Per Reuters, Universal cements music publishing lead:

Two interesting points in this article.

One, UMG has grown their publishing business very substantially.

Universal Music’s publishing division has overtaken EMI as the world’s leading major music publisher, according to market research on Monday.

Music & Copyright (M&C), which is published by Informa said Universal’s market share among major music groups rose to 24 percent in 2007 from 11.9 percent a year earlier.

From 12% to 24% is a huge rise. There’s a lot of thrash in this market — it’s not acting like a mature market.

UMG’s share of the recording industry has also grown in the recent past. These guys are firing on all cylinders, and no doubt emphasizing publishing deliberately to offset shrinkage of the recording market. They used to be a 600 pound gorilla, now they’re a 900 pound gorilla.

Two, the combined publishing and recording industries are no smaller than they were in 1996, around the historic peak of the CD industry:

“According to M&C the value of music publishing has risen in Europe from $3.6 billion in 1996 to $5.2 billion in 2006 while recorded music sales have fallen from $9 billion to 7.5 billion.”

5.2 – 3.6 = +1.6 growth. 9 – 7.5 = -1.5 shrinkage. 1.6 – 1.5 = .1 billion increase.

In other news which does not in any way suggest a pattern:

Due to increased demand for its products, Gibson Guitar plans to increase its general labor and manufacturing workforce by approximately 200 people.

So if you added gains in instrument sales and teaching to the overall picture, wouldn’t you find that the music industry is actually healthier than before the internet? Too bad Guitar Center is now a private company, because it’s the bellweather of the instrument business and now we don’t know their numbers any more. But Best Buy, anyway, is growing it’s instrument business:

Best Buy Co. Inc. is announcing a massive new initiative that sets aside store space for an array of musical instruments and gear in dozens of sites nationwide.

business aspects of Cartoon Network vs. Cablevision

Judge OKs Tivo-In-The-Clouds: Hosted DVR services — which allow cable companies to create “virtual” Tivos that live in a datacenter somewhere, not on a hard drive in your living room — are legally sound. Specifically, network-based DVRs “would not directly infringe plaintiffs’ exclusive rights to reproduce and publicly perform their copyrighted works,” says the U.S Court of Appeals for the Second Circuit in New York.

As a policy issue, the right thing is for it to be legal to move technology from hardware devices to the cloud. Anything the user could do by pressing a button the user should also be able to have a cloud service provider do on their behalf. The principle has to be that an individual can delegate, and once they do the service provider has proxy access to their rights.

As a business issue, it makes no sense for labels and studios to try to turn this into a licensing revenue source. Each and every service provider isn’t going to negotiate with each and every rights holder for works in any medium. Trying to make that happen is a waste of time.

And this is exactly what is happening. What the Cartoon Network wants is for Cablevision to pay for licenses. And Joe’s Garage Startup. And Gmail. And each of these service providers would need to work out a deal with EMI, Disney, Sub Pop, etc.

If that was the normal state of things, technology would choke to a halt. Nobody would get anything done. Everything would be more expensive. Only huge companies would be in business, because negotiation with lots of small companies is too much overhead.

Indies were warm in the first place

Some indies are selling more records than ever while the majors limp along:

Major labels struggle to keep platinum sellers (acts that sell a million units) from backsliding to gold (500,000 units) or worse. But some smaller labels—among them Sub Pop, Merge, and Matador—have hit a pocket of relative prosperity, with many of their top stars selling more records than ever.

A comment there by Eric Phillipson:

Having worked with both the majors and independent labels, I have seen first hand the reason why Independent labels are thriving at a time like this. Independent artists generally are able to connect with their fans more easily creating a more label fan base.

It’s like the transition from silent films to talkies, where many actors who rose because of their looks turned out to lack a good speaking voice.

Musicians in the indie circuit have always had a warmer and more intimate style than musicians on the majors, and on the internet that’s what’s called for.


Elemental Consulting on pay-per-download songs:

If Amazon has a hard time making money on music priced a little below iTunes standard pricing, how can downloads priced at a fraction of the cost be profitable for indie labels and musicians?

