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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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October 19, 2015
Confirmed: Apple Music is Paying Two Tenths of a Cent for Streams by Trial Subscribersby David Harrell
After this summer's backlash over Apple's plan to NOT pay royalties for Apple Music streams by trial subscribers, the company announced it would pay a per-stream royalty of 0.2 cents for such plays.
Our first Apple Music royalties just appeared in our CD Baby account and I can confirm that, for the month of August, Apple paid a per-stream royalty of exactly 0.2 cents. No indication yet on what we'll receive for streams by paying subscribers.
Labels: Apple Music, iTunes, streaming royalties
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September 18, 2014
Punching U2's Gift Horse in the Mouthby David Harrell
Zack Huggins/Flickr
Andrew Sullivan has a good roundup of opinions on U2's "junk mail" (to quote Bono) distribution strategy. It links to a post from Marco Arment, who wonders why U2/Apple just didn't go with an opt-in strategy, instead of the opt-out approach that was used.
However, U2 and Apple actually did that back in February, with a 24-hour free iTunes giveaway of the song Invisible, which resulted in more than 3 million downloaded tracks. My guess is that the band already had a decent idea of how many downloads might result from an opt-in strategy and wanted to go bigger.
There's no going back on that decision, as the mandatory gift horse is already out of the barn. So we're left with the following question: Was this a better strategy, in terms of money and listeners, for U2 than a standard album release?
According to Wikipedia, the band's last album, No Line on the Horizon, sold more than five million copies worldwide. An impressive number, but it's less than each of their three previous albums. We don't know how much U2 and its label received in payment from Apple, but solely from an attention standpoint, it seems safe to assume that Songs of Innocence is receiving a wider listening audience. (And Billboard's Glenn Peoples notes that the band's back catalog is getting a boost as well.) Though given the backlash, it also seems safe to assume this will be the last time the approach is used.
One final thought: Given my age/demographic it seems impossible, but a large proportion of the complaint Tweets about the album listed here are from people who apparently were previously unaware of U2! link 0 comments e-mail listen to the Layaways on Spotify
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September 09, 2014
U2: It's Free for You, But We Got Paidby David Harrell
In a post on the band's website, Bono makes it clear that the free album is a giveaway from Apple, not U2:
It's also free to everyone on iTunes thanks to Apple. To celebrate the ten year anniversary of our iPod commercial, they bought it as a gift to give to all their music customers. Free, but paid for. Because if no-one's paying anything for it, we’re not sure "free" music is really that free. It usually comes at a cost to the art form and the artist...which has big implications, not for us in U2, but for future musicians and their music...all the songs that have yet to be written by the talents of the future...who need to make a living to write them.So did U2 (and Island Records) receive a flat fee for distribution of the album to more than 500 million iTunes customers, or is Apple paying a per-download amount, based on the number of iTunes customers who actually receive the album? Either way, with cash reserves of more than $160 billion (as of June), Apple can certainly afford it.
Update: According to this NY Times story, it was a flat fee:
To release U2's album free, Apple paid the band and Universal an unspecified fee as a blanket royalty and committed to a marketing campaign for the band worth up to $100 million, according to several people briefed on the deal.link 0 comments e-mail listen to the Layaways on Spotify
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December 06, 2012
Thursday Odds and Ends: Apple Goes to 11by David Harrell
Walt Mossberg of the WSJ likes the new iTunes:
I've been testing this major new version, called iTunes 11, and I consider it a significant improvement in the look, feel, speed and function of the program, which had become somewhat bloated, sluggish and dense over the years as new features were added.But Slate's Farhad Manjoo isn't a fan of the new version, or iTunes in general:
Is the new iTunes any better? Not markedly, to my eye. I've been using it for a few hours now. Naturally, the interface has been completely redesigned, though it's too early for me to tell whether the new version is better or just different. Now, instead of a pane of options on the left side, you click between functions using buttons and menus on the top. Is this a genuine improvement, or just a face-lift masking the rot beneath? I suspect the latter: While some parts of iTunes move a little bit faster (the iOS app management screen, for example, used to be unusably slow; now it's OK) most of it still feels lumbering.Also from Slate, some advice on gift wrapping digital books that could also apply to digital music. Suggestion six seems like a really bad idea.
