In a post about Apple's anti-DRM stance, BusinessWeek.com's Peter Burrows mentioned a test being run by one of the major labels. The test is comparing the sales of a number of download stores and looking for evidence of DRM's impact on sales.

...one major label has been running a test in recent months with around a dozen big music retailers and online music services to gauge the importance of DRM on purchase decisions.

I’m told these include Amazon, Wal-Mart, BestBuy and Napster (before it was purchased by BestBuy); Amazon denies knowledge of any such test, while the others didn't respond to my inquiries to confirm their participation. What matters is that so far, the results suggest that DRM isn't high on consumers' list of concerns. "DRM-free sales are very good at Amazon and Walmart,” says one source familiar with the test. “But DRM-enabled products are doing just about as well. It could be that we’re just in transition. But there doesn’t seem to be this overwhelming consumer demand for everything MP3.”

Ignoring the fact that Amazon.com's MP3 store, as well as eMusic, would not exist with DRM, let's ponder what would motivate a multi-month test such as this. This label is not convinced MP3 files facilitate growth and offer greater competition to iTunes. There must be a belief that in the future a better DRM technology can offer the necessary interoperability and consumer confidence. And I'd bet there's a fear that unprotected MP3 files lead to increased sharing and piracy (which may ignore a net benefit from dropping DRM).

I'll refrain from reading too much into this bit of news. There's nothing wrong with analyzing sales patterns. The main question is if this test was born out of curiosity or desire for a policy change.

Posted by Glenn at 10:05 AM | Link
|DRM|

From an interview at Tape Op Magazine (download PDF of interview excerpts here):

If that model works then I think (Radiohead has) done music a huge service. The only thing I would say counter to that is when I was a big fan of the White Bicycle experiment [White Bicycle Plan, 1964] in Amsterdam where the city bought hundreds of thousands of bicycles that they painted white and left around the city. The first two or three months were brilliant. Everybody took the bikes from place to place - just picked them up and off they went. Come summertime a few guys said, "Hey, there's an opportunity here." These vans and trucks come in and the bicycles disappeared. I actually think there is a way to bring that back again but it requires a lot of people - it’s an employment solution as well - where we'll have human-guarded bicycle parks. You still probably need to be able to have some little GPS thing embedded in the bike but you should be able to set an alarm where if the GPS thing goes off if it goes out of city limits. That would be a correct application of technology and a little more employment for people and you're on to a winner. I think then a lot of people would go for it and maintain the bikes.

When asked if MP3 files should disintegrate if they're not purchased after a certain number of listens, Gabriel pointed to the model at We7 (he was a co-founder) that offers free downloads with audio ads that "disintegrate after four to six weeks."

Posted by Glenn at 9:06 AM | Link
|DRM|

A good post over at Alley Insider pointed me to a USA Today article about the battle for bragging rights as runner-up to iTunes in digital music sales. Amazon.com says it is number two. eMusic says it is number two. The USA Today reporter called up four majors -- who have no relationship with eMusic outside of equity ownership of some indies -- and they all said Amazon.com.

eMusic's David Pakman pointed out the number of tracks it sells every month -- about 70 million. But labels get less for each eMusic track than they do for each Amazon.com download. In terms of total billing Amazon.com could very well be ahead of eMusic. What matters most to record labels -- and pretty much every other company that I can think of -- is total billing, not number of units sold. eMusic's revenue sharing model typically pays out in the $0.25 to $0.30 per track range (some payout info at this post). Amazon.com is probably getting around $0.65 to $0.70 per track. If number of units were so important, I'd exchange paper bills for pennies and walk around feeling like a king.

And if Amazon.com's entry and ditching DRM hasn't caused a noticeable spike in download sales, so what? There wasn't going to be an immediate reaction. Trends in music are long term. Download trends aren't like the stock market, which jumps every time the Fed chairman blows his nose. Consumers take time to adjust their shopping habits. I fully believe that selling only unprotected files will help sales in the long run -- new ideas, new stores and services, more entrepreneurship -- but not so much in the short run.

Posted by Glenn at 9:04 PM | Link
|DRM||Online Stores/Services|

There are now a few reports online about a keynote Q&A with Vivendi president at MIDEM conference in France. (Vivendi is the parent company of market-leading Universal Music Group.)

A report by Billboard.biz highlighted Levy's comments on the CD format. Wrote Lars Brandle, "Levy ... defied widespread gloomy predictions for the CD when he told delegates the physical format would continue to play an important role in the recorded music industry for years to come, alongside digital formats."

The Canadian Press adds this quote on the CD: "It's not the migration of one physical format to another, I think it's a transition into very diversified business models of which CDs will remain a part. I don't believe at this stage for the next few years we will see a complete showdown (elimination) of CDs."

A post at paidContent has quotes on both the CD and Vivendi's stance on DRM. "We are still testing (DRM-free models)," Levy said, "but our policy is still that we are strongly attached to DRM, especially for advertising-based models and subscription-based models."

Reuters' headline is "Vivendi Chief Says Music Industry Gloom is Overdone" and included this quote: "I think altogether today there is an exaggeration in the industry ... Of course it is not doing that well, but look at us, we have flat revenues, a good two digit margins and it's not as dark as what many people describe."

Posted by Glenn at 3:36 PM | Link
|Conferences||DRM||Universal Music Group|

On the heels of news that it would drop DRM from its downloads, Sony BMG has announced it will sell artist-branded gift cards redeemable for MP3 files. Consumers will redeem cards an initial run of 37 different cards at Musicpass.com. Though its catalog will eventually be available at the proven digital retailers, Sony BMG's move shows a desire to develop its own solution. Not all of the money will not be kept in-house, though, as the cards will be available at 4,500 brick-and-mortar retailers (Best Buy, Target, Fred's, f.y.e., Winn-Dixie) buy the end of the month.

"We see MusicPass as a great way to bring digital music to the physical retail space," said Thomas Hesse, President, Global Digital Business & U.S. Sales.

The cards will cost $12.98 and will get the owner the album as well as bonus tracks and a digital booklet.

The $12.98 price tag leads me to believe a few things. First, Sony BMG is counting on cards being purchased as gifts for others; this is implied by the press release as well ("According to the 2007 American Express Gift Card Survey, Americans plan to spend 25% of their total gift spending on gift cards, up from 13% in 2005.") Two, Sony BMG must believe many people would spend more on a gift for others than they would on a purchase for themselves. At nearly $13, an album download with no resale value and no tangible nature doesn't compare well to the CD format. In addition, judging from a couple of the accounts (Fred's and Winn-Dixie) I would assume there is a hope that these cards will reach mainstream consumers who are not yet part of the digital crowd (what's another $13 on top of a huge grocery bill?).

This is a promising and positive development -- but just one of the many developments needed to breath life into music retail products. What should be remembered is this product was made available by the removal of DRM from Sony BMG's downloads. Not only do labels get to launch new products and services while circumventing iTunes, they get to develop many more sales channels than in the DRM days when Apple was the only viable option.

Posted by Glenn at 9:30 AM | Link
|Brick-And-Mortor Retail||DRM||Sony BMG|

• According to BusinessWeek, Sony BMG is "finalizing plans to sell songs without the copyright protection" and "will make at least part of its collection available without so-called digital rights management, or DRM, software some time in the first quarter." (BusinessWeek.com)

• U.S. and Canadian concert revenues rose 8% to $3.9 billion in 2007. That figure shows considerable growth in smaller scale concerts: revenue from the top 20 concerts dropped about 15%. (Forbes.com)

• Just as Napster quietly increased its monthly price to $12.95, Bear Stearns declared that "the pure-play music business faces significant challenges." (paidContent)

• Sirius Satellite Radio ended the year up 38% in subscribers, to 8.3 million. (Radio Ink)

Posted by Glenn at 10:06 AM | Link
|DRM||Napster||Sirius||Sony BMG|

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

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

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

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

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

• Labels trotted out a lot of big names last week but sales were still down 9% versus last year -- though up 9% over the previous week. Rascal Flatts' Still Feels Good lead a large slate of debuts. The country stars' album sold an impressive 546,000 units (8% digital). (Their 78-week-old album Me and My Gang rose ten spots to #46 and has sold 4.6 million.) Sales of digital tracks were up 1% over the previous week and 49% over the same week last year. For the year, digital tracks are up 46%.

