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.

If you enjoy this site, please consider downloading a Layaways track or album from iTunes, Amazon MP3, Bandcamp, or eMusic. CDs are available from CD Baby and Amazon.


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February 28, 2006

Tuesday Odds and Ends
by David Harrell
Tuesday Odds and Ends
The conclusion to the Digital Pricing Conundrum series should be up later this week. (Here are links to parts I, II, and III.) In the meantime, a few recent items:

There's a piece over at the Huffington Post about album prices at iTunes, with lots of reader comments about variable pricing and downloading, a mix of the interesting and the inane.

Also, the Big Takeover updated its website late last year and now features columns, articles, top-10 lists, etc. Greg Bartalos, formerly of Barron's Online, has written a few posts about digital distribution-related issues.

Finally, my bandmate Porter sent a link to this post on Techdirt, which reveals that Canadians pay a tax of 21 cents per blank CD-R as a "private copying levy" which is then paid to copyright holders and performers. What's truly amazing here is that rate is even MORE for blank cassettes than CD-Rs!. (Guess that's based on the assumption that almost all cassettes are used for taping music, while CD-Rs do have other uses...) Here are the numbers from the Copyright Board of Canada's proposed rates for 2007:
3. (1) Subject to subsection (2), the levy rates shall be
(a) 29¢ for each audio cassette of 40 minutes or more in length;
(b) 21¢ for each CD-R or CD-RW;
(c) 77¢ for each CD-R Audio, CD-RW Audio or MiniDisc.
The poster was incorrect in his assumption that no such tax exists in the U.S., however. As one of the comments noted, we do have one (or maybe not, please see the update at the end of this post), courtesy of the Audio Home Recording Act of 1992. But it is much lower -- 2% for hardware, 3% for recording media:
Section 1004. Royalty payments
(a) Digital audio recording devices
(1) Amount of payment.
The royalty payment due under section 1003 for each digital audio recording device imported into and distributed in the United States, or manufactured and distributed in the United States, shall be 2 percent of the transfer price. Only the first person to manufacture and distribute or import and distribute such device shall be required to pay the royalty with respect to such device

(b) Digital Audio Recording Media The royalty payment due under section 1003 for each digital audio recording medium imported into and distributed in the United States, or manufactured and distributed in the United States, shall be 3 percent of the transfer price. Only the first person to manufacture and distribute or import and distribute such medium shall be required to pay the royalty with respect to such medium.
It's section 1008 of this law, which -- in theory -- preserves the right of consumers to make digital copies for personal ("noncommercial") use:
Section 1008. Prohibition on certain infringement actions No action may be brought under this title alleging infringement of copyright based on the manufacture, importation, or distribution of a digital audio recording device, a digital audio recording medium, an analog recording device, or an analog recording medium, or based on the noncommercial use by a consumer of such a device or medium for making digital musical recordings or analog musical recordings.
UPDATE: After more research, I can't confirm that the 3% royalty applies to data CD-R sales in the U.S. I've seen conflicting answers, but according the RIAA, the AHRA applies only to devices and media designed specifically for audio recording such as D.A.T. machines and stand-alone audio CD burners, and that general computer users are not protected under section 1008:
Multipurpose devices, such as a general computer or a CD-ROM drive, are not covered by the AHRA. This means that they are not required to pay royalties or incorporate SCMS protections. It also means, however, that neither manufacturers of the devices, nor the consumers who use them, receive immunity from suit for copyright infringement.
I'm assuming the 3% royalty does apply, however, to blank "audio" CDs. I also noticed that the RIAA site is currently conveniently vague when it comes to defining "fair use" of digital audio, with no reference to personal use:
There are some limitations. Whether the court allows you to reproduce, distribute, adapt, display and/or perform copyrighted works depends upon the nature of the use (commercial purposes, non-profit, educational), the length of the excerpt, how distinctive the original work is, and how the use will impact the market for the original work.

Generally speaking, one is not allowed to take the "value" of a song without permission, and sometimes that value is found even in a three-second clip. When in doubt, it is always wise to check with the copyright owner, because in many cases even a small clip of a song may not be "fair use."