And in the latest issue of TapeOp magazine, Jeff Lynne says he recorded an album note-for-note ELO remakes because "...there was something I didn't quite get right about the sound of them in those days." But this reviewer hits on something else that probably factored into the decision -- it gives Lynne a new set of master recordings (that he, not his original label, owns) for licensing purposes. I can't fault him (or any musician) for taking steps to maximize earnings from a back catalog, though acts like Squeeze have been more upfront about this particular practice. Glenn Tilbrook explains the motivation for the band's re-make album from 2010:
"Originally, it wasn't going to be an album," says Tilbrook, 52. "It was going to be a series of rerecordings that we could offer to movie and ad people as an alternative to the original versions. But the closer we got to the end of it, the more I realized that we put a big amount of effort into it, and it stood up on its own, as a record."link 0 comments e-mail listen to the Layaways on Spotify
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June 07, 2012
Match Game 2012: First Artist Payments from iTunes Matchby David Harrell
Compensation for labels and musicians for music sales from Apple's iTunes store is straightforward: Apple takes a 30% cut and passes the remaining 70% to the label or digital distributer. For Apple's iTunes Match service, compensation is a little more complicated. There's the same 70/30 split, as Apple shares 70% of the $24.99 annual subscription fee, but the per-track payout is variable, as explained in the FAQs of digital distributor CD Baby:
iTunes will issue payment for every play that takes place through iTunes Match. The per-play rate varies based on subscription revenue, exchange rates, and total number of plays. Pay rates should look similar to streaming services such as Spotify.Over the past week, our first iTunes Match payouts showed up in our CD Baby account. For November 2011, we received .012767 cents per play (before CD Baby's 9% commission). For December 2011, we received considerably more: .12083 cents per play, before commission. That positive trend continued with per-play payments of .20231 cents for January 2012 and .25946 cents for February. UPDATE 6/8/2012: The above numbers are all for "iTunes Match - Americas." Some payments for iTunes Match - UK were just added to our CD Baby account. For February 2012, we received .13723 cents per play.
The best explanation I can think of for the increasing payout amounts is that iTunes Match keeps adding new subscribers who are making minimal use of the service to stream their tracks using different devices. That is, if an individual iTunes Match subscriber only listens to music on the device where her music was originally stored, no income is generated for labels and artists, thereby increasing the payout rate for tracks played by other subscribers.
As for the Spotify comparison, keep in mind that Spotify rates also vary, based on the subscriber's plan (free or one of two premium options), prices for different regions, and exchange rates. Last year, I posted that we had received per-play payouts ranging from a low of .02056 cents to a high of 1.1456 cents, with an average of .2865 cents. Since then, our average Spotify payment has increased to .41792 cents per play, so the current trend will have to continue for iTunes Match payouts to approach the average Spotify rate.
In theory, however, payouts from iTunes Match are a truly supplemental income stream, as unlike Spotify, there isn't the possibility of cannibalizing music sales with lower-paying streams. If iTunes Match becomes a popular service, it will provide some sort of an additional income stream to large labels, though how much of that revenue will make its way to the biggest artists is another question, as it is with the payouts from Spotify and other streaming services. But for smaller acts and labels, it's less likely that iTunes Match will be a significant source of new income.
Labels: Apple, iTunes, iTunes Match, Spotify
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May 15, 2012
Tuesday Odds and Ends: Long Tail Content, Occupy This Albumby David Harrell
As noted in a comment by Glenn Peoples, the 90% figure is too high. Still, this analysis by Mark Mulligan suggests that a huge percentage of the iTunes catalog is made up of cover/tribute songs:
...I looked at the available tracks on iTunes for 10, randomly selected, top tier artists (see figure). The startling key takeaway is that on average just 10% of the tracks listed for an artist is actually music by that artist. And bear in mind that many of those tracks are duplicates. The average U2 song for example, is listed multiple times ranging from original albums, remastered albums, EPs, greatest hits, compilations etc.Over at the Atlantic, Alexis Madrigal looks at Shutterstock. It's another example of how "Long Tail" content can be lucrative to firms that aggregate and sell it, though generally not for the individual content creators:
It's an interesting game that Shutterstock is playing. Individual customers pay an average of about $3 per image. That's dirt cheap, but they make up for it on volume, bringing in $120 million of revenue in 2011. On the producer side, my read of their SEC filing is that they paid out $39.3 million in royalties to 35,000 contributors. So the mean contributor is making something like $1,100 a year by posting their work on the site. (I don't know exactly what the distribution looks like; we only know that no entity received more than 10 percent of the royalties paid out.)David Lowery, of Camper Van Beethoven and Cracker, is blogging about music economics and artists rights at the Trichordist. The full version of his "Meet the New Boss, Worse Than the Old Boss?" presentation is here.
