Digital Audio Insider -- the economics of music and other digital content

  digital audio insider


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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April 30, 2007

Digital NARM
by David Harrell
I'll be attending the Digital NARM conference on Tuesday and Wednesday, so posting will be light for the next couple of days.

If you're in Chicago for the conference and would like to say "hello," please send me an e-mail or try my cell @ 312-498-3281.

related: Interview with Jim Donio of NARM


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April 27, 2007

Friday Fun: The Jam, The Beatles, and Cadillac
by David Harrell
Somewhat off-topic, but I finally saw the Cadillac commercial with the Jam's "Start!" (You can watch it here.)

My guess is that 98% of the folks who hear this spot assume it's a remixed or re-recorded version of the Beatles' "Taxman," the George Harrison composition that starts Revolver.

As far as I know, Harrison didn't take legal action when "Start!" first appeared on the Jam's 1980 Sound Affects album. Given Harrison's experience with the My Sweet Lord/He's So Fine lawsuit, maybe he was reluctant to put anyone else through the same wringer.

But I'm amazed that his estate and Sony/ATV (which, along with Michael Jackson, controls the publishing for Taxman and the authority to grant synchronization licenses) hasn't gone after Paul Weller in wake of this commercial. There's a three-year statute of limitations on copyright infringement, but according to this blog post, it's three years from the last infringement.

Anyway, if Harrison was bitter over the whole He's So Fine affair, he did have enough of a sense of humor about it to write and record "This Song" and poke a bit of fun at himself in the promotional video:

And I'd argue that Weller might have a claim of his own against Billy Joe Armstrong of Green Day. While I've always thought of Green Day as a lift of the poppier elements of the Clash, witness the herky-jerky guitar playing in "In the City" and try to tell me Armstrong didn't base his onstage style on the early Weller:


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Friday Odds and Ends
by David Harrell
From today's Wall Street Journal, Can Music Survive Inside the Big Box?:
For his part, Best Buy's Mr. Arnold says the blame for waning consumer interest in CDs lies with the record labels, not with stores like his. "Music has become a commoditized item," he says. "The CD is perceived by the consumer to be a $10 item, and the manufacturers continue to release new titles at $15 to $18.98." To remedy that situation, he says he has urged labels to move to a "paperback-book model," with no-frills packages priced cheaply for most customers, and more deluxe presentations for die-hard fans.

Chain retailers are unlikely to eliminate music altogether. Big-box chains often set CD prices so low the retailer loses a dollar or two on the most aggressively priced titles. If nothing else, Mr. Arnold readily acknowledges, music remains cheap bait to lure customers who may end up purchasing, say, a brushed-steel refrigerator. "I couldn't imagine Best Buy without music," he says.

An interesting tidbit from the Guardian story on DRM and online music retailers:
...CDBaby's "long tail" business has expanded from selling physical CDs (including mine) to supplying digitised versions to the subscription download services. CDBaby supplies 1.5m songs, or about a third of the iTunes catalogue.

And the best eMusic Dozen I've ever seen: Singing Movie Stars:
Beyond the odd and cheap laugh, many a celebrity song foray puts up a fascinating and in some cases deeply unsettling window into the psyche of a given star. And believe it or not, some of them actually offer genuine musical pleasure independent of the circumstances of their creation. But each one of them offers a form of what we'll call, for lack of a better word, entertainment.

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April 26, 2007

Interview with Jim Donio of NARM
by David Harrell
Next week, I'll be at the Digital NARM conference, a portion of the annual convention of the National Association of Recording Merchandisers.

Last week, I spoke with NARM president Jim Donio. He shared some of his thoughts about where we're heading in terms of digital kiosks, DRM, and the longevity of the physical CD:

The RIAA numbers that came out this (last) week -- better, worse, or pretty much what you had expected?

Pretty much what we had expected. Sometimes the Soundscan and RIAA and our numbers are slightly off -- units vs. dollars and such. But there were no dramatic surprises. There's much more discussion about the first quarter of '07 at this point.

