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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February 27, 2009

Amazon's MP3 Album Pricing Strategy
by David Harrell

Amazon.com mp3 banner

Nothing against Opeth (or Scandinavian death metal in general) but I'm somewhat surprised that the band's Still Life album -- thanks to yesterday's $1.99 sale price -- was in the number three slot on Amazon MP3's top album chart as of this morning.

While most of Amazon's daily mp3 album specials top the chart or come very close, I didn't think a death metal release would have a broad appeal. I guess Amazon's mp3 album bargain shoppers are an extremely open-minded lot when it comes to musical genres, or maybe the prices are just too good to resist.

But whatever the factors are involving this specific album, its chart position seems to confirm my belief that the "special deal" albums account for a very large percentage of Amazon MP3's album sales. While I'd love to see a breakdown of the sales figures for regular vs. bargain prices, what I really want to know is Amazon's long-term mp3 album pricing strategy.

My guess is that -- unless Amazon has worked out some sort of promotional consideration with the labels involved -- these bargain sales are all net losses for Amazon. "Loss leader" music prices are, of course, nothing new for big retailers, but the $9.99 CD prices at Best Buy and other big box retailers aren't that much below wholesale prices. If Amazon is paying the regular wholesale price for downloadable albums on 99-cent and $1.99 specials, its per-unit losses are much larger than those associated with $9.99 CDs.

So what's Amazon getting out of all of this?

If nothing else, the specials are increasing the awareness of the Amazon MP3 store, and probably driving a fair amount of traffic to Amazon.com. (The Twitter feed for Amazon MP3 has more than 12,000 followers.) Yet unlike Best Buy, which can use loss-leader music to lure customers is trying to lure customers to buy big-ticket items, it seems unlikely that you're going to check out the daily mp3 album deal and then buy a refrigerator from Amazon.

Also, unlike Apple, which reportedly makes a nominal profit on download sales to encourage lucrative iPod sales, Amazon doesn't sell its own corresponding hardware device. (Yes, Amazon sells iPods, but the margins for iPod retailers are quite low.) Perhaps the next version of the Kindle will also function as an mp3 player.

My suspicion, however, has been that Amazon is conducting a large-scale experiment in the price elasticity of demand for digital music, with the ultimate goal of demonstrating to labels that they can sell enough cheap music to offset decreased per-unit profits. (This 2008 Fortune article on Amazon quoted an unnamed label executive saying, "As soon as we wise up and realize that online albums are worth about $5, the music industry will be fixed.")

Yet considering the long struggle between Apple and the major labels for variable song pricing in the iTunes store -- a battle in which the labels finally got their way -- are major label-sanctioned $5 digital albums a plausible outcome?

Comments are open -- please share your thoughts about Amazon's mp3 album pricing strategy!

related: Amazon.com's Amazing MP3 Album Prices, Amazon's Blue Light MP3 Special, Is Amazon MP3 Thinking Elastic?, Price Elasticity of Demand for McCartney

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February 26, 2009

Mossberg on the New Kindle
by David Harrell
He really likes it, and notes the big difference between it and the iPod:
While the Kindle project has often been compared with Apple's iPod, because both are hardware devices seamlessly connected to online-content stores, there is a fundamental difference. Apple offers content to sell hardware. Amazon offers the Kindle to sell content.
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February 25, 2009

Wednesday Odds and Ends
by David Harrell
The Cure's Robert Smith is no fan of the "name your own price" business model:
"If I put a value on my music and no one's prepared to pay that, then more fool me, but the idea that the value is created by the consumer is an idiot plan, it can't work."
Last.fm: The free downloads page is back, along with other site enhancements.

Off topic, but an interesting (and a little frightening) read for anyone who listens to a lot of music: Jerome Groopman's recent New Yorker article on tinnitus:
I noticed the sound one evening about a year ago. At first, I thought an alarm had been set off. Then I realized that the noise -- a high-pitched drone -- was mainly in my right ear. It has been with me ever since. The tone varies, from a soft whoosh like a shower to a piercing screech resembling a dental drill. When I am engaged in work at the hospital or in the laboratory, it seems distant. But in idle moments it gets louder and more annoying, once even jarring me from a dream.
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February 17, 2009

Facebook's More Stringent Than Other Sites
by David Harrell
If you want to upload your own music to MySpace, Last.fm, iLike, Virb.com, Purevolume, etc., for streaming or sharing, you just need to check a box verifying that you have the right to do so.

