Subscription revenue was flat in 2007, according to RIAA figures (revenue dropped slightly and the number of subscribers rose very slightly). That's not a surprise. Music services have not offered a compelling value proposition to the typical consumer. I can count the number of music subscription enthusiasts I know (including myself) on one hand.

Maybe that will change. In an article titled "How Apple is Changing DRM," The Guardian approaches the idea that Apple will sooner than later get into the music subscription space.

(Bill) Rosenblatt (of GiantSteps Media Technology Strategies) thinks that subscriptions may turn out to be Apple's answer to the DRM-free competition - because it has already laid the groundwork with films which expire a certain length of time after being downloaded or watched. "You can now rent a movie on your iPod. The functionality on the iPod that enables that to happen is part of the functionality that you would need to support music subscription services," Rosenblatt says.

And later some opinion from Jupiter's Mark Mulligan.

"It's highly likely Apple will get into the next-generation service game. That could be Apple selling iPods preinstalled with unlimited access to music, or with a bundle to a subscription offering," he says. Mulligan sees the market evolving into multiple tiers. At the top end, a minority will be willing to pay a premium for the best quality, DRM-free downloads. The middle tier will be "subsidised offerings like Nokia's Comes With Music, where you buy a device and the cost of the music is included subsidised"; while at the bottom will be advertising-supported services such as Qtrax, SpiralFrog and We7, where free music is paid for by embedded advertising.

Steve Jobs has been cool on the idea of launching a subscription service. But, as the article points out, "DRM might not stop pirates, but it does rivals." DRM-free downloads just might be the impetus that gets Apple into subscriptions.

Posted by Glenn at 1:16 PM | Link
|Apple||Online Stores/Services|

When doing the math and trying to decide if $20 or $80 or whatever is a good deal for an Apple-and-music bundle, a few things need to be in the calculations. First is the classification -- download versus tethered download. Big difference in revenue and royalties. The former is an unlikely scenario. The latter is a better guide to how the upfront fees would be disbursed (exactly how this would happen, though, is a big question mark).

Second is the amount of lost sales. Apple and labels would need to offset not only the average number of downloads per iPod, they would need to make up for lost CD sales as well. (Digital album downloads, too, but I'll say CDs to make it easy.) Market research will confirm or deny this, but I think people should expect an all-you-can-eat plan to reduce the number of CDs purchased by iPod owners. Speaking only about my purchasing habits, I can say my access to tethered downloads has greatly reduced the number of CDs I purchase. (This NPD presentation presented at the 2007 NARM convention says 25% of music buyers purchased both downloads and CDs. That was in 2006. I would imagine the number has risen since then.)

JupiterResearch's David Card ran through some of his numbers:

According to Jupiter surveys, somewhere between 5% and 15% of the songs on anyone's iPod are purchased from a downloads store, the average user has 1500 songs on his iPod (though that's skewed by big collections: only 20% have more than 1,000), and the average iPod user spends $20 to $35 per year -- not over the lifetime of a device -- on downloads. (The average paying downloader actually spends at least $10 more, but a lot of iPod users don't buy any downloads.)

If moving a consumer to an all-you-can-eat bundle results in one fewer CD purchased per iPod owner per year, labels are out about $10 for the CD and another $13 to $23 for lost download revenue. Since Card says the average downloader (as opposed to iPod owner, since not all iPod owners purchase tracks) spends at least $10 more per year, let's go with the high end and say a downloader buys $45 per year in downloads. That's $30 for the labels that would be lost (assuming the person completely stops buying downloads).

One lost CD sale increases the opportunity cost of a bundle from $30 to $40 per year per iPod. If a person replaces his/her iPod every year, $40 per device would cover the lost revenue. If the higher price (for the premium bundle) causes owners to hang on to the device for two years, and if the subscription lasts the life of the device (unknown at this point), the cost of a bundle would be $80 per device. (I won't get into the potential disruptions a CD-for-subscription exodus would cause for existing CD sales channels. CD sales are bad now, but a successful Apple bundle would cause CD sales to drop at an even faster rate.)

For the sake of this argument, let's say a switch to the bundle results in two lost CD sales per year and a 100% reduction in downloads.

- Cost of lost downloads: $30 ($45 purchased, $30 wholesale to labels)
- Cost of lost CDs: $20 wholesale
- Total annual revenue lost from switching to bundle: $50 ($30 downloads and $20 CD)
- Total revenue lost over two years: $100

The scenario is only for more active music buyers, and one could assume a fair number of people were going to stop buying CDs anyway. If heavy buyers switch to the subscription model, the bundle idea could work if the infrequent buyers make the switch as well. Larger losses will be balanced by far smaller losses. A way labels can come out ahead is if those iPod buyers who previously did not buy downloads opted for the more expensive iPod-music bundle. That's found money.

Posted by Glenn at 2:37 PM | Link
|Apple|

A big topic of the day is the news that Apple is working on a device-subscription bundle that would give buyers of a premium iPod or iTouch free access to iTunes music. So big, actually, that CNBC's "Squawk on the Street" took a few minutes off the Bear Stearns crisis to talk about it. Just check out the action at Techmeme. There are dozens of blogger responses to the Financial Times report.

It's worth nothing that Silicon Alley Insider spoke to some sources and reported "...while some are skeptical this will amount to anything, we're told discussions have definitely taken place."

In all the posts I read, something was missing: An explicit reference to DRM. Some comparisons were made to Nokia's "Comes With Music" plan, which would lock up downloads with DRM. There were some mentions of the current per-stream royalty structure and a few vague indications that people expect the music to be trapped on the device, but nobody came out and said "DRM!" In many cases, surprisingly, people assumed a download acquired through this sort of bundle would be theirs to keep forever.

