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 27, 2007

To Free or Not to Free
by David Harrell
That's the question we're trying to answer as we finish our third album -- should we give away a few songs as mp3s (as we did with the first two discs and a freebie Christmas EP) or should we post free mp3 files for all of the tracks on the disc?

While I often write here about how much we make from different download and streaming services, it's pretty much an academic discussion as the numbers involved are relatively small. Our total revenue from digital downloads and CD sales has yet to eclipse our total costs for recording, mixing, mastering, and the manufacturing costs of CDs. (Though that's probably the case for the vast majority of self-released musicians, and -- when you add in promotional costs -- a good number of acts on indie and major labels.)

Which is fine. The main reason we write and record music is that we enjoy doing it. As a self-released, non-touring band, our expectations are modest and I'm basically thrilled to see ANY sales.

However, if we're primarily doing all of this for the enjoyment of the creative process -- and we're not making much money from it -- would we be better off giving the music away?

The worst-case scenario that is we'd forgo the modest sales that currently trickle in. The upside would be that greater exposure and attention might actually increase sales and/or lead to licensing opportunities for the music.

It's a strategy that gets a lot of attention when employed by a band that is already relatively well known (see the Format). Yet the "give the music away" tactic is usually coupled with the idea of making money from touring (which is difficult for us because of real day jobs, family obligations, etc.) and the associated merchandising sales.

Here's my current list of pro's and con's:

Pro:

We don't make any real money from selling it anyway, so why not give it away?

People already buy the tracks we give away. "Silence," "The Long Night," and "Ocean Blue" are usually our top tracks at iTunes, even though we offer free 192k mp3 versions of those songs on our website.

The increased exposure might lead to licensing opportunities -- ads, film, or TV, which is probably our best shot at breaking even or making a modest income from the music.

More attention from bloggers, etc. We've gotten a fair amount of attention in the past from music bloggers, but they might be more interested in spreading the word about a "free album" as opposed to a few free tracks.

Ego boost: If we're unlikely to make money from our music, having more people hear it is something of a consolation, might get us on more iPods, total number of listeners on Last.fm, iLike, etc.

Con:

Would it make us seem desperate or less "real?"

You get what you pay for. Do people appreciate it less if they don't have to pay for it?

We wouldn't be the first to do it, so it might not get us that much attention anyway.

Bloggers, reviewers, and radio might take us less seriously: "not a real band, just another group giving away mp3s..."

At this point, I'm leaning toward giving it away, at least as 128k mp3 files. If you have any thoughts, pro or con, please comment away! I wrote the above about my own specific situation, but comments about free music in general are, of course, welcome as well.

tags:

link 11 comments e-mail listen to the Layaways on Spotify




June 22, 2007

Friday Fun: iPhone Commercial
by David Harrell
Just in case you missed it, the iPhone commercial from Conan O'Brien:



And some various links I've found/received this week (thanks, Porter):

I had heard about the White Stripes ablum leak, but didn't know it was a local Chicago station.

A Chicago Tribune piece on alternative/promo music formats. (Requires registration, dammit...)

Hmm, guess Bob Lefsetz doesn't like the new McCartney album.

Finally, I can't believe I didn't stumble across this sooner: Brad Turcotte is a self-released musician (under the "Brad Sucks" moniker) who has been blogging about it for the past few years, covering some of the issues addressed here at Digital Audio Insider. My favorite recent post is this one on how much money he makes from different sales sources. (It's something I blogged about last year, but without the nifty graphs and level of detail in Brad's post!)

tags:

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June 21, 2007

An 11 Cent Premium for MP3 Files
by David Harrell

PayPlay banner

PayPlay.fm offers a choice of single-song mp3 downloads for 88 cents OR WMA files for 77 cents. There's a similar mp3 premium (or I guess you could think of it as a WMA discount) for full albums -- $8.88 for mp3 downloads vs. $7.77 for WMA files. All files are 192k.

It looks like the catalog is mostly supplied by CD Baby, so it's primarily self-released musicians like, uh, these guys. You're not going to find any major label artists here, or even the larger indie labels in the eMusic catalog.

But PayPlay does have one cool feature that iTunes and eMusic should consider adding: free PDF versions of the album artwork for every release in its catalog, formatted for both regular and slim CD cases.

It's not the full album art -- just the cover image and a track listing for the back insert -- yet it's still a nice touch.

tags:

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June 20, 2007

Not So Keen on Andrew Keen
by David Harrell
I suppose it isn't fair to review a book that I haven't yet read. Still, I'm absolutely dumbfounded by the basic premise of Andrew Keen in his new book, The Cult of the Amateur, How Today's Internet is Killing Our Culture, at least as it relates to popular music.

