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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March 25, 2008

Tuesday Odds and Ends
by David Harrell

Merge Records now sells digital downloads from its online store. It looks like the standard album rates are $8.99 for 320k mp3 files and $11.49 for FLAC, vs. $13.00 for CDs. Individual tracks are also available as 99-cent mp3 files.

Some eMusic subscribers discuss the relative merits of used CDs vs. mp3 files -- loss of resale, convenience of digital files, etc.

And economist Tyler Cowen on the rumored Apple music service:

If the marginal cost of a song is free, people will sample lots more and they will give fewer songs a second listen (higher opportunity cost); of course the opening bits of a song are already free in many cases but this will make sampling even easier.

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March 24, 2008

Amazon.com Digital Payout Same As iTunes'
by David Harrell

Our first download sales from Amazon.com just showed up in our CD Baby account. We received 63.7 cents per download, after CD Baby's 9% cut. Which means that Amazon.com is paying out 70 cents per single-song download to CD Baby, which is the same as the standard payout for U.S. iTunes sales of 99-cent downloads.

No full-album download sales from Amazon.com have shown up yet, so I don't know what we'll receive for an $8.99 digital album. (That's the price for the Amazon.com mp3 versions of our two albums.)

Also, I don't know if that 70 cents is the standard rate for all labels and digital distributors, or if Amazon.com pays a different rate for tracks priced for less than 99 cents. (Most of Amazon's top 100 mp3 tracks are selling for 89 cents.)

My assumption is that it's a standard rate. Given that Amazon tracks are sold without DRM, I can't see the major label groups agreeing to a lower payout than what they're receiving from Apple for individual songs, particularly the best-selling tracks.

This FAQ at digital distributor TuneCore, however, notes that the Amazon.com mp3 store currently has four pricing tiers:

Amazon MP3 sells individual songs and albums at various price levels:

Front Line: The highest retail price in the store (good for new releases)

Mid Line: Slightly lower than Front Line (good for new releases and other current releases)

Catalog: Slightly lower than Mid Line (good for older or lower selling releases)

Special: The lowest retail price in the store (good for promotions, old and/or low selling catalog)

While the range of mp3 album prices is easy to observe in the Amazon.com mp3 store, it takes a bit of searching around to find individual tracks priced for less than 89 cents. But they are there, starting at 45 cents for some sub-two-minute tracks, and prices top out at $1.99 for extra-long tracks.

So there's obviously a lower payout rate for those bargain tracks and presumably a higher one for the pricier downloads. And while Amazon.com is competing with iTunes on price, it seems likely that those 89-cent tracks are profitable. Even assuming the same 70-cent "wholesale" cost, 89 cents still represents a 27% markup for a digital good.

tags: digital music mp3 digital downloads Amazon.com AMZN iTunes Apple AAPL

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March 20, 2008

The Big Switch: Will It Happen for Music?
by David Harrell

I'm a big fan of Nick Carr's Rough Type blog and I'm about halfway through his new book, The Big Switch: Rewiring the World, from Edison to Google.

Carr begins with the history of power and the transition from water- and steam-based systems to electricity. The pre-electrical systems were, of course, all based on local production of power. And Thomas Edison originally thought electricity (at least for industrial usage) would be local as well -- that the business of electric power would be built around selling generators and dynamos to industrial users, who would them use to create their own energy. However, the grid model quickly supplanted this model, as it turned out that electrical power could be generated less expensively and with greater reliability by a remote supplier, and then delivered via a network of power lines.

The new "big switch" that's the thesis of the book is how businesses (and individuals) are now abandoning the idea of local-installed software in favor of Web-based applications. The same goes for storage and general computing, with the example of Amazon's S3 and EC2 services.

Carr doesn't directly address music consumption trends, but the idea clearly extends itself to digital music. Today, the majority of music listeners are still doing the equivalent of "generating their own power" by listening to digital files (either via CDs or purchased downloads) served up locally -- on home computers or portable devices. Although online music subscription services have existed for nearly seven years, they have so far failed to catch on with the general public.

Why the lack of success? In the big switch examples given by Carr, it appears that the network/grid versions needed to be both economically competitive AND as convenient and reliable as the older products/services they replaced.

On the surface, music subscriptions definitely have economics in their favor. A relatively low monthly fee gives listeners access to an amount of music that might -- literally -- cost millions of dollars to purchase outright. (Though the subscription services' line about "thousands of dollars to fill an iPod" line was always somewhat disingenuous, as it ignored the fact that most iPod purchasers can readily fill their devices with the thousands of songs they already own on CD.)

Yet Steve Jobs famously dismissed this appeal for subscription services, opining that listeners want to own their music instead of renting. The psychology of ownership -- the fear of "losing" your music should you ever stop your subscription -- no doubt influences consumer decisions. But I'd argue that the larger reason for the lack of enthusiasm for subscriptions is that they haven't yet sufficiently matched the "local" listening experience. My own experience with the paid subscription services is that even with an incredibly fast Internet connection, you still have to contend with buffering times, latency issues, system crashes, annoying forced software updates, etc. It's just not the same as skipping around your iTunes library on a PC or listening to an iPod. (To be fair, I've never tried the mobile devices such as the Sansa Connect, which can store files from Yahoo's Music Unlimited service and allows on-the-go updates.)