It seems the only way to make this equitable to labels is to make them tethered downloads. Owners of sound recordings would get a percent of revenue. Publishers would get a percent of revenue. Allowing for unlimited downloads -- or even a high, set number of downloads -- would be problematic for a number of reasons, the most obvious of which is plain old dollars and cents: Labels could lose their shirts paying mechanical royalties on downloads unless some other royalty structure is magically agreed upon. (I won't get into whether or not labels would get a fair return for all the music downloaded. Some people would be gluttons. Some would download sparsely. It's hard to say how it would turn out.) Another problem is political: If unlimited downloads were allowed, labels would have to endure the wrath of every other online music store and service...the very ones labels have hoped would rise up and challenge iTunes' dominance.

JupiterResearch's Michael Gartenberg assumes a subscription-style model in his post today:

First, with the latest changes to the Fair Play DRM to support movie rentals, the technology now would also be able to support a subscription service as well. Second, if Apple does this, the one thing I'm sure they will do is take the time to market this beyond the hard core music lover and explain the value proposition of how a subscription service can co-exist with music that you own and that the two are not mutually exclusive.

Maybe I am underestimating the industry's ability to embrace a drastically different business model. Perhaps the plan would have a ceiling on the number of tracks that are downloaded in a set time period (a la eMusic). Anyway, we're working with too little information to make much of a judgment. If and when details emerge we can better predict the plan's feasibility.

Posted by Glenn at 12:06 PM | Link
|Apple|

• Apple and the major music groups will meet with the European Commission on September 19 and 20. The parties will discuss the Commission's antitrust accusations regarding territorial issues with iTunes. The Commission would like to see equal pricing across territories and wants shoppers in one territory to access an iTunes store of another territory. Refer to this April 2007 article in the Financial Times for more on the Commission's antitrust probe. (PC Advisor)

• Proving once again that the future of hip hop is marketing, Pharrel will hook up with Moet Hennessy USA for a marketing campaign. Pharrel will do more than lend a name to a brand, he will create the music for seven internet spots and three television commercials. (Billboard.biz)

• The IFPI is pleased as punch that a new Swedish government-commissioned report has recommended that ISPs take greater responsibility for removing infringing material from their networks. From the report: "It is proposed that the law be amended so that Internet Service Providers can be ordered, under penalty of a fine, to take action such as terminating the contract of a subscriber to prevent continued infringement using the Internet Service Provider’s services." (IFPI)

• Apple confirmed that the upcoming iPod touch will not download MP3s from web pages over the Internet. No biggie. Americans love to sideload. (Listening Post)

• Over at Michael Geist's blog, he has some comments on a Vancouver Sun article on the state of the Canadian recorded music industry and some rebuttals for comments by the CRIA's Graham Henderson. II'll add a comment to one of his points: The fact that Canada's digital sales increased 122% last year versus 65% in the U.S. does not speak to any relative health in Canada. Instead, it means Canada lags behind the U.S. digital growth is slowing. Less mature markets tend to have higher growth rates but lower overall numbers. Canada's rate of growth will drop just as growth dropped here. (Michael Geist)

• There is a big difference between television and music in terms of quantity of content available, but this quote from Tracey Scheppach, Starcom USA's SVP of video innovations, and the interview it's from is still worth examining: "...one lesson that I have learned from TiVo is when a consumer has control over what they want to watch and when, the long tail is just not that long." (Ad Age, via Techmeme)

• The Bay Area mourns the closing of Mill Valley's Village Music. (SF Chronicle)

Posted by Glenn at 7:32 AM | Link
|Apple||Long Tail|

Apple announced some new editions to its iPod roster yesterday. You've probably read all about the new iPod nano and the new iPod touch, which is like an iPhone without the phone capabilities. To go along with the is the WiFi music store, which is a simple music store that sells a la carte downloads. One thing that interested me was the partnership with Starbucks for the WiFi music store. That's an incredible pairing of lifestyle powerhouses.

Here are some of the comments I've run across on the Internet.

Engadget liveblogged the keynote and has extensive pictures and commentary.

Gizmodo has "5 Things We Love, 5 Things We Hate About the New iPod Lineup." Loves the WiFi Music Store and 160GB iPod Classic. Hates the the iPod Touch's 16GB of memory and the 99-cent ringtone surcharge.

Also at Gizmodo, video of using an iPod Touch.

Bit Player pines for a subscription service: "What (Apple) hasn't done, unlike some other Wi-Fi enabled players, is change the game for music fans. ... Wi-Fi without access to an unlimited library of tracks just doesn't seem like much fun to me."

Jupiter analyst Michael Gartenberg: "I believe Apple once again met and exceeded increasingly high expectations. It now has a very deep and complete product line for going into the holiday season, at amazing price points and feature sets that will drive different customers into different purchase funnels. ... Apple is NOT preaching to the choir here, they're looking to get a whole new customer into the house of worship and that's exactly what's likely to happen this holiday season."

From a Billboard.biz article: Piper Jaffray's Gene Munster calls it "the most exciting iPod lineup ever" while iSuppli thinks it's a "stop gap" measure until flash drives increase in capacity and fall in price.

And only slightly related, A Q&A with Steve Jobs at USA Today: "Q: Many people already have Beatles music on CDs. Will they really buy it online if they already own it? A: I do expect them to, yes. That's been the case with other music, as well. I own every Bob Dylan album ever, but I buy a lot of it on iTunes, because I guess I'm just too lazy to rip it from the CD."