I wanted to ask about retail delivery of digital content -- Disc-Go's a sponsor of the Digital NARM. What's it going to take for consumers to embrace this model? Last year you mentioned kiosks and "other digital delivery methods" for stores. Can you elaborate?

It's been a slow progression because of all the other issues -- economic issues -- going on. If we were not in such a challenging period in terms of physical sales...

It's certainly a harbinger for the future in terms of migrating the business, but a considerable investment is involved. There are not enough (kiosks) in place to really judge, we really are still in the beta phase. Consumers who have experienced them have liked them and there's an opportunity here, but retailers have to believe there's future here.

Most of the companies involved in that area are participating in various forms at the conference. I still believe there's an opportunity there, which is why companies are continuing in this area.

continue reading "Interview with Jim Donio of NARM"

Note: Jim also discussed the concept of the kiosk as a "filling station" for portable players, but at this point my typing skills weren't keeping up with the conversation. It looks like Disc-Go will be demonstrating its direct-to-portable-device capability at NARM.

In your opening address at last year's NARM conference, you called for the adoption of compatible DRM standards. Are we any closer, and in light of the recent EMI/Apple decision, are we instead moving to a world without DRM?

You know, I would say the jury is looking at that in terms of what's going to happen. That announcement certainly casts a whole new perspective.

NARM is part of the Coral Consortium, which is a couple of dozen companies examining the potential of creating a DRM standard.

So we're going along parallel paths. Not everyone is on board (with ditching DRM), only one of the four (major labels). Of course you've got the Indie labels going DRM free with eMusic. All these efforts will continue forward and the marketplace will ultimately decided what the end of the story's going to be, and when it's going to end.

In terms of NARM, we still feel that the consumer experience is what's important. We want to bring the digital into the store and make it seamless and make them want to come back to it and try new things.

Any thoughts on where we going to be five years from now -- CDs vs. digital files?

I don't have a crystal ball, wish I did! So many people are speculating erroneously that we'll reach 100/0 (digital vs. physical).

It may not be the same physical disc but I think we'll always have physical product, maybe some combination of audio and video.

People love to shop in stores and the stores are going to change, but the notion that we'll reach 100% digital -- and that none of it will be in a physical store -- I don't see that happening.

Thanks Jim!


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April 24, 2007

The Quality/Convenience Tradeoff
by David Harrell
From CNN -- High Fidelity Takes Backseat to Portability:
"It doesn't compare," Silver said of the sound quality offered by today's portable digital music players and their compressed audio files.

If his high-end gear is like a Ferrari for sound, and run-of-the-mill stereo equipment is a Honda, an iPod is "a moped," Silver said.
Giving up quality for portability, of course, is nothing new. A few choice reactions from a forum:
Heh. 40+ years ago, little plastic transistorized AM radios with 2" speakers (and a single crystal earphone for private listening) made fidelity take a backseat to portability.


Give it a couple of years and it will get better. It has only been limited to allow for the lack of broadband over the years. As that becomes a thing of past, developers will make use of the extra bandwidth available.

When P2P started, everyone was doing 128kbps, now 360kbps is almost the standard.


I will say that an MP3 on an iPod sounds MUCH better than my sister's record player did playing 45s when we were kids.

My folk's "hi fi" system was nothing special either.

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April 20, 2007

Tastes Great or Less Filling?
by David Harrell
Starting sometime next month, you'll be able to buy 256k sans-DRM EMI tracks from iTunes for a premium price of $1.29 for individual downloads.

The unanswered economics question here is how do you value the two separate improvements? That is, consumers who purchase (or upgrade to) the new tracks will pay 30 cents more to receive the benefits of better sound quality AND the lack of DRM. But how much of the 30 cents is each benefit worth?

It's something a trained economist could surely ferret out, but -- off the top of my head -- I'll venture that the improved sound quality is probably worth far more to most iTunes customers than the lack of DRM. First, there's already a workaround to the DRM issue (burning a track to CD then re-ripping the file to mp3) but you can't improve the inherent sound quality of a 128k file.

