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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July 31, 2009

Set Them Free -- Some Thoughts On Free: The Future of a Radical Price
by David Harrell
You can't write something titled Free: The Future of a Radical Price and not give it away, at least in some form. The new book from Wired's Chris Anderson -- author of The Long Tail -- is available, in various formats, free of charge. You can read a free Google books version for another week or so and there are also free ebook and audio book versions. (In keeping with the idea that "time is money," you actually have to pay for the abridged version of the audio book, which will save you three hours of listening time!)

I opted for the unabridged version -- here's my take: Despite the "radical" portion of its title, most of the book isn't that radical. Anderson provides the history, with many examples, of businesses that have thrived with free content, ranging from the free Jello cookbooks used to sell the actual product to the birth of ad-supported radio to today's free online services -- Google, etc.

Anderson's case for free digital goods boils down to this: Once you move from atoms (physical goods) to bits (digital files), the marginal cost of each copy approaches zero. In this situation, whether or not the manufacturer or producer of the product likes it, the option for free is unavoidable and you're simply fighting gravity if you try to stop it. Moreover, today's digital savvy consumers (particularly those under 30) have an instinctive understanding of this idea of zero marginal cost, they simply don't regard file sharing or digital copies as theft. Rather than resisting it, content producers should embrace free, and make their money on other goods and services, some of which will be promoted by free goods. In the case of Free the book, for example, while there's no charge to read the digital version or listen to the audio book, you'll pay big bucks to hire Anderson to come speak to your organization or business. The "freemium" model, where a small percentage of consumers pay for an enhanced version of the free version, such as when online gamers who play the free version are subsidized by a small percentage who pay for the premium version, also gets a lot of attention.

As with the Long Tail, which also started as a Wired article, the original magazine article might have been enough -- the basic premise is easily explained, the book format essentially allows for more background and examples in support of Anderson's initial idea. Still, it's an interesting read/listen, with lots of background on economics and consumer psychology, even if you're not completely sold on the idea. (The main criticism in Malcolm Gladwell's review of the book is that Anderson glosses over the fact that even if per-unit marginal costs approach zero, they can still add up if you're dealing with millions of units. His example is the hundreds millions that Google spends on bandwidth fees for YouTube videos. Plus there are other costs associated with the creation of products beyond the pre-unit manufacturing costs.)

Anderson also addresses -- and better articulates -- some of the same issues that I've been grappling with in this blog for the past several years, such as the attention economy and the fact that content isn't scarce any more, but time the available to consume it is becoming more precious every day. Sometimes, however, in his enthusiasm for free, Anderson gets a bit carried away, as when he includes restaurants which offer free condiments and malls with free parking as examples of business models that are "built on free."

As for Anderson's take on free music, I would've loved some additional analysis. In his defense, the book isn't called Free: How The Music Industry Can Thrive By Giving It Away, but I thought his treatment of recorded music in the age of free was a little breezy. He provides the usual anecdotal examples -- Radiohead deciding to "give away" its In Rainbows album (not technically true, as it was a name-your-own-price experiment), Prince giving away a CD in a Sunday newspaper, etc. -- to paint an optimistic picture of how musicians can harness the power of free music while making money from live shows, premium versions of the recorded music, and merchandise. While RCRD LBL and Pandora receive brief mentions, he didn't address Spotify,, or other ad-supported ways for music fans to stream or download tracks.

I'm not anti free music (my band the Layaways is giving away the mp3 version of our latest album), but there are some major issues relating to free music that I wish Anderson had addressed:

1. The attention economy: As Anderson notes in the book's coda section, "The first to Free gets attention, and there are always ways to turn that into money." The Radiohead experiment worked in part because Radiohead was the first superstar act to try it. But what happens if/when dozens of major acts do the same?

2. Another major theme of the book is abundance vs. scarcity -- when something becomes abundant, an adjacent scarcity emerges, and that's where there's money to be made. (If the software is free, for example, charge for supporting that software.), Anderson's main thought on music is that the promotional value of free music files can help acts earn a living from live performances.