Watch a Quicktime video of the keynote address at the Apple web site.

Posted by Glenn at 12:56 AM | Link
|Apple|

• Rumor is that Apple will release a new iPod on September 5. (Ars Technica, via Listening Post)

• An Arbitron executive talked of the relationship between employment and radio listening. People who are employed listen more than unemployed and part-time workers. Also, men are listening more than women. (Radio Ink)

• EMI band Athlete is the first chart-eligible U.K. single to be bundled with a tutorial video. "Hurricane" comes with the video, guitar tablature and a preview trailer of the band teaching consumers how to play the song. (Billboard.biz)

• HMV Canada is unilaterally dropping prices on its catalog CDs by up to 33%. (Billboard.biz)

• Classical labels' fall schedules are filled with popular works performed by popular artists. (Billboard)

• AllOfMP3.com will be back "in the foreseeable future," according to a post at the site. (AllOfMP3.com, via Tech Crunch)

• The ridiculous exaggeration of the week comes from Erik Himmelsbach's review of the book "Marooned" in the Los Angeles Times: "Satellite and the Internet and such services as iTunes are making the airwaves pretty much obsolete." Must be quite a bubble he's living in. (Los Angeles Times)

Posted by Glenn at 10:42 AM | Link
|Apple||EMI|

• The House Small Business Committee Chairwoman doesn't want to get involved in the webcaster royalties issues. At a hearing yesterday she said, "I really don't think Congress would be the best type of vehicle to resolve this type of issue. July 15 is just around the corner, and I hope the two parties can come together and resolve this issue." She hinted that webcasters and SoundExchange could change the definition of a small webcaster, which would allow larger companies to pay lower rates. (BusinessWeek.com)

• As the U.K. division of Sony BMG announces it will not be part of the global plan for the upcoming Prince album comes news that Prince is planning to use the album as a free giveaway with copies of a The Mail on Sunday newspapers. As one would expect, music retailers are incensed. Price also plans to bundle a digital copy of the album with each ticket sold for an upcoming series of London concerts. In May, The Mail on Sunday drew the ire of Mike Oldfield when The Mail gave away copies of his classic album Tubular Bells (The Guardian)

• Much ado about nothing? Retuers has an article about music executives who are fretting that the iPhone will "too much clout to Apple Inc. in shaping the future of the fledgling mobile music market." Once again, maybe I'm missing something but the iPhone is an iPod with a phone attached. It sideloads music just as an iPod sideloads music. I agree with Groove Mobile CEO Adam Sexton: "I don't think the iPhone is going to be the game changer that people are predicting." It will change the mobile phone game, but until it introduces a drastically new way to purchase and experience music, it won't change the mobile music game. (Reuters)

• MySpace Music and Snocap have combined to co-sponsor a tent at this summer's Warped Tour. If those kids have either a credit card or a PayPal account, that will turn out to be a great promotion for Snocap. (Snocap)

• Just how few decent music DVDs are being released these days? A year ago, there was only one music DVD in the top 20 that had been out for 100 weeks or more. Last week, there were six releases in the top 20 that had been out for over 100 weeks.

• Jupiter analyst Mark Mulligan offers analysis of the BBC's online broadcast's from the annual Glastonbury music festival. "The online content include information on acts, photos of performances etc. All of which were great discovery tools. I personally ended up buying a dozen or so tracks from acts I’d seen for the first time. And now the BBC has updated the site to provide video and audio highlights." (Mark Mulligan's blog)

• In this review of Ash's Twilight of the Innocents, The Guardian is still talking about the death of the album. Dorian Lynskey hits the bullseye when pointing out that that the band, which has disavowed the album format for good, never was an album kind of band to begin with. "But whatever the logic (let's assume the resultant publicity was just a happy side-effect), Ash are prime candidates for this experiment. Like Slade, Madness or the Sugababes, they excel at sprints, not marathons. If you could only own one Ash album, it would have to be their impeccable singles collection, Intergalactic Sonic Sevens." (The Guardian)

Posted by Glenn at 7:12 AM | Link
|Apple||Marketing||MySpace||Snocap||Webcasting|

• Album sales were down 7% last week and were 5% lower than the same week last year. For the year, album sales are down 15%. That's a two-point improvement in just two months. Sales of digital tracks rose 2% for the week and were 44% higher than the same week last year. For the year, digital track sales are up 49%. Two months ago, digital tracks were up 52% for the year. Three months ago the number was 53%. One might find it odd that album sales are improving against last year's pace while digital track sales are worsening against last year's pace. I have two thoughts on that. First, it confirms the popular belief that last year's album release schedule was weak. Second, digital track sales' pace could be the result of slowing digital music player sales (see second-to-last news item below).