Applying the concept of loss leaders … it logically requires that the download is then just the gateway to other products that the musician will be selling for more money – concert tickets perhaps? Merchandise? These are probably the most common supplemental sales, but the fact of the matter is that the digital song is the most viable sale – possibly the cheapest and easiest to manufacture and distribute. The cost is unaffected by geography, unlike concert tickets where an artist has to physically be somewhere and must pay for his/her travel expenses and that of the band. So I’m not seeing how cheap downloads as a loss leader would really work for the individual artist or small label. I can see cutting the cost of a particular track or album in order to provide the gateway to buy other albums at a higher cost but I just don’t see how a viable business for indies can be made from cut-price downloads.

The use of music as a loss leader is about truly profitable products. Bands selling tracks on Amazon should seek to get a piece of anything the user buys, not just CDs. Taking this to the real world, a comparable deal would be to ask Best Buy for a percentage of the final sale.

So let’s say you’re Michael Jackson and Best Buy is doing a promotion where they give away a copy of “Thriller” to anybody who buys a Halloween costume. You’d ask for a piece of the costume, which has a decent markup, rather than a higher price on the CD.

You’re looking for stuff with a big markup that would move better if it were associated with cultural items like songs. The “Baby You Can Drive My Car” Beatles giveaway at the BMW dealership. Defense contracting. Pharmaceuticals. Software. Dating. Gourmet food. Liquor.

Piracy is dead

Unauthorized distribution has already been factored into the music economy. Valuations have been adjusted. The economic impact of filesharing is complete.

When Napster happened, it was a surprise to the music industry. The techies saw it coming but the music people didn’t. This hurt many people with investments in the music business. Highly successful musicians, who are especially loved by the public, took an especially big hit.

Then something normal happened: people adjusted their investments to accomodate the changed environment. Investors sold stock in CD stores and bought stock in guitar stores. The concert business grew. Musicians stopped doing expensive studio recording and put their money into home studios, a move from an ongoing investment in services to a one-time investment in capital. Players redirected their economic efforts from CD sales to merchandise, concerts, advertising, soundtracks and other products which benefitted from the changed environment.

It has now been nine years since Napster. The music industry has been steadily reconfiguring itself, and while the transformation to a new configuration isn’t complete, the valuation of the recording industry has already dropped to take napsterization into account.

Money lost to napsterization is already gone. There is no more to be lost.

If record labels make less money now than before, it’s not a surprise to anyone. Somebody who puts money into a recording business that is affected by napsterization does it with full knowledge of the situation. Therefore, they don’t stand to lose money on it.

It’s like buying a house in an expensive neighborhood and losing money when the neighborhood becomes less popular. If the expensive house loses value as a result of the neighborhood becoming less popular, money is lost. But once that change has happened, the transformation is over. If somebody buys the devalued expensive house at the new market rate and the house stays at the lower value, no money is lost.

Which is to say that unauthorized distribution is having no further impact on the recording industry now that it is simply a basis part of the environment. Piracy is dead.

Myspace music / Amazon deal

In the upcoming Myspace Music launch, Amazon is likely to be the provider for paid downloads. This is per TechCrunch:

The as-yet unlaunched MySpace Music will likely partner with Amazon to handle all music ecommerce transactions, we’ve heard from multiple sources. Apple and Rhapsody are also bidding for the business, however, and one source says a final decision hasn’t yet been made.

This is a wise decision on Myspace’s part. Rather than building out the entire ecommerce setup, which includes page development, label negotiations, customer support, and transaction handling, they’re offloading it to a partner. It’s a sign of Myspace’s growth as a development organization that they know when to avoid work.

TC also says that:

Music download sales are just one revenue stream for the property. … But downloads are going to be a big part of total revenue, and while margins on music sales are low, the volume could be massive as MySpace directs its traffic to the new site.

I’m skeptical that downloads will ever be a non-trivial revenue source for Myspace. The margins are too low.

Amazon itself doesn’t make anything on them; it makes money on downloads by using them to attract shoppers, and then upselling products with a real margin. For example, a user will click into Amazon to buy a download, see a recommendation for an MP3 player, and buy the MP3 player.