Second, for all the grousing about DRM systems, I'm guessing that for the majority of iTunes customers the dislike of DRM is really more philosophical than practical. When you've already demonstrated your willingness to PAY for something, it's ironic that you're then saddled with restrictions that you could avoid by opting for the free versions available from P2P networks. And the idea that you can't freely transfer something you "own" to any portable player is irritating.

Yet the current iTunes DRM probably isn't causing too many problems for most customers -- you can already transfer the tracks to five computers, unlimited iPods, and burn as many copies to CD as you want. The biggest issue is no doubt the inability to directly transfer tracks purchased from iTunes to non-iPod players. However, until more devices support the AAC format (Microsoft's Zune is a notable exception), the new premium iTunes downloads won't help here. So it's not a bold assertion to say that buyers of the new premium downloads will mostly be paying up for improved sound quality. (For single tracks, that is. If you purchase the entire album, you'll get the 256k files for the old $9.99 price.)

But if 256k files are really what you're after, you don't have to wait until May. already offers 256k files for most of its top 100 tracks, at the bargain rate of just 79 or 89 cents a song. And this isn't indie music -- you'll see the same major-label tracks that populate the top 100 tracks over at iTunes, and not just EMI releases.

The catch, of course, is that these are Windows Media Files with DRM and are completely incompatible with the iPod....


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April 19, 2007 Roundup
by David Harrell

As everyone's heard by now, (NASDAQ:AMZN) is not buying eMusic, though there are new reports about an imminent launch of an Amazon download store.

Swindleeeee had a great series of posts over the last few weeks about pricing and other possibilities for an download service that I've been meaning to link to. (Part 2 kindly refers to a proposal of mine from last year about digital pricing -- charge more for the first download someone purchases from an album, with lower prices for subsequent downloads from the same release.)
Amazon predictions, part 1: The future of online music stores?

Amazon predictions, part 2: Selling digital music and CDs together

Amazon predictions, part 3: Adapting the eMusic subscription model

Amazon predictions, part 4: Additional digital music-related services

Final thoughts (for now) on an Amazon digital music service

Hypebot's advice for Amazon

Amazon rumors continued
And here are the Hypebot pieces referred to in the Swindleeeee posts:
Is Amazon's Music Strategy Stalled?

Part 2: Is Amazon's Music Strategy Stalled?
I don't have much to add to this analysis right now, except this:

Whatever price point arrives at for digital downloads, I'm betting that the net revenues for self-released musicians will be more than they are for selling physical CDs via's Advantage program.

As I wrote last year, due to a 55/45 split with sellers (with the 55% going to Amazon) and a restocking policy that basically requires you to mail in discs one at a time, selling CDs through is one of the least lucrative options for the self-released musician. (Though it still makes sense to do so.) We actually make as much or more from full-album downloads from eMusic as from selling a physical CD for $9.99 via

Assuming the standard 65% to 70% cut to the label (and the 9% cut we pay to our digital distributor), that should be the case with downloads as well.

related: Digital Sales More Profitable than CD Sales CD Baby Delivers Digital Content To Amazon


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April 18, 2007

More $9.99 Albums at
by David Harrell
From an press release that went out today: (NASDAQ:AMZN) today announced it has joined forces with more than 30 independent music labels to launch "Go Indie," a new section in its Indie music store designed to introduce music lovers of all genres to indie music and existing indie fans to the best independent labels and artists. "Go Indie" features a hand-picked selection of nearly 700 titles, 150 of which carry a reduced price of $9.99.
The promotion is referred to as a "limited-time offering," but includes an impressive list of labels:
Alligator Records, Anti, Astralwerks, Barsuk, Beggars Group, Bloodshot Records, Compass Records, Domino Records, Epitaph, Fat Possum, Hellcat, Koch Records, Matador, Megaforce, Mute, New West, Putumayo, Rykodisc, Sci Fidelity, Silva, Six Degrees, Smithsonian Folkways, Spin Art, Sub Pop, Sugar Hill, Touch N Go, Ultra, Vagrant, World Music Network and Yep Roc.
As the Big Picture noted back in January, you can already buy many top sellers at Amazon for $9.99 or less. (At this moment 11 out of the top 25.) But a move toward across-the-board $9.99 prices for indie labels, along with mucho free shipping, will put an additional squeeze on indie record stores.

