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 06, 2012

Buy It, Cherry Pick It, Stream It, or Steal It?
by David Harrell

Randall Roberts's review of the new Van Halen album in the L.A. Times does a great job of summing up the choices today's music listeners have:

Now the dilemma isn't just, should you spend money on the CD ($14.99 list price) or a digital copy (also -- frustratingly -- $14.99). It's also, how much are you willing to commit to buying in? Will a few dropped bucks on a handful of the best individual tracks suffice? Or will "A Different Kind of Truth" be the perfect Spotify streaming album, not good enough to pay hard money for but worth a mouse-click when you've got a spare few minutes? Or should you just ask your computery friend to Sendspace you a pirated copy?

I'm still working on my in-depth post on Spotify economics, but the above description of Spotify being a "good enough" option for some albums will be a central component.

Labels: cherry picking, music economics, Spotify, Van Halen

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February 16, 2006

iTunes Steals Music's Soul
by David Harrell

iTunes Steals Music's Soul?
That's the opinion of Tony Brummel of Victory Records, as he explains why Victory releases won't be showing up in iTunes. He's pissed that the Apple won't negotiate with the labels individually, but he's also upset about the death of the album. Here's Tony's guest editorial in Hits Daily Double (registration required):

I absolutely believe that allowing people to cherry-pick the tracks they want from each album cannibalizes full-length album sales and is ultimately detrimental to the artists who created the music...

It is important for people to experience the entire album. Not just a track(s). The artist went into the studio and created a body of work. If you were buying a painting from Picasso, would you have said, "Look Pablo. I like this painting man. But I only like that corner part with the tree and the guy's finger. How about you chop off that corner and I give you $1 instead of $10 for the painting? Is that cool? I really do not care about the rest of what you were trying to convey in that piece of work." The artwork, the lyrics, the sequencing of the album typically tell a very important story. It is a work of art! If people are being conditioned to not listen to albums in this way, they are nullifying the entire musical experience...at least in our genre as a rock label...

iTunes makes music disposable. It makes it a faceless impulse item. It steals its soul...

Bob Lefsetz responds in this post (and also paints an unflatteringly portrait of Brummel as a businessman). I think Brummel's dead wrong in his refusal to license albums to iTunes -- it's not as if the tracks aren't available for free on the file-sharing services anyway! He might not like the Apple contract, but why shoot yourself in the foot? I wonder how many (any?) of the artists signed to Victory agree with him on this issue.

Still, I have some sympathy for his lament about the death of the album listening experience. When taping albums as a teenager (you know, back when I was killing the music industry), I'd actually feel guilty whenever I deliberately skipped a track, that the resulting taped version wasn't true to the artist's intent.

Today, my iPod has pretty much destroyed my listening patience. It's gone far beyond not listening to full albums -- I get antsy halfway through a song and start scrolling around to decide on the next track. But it's unfair to blame the iPod for all of this -- the old album listening experience died with the introduction of the CD player with its next/skip button and the ability to "program" the disc. (And what about MTV, mix tapes, random songs on the radio, compilation albums, and a couple dozen mp3 downloads on the Victory website. Does Brummel have a problem with all of them as well?)

Here's some unsolicited advice for Tony: License your albums to iTunes, but only as one big, album-length track selling for $9.99. No more cherry picking and the album sequence is set in stone. Problem solved!

Labels: Bob Lefsetz, cherry picking, iTunes, Tony Brummel

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February 03, 2006

Odds and Ends
by David Harrell

At the end of Wednesday's post (The Digital Pricing Conundrum, Part III), I wished for more specific numbers on single vs. album sales for downloads and other data breakdowns. Guess I should've looked a bit harder, but a couple of the stats I was looking for turned up in this piece from yesterday's NY Times: "When All the 'Greatest Hits' Are Too Many to Download."

According to the article, more than 350 million single song downloads were sold last year, along with 16.2 million "full album" downloads. Based on the $9.99 iTunes album price, that translates into 68/32 split between singles and albums, in terms of raw sales dollars. (This Forbes story pegs the song download number as 352.7 million, but with no specific mention of full-album downloads.)

Several industry folks are quoted, reiterating the fear that consumers are simply "cherry picking" songs from albums:

"There are lots of newbies out there, people who don't know of any of these bands, and they could easily buy one song," said David Dorn, senior vice president of new-media strategy at Rhino. "What keeps me up at night is, how do I get you to see that, with the Ramones, you shouldn't just buy 'Blitzkrieg Bop' and be done with it?"

Is there any way to quantify whether or not a single song sale translates into a "lost" album sale? Plenty of them probably do. But I think there's something else happening here. I'd bet -- for older material, at least -- that a fair portion of single song sales are simply "convenience" purchases of single downloads of songs already owned on CD.

