Selling Radiohead's OK Computer for $1.99, as Amazon.com is doing, strikes me as a good way to combat free. Recent titles in the $1.99 bin have been Beirut's Gulag Orkestra (still on sale) and Inxs' Kick. For $1.99 I'm sure some people would rather buy it than dig up the CD and rip the songs to their hard drives. Laziness has its price.

No doubt these albums are actively traded on file-sharing networks. As long as people prefer P2P, that will be the case. Some people will be enticed to buy a title on sales Amazon.com's MP3 store, and the album would move (fewer) units even at regular price. iTunes faithful stick with their favorite store regardless of the higher prices. This tendency to acquire music at certain places can be explained by the venue hypothesis that was outlined in the recent Economic Insight paper by the MCPS-PRS Alliance titled "In Rainbows, On Torrents" (get PDF here). From the report:

The venue hypothesis suggests that even when the price approaches zero, all other things being equal, people are more likely to act habitually (say, using The Pirate Bay) than to break their habit (say, visiting www.InRainbows.com). The implication of this 'venue hypothesis' is that if you wish the customer to deviate from his habitual action (and try a new venue), then you must offer him an improved venue, at least in his perception.

In this case, it's not as simple as asking if Amazon.com's MP3 store is an improved venue. There are information aspects to consider: How many iTunes shoppers even know about these sale prices at Amazon.com? And consider both price and frequency of sales. Even a handful of on-sale titles can't compete with the free selection of songs found via P2P.

I see a good strategy at Amazon.com: Lure people with short sales that are almost too good to pass up, offer a broad selection of well-placed titles at higher prices, and incorporate digital music into the broader shopping experience. It's the Best Buy method of selling cheap music, only the selection is much broader. People are still going to shop at iTunes and eMusic, some people will continue to get music on file-sharing networks, and people will still share music with friends, but I think Amazon.com has a good approach in using impulsive, totally incremental sales that could lead to greater loyalty and more frequent visits.

Posted by Glenn at 11:52 AM | Link
|Amazon|

I've spent some time going through SoundUnwound, the new Wikipedia-like music encyclopedia created by IMDb and Amazon.com. The site allows users to create and edit pages for artists, albums songs and labels (you can log in with your Amazon.com user ID and password). Unlike a typical Wikipedia entry for an artist, album or song, the pages at SoundUnwound are so far sparse or completely blank -- and sometimes far more poorly written than a typical Wikipedia entry. Radiohead's entry is fine, for example, while Robert Earl Keen's entry is paltry. Since the site was only recently launched, so I imagine the quality and scope of the entries will be greatly improved over time.

In terms strictly of usability, SoundUnwound has a lot to offer. Along with text entries are YouTube videos, external website links and easy-to-browse, comprehensive discographies pulled from Amazon.com's database. It succeeds in offering the quick artist history that makes Wikipedia so valuable for research. An album page has a list of the tracks and the ability to stream a clip or purchase the track at Amazon.com. I have not run across a buy button for a complete album, and purchasing the CD requires navigating to an Amazon.com page. The genre pages benefit from Amazon.com purchase history by offering a selection of top ranked titles. (If you're curious, check out the pages for Latin, shoegaze, bebop or doom metal.) Hopefully some serious sub-genre wonks will fill out those pages well. The artist timeline page is a nice feature, although it is not contained within the main artist page.

The main differences between SoundUnwound and Wikipedia are the business model and the motivations of the users. SoundUnwound has advertisements -- currently the main page has only a single ad, for a mortgage company, near the bottom of the page -- that will contrast with Wikipedia's ad-free, volunteer-driven ethos. Amazon.com is a for-profit company, which means SoundUnwound could miss out on the unpaid crowdsourcing idealism.

How much money can be had in this sort of operation? It could probably amount to a considerable bit of revenue eventually. There are some companies that run a similar operation and try to subsist mainly on affiliate fees. In this case, Amazon.com gets the best of both worlds -- sales from page traffic without payouts to an affiliate.

More than money, at least for the first year or two, SoundUnwound can help Amazon.com serve a greater purpose: Become further ingrained in music fans' shopping habits and build awareness around its MP3 store. For download buyers, Amazon.com is far less familiar than is iTunes. This may be a good strategy to help with that.

