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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December 30, 2009

eMusic's Per-Song Payout for Q3 2009
by David Harrell

The first full-quarter label/artist payout from eMusic after the introduction of the Sony catalog (and the restructuring of its subscription plans) was just about the same as the one for the previous quarter: for the third quarter of 2009, we received 34.2 cents for individual song downloads, a modest increase from the 33.4 cent payout for the second quarter.

Given that eMusic raised its prices (by lowering the number of downloads subscribers receive) there was some speculation that the new rates would lead to significantly increased payouts to labels/artists. Though eMusic stated that introduction of the Sony back catalog wasn't the sole reason for changing its subscription plans, it seems likely that the Sony addition played a huge role in the decision.

The business model eMusic is less straightforward than those of the other digital music stores/services. Rather than paying a set wholesale price for digital songs, eMusic has a revenue sharing agreement, where -- after certain expenses and deductions -- 60% of its subscriber income is passed on to the labels in its catalog. How that 60% translates into a per-track amount is dependent on the download activity of eMusic subscribers: When subscribers don't use all of their allotted downloads, the per-track amount is higher. This "digital breakage" has kept the per-track amount high, relative to the nominal per-track rates built into the subscription prices. Indeed, there have been times when the per-song download payout for my own music in the eMusic catalog has exceeded the per-song amount I pay for my monthly subscription.

Back in June, I speculated that the reason for change in the subscription plans might have been to preserve the current payout levels, as opposed to significantly increasing them. If -- after the Sony material was added to the catalog -- subscribers became less likely to let their downloads expire, then the previous per-song payouts would have decreased.

Based on the payout for the third quarter, it appears that the overall digital breakage by eMusic subscribers has declined -- if it had remained the same, it seems likely that the increase in the per-track payout would have been much larger. However, because the overhaul of the subscription plans coincided with the introduction of the Sony material, it's tough to say if that decrease was because of the availability of the Sony catalog, or the fact that with fewer downloads, subscribers were simply more likely to use them all. (Maybe it's a combination of the two factors.)

There was one other change in the payouts we received: While in all previous quarters, CD Baby just reported the total number of downloads per each individual track, for the third quarter, downloads were reported as single songs or full albums. Perhaps this change was due to eMusic's introduction of "album pricing." Only two of our albums were downloaded in full. The payout for the 10-track album was reported, before CD Baby's 9% commission, as $3.42, which is 10X the per-song rate for the individual song downloads. Yet our 12-track album paid out at $3.76, which works out to slightly less, 31.3 cents, on a per-track basis. If anyone from eMusic or CD Baby is reading and can provide any insight, please leave a comment or shoot me an e-mail.

related: eMusic's Per-Song Payout for Q2 2009, Sony and eMusic: Why the Per-Track Label Payout Might Not Change

tags: digital music Sony eMusic

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December 28, 2009

Lala Suspends CD Trading
by David Harrell

Not sure when this happened, but Lala.com (now owned by Apple) has officially suspended its CD trading operations:

For some time now, Lala's focus has been on digital music, creating a new way to listen to and buy music online. Pursuing this vision has meant that we have not been able to give our compact disc trading service the full focus and attention that it needs to continue to flourish. Because of this, we've now made the decision to close our trading service. We recognize the work that has gone into creating your "have" and "want" lists, and are making your lists available for you to download below. You may choose to keep these for your own records, or to upload them to another trading website.

We've worked with Swaptree.com to ensure that they are ready to support Lala members who are looking for other CD trading opportunities. In addition to trading CDs, Swaptree also offers trading of books, DVDs and video games. There is no charge to trade on Swaptree -- you only pay for postage. And to welcome transitioning Lala members, Swaptree will pay for the postage on your first two trades. Download your want and have lists below, and go to swaptree.com/lala to get started.

Thank you very much for for your continued support of Lala as the site has changed and evolved over the years. We have greatly appreciated your business, and have personally enjoyed trading CDs with many of you! We wish you the best in your future trading endeavors, and hope that you continue to enjoy the other features Lala has to offer.