But just as the early power grid improved, we're seeing continual improvements in available bandwidth, streaming rates, and the storage capacities of mobile devices. Imagine a world in which streaming is instantaneous, updates take place behind the scenes, and there's no perceptible performance difference between streamed music and that stored on your device or hard drive.

I doubt Apple's rumored subscription service will do all (if any) of that just yet. But whatever Apple rolls out, I'm betting the user experience will be a step up over previous systems. And even without any improvements over the current services and devices, just having the manufacturer of the most-popular portable device embrace the concept is bound increase public acceptance of the idea of networked music. (The lack of iPod compatibility, along with P2P piracy, is often cited as the major reason for the relative failure of the subscription services.)

Assuming that the economics can also work for artists, labels, and publishers (Glenn at Coolfer recently noted some of the business challenges here, $20 per iPod probably isn't going to cut it) an eventual switch to networked music of some sort seems inevitable, at least for the generation of music consumers who are sufficiently wired.

tags: digital music music subscriptions Apple AAPL iPod

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March 14, 2008

Friday Fun: Sweet Jane with a Moustache
by David Harrell

It's definitely NOT my favorite performance of the Velvet Underground classic, but this 1974 Lou Reed solo version is worth a look, if just to see Lou's "all moustache" band:

tags: digital music Lou Reed Sweet Jane

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March 13, 2008

Not Too Bad
by David Harrell

Trent Reznor's gross sales for the first week of the self-released Ghosts I-IV album exceeded $1.5 million:

Trent Reznor has gone public with the sum total of all the money he made in first week sales after self-releasing his instrumental album Ghosts I-IV: $1,619,420. The album, released on March 2nd in a multitude of different formats at nin.com, "immediately sold out" of its run of 2,500 "Ultra-Deluxe Limited Edition" versions (complete with vinyl, deluxe packaging and a Reznor autograph), each with a $300 price tag. In all, 781,917 transactions were made for the album, with people either downloading a quarter of the album for free, downloading the entire album for $5, purchasing a physical copy for $10 or getting the non-ultra-deluxe limited edition version for $75.

tags: digital music self-released music Trent Reznor

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March 12, 2008

Wednesday Odds and Ends
by David Harrell

From Saturday's Wall Street Journal: Music supervisors and ad agencies are attending SXSW to find new bands for music licensing. Earlier in the week, Coolfer noted that most of the acts mentioned in this AdAge article about licensing "indie artists" were actually signed to major labels.

And this week's issue of Fortune magazine is an Apple fest: Steve Jobs is the cover star and there's an interview with him, in conjunction with Fortune's naming of Apple as the #1 "most admired company. There's also a somewhat unflattering article (options backdating, failure to disclose his health issues) titled The Trouble with Steve Jobs.

tags: digital music music licensing Apple AAPL Steve Jobs

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March 10, 2008

The Patronage Model
by David Harrell

Via Online Fandom, I just learned about Jill Sobule's stunningly successful pledge drive to raise $75,000 to cover the cost of recording and promoting her next album. She's doing it public-television style, with various goodies for each donation level:

$10 - Unpolished Rock (but with potential) Level: A free digital download of the album, when it's released.

$25 - Polished Rock Level: An advance copy of the CD. Weeks before the masses.

$50 - Pewter Level: An advance copy and a "Thank You" on the CD.

$100 - Copper Level: All the above, plus a T-shirt saying you're a junior executive producer on the album.

$200 - Bronze Level: Free admission to my shows for 2008.

$250 - Silver Level: All the above, plus a membership to the "Secret Society Producer's Club," which means you'll get a secret password to a website where I'll post some rough tracks, or... something worthwhile.

$500 - Gold Level: This is where it gets good! At the end of my CD, I'll do a fun instrumental track where I'll mention your name and maybe rhyme with it. And if you don't want your name used, you can give me a loved one's instead. What a great gift!

$750 - Gold Doubloons Level: Exactly like the gold level, but you give me more money.

$1,000 - Platinum Level: How would you like to have a theme song written for you? I'll have a song you can put on your answering machine and show off. Again, this could be a gift.

$2,500 - Emerald Level: Mentioned as an executive producer of the album -- whoop-di-doo!

$5,000 — Diamond Level: I will come and do a house concert for you. Invite your friends, serve some drinks, bring me out and I sing. Actually, this level is a smart choice economically. I've played many house concerts where the host has charged his guests and made his money back. I'd go for this if I were you.

$10,000 - Weapons-Grade Plutonium Level: You get to come and sing on my CD. Don't worry if you can't sing - we can fix that on our end. Also, you can always play the cowbell.

