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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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July 27, 2011

Is Apple's Stock a Buy? Either Way, You Probably Already Own It
by David Harrell
Apple stock banner
Apple's stock has had quite the run over the past few years -- it's up more than 290% since the beginning of 2009 and it closed yesterday at more than $400 a share. Even though Apple (AAPL) is only about the 35th largest company in the U.S. when measured by total revenue, in terms of total market capitalization (the total value of all of its shares), it's now the second biggest public company in the U.S.

Some stock analysts, including those at Morningstar (my employer) argue that Apple has established some unique competitive advantages over its rivals. Others are more pessimistic, pointing to concerns such as the health issues of CEO Steve Jobs, the potential vulnerability of having such large percentage of revenue coming from the iPhone line, and that relatively expensive products put Apple at a disadvantage in some markets.

Yet whatever your opinion of the prospects of Apple, and even if you've never considered purchasing the stock, you probably already own some of it. Apple is the second-largest component of the S&P 500 index and most retirement plans include index funds that seek to mimic the performance of the S&P by holding most (if not all) of its underlying components. So if you invest in such a fund via a 401(k) or 403(b) retirement plan, you currently own approximately $3 of Apple stock for every $100 invested in that fund. And some actively-managed stock funds have an even larger percentage of their assets invested in Apple. (In interest of full disclosure, I own exactly three shares of Apple directly and have additional exposure to the stock via my mutual fund holdings.)

You can, of course, say the same thing about most large public companies. That is, if you hold stock mutual funds, you own, indirectly, most well known firms, including other tech giants such as Google, Microsoft, and IBM. But if you're a fan of Apple products, perhaps it's some consolation to know that a portion of the money you've spent on your iPod, iPad, or iPhone might -- in theory -- make its way back to you if it helps increase the price of Apple's stock.

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July 22, 2011

Friday Flashback Fun: Rock Stars and Their Parents in 1971
by David Harrell
1971 Life magazine cover
Here's the main reason I really want an iPad (or the upcoming tablet from Amazon): The amazing collection of magazines scanned at Google Books. You can't print or download them, so a tablet computer seems like the ideal way to browse and read them.

This 1971 Life cover story is a trip, with photos of various music stars with their parents, including Elton John at the tender age of 24.

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July 21, 2011

A Funny Spotify Experiment: Why Judas Priest Sounds Just Like Jerry Reed
by David Harrell
Spotify Banner
The fact that the Spotify interface allows you to play tracks stored in your iTunes and Windows Media libraries made me wonder what happens when you use Spotify to "stream" a track you already own. From a performance standpoint, it makes sense for Spotify to pull the file from your hard drive. And doing so would also -- in theory -- relieve Spotify of any obligation to compensate the record company for that play, as the situation would be no different than listening to a track in iTunes.

After a quick experiment, I can confirm that Spotify (at least the free subscription I'm using) will default to a local file, if one is available.

I deliberately looked for a song on Spotify that I didn't own, the Judas Priest classic "Living After Midnight," and noted its length. I then searched my iTunes library for songs with the exact same length and Jerry Reed's "She Got the Goldmine (I Got the Shaft)" seemed the most ridiculous match (yes, for some reason I actually downloaded that song from eMusic...). I made a copy of the mp3 file and changed the ID tags of the copy to match the artist, song title, and album for "Living After Midnight."

Sure enough, when I play "Living After Midnight" using Spotify, I hear Jerry Reed instead of Judas Priest. However, the song appears multiple times in the Spotify catalog on different compilation records. So if I stream a version from a different album, I hear the actual Judas Priest song, as served up by Spotify. As it turns out, the song lengths don't need to match, just the ID tags -- "Hell Bent for Leather" now sounds exactly like the Flaming Lips...

Judas Priest -- Living After Midnight:



Jerry Reed -- She Got the Goldmine (I Got the Shaft):



related: More On Spotify, A Very Quick Spotify Review, Spot the Spotify Payment, Our First Spotify Payouts

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July 20, 2011

More On Spotify
by David Harrell
Spotify Banner
About that download application: In my quick review of Spotify, I was mildly surprised that it wasn't browser-based, like the other streaming subscription services. This Businessweek story explains why:
Spotify owes a more direct technical debt to file sharing: The very technology that makes it so fast is borrowed from techniques honed while sharing pirated files. Both Ek and, later, two of his engineers say that once you click a button, anything that happens within 200 milliseconds seems directly under your control. To beat 200 milliseconds, Spotify runs not as a Web service but as an application on your computer. (According to Ek, the local application allows the company to supply labels with more granular data than other streaming services as well.) Songs you listen to often on Spotify sit, encrypted, on your hard drive. The application looks first for these; if it doesn't find them, it pulls down 15 seconds of the song from the closest server while it looks for copies of the rest of the song on the hard drives of other users near you.
At the Wall Street Journal, Katherine Boehret had a similar take to mine -- she was impressed by the streaming performance and noticed the lack of editorial content for music discovery.