• Confirming a September 10 report, The European Union cleared the Sony BMG merger. Said the antitrust commissioner, "It clearly shows that the merger would not raise competition concerns in any of the affected markets." Imagine what that statement would have been if Radiohead had been signed to RCA rather than EMI. (AP)

• The National Association of Broadcasters has filed comments in the FCC's ownership review. The NAB expressed its general support for "market-based stimulants" that increase women and minority ownership and participation but emphasized its broadcasters need the freedom to stay competitive. "Initiatives to promote diversity in broadcasting would be moot in an environment where radio and television stations are held back from effectively competing in an ever-expanding digital media marketplace." (Radio Ink)

• Warner Music Group head honcho Edgar Bronfman, Jr. has agreed to settle a suit with Vivendi, at which he was executive vice chairman after it acquired Seagram, over pension payments. (Reuters)

• Billboard.biz compiles some of the blog buzz on Radiohead's pay-what-you-like digital album sales. (Billboard.biz)

• How about an economist's take on Radiohead's album sale? Harvard's Greg Mankiw explains that like most economists he doesn't understand tipping. "Normally, we assume that consumers pay as little as they have to when buying the products they want," he wrote. "Yet, when buying meals, haircuts, and taxi services, most consumers voluntarily pay more than they are legally required. Why does this happen? Why is it more true for some services than for others? Why do tipping customs vary from country to country? I have no idea." If the strategy works, Mankiw jokes, he'll "put a hat next to the lectern." Be sure to read the comments. Good stuff. (Greg Mankiw's Blog)

• Viacom CEO Philippe Dauman told the U.S. Chamber of Commerce companies should use more DRM, not less, and predicted that anti-piracy measures such as DRM and watermarking "will usher in an unprecedented period of creative output across the globe." (The Inquirer)

• Browsing around Amazon MP3, I see all sorts of bargains. Steve Earle's new album is $6.99. Ben Lee's new album is also $6.99. Josh Rouse's is $6.99. M.I.A.'s is $6.97.

Posted by Glenn at 11:21 AM | Link
|DRM||Sony BMG|

About a month ago I posted a graph that showed EMI's year-to-date market shares for digital albums and CDs. The cumulative figures showed EMI's digital market share had increased in the month after the company dropped DRM at iTunes.

Over the last two months, EMI's overall market share dropped 1.7%. An encouraging sign for its digital strategy? For the most part, yes. It appears that EMI would have fared worse over the last two months without gains from its digital strategy.

To properly look at how the strategy is working, it's best to look at EMI's numbers versus the market shares of the other majors. The above graph shows EMI and Sony BMG have lost market share over the last two months while Universal Music Group and Warner Music Group have increased their market shares. The other striking thing here is that the change in digital, CD, total album and digital tracks market shares of all three of EMI's competitors go in the same direction. That is to say that if Sony BMG's CD share dropped, so did its digital album and digital track share, and if UMG's digital share increased, so did its other shares.

Let's look at album market shares. EMI has increased its digital album market share by 5% in the last two months, but its CD share has dropped 2.6%. EMI's total market share -- including all other formats -- has dropped 1.7%. Note that CD and digital are going in the opposite directions. Also note that the end result, the total change, is negative. EMI and iTunes have been able to get people to buy more digital albums, but total market share has dropped. Is this because of a CD-for-digital substitution or because EMI's releases were relatively weak compared to those of its competitors?

EMI's June/July release schedule was not strong. EMI has barely been in the Top 40 over the last two months. New releases by Interpol, Korn, Now 24 have landed in the Top 40. Most of EMI's best-selling albums are holdovers like Corrine Bailey Rae and Norah Jones below #50. The light schedule could explain a good portion of the decline in overall market share, but why didn't EMI's digital track share go up? Even after giving consumers a DRM-free option, EMI's share of digital track sales actually dropped 1.4% in June and July.

The difference in digital album and track market shares can best be explained by the differences in pricing. Album purchasers are more drawn to unprotected downloads than are track purchasers. That is probably because DRM-free tracks' higher price of $1.29. DRM-free albums cost the same as protected albums. Both have the old, standard $9.99 price tag. Consumers may view $9.99 for a DRM-free album as a better value, and so they are buying more. But $1.29 for a DRM-free track? Consumers appear not to see a similar increase in value. Given the weak release schedule, though, it's hard to read too much into the decrease in digital track share. With stronger new releases, EMI's digital track share could easily have increased. Slightly fewer tracks sold at a higher average price could lead to an increase in overall revenue, so a drop isn't all that bad.

Sony BMG has fared even worse and reflects what EMI's market shares would be in the absence of an improved digital album share. Its overall album share dropped 2.8% and its digital track share sank 1.6% When all three drop in tandem, that tells me the company's release schedule is the prime reason, not a change in strategy. Relatively weak releases will lower market share while a stronger release schedule will increase market share. Because their three shares rose in tandem, UMG and WMG market shares appear to be related to their release schedules as well.

Is EMI's increase in digital album market a short-lived burst of consumer enthusiasm, the result of shrewd marketing or an indication that its overall strategy will pay off? It's just too early to tell. The publicity surrounding EMI's DRM-free downloads has surely had a a positive impact. My gut tells me the gain in album market share is not a short-lived burst, but a good thing won't go unnoticed by EMI's competitors. A competitive advantage like this can dry up quickly.

Posted by Glenn at 1:45 PM | Link
|DRM||EMI|

How much does DRM hurt digital music sales? That's a big question. The fact that Universal is so methodically testing its DRM-free experiment tells me UMG would like a good answer to the question before picking an overall strategy. Jupiter research shows a fair portion of online adults would purchase more digital music is there were fewer restrictions. From David Card's blog:

"I would buy more digital songs if I could copy or burn them without restrictions -- 24% of US online adults

I would buy more digital songs if I could play them on any device or computer no matter where I bought them -- 23%

But yes, almost twice as many of the best prospects -- digital music aficionados and freeloaders who, together, make up about 35% of online adults -- agree with the statements."

Card believes "killing DRM won't exactly kick digital music into fifth gear." More information is needed -- which UMG will get from its experiement -- but I think dropping DRM might be the best option for fifth gear. Of all the current options out there for reversing the slowing in digital sales -- variable pricing, dynamic pricing, ad-supported P2P, etc -- getting rid of DRM has the most potential.

Actually, I don't think digital sales are even in fourth gear yet. Digital is still in its infancy. DRM has not hurt to this point. Apple has been able to fuel sales growth even though it uses DRM in its closed iPod/iTunes ecosystem. Beyond iTunes, DRM will stunt digital music's growth. Without DRM, creative retailers can offer new ways to buy music. Without DRM, there are far fewer cats to herd.

Two retailers are on the record as saying UMG's DRM drop will improve sales. Then again, what else are they going to say to a reporter? RealNetworks and Best Buy believe they will both sell more digital downloads during UMG's upcoming experiment. Said the director for music at Best Buy, "The size of the pie for legal downloading and subscription services is increasing. More people are saying, 'I'll pay for this ability to play it on whatever I want or any time I want.'" About price he said, "We feel consumers will want to pay the same price they're paying."

Posted by Glenn at 2:35 PM | Link
|DRM|

The Internets is all abuzz over Universal Music Group's decision to drop DRM from select retailers for a trial period of time. Below are some of the comments.

Some are of the opinion that DRM is disappearing because it is inherantly bad for consumers. In this specific case, DRM inhibits market growth (not because it's bad for consumers, but because it has been very good for Apple). I believe UMG is testing DRM-free not to hurt iTunes as much as to enable iTunes' competitors. The goal here is to open up the download market. Competition is good for consumers. A more competitive download landscape will be good for consumers and labels alike. A world beyond iTunes awaits, and UMG wants to get there. Maybe dropping DRM will achieve that goal. We'll have to wait and see.

From an unnamed source at Billboard.biz: "We want to have a robust digital marketplace where there’s healthy competition. We don’t have that now. Apple has a stranglehold on the whole thing, so much so that all the other online retailers are badly disadvantaged because you can’t buy music from their stores and play it on the iPod. We want to open up the market and create a more level playing field. We want to give other retailers a chance to compete."

Farhad Manjoo at Salon: "Nobody should be locked in to one store because of what device they use to play their songs. With EMI and now Universal coming around to this view, perhaps we might soon live in a such a sensible world."

James McQuivey of Forrester Research: "That's far too much power for anyone to have, especially someone who has not seen things eye to eye with the music labels in the past. So Universal, and I would expect others, have said, 'We need to get hands on this market. We need to stimulate growth in more than one place.'"