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Labels: iTunes, Long Tail, Occupy This Album
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November 10, 2011
Thursday Odds and Ends: CD Baby Pushes for Direct Digital Salesby David Harrell
CD Baby has lowered its commission for direct-sold mp3s and is encouraging musicians to direct their fans to the CD Baby website for download sales. From an e-mail that went out today:
On every digital purchase (single song or album) made from CDBaby.com, you'll get paid 75% of the selling price. That means for a single-song download priced at $0.99, CD Baby has lowered our cut, so you'll now make $0.74 per song.For comparison purposes, iTunes pays out 70 cents on a 99-cent download. CD Baby artists pay a 9% commission for digital sales, leaving them with a 63.7 cent payout for the download. The math is even better for CD Baby when it sells downloads directly, as opposed to collecting a cut on sales via iTunes or other digital stores. A 25% cut of 99-cents is almost four times the 9% commission on 70 cents, though in this case CD Baby also has to pay any credit card transaction fees.
Amazon's decision to discontinue its affiliate program in California has put the hurt on one of my favorite Internet radio stations, SomaFM:
SomaFM was quite dependent on the commissions from this affiliate program, and we are disappointed at the way Amazon and the State of California have handled this situation. Once again, it's the little businesses that get hurt.Jeremy at Fingertips has an essay on social music that's worth a read.
And while sampling is considered a valid creative technique for creating music, that's not the case for spy novels:
"Entire sequences are from other novels," said Mr. Duns. "He didn't even bother to rework anything. It must be the worst case of plagiarism I've ever seen. How did he think he'd get away with this? He fooled me, but others were bound to notice eventually--as they did."
Labels: CD Baby, iTunes, sampling, social music, SomaFM
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June 17, 2010
C'est Lala Vieby David Harrell
It's been two and a half weeks since Apple shuttered Lala.com and it's not an exaggeration to say that I miss the site every day. The "hear any song once for free" model was just about perfect. I'd stream albums while reading music reviews at Pitchfork, listen to tracks before deciding how to spend my monthly allotment of eMusic downloads, and it was always the first place I'd go to listen to a new (or old) album that I read about it. There are, of course, other options for streaming music online, but everything I tried in the past was inferior to the Lala experience. I had no luck with my Napster subscription (just couldn't get the music player to work on my PC), though I suppose I should try a Rhapsody or MOG subscription.
The question now is how much of Lala's functionality will Apple incorporate into iTunes. While much of the recent speculation has been about the cloud/digital locker feature, a digital locker functionality seems unlikely. Unless Apple follows the Google approach of pulling data from users' hard drives, the major label groups are likely to balk at cloud-based iTunes libraries. (See EMI's long-term harassment of Michael Robertson over digital lockers.) But what I'd most like to see in iTunes is some sort of music streaming capability, if only the "one-time free stream" option that Lala provided.
Historically, the economics have been challenging for streaming services. For paid subscription services, which can offer reasonable compensation (around one cent) to labels for each stream, the difficulty has been growing their subscriber bases. While millions of U.S. households are willing to pay for $30 or more each month for cable/satellite service, only a tiny percentage of the country appears to be willing to spend a smaller amount for music access. And the problem with free, ad-supported streams is that ad rates simply aren't high enough to allow the streaming services to offer reasonable payments to labels for each stream, let alone generate enough profit to support and grow the company. (See this recent post on Spotify payouts.)
Apple, however, should it choose to offer some sort of free streams via iTunes, has one major advantage over any other streaming music provider: It doesn't have to make money from it. Apple has famously claimed that it essentially breaks even on music sales from the iTunes store. Yet given how many high-margin iPods and iPhones Apples sells, it could even stand to lose money on iTunes music sales, provided that they encourage the purchase of Apple hardware. Ditto for free streams.
The numbers here are a little different, of course, as a one cent or 1/2 cent payout per stream means each song played is a net negative for Apple. But if a Lala-style "stream any song once" option encouraged additional iTunes music sales or iPod purchases, it could make sense for Apple.
Thank you to my friend Jeff Kelley for the title post!
Labels: Apple, iTunes, Lala.com, music streaming
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December 20, 2007
David Byrne Disses iTunes?by David Harrell
Former Talking Head David Byrne is a smart guy, but I'm a little perplexed by his take on iTunes in his Wired piece on Survival Strategies for Emerging Artists -- and Megastars, where he lists six music distribution models.
The only mention of iTunes is a somewhat negative one, with iTunes in context of a standard record deal. This large graphic shows that artists can make less from an iTunes album sale that from a physical CD.
