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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February 26, 2010

eMusic's Per-Song Payout for Q4 2009
by David Harrell
eMusic banner

Back in December, I reported that eMusic's per-song payout rate for the third quarter of 2009 increased only slightly from the previous quarter, despite a major price increase, via the reduction of the number downloads allotted for various subscription plans. (Rather than a fixed per-song payout, eMusic shares 60% of its subscriber revenue, minus certain deductions, with the labels in its catalog. That shared revenue then translates into a per-track amount, based on total subscriber download activity for the quarter. In theory, reducing the number of downloads available to subscribers should increase the payout rate, but that rate is also directly affected by whether or not subscribers use all of their allotted downloads.)

For the fourth quarter of 2009, however, the per-song eMusic payout rate increased more than 10%, from 34.2 to 39 cents for single song downloads. This amount is the largest payout rate we've received in the five+ years that we've been in the eMusic catalog. For comparison, here are the eMusic per-song payout rates for the past four quarters:
Q1 2009 30.5 cents
Q2 2009 33.4 cents
Q3 2009 34.2 cents
Q4 2009 39 cents
While the eMusic rate is significantly less than the payout for 99-cent iTunes downloads, it has increased steadily over the past year and is now 56% of the standard iTunes payout of 70 cents. Given that new eMusic subscribers pay more for their downloads than older subscribers (while eMusic adjusted the plans for all subscribers last year, most existing subscribers were given plans that were more generous than those available to new subscribers), it's likely that the payout rate will continue to rise somewhat as eMusic adds new subscribers and/or loses older ones. Given that per-download eMusic prices are lower than those in the iTunes store, the subsequent label payout rates will, of course, always be less.

related: eMusic's Per-Song Payout for Q3 2009, eMusic's Per-Song Payout for Q2 2009, Sony and eMusic: Why the Per-Track Label Payout Might Not Change

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February 24, 2010

Buddy, Can You Spare A Hundred Dollars?
by David Harrell
Given that I've written positively about fan-funded recordings, I'm not sure why Camper Van Beethoven's plan to raise money from fans to pay for its trip to SXSW (you can sponsor a song at one of the band's SXSW shows for $100) rubbed me the wrong way.

My first thought was that the members of this relatively well-known act could surely foot the bill themselves, but there's no telling what their personal financial situations are. Yet even if the band is capable of funding the trip, it'd be no different than sports teams asking for municipal support for stadiums, even when the teams are capable of paying for the projects. It doesn't hurt to ask, and -- unlike sports teams that claim they'll relocate if they don't get municipal funding -- Camper Van Beethoven is just asking for donations, not making a threat. My guess is that the band will go to SXSW even if the fund-raising effort is a bust.

I suppose the idea of fan-funded albums doesn't bother me because the result is something tangible, a recording, as opposed to an ephemeral live performance. But that's just my personal preference -- perhaps some CVB fans would rather sponsor a song at a concert appearance than help the band pay for its next album. (And part of me wonders "why stop there?" A band could just as easily ask for fans to finance the purchase of a new tour van, a bass amp, or a new set of cymbals for the drummer...)

The real question here is will these new ways to raise cash from fans expand the total amount of money they're willing to spend, or do they just cause fans to re-allocate the money they usually spend on recorded music and concerts? In the short term, there's probably a novelty effect, and I bet it increases the total amount of money an individual fan spends in a year. Longer term, as more acts try these approaches and the novelty factor fades, I'm guessing it won't.

UPDATE: A follow-up post is here.

UPDATE 2: My interview with Jonathan Segel of Camper Van Beethoven.

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February 19, 2010

Why eMusic is Like Costco
by David Harrell
eMusic banner

I've written frequently about the health club component to eMusic's business model. For subscribers, there's the "use it or lose it" aspect--you pay for your downloads each month or quarter, whether or not you actually use them. For labels and artists, subscriber activity directly affects the per-download payout amount they receive. Because eMusic shares a set percentage of its subscriber revenue with labels, subscribers who don't use all of their allotted downloads help boost the subsequent per-track payout amount.

