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ARSCLIST  April 2010

ARSCLIST April 2010

Subject:

Re: More digital downloads news

From:

Tom Fine <[log in to unmask]>

Reply-To:

Association for Recorded Sound Discussion List <[log in to unmask]>

Date:

Thu, 22 Apr 2010 15:38:52 -0400

Content-Type:

text/plain

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Hi Jim:

What about Pandora? That seems like a model that might succeed in that someone is likely to keep 
them afloat for that taste-making database they have created. I have to say, I love Pandora and have 
discovered a lot of really good music (which in more cases than not led to sales of CD's to me), 
it's also been helpful in letting me know there are bad albums to be avoided by an artist I might 
like in general. Now, all of that said, I don't think Pandora has made a single penny and in fact 
has burned through a lot of VC money. But I can see it as being the lone ad-supported model likely 
to be worthwhile to both music companies and consumers due to the value-add of the taste-maker 
database. Also, in the case of my own tastes, I find Pandora's engine much more reliable than 
Amazon's recommendations or iTunes' "similar and recommended" mechanism. But again, all of that 
said, we're not talking about a profitable proposition yet.

-- Tom Fine

----- Original Message ----- 
From: "Jim Sam" <[log in to unmask]>
To: <[log in to unmask]>
Sent: Thursday, April 22, 2010 3:11 PM
Subject: Re: [ARSCLIST] More digital downloads news


> Hi Tom,
>
> One thing you overlooked is the experimenting with subscription models
> (Rhapsody, etc.) and ad-supported models (SpiralFrog, et al.).  When Napster
> first hit, everyone and their mother was advocating either or as a way to
> get people to pay for digital downloads.  Today, the first is a footnote and
> the second one is a total failure.
>
> Jim
>
>
> On Thu, Apr 22, 2010 at 6:14 AM, Tom Fine <[log in to unmask]>wrote:
>
>> Just got an e-mail from Deutsche Grammophon's DG Web Shop online store that
>> they are moving into
>> Universal's company-owned online store system, moving away from the 3rd
>> party operator who had
>> handled the store backroom and fulfillment operations. I interpret this as
>> proof that Universal has
>> become comfortable with selling downloads directly to consumers, cutting
>> out the middleman. This is
>> probably necessary for survival as the CD format dies off. If a download
>> song can only be sold for
>> 99 cents, and most songs don't get downloaded very often (the "long tail"),
>> then the smart music
>> megaglomerate must capture as much of that 99 cents as possible. Paying
>> Apple or Amazon a large
>> percentage to handle marketing and backroom doesn't produce enough cash to
>> justify the
>> megaglomerate's existence. My bet is, going forward, iTunes store and
>> Amazon will lose most of the
>> major-label content or will have to take a much-reduced cut of sales, with
>> most of the pie returning
>> to the copyright owner. In the case of Amazon, an argument can be made that
>>  it costs less to
>> provide a download service than to pay people to warehouse and ship CD's,
>> so therefore the copyright
>> owner is due a better cut -- unknown whether this will wash with the
>> business-savvy Amazon.
>>
>> Which makes me wonder -- perhaps someone who owns or works for a music
>> label on-list can answer
>> this -- does Amazon take the same percentage for digital downloads as for
>> physical CD's? Someone
>> told me, years ago, that the markup on CD's is about double, so the label
>> gets about half the retail
>> price. This might have changed, because I think I heard this during the
>> collusion years when CD
>> prices were higher. I think I read somewhere early in the iTunes days that
>> Apple takes a 1/3 cut for
>> iTunes downloads, maybe more.
>>
>> Anyway, it's interesting (to me at least) how far the market has evolved
>> since iTunes hit the scene.
>>
>> 1. phase one - MP3 downloads were unsanctioned by the copyright owners, and
>> almost all were piracy,
>> the Napster heyday.
>>
>> 2. phase two - Napster shut down, crackdown on consumers, DRM formats,
>> eMusic and other small
>> operations emerge offering legit downloads of DRM-free MP3, but not from
>> Universal, Sony or Warner.
>> Content mainly from Fantasy Group and smaller labels.
>>
>> 3. phase three - iTunes hits the scene, complete with distribution deals
>> with most major labels,
>> everyone on board soon after. Original format is DRM proprietary and very
>> lossy, but evolves to
>> DRM-free less-lossy Apple proprietary format. Amazon soon joins the party
>> with DRM-free less-lossy
>> MP3 downloads, usually for less money than iTunes when priced on a
>> whole-album basis. There is much
>> overlap between Apple, Amazon and eMusic, but not 100%, and some eMusic
>> downloads are still very
>> lossy (not upgraded from original 128kbps offerings).
>>
>> 4. phase four - the labels dip their toes into selling directly or at least
>> directing consumers
>> directly to download sites. I would assume this coincides with the death of
>> brick and morter retail
>> stores, so labels no longer have to worry about teeing off distributors and
>> rack-jobbers.
>> Universal/Verve was early with this, with the Verve Vault website where you
>> could click and buy the
>> out-of-print albums right from iTunes. Other models are like DGG's, where
>> consumers can buy
>> high-bitrate MP3 directly from the company's website. Smaller labels got
>> early into offering
>> downlaods direct to consumers, sometimes including booklet materials, and I
>> now notice that some
>> small labels like Daptone are offering FLAC downloads of full CD resolution
>> at a decent discount to
>> buying the physical CD. This makes total sense for anyone who doesn't own
>> CD plants -- the margin is
>> probably better than paying to have CD's made and then distributing and
>> holding inventory.
>>
>> 5. phase five - around the same time as phase four, a niche market emerges
>> for better-than-CD
>> resolution PCM downloads. HDTracks and Linn, plus some others, are first in
>> this market. Pricing is
>> comparable to suggested retail for SACD. My bet is that this absorbs the
>> SACD niche as the physical
>> format submerges.
>>
>> I think the end of 5" optical discs is inevitable, but it will be a slow
>> fadeout. Also, it seems
>> obvious that there's a lot of excess inventory in warehouses and in the
>> retail pipeline, so it will
>> take years for most titles to completely disappear (much less time for
>> popular titles). Also, it
>> will probably make sense for megahits to be issued on CD for quite some
>> time. I think the back
>> catalog stuff is definitely headed out of print, though.
>>
>> One man's analysis ...
>>
>> -- Tom Fine
>>
> 

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