Yet there are only so many live shows most fans can attend each year. If recorded music is destined to be free, then musicians are left to compete for something that is ultimate more scarce than the dollars of music fans, the amount of time they can devote to seeing live music. Granted, consumers are willing to pay much more for a concert ticket than a CD, so you don't need to sell as many tickets as you do CDs or digital albums to make the same amount of money.

One other thought here is that, due to online distribution, it's possible for a small act to literally have listeners around the world. Yet there's no practical way for that act to perform for all of those listeners and make money from ticket sales.

3. Touring income dries up as soon as the artist is unable or unwilling to tour. As Anderson notes with his example of manufactured Chinese pop stars who make all their money from touring and corporate-sponsored appearances, the singers complain about losing their voices from all the live performances. Also, if recorded music becomes free, there's no possibility of the retired musicians (or their heirs) earning money from their back catalogs.

4. Finally, and this a much larger issue, but it's important to distinguish between the overall music industry and musicians when evaluating the merits of free music. I'm not bashing the major labels, but I think it's fair to say that the traditional "recoupable advance and recording and promotional costs" model has -- historically -- done a poor job of transferring money from consumers who purchase recorded music to those who create the music. A relatively small number of artists earn big bucks in recording royalties, while many musicians who sell tens or hundreds of thousands of units never recoup and hence never see royalty checks. (In fairness to the labels, they lose money on most of their releases...)

If the old major-label is the only model, free music becomes much more attractive for artists, as many of them earn relatively little from the sales of recorded music. But in today's world of online distribution, it's possible for self-released artists to receive a large portion of the purchase price of every unit of music sold -- 70 cents from a 99-cent iTunes download, for example. Even though the sales of recorded music are plummeting, it's possible to earn more money on fewer sales.

These shortcomings aside, the book is definitely worth a read or listen. And -- please forgive the pun -- you can't beat the price.


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July 30, 2009

The Drought
by David Harrell
Sorry for the lack of recent posts. Please check back tomorrow for a long review of Chris Anderson's Free: The Future of a Radical Price.


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July 16, 2009

Chart Watching at eMusic
by David Harrell
eMusic banner

A little more than two weeks after the introduction of Sony material to the eMusic catalog, I'm somewhat surprised by the top download charts: Except for Michael Jackson (no explanation needed), the "top 15" charts for the day, past week, and past month all look fairly similar to the pre-Sony charts. That is, they're dominated by recent indie rock releases -- acts Spoon, Dinosaur Jr., etc.

However, based on the charts alone, I wouldn't necessarily say that eMusic subscribers aren't embracing the Sony catalog. There's a lot of new material, and absent something like the death of MJ, it's unlikely that everyone will gravitate toward the same Sony releases. If subscribers are downloading a wide range of Sony material, individual releases aren't likely to rise the top of the charts.

Another contributing factor is the eMusic -- perhaps in deference to the subscribers angered by recent changes in subscription plans that coincided with the addition of the Sony material -- has so far taken a fairly low-key promotional approach with the Sony catalog. Aside from some of the "Six Degrees of" features, well-known Sony releases aren't plastered across the home page or the main pages of the site.

Looking beyond the top 15, Bruce Springsteen and the Clash are, as of this afternoon, the first of the Sony additions to appear regularly on the eMusic charts.

related: Album Pricing at eMusic, More Thoughts on the Changes at eMusic, Sony and eMusic: Why the Per-Track Label Payout Might Not Change


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July 13, 2009

Fast Turnaround for Pandora Submissions
by David Harrell
The turnaround time for Pandora's new artist submission process is excellent -- less than two weeks: I uploaded two tracks from the latest Layaways album for review on June 26th and had a response on July 8th.

Unfortunately, it wasn't the one I was hoping for, as we received the "thanks, but no thanks" rejection e-mail. I was slightly surprised -- it's not that I think that highly of my own music, but our previous album is already in the Pandora catalog.

So either Pandora has become more selective or my band's music has gotten worse, or some combination of the two!