That is, some consumers might prefer to pay 99 cents to avoid the hassle of ripping just one song from a CD they already own. In theory, it's easy to just pop a CD into iTunes and rip it to mp3, but I can't rip from iTunes on my PC (just won't work) and have to use another program, which requires me to type in all of the song information. It only takes a few seconds, but there is a hassle factor, especially if you're trying to create a mix or playlist of songs from different albums. I've never counted, but my best guess is that my wife and I have a combined CD collection of nearly 1,000 discs. Whenever I look at three bookcases filled with CDs, the thought of transferring all of them to mp3 is truly overwhelming. There are at least a couple hundred of those discs that I'd be happy to chuck as long as I had a digital copy of one favorite track. But there's no way I'm paying $9.99 for digital files of the entire disc...

Wednesday's post also made a passing reference to "loss leader" CD sales at Best Buy. Right after I posted, I found some great links via Largehearted Boy. Patrick Monaghan of Carrot Top Distribution posted several pieces at the Saki Store blog about Best Buy selling indie releases as loss leaders. Mac MacCaughan at Merge (label founder and musician -- Superchunk and Portastatic) responds in this long thread.

Labels: cannibalization, cherry picking, loss leader

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February 01, 2006

The Digital Pricing Conundrum Part III: A New Idea for Variable Pricing
by David Harrell

The advent of online sales of individual songs has created a slew of pricing issues and contradictions -- discrepancies based on song length, the number of songs on an album, etc. (see Part I of this series). Yet any pricing solutions based on track length or popularity appear to be inherently flawed (Part II). And the issue getting the most attention these days is that the major labels are chafing over the single price for all individual song downloads. They're pushing for variable pricing that would allow them to charge more for new albums and individual songs and (perhaps) less for older catalog material.

With the caveat that the $9.99 album price at iTunes is already too expensive relative to the CD price (personally, I think the prices at eMusic are just about perfect for digital downloads), in many ways, this makes sense. As Glenn pointed out in a comment to Part II of this series, the costs to labels and artists vary greatly with each album. On new releases, artists/labels might be trying to recoup hundreds of thousands of dollars of recording and promotional costs. Older releases, on the other hand, might have been profitable for decades, so any additional revenue is pure gravy. Plus, that's how music is already priced on CD. Head over to your local retailer and you're likely to pay top dollar for the new Madonna album, while you can pick up tons of older CDs for well under $10. (That is, if you pay list price, as opposed to buying a new release as a loss-leader special at Best Buy...)

I think it's likely that the major labels will eventually convince Apple to allow a premium price for new releases, both for individual tracks and entire album purchases. If Apple agrees, premium pricing will -- of course -- spread to the other online stores. But here's an idea for a twist to the variable strategy, one that might be better for all involved parties -- labels, artists, iTunes, and consumers -- than a simple price increase for all new material:

Allow variable pricing for individual songs based on purchase order. That is, charge more for the first track a customer downloads from an album, but then charge that customer less for additional downloads from that same album.

If, as far as the major labels are concerned, the "cherry picking" of individual songs is the evil downside to online digital sales, then, in exchange for a higher profits on the first song or two purchased, they might be persuaded to accept lower profits on further purchases from that album, along with a different pricing structure for older albums. Here's how it could work:

For new releases, maintain the current $9.99 price for the entire album. From what I've read, the major labels don't seem to have a problem with entire albums being sold at that price, it's the individual sales that irk them. A "premium price" would be charged for the first two downloads from an album, but all subsequent single song purchases would be at a reduced rate.

New releases

Purchase entire album for $9.99, or
First song	$1.49
Second song	$1.39
Any additional songs	$0.89

Then, for older albums, keep the current 99-cent price for the first song, but make subsequent downloads cheaper:

"Mid line" albums

Purchase entire album for $7.99, or
First song	$0.99
Second song	$0.89
Any additional songs	$0.79

"Budget" albums

Purchase entire album for $4.99, or
First song	$0.99
Any additional songs	$0.49

For labels and artists, the increased revenue from the premium sales could be substantial. Currently, Apple keeps 29 cents of a 99-cent individual song download, with the remaining 70 cents going to the label, which then pays royalties to artists, songwriters, producers, etc. If Apple can be persuaded to maintain its 29-cent cut, a label's take for a $1.49 song sale jumps from 70 cents to $1.20, a 71% increase! And a $1.39 sale would result in a 57% increase for the label. Plus, even with the discount pricing for older albums, the labels would receive their current cut for the first song anyone downloads.