That's certainly the case for a standard record deal. The same royalty rate applied to a record company's share of an iTunes album transaction (approximately $7.00 for a $9.99 album) results in less revenue for the artist than from the sale of CD with a higher list price.
But when Byrne gets to the business model at the end of his list -- the totally self-released model -- he makes no mention of iTunes as sales outlet, even though an iTunes sale for a self-released artist is fairly lucrative. A $9.99 iTunes sale for an artist distributed by CD Baby results in a payment of $6.37 and -- in an exchange for a small annual maintenance fee -- artists distributed by TuneCore can make approximately seven bucks for each sale.
For the self-distribution model, Byrne only writes about selling CDs at gigs and online, and downloads from your own website. Could it be that decreased royalties from iTunes sales of Talking Heads albums have simply soured him on the iTunes store, even for non-traditional models?
Labels: David Byrne, iTunes, self-released musicians
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January 11, 2007
Gift Card Economicsby David Harrell
Over the holidays, I noticed that Target was selling $30 iTunes gift cards for $25, which would bring your single-song download price to less than 84 cents. But the discounted cards probably aren't a loss leader for Target -- Apple will discount song codes if you purchase at least 100,000 songs and I'm assuming it offers a similar price break gift cards for retailers.
I can't seem to find any public information on the actual discount amount, though Apple can only go so low before it loses money on the transaction, as it pays approximately 70 cents to labels/artists for each single song download. But that's assuming the gift cards are actually used in full, which often isn't the case. According to this NY Times piece by Stephen Dubner and Steven Levitt, there's a breakage rate -- on average -- of at least 10%:
As for gift cards -- well, let's just say there is good reason that they are known within the retail industry as a stored-value product: they store their value very well, and often permanently. The financial-services research firm TowerGroup estimates that of the $80 billion spent on gift cards in 2006, roughly $8 billion will never be redeemed -- "a bigger impact on consumers," Tower notes, "than the combined total of both debit- and credit-card fraud." A survey by Marketing Workshop Inc. found that only 30 percent of recipients use a gift card within a month of receiving it, while Consumer Reports estimates that 19 percent of the people who received a gift card in 2005 never used it.So even if Apple offers a large discount to retailers on gift cards, it might come out ahead on the average download "price." As noted in this post from last year, Napster has begun to realize the revenue from such digital breakage.
Labels: Apple, digital breakage, gift card economics, gift cards, iTunes
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February 16, 2006
iTunes Steals Music's Soulby 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...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.
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...
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 01, 2006
The Digital Pricing Conundrum Part III: A New Idea for Variable Pricingby 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 Pricingby 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 |
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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January 19, 2006
The Digital Pricing Conundrum Part 1: Song Length and the Number of Tracksby David Harrell
In the late 1990s, I worked a regular Saturday shift at a Chicago record store. The pay was negligible, but I received an employee discount and had a first crack at all of the used CDs that came in. Plus, in those dark days before mp3 blogs and Internet radio, it was the best way to sample new music.
There was a staff of three on Saturdays and we'd "rotate picks" to choose the discs for in-store play. My two co-workers often opted for rap and hip-hip and I usually spun indie rock. I paid a price for that stylistic choice: Most of my CD selections had about 45 minutes of music while my co-workers' picks, with longer songs and more of them, often lasted 70+ minutes. My nominal 1/3 control of the store's stereo was sabotaged by the average track length and number of tracks of our respective CD picks.
Today, track length and the number of tracks on an album are both resulting in some major pricing discrepancies within (and between) online music stores. Let's start with iTunes, which uses a default album price of $9.99. A single slice of that pie costs 99 cents. The trouble is -- if albums are pies -- they come in different sizes and the number of slices varies with each one. As the following examples will show, it can create some real chaos. (This model, with some variations in base track/album prices, pretty much holds for the bulk of the online stores. Apple does deviate from the $9.99 album price on occasion, but not the 99 cent track price.)
Then there's the eMusic subscription model, where you pay for a set number of downloads each month. I've got the 40 for $9.99 plan, which works out to 25 cents per track, assuming you use all of your downloads. The issue here is that all downloads count equally against your monthly allotment, be they 30- second mini-songs or 20-minute opuses.
