this is going to have Steve Jobs sleepless, but you just have to keep coming at him, and I'm fairly convinced that the next generation of devices will master software.
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June 02, 2006

Digital Sales More Profitable than Amazon.com CD Sales
by David Harrell
While my mother-in-law was REALLY impressed when she found my band's albums on Amazon.com, it's not hard to sell your own CD there. You just need a bar code, shrinkwrapping, and a manufactured CD (no CD-Rs).

The main downside is that Amazon.com seems to have switched to a minimalist inventory policy, at least for relatively slow selling self-released CDs. When our first disc was released in 2003, Amazon placed an initial order of 15 copies. All of those copies eventually sold, and Amazon continues to send re-stocking orders, albeit much smaller ones, generally for just one or two discs. And it seems to take a while (nearly a week) after selling a disc before the re-stocking order is placed.

The problem is -- by stocking only one disc at a time -- the cost of shipping discs to Amazon now represents a significant portion of our per-disc revenue. First class postage for a single disc is $1.35, which is actually the cheapest option, as media mail for a single CD is more expensive.

We sell our CDs at a "list price" of $9.99 and Amazon takes a 55% percent cut, paying us $4.50 for each disc sold. While I suppose there's a certain prestige to having your music available via Amazon.com, it's shaping up to be the LEAST profitable way for us to sell it. After factoring in manufacturing costs of around $1.25 a disc and the $1.35 it costs to mail each one to Amazon.com warehouse, that leaves about $1.90 per disc in gross profit.

In comparison, here's how the numbers shake out for discs sold through stores via our distributors, online via CD Baby, and digital downloads through iTunes and eMusic:

Sales in Stores, via Distributors
We sell discs to our distributors for $5.50 each, hoping they'll end up in stores for somewhere around $9.99. The orders are usually large enough that the per-disc shipping cost is pretty low, usually less than 20 cents a disc. So after accounting for shipping and manufacturing, we're netting a little more than $4 a disc.

CD Baby
For online CD sales, CD Baby takes a $4 cut of the $9.99 price. After manufacturing and shipping costs, we clear around $4.50 a disc.

Digital Downloads - iTunes and Other Stores
For a $9.99 album price, Apple pays our distributor $7. The distributor takes a 9% cut, leaving $6.37 a disc for us. (No shipping or manufacturing costs here!) The numbers are similar for the other download stores that charge around $10 for a full-album download.

Digital Downloads - eMusic
This last example is the truly amazing one. An eMusic subscription is by far the cheapest way for someone to buy a copy of one of our albums. With a 40-downloads-a-month subscription, which costs $9.99 a month, our first album (12 tracks) "costs" the buyer $3 while our 11-track second album costs $2.75 for an eMusic download.

The per-track payout rate varies each month (more details here) but the most recent payout we've received is 19 cents a track, minus the distributors 9% cut. Which works out to $2.07 take for the 12-track disc and $1.90 for the 11-track disc. The option that costs a purchaser the LEAST money still nets the same amount (or more) for us as an Amazon.com purchase.

In fairness to Amazon, dealing with slow-selling CDs is no doubt something of a pain. But the given that the CDs are steady sellers, it seems like maintaining a stock of only one disc maximizes Amazon.com's labor cost, as it has to restock the disc every time one sells. It's making me think that for self-released musicians on the right-hand portion of the long tail, digital downloads may be the best bet. (Though it pretty much cuts the indie stores and distributors out of the picture...)

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    THE LAYAWAYS

    Out Now -- "Maybe Next Year" -- The New Holiday Album:

    <a href="http://thelayaways.bandcamp.com/album/maybe-next-year">Joy To The World by The Layaways</a>

    "This is a sweet treat, deliciously musical without being overbaked for mass media consumption." -- Hyperbolium

    "Perfect listening to accompany whatever holiday preparations you may be making today." -- Bag of Songs


    O Christmas Tree - free mp3 lyrics and song details
    Away In A Manger - free mp3

    Download from eMusic, iTunes, Amazon MP3, or Bandcamp. Listen to free streams at Last.fm.



    album cover art from The Space Between

    <a href="http://thelayaways.bandcamp.com/album/the-space-between">Keep It To Yourself by The Layaways</a>

    "...about as melodic and hooky as indie pop can get." -- Absolute Powerpop

    "Their laid-back, '60s era sounds are absolutely delightening." -- 3hive

    "...melodic, garage-influenced shoegaze." -- RCRD LBL

    Where The Conversation Ends - free mp3
    January - free mp3
    Keep It To Yourself - free mp3

    Download from eMusic, iTunes, Amazon MP3, or CD Baby, stream it at Last.fm or Napster.



    album cover art from We've Been Lost

    <a href="http://thelayaways.bandcamp.com/album/weve-been-lost">Silence by The Layaways</a>

    "The Layaways make fine indie pop. Hushed vocals interweave with understated buzzing guitars. The whole LP is a revelation from the start." -- Lost Music

    "Catchy Guided by Voices-like rockers who lay it on sweetly and sincerely, just like Lionel Richie." -- WRUV Radio

    Silence - free mp3 lyrics and song details
    The Long Night - free mp3

    Download from eMusic, Amazon MP3, or iTunes, stream it at Last.fm, Napster, or Rhapsody.



    album cover art from More Than Happy

    "These are songs that you want to take home with you, curl up with, hold them close -- and pray that they are still with you when you wake up." -- The Big Takeover

    Let Me In - free mp3
    Ocean Blue - free mp3

    Download from eMusic, Amazon MP3, or iTunes, stream it at Last.fm, Napster, or Rhapsody.

    More Layaways downloads:

    download the Layaways at eMusic download the Layaways at iTunes

    the layaways website