As Billboard's Glenn Peoples pointed out yesterday, the U.S. launch of Spotify generated a fair amount of buzz. Will Spotify be the service that causes U.S. music fans to finally embrace the subscription streaming model? Maybe, but I can't help wondering what the folks at Napster, Rhapsody, and MOG are thinking these days. I haven't conducted (or seen) any extensive A/B tests, but it appears that Spotify might have a slight edge over the earlier services in terms of performance. Yet aside from a possible small advantage there, it's essentially identical to the other streaming services.

Being first to market, of course, doesn't guarantee success. The iPod wasn't the first portable digital music player, but it was the breakout one. If Spotify turns out to be the breakout music subscription service, it won't be because it has an iPod-like superiority to previous services. It might owe more to timing than anything else. Perhaps Spotify, with a modest performance advantage and a solid reputation in Europe, arrived at just the right moment for the U.S. market.

related: A Very Quick Spotify Review, Spot the Spotify Payment, Our First Spotify Payouts

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July 19, 2011

Tuesday Odds and Ends
by David Harrell
Trying to avoid Spotify ads? A friend reports:
tricky spotify...turn an ad down volume wise and it actually PAUSES it. So i totally turned the volume up and the ad hadn't progressed!!! Clever of them...
Felix Salmon has some suggestions for how Netflix should improve its deals with studios. Amazing, most of the deals are structured as flat rates, based one the number subscribers, as opposed to the number of movies/TV shows actually streamed.

Over at Analog Industries, Chris Randall breaks down his Bandcamp sales into three groups (Benefactors, Listeners, and the Curious) and questions the commercial benefit of the album format:
...from a crass commercial standpoint, to maximize the benefit of your Benefactors and Listeners, you should release a lot of single songs and two-song packages, rather than saving everything up for a single monumental release. Those of us that are older have an incredibly difficult time getting rid of the notion of the Long Playing Album Of 45 Minutes as a unit of music, but in this amazing modern world we live in, that is a relic of the 70s, for better or worse.
And David Lowery (Cracker, Camper Van Beethoven) is blogging again at 300 Songs. The blog is about the creation of his 300 or so recorded songs, but I like the music business scoop the best. In this post, he likens music hits to Black Swan Events and wonders if CBV's biggest hit was sparked by a handwritten note to the BBC.

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July 18, 2011

A Radical Idea: Should Social Media Sites Pay You to Use Them?
by David Harrell
Facebook sign-up banner
If you go to the signup page on Facebook, it notes, perhaps to stave off the occasional rumor that Facebook will eventually charge you it use it, that "It's free and always will be."

Free, of course, is good for users. In some ways, the economics of social media sites are no different from what was established back in the 1920s for the new medium of radio -- ad-supported content that is free to consume, provided you purchase the necessary hardware. Ad-supported radio was followed by ad-supported television, and today we have lots of free, ad-supported content online, though the economics aren't quite working for much of it.

Yet there's a major, fundamental difference between traditional media content and that served up by a still-private company that might be worth close to $100 billion after an IPO: Social media content is produced by its users/consumers, not the provider. No matter how inconsequential each individual post appears to be -- your co-worker's lunch plans, Cousin Bob's vacation photos, etc. -- it's the sum total of these parts, each created by individual users, that keep people coming back. Unlike a broadcast television network, Facebook doesn't commission and finance the creation of relatively expensive content, it provides a platform for its users to produce it. So while I have no issue with the founders and early investors of Facebook profiting from the success of the company, shouldn't a portion of that wealth be shared with the content creators, the 750 million users of Facebook?

The problem is, even if there's a strong philosophical argument in favor of user compensation, there's not enough money to go around, barring major changes in the business model or online ad rates. Based on private transactions of Facebook stock, its current implied market cap of about $84 billion represents $112 for each of its 750 million users, but it's not as if Facebook could ever write a check for that amount to each user. All of that money wouldn't go into Facebook's coffers after an IPO, and the value of the company would be considerably less if investors believed that it was somehow going to "share the wealth" with its user base. And if you look at actual earnings, not market cap, there's not much money to share on a per-user basis -- Facebook likely earns less than $1 per user each year. Besides, the example of Myspace, purchased by News Corp. for $580 million in 2005, sold last month for $35 million, and reportedly losing hundreds of millions each year, demonstrates both the fickleness of the public and the weakness of the long-term profitability and viability of the social media business model.

