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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July 28, 2006

Updated Breakdown of Download Sales
by David Harrell
Updated Breakdown of Download Sales
Back in April, I posted a store-by-store breakdown of digital download sales for independent artists distributed via CD Baby and a similar breakdown for my own band.

Here's an updated version for our total digital sales through today. (I don't have any further information for overall CD Baby sales.)

Total Download Sales for the Layaways
as of 4/06as of 7/06
Apple iTunes58.74%47.28%
eMusic21.85%36.77%
Rhapsody10.18%7.84%
Napster2.13%1.95%
MusicNet2.16%1.83%
iTunes Canada1.11%1.18%
MusicMatch1.31%0.93%
iTunes Europe1.31%0.92%
iTunes UK0.68%0.48%
iTunes Australia ----0.42%
LoudEye 0.52%0.37%
MusicNow0.02%0.02%
----------
100.00%100.00%

The big jump for eMusic wasn't unexpected -- our second album didn't show up there until early this year and no eMusic sales for it had been reported when I posted the first breakdown. So I don't think this increase represents any sort of huge upswing in eMusic sales -- it's probably just a more accurate cumulative measure of where we're getting downloads.

While it's not yet reflected in the overall digital sales numbers for CD Baby artists, I'm still convinced that -- as a group -- eMusic subscribers are predisposed to checking out relatively unknown bands. Plus the "use it or lose it" feature of the eMusic subscription means that gambling a few downloads on a new artist doesn't really "cost" subscribers anything. That is, if you've already paid for a set number of tracks each month, there's no real buying decision associated with the act of downloading, especially when you're just trying to use up the last few downloads each month.

tags:

link 2 comments e-mail listen to the Layaways on Spotify




July 19, 2006

Bandwidth Conference
by David Harrell
Bandwidth Conference
I'm heading out to San Francisco next month for the Bandwidth Music + Technology Conference. Should be a fun time -- the speakers and panelists include Chris Anderson of the Long Tail, Pandora founder Tim Westergren, Ted Cohen, and lots of other interesting digital music and new media types. I'll be moderating Saturday's panel on digital music pricing. Please shoot me an e-mail if you're planning to attend.

tags:

link 0 comments e-mail listen to the Layaways on Spotify




July 17, 2006

The Death of the Record Store
by David Harrell
The Death of the Record Store
The NY Times has a piece on the current demographic slant of record stores (Thanks to Aaron for the link):
"We don't see the kids anymore," said Thom Spennato, who owns Sound Track, a cozy store on busy Seventh Avenue in Park Slope, Brooklyn. "That 12-to-15-year-old market, that's what's missing the last couple of years."

Without that generation of buyers, the future looks bleak. "My landlord asked me if I wanted another 10-year lease, and I said no," Mr. Spennato said. "I have four years left, then I'm out."

Since late 2003, about 900 independent record stores have closed nationwide, leaving about 2,700, according to the Almighty Institute of Music Retail, a marketing research company in Studio City, Calif. In 2004, Tower Records, one of the nation's largest chains, filed for bankruptcy protection.
While there are some notable exceptions, indie record shops (and record stores in general) are slowly dying out. It's something I hate to see (I've worked in a couple of them and have very fond memories of the experience) but it's a bit hypocritical of me to mourn their death -- it's not like I'm out there actively supporting them. My eMusic subscription, free (legal) mp3s on band websites and music blogs, and the occasional Amazon.com order account for most of my music acquisitions these days.

Indie bookstores have had their problems over the past decade as well, but as retail establishments, bookstores themselves are doing much better, even if the trend is toward giant Borders and Barnes & Noble stores. I'm sure that the RIAA's response would be that the book industry doesn't have to compete with piracy (I suppose you could photocopy a book or scan it but it's not worth the time and hassle factor). There's also the pricing issue -- record stores have to contend with Best Buy selling CDs as loss leaders, while, as far as I know, the big box retailers aren't selling books at a loss to promote store traffic. Yet even if neither of those issues existed, I still think the bookstore will be around a lot longer than the record store.

One reason is relative size -- the book industry is more than twice the size of the record industry in this country (the RIAA reported total recorded music shipments of a little over $10 billion in 2005 while the Association of American Publishers reported net book sales of $25 billion for the year). But I think the main reason is that legal digital music downloads and the online sales of CDs are in a much better position to replace the retail music experience than any equivalent service for books.

That is, record/CD stores really offer three things: atmosphere -- a cool place to hang out, the possibility of discovering new music via in-store plays, browsing, and staff recommendations, and the instant gratification of immediate ownership when you buy something.