No sour grapes here -- you can't expect everyone (or one particular Pandora reviewer) to like everything. But if you're curious, here are the two tracks that didn't make the cut:
The Layaways -- All Around the World
The Layaways -- On Any Given Saturday

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July 09, 2009

CD Baby Changes Commission for Direct-Sold Downloads
by David Harrell
This weekend, CD Baby will flip the switch for its redesigned retail website. The changes will include:
-- single song downloads
-- artist pages, in addition to the current album pages
-- a music uploader -- artists don't need to mail in a physical disc for download-only titles
-- download cards
As noted in an earlier post, the introduction of single-song downloads was clearly going to necessitate a change in CD Baby's commission for direct-sold downloads. The new commission on direct digital sales will be 25%, while the old rate (9%) is retained for sales via iTunes, eMusic, Amazon MP3, etc.

From an e-mail sent yesterday to CD Baby artists:
In order to launch the much-anticipated single-song downloads (see below), we had to make a change to our fee structure. This adjustment will only affect download sales purchased from our own retail website (it won't affect digital content we distribute). Beginning July 11th, CD Baby's cut on all download sales purchased directly from will be 25% (with a minimum of 29¢). This change is actually vital to our continued success as a company, and here's why...

The credit card fee we pay to our bank whenever a customer makes a purchase on ranges from 27¢ (for a single) to over 50¢ (for an album or CD sale) per transaction. Clearly, at our old rate of 9% of 99¢, we'd actually be losing money on every single download transaction. That’s not a good business model. We've been praying daily that the banks would choose the philanthropic path and waive all their credit card processing fees, but alas, reality persists. And that's why the new retail fee structure is necessary.

For all your other digital distribution income (iTunes, Rhapsody, eMusic, etc.) we're still paying you 91%...

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July 06, 2009

Amazon MP3 Sings the Blues
by David Harrell mp3 banner

I'm all for broad mindedness when it comes to defining musical genres, but check out the bestselling "blues" songs at Amazon MP3. Some of my favorites in the current top 25:
4. "Get the Party Started" -- Pink
12. "Wind Beneath My Wings" -- Bette Midler
13. "Brandy (You're A Fine Girl)" -- Looking Glass
14. "Forever Young" -- Rod Stewart
21. "One of Us" -- Joan Osborne
There's obviously something screwy with the chart programming or with Amazon's genre classifications. I'm pretty sure that Pink song has been near the top of the chart for several months now.


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July 02, 2009

Album Pricing at eMusic
by David Harrell
eMusic banner

The new "album price" at eMusic, introduced in conjunction with the addition of portions of the Sony catalog and price increases for subscribers, has produced some interesting results.

It's a mixed bag for subscribers. In some cases, album pricing yields some incredible deals on a per-track basis. This eMusic message board thread highlights some of these relative bargains.

The downside is that the 12-track album price is used for a fair number of Sony albums with fewer than 12 tracks. In some cases, such as Aerosmith's 1970s releases, they're available only as full-album downloads, while in others, select tracks (usually the most popular ones) aren't available a la carte.

The Bruce Springsteen classic, Born to Run, is one of the best examples I found. You can download seven of the album's eight tracks individually, but if you want the title track, you'll have spend 12 downloads to get the entire album. So recent subscribers, who will soon be paying 50 cents a download, will spend $6 dollars on the album. That's not a horrible deal, but it's closing in on the $7.92 price at Amazon MP3 and iTunes. However, if you want to bother with the hassle of assembling the album from different sources, you could purchase the title track from Amazon for $1.29 and then complete the album by downloading the remaining seven tracks from eMusic, for a total price of $4.79. The track is only 99 cents at iTunes, so it's only $4.49 if you don't mind mixing digital file formats.

The Michael Jackson catalog will no doubt be topping the eMusic charts over the next few weeks, but most of the late singer's hit singles are "album only." The version of Thriller available at eMusic don't include bonus tracks, but with the extended versions of Off the Wall and Bad, the additional tracks reduce the per-song price.

And if you're looking to pick of the best-known tracks from some Sony artists on the cheap, eMusic isn't the place to go: tracks such as "Cum On Feel the Noize" by Quiet Riot and "What I Like About You" by the Romantics are album-only. If you only want the hits, you'll be better off with Amazon MP3 or iTunes.

My biggest disappointment? Lou Reed's Metal Machine Music, a four track release, is only available for the 12-download album price!


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

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