And it adds another wrinkle to the digital pricing debate -- if $9.99 becomes the default price for physical CDs, are $9.99 downloadable albums overpriced?

Update: The full list of Amazon's $9.99 "Go Indie" albums is here.

related: Amazon Shipping Survey Results


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Play It Again
by David Harrell
Last year, I noticed a slew of "sound alike" albums on eMusic, including some the re-recordings were actually by the original artists. (There's also a Molly Hatchet greatest hits package that's a "re-recording" from a lineup with no original members.)

Today's NY Times has a great piece on big-name artists re-recording their hits to keep a bigger share of song licensing revenue:
In 1986, the pop band Wang Chung released the ludicrous but catchy party anthem "Everybody Have Fun Tonight." Now two of the musicians behind the band have hatched a plan that might seem even more absurd than the lyric "everybody Wang Chung tonight." More than two decades after the song became a smash hit, they are recording it again.

But they have their reasons. In the decade and a half since Wang Chung dissolved, the licensing of music to advertisers, television and movies has become more acceptable -- and much more lucrative -- for performers from the past. And by remaking their own hits, these artists can keep a much bigger share of the proceeds. "To re-record our back catalog is a way of empowering ourselves," said Nick Feldman of Wang Chung. "We can be much more selective about where these songs end up and how much we charge for them."
You can hear "before and after" samples here. Thanks, Porter, for the link.

Labels: , ,

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April 17, 2007

May Conferences
by David Harrell
I'll be attending portions of the Digital NARM conference in Chicago on May 1st and 2nd. Should be fun. If you're going to be there and would like to say "hello," please send me an e-mail.

If I could be in two places at once, I'd also be at the Future of Music Coalition's Policy Day in Washington, DC on May 2nd. Also looks like an interesting schedule but I can't do both...

A certain company from Redmond, WA will have a presence at both events. There's a presentation at NARM where "Attendees will hear exciting updates on developments in Microsoft's new innovative device" from the Zune's marketing director and Microsoft is sponsoring the cocktail party that closes the FMC/ACS policy day.

While the Zune has not been a smashing success in terms of reviews and sales, I'm betting that Microsoft is in it for the long haul here. Though, as I mused about last week, I'm somewhat surprised that MSFT hasn't priced the Zune more aggressively relative to the iPod.


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April 12, 2007

April Showers...
by David Harrell
...bring May DRM-free downloads. According to the Apple eNews newsletter that went out this morning, the new EMI downloads will debut next month:
Beginning next month, EMI Music will offer iTunes customers its huge catalog of music with higher audio quality and no usage restrictions. For just 30 cents more per track, you'll be able to purchase and download music free of digital rights management (or DRM) that’s encoded at 256 Kbps (twice the current bit rate), making it all but indistinguishable from the original.
Hmm, "all but indistinguishable from the original" doesn't go quite as far as EMI did with its description of 256k files as "an audio quality indistinguishable from the original recording."

I can't find any reference to the sound quality of 128k files on the current Apple website, but I seem to remember they were originally touted the same way, as almost indistinguishable.