She actually exceeded her initial goal, raising more than $80,000 from 552 contributors. And that includes 14 donations for $1,000 or more, with one at the $10,000 level.

A few thoughts: First, this is far different from Sellaband and similar concepts for "investor-based" musician fundraising. There's no promise of shared profits for the backers -- you get the various goodies listed for each donation level, but that's it.

Second, getting paid before hand is a LOT better than hoping for donations after the fact. From the first CD/download sold, Sobule's in the black. Plus, she'll have cash to promote the record from day one, making it far more likely to actually sell.

But beyond the financial success of the fundraising campaign, it also means that Sobule's going to have an incredibly motivated street team when the album comes out.

That is, many of those 552 contributors will call their friends and e-mail every person in their address books, urging them to buy the new disc, see her in concert, etc. So she's getting a benefit far beyond the actual cash windfall -- the pledge process is far better for her than, say, inheriting the same amount of money (or even more) from a long-lost relative.

Obviously, Sobule's not the first artist to do this sort of thing. Scott Andrew, for example, recently partially funded a record via pledges. His pledge total was substantially less, though given a lower profile (Sobule is former major-label artist), perhaps as impressive.

For artists that have an existing audience, I can't see any real downside to this type of financing. The question is -- does the model have legs? If more and more musicians do it, the novelty factor will disappear and the success of such appeals seems likely to diminish. And how many times can an artist go to the well -- will those same fans be willing to finance Sobule's follow-up release?

tags: digital music the patronage model Jill Sobule

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March 07, 2008

New Pricing Option for CD Baby MP3 Albums
by David Harrell

CD Baby now allows its artists to set separate prices for mp3 albums and the physical CD versions. (Previously, the mp3 price was locked at the CD price.) And Derek Sivers reports that the company's direct mp3 sales of its distributed albums exceed the revenues received from most of its digital distribution partners:

Not to brag, but we've sold over $600,000 in MP3 downloads in the last few months, with NO marketing or announcements at all. That already puts CD Baby ahead of Emusic, Yahoo Music, Sony Connect, Verizon, MSN Music, Snocap and every company except iTunes, Rhapsody, and Napster...

UPDATE: Please see the comments for a clarification from Derek Sivers.

tags: digital music CD Baby mp3

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March 06, 2008

Thursday Odds and Ends
by David Harrell

A couple of things from 26econ: Aaron Schiff found a great quote within this Wired story about Gavin Potter's quest for the $1 million Netflix prize:

"The 20th century was about sorting out supply," Potter says. "The 21st is going to be about sorting out demand." The Internet makes everything available, but mere availability is meaningless if the products remain unknown to potential buyers."

That pretty much sums up the dilemma faced by low-profile musicians -- the Internet means that any artist with a website/Myspace page/CD Baby account now has "worldwide" distribution of his or her music. The previous hurdle of having to convince outside parties (distributors, labels) is long gone. But, by itself, availability means virtually nothing, given that you're competing with an avalanche of available music.

I'm pretty much in agreement with Coolfer's recent assessment of widgets for selling music. And micropayments, which have flopped in the past, have many of the same drawbacks.

But what if the process were totally painless -- no passwords, no credit card numbers, etc? Schiff's running an experiment based on that assumption, asking readers to click on buttons for micropayments/tips ranging from one cent to one dollar. I'll be interested to see the results (and I'm wondering just how he proposes to make the process that easy).

Finally, to conclude on a completely self-promotional note, the Rumblefish music licensing store featured my band the Layaways in last week's e-mail newsletter and podcast.

tags: digital music micropayments

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March 04, 2008

Tuesday Odds and Ends
by David Harrell

A year ago, I wrote a post (Lala.com Owes Me Sixty Cents) about lala.com's plan to share 20% of the money charged for each CD trade with the artist, either by direct payment or via a charitable healthcare foundation. Some lala.com members are now wondering what happened to the plan. (As far as I can tell, any mention of the 20% plan appears to have disappeared from the site's Help and FAQ sections...)

As noted by Coolfer, there have been a few technical issues with direct downloads of the new Nine Inch Nails album from the official band site. One reviewer of the Amazon.com mp3 version suggests:

Amazon's servers are better than NIN's own website so when I recommend purchasing it from Amazon instead.

More coverage and details about the different pricing options from the NY Times and A Quiet Revolution.

Finally, somewhat off-topic, but an interesting bit from Newsweek on bricks-and-mortar rental shops using a Netflix subscription to procure and rent DVDs:

"It's nice to be able to offer the latest foreign title that no one has heard of," says one Massachusetts store owner, who typically rents out 10 to 15 Netflix discs a month, saving more than $2,000 in annual inventory costs. (The $4.50-per-disc rental revenue more than covers his three Netflix accounts.)

tags: digital music lala.com Nine Inch Nails Amazon.com mp3 Netflix

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THE LAYAWAYS

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

"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.

"...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.

"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.

"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:

the layaways website