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February 23, 2006

Yahoo (and iTunes) vs. Mojo Filter
by David Harrell
Yahoo (and iTunes) vs. Mojo Filter
There's a great post over at the Yahoo Music Blog, where Ian Rogers calculates what percent of the albums in Mojo magazine's monthly "Mojo Filter" review section are available in Yahoo's Music Unlimited service. Bottom line: Yahoo coverage ranges from 36% to 48% over three months. Ian then checked to see how many of the missing tracks are available in iTunes (not many). He also gives background info about why certain artists still aren't available, or why previously available albums have disappeared. And here's a terrific observation from the post regarding coverage of November 2005 Mojo list:
There's a lot of music (40%) that *none* of the services have. Note eMusic and AudioLunchbox don't score much higher than anyone else. Any notion that with some combination of iTunes and eMusic you have all the music that's fit to hear is bullshit. Yes, we're using a UK magazine as our test, but this is all music that someone thought was worth writing about in November, yet 40% of it is unavailable in the US through legal channels, period. And in 2006 isn't this a "global" music market? I'd be curious what percentage you could get through P2P channels - anyone want to run that test? I'm guessing it's very close to 100%.
One bit of inside information: As mentioned in the post, Yahoo works with a "middleman" (MusicNet) for some, if not all, of its digital content. The royalty rate paid by MusicNet to labels and distributors is only .02 cents per stream, compared to the 1 cent per stream royalty paid by Rhapsody. (At least those are the current rates paid to our distributor.) This lower royalty from MusicNet might have something to do with some labels opting out of the Yahoo service. Ian specifically mentions Merge as one of the labels currently unavailable at Yahoo, but Merge artists (The Arcade Fire, Robert Pollard, Portastatic, etc.) can all be streamed at Rhapsody.


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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 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!

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February 09, 2006 Removes Links to Free Downloads
by David Harrell
How's that for an alarmist headline? Don't worry, the free download section is still alive and well on But Amazon has made it a little harder to discover free mp3 tracks:

Until recently, you'd find links from a specific album page to any free downloads available at for that disc. The free mp3s are still there, you just have to do a separate search for them. (Just noticed this change when checking the stats for my own band's sales and free downloads at Amazon.) For example, "All the Wine" from the National's acclaimed "Alligator" album is free Amazon track, but just try to spot a link to it from the main page for the disc.

Does this change have anything to do with Amazon's plan to give customers immediate access to online song files when they purchase a CD? It seems a stretch to think that easy access to the free tracks would somehow make the new plan less attractive. But maybe there's some sort of connection, unless the link removal is just a temporary experiment...

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February 07, 2006

Google Music Search Update & Another Track Length Issue
by David Harrell
A couple weeks ago, I posted that Google's music search links to only four of the download stores -- iTunes, Sony Connect, Rhapsody, and eMusic. Either I missed it back then, or Google added links to Napster and the MSN music store sometime during the past two weeks. One interesting quirk, though, the MSN links only show up with album purchase info, not on the pages for individual tracks.

And here's a track-length quandary I never thought of: Over at, the online listening tracking site/software, some subscribers want track length (as opposed to just the number of tracks played) to figure into the calculations that determine their favorite artists. (Which affects music recommendations, custom radio and playlists, etc.) One subscriber gives the following example:
Not to harp on an old idea, but looking at just the music I have on my work computer:

Ludwig van Beethoven: 9 tracks, 5:47:25
Dead Kennedys: 113 tracks, 5:25:05

By my current charts (minus those artists), if I played these files Dead Kennedys would have enough plays to get #1, and Beethoven wouldn't make the top 50, despite the fact I would have listened to 23 more minutes of the Beethoven!
Here's a link to the full thread.

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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.

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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!

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    Out Now -- "Maybe Next Year" -- The New Holiday Album:

    <a href="">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
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    <a href="">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
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    Download from eMusic, iTunes, Amazon MP3, or CD Baby, stream it at or Napster.

    album cover art from We've Been Lost

    <a href="">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

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