Still, before the launch of Google+, I wondered if offering some sort of payment to users might be the best way for an upstart social media platform to compete with Facebook, even if it were only a nominal amount each year. Or maybe some sort of system akin to frequent-flier miles, where points could be accumulated and redeemed for discounted goods. Perhaps the early success of Google+ shows that it's possible to compete with Facebook on features alone, and that the non-monetary rewards of social media sites are more than enough to keep users coming back. (It's not as if I'm going to stop using Facebook or Google+ unless I'm paid.) Yet some sort of payment or reward system might be an easy way for a new social media service to distinguish itself, or for an established one to grow and maintain its user base.

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July 15, 2011

A Very Quick Spotify Review
by David Harrell
Spotify Banner
Spotify is now live in the U.S. While you can sign up today for one of two premium options ($4.99 or $9.99 a month), you'll still need an invite to try the free version. (Thanks to my friend Krista at Passport Delicious for hooking me up!)

My first impression is that Spotify is superior to the three other streaming music services -- MOG, Rhapsody, and Napster -- that I've tried, at least in terms of streaming performance. I'm a current subscriber to MOG, but I'm frustrated by the frequent pauses for buffering, even when using a fast connection. While it's been a while since I tried Napster, it was extremely buggy for me, with even more buffering/freezing problems. I had no such issues with Spotify during my brief test.

Unlike the other three services, which are all browser based, you'll need to download a small application (~5.0 mb) to use Spotify. The Spotify interface also allows you to play tracks stored on your hard drive in your iTunes and Windows Media libraries. One area that seems light in Spotify relative to the other services is editorial -- other than a display of new releases and lists for the top 100 tracks and albums, you're pretty much on your own for music discovery. MOG, for example, has tons of celebrity playlists, Billboard chart playlists, etc. There is a "Feed" section, however, which will list any Spotify music shared by your Facebook friends, and it seems safe to assume more editorial content will be added.

The free version of Spotify is supported by ads, which weren't overly intrusive in the half hour or so I spent listening -- I streamed at least five tracks before I heard the first one. Interestingly, I also heard an advertisement while listening to tracks from my iTunes library! I'm guessing these songs are played directly from my hard drive, and not streamed, so it's not like these plays incur a cost for Spotify. Maybe the ad algorithm doesn't yet distinguish the source of the song. More on Spotify next week!

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July 13, 2011

About That Netflix E-Mail
by David Harrell
The upcoming price increase at Netflix is now old news, but if you're not a subscriber, here's what the announcement e-mail looked like:
From: Netflix info@netflix.com
Subject: Important Netflix Account Info: Price Change and New Plans
Date: Tuesday, July 12, 2011, 2:35 PM

Dear Laura,

We are separating unlimited DVDs by mail and unlimited streaming into two separate plans to better reflect the costs of each. Now our members have a choice: a streaming only plan, a DVD only plan, or both.

Your current $9.99 a month membership for unlimited streaming and unlimited DVDs will be split into 2 distinct plans:

Plan 1: Unlimited Streaming (no DVDs) for $7.99 a month
Plan 2: Unlimited DVDs, 1 out at-a-time (no streaming) for $7.99 a month

Your price for getting both of these plans will be $15.98 a month ($7.99 + $7.99). You don't need to do anything to continue your memberships for both unlimited streaming and unlimited DVDs.

These prices will start for charges on or after September 1, 2011.

You can easily change or cancel your unlimited streaming plan, unlimited DVD plan, or both, by going to the Plan Change page in Your Account.

We realize you have many choices for home entertainment, and we thank you for your business. As always, if you have questions, please feel free to call us at 1-888-357-1516.

- The Netflix Team
No one likes a price increase, but I think $7.99 a month for unlimited streaming is still quite the bargain, relative to the prices of other digital content subscriptions. We don't have cable or Direct TV, so Netflix (streamed through a Roku box) is the main viewing option in our house. There's a ton of great shows for the kids, with no worry about them scratching up discs, along with plenty of the British mysteries and classics my wife and I enjoy. Don't tell Reed Hastings, but I'd gladly pay double the new price.

The DVD portion of the subscription, however isn't a great deal for us, given how infrequently we watch anything on DVD. We'll either drop it entirely or switch to the two-discs-a-month plan for $4.99.