For more commentary on SoundUnwound, read posts at Listening Post, Motley Fool and Lifehacker.

Posted by Glenn at 12:46 PM | Link
|Amazon|

Amazon.com's MP3 customers are showing $2 is a low enough price to pick up just about any album. Yesterday's $1.99 special was Classics by Aphex Twin. The collection of mostly fast and abrasive techno music is currently at #2 on the site's MP3 album chart (second only to a 30-track Beach Boys compilation selling for $5). OK, so a well known name (in electronic circles) can rise near the top of the chart with a near-giveaway price. But what about lesser known artists? Today's $1.99 special is Trouble in Mind by Hayes Carll. The album by the Houston-based artist was released on April 8 by Universal Music Group's alt-country imprint, Lost Highway. As the CD sits at #268, the low-priced MP3 album is at #13.

A look at the MP3 album chart shows Amazon.com customers' love of bargain hunting. The top eight titles are all on special -- five of them are priced at $5, two are going for $1.99 and one (by John Coltrane, currently a featured artist) is $5.99. Nine of the top 25 titles cost $5 or less.

Of course, the sweet spot varies according to demand. The Illusion of Progress by Staind, the highest non-sale title, has enough demand to merit a normal sale price. Same goes for the Mamma Mia! soundtrack that sits at #12 with a $9.49 price.

Such sale prices are probably (I'm guessing since I have no sales data to back me up) low enough to create incremental purchases that will not infringe upon the sales of popular new releases. A $2 album is practically a pack of gum at the check-out aisle. That's found money. Those prices are good for consumers' willingness to fill holes in their collections, good for labels to spur demand for a catalog title or raise awareness for a developing artist. And judging from the regularity by which I visit Amazon.com's MP3 page to see what's on sale, the store's pricing strategy can go a long way in getting repeat business.

Compare iTunes' and Amazon.com's best sellers and it's clear Amazon.com is the home of the deal. iTunes' current top 100 does not have a single album priced under $6.99 (it does contain three low-priced EPs). While Amazon.com is gaining unit market share through catalog sales and one-off specials, iTunes is doing brisk business selling titles are regular prices. That greater profit margin represents the value of loyal, practically locked-in customers who would rather pay full list price than shop around. I think Amazon.com will be able to grab the business of some frequent iTunes buyers who enjoy browsing through sale titles and looking for bargains. The larger question is if they can change the game by getting business from the more casual-yet-full price-paying iTunes customer.

Posted by Glenn at 11:05 AM | Link
|Amazon|

The use of the word "still" in the title really isn't necessary. iTunes isn't going to lose enough market share in just a few months to Amazon.com to drop below Wal-Mart. From today's NPD press release:

1. iTunes
2. Wal-Mart (Walmart, Walmart.com, Walmart Music Downloads)
3. Best Buy (Best Buy, Bestbuy.com, Best Buy Digital Music Store)
4. Amazon (Amazon.com, AmazonMP3.com)
5. Target (Target and Target.com)

Amazon.com moved from up one spot to #4 for two reasons: Online CD sales are stronger than brick-and-mortar CD sales, and the performance of its MP3 store. NPD used only the words "successful introduction" to describe the performance of the MP3 store, which is the subject of frequent guessing games about its share of the download market.

NPD bases its rankings on unit sales, not dollar value (no doubt a far easier way to do it). Given the higher sales prices of physical product compared to digital downloads, ranking retailers by revenue could lead to a different outcome. In addition, NPD converts individual tracks to albums at the rate of 12 to 1. The average album may have 12 tracks, but ten tracks have the same wholesale and retail value as an album download. Using a conversion factor of 12 rather than ten results in lower numbers for download stores.

Posted by Glenn at 4:15 PM | Link
|Amazon||Research||Wal Mart||iTunes|

Because the band's album American Beauty is on sale for $1.99. Incredible that two of these album downloads cost less than one gallon of gas. John Lennon's Imagine is currently selling for about one gallon of gas.

