A profile by the Wall Street Journal's Ethan Smith and a press release in Coolfer's inbox signal the official launch of RCRD LBL, an innovative new label created by Downtown Records and Engadget founder Peter Rojas. The label will offer free, ad-supported music. According to the WSJ, the label has signed up three sponsors thus far: Virgin America, Nikon and Puma.

Here's how RCRD LBL will work: The label will give away free, unprotected downloads of bands it has signed. The label has deals with 40-50 bands to distribute "a handful of songs" from each. Artists get a "modest" advance from the label instead of a share of ad revenues; advances range from $500 for a relatively unknown to around $5,000 for a more established name. The label will split revenue from licensing (TV, commercials) with the artists.

The songs will be downloaded at the RCRD LBL website, which is a basically a souped-up music blog. Though anybody can visit and download music, visitors can create a user account in order to leave comments and create customized RSS feeds. A media player sits in the upper right corner of the site. There are artist pictures and tour dates as well.

RCRD LBL has an "extended family" of labels that will "allow users to download exclusive, promotional and catalogue tracks" from the likes of Ghostly International, Dim Mak, Downtown, Kompakt, Dirty Bird and Warp labels.

In his article, Smith mentioned recent quotes by Pali Research's Richard Greenfield about consumers' belief that music should be free. Yes, some of them do. Now they have a legal alternative to acquire free music -- if they happen to like the music offered by RCRD LBL (read: indie rock and electronic). I believe this new model will be very successful in certain corners of the consumer world. While some people will continue to use terrestrial radio, CMT or NPR to discover music, those who already frequent music blogs for music will give RCRD LBL good traffic. But how much room for growth is there? The key to stardom for this business model is getting middle of the road consumers to visit on a regular basis. I wonder just how much potential traffic exists for music -- even free music -- that lies outside of the mainstream. Revenue from licensing opportunities will be very important.

Posted by Glenn at 9:17 AM | Link
|Digital Music|

Jupiter's David Card is not buying into the post-Radiohead hype that all music is yearning to be free. "Armchair economists, please stay home," he exclaims in reaction to a TechCrunch post about digital music's near-zero marginal cost of production. "By this remarkably oversimplified analysis, software, filmed entertainment, soda at McDonalds, and the classic example, high-end perfume, should all be free."

He's right. People throw around the term marginal cost as if average cost never existed and there is no such thing as a break-even point. (That publicist that was required in order for those computer programmers to ever hear of that artist? She cost a pretty penny. Studio time tends not have a zero marginal cost, either.)

The Zero Marginal Cost crowd insists increased revenue from touring and merchandise can pay for all this free music. But that would create a huge free rider problem in which consumers push onto the most active fans the responsibility of supporting the artist. How about if that zero-marginal-cost music is given away for free at the concert only? Given how seldom the typical American leaves the house to see live music, paying for music would start making a lot more sense. (I won't even get into how this wouldn't even make sense for artists who cannot or choose not to tour.)

Posted by Glenn at 11:18 AM | Link
|Digital Music|

One of today's free Wall Street Journal articles is about digital music and sound quality. Lee Gomes looks at how producers, mixers and engineers approach music in the iPod era. The article's sidebar has audio clips of varying qualities so listeners can try to spot the differences. Gomes points to a possible side effect: Musicians may have less of an incentive to record the perfect take.

"All these engineers tend to be audiophiles, the sort who would fuss over a track to make it perfect. But they're beginning to wonder if they should bother. 'I care about quality, even though the kid on the street might like what he hears on MySpace, which is even worse than an MP3,' said Stuart Brawley, an L.A. engineer who has recorded Cher and Michael Jackson. 'We try to make the best quality sound we can, but we increasingly have to be realistic about how much time we can spend doing it.' Howard Benson, who has done work for Santana and Chris Daughtry, says members of a studio recording crew will sometimes complain after a session, 'I just spent all this time getting the greatest guitar and drums solo, and it ends up as an MP3.'"

This isn't a new topic -- The New York Times had a very similar article earlier this year, with audio clips as well -- but Gomes gives it a nice overview and talks to a number of recording professionals for their thoughts. Definitely worth a read.

Posted by Glenn at 10:39 AM | Link
|Digital Music|

• Album sales were up 5% last week and were 12% lower than the same week last year. For the year, album sales are down 14%. Digital track sales were up 2% last week and were 45% higher than the same week last year For the year, digital tracks are up 48%. High School Musical (Disney) was the only album over 100,000 scans last week. It debuted big with sales of 615,000 (10% digital).