Jupiter's Michael Gartenberg: "Clearly the handwriting is on the wall for DRM-protected content. We are seeing more of the players fall as they recognize that it's just a hassle for the consumer and doesn't really help the piracy problem."

Paul Resnikoff at Digital Music News: "Sure, UMG can withhold exclusives, threaten Apple with shorter contract structures, and hand DRM-free tracks to competitors. But does it really matter to Apple? Not as long as paid downloads remain a fringe contributor to a bottom line dominated by high-priced iPods. Perhaps that reality is difficult to stomach, especially for such a massive company like Universal Music Group. And in its grandiose self-image, the mega-label is now aiming to level the playing field by giving DRM-free music to iTunes rivals. But just like EMI, Universal has overestimated the importance of DRM, and ignored a number of other, important ecommerce variables."

Posted by Glenn at 4:09 PM | Link
|DRM||Universal Music Group|

• Universal Music Group will offer DRM-free downloads through a select group of online retailers -- but not iTunes. From August 21 through January 2008, UMG will sell "thousands" of albums and tracks without copy protection at Rhapsody, Best Buy, Wal-Mart, PureTracks and the upcoming Amazon.com download store. In addition, UMG will sell the downloads direct to consumer at some artist and label sites, and use Google AdWords to drive purchases at gBox. (Billboard.biz)

• Listen to a WYNC interview with with QSR editor Sherri Daye Scott about how fast food chains are using music in their marketing efforts. (Podcast at QSR Magazine)

• Video sharing website Veoh has filed a preemptive lawsuit against Universal Music Group. The company has asked a judge to prevent UMG from suing it for copyright infringement. (paidContent)

• Yet another article on the resurgence of vinyl. At least this one has a video segment and a really great quote. From Criminal Records' Eric Levin, "Vinyl is just out of control. It's like somebody pushed the cool button again." Indie retailers are selling more vinyl because of a few reasons. First, it's a tangible product that sounds better than downloads. Second, whatever chain stores are left sell little or no vinyl. I've got to wonder, though, that if vinyl sales keep going up if a chain like Best Buy will start stocking vinyl and carrying turntables. If vinyl becomes too successful, it will look like too attractive a market not to enter. (Chicago Tribune)

• Digital Music Group Inc. reported a loss of $1.1 million on revenues of $3.2 million for Q2 2007. The company attributed almost $330,000 of the loss to expenses related to its merger with digital distributor The Orchard. The merger will be completed in Q4. Last year's loss was $589,000. (Sacramento Business Journal)

Posted by Glenn at 8:46 AM | Link
|DRM||Digital Distribution||Marketing||Universal Music Group|

• The National Music Publishers' Association has joined a class action lawsuit against Google and its YouTube division. The suit, originally brought in May by English soccer's The Football Association Premier League Ltd, contends YouTube facilitates copyright infringement of music videos and live footage. (Wall Street Journal)

• It's the year of the widget boom: Pandora has launched a Facebook widget. Users can log in with an existing Pandora account and the widget will contain previous user information like favorite artists and radio stations. (Listening Post)

• Microsoft's DRM lives on: Nokia's S60 mobile operating system will use the PlayReady DRM that will allow users to share music, videos and games. PlayReady was unveiled in February. It requires users to register different devices under a domain, and PlayReady content can be played under each user's domain. (Billboard.biz)

• A profile on Anywhere.FM, an online music service that does the usual online music storage locker and music discovery stuff. It has 3,700 registered users in just five days and is part of the Y Combinator start-up incubator program. (John Cook's Venture Blog)

• A U.S. judge overturned a $1.75 billion ruling against Microsoft that dealt with the company's use of a disputed MP3 technology. Fraunhofer-Gesellschaft, the creator of the MP3 format and now owned by Lucent, had argued that Microsoft infringed on two of its patents. (The Age)

• Music attorney Chris Castle asks, Why does the EFF hate artists so much? "The issue is not whether society needs copyright to have a creative community, I would suggest that society needs copyright to protect the creative community from von Lohman of the EFF’s fellow travelers at the National Association of Broadcasters and the Consumer Electronics Association who would free ride on our backs." (Music Technology Policy)

• Commodore (remember that brand?) has released an digital media player. The Gravel C200 won't win any design awards, that's for sure. (Engadget)

Posted by Glenn at 8:23 AM | Link
|DRM||Legal||Music 2.0||Portable Music Players|

My post on EMI's digital sales in its DRM-free era has attracted a lot of attention. When I saw that Jupiter's Mark Mulligan referenced the stats I posted (he incorrectly assumed those stats were put out by EMI), I figured it was time to put a needle in everybody's balloon. I worry, though, that the tech media will not cover the following statistics with the same fervor with which they reported the data in my first post.

Allow me to preface the following comments by saying not enough time has passed to make a proper judgment on the effectiveness of EMI's decision to drop DRM from digital downloads. It is a long term strategy that requires a proper time period for reflection. Even so, people want to draw some kind of conclusion as soon as possible, so I'll share with you some information.

If you look just at digital sales of Pink Floyd's Dark Side of the Moon, which have somehow become the standard bearer for EMI's recent digital strategy, one would have a difficult time believing the strategy is clearly working.

Digital sales of Dark Side of the Moon dropped 14% last week, which followed drops of 33% and 42%. Before dropping 42%, digital sales rose 350%. That was the week iTunes Plus launched and allowed people to upgrade to the DRM-free versions for an additional $0.30 per track. Word is that SoundScan does not count those upgrades as sales, but I am very skeptical. I suppose the peak could have been explained by consumers' lust for DRM-free music, but that demand should have lasted more than one week, right?

A one-week peak fits in with a scenario in which the most avid iTunes users upgraded to iTunes Plus as soon as it was available and then upgraded their EMI downloads. (Some did it just to experiment. Some were journalists and bloggers writing about the new technology. Some actually wanted to DRM-free music.) In the following weeks, incrementally fewer iTunes users have upgraded to the new version of iTunes and in turn upgraded their EMI downloads. What happens when iTunes Plus adoption levels off? Dark Side of the Moon digital sales will level off.

Everybody has focused on the 350% increase but has ignored what has happened since. Dark Side of the Moon's inital sales are still almost double what they were before iTunes Plus launched, but they're dropping like a rock.

Once again, more time is needed before drawing any good conclusions.

Posted by Glenn at 11:02 AM | Link
|DRM||EMI|

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|

• Vivendi, parent company of Universal Music Group, will reportedly launch a paid content portal to sell music, videos and mobile content. Given labels' past history with these sorts of endeavors, I don't think this will be successful. Entertainment groups fare better when they let others sell to consumers. I can see bands carving out some space for themselves with direct-to-consumer relationships, and niche-fulfilling indie labels can pull it off on a small scale, but not this. (Reuters)

• A Greenfield Online Fact of the Week survey showed that 64% of online respondents still get their music by purchasing CDs. (mi2n)

• Contrary to its initiatives elsewhere, EMI is reportedly selling protected MP3 files in Russia through Soundkey.ru. (WebPlanet)

• PayPlay.fm will start selling its 1.3 million-deep catalog in unprotected MP3 format by the end of this month. MP3 files will cost $0.88 while WMA files cost $0.77. You won't find many popular acts there, but a few searches revealed some local (to Nashville) names such as Justin Earle. (Listening Post)

• Muzak and DMX, a design firm, want to merge and then be acquired by a third company. The Department of Justice has a few questions about the transaction's effect on competition. (Bizjournals)

• Music-heavy social media site Buzznet laned $6 million in funding. (paidContent)

• A report says some (Don) "Ienner loyalists" have left Sony BMG recently, including SVP of marketing, Barbara Jones. (Digital Music News)

• The IFPI has pointed to research by Italy's Luigi Einaudi Foundation that shows how file-sharing reduces consumers' physical music purchases. While 30% of file sharers surveyed say they purchase fewer CDs, 6% say they purchase more. The press release does not mention any increase in digital purchases, which makes it look pretty one sided. If you can read Italian, view the report here (file is about 9MB). (Press release)

Posted by Glenn at 12:16 PM | Link
|DRM||EMI||Sony BMG||Universal Music Group|

There are three big announcements today that relate to DRM-free downloads. For a change, there will be some optimism in the air (for a day or two) about the future of recorded music....not that I expect the other three majors to hurt themselves in a mad scramble to follow suit, but it's good to see EMI giving it a shot.