But Facebook adds an extra step:
In order to upload music to your Page, we need you to submit a valid form of identification that identifies you, the admin of the Page. By submitting a valid form of identification, you are confirming that you either own the copyright to the content you will be uploading or that you are authorized by the copyright owner to upload that copyrighted content to your Page. Please note that you can black out any sensitive information on your identification if you wish, other than your name and picture. We currently only accept photo passports, school IDs, and drivers licenses.
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February 09, 2009

Monday Odds and Ends
by David Harrell
Mark Mulligan: Music as Free: When Discovery Becomes Consumption

Coolfer on the demise of Ruckus. I'll just add that Ruckus wasn't much of a money maker for musicians, at least for those of us fairly far out on the Long Tail -- our Ruckus earnings to date were less than a buck.

And, via the Twitter feed of Musician Wages: a spreadsheet of artists, bands, and musicians using Twitter.

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February 06, 2009

Last.fm Royalties for Q4 2008
by David Harrell
Last.fm recently posted fourth quarter 2008 reports for its artists royalty program. Thanks to a new album, and an in-season Christmas EP, our total Last.fm plays increased significantly from the previous quarter, leading to a royalty payout of $17.27:

Q4 2008 Last.fm Streaming Royalties

As with the previous quarter, Last.fm paid half a cent per stream for "free on-demand plays," while the "free radio plays" rate was slightly lower this quarter -- .05 cents vs. .057 per play.

Clearly, payouts like this one don't encourage me to quit the day job. But it's easy enough to multiply these numbers to get a general idea of how much a relatively well-known act might receive from Last.fm for making its music available for free, on-demand streaming.

For example, my own band currently has a total Last.fm audience of just under 4,400 listeners. Moving up the music food chain to an act on "big indie," we find that the Broken West, on Merge records, currently has more than 16,700 Last.fm listeners. However, my guess is that they'd earn more than 4X what we did because their average number of plays per listener is much higher, as are, no doubt, their sales. (Our listener count is probably inflated somewhat by the folks who listened to various Last.fm holiday radio streams in late 2008 and heard a track or two by the Layaways.) There's also the caveat that the Broken West's albums aren't currently available for streaming on Last.fm. If they were, there's a good chance their Last.fm listens/streams would increase significantly.

Yet even a generous assumption of 100X our royalty for the quarter still only converts into $1,727, or a little more than $6,900 a year. While every little bit helps, it seems like you'd need to get to more than 1,000X our payout to reach an amount that begins to be significant to larger labels and artists. Given some of the play counts that I've seen on MySpace, however, it doesn't seem implausible that some acts could generate six-figures in total annual streaming income from Last.fm, MySpace, the free services from Rhapsody and Napster, etc.

The question, of course, is do these "on demand" royalties represent a net supplement to artist income? Or, are they simply a poor substitute for lost sales that didn't take place because listeners opted for free streams instead of purchasing a CD or digital downloads?

It's probably a case-by-case basis, with no set answer. My guess is that the cost/benefit relationship depends a lot on the previous commercial success of each artist. That is, relatively unknown acts are probably going to come out ahead by making their music available for free streams, while an established act might lose enough sales to negate the streaming income.

In a post from late last year, Glenn at Coolfer.com had some good thoughts about streaming revenues vs. those from actual sales and noted that -- given current payout rates -- an individual would have to spend 93 hours listening to digital streams to generate the same revenue as the purchase of an iTunes album. And he also pointed out that it really all comes down to CPM advertising rates. Given what online advertisers are currently willing to pay per page impression, there's a limit to how much an ad-supported streaming service can pass on to labels and artists and still have a viable business model...

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February 05, 2009

Thursday Odds and Ends
by David Harrell
Amazon.com released its fourth quarter results last week. Unfortunately, absolutely no details about Amazon MP3 sales were included.

Jonathan Coulton on Internet rock stardom on the cheap. (Via Hypebot)

Some recent soundtrack albums, "He's Just Not That Into You" and "The Wrestler," are available from eMusic. They both include a fair amount of major label content, but are only available as "album only" downloads. Though, as noted in an eMusic message board discussion, that's frequently the case with soundtrack releases. Both albums have the same restrictions at the iTunes store and Amazon MP3.

Finally, some shameless self promotion: The new Layaways album is now available at eMusic. If you're a subscriber, why not download a track or two?

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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