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.

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June 02, 2006

Digital Sales More Profitable than CD Sales
by David Harrell
While my mother-in-law was REALLY impressed when she found my band's albums on, it's not hard to sell your own CD there. You just need a bar code, shrinkwrapping, and a manufactured CD (no CD-Rs).

The main downside is that seems to have switched to a minimalist inventory policy, at least for relatively slow selling self-released CDs. When our first disc was released in 2003, Amazon placed an initial order of 15 copies. All of those copies eventually sold, and Amazon continues to send re-stocking orders, albeit much smaller ones, generally for just one or two discs. And it seems to take a while (nearly a week) after selling a disc before the re-stocking order is placed.

The problem is -- by stocking only one disc at a time -- the cost of shipping discs to Amazon now represents a significant portion of our per-disc revenue. First class postage for a single disc is $1.35, which is actually the cheapest option, as media mail for a single CD is more expensive.

We sell our CDs at a "list price" of $9.99 and Amazon takes a 55% percent cut, paying us $4.50 for each disc sold. While I suppose there's a certain prestige to having your music available via, it's shaping up to be the LEAST profitable way for us to sell it. After factoring in manufacturing costs of around $1.25 a disc and the $1.35 it costs to mail each one to warehouse, that leaves about $1.90 per disc in gross profit.

In comparison, here's how the numbers shake out for discs sold through stores via our distributors, online via CD Baby, and digital downloads through iTunes and eMusic:

Sales in Stores, via Distributors
We sell discs to our distributors for $5.50 each, hoping they'll end up in stores for somewhere around $9.99. The orders are usually large enough that the per-disc shipping cost is pretty low, usually less than 20 cents a disc. So after accounting for shipping and manufacturing, we're netting a little more than $4 a disc.

CD Baby
For online CD sales, CD Baby takes a $4 cut of the $9.99 price. After manufacturing and shipping costs, we clear around $4.50 a disc.

Digital Downloads - iTunes and Other Stores
For a $9.99 album price, Apple pays our distributor $7. The distributor takes a 9% cut, leaving $6.37 a disc for us. (No shipping or manufacturing costs here!) The numbers are similar for the other download stores that charge around $10 for a full-album download.

Digital Downloads - eMusic
This last example is the truly amazing one. An eMusic subscription is by far the cheapest way for someone to buy a copy of one of our albums. With a 40-downloads-a-month subscription, which costs $9.99 a month, our first album (12 tracks) "costs" the buyer $3 while our 11-track second album costs $2.75 for an eMusic download.

The per-track payout rate varies each month (more details here) but the most recent payout we've received is 19 cents a track, minus the distributors 9% cut. Which works out to $2.07 take for the 12-track disc and $1.90 for the 11-track disc. The option that costs a purchaser the LEAST money still nets the same amount (or more) for us as an purchase.

In fairness to Amazon, dealing with slow-selling CDs is no doubt something of a pain. But the given that the CDs are steady sellers, it seems like maintaining a stock of only one disc maximizes's labor cost, as it has to restock the disc every time one sells. It's making me think that for self-released musicians on the right-hand portion of the long tail, digital downloads may be the best bet. (Though it pretty much cuts the indie stores and distributors out of the picture...)


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

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    "This is a sweet treat, deliciously musical without being overbaked for mass media consumption." -- Hyperbolium

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    Where The Conversation Ends - free mp3
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    <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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    More Layaways downloads:

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