The Digital Lowdown

Fanfarlo's Secret of Success: Not Really So Secret

2009-12-23T14:41:28-08:00

I recently read a blog post about Fanfarlo by Denzyl Feigelson (The Fanfarlo Four Step). It describes the four-part formula to success:

Don't Suck,
Get Others to Introduce you to their Audience,
Make those Audiences an offer they can't Refuse and
Repeat

I know that I am sometimes late to the game with regards to new bands. I have to admit that I am an old-fogey and I just love my old (I mean old!) Genesis and Yes. Still, I love to hear about how new bands make it. It's even more amazing when they do it on their own and without a major label deal.

Unfortunately, Fanfarlo does not fall into either category.

Don't get me wrong, I don't begrudge them any of their success. They are a hard working band who made a lot of great decisions, not the least of which was picking their manager who also manage Sigur Ros. They gigged and created good music. They also wisely decided to offer their album for a buck (who can turn down an album for a buck).

So, they got step #1 covered by themselves. They also accomplished #3 on their own. But it's step #2 that kind of bugs me. It reminds me of a very old Steve Martin routine "Excuse Me". It begins, "Do you want to make a million dollars and not have to pay taxes? Well, the first thing is to get a million dollars. Then..." Step 2 sounds so simple. Just find a world-famous band to send an email to all of their fans to check out your band. Easy as pie.

Okay, let me roll back the cynical meter a bit. The real message here is that affinity artist marketing is one of the most effective ways to get a band noticed. Pandora, LastFM, Slacker, and, even, Amazon, all work, essentially, from this model. "What do you already like? Well, then if you like that, you'll like this."

Step 2 should really be: find a band that sounds like you and try to get their fans to notice you one way or another. Here's an idea. Find another developing artist and share fan lists. Do a mutual promotion. Give a little, get a little.

Happy holidays.

All Content is Free. So Let's Shut Down The Internet

2009-11-12T22:13:43-08:00

Hulu recently announced their intention to start charging to view their TV shows and films. There are rumors that Myspace Music is going to announce a paid, premium service. Several free, ad-supported music services have had very public crash and burns. And yet, the consensus of most media experts is that consumers do not want to pay for their music.

I have to wonder why music has to feel like free. 29 days a month, our cable TV service feels free. On the 30th day, one needs to pay the piper. People may, on the surface, complain about their cable bill. Deep inside, they know that they are getting a bargain. Let's do the math.

Potentially, a cable subscriber can watch 1440 TV shows or 360 movies per month. If you assume that basic cable costs about $50 per month, that's approximately 3.5¢ per TV show or 14¢ per movie. Of course, these figures assumes watching cable for 24 hours a day, 7 days a week. That doesn't seem possible. Yet, if you have a household of 4 people and the average TV viewing is 6 hours per day, that adds up to 24 hours per day of cumulative viewing time.

14¢ per movie...that's cheaper than Netflix. Way cheaper.

Let's consider a typical subscription music service. They charge about $10 per month on average. Let's assume that an average music consumer listens to 2 hours of music per day. That's 60 hours per month and roughly 720 songs at approximately 5 minutes each.

So, a $10 monthly music subscription equates to 1.4¢ per song. That's even a better bargain than cable TV. So why are the subscription services languishing? Rhapsody is showing fewer subscribers.

The reason is that even 1.4¢ per song is too much because music consumers have been brainwashed (there's no other word to describe it) to think that music should be free.

If we were to make all music free, then I suspect we would see our favorite artists stop recording music. Alternatively, if we made all the P2P technology unavailable, I think that people would buy more music. As unrealistic as it is, I wonder what would happen if we took Sir Elton's advice (Why we must close the Internet).

All CDs Now Exclusively At Walmart

2009-09-25T16:11:27-07:00

I was watching the recent ad for Pearl Jam's new exclusive release with Target. I remember the many recent exclusives: AC/DC and Walmart, Elton John and Best Buy, The Rolling Stones - Best Buy, and The Eagles and Walmart. With such a positive track record, why then did we not see The Beatles-ReMastered show up as an exclusive somewhere. ( I would have suggested Apple Stores as the perfect irony.)

Obviously these acts and labels are being paid a lot of money for a short period of exclusivity. The people at Walmart are no idiots. They know that kids coming in to buy AC/DC will likely buy something else, at least a coke or two. So why not just give away the CDs. In 2007, Prince gave 3 million CDs in the Sunday's edition of the UK paper the Mail. This was to promote his highly successful set of concerts there.

A little while ago, I wrote in this blog about the value of music. While the pundits are generally of the opinion that music's value is solely marketing. Music is now the loss leader to help sell t-shirts, concert tickets or Coca-Cola.