• Finally, somebody comes out and admits that the iPhone isn't going to impact the recorded music business (at least in the near term). AP's Alex Veiga is right when he wrote that sideloading still trumps the unfilled promise of ubiquitous, over-the-air download. That means the iPhone is a very expensive version of the iPod...which is already pretty ubiquitous. Forrester's Charles Golvin didn't have to go out on a limb when he said, "I imagine most of the people who'll buy the iPhone will be iPod users already." (AP)

• As part of Universal Music Publishing Group's acquisition of BMG Music Publishing, UMPG is combining its Nashville operations. Pat Higdon has been named EVP and GM of UMPG Nashville and will report to chairman and CEO David Renzer. (Nashville Business Journal)

• Vanessa Carlton has signed with Irv Gotti's The Inc. Her third album, already recorded, was produced by Stephan Jenkins (Third Eye Blind) and includes songs co-penned by Linda Perry. (Billboard.com)

• The Format is giving away for free its "Dog Problems EP" at the band's website. The freebie lasts until July 16th and is happening because the band owns its own publishing and master recordings. "We'd be doomed if we sat around and waited for things like radio play to come around," said singer Nate Reuss. The EP was released through The Vanity Label. (The Format, via Out The Other)

• Here's the next RIAA heart attack: Is Google better than LimeWire for sharing music? One person things so, and has shown how using the search tag "index.of" will lead Google to reveal directories and not actual web pages (view YouTube video). Those directories shows files that people have stores on servers but have not linked to web pages. His website, JimmyR.com, has instructional videos and tips on how to get audio from YouTube videos, how to put a Google MP3 search on your website, and it has its own Google search that simplifies searching for MP3s, albums, torrents, PDFs and ringtones. (Slyck)

• Sanctuary's radio promotion department is closing. (Billboard.biz)

• I missed this on Friday: Digital music player sales are down 20% this year. Analysts are giving two key reasons for the drop: Music-enabled mobile phones and a penetration rate that is approaching saturation. (AP)

• Edison Research says the Internet is approaching television as the "most essential" medium. Among those surveyed, 36% voted for television and 33% voted for Internet. "In almost every category we surveyed, the Internet has doubled or tripled where in consumer's minds it bleeds into all facets of their lives." (Internet News)

Posted by Glenn at 7:09 AM | Link
|Apple||P2P||Publishing||Universal Music Group|

• Apple sent out a notice to its partners to let them know how they can offer DRM-free downloads. (MacRumors.com)

• The British Phonographic Industry is pleased that local acts are finally selling well in the States. According to its press release, the UK now accounts for one in 12 albums sold in the U.S. Hmm...it it a coincidence that this comes as urban sales are slumping? Or is the partially due to UK government assistance and more touring? Gone are the days Brit stars go for a radio hit and a six-city U.S. tour. They're putting in a lot of effort over here. (Press release)

• Caiman Inc, owner of the Tower Records logo and the Tower Records domain (www.tower.com) is going to relaunch the website and open stores in New York, Los Angeles and San Francisco. (Hollywood Reporter)

• Indie label Touch & Go will launch a music download store sometime in June. Downloads will be in the MP3 format and will have standard pricing ($0.99 per track, $9.99 per album). For consumers, this might be big news if much of Touch & Go's catalog -- less Steve Albini bands -- was not already available at eMusic at far better prices. (Billboard.biz)

• The RIAA really took to the report released by U.S. Trade Representative Susan Schwab that highlights piracy hot spots around the world (Russian, China, Brazil, Thailand, Czech Republic and Canada). (RIAA press release)

• BurnLounge is moving to the MP3 format. (Press release)

• Del McCoury's McCoury Music has signed with RED Distribution to handle all of McCoury's future projects. (CMJ.com)

Posted by Glenn at 9:27 AM | Link
|Apple||Online Stores/Services||Tower|

If you're scanning through the Op-Ed section of today's Wall Street Journal, you'll see a piece on Steve Jobs written by Michael S. Malone, often called the country's first daily high-tech reporter. It's part profile, part case study and totally overboard. This kind of Jobs worship is usually the work of Newsweek's Steve Levy or many of the incalculable number of Apple-loving tech writers/bloggers. "This is the thanks," begins the article, "Steve Jobs gets for saving an entire industry." (I'm sorry....when was the industry saved? I must have missed the memos about EMI's incredible financial health, Warner Music Group's hiring binge and Sony BMG's overflowing coffers. Things could be worse, I suppose, but nobody has been saved just yet.)

Aside from the idolatry, most of the op-ed is decent enough (though common knowledge to many). There are a few drawbacks. Malone's criticism of the industry's anti-P2P strategy is flawed given his awe of pay-for-download store iTunes, he's stretching when he wrote that in 2003 the music industry "was on the brink of seeing its entire revenue model destroyed by the black market," and he gives too little credit to the iPod and too much to iTunes. At the end, Malone offers keen foresight:

"Is this a turning point in the story of digital music? Will the other Big Three follow (EMI's decision to offer DRM-free downloads)? One can only hope so. The music moguls trusted Steve Jobs once and he saved them. It's time for them to trust him again.

If they don't, they shouldn't be surprised by what comes next. Having squandered the trust of its consumers, the music industry is rapidly losing the loyalty of its content providers as well. Artists have been the big losers in all of this, and by necessity they've had to learn a little about marketing and distribution. Software is software, even if it's got a beat -- so what's to keep Steve Jobs and Apple from going into the music business itself?

Developing and managing musicians is not related to any of Apple's core competencies, so I would not be surprised if Apple stuck with selling hardware and a (relatively) few downloads and left the sausage making to others.

Posted by Glenn at 12:53 PM | Link
|Apple|

Just about everybody has an opinion on EMI's drop of DRM from its digital downloads. Here's a compilation of analysts' quotes and a few of my thoughts.

Jupiter's David Card sees little short-term impact and a greater long-term impact: "Will DRM-free distribution jump-start digital music sales? (Especially enough to deflect the impact of dying CDs.) Unlikely. At least not in and of itself. It should enable more competition among stores and devices, which, in the longer run, will."