• French ISP Neuf Cegetel will introduce a music subscription service in a partnership with Universal Music Group. Subscribers will get unlimited access to UMG music of only one genre; eight additional genres will cost Euros 4.99. Tracks will contain DRM protection and expire when the consumer's subscription expires. (Mark Mulligan's blog)

• The Rolling Stones catalog will be released in MP3 format first at London-based 7digital. Twenty-four albums will be available at 320 kbps rate. For the first four weeks they will be specially priced at £5.49 ($11.00) each and then will rise to the normal £7.99 ($16.00) rate. (Billboard.biz)

• gBox, which is part of Universal Music Group's MP3 plans, has officially launched. The gBox Gifting Widget allows users to customize a wishlish within a widget that can be placed on blogs, social networks and personal websites. gBox also has a deal with digital distributor IODA. (Press release and a previous Coolfer post)

• Sony BMG chairman Andy Lack is on the board of directors of Building B, which just secured $17.5 million in funding. Building B offers a wireless set-top box and service that competes with Slingbox and Apple TV. (Red Herring)

• PassAlong Networks launched an upgrade to StoreBlocks, its digital music incentive platform. New features include a new marketing platform for incentive marketing firms. StoreBlocks now has 2.1 million songs in the MP3 format. (Press release)

• The worst take on Wal-Mart's MP3 downloads comes from The Motley Fool. "Watch out, Apple," wrote Rick Aristotle Munarriz. If Wal-Mart becomes anything remotely close to a digital force, it will be due to a leveraging of its brand and physical retail strength. Wal-Mart's download store offers such a tepid user experience that it would take free or near-free downloads to steal iTunes shoppers. Side note: Apple closed up 5.35% yesterday. (Motley Fool)

• Not that it will impact sales much, but Pitchfork gave This Is Next, ADA's mass merchant-aimed indie rock collection a 0.0 rating. Matt LeMay called it "predictably lazy and disjointed," "totally dispensible," "a silly and ill-advised compendium of material freely available to anyone with the initiative to seek it out." But the review was a not a critique on the music as much as it was a (weak and uninformed) critique on ADA's marketing strategy. (Pitchfork)

• Universal Music Group's "legal" mixtape, Lethal Squad Mixtapes: Dose #1, has flop written all over it. Take away the cred and you take away the sales -- even with a $5 sticker price. (SOHH)

Posted by Glenn at 7:01 AM | Link
|Digital Music||Online Stores/Services||Sony BMG|

One of the more interesting, and possibly promising, developments in digital music is dynamic pricing. Right now it's the domain of independents. For majors to get involved would require some big changes in how contracts are drawn up and how royalties are calculated.

Billboard ran an article on dynamic pricing (print version only, thanks to reader Eric for sending the article). Part of the article touches upon Amie Street, a download site that uses dynamic pricing. Amie Street will soon sell its 500,000th download.

Here's a blurb about two companies who are rolling out dynamic pricing to a multitude of online services:

"One of the first incarnations of a dynamic pricing model is about the be implemented this month. PassAlong Networks will soon begin selling tracks provided by Nettwerk Music Group for between 29 cents and $1.39 on all 44 of the digital music services using its StoreBlocks platform.

The company is using a pricing engine from Digonex that analyzes a complicated mix of consumer behavior and Internet economics to suggest the optimal cost. Factors include the price of different tracks and albums of the same genre on different services, sales traffic and radio airplay."

Extra credit reading:

• Here's the December 2006 press release about PassAlong's use of Digonex technology.
• From the Harvard Business School's Knowledge @ Wharton, a 2005 article titled "What Consumers -- and Retailers -- Should Know about Dynamic Pricing." "Is this type of pricing, known as dynamic pricing, underhanded or unethical? No, according to faculty members in Wharton's marketing department. They say such pricing -- also called targeted pricing, flexible pricing, tailored pricing or, to use the phrase employed in the Annenberg study, discriminatory pricing -- is customary, an essential tool for companies, and often beneficial to individual customers and society as a whole."
• This 1999 Business Week article pitted Amazon.com and then-upcoming eBay against one another. The winner of the battle between fixed versus dynamic pricing, wrote Robert D. Hof and Linda Himelstein, would set the tone for the future of the Internet.

Posted by Glenn at 2:14 PM | Link
|Digital Music|

Digital Music News has some specifics on the plans for RCRD LBL, an ad-supported digital music label co-founded by blog entrepreneur Peter Rojas (Weblogs, Inc., Engadget).

"The overarching concept, referred to as a 'label for the digital generation,' positions free music alongside contextually relevant advertising. The 30-page PDF, geared towards advertisers and other interested partners, calls for 'free exclusive content from top emerging and marquee artists,' and editorial in the form of "blogs and online niche microcontent." Prospective artists for launch include Gnarls Barkley, DJ Green Lantern, Thom Yorke, and Mark Ronson, according to the document. ...

Meanwhile, the RCRD LBL model calls for a fair amount of content portability in the form of widgets, an approach that will significantly broaden the reach of the digital label. Other executives mentioned in the presentation include Elliot Aronow, Piers Fawkes, Terence Lam, and John Josephson."

The list of prospective artists makes sense. I think an ad-supported label is going to have a hard time breaking new artists, at least at first, and needs established artists to get off to a good start and attract advertisers.

Posted by Glenn at 11:48 AM | Link
|Digital Music|

Here's a follow-up to my post earlier this week that found its way into the online media...people are obviously interested in EMI's digital sales since its digital downloads become available without DRM.