In this short NPR interview, Keen professes to prefer the "wisdom of the professional" when it comes to his cultural content. When asked about popular music (around 3:10 in the interview), he supports his argument with the inane statement that the "the kind of musicians and indeed artists who are going to make on the Web are people who are skilled in sales and marketing. They're not necessarily the people who are most able."

Maybe so, but Keen seems to be missing something: That's the case for the ENTIRE music industry, not just online amateurs. Musical talent alone does not guarantee success and it never has -- at least not in popular music. Most successful pop musicians are talented, but they're not necessarily the most gifted ones within any given genre. Marketing muscle, fads, luck, and personal drive and perseverance all play a huge role. And the gatekeepers that Keen prefers to trust are -- as a group -- more concerned with increasing sales and market share, not bestowing the "best" music and artists on the public.

Besides, while Keen laments the "rise of the amateur" it's really "return of the amateur." That is, before the advent of recorded music and radio, if you wanted music in your house you pretty much had to play it yourself. Today, it's hard to get an audible version of "Happy Birthday" going at a party, as most people are reluctant to sing in public. So anything that encourages the average person to perform and/or write music is a positive development, in my opinion.

Granted, the big difference is that today's amateurs aren't confined to their own homes -- they're broadcasting themselves to the world via MySpace, YouTube, and other online platforms. And I'll concede that lowered barriers to entry have resulted in the existence of more godawful music than ever before. (The increasing problem of "too much music" is something I wrote about last year for Shake Your Fist.) But if that's the price we have to pay the increased quantities of good music -- from artists that you never could have discovered prior to the emergence of the Internet -- I think it's a good trade-off.

Lawrence Lessig basically rips Keen a new one in his blog post about the book, and concludes with a great 1906 quote from the composer John Phillip Sousa, who was quite prescient about the decline of amateur music making:
"...it will be simply a question of time when the amateur disappears entirely. The tide of amateurism cannot but recede, until there will be left only the mechanical device and the professional executant."
tags:

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June 18, 2007

Today's Wall Street Journal
by David Harrell
A special section on the All Things Digital conference includes a Q & A with Steve Jobs:
MR. MOSSBERG: You put out a press release this morning [May 30] that you have begun to sell these non-copy-protected songs on the iTunes store from EMI.

MR. JOBS: Right now it is just EMI, but there are zillions of independents that are also jumping on the bandwagon. As fast as we can get their stuff encoded, you'll see more and more on there. I think over half the songs we offer on iTunes will be offered in what we call iTunes Plus, which is our DRM [digital rights management]-free, higher-quality audio versions, by the end of this calendar year.

MR. MOSSBERG: Any other movement on the record labels coming?

MR. JOBS: We're working with them. The music companies ship 90% of their music DRM-free today, because all CDs are DRM-free. We've gone to them and said, "Look, you're shipping 90% of your music DRM-free. Customers are willing to pay a little bit more to get their downloaded music DRM-free, and why don't we do this?" We were successful in persuading EMI, and hopefully over the rest of this year will be successful in persuading most or all of the rest of the labels.
And there's a page one story on Slacker and non-tethered Internet radio:
Slacker says it has another advantage. Most Internet radio operators are currently facing a major increase in the royalty rate they owe to artists whose songs they play, an increase so dramatic that royalty rates in some cases eclipse the company's total revenues. Most operators, including Pandora, are complaining that the higher costs may put them out of business. They're busy lobbying Congress to change the recent rate increase, imposed by the Copyright Royalty Board, a Washington, D.C.-based panel of judges.

But Slacker says it already has a higher royalty rate built into its business model. Rather than paying statutory license fees, Slacker cut deals directly with record labels. Like satellite-radio broadcasters, Slacker will turn over an undisclosed percentage of revenue in royalties, rather than paying per song and per play.
tags:

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June 15, 2007

Friday Odds and Ends
by David Harrell
Mark Caro of the Chicago Tribune notes that more than 60% of the first-week sales for the new Paul McCartney album came from non-traditional sources. My bandmate Porter, who sent me the link, wondered if the sales numbers included eMusic downloads. I wasn't sure, but eMusic started reporting in early 2006.