Posted by Glenn at 12:38 PM | Link
|Amazon|

When Napster launched its six-million-track-deep MP3 store earlier this week, I wrote that depth of catalog is important but only to a point. The marginal value of the million least-popular songs is far from the value of the second million or the third million. People rarely get that deep into the catalog. Even with my out-of-the-mainstream tastes, I probably have no interest in much of any store's tracks and rarely want an album that a store does not have.

Just how often would I delve further than five million tracks into a download store's catalog? To find out I selected 16 albums to compare at five stores: Amazon.com MP3, eMusic, iTunes, Napster and Wal-Mart. The albums were a mix of titles I recently purchased (both CD and digital), CDs randomly pulled from a rack next to my computer and a couple local artists from Nashville that have independently released EPs.

The results show there is some difference between the stores' selection but a considerable difference in prices. What eMusic lacks in catalog it makes up for in price. Napster and iTunes had the best selection (just barely) but also had higher prices than eMusic and Amazon.com.

iTunes had 15 of the 16 titles, the best ratio of the five stores, but only five of those are available in MP3. Napster had 14 out of 16 and Amazon.com had 13 out of 16, and all of them MP3s. eMusic had 12 of the 16 and the lowest price by far. For the four albums not found at eMusic, the lowest prices can be found at Amazon.com.

The titles I picked are not Top 200 stuff but aren't the slowest-moving tracks in the stores. Cinema Verite is ranked 20,475 at Amazon.com. Fresh Pair of Eyes is ranked 17,522. The Bruno Pronsato EP is not at Amazon.com, but his Silver Cities album is there and has a ranking 117,036.

Napster deep catalog was missing one relatively popular album and one that is slower moving. It did not have Orbital's Live at Glastonbury, which is ranked 23,987 at Amazon.com. Nor did Napster have Justin Earle's The Good Life, which is ranked 657 at Amazon.com. To put those rankings in perspective, Amazon.com currently lists 445,176 albums and 5,230,187 songs.

A few notes about the titles. It's a small sample that represents only my own listening preferences. Somebody else would most certainly get different results based on their purchases and preferences. I lean toward music that is a bit out of the mainstream. Some of the titles have major music group distribution while some are distributed by companies such as IODA, Iris, Finetunes or CD Baby. I acquire a good deal of tracks at eMusic (65 per month) but included only a few albums in the survey that I acquired there.

And a couple of things about prices. I pay $15 a month for 65 tracks at eMusic. Because it's a subscription store, tracks and albums do not have assigned prices. For the sake of this exercise, I divided the $15 monthly fee by 60 (instead of 65 because I sometimes do not use all of my alloted downloads) to get an average track cost of $0.25. Album prices equal $0.25 times the number of tracks on the album. Lastly, Napster charges $9.95 for every album or EP regardless of the number of tracks. Rather than use $9.95 for every title Napster stocks, I calculated the cost of downloading each track individually at $0.99 apiece.

The above chart compares the prices of the albums that two stores have in common. For example, Napster and Amazon.com have 11 titles in common from this sample of 16 albums. For those 11 titles, Amazon.com's average price is $8.12 and Napster's average price is $8.67. eMusic's prices are by far the lowest. Of the stores that carry major labels, Amazon.com had the lowest prices, followed by Napster, iTunes and then Wal-Mart.

A combination of eMusic and Amazon.com nets 16 titles (100%) in stock. When thinking about getting an album, the best way to shop is to first visit eMusic and then go to Amazon.com. In only one case did Napster have a lower price than Amazon.com. That was Johann Johannsson's A User's Manual. Napster lets you download the tracks individually, Amazon.com does not. Since the album has only five tracks, Napster's price is far better (but far higher than the cost at eMusic, which also allows for individual track downloads).

Posted by Glenn at 3:39 PM | Link
|Amazon||Napster||Wal Mart||eMusic||iTunes|

The Wall Street Journal has an article on Amazon.com's scant digital sales thus far (estimated at $100 million) even though it has invested an estimated $300 million over three years.

That article, and a post at Silicon Alley Insider, got me thinking about Amazon.com's MP3 sales and how they compared to those of iTunes.