Digital sales Pink Floyd's Dark Side of the Moon dropped 33% last week (CD sales rose 26%) and are 61% below the high mark from the week iTunes Plus was launched. Digital sales of Norah Jones' Come Away With Me, which jumped 62% the week iTunes Plus launched, has been all over the place, dropping 23% and then rising 51% last week (CD sales kept pace with a 54% increase).

Coldplay's A Rush Of Blood To The Head saw its digital sales jump 170% when iTunes Plus launched. Two weeks ago it rose 1% (CD dropped 5%) and last week sales fell 21% (CD rose 11%). OK Go's Oh No, up 173% three weeks ago, rose 3% two weeks ago (CD rose 4%) and dropped 7% last week (CD rose 33%) -- pretty much steady since iTunes Plus launched.

What to think of these numbers? It's very difficult to draw a conclusion given the short term and the natural volatility of some titles. It's clear that digital sales for some titles peaked in the week of the iTunes Plus launch. The coming weeks will offer a clearer picture of any real impact on digital sales. Hopefully the data will indicate whether or not EMI's DRM policy is the cause behind the fluctuations. I predict that no material, across-the-board change in sales will be seen until Amazon.com's digital download store launches. That will definitely move the neede.

Posted by Glenn at 11:05 AM | Link
|DRM||Digital Music||EMI|

Bloomberg News has an article in which an EMI SVP said, "The initial results of DRM-free music are good." Increased sales of Pink Floyd's Dark Side of the Moon were singled out. That's true. Digital sales of Dark Side of the Moon have averaged over 3,600 units since the launch of iTunes Plus and the availability of unprotected AAC files. In the 11 prior weeks, average sales were 830 units per week. That's an increase of 272%. In the week iTunes Plus was released, digital sales of Dark Side of the Moon jumped 350% that week alone. (iTunes Plus, which enables users to upgrade tracks to unprotected AAC from the older, protected AAC versions for $0.30 per track, lauched May 30th.)

Here's the main question: Does an upgrade using iTunes Plus count as a scan? I can't find out. If that's the case, the increase in sales will actually a temporary thing. Once people who want to upgrade their tracks have done so, sales should drop and level off at pre-iTunes Plus levels (or, as EMI is hoping, above pre-launch numbers). My gut tells me SoundScan counts an upgrade as a sale. Those Pink Floyd numbers look to be more indicative of a technology-enabled sales jump than they are a sign of support for DRM-free downloads.

What about other albums? Digital sales in the last two weeks for Smashing Pumpkins' Siamese Dream rose 17% versus the 11 prior weeks' average. Norah Jones' Come Away With Me jumped nearly 24%. OK Go's Oh No increased 77%. Coldplay's A Rush Of Blood To The Head jumped 115%.

Those are just digital album sales I'm talking about. But here's something very interesting: CD sales of four of those five titles dropped sharply over the same period. CD sales of OK Go's Oh No dropped 45%. CD sales of Coldplay's A Rush Of Blood To The Head dropped 24%. Norah Jones' Come Away With Me fell nearly 33%. Pink Floyd's Dark Side of the Moon is down only 12%. Smashing Pumpkins' Siamese Dream increased almost 15% -- probably the result of the band's new single and upcoming album hype.

Normally I wouldn't think much of a two-week drop at the end of a 13-week period. A few more weeks are needed to see the entire story. But in this case there's an obvious pattern. It's not just one title.

Do I have an explanation? Not a good one. The most likely scenario is one in which iTunes Plus -- and the emergence of higher quality, DRM-free downloads -- has somehow accelerated the CD-for-digital substitution that has eroded CD sales.

Posted by Glenn at 9:13 AM | Link
|Digital Music|

• Universal Music Group is beefing up its digital initiatives. Dan Kruchkow and Ezra Doty were both promoted to SVP of Global Digital Initiatives. The two will oversee the growth of UMG's direct-to-consumer platform. (Press release)

• In an Elle magazine interview, Kelly Clarkson said she rejected $10 million from Clive Davis to walk away from five of the songs on her upcoming album My December for more radio-friendly songs. (Kings of A&R)

• According to figures released by the British Phonographic Industry yesterday, U.K. consumers are Europe's biggest mobile downloaders. MusicAlly estimates that U.K. consumers download 1.3 million mobile tracks per month. (BPI)

• In late July, BitTorrent will launch a self-publishing platform that will allows artists to upload their content to the BitTorrent ecommerce platform. Major labels will not be involved in the rollout because the company wants to wait until DRM issues are resolved. (Digital Music News)

• Attendance at this year's CMA Music Festival totaled a record 191,154 people. (MusicRow.com)

• Bad business model gets more money: Blog payola company PayPerPost got another $7 million in funding. (paidContent)

Posted by Glenn at 7:35 AM | Link
|Digital Music||Research||Universal Music Group|

Maybe you saw in today's New York Post that blog entrepreneur and Engadget founder Peter Rojas is going to start a label that offer free, ad- and sponsorship-supported music through its website. Details are scant. One source called it a "curated YouTube or MySpace for music with an editorially driven filter." I couldn't tell you what an editorially driven filter is...turning the word editorial into an adverb just heightens my confusion, frankly.