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April 11, 2007

Cramer on iPod Competitors
by David Harrell
If you've caught his shtick on TV, you know that Jim Cramer is something of a blowhard. And, according to this site, his buy/sell recommendations are generally no better than random picks from a monkey. But Cramer makes a good point about the new Sansa Connect and other potential iPod challengers:
No matter what people say or do, no matter how well funded the challenger, that installed base is what propels Apple away from all competitors. Plus, the ease of use of iTunes makes the wireless option a moot point. People don't, in a vacuum, download songs. They don't walk down the street and download songs. They like to listen to the snippet on iTunes, browse other songs and then buy something. I am confident that if wireless were a really big deal Apple would just put in a wireless chip and call everyone even. The iPhone probably will make all of this stuff happen if Apple chooses.
Sure, we're going to see some real innovation in portable music devices. But unless a competitor comes up with something that is protected by a patent or based on a unique, unreplicable technology, there's nothing to keep Apple from embracing it. Sharing songs? Wireless downloads? I don't see any reason Apple can't add the features if there's a real consumer demand for them.

Long-term, I think the only realistic strategy for capturing serious double-digit market share is to significantly undercut Apple on prices. On a dollar-per-gigabyte basis, iPods are already premium priced. But if the premium is high enough, maybe consumers will give more consideration to competing products.

A 30-GB Zune currently sells for $219.99 at, you'll pay $237.99 for a 30-GB iPod. I wonder what would happen if Microsoft could sell them for less than $150...


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CD Baby vs. TuneCore
by David Harrell
There's a piece on TuneCore in today's Wall Street Journal, which notes that unlike other "digital middlemen," TuneCore charges a flat annual fee for digital distribution instead of a percentage of revenues:
Jeff Price, owner of the New York independent label SpinArt, started TuneCore to provide the same services as other aggregators, but using a flat-fee model. Clients -- record labels or artists -- pay a one-time charge of 99 cents a song, plus a handful of other modest fees. For example, a five-song "album," sold for a year on four different online music stores, would cost a user $18.89. Each additional year selling the album on the services would cost $9.98.

TuneCore then passes along 100% of the wholesale price it receives from iTunes, or others. (That fee is about 62 cents from iTunes; eMusic calculates its payments to record labels using a more complicated formula that generally results in much lower payments per song sold, TuneCore says.)
We use CD Baby as our digital distributor and the service takes 9% of our digital sales off the top before passing them along to us. Basic math suggests that over the long haul, TuneCore would be a better deal if you have digital sales of least $100 a year for each album.

But maybe not. We're currently receiving 63.7 cents for individual iTunes downloads, and that's AFTER CD Baby takes its 9% cut, leaving us more than the 62-cent payout given in the TuneCore article.

I'm guessing that CD Baby was able to negotiate a per-song rate from Apple equal or close to the payout to major labels, while it appears that TuneCore is receiving the lower rate paid to indie labels. If so, given that iTunes still accounts for the majority of digital sales, CD Baby remains the better deal, despite the 9% fee.

Update: The WSJ was wrong about the 62-cent iTunes, as was I. According to TuneCore's FAQs, the service pays 70 cents for individual song downloads from the US iTunes store.


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April 10, 2007

Site Housekeeping: Sorry About the Avalanche
by David Harrell
My apologies to everyone who reads this blog via Feedburner or a news reader. Until yesterday, I had included the post title at the beginning of the HTML code for each post. Which meant that the title actually appeared twice in the feed version of the blog.

So I altered the Blogger code to automatically create post titles. After that change, however, the titles appeared twice for each post on the blog itself -- the title I had coded plus the auto-generated one.

In an attempt to fix that problem, I deleted the title from the body of my last 50 posts and republished them. What I didn't realize was that changing each of post would result in a appearing as a "new" post in the feed. Sorry for the avalanche of new/old posts.

To avoid overwhelming feed readers, I'll hold off on fixing the remaining 150 or so posts until I can figure out how to make the change without having all of the posts show up again in the feed. (If not, I'll just change a couple each day.) Until then, please excuse the double titles for the older posts. Thanks!

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Wall Street Journal Roundup
by David Harrell
The WSJ has had a slew of iPod and digital music pieces over the past two days.