First, I'd like to point out that iTunes did not sell two billion tracks last year as Silicon Alley Insider wrote today. Not in the U.S. and not globally (don't forget that there are many iTunes stores around the world). The numbers I have seen in the media peg iTunes' global 2008 sales at 1.7 billion. (This Billboard.biz post by Ed Christman has that estimate.) And since many of those downloads were from albums, it certainly did not sell two billion or 1.7 billion tracks at $0.99 each. (Note also that iTunes charges different amounts in different countries.)

Different versions of the iTunes store have been in multiple countries since mid-2004. Amazon.com didn't even announce an international rollout of its MP3 store until late Jan 08. So, as best we can, we should compared iTunes' U.S. sales to Amazon.com's MP3 sales.

According to Soundscan (numbers found in this post at Listening Station), there were 844 million single track downloads in the U.S. in 2007. There were an additional 50 million album downloads. If you count an album as ten tracks, that comes out to 1.344 billion downloads in the U.S. in 2007.

If iTunes has 80% market share, that means iTunes sold 1.075 million tracks in 2007. It has been reported that all iTunes stores sold 1.7 billion tracks in 2007. That puts iTunes' U.S. share at 63% of global if you assume it has 80% of the U.S. market, or 55% of global if you assume it has 70% of the U.S. market. (Billboard.biz estimated a 70% share for the U.S. in 2007.)

The Amazon.com MP3 store launched in late September 2007. So Amazon.com has been in the game for less than seven months. It's not going to compare well to iTunes in such a short period of time (regardless of the current Pepsi promotion). It does compares well to iTunes' first seven months of operation, in which it had only U.S. sales. iTunes was launched in late April 2003 and sold 30 million tracks by the end of the year.

NPD said iTunes' U.S. sales were 10x Amazon.com's in Feb 08. I figure iTunes U.S. did at least 100 million in Feb 08 (given last year's total and a modest 30% increase). At that multiple, Amazon.com did 10 million. With a small amount of growth throughout the year, that could total 150 million in 2008. Still small versus iTunes' U.S., which should do 1.2 billion to 1.3 billion in 2008.

Posted by Glenn at 11:16 AM | Link
|Amazon||iTunes|

NPD data (as reported in this Ars Technica article) suggests Amazon.com's MP3 download store is expanding the digital music market.

From NPD:

The fact that Amazon’s early growth does not appear to be at the expense of Apple iTunes is a healthy indication that the digital music customer pool can expand into new consumer groups who have not yet joined the iTunes community. Based on US CD sales, Amazon is among the largest sellers of physical music and boasts a substantial and loyal buyer base—many of whom may not be in the iTunes market sweet spot.

NPD noted that iTunes and Amazon.com's demographics differ and only ten percent of Amazon.com users had previously bought music through iTunes. There are other demos that iTunes has not reached very much. Its percentage sales of country, R&B, hip hop and Latin are well behind its strengths in indie rock, soundtracks and classical. For competitors, the laggards represent opportunities.

Dropping DRM was the right thing to do, and this NPD report offers proof. Not because it was going to instantly save the record industry, but because it would allow the market to grow, encourage new stores and services and entice entrepreneurship that had previously cringed at the thought of protected Windows Media files.

Posted by Glenn at 1:42 PM | Link
|Amazon||iTunes|

Digital Audio Insider points to TuneCore's FAQ page and some details on Amazon.com MP3 store's tiered pricing structure.

There are four levels: front line, mid line, catalog and special. These tiers follow the standard and age-old pricing levels for CDs. TuneCore notes that Amazon.com will choose the final price based on the price a band/label chooses to charge to Amazon.com. Unfortunately the page does not share the tables by which Amazon.com sets its prices.

David noted his band received its first Amazon.com payout through CD Baby. After CD Baby's 9% was taken out, the band received $0.637. This equals the $0.70 iTunes pays to CD Baby for each individual download.

Posted by Glenn at 2:06 PM | Link
|Amazon|

Billboard's Ed Christman has a great article on the major labels' official positions on DRM. EMI has already dropped DRM from its downloads, and Universal Music Group is currently testing non-DRM downloads at select retailers (but can you really see them doing an about face and sticking DRM back on tracks?).