Digital download stores might never replicate the record store atmosphere, but they can they can readily replace the other two. Playlists, editorial and customer reviews, personalized recommendations and streaming song samples all make it easy to discover new music. And once you decide to buy something, you own it in a minute or two.

For bookstores, Amazon.com and other online retailers are tough competitors on price and selection. But despite Amazon's "see inside this book feature" the online bookstore doesn't replace the browsing/discovery process so well. Then, once you buy something online, your quickest delivery option is to pay extra for overnight shipping.

Of course, if everyone is "reading" digital book files on their PDAs in 10 years, maybe we'll see a repeat of the file sharing debate, this time for digital book content. It will also create an instant delivery mechanism for books. Though even if that happens, I think the local bookstore (or local Borders) will hang on. I'm not that optimistic about the fate of most record stores.

tags:

link 1 comments e-mail listen to the Layaways on Spotify




July 14, 2006

Thom Yorke in iTunes
by David Harrell
Thom Yorke in iTunes
If you're looking for Radiohead tracks in iTunes, you'll have to settle for cover versions, as Radiohead is probably the biggest iTunes holdout after the Beatles. But Thom Yorke's new solo record is there -- and selling like hotcakes, holding down the number one album spot and generating more than 200 customer reviews this week. The nine-track album is selling for $9.99, including the exclusive "Interactive Booklet." But you can save a buck by purchasing it a track at a time and skipping the booklet.

Jim DeRogatis of the Chicago Sun-Times recently made the case that Radiohead could be the first group to sell a million copies of a self-released record online. (Via Coolfer.) This piece in today's Wall Street Journal hints that Radiohead is likely to license its next record to a major label for distribution, a much less drastic version of going it alone.

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Some site housekeeping: I just added permanent links in the side navigation column to the first three installments of the "Digital Pricing Conundrum" series. Hope to have a couple more installments up soon.

tags:

link 0 comments e-mail listen to the Layaways on Spotify




July 10, 2006

Monday Odds and Ends
by David Harrell
Monday Odds and Ends
Thierry Rayna, an economist at the University of Bristol, has written a long piece exploring the economics of selling vs. renting music online:
As the durability of music is thus not homogeneous and depends on the consumers' preferences, market segmentation is likely to occur. We showed that renting is more likely to attract young consumers due to their taste for novelties. However, in this market segment, renting firms compete with both radio and pirate channels, and the relative lack of financial resources of the consumers in this segment means that they are more likely to choose the two latter rather than renting firms. On the other hand, we showed that, as selling firms are more likely to be chosen by more mature consumers, the direct impact of piracy is lower. More particularly, we demonstrated that the main competitor of selling firms is, in fact, the traditional Audio-CD market. Our analysis shows that, on the contrary to renting firms that face an intense competition from their main competitors -- the pirate channels, online firms selling music have some strong advantages over the Audio-CD market and are expected to gain a significant market share from the firms supplying Audio-CD.
Here's a link to the full article (a 42 page PDF).

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Businessweek's Byte of the Apple blog has more on Microsoft's music player strategy:
In a nutshell, Microsoft will focus on one of Apple's clear vulnerabilities: the relative inability of iTunes and iPod users to discover new music. Sure, you can share iMixes, but most iTunes users for the most part log on to buy songs they already know they want to buy.

The new Microsoft service, and the marketing to back it up, will likely focus on community-oriented capabilities--specifically, the ability for users to wirelessly "see" each others playlists and get a certain number of "free" streams of songs they want to check out. In other words, the WiFi capabilities won't be focused only on letting people satisfy the immediate, urgent immediate need to log on to some wireless digital music service--something that hasn't taken off, despite efforts of carriers such as Verizon and Sprint. Rather, the wireless capability will seek to exploit the most powerful "recommendation engines" around: your friends.

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More details (schedule and speakers) are now up on the Bandwidth Conference site.

tags:

link 0 comments e-mail listen to the Layaways on Spotify




July 07, 2006

Microsoft Rumors
by David Harrell
Microsoft Rumors
My bandmate Porter pointed me to an Engadget story on Microsoft's rumored iPod killer, with this intriguing tidbit:
To attract current iPod users Microsoft is going to let you download for free any songs you've already bought from the iTunes Music Store. They'll actually scan iTunes for purchased tracks and then automatically add those to your account. Microsoft will still have to pay the rights-holders for the songs, but they believe it'll be worth it to acquire converts to their new player.
Maybe it's just a rumor, but to "pay the rights-holders for the songs" would mean forking over 70 cents or more for every purchased track in someone's iTunes library. (Apple's paying at least 70 cents to record companies for an individual download purchase.) Still, in some cases the numbers could work out because despite total iTunes sales of more than one billion songs, that averages out to around 20 tracks per iPod owner. Translate that into $14 (70 cents X 20) and you get a customer acquisition cost that isn't too pricey for Microsoft.