For quite a while, it seemed only the technorati wanted to go down this path. (Although artist websites are getting quite a few ads these days. Daughtry's official site has more ads than MSN.com.) It's time for somebody to take a good shot at this kind of value proposition, and it makes sense to come out of this camp. Some of the tech community's most visible entities and personalities have insisted this model is a good idea.

Posted by Glenn at 9:15 PM | Link
|Digital Music|

• Tower Records founder Russ Solomon is readying R5 Records in Sacramento for a soft launch in the next few weeks. "There are things that need to be tried. And since I was preaching against a wall the last two years that what Tower was doing and what the industry was doing was misdirected and wrong, I owe it to myself and to the business to do it my way." (Sacramento Bee)

• Digital sales in India are higher than physical sales, a first in the world according to the article. Soundbuzz predicts that by 2009 Indian consumers will purchase nine times more mobile music (in terms of revenue) than any other format. (Deccan Herald)

• Here's an article about EMI's and Sanctuary's difficulties selling British music in America. Seems this article would have had better timing before KT Tunstall, Lily Allen and Corrine Baily Rae, but whatever. Here are some good stats from the article: U.K. artists accounted for 8.2% of U.S. album sales in 2006, up from 7.6% in 2004. That figure was 32% in 1986 and less than 1% in 1999. (International Herald Tribune)

• A profile on Integral, a UK company that offers marketing and financial assistance to independent labels and rights holders. (The Independent)

• Hollywood is getting more frustrated with YouTube and its continued level of infringing material. "Clearly, this is not a resource constraint," said one executive. "This is a function of will." (News.com)

Posted by Glenn at 7:28 AM | Link
|Brick-And-Mortor Retail||Digital Music||EMI||Marketing||YouTube|

A few amendments to my post a few days ago on Amazon.com's initiative to launch some kind of MP3-based music download service...

The LA Times' Jon Healey emailed to point me to a LA Times article (written by Healey and Jeff Leeds) from way back in June of 2003 that mentioned some companies -- Amazon.com being one of them -- that were expected to launch music download stores in the wake of iTunes' arrival. Healey believes it was the first report that Amazon.com was considering a music download store.

When iTunes sprinted out of the gate, other companies were expected to follow its lead. Said Universal Music Group's Doug Morris at the time, "Yahoo has an enormous number of people coming through all the time. Amazon sells a ton of content. MTV certainly is an enormous bull's-eye for people who like music. This is an amazing moment."

So why did AOL, Yahoo, Microsoft and MTV jump in while Amazon.com waited on the sidelines?

After that post, a person intimately familiar with Amazon.com (I can vouch for the level of knowledge) emailed with some thoughts on the company's push for MP3s. The person said since the early part of the decade, Amazon.com has consistently pushed for the MP3 format even though label reps were trying hard to sell them on the protected Windows Media format that is all but dead by now. Talks were about using MP3 for both promotional and eventual sale, the person insisted. This person believes Amazon.com's refusal to sell protected music files is the main reason it has not yet entered the music download market.

Good call, Amazon.com. Waiting was a good strategy. In the meantime, protected Windows Media failed to gain traction and looks to be the big loser in the interoperability quagmire. See what reading market research can do?

Posted by Glenn at 11:43 AM | Link
|Digital Music|

To date, sales of digital tracks are up 41% for the year. That's a positive sign, but the numbers hint that a slowdown will occur in the coming years. Why? A slowdown already exists in the regions of the country that first got into digital music.

See the graph above, which shows the percent increase in digital track purchases for 2007. Red states have a digital track sales growth of 30% of less. Green states have growth of 31% to 40%. (I have grouped the states according to the regions Soundscan uses in its reporting.)

Digital sales are slowing among the earliest adopters. In the Pacific region, track sales are up only 30% for the year. In the South Central region of the country, on the other hand, the increase is 49%. In the Central region, the increase is 55%.

There's more: Digital track sales are up only 28% in city regions versus 55% in rural areas.

The early adopters, the technologically adept consumers who congregate in West Coast cities, are slowing in their digital purchases. The rest of the country has been catching up. The slower pace at which West Coast city dwellers are purchasing foreshadows a slowdown in other regions. They've already passed the iTunes binging phase that people in rural areas and the middle of the country are currently experiencing.

The geographic differences are nothing new. At this point last year, the Pacific region was up 87% (compared to 30% in 2007). Southern states were up 100% or more. City consumers were up 67% (compared to 28% in 2007). Rural areas were up 104% (compared to 55% in 2007).

What are the implications for the music industry? To maintain digital sales growth, labels need to engage early adopter consumers on both coasts. Innovations will first take hold there, then move to the middle of the country. EMI's decision to sell downloads without DRM is a good first step to engaging the coasts, and it could foster the kind of entrepreneurial spirit that will lead to new products and services.