What will happen to the revenue streams when music has no intrinsic retail value? Will the subsequent revenue be sufficient to keep the artists motivated to create more music? I don't think so. Yet, then again, I generally appear to be in the minority in this area. I think it will be hard to keep the music sales up when CDs are competing with dish towels for shelf space.

The Beatles Decide to Ditch iTunes

2009-09-23T13:54:50-07:00

Maybe...maybe not. ALmost two years ago, I wrote a blog about the impact of The Beatles catalog going online. Every six months for the past several years, there have been rumors about when you can download "Let It Be" (by the Beatles, of course). I have to admit that at that time, I still had a few LPs that I had not replaced with a CD. So I might have been enticed to purchase some Beatles tracks.

9/9/09, the release of the Beatles version Rock Band, and the re-mastered CDs, was a strong contender for seeing The Beatles go on iTunes. It came and went. No iTunes.

Now I am wondering if Apple Corps missed the window of opportunity.

Most people can easily rip a CD into their computer. It used to be a complicated task to do this. Many people bought a track from iTunes that they already had on a CD just to avoid ripping it.

Today, it couldn't be easier. All the song information is filled in automatically and the music files are nicely organized on your computer.

Further, if Beatles fans didn't already have every album on CD in 2003, the re-released masters will surely fill in any gaps.

Apple Corps may be correct in withholding their tracks from the digital services. How much more money do they really need to make? Yet, The Beatles are seen as the Golden Grail and most everyone expects that they will make digital sales skyrocket.

I think that it will be an exciting moment when you can buy The Beatles online. But I don't think it will change anyone's life, including Ringo Starr, Paul McCartney, yours or mine.

(If anyone noticed, I made it thru this whole blog without saying "Money can't buy you love" more than once.)

All Roads Lead To The Publishers

2009-09-20T19:28:22-07:00

For the past several years, most of the music industry has been bemoaning decreased sales. Most people identify record labels and artists representative of the entire music biz. Music publishers definitely have a lower profile in the general public. It's easy to forget that their business model is completely different from the labels.

This past week i was in NYC visiting various publishers. If you were a fly on the wall, you wouldn't think that the music biz was in trouble. True, they are seeing reduced mechanical income from years of lower physical sales. But they also have many new revenue streams that were practically unknown a few years ago. I find it fascinating the widely diverse ways that publishers can make money. (Personally, I am proud to have a reputation for bringing bizarre projects to publishers.)

Some of the more successful new areas of licensing include greeting cards (very lucrative!), ringtones, e-cards, digital toys, rich media

Licensees have many options when it comes to which master recordings they can use. But they always have to clear the publishing rights. That's why music publishers are much more secure even in this changing and highly-volatile business climate. It will always good for any music business to have strong publisher relations because all roads lead ultimately lead to them.

Something for Nothing

2009-06-15T23:06:37-07:00

In the good old days, a record label took about 85% of the pie and the artist got 15% (if they were lucky). However, the label was responsible for paying advances, recording fees, distribution, promotion and marketing costs. Essentially they were a bank giving a loan to the artist. The label took all the risk and, by their logic, were entitled to the lion's share of revenue that resulted from album sales.

In today's digital world, Artists and labels are using digital distributors to get their content on the digital music services. But the tables are turned. The distributor is earning 15-25% of the revenue. In some cases, it is a flat fee for service. (For those albums earning less than these flat fees, it is arguable that distributor is actually receiving 100% of the revenue. But that's a subject for a future entry.)

And here's where the squeeze play is happening. Many labels are not really labels. They don't have a marketing, promotion or PR department. Therefore, digital distributors are being asked to provide more and more marketing services for their meager revenue share. Some distributors are trying to upsell marketing services as an add-on. But with these services, many artists still expect to pay no upfront costs and for such fees to be recouped from royalties.

There are several flaws with such requests:

Digital distributors are already spending a lot of money getting the albums to their worldwide networks of music services. The overhead for such companies is very large. The costs involved are very substantial and are barely offset by the distribution percentage. Our company is small by comparison and I can assure you that our investment per album is very significant.
To front marketing costs would mean that the distributor is taking 100% of the risk for their 20% distribution fee.
If an artist is unwilling to spend even $500 to market their artist, what does that say about their confidence in their product. What business is expected to launch and succeed without a least a little capital expenditure.
To recoup a modest marketing campaign of $1000, an album would have to generate over 700 track downloads. I can tell you from experience that we represent many albums that do not generate even this small amount of sales. In such a case, the distributor is left holding the bag.