From today's paper, 100 million iPods:
Consumers have embraced the iPod, which went on sale in November 2001, far more quickly than they did Sony Corp.'s Walkman, the pioneering cassette player and headphones introduced in 1979 that changed how people listened to music. It took Sony about 14 years to sell 100 million Walkman devices. Apple of Cupertino, Calif., reached the same milestone in just over a third of the same time.
Yesterday's coverage of the new Yahoo/Sansa device:
The idea is to give users a way to download new music on the go, something the iPod doesn't currently allow users to do. Even Apple's new iPhone, due out in June, won't initially let people buy music wirelessly. "The iPod is very much a pod. It provides functionality and an ecosystem that is somewhat cocooned," says Daniel Schreiber, a senior vice president at SanDisk. Apple declined to comment.
And Jason Fry on the upcoming "premium" iTunes downloads:
A key question: Will consumers pay the extra 30 cents? Where price points are concerned, a dollar is magic. You don't complain if your soda costs that much, you understand the bartender gets a single for each beer handed across the bar, and there's a reason it's not called the $1.29 Store. Whether your purchase is the stuff of routine or whim, a dollar isn't much worth worrying about -- even if you're online where that dollar is just bits rearranging themselves somewhere. But go higher than a dollar, and you start doing math.

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April 09, 2007

The Snocap Experiment Begins
by David Harrell
Finally received the details on using Snocap via its relationship with CD Baby. Setting up a store is easy enough -- it just took 30 seconds or so to set the desired track order and nab the HTML code:

However, it looks like one feature touted by Snocap -- the ability to set your own track price -- isn't available for anyone using Snocap via CD Baby. As far as I can tell, the individual track price is locked at 99 cents.

If so, the downside here is that it effectively raises the price of any album with more than 10 tracks ABOVE the standard iTunes price of $9.99, as I'm also not seeing any option for setting an "album" price.

One upside, though, is that going through CD Baby allows to you avoid the normal Snocap setup fees and -- according to the CD Baby Snocap FAQs -- receive a bigger cut of each download sale:
How do I get paid, and how much?
Through CD Baby and SNOCAP you basically get $.63 per track, and we will pay you just like all of our digital retailers -- once they report your sales to us, we'll pay you the following Monday. Note that this is MORE than you would make if you went through SNOCAP directly, since we worked out a special deal with them.
That 63-cent payout approximately equals the per-song revenue for single song downloads via iTunes in the US.

The lack of any reference to the albums is a moderate annoyance, though. I'll update if I can find any additional details about it. The other thing I'd love to be able to do is set up a "track pack" -- five mp3s for $2.99, for example.

Update: I missed the following bit in the CD Baby Snocap FAQ thread -- evidently Snocap isn't designed around the album format:
>the listings seem to be artist specific without any regards for album names

That's intentional. Snocap doesn't track albums at all - only artists and songs. That's part of what made it so hard for us to work together, where everything we do is based around the album.
Update II: According to CD Baby, the ability to change the per-track price is coming soon.

related: Snocap, CD Baby, and Myspace


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April 05, 2007

Weedshare Pulling the Plug
by David Harrell
From a post on the CD Baby message boards: Weedshare is pulling the plug, at least for now, due to incompatibility issues with Windows Vista and Windows Media Player 11:
We've spent the last several weeks trying to resolve two serious problems with the system, one of which is caused by Windows Vista and the other by Windows Media Player 11. The problem with Media Player is the worst of the two and we have been unable to find a solution.

As many have noticed, the new version of Windows Media Player will not play Weed files after you try to buy them. Windows Media Player 11 will gain in usage over time and the problem will become more common as it does. Rather than operate under steadily deteriorating conditions, we've decided to suspend operations.

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by David Harrell
From a forum thread:
"How does lala incentivize the churning of cd's (of course we delete everything afterwords) (winkwink) to keep the system running and active even during times when high volume new users aren't being added by the boatload?"

"Just rip and ship!! keep the supply flowing!! More trades is good for everyone."
I don't mean to demonize members here -- the folks on this board are obviously huge music fans and probably spend way more than the average consumer on recorded music. But as I wrote last week, I'm convinced that for some members, the trading service is basically a way to buy mp3 files through the mail.