Sincerely,
the Lala crew

UPDATE: It looks like the plug was pulled back on December 4th.

related: Lala.com Owes Me Sixty Cents

tags: digital music Lala Apple AAPL CD trading

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December 17, 2009

From Delivery to Availability: Amazon MP3 the Fastest Digital Music Retailer
by David Harrell

If you'll indulge me one last time, I'll start with a plug for our new holiday album: "Maybe Next Year" by the Layaways is now available at eMusic. If you're a subscriber, please check it out here. (Those downloads expire every month, so you have to use them on something...) But that's it -- you won't see any more self-promotional posts in the near future, I promise!

With eMusic, the new album is now available in all of the stores it was delivered to on November 25th. The only thing we're still waiting for is Amazon.com's "on demand" CD option. With the caveat that this wasn't a controlled test -- just a single digital album -- here's how long it took the digital stores to make the delivered album available for sale:

Amazon MP3: one day
Lala.com days: two days
Napster: two days
Rhapsody: five days
Amie Street: six days
iTunes: seven days
eMusic: 20 days
Amazon on demand CD-Rs: still waiting

I should note here that TuneCore gives the option of specifying a future release date, so it's possible, in theory, for self-released albums to go live on the same date in all of the digital stores. However, given how close we were cutting it with a holiday album, I opted for an "immediate" release, which meant that the album was likely to trickle out, as opposed to having a uniform release date. It also appears that eMusic generally makes new material available in large batches on Tuesdays, the day that new releases have traditionally go on sale in record stores. That policy might have held up the release of the album by several days.

Overall, I'm somewhat amazed by how little time it took for a self-released album to go live. As best as I can remember, with our previous albums, the lag times from delivery to availability were all longer, perhaps indicating that the digital stores have become a more efficient in processing new material. My apologies if I'm sounding like a complete digital music store fanboy here. But as someone who once self released albums on cassette (we couldn't afford CDs or vinyl!) and placed them on consignment with local stores, having my music available worldwide in a matter of days is still somewhat surreal.

Distribution, of course, doesn't guaranteed sales, as a few anonymous comments noted in my earlier post about TuneCore. The "long tail" is getting longer every day, and some music available in iTunes, eMusic, etc. won't sell enough to offset the costs of getting it there. That's something I'll address in an upcoming post.

tags: digital music TuneCore iTunes eMusic Amazon MP3 Napster Rhapsody Lala Amie Street

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December 07, 2009

Some Lala Math
by David Harrell

I have no idea what plans Apple has for Lala.com, though as a big fan of the service, I hope Apple keeps the current features in place, or somehow incorporates them into iTunes. (Jon Healey, Mark Mulligan, and Eliot Van Buskirk all have some thoughts.)

But I wasn't surprised about the reported reason that Lala initiated the sale:

One person with knowledge of the deal, but who was not authorized to discuss it, said that the negotiations originated when Lala executives concluded that their prospects for turning a profit in the short term were dim and initiated discussions with Eddy Cue, Apple’s vice president in charge of iTunes.

Lala offers a single free stream of all of the tracks in its catalog (though that one-time restriction isn't hard to circumvent.) Each time a song is streamed, Lala makes a payment to the respective record company of .6 cents, if not more. My self-released band, distributed via CD Baby and TuneCore, receives that rate, it's not inconceivable that the major label groups negotiated a higher payout.

When someone listens to a 10-track album on Lala, those streams cost Lala at least six cents. While several industry observers have noted that ad-supported streams can't be profitable at current ad rates for online advertising, Lala doesn't even run ads on its site. So the only way for it to offset the streaming fees is selling mp3 downloads or Lala's innovation, the 10-cent Web song.

Lala pays a wholesale price of 70 cents for the downloads it sells, while offering many of the them at just 89 cents. So Lala "makes" just 19 cents per mp3 sold, ignoring all transaction fees, salaries, server costs, etc.

To cover the fees paid for the free streams, Lala would need to sell one mp3 for every 32 free streams (assuming no other business costs). While a BusinessWeek article from early 2009 reported Lala's conversion rate was actually higher -- one mp3 purchased for every 14 songs streamed -- I'm not convinced that's the case. Since then, Lala has partnered with Pitchfork to provide streaming widgets on the popular music site's review pages for albums and individual tracks, which has no doubt increased the number of free listens. While an argument can be made that the greater exposure results in greater sales, I'm inclined to think it just means that more people are listening to music via Lala without having to pay for it. (Perhaps Pitchfork gives Lala a percentage of its ad revenue, but I can't imagine it'd be enough to push the streams into profitability.)