Charging the premium price on the first songs an individual buys is also a better bet for the label than trying to set a higher price for the "hits." For new releases, there's no way to predict which songs will be popular. And for catalog material, you could charge the premium price for the historically popular tracks, but that's looking at popularity in aggregate. Part II of this series noted that the least popular song on the Police's "Synchronicity" album was "Mother," the track by guitarist Andy Summers. While more people will want to download "Every Breath You Take," some Police fans are no doubt sick of hearing that song on the radio, but still listen to other tunes from the disc. For those individuals, "Mother" might very well be their first download choice from "Synchronicity." This plan allows the labels to get more for EVERY customer's favorites, not just the most popular tracks.

So how do these premium prices benefit customers? They don't, if you never buy more than a couple of tracks from newer albums. Even so, paying extra for the first two downloads from an album is certainly preferable to a unilateral price increase for ALL the tracks on new albums and entire album purchases.

But individual customers would come out ahead if this plan results in a lower average download price for all of the songs they purchase. And even if the average price for ALL download sales drops below 99 cents, labels and artists still come out ahead if the increase in download volume leads to greater total sales. Dropping prices for subsequent downloads gives customers an incentive to dig deeper into albums, and might give labels sales they'd never see otherwise.

Granted, the prices above fall apart for albums of less than 10 tracks. And the suggested premium rates are somewhat dependent on Apple and the other online retailers not demanding a larger dollar cut of the premium priced downloads. Given that Apple's real incentive is to sell more iPods, it might be content to keep 29 cents out of a $1.49 sale, other online retailers might want a larger chunk. If the premium price approaches $2, it might be enough to cause a consumer backlash. The number of legal downloads is still far less than the traffic on file sharing networks. The last thing the industry should do right now is push single-song download prices to a point that drives their current customer base away.

I wish I had some hard data on actual purchase patterns -- how many songs the average iTunes customer purchases, single songs vs. album purchases, purchase of "new" songs vs. buying digital replacement copies of tracks already on album or CD, etc. With such numbers, a more solid case might be made for this idea. But even without that information, I'm guessing that this type of pricing strategy would be better embraced by customers than an across-the-board rate hike for new albums while at the same time alleviating the labels' concerns over the cherry picking effect.

Comments are open -- please let me know what you think!

Labels: cherry picking, digital music pricing, eMusic, iTunes, variable pricing

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January 26, 2006

The Digital Pricing Conundrum Part II: The 99 Cent Barrier and Popularity-Based Pricing
by David Harrell

If you're the type to read this blog, then you already know that the major labels are grousing in a major way about the 99 cent download price established by iTunes. While Apple has shown some flexibility on pricing, going both above and below the $9.99 mark for an entire album, Steve Jobs is thus far holding firm on the 99 cent price for individual downloads.

The labels' beef is that while all of those downloads over the past year were great for the bottom line, they also represent millions in lost potential revenue. Their basic argument has two components: First, by making every track from an album available as a single, "full album" sales are cannibalized. A portion of those 99-cent "single" sales would have been $9.99 full album sales, if that had been the only way to obtain the track in question. Second, if consumers are purchasing one or two individual tracks in lieu of a $9.99 album, then they're probably willing to a pay a bit more than 99 cents. After all, even at $1.99 per track, it's still a bargain if you really only want one song from an album.

As a music fan, I'm obviously not sympathetic to any effort to raise prices for downloads. And I don't necessarily buy the argument that a ton of single song downloads from an album means that, faced with no other choice, enough of those buyers would have bought the whole album to surpass the profits from the single sales.

Still, I'll concede one point to the major labels: Equal pricing for all individual tracks ignores the reality that different songs have varying levels of value to consumers. That value can fluctuate based both on the artist in question (a new track by 50 Cent is worth more in the marketplace than an old Foghat song) and within the context of an album or an artist's total recorded output. That is, many casual fans care more about the "hit" song on album than its less popular tracks.

Obviously, the second point is a new reality, created by the advent of digital downloads. Music fans had favorite album tracks in the past, but the concept of relative value was irrelevant -- unless a song was available as a single, your only legit option was to buy the whole album. That's not the case anymore.

Is there a way to fairly price downloads that accounts for varying perceived value and is also acceptable to music consumers? I suspect the labels' preferred method would be to simply jack up the album/song price for newer releases. Say $14.99 for the album and $1.49 for individual tracks for new releases, and keep the $9.99/99 cent model for older catalog material. This approach is certainly logical and analogous to current CD pricing, where the list price for new major label releases can be double that of older catalog albums.

But such a change would result in prices for album downloads that would equal or even exceed that of physical CDs. Is this a feasible strategy? Last week, in an excellent column in the Chicago Reader about the possible end of the 99-cent download, Douglas Wolk made the case that at least some consumers are willing to pay a premium for the convenience of downloading digital music:

If it costs a few dollars more to buy an Eminem album as a set of protected, nontransferable files with no artwork and no liner notes from iTunes than it does to go to a record store and buy a higher-fidelity physical copy that you can sell later if you don't like it, are you crazy to go for the iTunes version? Not if it's worth it to you to get it instantly, without the hassle of driving to the store or waiting for Amazon to deliver your package.