But there's another club comparison that seems appropriate: For music consumers, eMusic is also something of a warehouse club. That is, in exchange for buying in bulk, eMusic offers individual tracks at a per-unit cost that is less than the standard prices at iTunes and Amazon MP3, which range from 79 cents to $1.29 a track. And though the eMusic catalog has expanded in the past year to include content from Sony and the Warner Music Group, as with the warehouse clubs, the total selection is less than that available from standard retailers.

In addition, while the average track price at eMusic is less than the single-track prices at iTunes and Amazon MP3, you can often find better album prices at those digital stores, just as the sale prices at your local supermarket might undercut the warehouse club price. (I missed out on Amazon MP3's one-day special price of $3.99 for the new Spoon release and paid a higher price for it when I used 11 of my eMusic downloads for the album.) There's also the occasional release where eMusic doesn't offer "album pricing" and the required number of downloads results in an eMusic price that exceeds the iTunes or Amazon MP3 price, as well as the cost of the physical version. As is the case with Paul McCartney's Good Evening New York City album, as one eMusic subscriber observes:
2 CD set + DVD costs 13.99 on Amazon, or just downloading the MP3 costs 9.49. My emusic plan is 35 downloads for 15.89...so it costs more to download the tracks here than to buy the actual discs, rip them myself, keep the cd as backup and in addition have the DVD?
This warehouse club comparison is probably something to keep in mind when considering how eMusic competes with iTunes and other digital music stores. Few -- if any -- consumers shop exclusively at warehouse clubs. Though the discount pricing is nice, you'll still need to go other retailers to find specific items. And while an eMusic subscription is a relatively small expenditure, it's also more than some music consumers are willing to spend month in and month out. But for those who regularly purchase digital music, it can make sense to buy some of it in bulk. Rather than convincing these consumers to reject iTunes and the other stores, eMusic needs to make the case for joining the club to receive bulk-rate prices, albeit for a more-limited selection.

related: Sony and eMusic: Why the Per-Track Label Payout Might Not Change, Why Music Subscriptions Are Like Health Clubs, Welcome to the Club

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February 11, 2010

Follow-Up on the Dead as Business Gurus
by David Harrell
A reader (who seems to know far about the Grateful Dead than I do) wrote to say that while the band was ultimately successful, it wasn't exactly prescient:
...to hear the Dead tell the story, it's true that they did all of those things, but they really had no idea what they were doing when they started doing all that; that "the musicians who constituted the Dead were anything but naive about their business" is a stretch. They blew gobs of the money they earned on all kinds of crap early on, including playing the goddamn pyramids in Egypt, starting a record label (I think), and the "R and D" of putting their "wall of sound" stage audio together. In fact, if I remember right, they HAD to tour for a couple of years in the early seventies or they were going to go broke. They didn't become enormously profitable until the 1990s.
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February 10, 2010

Wednesday Odds and Ends
by David Harrell
Will Warner Music pull the plug on its streaming content at Last.fm, Spotify, Lala.com, etc? In other Warner news, Edgar Bronfman Jr. blames the iTunes price increase for at least some of the slowdown in the growth of digital sales, but still considers the price change a "net positive." Too bad one of the major label groups didn't forgo the $1.29 pricing -- that would have allowed us to quantify how much of the slowdown was due to the poor economy and how much was because of the higher track price. UPDATE: here's the transcript of the WMG earnings call.