Card is right. EMI alone cannot cause much of a change in digital sales. Consumers will react when they have a reasonable expectation of what product and price awaits them. Since iTunes is mostly a "pull" retailer, customers will have to stumble across EMI's DRM-free tracks artist by artist, release by release. (I imagine that serious jazz fans know which titles are owned by EMI, but mainstream pop fans? No way.) When consumers know that all tracks are DRM-free, their behavior will begin to change (which could mean an increase in purchases or the purchase of a different music player).

Dropping DRM was good news for the digital kiosk industry, which to date has been hampered by interoperability. There's a great deal of potential there -- but only when all songs are DRM-free. Partially DRM-free catalogs could be a source of confusion and frustration.

In writing about the DRM drop's effect on iPod competitors, Jupiter's Michael Gartenberg did not make a prediction but explained the implications of either outcome: "For other vendors in the hardware space, it will eventually remove the issue of iTunes lock in but if their sales don't take off, it will be clear that it wasn't lock in to the iPod economy that prevented their success."

Gartner's Mike McGwire had two points (read article here). First, Apple will get more money for basically the same product. Second, DRM's future lies in subscription-based models, or as he put it "less as a lock and more as a tracking mechanism." I think that's fair to say. All-you-can-eat subscription models require DRM.

Said NPD Group's Ross Rubin (in this SF Chronicle article), "Most consumers just care if it works with their music player today. But in the long term, it'll benefit consumers because we'll see more devices able to work with digital music."

Bridgewell analyst Patrick Yau did not go out on a limb. "EMI has said that it is aiming for 25 percent of its revenues to come from digital sales by 2010, and we suspect that this will provide a boost to those aims," he said. Sure. Unless labels do something to shore up CD sales, that 25% by 2010 would be a done deal without ditching DRM.

Posted by Glenn at 12:13 PM | Link
|Apple||DRM||EMI|

Steve Jobs certainly has the ear of the world. Anything he says is scrutinized and analyzed until his next public statement. On this surface, his latest statement, a lengthy open letter, requires no scrutiny. Jobs' message was clear: iTunes has DRM because the majors insist upon it, and they would drop -- "in a heartbeat" -- the DRM if the majors' licensing agreements allowed for it. The reasons behind the letter are less clear. That has lead to much commentary and analysis of the letter.

Apple may feel that an open format gives it a competitive advantage in some way. It wants to secure future growth. Or it wants interoperability-demanding European countries off its back and wants record labels to offer a fix. It could be a move to harm Microsoft's Zune before it gets off the ground. Jobs' open letter was not driven by some kind of idealism to build an open-format, digital music utopia. There were cold, calculating business reasons behind it.

Norway called out Apple, hinting that Jobs wanted the labels to bail him out of his problems with some European countries over interoperability issues. Senior advisor Torgeir Waterhouse feels Apple shouldn't wait for a label-endorsed open format in order for iTunes to achieve interoperability. "Our concern is of course that it's Apple and [the] iTunes Music Store [that] should be addressing the issue of record companies and DRM themselves if it needs to be addressed - and as we've stated earlier it's iTunes Music Store that's providing a service to the consumers and therefore has the responsibility to offer up a consumer friendly product."

An errant statistic reveals an underlying theme of the open letter: Jobs wants consumers to think the major labels are controlling them. The four majors, wrote Jobs, control 70% of the world's music. That's far from the truth, of course. The majors account for 70% of sales. The vast majority of music is produced by smaller labels or independent artists -- and most of them aren't pleased about the DRM placed on their songs at iTunes.

Additional reading:

• Forbes.com: "It Jobs Making Nice With Europe?" "Europe is a key market for Apple. The company's net sales in the region of the iPod, Macintosh computers and other products totaled $1.71 billion in the first fiscal quarter of 2007 (which ended Dec. 31), surging 38% from the same period a year earlier. Europe accounted for 24% of Apple's sales last quarter and its growth rate outstripped those of other markets."
• Jupiter's David Card: "Jobs Says: Let My Music Free!" "Who needs lock-in when you have 70% market share? And there is no lock-in because only something like 6% to 20% of the songs on iPod users' devices comes from the iTunes store. Not the 3% Jobs gets from over-simplified arithmetic (a ton of iPods are upgrades, and only about half of device owners buy any digital music at all)."
• Forrester's Josh Bernoff: "Steve Jobs' brilliant strategic move: kill DRM" "More stores means more iPod sales. Apple makes its money from iPods far more than iTunes. Killing DRM will open up any store to sell music for iPods."

Posted by Glenn at 5:44 PM | Link
|Apple|

• Record exec and producer Rick Rubin is in talks to become co-chairman of Columbia Records. His label American has three years left on its deal with Warner Music Group. (Variety.com)

• Patents filed by Apple appear to be an attempt to strengthen its FairPlay DRM and the iPod and iPhone ecoystems. (ITNews)

• Billboard.biz talks to Roger Faxon and Clark Miller of EMI Music Publishing. "The reality of the online world is that it has no borders, and, therefore, the license needs to recognize the expanse of the use territorially." (Billboard.biz)

• VH1 gets into the user-generated content business with its recently launched Talentload.tv. (paidContent)

• Yesterday CBS Radio's WARW-FM/Washington switched to 94.7 The Globe, adding alternative hits to its classic rock format and adding a pro-environment message. (Radio Ink)

• Music promoter Billy Kelly, who was behind Glasgow's Big Big World and Big Big Country, died at the age of 58. (The Herald)

Posted by Glenn at 7:45 AM | Link
|Apple||DRM||EMI||Publishing||Sony BMG|

CES, the annual electronics convention in Las Vegas, is always a time for companies to reveal new products and announce new partnerships. For the music industry, yesterday's announcements showed that no one company can go it alone. As services and hardware become more integrated, we're going to see palpable shifts in how consumers -- all consumers, not the early adopters who dive head-first into any new gadget -- enjoy music. Here are a few of the key announcements thus far.