(Here's the link to the story, with the warning that it's a large PDF file that takes a long time to load.) Convenience is clearly a factor in digital sales, even beyond the hassle of schlepping to a record store or waiting for an Amazon order. Back in 2003, 12:51, the first single from the second Strokes album made the top 10 chart at iTunes, despite the fact that a high-quality mp3 of the song was available (and can still be found) at the band's website. And I've downloaded tracks from eMusic that I already own on CD, just to save the bother of ripping a specific song to mp3.

For now, though, let's assume that any large-scale increases above the $9.99 album price would be unacceptable to the overall buying public. Without a change in the album price, is there a logical way to price individual songs?

Last week, in Part I in this series, one proposal floated for getting around the issues associated with varying song lengths was to simply price each track based on its portion of the overall album length. However,that idea is fundamentally flawed because no one equates song length with song quality, it's an issue that only comes up in the context of pricing downloads.

Consider "Revolution 9" from the Beatles' "White Album." At eight minutes and 13 seconds it's by far the longest song on the album. But if the Beatles' catalog ever makes it online, I doubt anyone would see the logic in charging more than twice the price of "Blackbird" for one of the least popular tracks on the album.

So how about using track popularity to establish market prices for each of the songs on an album? Back in December, Slate ran an article that proposed treating song downloads as a commodities and basing the price on the relative demand for each. At the time, I thought this was a rather asinine idea, given -- as pointed out by many readers of the story -- that by definition a commodity is something available only in a limited quantity.

But a modified version of this idea might be worth exploring. Instead of the Slate approach, which would price a song based on its popularity among all songs in the marketplace, this method would base price on popularity within the context of an album.

Let's take a look at a specific example, Synchronicity, the final studio album by the Police, released in 1983. According to Last.fm, the online music community and listener-tracking site, 68,247 members have listened to the Police recently and tracks from Synchronicity have been spun 44,624 times. (No doubt a very small percentage of total listeners worldwide, but it's probably safe to assume that their collective listening habits mirror the total audience for the band.) As you might guess, the hit single "Every Breath You Take" is the most-listened to song on the album, accounting for 14,281 recent listens by Last.fm members. And "Mother," guitarist Andy Summer's sole songwriting contribution to the disc is the least popular with just 1,154 listens (sorry, Andy).

Multiply $9.99 by each song's percentage of total plays for all of the songs on the album and you get a price list that looks like this:

Synchronicity, the Police, Priced By Listening Habits

Song	Price $
Every Breath You Take	3.20
King of Pain	1.67
Wrapped Around Your Finger	1.41
Synchronicity II	0.90
Tea in the Sahara	0.80
Synchronicity I	0.41
Murder by Numbers	0.35
Walking in Your Footsteps	0.35
O My God	0.33
Miss Gradenko	0.32
Mother	0.26

Based on Last.fm listening statistics as of 1/26/2006

This isn't going to work. The first big problem is that the $3.20 price for "Every Breath You Take" would be unpalatable to consumers (and very likely to drive customers who would've paid 99 cents for the song straight to a file-sharing service). Also, it exceeds any price the major labels would consider for a single-song download. And for a band that was truly a one hit wonder, a single song might account for even a larger portion of the $9.99 album price. Then you have the potential problem of unpopular tracks being priced below the statutory mechanical royalty rate.

Clearly, a straight-line popularity pricing strategy isn't the answer. You might instead start with a minimum track price and adjust upward based on track popularity, or perhaps set a maximum price for the most popular track, say $1.99, and work your way down to price the remaining tracks.

Yet even with such modifications, there's another issue, a band might release a song on several albums -- on the original album, as part of a greatest hits collection, etc. While "Every Breath You Take" accounts for around 32% of the tracks plays of the Synchronicity album, in the context of the Police's greatest hits CD, it accounts for fewer spins. Popularity would have to be considered in the context of a band's entire catalog. The problem is, overall song popularity changes over time and very suddenly whenever a band releases a new album.

Finally, how could this method work for new releases? A record label might choose the "singles" from a new album before its release date, but there's no way to accurately predict which songs fans will, on average, listen to the most.

So I'm nixing song popularity as the basis for individual track pricing. Stay tuned for Part III of this series and a proposed pricing plan that would maintain the $9.99 album price, give the labels more money for the most popular tracks, yet still keep music fans happy.

Labels: cannibalization, cherry picking, digital music pricing, iTunes

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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