Amazon.com ended months of speculation and announced today it launch a music download store that will sell unprotected MP3 downloads. The store, to launch later this year, will offer more than 12,000 record labels, but only one major, EMI. No details were given on pricing. EMI already announced a deal with Apple that will offer DRM-free downloads at $1.29, a $0.30-cent-per-track premium over the cost for a protected AAC download.

EMI also had two other related announcements today. In France, VirginMega will sell EMI tracks as DRM-free, higher-quality downloads. The downloads will be 320kbps MP3 files; the existing format will also be available.

And In Scandanavia, EMI has an agreement with multiple online and mobile operators to sell premium, DRM-free downloads in the coming months. The deal covers more than 20 stores and will push bits rates "up to CD quality."

Posted by Glenn at 11:45 AM | Link
|DRM||EMI|

• According to The Telegraph, two American hedge funds, Fortress and Cerberus, are planning to jointly bid on EMI at a price below the $4.1 million Warner Music Group bid earlier this year. They hope EMI will accept a sub-WMG bid because of the lower level of regulatory scrutiny they expect to come with their bids. The report says One Equity is still looking at EMI but will not join the bid with Fortress and Ceberus. Permira is unlikely to join in the bidding. (The Telegraph)

• Sony BMG, which recently rid itself of its BMG music publishing arm, plans to get back into the music publishing game. Said chief executive Rolf Schmidt-Holtz, "We will do everything to re-enter the market for music publishing. ... Our shareholders see that a music company that has a music publishing business is more attractive" And why not? The revenue is far more less volatile and risky than that in the recorded music world. (Financial Times)

• The price for a non-DRM track at the New Zealand iTunes store will carry a 39% premium. A DRM track costs NZ$1.79 and a non-DRM track will carry a NZ$2.49 price tag. The U.S. iTunes store will charge only a 30% premium for the non-DRM version. (PC World NZ)

• The New York Post has a decent article on how labels are looking to ad-supported business models. Nothing new there, but at least some execs went on the record with their thoughts. (New York Post)

• Warner Music Group has signed a worldwide publishing deal with Destiny's Child member LeToya that covers her 2006 self-titled album and future compositions. (Press release)

• Vickie Winans' Destiny Joy Records has signed a distribution deal with Central South Distribution. (BreatheCast)

Posted by Glenn at 9:16 AM | Link
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• Drag City Records is launching a world music label called Yaala Yaala Records. The first three releases will be from West African artists. (Pitchfork)

• The maker of a DRM software is threatening to sue companies such as Apple and Microsoft, claiming that its product is so effective that by not using it the companies are enabling their products to violate the Digital Millennium Copyright Act. (Computing)

• I've ignore the firestorm over offensive rap lyrics mainly because it's a hot political issue (for the next few weeks anyway) that may not have any financial ramifications. This AP article looks at the majors' silence over the issue and argues the reason for their silence is almost purely financial. They "fear cracking the door to censorship," wrote Marcus Franklin, or that they would take silence over protecting the lyrics, or that "they are leery of stepping into a racial minefield." (AP)

Posted by Glenn at 9:43 AM | Link
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• Digital Music News reported the names of some Warner Music execs who have or will leave their posts: Nikke Slight, Atlantic SVP of New Media, and Robin Bechtel, head of new media at Warner Bros. Records. Those departures have led to the entry of Jack Isquith, formerly with AOL Music. Isquith will report directly to Warner Bros. chief executive Tom Whalley. (Digital Music News)

• PassAlong Networks announced version 2.0 of freedomMP3. The new version adds track-based rules that allow rightsholders to predetermine how many times the song can be moved off a PC. (Press release)

• EMI Music UK announced a strategic partnership with TLC Marketing to launch a download royalty card that will be used in third-party promotions. TLC has brand partnerships with Samsung, First Direct and British Gas. The promotion will allow consumers to download songs from an EMI owned and branded website. (Creative Match)

• With every concert ticket purchased online, Ticketmaster is giving away a free, ten-song digital sampler. Between Memorial Day and Labor Day, each ticket purchased will get one free download at iTunes. (Press release)

• A report by eMarketer finds that the music industry as a whole is "healthy" and "growth in many other areas will more than make up for the shortfall" in falling CD sales. Growth in music publishing and live music will help the industry grow at an average annual rate of 2.8% through 2011. (Press release)

• Guitar Center announced its Q1 2007 results. Net sales increased 13.5% to $534.5 million and earnings rose to $17.2 million. The company opened 12 new stores during the quarter, one being the result of an acquisition of the former Victor's House of Music in Paramus, New Jersey. (Press release)

Posted by Glenn at 11:41 AM | Link
|DRM||EMI||Marketing||Warner Music Group||iTunes|

Forbe's Louis Hau has a good, comprehensive article titled "Why Online Music Will Stay Locked Up" on the majors' stances on DRM and the desires of the leading music download stores. It can be used as a DRM scorecard to keep track of who wants what.

Major Music Groups

• Warner Music Group: For. "No intellectual property business is going to cross the digital divide without figuring out how to protect its content and to ensure that transactions are associated with the acquisition of content. The music industry simply has to solve the content security problem or risk the obsolescence of its business model." -- Michael Nash, senior vice president of digital strategy and business development, speaking at NARM.
• Sony BMG: For. "We don’t want the whole world to be a college dorm. Because that’s what a no-DRM world looks like--it’s a world in which all product can just be cloned without limitation." -- Thomas Hesse, Sony BMG president of global digital business and U.S. sales, speaking at NARM.
• Universal Music Group: Undecided. Hau wrote that UMG is thinking about dropping restrictions. "...if further tests prove that this provides us with a net positive sales result, by which I mean sales increase more than piracy, then we will try to work out a reasonable solution." -- Amanda Marks, UMG executive vice president and general manager of digital distribution.
• EMI: Has already decided to drop DRM, though it will sell DRM tracks at the (lower) original price.

Stores and Services

• Napster: All or nothing. Napster wants to sell DRM-free downloads, but only if it can sell all music without DRM. "We don’t want to confuse customers,’’ said Napster's Chris Gorog. “It’s all or nothing. We’re not going to do it incrementally."
• Rhapsody: Wants to minimize confusion. Kevin Nakao, RealNetworks’ vice president of music and mobile services: "Can you create the consumer experience and merchandising experience that’s not confusing or does more harm than good? We think we can do that because we think the best way to sell music is in the context that they’re listening to it."
• Yahoo! Music: Reduce clutter. Rather than sell both DRM and DRM-free tracks as iTunes plans to do, Yahoo! may stop selling a restricted version of a track as soon as it can sell the DRM-free version.

Posted by Glenn at 3:18 PM | Link
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• Will Apple offers a music subscription service? No, not if Steve Jobs' comments to Reuters in any indication. Said Jobs, "Never say never, but customers don't seem to be interested in it. The subscription model has failed so far. ... People want to own their music." (Reuters)

• Even a person with no legal knowledge could see this coming: In saying digital downloads do not count as public performances, a court denies ASCAP from double-dipping. (Hollywood Reporter)

• Research from Strategy Analytics Digital Media Strategies puts this year's global online music growth rate at 62%. By 2011, the value of the online market will grow to $6.6 billion from $2.7 billion in 2007. It predicts a "temperate increase in single track download revenues" due to EMI's decision to offer DRM-free, premium tracks. Their optimism is striking: "This year will likely be the turning point for the music industry, and a return to overall revenue growth." I doubt it, but it's possible if you include publishing revenue. (Strategy Analytics)

• The Guardian has a routine article on download stores and DRM -- it's the hot topic of the quarter -- but there's one part that may cause your eyes to open wide. Scott Cohen, founder of The Orchard, explains that dropping DRM is not technically complicated but the finer stuff can get a bit complicated. Details vary from store to store (things like bit rates and metadata identifiers). "There are 63 variants for mobile devices alone, and overall there are hundreds. Cohen notes, though, that the really hard work is marketing the music." (The Guardian)

• An interview with Last.fm co-founder Martin Stiksel. "We released our software in ten different languages before Christmas, and because of our unique 'scrobbling' within two weeks we had millions of tracks of Brazilian music and Spanish music and Russian music added to our catalogue." (Exclaim.ca)

Posted by Glenn at 8:11 AM | Link
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• A Sunday Times report says EMI is "braced to receive a fresh bid" from Warner Music Group and expects some bids from private equity groups. (Forbes.com)