One thing that I haven't been able to confirm is the rate Lala pays labels for the purchase of a 10-cent Web song. No Lala sales have shown in my own band's account for more than the 0.6 cents streaming rate and I can't find any reference online for a payout rate for the 10-cent songs. It's possible that Lala simply keeps the entire dime from the Web song sale, and then pays the rights holders the streaming rate every time the purchaser plays the song. That would mean Lala comes out ahead when the purchaser listens to a song no more than 16 times, and loses money on the sale starting with the 17th listen.

Of course, while the Lala business model probably isn't profitable on a stand alone basis, that might not be a problem for Apple. Even at a loss, maintaining the service makes sense if it results in increased sales of the very profitable iPod and iPhone.

related: The Latest from Lala: The Return of the Dime Store, The New Dime Store, Part 2

tags: digital music Lala Apple AAPL iTunes

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December 04, 2009

The Secret Behind the Popularity of Christmas Music?
by David Harrell

The Wall Street Journal's Jim Fusilli is perplexed by the annual deluge of holiday releases by rock and pop artists:

Do you know anyone who's crazy for Christmas albums by rock and pop artists? Me neither. In my crowd, the reaction is closer to ho-hum than ho-ho-ho. But somebody must enjoy them. The benefit series that began in 1987 with "A Very Special Christmas" is the most successful in music history, raising more than $100 million for the Special Olympics. Mariah Carey's "Merry Christmas," released in 1994, has sold about 10 million copies world-wide. Josh Groban's "Noel" was the best-selling album of 2007, with some 3.5 million copies, though it was available only for the last 10 weeks of that year.

Few other Christmas albums have found such mass acceptance, yet each year they arrive by the sackful beginning in late summer, the impetus being, I suppose, the hope for that rare breakout success and the knowledge that the albums can satisfy an impulse holiday buy for a rock or pop music fan. Most aren't very good. But more later on Bob Dylan's new "Christmas in the Heart."

It's topic that I've been thinking a lot about over the past few months, as I wrapped up my own holiday release. It seems like there are multiple motivations for the artists -- a genuine love of holiday music, the fact that it's a relatively easy way to create a fan-pleasing release, its value as a promotional tool, or maybe, in some instances, even a money grab. In the case of my band, it was a combination of a fun creative process -- trying to come up original arrangements of songs we've heard forever -- and the promotional value: Our Last.fm listener stats spike every December, thanks to a three-song digital Christmas EP we starting giving away in 2006. So we finished up seven more songs to expand it a full-length release.

Of course, a simpler way to look at the phenomenon might be from a demand standpoint -- if consumers didn't want Christmas music, we wouldn't hear so much of it.

So who's listening to all this holiday music? In some cases, it's probably just music fans switching their music consumption to Christmas songs starting late each year. But I have a new pet theory: The demand for Christmas music is largely driven by folks who don't really listen to (or buy) much music during the rest of the year, combined with the fact that a significant percent of holiday albums are purchased as gifts.

Labels: holiday music

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December 01, 2009

Tuesday Odds and Ends
by David Harrell

Some non-US eMusic subscribers aren't happy that a seasonal gift of five free downloads isn't available to them. (I wonder how all the free "loyalty downloads" eMusic has been giving subscribers over the past few months figure into label compensation. My guess is they're like the freebies given to new subscribers and they result in no payment to labels.)

Jeremy at the Fingertips music site has a commentary about casual fandom and the 1,000 fans concept that's worth a read. (It inspired me to start writing my long-contemplated post about the 1,000 fans idea.)

Amazon MP3 has an Advent calendar of free holiday mp3s.

In a WSJ interview with Redbox (the $1 DVD rental kiosks you see outside grocery stores) president Mitch Lowe, he extols the virtues of the physical disc:

The DVD is an incredibly efficient and portable piece of product for movies. DVDs you can take from upstairs to downstairs. You can loan to a friend. You don't have to worry about erasing the title off of a big database. It's very inexpensive to manufacture and distribute. We easily see many years ahead of the disc being the primary format.

And for no reason whatsoever, the Squeeze song that has been running through my head for the past day:

tags: digital music eMusic Amazon MP3 Redbox

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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