I'm not a fan of their music, but this Atlantic article makes the case for the Grateful Dead as music biz gurus:
As Barnes and other scholars note, the musicians who constituted the Dead were anything but naive about their business. They incorporated early on, and established a board of directors (with a rotating CEO position) consisting of the band, road crew, and other members of the Dead organization. They founded a profitable merchandising division and, peace and love notwithstanding, did not hesitate to sue those who violated their copyrights. But they weren’t greedy, and they adapted well. They famously permitted fans to tape their shows, ceding a major revenue source in potential record sales. According to Barnes, the decision was not entirely selfless: it reflected a shrewd assessment that tape sharing would widen their audience, a ban would be unenforceable, and anyone inclined to tape a show would probably spend money elsewhere, such as on merchandise or tickets. The Dead became one of the most profitable bands of all time.
And if you're reading this in Northern California, a friend is hosting a Tom Freund house concert on Friday evening in Davis, CA. Shoot me an e-mail if you'd like the details.



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February 08, 2010

Monday Odds and Ends
by David Harrell
Amazon.com and Macmillan officially make up.

From the L.A. Times technology blog:
One could argue that publishers aren't affected by Amazon's pricing. They continue to receive 50% of the cover price for each digital copy Amazon sells, the same as physical books sold at a local bookshop. (Astute observers will correctly point out that Amazon is actually losing money on bestsellers under this arrangement.)

What irks publishers is a concern that Amazon is conditioning readers to believe that digital books are worth less, about 60% less, than the physical copy. Such a steep price cut could have a dramatic impact on the book business in the future, when digital sales become a bigger portion of overall industry revenue. (They currently account for less than 5% of retail book sales.)
While I'm on my e-book tangent, I'd just add that there's a factor that has been ignored in the digital vs. physical pricing debate for books: Loss of resale value. As I noted a couple of years ago, even if you don't plan to sell your CDs, the option to do so has real economic value. And the loss of that value is something that deserves consideration in the pricing of digital goods.

Finally, it's off topic, but definitely worth a listen: I enjoyed Terry Teachout's "Pops: A Life of Louis Armstrong." Christopher Lydon of NPR had an hour-long discussion with Teachout about the book -- click hear for the mp3.

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February 04, 2010

Digital Books vs. Digital Music
by David Harrell
I can't help thinking that some major label music executives are feeling a little envious of their publishing counterparts these days. As you've no doubt heard, book publishers were able to establish higher list prices for Apple's upcoming iBookstore while Macmillan did away with $9.99 e-book pricing at Amazon.com. While some in the music industry might be thinking "why couldn't we control pricing in the same way?" there are some major differences between the two industries, and their relative bargaining power:
When the iTunes store launched, it was the only game in town for major label content. (There might have been other digital stores at the time, but none had gained any real traction for selling major label material.)

Pirated digital music was easily available before the launch of any digital music store. Hence, a legal download store was something of a lifeline for the major labels, even if the initial pricing wasn't to their liking. As far as I know, pirated e-book content isn't yet widely traded yet, though there is a huge supply of free public-domain material.
Steve Jobs was able to dictate the initial pricing for legal digital music market, but he obviously had less leverage with digital books. And once publishers were able to dictate terms with Apple, they had the leverage to force changes at Amazon.com, which had established the original market for digital books.

Yet, as former eMusic CEO David Pakman explains, it appears that publishers are more concerned with maintaining the status quo than with finding the optimal price for digital books. While I know very little about the book industry, the idea that publishers would be able to maintain the same price for a digital book as that of a hardcover print book is simply ludicrous. Without printing and distribution costs, digital books can be as profitable as print books at a much lower price point. And if demand is indeed elastic, then publishers could maintain or even increase revenue while earning much less per unit sold.

Two final thoughts:

1. Unlike the music industry, the publishing industry doesn't have the "cherry picking" concern -- books aren't sold by the chapter, and even if they were, it seems unlikely that readers would go for a few favorite chapters from a novel the way music buyers opt for single-song downloads of their favorite tracks.

2. It remains a question of when, not if, a "Napster for digital books" arises. As Pakman observed last October, the best bet for publishers is to have a convenient legal market (with attractive prices) well established before the P2P platforms for digital books inevitably emerge.

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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