• eMusic president and chief executive David Pakman on talks with Amazon.com: "I can confirm there are no talks right now with any strategic buyer. The company's not for sale. The company is in no need of financing, and our growth is off the charts. We've talked to every media company on the planet, we've been approached by everyone. The company has had 100% year-over-year sequential growth for the last three years." (Forbes.com)

• Music-centric video games are, says a Warner Music Group exec, "one of the few places we've seen in the sweet spot of what consumers want to do with music today, which is interact with it." (Billboard)

• An odd prediction by RoyaltyShare CEO Bob Kohn: Removing DRM will double or triple the size of the music download business. I think that's odd because even with DRM, the download market will double in (roughly) the next 18 months (it's on pace for over 60% annual growth for 2007). Kohn supports dropping DRM but wants to continue to ban the legal sharing of DRM-free tracks (I wonder where that would leave the Zune?) and the posting of such tracks on web sites (which is already a no no that has spotty enforcement). (MusicDish.com)

• Here's a different way to release an album: Rancid's Tim Armstrong is releasing a solo album and giving it away for free -- but not all at one place -- before its official release date. Fans will be able to hunt for the ten tracks (two of while were already released on the Internet) on Rancid-related websites and MySpace pages. (Harp)

Posted by Glenn at 11:07 AM | Link
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• Conde Nast's recently launched Portfolio has an article on Larry Fink, CEO of BlackRock. The private equity firm is behind Octone Records, which will soon release Maroon 5's sophomore album. (Portfolio)

• Apple's April 12th newsletter confirmed that iTunes will begin to offer DRM-free, 256 Kbps files next month. (Apple eNews, via Digital Audio Insider)

• Artists signed to Atlantic Records UK will use ShoZu-enabled mobile phones to upload videos and photos to the Internet. The first act to use the service will be Funeral For A Friend, which will upload videos to its MySpace page. (Press release)

• The Caroline-to-Fontana migration continues as Eighteenth Street Lounge moves to Universal Music Group's indie distribution division. (Billboard.biz)

• A profile of CMT and its many digital initiatives: CMT.com, CMT Loaded (video on demand), content for mobile phones and a fan-compiled Wreckers video, among others. (The Tennessean)

• Hipsters were quick to digital music but still believe in the quality of vinyl. In Brooklyn, at least six vinyl shops have opened in the last few years. (New York Sun)

• How the "cumulative advantage" impacts the popularity of music. The phrase I tend to use is, "Popularity breeds popularity"...but I've never published research on the topic. (New York Times Magazine, via David Card)

Posted by Glenn at 9:45 AM | Link
|Brick-And-Mortor Retail||DRM||Distribution||Warner Music Group||iTunes|

(See this post for an update on Warner Music Group's involvement with AnywhereCD)

Billboard.biz's Anthony Bruno just dropped this article on AnywhereCD and its licensing deal with Warner Music Group. AnywhereCD, created by MP3.com founder Michael Robertson, sells both MP3 albums and a bundle of CD with the MP3 album (for a few bucks more). Tracks are 192 Kbps MP3, and the site is very no-frills.

As an example, look at The Postal Service's Give Up. The MP3 album costs $11.95 and the CD+MP3 album bundle costs $14.95. Some albums have a standard album price even though they have many tracks. Ramones' Too Tough To Die -- 25 songs including the bonus tracks -- is priced at $9.99.

According to the article, "a variety" of Warner Music Group labels are represented in the store. I spotted a number of Sub Pop albums (Saint Etienne, The Shins, Iron & Wine, Pigeonhed) and some from major labels (current charting albums by Larry the Cable Guy, Static-X, Shadows Fall, Josh Groban and Fountains of Wayne). Negative on Ashley Tisdale and Led Zeppelin.

The AnywhereCD help page has links to YouTube videos that show the purchasing and downloading procedures.

Extra reading: Wired's Listening Post has an article about AnywhereCD.

Posted by Glenn at 2:00 PM | Link
|DRM||Warner Music Group|

How do you know the financial press is examining the health of the music industry? Yesterday's issue of Financial Times had three articles dedicated to the music industry, its slumping sales and its attempts to overhaul its business models. EMI's recent moves had ratcheted up the debate on the industry. I think it's a good sign that the financial press is taking a greater interest. When investors take a greater interest, major music groups are more likely to pursue innovative strategies in earnest -- not just merge divisions and cut artist rosters, but really re-think how they do things. (I'm pretty much on board with what labels are doing, but over the last year or so they have collectively lost their way. There has been too little experimentation, too little serious transformation and not enough encourage of entrepreneurship.)

One article claims EMI's copyright decision has divided the music industry. Emiko Terazono wrote that "some music executives worry that raising prices could stifle the digital download market which still accounts for only 12 per cent of the whole music market." (Of course, EMI did not exactly raise prices. It chose to offer a DRM-free, higher bit-rate version for a higher price in addition to the existing format and price. Whether or not the two-tiered pricing will work is another issue.)

Such worries are premature. The entire market will be stifled only if (a) the plan backfires, which could happen if (b) the other majors do not join in the plan. If those worried execs want to do their part to sink EMI's hopes, they will not follow EMI's lead. Without the help of its peers, EMI will find that it cannot by itself invigorate music sales. After all, would iTunes be as successful as it has become if it sold only EMI music? Not by a longshot. But should those worried execs want EMI's plan to fail?

Continue reading "To DRM Or Not To DRM? Future Investment May Depend On It" »

Posted by Glenn at 6:18 PM | Link
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• Most of the music-related news in the media this week centered around EMI's decision to offer downloads without DRM. Other labels not have some thinking to do, and some negotiating. Billboard reported that Apple ponied up a $5 million advance for the right to sell EMI's catalog in unprotected AAC. Since majors' contracts with iTunes come due later this month, there could be some similar deals soon. (Digital Music News)

• Does country music have a difficult road ahead? From CMT.com: "It's common knowledge on Music Row that Wal-Mart has come around recently to call on the major labels and to tell them that if Wal-Mart isn't going to receive a dependable supply of salable artists' CDs from the labels, well, Wal-Mart may drastically cut down on racking country CDs." Last year's country boom (Rascal Flatts, Carrie Underwood) could do more hard than good if mass merchants expect those numbers year in and year out. (CMT.com)

• Foo Fighters have re-signed with RCA. (Billboard.biz)

Posted by Glenn at 11:12 AM | Link
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• DRM is such a heavy duty issue that Billboard.biz set up a dedicated page on the topic that collects related articles.

• Wired will now put its music-related blog posts, previously found in Listening Post, into three separate blogs: Epicenter ("RIAA lawsuits, copyright issues"), Gadget Lab ("music gear") and Compiler ("music software and sites"). Good news if you like like a broad range of topics, bad news if you'd rather get straight to the music issues.

• This is a few days old, but I just ran across this IFPI press release with 2006 music sales info for Germany. Total CD sales were up about 1.3% but total unit sales dropped about 1.5% because sales of physical singles were down considerably. Download sales were up 40% but along with mobile accounted for only 5% of sales. CDs accounted for 85% of sales, and music videos represented 9% of sales. Chart share of German-language artists rose to 38.1% from 35.3% in 2005. (IFPI.org)

Posted by Glenn at 10:06 PM | Link
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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
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• US buyout firm Fortress is taking a look at EMI, as are Apollo and private equity firm One Equity. (AFX)

• Los Angeles gets a country station today. (Radio Ink)

• Story of a YouTube "star" who doesn't want to sign with a record label. The move could end up saving labels from themselves. If OK Go gets only 200,000 album sales from a YouTube megahit, why look use YouTube popularity as an indicator of future music sales? Who's to say YouTube popularity will translate to success at radio, television or touring? Right now, all indicators point to YouTube popularity existing in a near vacuum. (Billboard)

• A profile on DC-area indie retail chain cd.gameexchange. (Washington Post)

• Broadcasters speak out for relaxed ownership rules at the FCC media ownership hearing in Harrisburg, PA. (AP)

• DRM lives on: BitTorrent to launch a movie download service today with files protected by Microsoft DRM. The press seems to be going a bit light on founder Bram Cohen even though media files will be wrapped in the same sort of DRM that gets online music retailers so much grief. (The News.com)

Posted by Glenn at 8:22 AM | Link
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• To cut is (probably not) to cure: EMI laid off an undisclosed number of employees in Canada. (Billboard.biz)

• The EU is looking at whether or not the Sony BMG merger has raised CD prices. A survey sent to record companies and trade group asks, "Have the majors shown a parallel behavior, in particular in terms of prices before the merger? Did the merger have an effect on such parallelism?" Honest answers please. (Bloomberg News)