A great example of digital pricing confusion is this recent pick of mine from eMusic: McLemore Avenue by Booker T. and The M.G.'s. The 1970 release covers most of the Beatles' Abbey Road and the album artwork even features the M.G.'s crossing the street outside the Stax recording studio, just like the famed Abbey Road photo. On eMusic, it's a major bargain, as most of the songs segue into each other, so it counts as only four downloads against your monthly subscription, for a net cost of around $1. Over at iTunes, that same album costs $9.99, but how can you then charge 99 cents for the four tracks? You can't, so iTunes lets you buy the two shorter ones for 99 cents each and makes the other two "album only." And things get really goofy over at the MSN store, where the longest track on this album is priced at $1.39 and the other three at 99 cents. You can download all four tracks for a grand total of $4.36 but MSN also gives the option of downloading the entire album for $8.91!
On average, there's an iTunes/eMusic pricing multiple of approximately four: 99 versus 25 cents per track. But for this specific album it's 10, as the average track price in iTunes is nearly $2.50. The eMusic model, though, is absolutely brutal when it comes to albums with lots of short songs. Download Human Amusements At Hourly Rates by Guided By Voices and you'll burn through 32 of your monthly downloads. That's around eight bucks worth of a $9.99 subscription, so in this case the iTunes/eMusic multiple is down to 1.25.
While the Booker T. album makes a great anecdotal example, it's not just a case of a few odd albums causing pricing anomalies. Entire genres of music are affected. Many classic jazz albums feature just a few, relatively long tracks, making them incredible bargains on eMusic. Saxophone Colossus by Sonny Rollins is a mere five tracks, Relaxin' With The Miles Davis Quintet has only six tracks, and so on. (MSN somehow failed to catch this quirk: As with the Booker T. album, you can purchase all of the tracks from these discs for much less than the "buy album" price.)
From a consumer's standpoint, should a Guided By Voices disc cost eight times as much at eMusic as does a Booker T. and the M.G.'s album? And for the artist and record company, should a musician be penalized (or rewarded) for artistic decisions made about song length and the number of tracks on a disc?
If there was an easy answer, I'm thinking it would've been figured out by now. The simplest solution I can imagine is setting a standard price for an album download, then dividing that amount by the number of tracks on the disc to price individual song downloads. Another option would be to charge for music by the minute, using $9.99 for a 45-minute album as a starting point to establish a 22.2 cent charge per minute of digital music. (This model is somewhat in line with how mechanical royalties are paid for both physical CD sales and digital downloads. These royalties go to songwriters and publishers and are separate from artist royalties, which are usually set as a percentage of the wholesale price of a format. As of 1/1/2006, mechanical royalties have increased to 9.1 cents per song for songs of five minute or less, anything longer than that is paid at 1.75 cents per minute.)
But both of these solutions go against the "one price" that Steve Jobs is currently holding the line on at iTunes. And both would create a ton of accounting headaches for the digital stores, basically resulting in an infinite number of royalty rates. Plus, while I doubt most musicians would give it too much thought, it does create economic incentives for artists and record companies that could affect creative decisions. Making the fadeout on a potential hit single a bit longer could mean thousands more in digital royalties for an established artist. On the other hand, an unknown artist might feel pressured to keep songs short, to create a "bargain" price for a track.
You could argue that despite all of these weird pricing elements, consumers are still coming out ahead with digital music sales in that they now have the option now of buying single tracks instead of entire records. Whatever the track price, it's still a major bargain if you only want one or two songs from an album. Which is no doubt one factor behind the major labels' push to lift the 99 cent price ceiling, something that will be covered in part II of this series.
(Correction -- the bit about Apple's occasional deviation from the $9.99 price was added on 1/20.)
Labels: digital music pricing, eMusic, iTunes, MSN music
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January 03, 2006
eMusic and iTunesby David Harrell
I'm a big fan of eMusic, both as a subscriber and as a musician with tracks available via the service. Businessweek's Byte of the Apple blog recently posted this interview with eMusic CEO David Pakman. Reader comments on the story include some thoughts about song length and pricing (a 30-second song and a 20 minute track both count the same against your monthly download allotment) and the audiences for each service.
I'm saving the variable pricing issue for an upcoming post, but here are a couple of quick thoughts on the eMusic audience:
1. Self selection -- because eMusic doesn't carry any current major label releases, anyone who subscribes to eMusic is, by default, someone receptive to music outside the mainstream.
2. Use it or lose it -- your download allotment at eMusic expires each month, whether or not you download anything. So by the end of the month, subscribers are very inclined to take a gamble on an unknown artist.
Hence, indie bands should probably expect more sales from eMusic than iTunes. My own band has two albums available via iTunes and one (the first) currently available at eMusic. Because of reporting lag, I've only seen one month of data for our eMusic sales, but it was a good one. Though Apple pays out more per track to record companies and distributors than eMusic (70 cents vs. 24 cents), I expect we'll make more in the long run from eMusic.
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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