Posted by Glenn at 12:47 PM | Link
|Digital Music|

Last week I saw a DiscRevolt download card for the first time. (I heard some bands sold them at SXSW, but I didn't run across the cards in Austin.) The band selling the cards was indie pop band Modern Skirts from Athens, Georgia. The card was a credit card-sized piece of plastic (pictured) with a hole punched in it as if it was going to be placed on a lanyard. Each card has artwork on the front -- Modern Skirts' had a band picture -- and download instructions, and a redeemable code, on the back.

For $10 (I believe) the card was good for 15 downloads at the DiscRevolt website. That was a good deal since the band's CD cost the same but has only 11 tracks. Though I chose the CD over the DiscRevolt card, I was pleased to see digital music finally make its way to the merch table.

If you browse around the DiscRevolt website, check out the search-by-zip code function to find participating artists in a specific city.

Posted by Glenn at 1:12 AM | Link
|Digital Music|

• An Enders Analysis report claims the recorded music market "could" stabilize by 2009. Lower CD sales are one reason why music publisher revenue is expected to have a cumulative annual growth rate of only 2.2% through 2012. (Enders Analysis)

• To celebrate his 80th birthday, EMI is offering 11 currently unavailable Rostropovich albums -- two of which have never been issued on CD -- at iTunes. (Playbill)

• The RIAA on its legal battle against P2P company Limewire: "They respond. We respond. They respond, etc. Then discovery. These things take a long time." (Digital Music News)

• The FCC approved Citadel's acquisition of 24 ABC radio stations. Commissioner Copps said the transaction is "narrowly" in the public interest. (Radio Ink)

• Jupiter analyst David Card on album sales: "The industry has to spread artist development risk more efficiently. That means that radio probably does have to pay, or share revenues. And artists have to get paid at the back end, not in advance. It's not just the labels who'll die if this continues." He's right, but as is always the case in a convoluted industry, it's easier said than done. (David Card's Jupiter Blog)

Posted by Glenn at 4:29 PM | Link
|Digital Distribution||Digital Music||EMI||Legal||P2P||Publishing|

• Elton John's back catalog, owned by Universal Music Group and over 30 titles deep, will be available online. (BusinessWeek.com)

• Paul McCartney's next album will be the first released by Starbucks' Hear Music label. (Press release)

• Digital distributor IODA has picked up some dance labels: G-Stone Recordings, Underground Resistance, King Street Sounds and West End Records. (Press release)

• Nielsen has released 2007-to-date Soundscan numbers. Track equivalent albums are down 10% while CD sales are down 20%. CDs accounted for 90% of traditional album sales. Digital album sales are up 100% over last year. Digital tracks are up 54%. (Press release)

• Amoeba Records will release an exclusive, limited edition TV on the Radio concert (recorded at Amoeba Hollywood) at its stores at through its website. Its the first live EP for the retailer's record label. (NME.com)

Posted by Glenn at 9:12 AM | Link
|Digital Music|

• Warner Music Group announced that its head of UK operations, Nick Phillips, has stepped down. A source called it part of the company's "de-layering" effort. (NY Post)

• Ticketmaster has purchased a majority stake in Nashville-based echomusic, an entertainment marketing company. (Billboard.biz)

• Digital Jet International inked a deal to put digital music kiosks in Irish music chain Golden Nuggets, and formet EMI exec Ted Cohen has joined the company's board of directors. (The Post)

• Amazon.com is moving in on the untended classical market left over from Tower Records' closing. To that end, the company has launched its Classical Blowout store, an offering of classical staples at low prices. (New York Times)

• Video site Yebotv, a YouTube imitator that streams online concerts, landed $10 million in funding. (Digital Music News)

• An article, filed from Austin, about the challenges faces by Australian acts in breaking into the U.S. market. The Australian Music Office in Los Angeles works to promote Aussie acts. Said the manager of business development, "Distribution can be considered through television commercials, many channels through the internet, movies or live shows. It's an amazing time because there are not nearly as many gatekeepers." (The Age)

• Vinylmania in New York City has closed its doors. (NY1.com)

Posted by Glenn at 10:48 AM | Link
|Digital Music||Warner Music Group|

Sales of digital tracks are currently 54% ahead of last year's sales. A month ago the year-over-year increase was 60%. It's hard to read much into that drop. Maybe 2007's post-holiday drop was lighter than last year's drop. Maybe its the release schedule. Again, it's hard to say. In any case, digital track sales should realistically end the year up around 50% or greater.

Last week was a relatively light week for digital track sales. Only one big new single hit the Top 10: Mims' "This Is Why I'm Hot" sold over 100,000 tracks last week, putting it well ahead of Fergie's "Glamorous" and Gym Class Heroes' "Cupid Chokehold."

Posted by Glenn at 1:51 PM | Link
|Digital Music|

This feature is at least five months old -- judging from blog posts I just found -- but I first noticed it when a friend emailed me an MP3 the other day. Instead of the usual "open file" or "download file" options, Gmail offered a "listen" option. So I clicked on the "listen" hyperlink and a music player window (pictured) opened up.