Distributors are not set up to be finance companies. The conventional model of big labels acting as a banker and assuming all the risk does not apply to digital distribution companies. If a content provider were willing to make it a 50/50 deal, I am sure that most distributors would be much more willing to take a bigger risk.

Finally, I'd like to quote one of my favorite musicians, Billy Preston: "Nothin' from nothin' leaves nothin'/You gotta have somethin'/If you wanna be with me..."

Japanese Music Company Columbia Music Ent Inks Global Digital Music Distribution Deal w BFM Digital

2009-05-11T21:44:35-07:00

Columbia Music Entertainment (CME), the oldest recording company in Japan, has signed a deal with BFM Digital to represent its Nipponphone and Denon catalogs for global digital distribution exclusive of Japan. BFM Digital (http://www.bfmdigital.com) is a leading digital music aggregator and distributor of independent music.

This important partnership marks the first time CME will be utilizing a U.S. aggregator to distribute their catalog. It represents a major shift in CME's global digital distribution strategy as they seek to strengthen their revenue streams outside of Japan.

The deal continues BFM partnerships with major independent Japanese labels with top selling artists, and brings an impressive catalogue of Japanese music to an already extensive list of digital content. Some of the notable CME artists thaBFM will now be distributing include:

Hibari Misora, an extremely successful artist selling over 68 million records worldwide
Saori Yano, a rising jazz saxophone star
Hamutsun Serve with Big Baby, who opened Madonna's 2008 tour, Sticky & Sweet, and have gained wide popularity through their series of dancing music videos (available on YouTube).

"Columbia Music Entertainment has a remarkably rich history dating back to their first release in 1910. Since the current demand for Japanese pop and traditional music extends far beyond the borders of Japan, we are very excited to help bring their catalog to a wider audience via our global network of digital music services," comments Steven Corn, CEO of BFM Digital.

The first albums and music videos will be available in May with additional content becoming live shortly thereafter.

Hamutsun's Music Video Space Warrier

The Magic of Gracenote

2009-05-04T22:04:50-07:00

Two weeks ago, I was visited by Michael Aczon, a music lawyer friend from San Francisco. He was in town promoting a new artist of his (Greg Scott). They gave me their new CD fresh from the manufacturer. I popped it into my computer and opened up iTunes. Instead of displaying the album, artist and track names, the playlist merely showed "Track 1", "Track 2", etc. A couple of hours later, I put the CD into my car stereo. Lo and behold! All the info, including track names, were accurately displayed on my screen.

Is this some sort of magic or voodoo? Nope, it is just a little thing called Gracenote.

There is a lot about the Internet that remains a mystery. In fact, most people barely understand the technology that is part of our every day life. Fortunately, basic elements of technology do not have to be understood to use them. We don't need to know how electricity flows or how microprocessors works in order to use our computers. The same applies to a lot of Internet technology e.g., flash, java, active-x, etc.

One ubiquitous tool that every music lover unknowingly uses is Gracenote. Whenever a song or album's name is automatically looked up or displayed, Gracenote is usually at work behind the scenes. Unlike your computer's microprocessor, as a label or artist, it really helps to understand what Gracenote does and how it works.

Gracenote was originally called CDDB which stood for "CD Database." It's origins can be traced back to an old filebox with index cards. A few years ago, I was lucky enough to see this original "database" in their offices. There was nothing high-tech or pretentious about it. Just a plain, metal filebox (3x5, I think) sitting on top of a file cabinet. The cards had the CD name, artist and tracks written on them. Now, the Gracenote database has millions of entries. They are the preeminent collection of album data as well as lyrics and other information associated with the world's body of recorded works.

The mysterious appearance of the album information on my car radio was indeed unmagical. All it required was for me to enter in the metadata for the album. I used the Info window in my iTunes software. Then I merely "Submitted CD Track Names" which is a command found on the Advanced menu. This information was immediately sent to the Gracenote server. Two hours later when I inserted the CD into my car, my satellite radio searched the Gracenote database and found the newly entered album.

Without going into elaborate details, it is very easy to understand how Gracenote works. It is essentially a recognition program that looks at the number of tracks on a CD, the lengths of each track and the overall length of the CD. If you have a CD with only a few tracks, it is possible to get a mismatch. But on a typical CD with 10-15 tracks, these factors create a mathematically, unique footprint. (Note: if, by chance, there are two albums with an identical number of tracks each of which are exactly the same length, then the user is prompted with the various album options and asked to select the appropriate one.)

Gracenote technology makes it possible for anyone to update their database. In the above example, I was able to enter in the information for someone else's album. (I won't go into all the protections that Gracenote has against false or malicious data entry. Trust me, they have a lot of safeguards.) Then this information is made available to Gracenote's worldwide network of subscribed services (of which my satellite radio is one). This means that every time someone puts in that CD, the artist, album and track info will display.