This is the same music strategy used by physical retailers like Best Buy. They sell CDs at close to cost in order to attract shoppers. The shoppers come for the cheapo Guns N Roses and pick up a barbeque, linen set, etc while they’re at the store. And it’s the same strategy used by clubs that do live music. The band gets the door for good or ill, while the club gets the liquor sales.

A smarter band would drop the door charge to maximize their draw and take a piece of the bar instead. And if Myspace gets affiliate revenues on the entire purchase at Amazon rather than just the download sales — which I assume they do — that’s exactly what they’re doing.

Except that the downloads aren’t free, so the funnel into Amazon isn’t as good as it could be. They can’t be free because that’s how the labels and musicians get paid. On the door.

hybrid label+blog economics

After I thought more about RCRD LBL‘s economics, I came to a couple conclusions.

I don’t think they’re selling their spots at the listed rates. I think the ads they are selling might be part of package deals with other sites that I don’t know about, because they can’t deliver enough traffic for major brands to pay attention to them. And I think the actual rates are lower.

I also think that I understand their business strategy. They’re able to put major brands inside the world of way-cool MP3 blogging without risking association with copyright infringement. It’s hip but also clean. The business is relying on their squeaky clean copyright status to charge a premium for ads. So even though I don’t think they’re getting the listed rates, I do think they’re getting much better rates than ordinary MP3 blogs.

This points towards an elegant and innovative business model.

Ordinarily internet music companies are forked between two deaths. If they keep it clean they get killed on royalties for licensing. If they’re fast and loose with copyright, they get killed on legal bills and eventually are forced to license anyway. But either problem assumes that they have to carry a broad selection of everything with cultural presence.

RCRD LBL avoids both forks by doing their own A&R, then packaging the results as a blog. The reason they’re a label is that they do their own research work to find obscure gems. It’s important that these are obscure, because it means that licensing costs can be kept down. It’s important that they do their own research, because there aren’t yet strong discovery tools for digging out the gems in the mountain of unknowns. The reason they’re a blog is that they aren’t expected to carry everything everywhere. If they were a search engine like Seeqpod or an encompassing content browser environment like All Music Guide, they would need to carry music that they couldn’t afford to license. The blog format puts them in position to limit what they release.

Note that the importance of lowering royalty costs doesn’t imply that the musicians are getting screwed. If the musicians earn exactly the same as they do on a traditional label, RCRD LBL can still have a winning cost structure by keeping royalties that would normally go to label and publishing bills.

Will it work? It depends on execution. They need to get their traffic up enough to do business with the brand advertisers who will pay a premium for RCRD LBL’s clean but edgy product line. This range is about a million uniques a month.

RCRD LBL economics

RCRD LBL is a music blog. Or a label. Or a webcaster. Hard to say exactly, but those are the times we live in.

Here’s how they explain themselves to advertisers:

Launched in November of 2007, RCRD LBL is an online record label releasing exclusive and completely free music from emerging and established artists to an audience of over 125K unique visitors each month. In addition to our in-house label, our network includes a roster of independent record labels such as Warp, Modular, Kompakt, and Dim Mak offering free MP3 downloads and multimedia content. The site is a joint venture between Downtown Records (Gnarls Barkley, Cold War Kids) and online media pioneer Peter Rojas (Engadget, Gizmodo, Weblogs, Inc.), and combines the allure of downloading services with the resources of a great independent record label and the editorial credibility of a trusted music blog.

Lots of interesting stuff there, but the one that strikes me is 125K uniques, which is good but not massive. I imagine that the three biggest MP3 blogs do about 250K apiece. They can’t monetize like RCRD LBL, though — what makes RCRD LBL special to advertisers is that it is impeccably legal.

Now jump over to the ad rates:

Widgets Size (px) Price/month
Streaming Radio Player 234 × 60 $35,000
Photos 234 × 60 $20,000
Most Popular Tracks 125 × 125 $17,500
Fans 125 × 125 $17,500
Tour Dates 125 × 125 $15,000
Sponsorship Price/month
Podcast $10,000
Newsletter TBD

It looks to me like the inventory does move because I usually do see the slots filled.

Add up all the inventory and you get 175K a month gross, or 2.1MM a year. Knock off 50% for sell through; I imagine they beat that number, because otherwise they would lower prices, but we might as well be conservative. That gives about $1MM a year in gross revenues. I’d guess 500K in personnel and 100K in bandwidth, office space, etc. These numbers are wild guesses.