The discovery that Gmail makes it easier to share MP3s came on the same day I listened to music executives at the Music 2.0 conference dish out statistics and anxiety over personal sharing. As a means to filling up an iPod, P2P seems to be public enemy number one. Personal sharing, though, is thought to account for more digital music acquisition than P2P, legal purchases and files ripped from CD collections. Should music executives just be happy that somebody is listening to their music? That's a tough argument when sales are plummeting. Now, I don't expect Mitch Bainwol and the RIAA to launch a tirade against Google for facilitating music sharing, but I don't doubt it's on his mind.

Posted by Glenn at 7:23 PM | Link
|Digital Music|

In the January/February issue of The Atlantic Monthly, Michael Hirschorn spoke with optimism on digital music's future, and I wholeheartedly agree. A few failures in 2007 are not as important as the fact that people are trying.

"If past is prologue, SpiralFrog and Kazaa, too, will come up short. But all these failures are in the service of a dynamic evolution. Someone—and that someone is likely already at work on the key advance—will figure this out. One next step could be a move by the labels to make more pay-per-download music available without restriction, meaning that once you’ve purchased a song, you can do anything you want with it, currently a no-go on Zune or iTunes. Unrestricted MP3 sites could play VHS to iTunes’s Betamax. However it occurs, though, the execution of a widely used free and free-flowing music download and sharing system is surely imminent."

Hard to disagree with that prediction, but Hirschorn didn't give an over/under. The "if" is not in question nearly as much as the "when."

Posted by Glenn at 4:13 PM | Link
|Digital Music|

Early January is an important time in digital music. Now we get to see how post-2006 Christmas sales stack up to post-2005 Christmas sales. Digital sales peaked two weeks ago with a weekly total of over 30 million. That was a 108% year-over-year increase.

Last week, digital track sales totaled over 21 million, a 29% drop from the previous week but still 61% higher than the same week in 2006. That 29% drop was an improvement over last year's 33% decline. In other words, sales are higher and are not dropping off the holiday peak as quickly as last year.

Let's look forward to next week. If next week's sales decline mirrors that of last year, which was 26%, the total will be about 16 million -- versus just under 10 million last year. That's 60% higher year-over-year and six million greater in units. In two weeks sales should have levelled off completely and decent forecasts can be made for sales throughout 2007. We'll have a better clue as to whether or not the current sales level is nothing but redeemed gift cards and if it may fall even further once people have to spend their own money.

Posted by Glenn at 2:37 PM | Link
|Digital Music|

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|

Ropeadope Records says it will focus on its digital-only releases in 2007. To that end, Ropeadope will create a digital imprint, Ropeadope Digital (read press release). Artists signed to the digital imprint will retain their masters. The first round of releases will come from artists such as Skip Heller, Electric City, Aunt Jessica and DJ Klock. The label goes through IODA for digital distribution and RED for physical distribution.

Ropeadope Digital releases will be sold at Ropadope.com as well as the usual music download stores. Wired's Listening Post blog reports the downloads will be sold in MP3 format at Ropeadope.com.

The list of digital-only labels is sure to grow in 2007. Warner Music Group's Cordless Recordings, launched in November of 2005, is testing a digital-only business model. (Some of its titles may be released on CD, but it is predominantly a digital label.) CBS Records was recently re-launched as a digital label. Another trend will be digital-only releases on all sorts of labels. Look for more and more labels to use the low cost of digital distribution to release fan-focused material while using physical formats for more important releases.

Posted by Glenn at 3:54 PM | Link
|Digital Music|

• The Digital Media Assn released a study conducted by InsightExpress that shows the positive effect of digital music. According to the study, digital music consumers listen to more music, purchase more music and attend more concerts that before they began listening to and purchasing digital music. A quarter of survey participants have discovered "a lot" of new artists. Almost 70% are listening to more musical genres. More than 35% are talking about music more than before going digital. (Read article at Billboard.biz)

• Digital Music News reports "a big four major is now preparing a significant, MP3-based push." The unnamed label is likely to release more information later this week. I don't know which label it will be, but I'd bet against it being from Universal Music Group. Doug Morris experiment with MP3? That would be a shocker. (Read post at Digital Music News)

• The Australian government wants its musicians to crack the U.S. music market. The 2007 Australia Week exhibitions in New York and Los Angeles will feature The Veronicas, Porcelein and Rockstar: INXS contestant Mig Ayesa. (Read article at the Herald Sun)

• Musicrypt, which offers secure digital distribution, finalized a deal that will offer it up to $10 million in financing. The company plans to use the funds to increase its growth in the U.S., expand its Adstream service in Europe and improve its radio and television advertising delivery initiatives. (Read press release)

• Long Beach, CA's VIP Records faces uncertainty after its location changed ownership last week. You may recall VIP as the setting for scenes from Snoop Dogg's "What's My Name" video. (Read article at Long Beach Press-Telegram)

• The Zune Marketplace is not carrying music from CD Baby. I occasionally run across some new releases (on majors and indies) that are not yet in the store. (Read post at Digital Audio Insider)

• RIP Atia Jo, guitarist for Orchestra Super Mazembe. (Read article at Kenyan News Network)

Posted by Glenn at 7:57 AM | Link
|Digital Music||Research||Zune|

Digital music companies want to rid their music of DRM, and a few of them are aggressively pursuing the MP3 format. Reuters reported today that Ted Cohen, former digital chief at EMI Music and now a consultant, has been hired by P2P company Limewire to lobby the major music groups. Limewire, currently in settlement talks with the majors, wants to charge $1 per download but does not want DRM. Cohen's job is to get labels to agree to a six-month trial period.