The "tipping point," as the Gladwell-inspired Christman put it, may be an upcoming promotion run by Amazon.com and Pepsi that will give away up to 1 billion tracks (though certainly far fewer will actually be redeemed). The promotion, built around an ad run during the 2008 Super Bowl, "coincides with an ultimatum from Wal-Mart asking major labels to supply walmart.com with their music in MP3." Walmart.com could disappear and labels probably wouldn't mind, but labels should pay attention to the warning because Wal-Mart's brick-and-mortar stores represent their largest account and floor space is going to get tight next year. (Swap dropping DRM for not decimating its CD SKU count? It's worth a shot, Mr. Morris.)

Apple has a monopsony power that labels fought tooth and nail. But Amazon.com has a similar bargaining power as a buyer of media, and labels are obviously more willing to trust Amazon.com -- if only to lessen some of Apple's market dominance.

The Pepsi promotion puts a twist on the ol' "free music" and ad-based models. Rather than simply give it away or use music to sell ads, labels have an option work with advertisers and retail partners to get music onto the hard/flash drives of fans while still getting paid. How much will they get paid? Christman says sources put the amount at $0.40 per track. That's well below the $0.65 to $0.70 per track wholesale cost. As for any foot dragging over the price, labels should look at the historical precedent. They give volume discounts (plus coop marketing dollars) to physical retailers. I think one billion tracks meets the definition of volume.

Posted by Glenn at 2:34 PM | Link
|Amazon||DRM|

• Album sales dropped 6% last week and were down 17% versus the same week last year. For the year, album sales are down 14%. Kid Rock's Rock 'N' Roll Jesus debuted at #1 with the modest sum of 172,000 units (zero digital). Sales of digital tracks were flat last week but were up 56% over the same week last year. For the year, digital tracks are up 47%. Soulja Boy Tell'Em's "Crank That (Soulja Boy)" remained the #1 digital track last week even though the album sank 64% last week and fell to #16.

• Jean-Bernard Levy, chief executive of Universal Music Group parent Vivendi, told Reuters UMG will retain its superstar artists. In the wake of the mega-deal between Madonna and Live Nation, Levy predicted artists "feel good" working with UMG and mentioned that UMG is already signing artists to 360-degree contracts. (Reuters)

• Lime Wire will sell DRM-free INgrooves tracks at its upcoming digital store. INgrooves' catalog has about 100,000 tracks. (Press release)

• In an email sent out to its affiliates this morning, Amazon.com said it will pay its affiliates a 20% commission on MP3 sales through the end of 2007, and 10% thereafter. In comparison, iTunes pay affiliates only 5%. That will obviously hurt margins on sales generated by affiliates, as Silicon Valley Insider points out, but what percent of total sales comes from affiliates? Honestly, I have no idea but I can't imagine it being too great. Affiliate programs use a break-even or loss-leader strategy to get incremental revenue and convert that to future business. Don't be concerned about Amazon.com's music margins. This is the price of building awareness and repeat customers. (Silicon Valley Insider)

• Groove Mobile has inked a licensing deal with Redeye Distribution to offer Redeye's catalog -- which includes Yep Roc, Arena Rock and TKO Records -- though Groove Mobile's mobile music service. Groove Mobile powers the Sprint music store in the U.S. and 3UK's mobile music store in the U.K. (Press release)

• Nettwerk Records has joined with Passalong Networks and Digonex Technologies to create a variable-priced MP3 pilot program. Using Digonex's pricing technology, the price of Nettwerk MP3s will be adjusted weekly based on demand. Albums will range from $3.30 to $9.99 while singles will have three price points: $0.33, $0.66 or $0.99. Tracks can be purchased at Passalong's StoreBlocks site. (Press release)

Posted by Glenn at 1:01 PM | Link
|Amazon||Mobile Music||Universal Music Group|

• As expected a week after Kanye West and 50 Cent both had big debuts, album sales dropped mightily last week. Sales were down 10% and were 14% lower than the same week last year. Reba McIntire's Reba Duets debuted at #1 with sales of 300,000. West's Graduation dropped 76%to #2 and 50 Cent's Curtis dropped 79% to #3, both huge second-week fades that take a lot of steam out of last week's giddiness. For the year, album sales are down 14%. Sales of digital tracks were unchanged and were 47% higher than the same week last year. For the year, digital track sales are up 46%. Soulja Boy Tell 'Em once again had the best-selling digital track with "Crank That (Soulja Boy)."

