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
|DRM||EMI||Publishing||Sony BMG||iTunes|

• 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
|DRM||Indies|

• 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
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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
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(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
|DRM||EMI|

• 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
|Brick-And-Mortor Retail||DRM|

• 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
|DRM||Weblogs|

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. (