• Apple and Cingular. The Wall Street Journal reported Apple is launching a mobile phone service and a phone. Cingular will be the network provider.
• Microsoft and Clear Channel. Clear Channel will supply the HD radio content for Microsoft's MSN Direct service.
• Microsoft and Motorola. Motorola's new mobile phone will use Microsoft's Windows Media DRM to allow users to play music from such services as Rhapsody, Napster, Yahoo! Music and URGE.
• Morotola and Warner Music. The global agreement puts Warner Music content exclusively in Motorola mobile services.
• Rhapsody and TiVo. Later this year, the Rhapsody music service will be integrated with TiVo so three million songs will be accessible on consumers' televisions.
• Rhapsody and iriver. iriver announced two new Rhapsody-enhanced portable music players; one of the devices (pictured) will download music over the air from the Rhapsody music service. Both devices will be available by July 2006.
• Rhapsody and Logitech. Next week, users of Logitech's Squeezebox and Transporter players will be able to access Rhapsody without using a PC. The service will be priced at $9.99 per month.

Posted by Glenn at 9:40 AM | Link
|Apple||Digital Music||Mobile Music||Portable Music Players||RealNetworks||Rhapsody|

Forrester analyst Josh Bernoff, whose name has been all over the news because of a report on slow sales at iTunes, offered clarification on his report. At a follow-up post at his blog, Bernoff called it a "a case study in how information -- and misinformation -- spreads on the Net."

News or the report started with a "fairly balanced" article at The New York Times. Then The Register and Bloomberg, he wrote, "decided to dive in and highlight one finding of the report -- that iTunes sales had dropped in the first six months of this year." With that came sensational words like "collapsing" and "dropping." Newspapers around the world followed suit. Apple's stock dropped 3%. All from a report that indicated what everybody already knew -- iTunes' sales have been flattenning out.

Bernoff laid out his opinion in very clear terms (emphasis his):

"Now for the record, iTunes sales are not collapsing. Our credit card transaction data shows a real drop between the January post-holiday peak and the rest of the year, but with the number of transactions we counted it's simply not possible to draw this conclusion . . . as we pointed out in the report. But that point was just too subtle to get into these articles."

He added that Apple's refusal not to comment either or or off the record "fuels speculation, pro and con, from their supporters and detractors."

So there you go. The sky is not falling. iTunes sales, while not breathing new life into recorded music sales, are not 65% down since January. Even just a cursory glance at Soundscan figures indicate positive year-over-year growth and slower growth in 2006.

Posted by Glenn at 10:31 AM | Link
|Apple||Research||iTunes|

• The Financial Times reports EMI has hired a third investment bank to advise on a potential deal with Permira. It is a sign a deal could be finalized soon, maybe this week. (Read Reuters article)

• Forrester takes the iPod down a notch. Analyst Josh Bernoff: "The iPod is not necessarily a machine for generating revenue for the music industry." He has found that iTunes' rapid expansion has slowed (as has digital sales in general), which echoes worries by music executives around the world. (Read article at Globe and Mail)

• The holiday layoffs continue. House of Blues layed off 79 people post-acquisition by Live Nation. (Read article at Billboard.biz)

• Hits reports on more structural changes at Sony: Columbia Records' promotions staff is now organized by "national specialist cells by format." (Read post at Hits Rumor Mill)

• An IDC report on mobile music services are not connecting with consumers. One of the main reason is prices, which are seen as too high. While SMS (short message service) is popular, only about 20% of respondents have purchased a ringtone and only 10% have purchased either a graphic, wallpaper or game. (Read post at Playlist)

• J. Valentine, known for a sound described as "R&Bay" (rhythm and bay) has signed with J Records. His album will be out in early 2007. Production was handled by Scott Storch, Cool & Dre, The Underdogs, Dre & Vidal, Polow Da Don, Needles and The CityBoyZ. Among the guest artists are E-40, Keak da Sneak,Bailey and Keri Lynn. (Read press release,, via Kings of A&R)

• Sony Music Studios unveiled Sony Music Studio Internet Mastering, an Internet-based mastering service that will professionally master four songs per project at a cost that starts at $99 per track. (Read article at Mixonline.com)

• A few bits from yesterday's FCC media ownership hearing in Nashville. The Hollywood Reporter has a good overview. Radio Ink has excerpts from introductory remarks from Chairman Kevin Martin and Commissioners Michael Copps and Jonathan Adelstein. The FCC website has the full texts of their remarks (read PDFs of Martin, Copps and Adelstein).