Yahoo! Music David Goldberg has been very outspoken in his opposition of DRM. His perseverance has paid off twice. To date, Yahoo has scored three major label MP3 releases.

In the article, BigChampagne's Jeff Garland predicts final 2006 results will be so bad that labels will "have a different conversation" with digital music companies. I don't think the final results will be that bad. Gartner's Mike McGuire points to a more likely cause for concern: an expected softening in ringtone growth over the next 18 months.

For majors to embrace MP3, they will need to feel that all other options for growth have been exhausted. It has been such an enemy over the years that the MP3 is probably going to be seen as a last resort. Frankly, I think there's still a lot of room for competition in the digital space. iTunes has not been properly challenged. I have a hard time believing the string of sad iPod opponents and iTunes challengers represent the best in innovation. There's still room for improvement. Labels may want to see how mobile-MP3 player convergence plays out this year before reluctantly asking the MP3 format to bail them out.

Posted by Glenn at 11:53 AM | Link
|DRM||Digital Music|

• Digital Music Group Inc's chief operating officer, Anders Brown, and VP of business development, Richard Rees, are resigning. Brown will "pursue opportunities closer to his home and family in Seattle" and Rees will join an Austin-based investment firm. Though the first nine months of 2006, DMGI had a loss of $1,852,105 on revenue of $2,774,396. (Read press release)

• A profile of Allen Butler, the former president and CEO of Sony Music Nashville and now the head of Hedgewood International-funded indie Montage Music Group. Music Row independents have had a good year. Currently, five out of the Top 15 country songs are from indies. (Read article at The Tennessean)

• Billboard's Dan Ouellette calls 2006 "unadventurous for mainstream jazz." Hard to argue with that. A 2005 Michael Buble album was the top mainstream jazz album of 2006, while Diana Krall had three in the Top 21 albums and Chris Botti had three in the Top 22. (Read article at Hollywood Reporter)

• A change by the Official Charts Company will allow album tracks, older songs and digital-only releases to count toward the UK Top 75 listing. The new chart will present a better picture of overall purchases, and it eliminates the distinction between new single and old standard. The result could be a charting by songs heard in commercials or television shows. Just as likely will be examples of safe and familiar purchasing -- expect to see a lot of Pink Floyd and Coldplay. (Read article at The Guardian)

• An interview with RoyaltyShare chairman and chief executive Bob Kohn. RoyaltyShare is an online royalties processing and accounting service. "If (labels) [drop DRM] today, you will see a tremendous increase in digital download sales, because then you will finally see some good competition to iTunes." (Read article at Forbes.com)

Posted by Glenn at 7:27 AM | Link
|Digital Music||Indies|

The Wall Street Journal's Carl Bialik picks up on the ruckus caused by Forrester Research and The Register's overblown interpretation of a report on iTunes sales by Forrester's Josh Bernoff. "A Research Report on iTunes Sales Becomes Shot Heard 'Round the Net" starts with The Register's poor choice of words, goes to other research companies' claims that iTunes sales are way up in 2006 and then gets into how different analysts approach the numbers differently. Forrester's data set compared June to January. Not a good idea in my opinion. Comscore and NPD use different methodologies and have derived different conclusions than did Forrester.

Bernoff told Bialik that "the problem with a year-by-year comparison is it really doesn't tell you what's happening during 2006." The problem with that logic is that what is happening in 2006 varied from month to month. The reason for the variation is the very nature of the music business. Year-over-year data is the best way to measure trends in music sales -- especially when digital sales are growing at a high annual rate. January, for example, has few new releases but strong post-holiday sales. July, with school out and families on vacation, is a slow month for both sales and new releases. The release schedule picks up in August and September. Come December, labels' heavy hitters are in stores and both album and digital track sales increase rapidly. Comparing any one of those months to any other month will leave holes in one's conclusions.

In addition, each year's release schedule is unique because each new release is basically a unique product that is being introduced for the first time. Some connect with consumers, most do not. One slow quarter is often followed by a much strong quarter. Add it all up and what does it mean? It's easy to find a sales decline within any 12-month period.

As I wrote yesterday, weekly digital track sales have increased 16% since mid-October. There are two more weeks of sales growth left before the post-Holiday slide starts. Where sales level off in mid- to late-January will tell us much about expectations for 2007.

Posted by Glenn at 1:20 PM | Link
|Digital Music||Research|

The digital era is moving beyond music to well-produced and compelling video. How apt will consumers be to pay for exclusive live material? How quickly will they show up on YouTube?