• The newly-created House Antitrust Task Force will hold a public hearing next week on the proposed merger between Sirius and XM. (The Wall Street Journal)

• Internet radio listening jumped 26% in 2006. AOL's radio network, at 15.25 hours per week, is the most listened to online radio network. (Radio Ink)

• The UK government responded to a petition to ban DRM. In short, it is not jumping on Norway's bandwagon. Excerpt: "DRM does not only act as a policeman through technical protection measures, it also enables content companies to offer the consumer unprecedented choice in terms of how they consume content, and the corresponding price they wish to pay." (Number-10.gov, via Tech Digest)

• The state of music retail in Columbia, Ohio. (The Other Paper)

• The state of music retail in Belfast, Ireland. "The demise of the independent sector has been rapid, brutal and in inverse proportion to the rise of downloading and the digital revolution." Actually, I think the demise has been in direct proportion to the rise of downloading and the digital revolution, but I get what they're saying. (Belfast Telegraph)

Posted by Glenn at 7:17 AM | Link
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In his Bit Player blog at the LA Times, Jon Healey lays out EMI's strategy for pushing MP3s at online retail as told to him by "two sources in the online music biz." While the press oddly attributed news of EMI's recent push to MP3 to Steve Jobs' DRM-bashing open letter, Jobs looks to have been reacting to EMI's quiet MP3 strategy.

EMI, wrote Healey, was asking online retailers for cash advances in exchange for the right to sell its catalog in MP3 format. That strategy was a reaction to a proposal by RealNetworks for switching to MP3. Who did and who did not get EMI's proposal explains Jobs' recent push to get rid of DRM.

"The deal was apparently not offered to Apple, however; evidently, EMI wanted to build up momentum among the also-rans before making Jobs and offer he might otherwise refuse. Before EMI could sign on the dotted line with the likes of RealNetworks and Napster, however, Jobs dropped his DRM bombshell. Go straight to the head of the parade, Steve! Then the Wall Street Journal reported EMI's MP3 overtures, and suddenly the record company wasn't in such a hurry to announce its initiative."

Looks like a good theory on the sequence of events. EMI wants to sell MP3s but wants to start small and build up to iTunes. Apple doesn't want to miss the MP3 party and throws a wrench into EMI's plan to leave Apple out of its initial plans.

Posted by Glenn at 3:42 PM | Link
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A Jupiter survey reveals that two-thirds of European music execs polled believe removing DRM from tracks would lead to an increase in sales. (Read BBC News article, view report page at Jupiter's website)

• 54% think DRM systems are too restricture
• 62% think dropping DRM would increase overall music sales. This depended on the segment being questioned. Outside of the industry, 73% think sales will increase. At larger labels, the number is 58%. All all labels, the number drops to 48%. (Looks like the indies don't believe dropping DRM will increase sales. The explanation could be that many indies already sell non-DRM music and do not expect much of an increase.)
• 70% believe the future of downloads is in the ability to play the music on as many different tracks as possible.

Co-author Mark Mulligan doesn't believe labels are ready to drop DRM. "Despite everything that has been happening the record labels are not about to drop DRM. Even though all they are doing is making themselves look even less compelling by using it." He added that few consumers are bothered by DRM.

Posted by Glenn at 5:59 AM | Link
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• Video site Bolt.com is nearing a settlement with Universal Music Group for "several million dollars." Additionally, Bolt.com will agree to pay UMG royalties in the future. The company is working on similar royalty agreements with other majors. (New York Times)

• SpiralFrog inked licensing deals with Click Record Productions and distributor Kudos Records Ltd. (International Business Times)

• More reaction to Jobs' open letter: SanDisk CEO Eli Harari calls for an end to proprietary formats. (Digital Music News)

• An article on some f.y.e. stores that have replaced former Tower locations. Different product mix, digital kiosk test and a partnership with Great American Country. (The Tennessean)

• How do you merge two companies and prevent a culture war? Capitol Music Group's sales staff will be comprised of the former Virgin Records staff. Capitol Records' sales staff was let go. (Billboard.biz)

• Plug Award winners include Band of Horses, Neko Case, Sufjan Stevens, J Dilla and Brooklyn Vegan. (Plug Awards)

Posted by Glenn at 7:58 AM | Link
|DRM||Legal||Online Stores/Services||Universal Music Group|

In a reaction to Steve Jobs' open letter earlier this week, Warner Music Group Chairman and CEO Edgar Bronfman spoke about DRM in yesterday's conference call. I'll take a quote from Digital Music News' post on it; I haven't had a chance to listen to the call.

"Let me be clear: we advocate the continued use of DRM in the protection of our and of our artists’ intellectual property. The notion that music does not deserve the same protections as software, television, film, video games or other intellectual property simply because there is an unprotected legacy product available in the physical world is completely without logic or merit. We will not abandon DRM, nor will we disadvantage services that are successfully implementing DRM for both content and consumers."

Bronfman isn't about to tell analysts that WMG is going change its strategy in an anti-piracy campaign that Wall Street considers to be necessary for the value of entertainment companies. But...I don't think he was playing the role of pro basketball general manager before draft day. There was no subterfuge in that statement. The only phrase missing was, "Read my lips." He couldn't have been more clear.

Posted by Glenn at 9:08 AM | Link
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The Independent compiled some responses to Steve Jobs' anti-DRM open letter. The Register took a piece of an RIAA response. Here they are.

The RIAA: "Apple's offer to license FairPlay to other technology companies is a welcome breakthrough and would be a real victory for fans, artists and labels. There have been many services seeking a licence to the Apple DRM. This would enable the interoperability that we have been urging for a very long time."

The IFPI: "We have been talking about the desirability of interoperability [of DRM systems] for some time... We are pleased that Steve Jobs now wants to address interoperability."

Universal Music Group: No comment on Jobs, but a recent comment applies: "We continue to support and deploy DRM. Obviously, we remain flexible and open-minded regarding solutions to the interoperability dilemma, but this is something which requires commitment from technology companies as well as the content owners."

EMI: "The lack of operability between a proliferating range of digital platforms and devices is increasingly becoming an issue for music consumers. EMI has been engaging with our various partners to find a solution."

Paul Jackson of Forrester: "Apple is confident it can continue to dominate now the cracks have started to show in the DRM model."

IP lawyer William Cook of Simmons & Simmons: "It is technically possible to have standard copy-protection."

Posted by Glenn at 6:20 PM | Link
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• 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|

• Hits reported that the parent company of Koch Entertainment could be acquired outright by a minority owner. The company, shipping company Clarke, has spent more than $2 million on due diligence. An acquisition would likely lead to cost cutting, which means fewer employees and less manpower to work releases. (Read post at Hits Rumor Mill)

• Much like when a politician you've never heard of announces he's bowing out of a presidential run, Virgin Digital U.S. announced it is shutting down operations. What few customers it had are being referred to Napster. This is a very good sign for the digital space. Competitive forces have begun to weed out all but the most innovative, well-funded and aggressive mainstream digital retailers. At the same time, boutique digital stores are popping up everywhere. Consumers will be better served. (Read article at Billboard.biz)

• The New York Post's Cindy Adams reported Jive Records is less than thrilled about five new songs Britney Spears recorded in New York recently. Wrote Adams, " Talk inside the company is that either it's redone, or they need to drop it - and her." (Read article at New York Post)

• BusinessWeek.com covers the fight against DRM. There's lawsuit against Apple, and a lawsuit against the four major music groups. "We are focused on interoperability," said RIAA President Cary Sherman, even though Apple and Microsoft are not. Nothing new there, but the article is decent for its thoroughness. (Read article at BusinessWeek.com)

Posted by Glenn at 10:08 AM | Link
|DRM||Indies||Online Stores/Services||Sony BMG|

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|

News of Blue Note's sale of a Norah Jones MP3 has put the spotlight back on the DRM debate. Earlier this week, the Digital Watermarketing Alliance went public with its support of industry attempts to sell MP3s at sites like Yahoo! Music (read press release). Its companies' watermarking technologies, it claims, can help labels better manage the MP3 files it sells online. In addition, there's a rumor that Amazon.com will start selling MP3s in 2007.

When the open-format MP3 is the topic, eMusic's President and CEO, David Pakman (pictured), can be found acting as its most supportive embassador. Pakman can often be found in the press evangelizing the business sense of the MP3 format. I spoke with him last week after EMI announced it would sell a Norah Jones' MP3 single.