I doubt the difference is profit. Most likely there’s a good chunk going to royalties, but even so it looks to me like this is a viable business built on a pretty radical product.

eMusic economics

hypebot does the numbers on eMusic:

eMusic collects 30 or 40 cents per track downloaded. Because some subscribers don’t download their monthly allotment, eMusic pays 30-35 cents per download. From that 35 cents most labels pay 10-20% to a distributor. Using 15%, that means the distributor pays that label 29.75 cents per track. The current statutory rate that songwriters receive is .091 cents per song, leaving just over 20 cents to be divided between the label and artist. That’s less than half the net payout from a similar iTunes transaction.

I’m glad to see him throw down the gauntlet and finally say what he has against eMusic. And I think he’s speaking for much of the recording industry, so this counts for a lot. Just saying what you really think helps us to move forward.

So here’s what I really think: if you don’t mention volume, price is meaningless.

I’ve been an eMusic subscriber for about five years now, though with a break of a year or so. During that time I have forked over $15 a month every single month. Also during that time I have bought about twenty songs on the iTunes music store.

I use most of my monthly allotment at eMusic, meaning that my money does get passed through to the labels and musicians. Four years of being a subscriber times 60 downloads a month times 20 cents a download = $576.

Out of my twenty songs on the iTunes music store about 70 cents (liberal back of the napkin estimate) went to the labels and musicians. 70 cents a download times 20 songs = $14.

$14 earned, but a higher per-piece rate. Or $576 earned at a lower per-piece rate. That just doesn’t make sense.

But here’s a commenter on hypebot with a more precise view on the economics of eMusic, one which uses staggered release dates to get a higher price from more-passionate buyers:

I’m sure that a lot of labels’ thinking is that if they aren’t on eMusic, then the demand for their catalogue will be greater on other sites where they are getting paid more per download. Therefore, people who are downloading will go elsewhere to get an album and the label will get more money. If a label gets, say, 30 cents/song on eMusic, they have to sell an entire album on eMusic to compete with selling 4 or 5 songs on iTunes. Sure, they may technically sell MORE songs on eMusic compared to iTunes… but they still want that “per track” number that iTunes offers. This is why you see a lot of new releases showing up on eMusic several months after release date. They want to capitalize on the demand for the album on higher paying services. It’s not a dumb move.

Now this is effective economics! They’re segmenting the market to accomplish price discrimination. People who are willing to pay more get earlier access to a release, and needing earlier access strongly suggests that you’re willing to pay more.

benefits of song pages

Reblogging elemental-consulting on how dedicated pages add value to single songs:

while I buy digital music on a regular basis, I still love the idea of CDs- something tangible that gives me more than just the music – liner notes, pictures, lyrics, all the writing/production credits etc. There’s no doubt in my mind that the advent of digital music has devalued music and the consumption of it. Quantity has overtaken quality in many cases – how many free songs can I download, how much can I fit on my iPod, how many new artists can I find today. Nothing inherently wrong with any of that, but it just means that, in these terms, a single, solitary song is seen as disposable and barely worth paying for.

1) Additional SEO-able content for your site

2) With the addition of comments, you can create community around one song and further engage your audience.

3) Adding all this value for one song adds an additional emotional appeal to your music. Not only can fans see the amount of care and attention that has been invested on the part of the artist but it broadens their experience of the song and their emotional attachment to it.

4) By using a Creative Commons license and encouraging derivations, the life of the song is extended.

What I take from this is that it gives reasons why musicians and their designated rights holders would want to create dedicated pages for songs. Given that you’ve invested in a song, you can enhance the value of your investment by giving it a page. The situation is a lot like music videos, except that the content type is anything that goes in a web page rather than strictly moving pictures.

The comparison to music videos is natural, and it gives a simple explanation for why you’d give a song a page. In the old days television was the medium for culture. These days it’s the web. So the existence of song pages is a straight transcription of music videos to the new medium.

But this way of thinking about song pages is in opposition to the perception of song pages as packaging. Are song pages more like big-ass gatefold albums or music videos?