• Songwriter Diane Warren has moved the administration of her entire catalog to Sony/ATV from EMI Music Publishing for all territories except the U.S. and Canada. Warren is a member of the Songwriters Hall of Fame and has penned such hits as "How Can We Be Lovers" (recorded by Michael Bolton), "I Don't Want To Miss A Thing" (made famous by Aerosmith) and "Who Will You Run To" (recorded by Heart). (Billboard.biz)

• I'd prefer to skip over the topic of yesterday's Congressional hearings on rap lyrics -- I honestly don't expect much to come out of this except politicians gaining a few new lines for stump speeches -- but since Jeff Leeds wrote about it I'll toss in a link to his article. Tipper Gore's PRMC hearings in the '80s generated a lot of attention but changed only how the product has marketed -- they gave birth to the explicit content warnings we now see on albums. The last thing I expect are self-sanctioning measures by labels or censorship on the part of the government, though I could imagine rappers changing their content due to market-based pressures. In pointing out the inspiration for rap lyrics, rapper David Banner had the best line of the day: "Hip-hop is sick because America is sick." (New York Times)

• Jack Sander, a senior adviser to Belo Corp and its former chairman, has been elected chairman of BMI's board of directors. (Radio Ink)

• Hypebot compiles reactions to yesterday's beta launch of the Amazon MP3 store. One question in the post asked if Amazon.com will grow the download market or just make it more fractured. Given the experience of the retailer, its sizable customer base, its innovations in pricing and merchandising and its DRM-free product offering, I believe Amazon.com will grow the market. Competition is good for consumers. Competition will get people to buy more -- not just at Amazon.com, but at iTunes and other download stores after they react to Amazon.com's entry. (Hypebot)

Posted by Glenn at 8:28 AM | Link
|Amazon||Publishing|

• Amazon.com's digital music store could launch next week, which would put it right on track for the rumored date we heard a few weeks ago. Billboard.biz reports something that really stands out to me, that the new store will have four different price points. Antony Bruno wrote, "Amazon also is planning a tiered pricing scheme that will sell new releases at one price, and older tracks at another. In all, the Amazon digital service will have four pricing tiers, which major labels find attractive." We'll get to see if Steve Jobs is correct in his belief that tiered pricing is not simple enough for consumers. (Billboard.biz)

• Gracenote has acquired Musicphone technology to beef up its Mobile Music 2.0 song identification platform. The Gracenote mobile platform is linked to its global media database of over 80 million tracks. (Press release)

• SpiralFrog, currently bleeding money as it awaits its U.S. launch, has licensed INgrooves' catalog for its ad-supported download service. With those 100,000 songs, SpiralFrog should have about 1,800,000 now. (Press release)

• iBiquity Digital CEO Bob Struble on HD radio's last step to the mainstream: "From the technology standpoint, the FCC has adopted the standard, and the broadcast industry has built out the infrastructure. The last major hurdle – and it is not insignificant – is to get people to go into places and ask for HD Radio," "The goal is that about five years from now, when you go into a store and buy a radio, it will already have HD. ... For radio to continue to be as ubiquitous as it is, radio has to be on these devices. And it is up to all of the radio business – not just us." (Radio Ink)

• Here's a tidbit that's related to the constant copyright-vs-fair use debate in music circles: Much of the economic growth of the last ten years, according to a study released by the Computer and Communications Industry Association, can be credited to the doctrine of fair use. Fair use exceptions to copyright law, it estimates, account for $4.5 trillion in annual revenue for the U.S. economy, 18% of growth and 11 million U.S. jobs. (That's a huge number considering the U.S. has a GDP of $13.2 trillion. After scanning the report, it looks like the authors include an industry's total revenue even though only part of it relies of the fair use doctrine. Keep in mind that this report was comissioned by a non-profit trade group of which Google is a member.) Download the PDF of the 45-page report here. (InformationWeek)

• The Washington Post's Marc Fisher has a good overview on the recorded music industry's push to receive royalties for terrestrial radio play and lawmakers' plan to push through legislation to grant them those royalties. (Washington Post)

Posted by Glenn at 11:07 AM | Link
|Amazon||Mobile Music||Research|