“I don't think it's much of a question, but the industry has made it into a question," Pakman said of the DRM debate. Consumers, he often argues, are better served without limitations placed on their music. "It places restrictions on them.”

Many ask when and if majors will fully embrace MP3s, but in the meantime a growing number of companies are focusing on out-of-the-mainstream music that is available. Indie music sites like Bleep, Beatport and Insound join eMusic in selling unrestricted music downloads. Being an Internet retailer offers enough scale and volume to allow companies to focus just on indies. “Thirty percent of music sales are indie alone," said Pakman. "We focus on that. That's plenty large for us.”

DRM is needed for at least one model: Subscription services such as Rhapsody To Go and Napster To Go. “We don't think they're bad models," Pakman said, "but we don't think (consumers are) ready for them yet... especially the customers we go after. We think that may work over the next few years, but today consumers have largely rejected the subscription model."

My best guess is that the consumers most involved in the DRM debate are also the ones more likely to shop at indie music sites that offer unrestricted files. Mainstream consumers are, so far, unfazed by Apple's FairPlay restrictions, or they're content to buy CDs. But just because more consumers haven't loudly rejected DRM doesn't mean major labels should continue to avoid MP3. There is another market to be tapped. Those who desire MP3 files need an outlet as well. Will sales to that group cannibalize CD sales? Probably not, but there's a way to find out. More extensive experiments with selling MP3 -- an entire label catalog, for example -- are needed to measure the latent market and help map out an MP3 strategy.

At the same time, the existence of DRM could harm the value proposition of subscription services. In order to balance a need for DRM (subscription) and a desire to loosen restrictions (a la carte), online services and labels must deftly position both products to consumers. This is especially true for subscription services, a product that confuses more consumers than it attracts.

Posted by Glenn at 12:08 PM | Link
|DRM|

From the LA Times' Bit Player blog by Jon Healey, talking about Blue Note's MP3 experiment and the commercial viability of DRM:

"As many a tech company has argued over the years, DRM works best when it's enabling consumers to do new things, not trying to stop them from doing something. That's why the major labels would be better off using DRM to enable all-you-can-eat subscription services like Rhapsody, Yahoo! Music Unlimited and Napster, rather than slapping limits on 99 cent downloads. I still think that music fans will gravitate toward subscriptions once Wi-Fi is ubiquitous and portable devices are always connected to the Net. That's when DRM will become a route to a better value proposition, not something consumers resent because it's forced on them."

DRM is mandatory with a subscription service. The billion-dollar question is if/when consumers will really take to subscription services. (And how will that work with mobile phones? Services outtages, especially on the NYC Metro, will garner unfavorable criticism.) The value proposition is already there -- millions of tracks for $15 a month -- but right now consumers are hell bent on owning what they hear. The exception is radio, which can cost money and gives no ownership to the music.

Perhaps subscription services need to be re-positioned? Not all music needs to be owned. Borrowing does have value. For starters, it's convenient. You don't have to rip songs. You don't have to rummage through boxes in a closet (which is what I would have to do if I had a hankering for something I hadnt heard in years.) You'll never have to pay twice if you lose your data.

Personally, I am very impressed by most of the DRM subscription services. I'm currently testing Napster and Zune Marketplace. Napster is a breeze to use, quite impressive, with a good relationship between software and hardware. Zune is easy to use as well, and there are some nice features (such as the playlists). Both are inconvenient for crate-digging, which is best at Rhapsody.

Posted by Glenn at 11:39 AM | Link
|DRM|

The Consumer Electronics Association will announce its holiday survey tomorrow, reports a article at the Sydney Morning Herald. The survey predicts a 27% increase in holiday electronic device spending. Digital cameras and DVD devices will be the most in-demand products, followed by mobile phones and portable media devices.

In early October the CEA released the findings of a survey on tech enthusiasts, those early adopters who account for 50% more spending on portable entertainment devices than later adopters. What do early adopters care about? Battery life is the most important aspect. "Like most consumers," said the press release, "they'd also like to see lower prices for digital media files in the future."

Interoperability is another key feature mentioned -- not that all CEA members are listening. I'd expect lower prices for digital media before any signs of greater interoperability. CEA member Apple has succeeded with a close iTunes/iPod system. Microsoft and RealNetworks, also CEA members, are working on their own media/player systems. Microsoft will launch the closed Zune in mid-November. RealNetworks has its branded Sansa line of players that will play most, but not all, popular audio formats and is built to work best with its Rhapsody music service.

More reaction to closed systems is found in today's USA Today article, "Closed Systems Leave Buyers Out In The Cold." Said former EMI exec Ted Cohen of Microsoft's closed Zune system, "This goes against the grain of everything Microsoft has been telling consumers for two years. I'm stunned." But Microsoft has noticed that for most consumers ease of use trumps DRM.

Posted by Glenn at 7:54 PM | Link
|DRM||Portable Music Players||Zune||iTunes|

• Sony and Bertelsmann have appealed the annulment of their 2004 merger. (Read article at Reuters)

• Thomas Hesse of Sony BMG's global digital business operating group, predicts the company's digital revenues will be up as much as 70% in 2006. Speaking at the Digital Music Forum West, Hesse said Sony BMG wants to "do business with everyone" and will be "very agressive" in the digital space. Also, he predicted major growth in mobile music revenue in 2007. (Read article at Digital Media Wire)

• Canadian music television channel MuchMusic launched a music download store that uses the Puretracks infrastructure...which means it has the same look and feel (and icons) as Puretracks and Tower Records' digital store, which is also powered by Puretracks. (Read article at Mediacaster)

• At the Digital Music Forum West conference, executives from Napster, eMusic and Universal Music Group criticized the growth in closed digital music systems and the lack of interoperability between the systems. (Read post at Digital Music News)

• Yesterday's buttons and posters are today's digital accessories. EMI's Parlophone offers an MSN Themepack for the new Lily Allen album as a part of her overall digital marketing campaign. The Themepack includes custom Lily Allen emoticons, backgrounds, display pictures and winks. (Read article at E-Consultancy)

Posted by Glenn at 8:20 AM | Link
|DRM||EMI||Online Stores/Services||Sony BMG|

Whether or not Microsoft's Zune will impose DRM on music files has been a big topic in the blogosphere. Zune Insider, which is a Microsoft-sanctioned blog written by a Microsoft employee, started the whole thing when it wrote earlier that the Zune wrapped songs in DRM. Yesterday Zune Insider posted to set things straight. Here's an excerpt:

"We don’t actually 'wrap all songs up in DRM:' Zune to Zune Sharing doesn’t change the DRM on a song, and it doesn’t impose DRM restrictions on any files that are unprotected. If you have a song - say that you got 'free and clear' - Zune to Zune Sharing won’t apply any DRM to that song. The 3-day/3-play limitation is built into the device, and it only applies on the Zune device: when you receive a song in your Inbox, the file remains unchanged. After 3 plays or 3 days, you can no longer play the song; however, you can still see a listing of the songs with the associated metadata."

So no DRM, but short-lived access to the song or video imposed by the device itself. And remember, if a Zune receives a song or video, it can't be forwarded to another Zune.

Be sure to read down through the comments to get an idea of how confused and agitated the early adopters are over the limitations.

Posted by Glenn at 3:23 PM | Link
|DRM||Zune|

With the announcement of Spiral Frog's deal with Universal that will put the music group's songs in the free, ad-based service there came the kind of varied reactions one expects these days. The press reported the event as if it was a landmark in digital music. Online communities took it as another opportunity to protest DRM and download prices.

Coolfer isn't impressed by this announcement, and from what is known about experiments with DRM-protected file-sharing there's nothing to indicate people will hurt one another in a stampede to its front door. (And let's be clear about something: Licensed P2P really isn't P2P.) Spiral Frog's music files will be protected by WMA, according to a blog post at Wired, and users will be unable to burn the songs to CD. (The post also mentions a rumor that EMI is in "advanced discussions" with Spiral Frog.) Also, there are reports that files will expire after six months.

The old adage "Give People What They Want" just doesn't apply here. Users don't get to use the songs with their iPods. Furthermore, any business that embraces DRM risks going against a building effort to get rid of DRM. The currents of the market are as clear as could be, but major labels and the startups they work with are ignoring these trends. They are convinced DRM can work. The opinion of music retailers was very clear coming out of this year's NARM convention: They want an end to DRM..

