Digital Audio Insider -- blogging the economics of digital music

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November 26, 2007

More On eMusic Payouts
by David Harrell

In a comment to last week's update on eMusic per-song payouts, Andrew Dubber wrote:

I'm not sure low 'per unit' returns are necessarily a problem for eMusic.

This is a plus in the balance sheet, it's not low because anybody's ripping you off, and the cost of generating those sales, in real terms, is effectively nil. You may have high fixed costs in the recording, but your marginal cost on each individual digital sale is as near to zero as I can figure.

Personally, I'd be happier with 10 cents per unit and 10,000 downloads than I would be with $1 per unit and 100 downloads.

I don't disagree, but eMusic also has to keep the labels in its catalog happy. In theory, you might think eMusic is indifferent to the per unit rate because of its revenue sharing model. That is, eMusic is simply paying out half of its subscription revenues to the labels in its catalog. Subscriber usage affects the ultimate per-song payout, but that doesn't directly impact eMusic's bottom line.

But -- and it's a big but -- the per-song payout matters a LOT to the labels in the catalog. And that's where the "health club" business model comes into play for eMusic. Digital "breakage" -- the failure of subscribers to use all of their monthly downloads -- directly affects the per-unit payout labels receive for each downloaded track. From eMusic's label relations page:

Like any subscription business (such as health clubs, mobile phone plans, and cable companies), our model is based on a consistently substantial percentage of subscribers downloading none or little of their paid allotment. Because these subscribers aren't downloading their full allocation of music, there is more revenue to be divided amongst labels. In other words, this "unused" revenue is part of the gross that is split among labels.

Also, that page mostly makes references to revenue sharing, not the per-track payout rates that I keep writing about here. My bet is that eMusic's strong preference is for the labels in its catalog think about it that way as well. That is, to consider revenues received from eMusic as an income stream, maybe even "income you might not have seen at all" if the label wasn't in the eMusic catalog, as opposed to per-song payments. The latter will always be a fraction of the iTunes per-song payout, which was the problem for Epitaph.

Finally, my guess is that the overall digital breakage of eMusic subscribers is relatively high. The current payout rate of 30.5 cents a track actually exceeds what I'm paying per track via my $9.99 for 40 downloads subscription (the old rate) and approaches what newer subscribers ($9.99 for 30 downloads) are paying for each track. (And the per-track rate actually goes much lower with booster packs and bigger subscription plans!) Using the "half the subscription revenue goes to labels" formula (and ignoring any deducted costs), it seems likely that the zero-breakage per-song payout rate would be somewhere around 12 to 17 cents. The fact that it's twice that amount indicates just how much breakage is occurring each month.

related: Increased Per-Song Payouts from eMusic

tags: digital music eMusic digital breakage iTunes

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The Layaways (my band)

New album: "The Space Between" is now available from eMusic.

"It can't be easy to make something this basically simple sound so fulfilling; it if were, everyone would do it." -- Fingertips

"The Layaways have a unique sound with great drum fills and airy vocals that will make you tap your feet and sing along." -- VIC Radio

Keep It to Yourself - free mp3
All Around the World - free mp3
Come Back Home - free mp3

Download from eMusic, iTunes, Amazon MP3, Lala.com, or CD Baby, listen to free streams at Last.fm and Napster.

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

"A wonderfully crafted recording built around tasteful songwriting and musicianship..." -- PopMatters

Silence - free mp3
The Long Night - free mp3

Download from eMusic, Amazon MP3, or iTunes, listen to free streams at Last.fm, Napster, or Rhapsody.

"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, listen to free streams at Last.fm, Napster, or Rhapsody.

More Layaways downloads:

the layaways website

Current/Recent Reading and Listening:

Music Supervision: The Complete Guide to Selecting Music for Movies, TV, Games and New Media by Ramsay Adams, David Hnatiuk, and David Weiss

It's written as a how-to guide for those looking to become music supervisors, but I found it to be a good resource for musicians (like me) who are trying to get their music used in movies, TV, etc.