Posted by Glenn at 7:16 AM | Link
|Apple||EMI||Live Music||Mobile Music||Sony BMG||iTunes|

• Borders filed its 10Q report yesterday. Bad news for record labels. Comparable stores sales in the music category were down 17.8% for the 13 weeks ending October 28, 2006. Total sales were up 1.8% over the same period last year. Net loss improved to $39.1 million over $14.1 million last year. (Go to Borders SEC filings page)

• This is a week old but I just saw it: Iceland cut its Value Added Tax on recorded music to 7% from 24.5%. Who's next? (Read IFPI press release)

• A patent application is the smoking gun for speculation that Apple is moving to launch a mobile phone. (Read Financial Times article)

• There's some music- and entertainment-related issues in this debate between Dave Winer and Robert Scroble over whether Microsoft is an innovator or is playing catch-up. (Read article at Wall Street Journal)

• A Disney executive said YouTube needs a more efficient procedure for taking down infringing content. (Read Reuters article)

• Universal Music Group's Doug Morris was such a fountain of information and opinion at the Reuters Media Summit. Here's another UMG tidbit: Mariah Carey is slated to release two albums in 2007. (Read post at SOHH)

• Musicnotes sold its 2,000,000th sheet music download. It hit the 1,000,000 mark 15 months ago and sold its first in 1999. (Read press release)

Posted by Glenn at 10:43 AM | Link
|Apple||Brick-And-Mortor Retail||Universal Music Group||YouTube||Zune|

OIn Tuesday, Universal Music Group's Doug Morris told the Reuters Media Summit "it would be a nice idea" to seek an concession from Apple like it did from Microsoft and its Zune. "We have a negotiation coming up not too far. I don't see why we wouldn't do that... but maybe not in the same way."

Not exactly fighting words from Mr. Morris. Compare that statement to his tongue lashing at YouTube and MySpace In September: "We believe these new businesses are copyright infringers and owe us tens of millions of dollars."

Like I wrote last week, UMG had Microsoft stuck between a rock and a hard place, and the cost of not having UMG's catalog for the rollout was greater than a small per-unit fee. But UMG has little to no leverage with Apple. The "or else" UMG would have to give to Apple would be a threat to pull its catalog, which would draw the ire of UMG artists and Vivendi shareholders if it came to pass.

Let's pretend UMG gets some kind of concession. If not a per-iPod fee, what concessions could UMG get? Maybe better margin. Maybe better placement of UMG titles. Maybe some kind of partnership. Probably not cold, hard cash.

Posted by Glenn at 12:29 PM | Link
|Apple||Universal Music Group|

• Vivendi received approval to acquire BMG Music Publishing from Bertelsmann. The combine music publishing company is bigger than current leader EMI Music Publishing. (Read article at Billboard.biz)

• IRIS Distribution and Sonific created a partnership that will add tens of thousands of master recordings to Sonific's catalog of songs available for use with Sonific's SongSpots widget. SongSpot can be placed on a blog or website and will stream music from Sonific's catalog. (Read press release)

• Research and Markets has released the second volume to its "Ringtones: Past, Present and Future" report. Among the reports conclusions: labels are in "an explosive growth phase," "the outlook for pure-play mobile content aggregators is bleak" and covertones, or ringtones comprised of cover versions of popular songs, "are here to stay as a viable component of the market." (Read press release)

• Apple scored a deal with six airlines to place iPod docks in passenger seats. One key component: Each seat must have its own video display, which rules out most of the planes I encounter. Expect to see the new system used mid-2007 by Air France, Delta, Continental, Emirates, KLM and United. (Read post at Digital Music News)

• The FCC announced a public hearing on media ownership that will be held in Nashville on December 11th. (Read article at Radio Ink, download PDF of press release)

Posted by Glenn at 12:14 PM | Link
|Apple||Digital Distribution||Publishing||Radio||Ringtones||Universal Music Group|

• Yoko Ono has sued Capitol Records for $10 million plus interest for "willfully and knowingly underreporting royalties." EMI calls it "understandable given the complex nature of recording contracts." (Read AP article)

• paidContent.org is almost a week late with its redesign, but it looks great. Earlier this year the digital technology blog received an investment from Greycroft Partners. Yes, blogs are real businesses.

• Finally, Guns N' Roses buzz that's actually related to an actual new song. The band's "Better" is being used in a 30-second Harley-Davidson ad. (It's not yet on the Harley website.) Here's the entire song at YouTube (while it lasts).

• New York magazine gets some quotes from New York music legends on the demise of Tower Records. Glenn Branca called later-era Tower "a bad supermarket that only sold food that had no nutrients." Moby described post-downloading Tower as "a few forlorn employees and tumbleweeds blowing by the dust-covered CDs." Check the picture of the 4th and Broadway Tower at the top of the page -- it was the place to be in 1981. (Read article at New York Magazine)

• A discussion for you musicologists: De La Soul's use of Hall and Oates' "Say No Go" wasn't "ironic distance." The group just liked the song. (Read post at Dial "M" For Musicology)

Posted by Glenn at 11:28 AM | Link
|Apple||EMI||Legal||Weblogs|

Early adopter-oriented outlets give every new iPod/iTunes wrinkle maximum coverage. When the Wall Street Journal's Walt Mossberg highlights new technology, he speaks to a more mainstream audience. His influence is why I take note of his articles.

Today, Mossberg and Katherine Boehret wrote about the new iPod and iTunes and the increased competition from Microsoft's Zune and Rhapsody's branded SanDisk player. Their verdict?

"The new iPods are more versatile and less costly than ever, but the new iTunes software is an even bigger improvement, although it has one big downside -- its coolest feature is so graphically demanding that it doesn't work right on some older consumers."

The big winner was the new iTunes feature called Cover Flow, which they called "just a parlor trick" but they "love it" because it reminded them of "flipping through a box of old vinyl albums or watching an old jukebox in a diner." The article is not aimed at Generation Y, obviously.