---------

Andrew Dubber of New Music Strategies has assembled 20 of his posts into an e-book titled The 20 Things You Must Know About Music Online. Also worth a look is an e-mail tussle with a record executive over the right to criticize the RIAA.

tags:

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June 12, 2007

Rah-Rah for Lala
by David Harrell
While I've tweaked Lala.com in the past with my contention that its CD-trading operation is simply a low-tech way to "sell" music downloads (see LaLa.com Owes Me Sixty Cents), I'm impressed by its recent developments.

As a music fan, the free streams are great and the site is easier to use than the interface for my paid subscription to Yahoo Music Unlimited (though it lacks a true pause function and you can't fast forward or rewind a track, no doubt because of licensing restrictions).

But from a business standpoint (Lala hopes to underwrite the free streams by selling CDs and digital albums), I'm in agreement with Jon Healey at Bit Player:
Given the strengths and weaknesses of its plans, I could see a fully functional Lala luring more than a few music fans away from subscription services and webcasters. But I'd be surprised if it found a way to make more than $140 million in its first two years, which is the amount of royalties Nguyen said the service will be paying the labels and music publishers.
Lala is currently selling CDs (with fulfillment by Newbury Comics) at dirt-cheap prices -- I purchased a CD several weeks ago for $7.99 plus $2.15 in shipping. Doesn't seem like there's a lot of margin at those prices.

According to the Wall Street Journal's coverage, Lala will attempt to vary prices based on consumer demand and individual usage:
Lala's pricing model, too, runs counter to the way the music industry has done things. Prices will be "dynamic," or based on demand for a particular title and other factors, including the existing content of a user's personal music library.
"Other factors" sounds a bit like price discrimination. In Lala's favor, it's positioning the variable pricing as reward system, analogous to "comps" at a casino. Perhaps consumers will view it favorably, but I suspect it's something of a long shot. Back in 2000, Amazon.com conducted some initial experiments with online price discrimination and customers screamed bloody murder.

While price discrimination is generally accepted for things like airline tickets (and my favorite personal example -- a Chicago liquor store where all prices go up by 20% after midnight) I don't think it's going to fly for commodity items such as CDs (or digital downloads).

related: Lala.com Owes Me Sixty Cents, Is Lala.com A Digital Retailer?

tags:


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June 05, 2007

More eMcCartney
by David Harrell
From an eMusic thread on the new McCartney album:
I suspect that many here would not have gone out and bought this but as it's here we download it.
So it sounds like I'm not the only one out there with a price-elastic demand for solo McCartney. But here's something I realized after my previous post:

Every single current eMusic subscriber could download the McCartney album and it wouldn't represent any increased demand for music because of lower prices. That is, because eMusic subscribers have already paid for a set number of tracks each month, a huge number of McCartney downloads at eMusic simply represents a decision to allocate those downloads to a specific release, not an increase in aggregate demand for music.

What would? Subscribers upgrading their plans to more tracks per month, new eMusic subscribers, and the return of lapsed subscribers.

According to the McCartney thread, there were a series of e-mails from eMusic today that are trying to make that happen. Subscribers who have already used their monthly allotment were urged to purchase a "booster pack" and former subscribers were encouraged to re-subscribe. (Though increased eMusic spending doesn't necessarily mean increased overall music consumption...)

tags:

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Price Elasticity of Demand for McCartney
by David Harrell
It's getting decent reviews, but I was in no rush to buy the new Paul McCartney album, either on CD or as an iTunes download. But when it showed up today in eMusic for the equivalent of $3.25 (based on my 40-downloads-for-$9.99 plan), I didn't think twice about nabbing it.

Back in April, in the comments to this post, a reader and I debated whether or not there's a price elasticity of demand for recorded music. I argued that there was, though I have to admit that my stance was pretty much based on faith -- I wanted to believe that significant price cuts will ratchet up demand, but I didn't have any real evidence for it. I later saw a post at Coolfer that linked to a study which indicated that wholesale price cuts for CDs didn't increase consumer demand.

But the problem with that study, as I see it, is that the price cuts simply weren't enough. Given that consumers seem to have a perception that the fair price of a CD is somewhere around $10, dropping the wholesale price from a $12.02 to $9.09 only brings the retail price in line with a pre-existing perceived value. Maybe you need a significant price cut to truly affect consumer behavior.

It did for me with the McCartney album and it should be interesting to watch what happens with this release. As Jon Healy notes at Bit Player, McCartney represents the first big name test of the eMusic model.

Of course, the real issue isn't whether consumers will buy more music when the price is lower -- what matters is if they buy enough of it to offset the lower margins. Given fixed costs (manufacturing for CDs, mechanical royalties for any format), halving prices and doubling sales doesn't get you back to the original level of net revenue.

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    Popular Posts

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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