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July 08, 2011

Friday Odds and Ends: Spotify, Google+
by David Harrell
Ethan Kaplan on Spotify:
I've been a Spotify user for a few years now thanks to an early hook up from Daniel. And I love Spotify. It truly is like magic, and really fun to use. However, I don't find myself using it all that often. Paradoxical? Maybe.

The issue for me is how I consume music. I don't consume music like I consume information. I curate, digest, browse and meander the stacks as it were. Maybe it is a generational thing, as I do remember going to Tower Records every Saturday morning and doing the same. What it comes down to is that Spotify democratizes music to such an extent that it becomes just files and audio rather than atomic entities known as albums, artists and genres.
Following up on my post from yesterday, I'm still not certain if Spotify (and other streaming services -- Rhapsody, Napster, etc.) is required to make direct payments to performance rights organization for streams in the U.S. This story from a couple years back makes it clear that Spotify is paying PROs in Europe. But for the U.S., I now believe the label is responsible for payments to songwriters and publishers for streams. On my own BMI statement, I've received payments for "Rhapsody International," but apparently nothing for domestic Rhapsody plays. (I am receiving per-stream Rhapsody payments via CD Baby and TuneCore.)

Finally, the Atlantic's Alexis Madrigal is posting like mad about Google+. I'm finally in (thanks Christine!), if you want to follow me there.

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July 07, 2011

Spot the Spotify Payment
by David Harrell
Spotify Banner
Please see this update for more recent Spotify payout numbers.

The U.S. launch of Spotify is imminent. And while I haven't had the same success as this musician (thanks to Glenn for the tip), two of my band's albums have been in the Spotify catalog since August of 2009.

Without any promotion in the regions where Spotify is currently available, our total number of plays is relatively small, though our Spotify activity seems to be increasing each month. The per-spin payouts we receive via CD Baby are quite variable, ranging from around two hundredths of cent to more than one cent for each stream. (We also had a few spins that rounded out to "$0.00000000" after CD Baby's commission.) I'm assuming the payout amount depends on free vs. premium listens, as well the subscription prices in each region and currency exchange rates.

Here's what we've seen so far:
Spotify Per-Stream Payouts August 2009 to March 2011

Smallest: 0.02056 cents
Largest: 1.1456 cents
Average: 0.2865 cents
These numbers are all before CD Baby's 9% commission. It's also possible that the major labels have been able to negotiate different rates for their content, and the label/artist payout doesn't include any payments for songwriters and publishers that Spotify makes to performance rights organizations such as BMI and ASCAP. Update II -- Spotify makes direct payments to PROs in Europe, but I think PRO payments are made by labels for music streaming in the U.S. More here. (This post from earlier in the year reports a per-stream rate of 0.22 Euro cents for independent artists.)

Still, the average streaming rate is small enough that it'd take 244 Spotify spins to equal the label cut of a 99-cent iTunes download. But the real question here, in terms of artist/label compensation, is what Spotify activity actually represents. That is, is it simply a new revenue stream, providing income from listeners who don't normally purchase music, or is there also a cannibalization factor, where some listeners opt for streaming over actual purchase? (There's also the "exposure" argument that hearing something via Spotify or another streaming service will entice some listeners to purchase the download.) My best guess is that, given the relatively small percentage of consumers who regularly purchase music, any additional income streams are a net positive.

Please see this update for more recent Spotify payout numbers.

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July 05, 2011

Tuesday Odds and Ends
by David Harrell
Another free music debate -- when should musicians give away live music?

Tom Petty doesn't like Michele Bachmann using American Girl, but while using a track without permission in an ad is a definite no-no, playing recorded music at an assembly is apparently fine, as long as the venues/campaigns have paid for BMI/ASCAP licenses.

It's now illegal in Tennessee to share passwords for Rhapsody, Netflix, and other streaming services.

The decline of rock radio in Chicago:
"Over time, we've realized that this music is going to live forever; the radio stations, not necessarily."
One thing that seems likely to live forever on Chicago radio is 70s-era Rolling Stones. I was channel surfing in the car on Sunday afternoon and heard a simultaneous Stones triple play on three classic rock stations: "Ain't Too Proud to Beg," "It's Only Rock 'n Roll," and "Shattered."

Finally, the last thing I want is another social networking page to maintain, but I'm intrigued by the "circles" feature in Google+. In theory, you can do the same thing on Facebook by creating friend lists, then posting certain items only for specific lists. But you'd have trust FB not to screw everything up with its next privacy overhaul, and its track record isn't so good in that area. (I've only seen the demo, no invite yet for the actual "Field Trial." So if any Google folks are reading...)

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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