Posted by Glenn at 7:46 PM | Link
|Apple||iTunes|

• A concert promoter tells the Houston Chronicle that country radio refused to promote the Dixie Chicks' tour and wouldn't even accept the promoter's advertising money. In response, one station manager said the station doesn't advertise bands not on its playlist. How logical. (Pollstar)

• Research group Screen Digest predicts throught 2010 "online sales alone are not going to be enough to halt the decline in music sales." (Reuters)

• All of a sudden the ol' income statement is looking a lot better: Apple and Creative settled their patent dispute. Apple will pay Creative $100 million and will welcome the company's products into the "Made for iPod" series of accessories. (MacDailyNews)

• Mike Curb, founder of Curb Records and former lieutenant governor of California, gave California State University, Northridge a gift of $10 million. (Daily News)

Posted by Glenn at 8:23 AM | Link
|Apple||Research||Touring|

Promotions aren't just for the young. Bob Dylan is involved in a few specials that tend to be offered for young artists. iTunes and Bob Dylan are modifying the strategy of selling albums used by Prince during his tour two years ago. The music legend has teamed up with iTunes to offer the opportunity of a pre-sale to those who pre-purchase his new album, Modern Times.

He's also giving an exclusive to XM Satellite Radio. Modern Times will be previewed on three XM channels on Monday, September 28th. A pre-order of that album from Dylan's Columbia Records website will get the consumer a CD titled Theme Time Radio Hour With Bob Dylan, Baseball Sampler, a recording of a performance on XM, plus a 10% discount on additional Dylan purchases. Some physical retailers will also give away copies of the CDs with purchase of Modern Times.

Posted by Glenn at 1:32 PM | Link
|Apple||Touring||iTunes|

• Bertelsmann closes in on a buyer for BMG Music Publishing. It should have a short list of potential buyers by the end of August. (Billboard Radio Monitor)

• France president Jacques Chirac signed an interoperability law that aims to force Apple to make its iTunes/iPod duo compitable with competitors' hardware and online music stores. Next, let's see if other countries follow France's lead, and let's see if other companies can use interoperability to make inroads into the dominance of the Apple brand. (MacNewsWorld)

• Forty-eight symphonies and their managers have signed an agreement that covers the recordings of live performances. The deal replaces up-front fees to musicians with a revenue-sharing system. Orchestras also retain ownership of the live recordings, which will be licensed out to labels. (NY Times)

• News about Fontana Distribution: Ken Gullic has been upped to SVP of Sales and Marketing, and the distributor has landed Ipecac Recordings, which decided to leave Caroline Distribution. (Hits Rumor Mill)

• P2P start up Skyrider landed $2 million in funding. One of the three projects planned by the company is a keyword search technology that allows advertisers to capitalize on the millions of daily P2P keyword searches. (Press release, via Digital Music News)

• Musicane has introduced Musicane Groups "to enable effective administration of online sales by record labels and video distributors." The first label to take advantage of Content Manager is Koch Records. (Press Release)

• RIP Elisabeth Schwarzkopf, the legendary soprano. (Playbill)

Posted by Glenn at 10:07 AM | Link
|Apple||P2P||Sony BMG||Universal Music Group|

News.com's John Borland wrote an article called "Apple's music: Evolution, not revolution" about the unveiling of iTunes in April of 2003, calling it "a solid, but hardly revolutionary, addition to the market." At the time its main competitors were Listen.com's Rhapsody, Pressplay (a joint venture between Universal Music Group and Sony Music that become the foundation for Napster) and MusicNet (a joint venture between EMI, AOL/Time Warner and BMG).

What Apple stressed at the time was the simplicity and the a la carte downloading, the two aspects that have made Apple the digital music leader.

"Label executives privately say the Apple service is an experiment, which could be expanded if it proves successful. Apple's small market share means that the stakes are relatively low... Apple essentially used two features to persuade the labels to give the company the benefit of the doubt. The ease of purchasing music was a draw. So was the light, almost invisible layer of digital rights management software that Apple built in-house and applied to the songs."

This didn't come to pass, did it?

"Rivals weren't convinced Apple's pay-per-song model marked any improvements in music distribution. Some noted that a mix of services would likely be more successful and that Apple might ultimately be overshadowed by other companies with more music retail experience.

'A lot of people are going to fight not only to keep up with Apple, but to surpass them,' said Zack Zalon, general manager of Radio Free Virgin, the online radio service of music retailer Virgin Entertainment. 'They're an excellent software company, not a music retailer.'"

Posted by Glenn at 5:50 PM | Link
|Apple||Digital Music||Online Stores/Services||iTunes|

Average price of yesterday's Top 40 albums: $10.97

Highest: Red Hot Chili Peppers' Stadium Arcadium at $19.90. This is a double-album with 29 tracks, and includes a digital booklet. (Amazon.com sells this double-CD for $11.99.)

For the highest single album there's a tie: Yung Joc's New Joc City at $13.99 for 16 tracks (three of which are interludes) and Dane Cook's Retaliation at $13.99 (for 29 tracks, some of which are not even one minute in length). Amazon.com sells New Joc City for $9.98 and Retaliation for $12.98.

Lowest: KT Tunstall's Eye to the Telescope at $8.91. (Amazon.com's price is currently $7.98.)

Coolfer wonders when competition will heat up to the point where digital stores will do what many physical and online retailers regularly do: price the music at or below cost. There's no sign of major labels' interest in dropping wholesale prices on the most popular songs and albums, and at this point Apple has no incentive to compete on price. We're still in the infancy of digital music, and early adopters always pay more because they have the means and the willingness.

Posted by Glenn at 1:28 PM | Link
|Apple||iTunes|

If geeks are showing disdain for Apple, the DRM debate must be picking up at least a little steam. DefectiveByDesign organized a series of anti-DRM protests at Apple stores ar