The one wild card is Microsoft's Zune. Spiral Frog's file will be compatible with the upcoming challenger to the iPod. If consumers embrace the Zune, there is a greater chance that they will also embrace Spiral Frog. And as luck would have it, both will be out this December. Without a successful Zune, though, Spiral Frog faces an incredibly difficult task.

Posted by Glenn at 1:59 PM | Link
|DRM|

• It's working down under: The Australian music market rose 5.6% in the first half of 2006. (Billboard.biz)

• Microsoft has released a patch to to prevent FairPlay4WM from stripping the DRM from tracks protected by Windows Media 10 and 11. (ZDNet)

• An analyst at Banc of America Securities advises, "We continue to recommend the XMSR/SIRI pair." (Radio Ink)

• AOL Music has expanded to include a la carte downloads, and videos as a part of the subscription service. Unfortunately it requires Internet Explorer for downloading and syncing. (macnn)

• A judge determines the Beatles may move ahead with their decades-old lawsuit agsinst EMI. (Bloomberg)

• Nonesuch has donated $1 million to Habitat for Humanit to aid Gulf Coast hurricane victims. The money comes from sales of Our New Orleans, a benefit released last December. (Press Release)

• There's a problem with this article on Universal's licensing deal with ad-based P2P site Spiral Frog: It assumes lawsuits and experimentation with different business models are mutually exclusive events. That's poor logic. Don't expect the RIAA's lawyers to lighten up. If anything, such licensing deals deepens the line they've been drawing in the sand for years. (Forbes.com)

Posted by Glenn at 10:17 AM | Link
|DRM||EMI||Legal||Satellite Radio|

• Charles Duhigg has an interview with Lyor Cohen of Warner Music Group in today's LA Times. In terms of market share, the company has done well in the last year. Can it be called a turnaround? Let's wait until net income looks a bit rosier. Quote of the article: "Our industry wastes money on hundreds of acts because executives are afraid to cut an artist who might be successful somewhere else." (LA Times)

• Then there's his personal life: Cohen sold over $17 million of company stock to "address financial needs arising from the anticipated divorce settlement" with his current wife of 14 years. (Fox News)

• Clear Channel Radio is cutting some layers of management.

• A profile of indie retailer Boogie Woogie in Hollywood, Florida. Here's something I found surprising: "(The owner) adds that people are becoming more ethical about illegal downloading, and clerks at the store discourage customers from the practice." (Herald Tribune)

• Two Silicon Valley IP lawyers outline pitfalls of and give recommendations about DRM to music companies. (Law.com)

• Ara Guzelimian will be the next dean of the Julliard School next year. (Playbill)

Posted by Glenn at 10:05 AM | Link
|Brick-And-Mortor Retail||DRM||Radio||Warner Music Group|

Opponents of DRM will be thrilled over Engadget's post about FairUse4WM, an application that strips away the DRM restrictions from PlaysForSure music files. The application doesn't affect interoperability, though, because the files will still be in the WM format (though there are other ways to work around that).

Some record labels and the tech community may give this a lot of credence, but FairUse4WM is more a symbol of disruptive (from the view of the industry) technology than a practical problem. At A Copyfighter's Musing, Derek Slater downplayed the application's impact when he wrote "the online music DRM is so easy to get around that essentially no one gives a damn about actually circumventing it." With access to P2P so available, the need for a DRM-stripping application is almost nil.

Posted by Glenn at 10:28 AM | Link
|DRM|

• NPR and the PBS series Live at Lincoln Center will team up to produce original content for the Internet. Interviews with conductor Louis Langrée and pianist Garrick Ohlsson are currently available. On Wednesday, August 2nd, the Mostly Mozart Festival will be broadcast. (Playbill)

• Cheap Trick and the Allman Brothers have added to their list of grievances in their suit against Sony BMG for underpayment of royalties related to digital sales. Ringtones are now part of the contentious and eagerly awaited lawsuit. (Billboard Radio Monitor)

• VNU shareholders approved the company's conversion into a private company with limited liability. VNU, a former public company that was taken over by private investors earlier this year, owns ACNielson, Nielson Media Research (owner of Soundscan), Billboard, The Hollywood Reporter and other trade magazines. (Press Release)

• As the old saying goes, you know when DRM is a hot (and approaching a mainstream) issue when USA Today has a story about it. This one is about eMusic's DRM-free platform. "EMusic's pitch: Download song — and own it," says the title. (USA Today)

• Roots labels have been squeezed off record store shelves, says the San Mateo County Times, which is affecting local labels like Arhoolie and HighTone. Arhoolie encourages sales at shows such in-store exposure is hard to come by. (InsideBayArea.com)

Posted by Glenn at 9:08 AM | Link
|DRM||Internet||Sony BMG Royalties Lawsuit|

Yahoo's Jessica Simpson MP3 has turned up the volume on the DRM debate. MIT's Technology Review has an article by Wade Roush titled "DRM Under Siege: The Yahoo Music Experiment" that sees a change coming in the majors' attitudes toward DRM.

It should be noted, though, that Roush didn't get a quote from a single music executive, and the fact that the only person quoted is the EFF's Fred von Lohmann doesn't add any objectivity.

Is DRM under seige? In some, small circles, yes. But let's not put this topic in the kind of absolute statements that have long characterized the "death of the CD" (a format that is certainly in its golden years but still active and viable). Von Lohmann accurately views DRM in a decline -- and just a decline.

"This is a sign that the enthusiasm for DRM is beginning to wane in the music industry. ... I certainly don't expect DRM to disappear overnight. But I would not be surprised if you saw specific genres or subsidiaries of the major labels experimenting with more unprotected MP3s."

Cory Doctorow had a article critical of DRM in InformationWeek a few days ago that has been widely circulated on websites and blogs. "Apple sold a billion tracks in three years in spite of its DRM, not because of it," he wrote.

Jessica Simpson was an experiment. Given the strong positive reaction, other majors should read this as market acceptence and begin their own limited experiments. Other online stores should join Yahoo! in its cries for MP3 downloads. Short of regulation that creates universal interoperability -- which is extremely unlikly -- DRM-free downloads is the only thing that will help them compete with iTunes. The competition will serve consumers and labels well.

Posted by Glenn at 3:57 PM | Link
|DRM|

Lost in the discussion about Jessican Simpson's customized download (mentioned yesterday at Coolfer) is the fact that the file comes in MP3 format. For $2 the buyer gets a song with his/her name in the lyrics and gets freedoms not available with any other major label download. From a post at the Yahoo! Music Blog:

• Based on first-day sales, Hits predicts Nelly Furtado's Loose could go upwards of 200,000 in its first week. Underoath (on Tooth & Nail) could break 100,000. Keane may get to 75,000. (Hits)

• TLC member Chili has signed a deal with Konvict Records, the imprint owned by rapper Akon. Her first release is expeted this summer. (SOHH)

• The closely watched interoperability legislation in France is getting watered down. Additional language will allow for a loophole where labels could keep DRM measures if the get permission from artists. This news is being reported as if most artists will opt for DRM -- but will that really happen? Out come the fear-mongers. A consumer group claims artist will lose their deals with Apple if they opt out of the FairPlay protection on iTunes downloads. The Business Software Alliance warns that giving more leverage to record labels will result in the higher prices that some majors want to install on some songs. "It would definitely harm consumers," said its policy director. (AP)

• French music download store Starzik opened for business yesterday, selling DRM-free downloads as the country and continent seriously ponders interoperability issues. Digital distributor The Orchard has signed a deal wtih Starzik to supply more than 400,000 tracks. In all, most of Starzik's more than 600,000 tracks will be available in open format (MP3, Ogg Vorbis, FLAC, AAC, and WMA).

Posted by Glenn at 8:24 AM | Link
|A&R||DRM||Digital Music||Online Stores/Services|

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 around the country on Saturday. A video of the Chicago protest (guys in hazmat suits loitering peacefully in front of the store) can be seen at Chicago IMC. "Apple, get ready to be tied in knot" warned one blog post. Yeah right. Here's a Flickr set of the crazy protest LA.

Digital Music News wrote about the protests, commented on how organized they were and asked, "But is Apple the right target?" Well, if there's going to be a protest it should target the company that (a) sells the most digital music and (b) wraps its files in DRM. Yes, the labels mandate the DRM, but Apple is the one who collects the credit cards information and sells the music to consumers.

Posted by Glenn at 1:54 PM | Link
|Apple||DRM||Digital Music|