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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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December 30, 2011
The Top 7 Digital Audio Insider Posts of 2011by David Harrell
The seven posts below generated the most page views, comments, and/or e-mails for this site over the past year. Thanks to everyone who read, commented, linked, and e-mailed. Happy New Year!
Spot the Spotify Payment
...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? read more
A Few Thoughts On Pandora
Does Pandora's Music Genome-based programming give it a competitive advantage? That is, does it result in a better listener experience than with Internet stations like Last.fm, where "similar" artists are determined by listener overlap (listeners of artist A also like artist B), as opposed to song qualities? read more
The Downside of eMusic's Currency Pricing
Even after last year's subscription changes, average album prices at eMusic are no doubt less than the average prices at iTunes, Amazon MP3, and other digital music stores. Yet I believe that eMusic's switch from a credits system to currency pricing, in combination with Amazon MP3's $5 album deals and daily specials, presents a real challenge to eMusic's subscription-based business model. read more
How Much Does Rhapsody Pay Artists?
Here's how I'm paid for my self-released albums in the Rhapsody catalog:
1. A penny per stream. For albums distributed by CD Baby and TuneCore, I receive one cent per listener stream. CD Baby, which uses a commission business model, takes a 9% cut, resulting in a .91 cent payout per stream. TuneCore, which charges an annual maintenance fee for each album, passes on the full one cent. This one-cent rate has remained steady and unchanged from September 2004 to the present. read more
The Convergence of Owning Music and Renting Music
There are real differences, both logistical and psychological, between owning and renting music. But I'll bet that the preference for ownership will decrease as the listening experience for "owned" and "rented" music converges. read more
The Ethics of Downloading Music You've Already Paid For
An eMusic subscriber loses $200 worth of his downloads and posts this question to eMusic's message board: Is it ethical to download those same tracks from illegal sources (such as P2P sites)?
I was somewhat surprised by the responses -- by more than a 3 to 1 ratio, his fellow subscribers voted "no," most of them rather emphatically. Then again, maybe that's not surprising, as eMusic subscribers are a self-selected group of music fans who are willingly paying for digital content that they could probably download elsewhere free. read more
A Funny Spotify Experiment: Why Judas Priest Sounds Just Like Jerry Reed
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. read more
Labels: eMusic, file sharing, Pandora, Rhapsody, Spotify
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October 10, 2011
How Much Does Rhapsody Pay Artists?by David Harrell
Last week, Paul Resnikoff of Digital Music News asked some basic questions about how much the music streaming services pay labels/artists. He had a hard time getting detailed responses from any of the firms he contacted, including Rhapsody.
Here's how I'm paid for my self-released albums in the Rhapsody catalog:
1. A penny per stream. For albums distributed by CD Baby and TuneCore, I receive one cent per listener stream. CD Baby, which uses a commission business model, takes a 9% cut, resulting in a .91 cent payout per stream. TuneCore, which charges an annual maintenance fee for each album, passes on the full one cent. This one-cent rate has remained steady and unchanged from September 2004 to the present.
It's certainly possible that the major labels were able to negotiate a higher per-stream payout rate. I doubt, however, that any artist signed to a major label is receiving more than a cent per stream, as the payout to the artist depends on the recording contract. My guess is that most major-label artists ultimately receive a small fraction of a cent for each Rhapsody stream.
2. As mentioned in Resnikoff's post, there are also payments to songwriters and music publishers, in addition to fees paid to labels, to consider. Starting in late 2010, payments for "Rhapsody Mechanical Royalties" began showing up in my CD Baby account. Here, however, the per-stream amount varies from month to month and I've seen payments ranging from .13 cents per stream to .28 cents. The payout rate appears to correlate roughly with the date, with higher rates for more-recent performances.
3. Finally, small payouts show up for "Rhapsody Inter" on my BMI statement, approximately .16 cents per performance. I assume these payments are for plays by non-U.S. Rhapsody subscribers. I'm a self-published songwriter, so I receive all royalties paid to BMI for performances of my songs. If I were signed to a publishing company, half of those royalties would be paid to the publisher.
Labels: artist payments, Rhapsody, streaming royalties
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January 17, 2006
Corrections and Coming Soonby David Harrell
I made some additional changes to last week's post on Why Music Subscriptions Are Like Health Clubs. The changes are noted in the post itself, but the health club comparison really doesn't hold for eMusic, as its royalty costs are apparently a (very large) fixed percentage of its subscription revenues. Still, the health club model remains the basis for any of the other subscription services that pay a fixed, per-stream royalty (Rhapsody, Yahoo's Y! Unlimited, and others): customers who listen a lot are a net loss, any profits must come from a larger portion of the subscriber base that listens less frequently.
Coming later this week: the first post in a series on the digital pricing conundrum -- part I, the problem with varying song lengths and tracks per album.