Producer Nigel Godrich, most famous for his work with Radiohead and Beck, has created a music performance series titled From The Basement. Each episode will have live performances from the Maida Vale studios with sound by Godrich. Videos will be available only at two sites: the From The Basement website (through a 7digital.com store, which will offer Windows Media Video files) and iTunes.

The first episode of From The Basement will air (transmit?) today. In it, Thom Yorke will preview two songs, "Videotape" and "Down Is The New Up," from the new Radiohead album. There are three performances by The White Stripes and one from Four Tet's Kieran Hebden and Steve Reid. In total, there are six downloads that can be purchased individually (for £1.89 each, which is $3.69) or in the show's entirity (for £9.48 or $18.53). Stills and a trailer can be seen at the show's MySpace page. The second show will be available in February 2007 and will feature Beck and Jamie Lidell.

The Guardian has an article on the series and comments from Godrich.

Posted by Glenn at 9:42 AM | Link
|Digital Music|

• Bertlesmann confirmed the sale of its BMG Music Publishing to Universal Music Group. The deal must be approved by European Union anti-trust regulators. From where I sit, the two parties seem confident regulators will approve the deal. (Read article at Hollywood Reporter)

• The Canadian Radio-television and Telecommunications Commission ruled to leave radio station's quota for Canadian content at 35%. Associations representing producers, composers and publishers were seeking a new quota of up to 55%. The CRTC also passed on imposing an incentive-based strategy to promote Canadian music. (Read article at Billboard.biz)

• Sony BMG's Zomba Records signed 19-year-old Carli Marino, a singer from New Jersey who won Gospel Dream on the Gospel Music Channel. (Read article at NorthJersey.com)

• Paul Resnikoff follows up on reaction to Forrester's iTunes analysis. The lesson of it all: If you want to comment on iTunes' sales, Soundscan data trumps credit card receipts and music sales' seasonality cannot be ignored. (Read post at Digital Music News)

• The long, long, long awaited Guns N' Roses album, Chinese Democracy, is tentatively set for a March 2007 release according to a post by Axl Rose at the official GNR website. He also had some comments about his former manager Merck Mercuriadis. Sounds like the most recent delay comes for poor planning at the very least. (Read article at Billboard.com)

Posted by Glenn at 7:25 AM | Link
|Digital Music||Publishing||Radio||Sony BMG||iTunes|

Commentary on Forrester's report on iTunes sales is all over the Internet. A much-linked article at The Register is titled "iTunes Sales Collapsing" and says iTunes "has experienced a collapse in sales revenues this year." Compare that to the actual title of the report, "Few iPod Owners Are Big iTunes Buyers." Compare the report title to titles of other articles written about the report: "Sales of iTunes hit low note: study," "Sales Plunge at iTunes Store, Study Says," "Digital Music Sales 'Collapsing'?" Those articles are based on The Register's article, not on the actual findings of the Forrester report.

One potentially troubling aspect of the report is data that shows since January the monthly revenue has fallen by 65 per cent. I have not read the report and am quoting The Register. What's the problem? Music sales are seasonal. Digital track sales peaked sharply in the last week of 2005, dropped over the next two weeks and then leveled off. It makes sense that January sales are not representative of a typical month's sales. Because of these predictable fluctuations, only year-over-year comparisons should be made. Comparing October to January ignores music's seasonality and gives a distorted view of sales trends.

Have digital sales collapsed? Hardly -- though the days of irrational exuberance are long gone. Week in and week out, between roughly 16 million and 20 million digital tracks are sold. A rate of 18 million per week results in 936 million per year. Sales were flat to down in the second and third quarters (compared with the first quarter) but track sales are trending upward over the last seven weeks. One has to assume that Apple, the dominant player in digital music, goes as the market goes.

Posted by Glenn at 2:06 PM | Link
|Digital Music||Online Stores/Services||iTunes|

Other major labels have done small experiments with the MP3 formats and now EMI's Blue Note joins the small fraternity by selling a new Norah Jones single in the MP3 format. Immediately, a chorus of journalists proclaimed, "It's about time." After reading yesterday's articles and blog posts, you would get the impression that the MP3 format will usher in unparalled growth in digital music sales. Hold on. Sales growth will require more than a format change. Consumer's motivations involve price and convenience, too.

Why sell MP3s? The popular explanation is that consumers dislike DRM and are better off without DRM. The two real reasons are iTunes' dominance and digital sales' lack of growth in the middle of 2006. Blue Note's consideration of the MP3 format has nothing to do with the benefit of consumers and everything to do with making money. Consumers may end up benefitting from the MP3's greater freedom, but this is not an excercise in corporate social responsibility. EMI wants to increase sales of digital music. One possible way of doing this is to allow the sale of MP3s, which the majors have not done only with isolated experiments.

The main sales driver in the case is the degree to which people value the MP3 enough to shop around. Apple will be the first to brag about its digital sales record, but has success come simply in spite of DRM? Coolfer believes the average consumer does not mind DRM -- and doesn't even know exactly what it is. Today at Digital Music News, Paul Resnikof expressed the same opinion.<