And, as Porter noted:
Microsoft has the cash to do it. And it seems like the only possible way they'll be able to pry people loose from iTunes.

As a shareholder, I'm nervous about it. Xbox is a (qualified) success, but anybody going up against Apple in product design could get stomped, and MSFT's strength is definitely not product design.
In addition to Microsoft's product design and marketing issues, one major problem with a "free iTunes replacement" strategy is that there are some folks who have purchased quite a few tracks from iTunes, according to this Mac OS X Hints survey. While I doubt anyone posting to a Mac OS website is going to switch to a Windows product, it seems unlikely that Microsoft would pay thousands of dollars to replace the iTunes library of a single customer.

One other complicating factor is the free iTunes track of the week. These tracks show up as purchases in your iTunes library -- Apple even e-mails you a receipt for the transaction. As far as I can tell, there's no way to distinguish within iTunes between free and purchased tracks. Some of the people responding to the survey above reported more than 100 of these free tracks in their libraries.

But maybe it won't cost Microsoft 70 cents a track. The major labels still want to break the iTunes stranglehold, so it's possible that Microsoft has managed to negotiate some sort of sweetheart deal for its iTunes replacement plan.

tags:

link 0 comments e-mail listen to the Layaways on Spotify




July 05, 2006

Digital Music Primer in the WSJ
by David Harrell
Digital Music Primer in the WSJ
Today's Wall Street Journal has a Digital Music Primer by Walter Mossberg and Katherine Boehret. While the subhead in the print edition describes it as "Our Guide to the Basics," I'm not sure if it clears things up that much for the uninitiated. That's not a slam on Walter's writing, which -- as always -- is clear and direct. It's just that the maze of proprietary file formats and incompatible hardware systems still seems likely to overwhelm the average consumer.

Overall, Walter still likes the iPod and iTunes a lot and doesn't seem enamored with the subscription service model:
Q: What is the difference between Apple's iTunes store, and competing services like Rhapsody and Napster 2.0? Does one carry more music?

A: Apple's iTunes store claims to have more than three million songs licensed from the major labels and from independents. Rhapsody and Napster claim more than two million songs, and Yahoo Music Unlimited claims more than one million. So, iTunes has by far the most music. In addition, iTunes has a strong selection of videos, including 150 television series, plus tens of thousands of audio books and podcasts. Its competitors are much weaker in these non-music categories. Most have nothing at all besides music.

The main difference lies in how the services work. iTunes works like a physical record store: you buy songs or albums, paying separately for each. Songs are 99 cents each, albums are usually $9.99, and videos are typically $1.99. Apple is reportedly negotiating to sell full-length movies as well.

Rhapsody, Napster and Yahoo work on a subscription model: you pay a monthly fee, and can download an unlimited number of songs. For Rhapsody and Napster, the fee is $10 a month if you want only to store and play music on a computer, or $15 a month if you also want to play your music on a portable player. Yahoo charges less -- $6.99 a month for a PC-only plan and $11.99 a month for a portable plan.

The upside of Apple's approach is that, once you buy a song, you own it. It never expires. You can burn it to CD an unlimited number of times, and transfer it to an unlimited number of iPods. The downside is that, to fill an iPod with, say, 5,000 purchased songs, you'd have to spend $5,000.

With the subscription plans, you can fill a portable player for just a monthly fee. But there's a huge downside: you don't own the music, you merely rent it. If you stop making your monthly payments, all the songs you downloaded over the years will suddenly expire and become inert and unplayable on your computer and on your portable player. Also, rental songs usually can't be burned to CD and can only be copied to a limited number of portable players. In order to burn the tunes to CD, you generally must first buy them for an individual price, just as you do on iTunes.
He also fails to include eMusic in the context of the other major players, mentioning it only as a way to purchase iPod-compatible music from a non-iTunes source:
There is one exception. A service called eMusic sells its songs in the open MP3 format, without encryption or copy-protection. Thus, these songs will play on iPods and all other portable music players. But eMusic doesn't carry the catalogs of the major labels. It has a much smaller selection than iTunes does.
Here's a link to the full article.

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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