Labels: health club model, Rhapsody
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January 10, 2006
Rhapsody, Streams, and Royaltiesby David Harrell
After posting yesterday's piece on music subscriptions and royalty fees, I came across this interview with Rob Glaser of Real Networks. According to Glaser, Rhapsody subscribers are, on average, listening to around 200 tracks a month. At that usage rate, Rhapsody's royalty expenses -- as a percentage of subscriber fees -- are much less than eMusic's.
However, with the $9.99 monthly subscription price, the average Rhapsody subscriber is spending close to five cents per stream. Which seems somewhat pricey compared to owning an mp3 for quarter from eMusic. And while I'm not sure people would pay a nickel for a la carte streams, when it's packaged as a subscription, they obviously don't seem to mind. I suppose it's a completely different mindset, as you've already made the subscription purchase decision (perhaps months ago) and you're probably not thinking in terms of cost per song.
Labels: music subscriptions, Rhapsody
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January 09, 2006
Why Music Subscriptions Are Like Health Clubsby David Harrell
You've probably heard of the "health club business model." The idea is to sign up as many people as possible for a service that most are unlikely to fully use. A health club would be overrun if all of its members exercised regularly, but since most of us have better intentions than discipline for exercise, gym attendance drops dramatically as New Year's resolutions are broken. And if you never get around to canceling that membership, the result is a "free" income stream for the health club. Gym rats get their money's worth from their memberships, the rest of us are paying for something that we don't use.
Of course, if you think about it, this principle applies to pretty much any business that offers an unlimited commodity or service for a fixed price: Lose money on a few customers and make it back (and more) with the rest. An all-you-can-eat restaurant can tolerate a few gluttons because of most of the dining crowd isn't so ravenous. Similarly, a healthy majority subsidizes the seriously ill within a health insurance plan.
With online music subscriptions, there's no worry that subscribers will overrun a physical location (for the sake of argument let's assume that server capacity is unlimited) and "running out" of downloads obviously isn't an issue. But there is an unavoidable limiting factor -- the fees the service must pay record companies and distributors for each song downloaded or streamed. Here are the details for Rhapsody Unlimited and eMusic, based on the actual per-song payouts that I've seen:
Rhapsody Unlimited allows subscribers unlimited listening to all of the tracks in its catalog for $9.99 a month. From that subscription fee, record companies and distributors are paid one cent for every song streamed. While $9.99 would cover 999 songs a month (ignoring all other business expenses for Rhapsody), a subscriber can easily exceed that number. Assuming an average song length of 4 minutes, you can listen to 15 songs in an hour. It'd take a whopping 67 hours of listening time each month to hear 999 tracks, but that averages out to just over two hours and 15 minutes a day. Factoring in other costs (servers, salaries, marketing, etc.), any customer who regularly listens for an hour or two daily is probably a net loss for Rhapsody.
With eMusic, it's all downloads, not streams. There are three subscription plans, starting at $9.99 a month. Technically, eMusic has a revenue sharing model where a percentage of its subscription revenue paid back to the record companies and distributors. But the revenue share dollars are translated into a per-track royalty each month when paying the record companies. (I'm assuming the revenue sharing amount is simply divided by the total number of downloads for the month.) Due to reporting lag, I only have data for one month of our sales via eMusic. For May 2005, it was 24 cents a track.
Because "royalties" are a fixed percentage of revenue for eMusic, it doesn't really matter how many tracks subscribers download each month. But it is interesting to see that how the royalty-per-track paid for a specific month compares to the subscription prices:
eMusic royalty costs per subscriber, May 2005
| Subscription Plan | Downloads per Month | Maximum payout to record companies |
| $9.99 | 40 | $9.60 |
| $14.99 | 65 | $15.60 |
| $19.99 | 90 | $21.60 |
In this interview, CEO David Pakman says that eMusic subscribers are currently averaging 31 downloads a month. Using the 24-cent-per-track royalty rate from May, that would translate into a revenue sharing amount in excess of 70% of the base subscription price. Given other expenses -- including what appear to be massive customer acquisition costs as eMusic pays its web affiliates a $6 bounty for every new trial user they deliver -- it seems likely that eMusic's current profit margin is razor thin, at best.
I'm wondering if such numbers are the reason behind Apple/Steve Jobs's reluctance to offer a music subscription service. From what I've read, Apple doesn't make much (if any) money on the downloads sold at iTunes, though the service does help Apple sell gazillions of very profitable iPods. But given the devotion of iPod/iTunes customers, maybe Jobs figures they're all a bunch of gym rats that would stream tracks all day with an iTunes subscription service, putting a major dent in Apple's bottom line.
(Note: some changes were made to the eMusic section on 1/17/2006, after I confirmed that eMusic did in fact have a revenue sharing model. Which means that the health club comparison really doesn't hold for eMusic, though I'm still amazed about the percentage of its subscription revenues that eMusic pays to the record companies.)
Labels: Apple, eMusic, health club model, music subscriptions, Rhapsody
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The Digital Pricing Conundrum series:
Part One Part Two Part Three Part Four
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