While keeping copies of traded discs is -- in theory -- forbidden by the user agreement, there's no way to enforce the rule. And it looks like members can be relatively open about flouting it without comment from

related: Owes Me Sixty Cents


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April 04, 2007

Wednesday Odds and Ends
by David Harrell
As someone noted in the comments to yesterday's post, the 256k AAC format was an Apple decision. EMI is letting the various retailers make the decision about file formats and bit rates. From the EMI press release:
The new higher quality DRM-free music will complement EMI's existing range of standard DRM-protected downloads already available. From today, EMI's retailers will be offered downloads of tracks and albums in the DRM-free audio format of their choice in a variety of bit rates up to CD quality.
Though I'm not 100% certain about EMI's definition of CD quality -- this press release refers to 256k mp3 files as "an audio quality indistinguishable from the original recording."


Frank at Swindleeeee runs the numbers and finds that the $100 million figure associated with the rumored purchase of eMusic by is actually quite reasonable:
...eMusic is currently making an average of $14 per customer per month on a subscriber base "well north of 250,000." This translates into an annual revenue run rate of at least $42 million and likely more. An asking price of near $100 million would thus represent just over two times annual revenue. Given that Amazon would be acquiring a paying customer base (many of whom are locked into 1-year or 2-year contracts) this seems a realistic figure and certainly a far cry from the speculative nature of a YouTube deal.

And from today's Wall Street Journal -- it's the record companies, not Apple, that deserve the blame for uneven iTunes pricing throughout Europe:
EU spokesman Jonathan Todd blamed the record companies for this situation. He said regulators considered Apple to be more a victim than a culprit. "This is an arrangement imposed on Apple by the record companies," Mr. Todd said. "The main focus of our attention is the major record companies."

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April 03, 2007

Some Quick Thoughts on EMI, Apple, and DRM
by David Harrell
Not enough time to organize these into a coherent essay, but here are some random thoughts on yesterday's news:

- When this blog started (January, 2006), the most-debated issue relating to online music distribution was pricing, with the major labels pushing for variable pricing, while Apple's Steve Jobs held the line at 99 cents a track. Yet by the end of the year the DRM question seemed to be using all the oxygen and no one was talking about variable pricing anymore.

Yesterday's announcement that Apple would offer DRM-free EMI tracks in iTunes for a premium price ($1.29 for individual downloads) manages to encapsulate at least three of the four main variables in the digital pricing conundrum:
Purchase price (relative to CDs and the variable pricing issue), DRM, sound quality, and convenience. And by convenience I mean both the instant gratification of downloads vs. a trip to the store and the option to purchase individual tracks instead of an entire record.
- It's a price increase, albeit a brilliantly executed one. Yes, you'll still be able to buy 128k EMI tracks with DRM, but I'm willing to bet that the premium versions will outsell the 99 cent-versions. And unlike almost any other product where you have a choice between regular and premium, there are no extra production costs associated with the premium version of an iTunes track. Zero. Zip. Nothing aside from the negligible cost of serving up a larger AAC file, which certainly doesn't justify a 30% increase in the price.

- As much as I hate to see music moving from something you "own" to something you "license" like software, I was thrilled to see that Apple will allow you upgrade, just as you would when a new version of a software product is released. (I had made the somewhat cynical prediction that higher-quality tracks would require music fans to buy, once again, the music they already owned.)

- Sound quality: 256k AAC files are still inferior to the original uncompressed CD tracks. But trading convenience for sound quality is nothing new -- pre-recorded cassettes generally sounded like crap but were popular because they offered greater convenience and portability (you could play them at home, in the car, and on the Walkman) than LPs.

- One factor is still usually ignored with any comparisons of the prices of digital downloads vs. physical CDs: resale value. Most used CDs are worth at least a couple bucks and that resale value deserves consideration in any analysis of relative pricing for digital downloads and CDs. There is a hassle factor and liquidity issues, of course, but the ease of selling used discs on or trading them away on has made it easier to extract value from used discs.


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

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