Even if you gave out an unlabeled, CD-R, the album information would be there if you had previously submitted it to Gracenote. All it takes is about 5 minutes and you make your album's metadata available to practically every computer, internet player and satellite car radio. Yet, many new releases that cross my desk which are fully printed and manufactured often show up as unnamed.

I consider Gracenote to be an amazing, free service to promote your new album. So, the first thing that you should do when your newly manufactured CD arrives is to type in the album and track information. Then submit this info to Gracenote via your player. If you can't find the right menu command, keep looking. I'm sure that your player has this functionality. Do this before you hit the play button. (By the way, did I say that it's free?)

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For a much more eloquent and accurate description of Gracenote's service, please refer to their FAQ:

http://www.gracenote.com/company_info/FAQ/FAQs/

SpiralFrog Is Gone, Myspace Music Is Here

2009-03-23T21:27:21-07:00

I don't know if you would call it the big news of last week. But the demise of SpiralFrog, an advertising revenue-based music service, certainly is interesting news for anyone following the world of digital music stores.

Launched in September, 2007, SpiralFrog offered nearly a million tracks for free to users who were willing to view an occasional ad. Though there were many skeptics, I felt it was important to support this new business model. Partially, my support is motivated by the saying, "Those who cannot remember the past are condemned to repeat it" (attributed to poet and philosopher George Santayana). After all it was the major labels brazen refusal to adopt any peer-to-peer business model that lead to the rampant, and still uncontrollable, distribution of free music.

So with eyes wide open, I reached out to SpiralFrog to strike a deal. The basic business terms were similar to other subscription models. Essentially, there is a pool of money each quarter and a content provider gets a pro rata share of a percentage of it. In SpiralFrog's case, the pool of money was supposed to come from online advertisers in lieu of subscribers.

The biggest difference with an ad-based versus a subscription service is that the music feels like free in the former. In fact, it really is free from the user's perspective. With services like Napster or Rhapsody, there is a monthly subscription fee that users will see on their credit card bills. But with SpiralFrog, there was no such billing. Everything was free as long as you watched or clicked on an ad. (It doesn't really matter that the specifics were a bit more complicated. This is the basic idea of an ad model.)

What went wrong? Isn't free good enough? Obviously not.

For years, every digital guru has been predicting the eventual success of the subscription model. A good friend and ex-boss of mine (Gerd Leonhard) has described the future with "music being like water", flowing freely and feeling like free. Three years ago, David Goldberg (former head of Yahoo Music) declared, at one the ubiquitous digital conferences in LA, that the a la carte model was dead. Most in attendance agreed. Some, like myself, wondered if this was really an accurate statement since services like iTunes still rule the roost. The two most successful services, iTunes and AmazonMp3, are still a la carte, permanent download business models.

This doesn't mean that a la carte services are the long term view. It is quite likely that eventually we'll be consuming music much like any other utility. In my opinion, that is still probably several years away. In the meantime, it is important to closely examine the success or failure of the all-you-can-eat services whether they are subscription based or advertising based.

I don't know what my colleagues first thought of when the news of SpiralFrog hit the wires. For me, I immediately thought of the newly launched Myspace Music program, another primarily ad-supported model. I'm happy to say that BFM recently closed our deal with MSM and our content should be appearing there very soon. So why I am excited to be delivering my content to another ad-supported service just when another ad-support service closes down? The answers lies in the reasons for SpiralFrog's failure and MSM's likely success.

First of all, the music on MSM is already free. There is no need for users to click on anything or come back once per month to view ads. The ads on MSM are always flowing as does the music. I know that many will say that I am comparing apples to oranges since MSM is not offering tethered downloads like SpiralFrog. But the vast majority of MS listeners want to do just that: listen. They are not interested in a quasi-ownership of the music that requires some action on their part (e.g., a monthly visit or subscription fee). They want to use MSM to explore and discover new music. Having DRM-protected downloads that can't be loaded on your ipod or easily transported is of no interest (obviously) to most music consumers.

Secondly, MSM already has the eyeballs. Any new service, whether is is a subscription, ad-based or a la carte, has a primary challenge of convincing users to change their buying habit. "Don't go there, come here." It was an equally unlikely proposition that SpiralFrog was going to create a new pool of buyers rather than attracting uses who had already become accustomed to using another site. Their service was only going to survive if they got enough eyeballs (aka ad impressions or clicks) to generate significant ad revenue. This is a tall order nowadays with so much competition for consumer's attention. Myspace is already selling billions of ads and generating hundreds of millions of dollars in ad revenue. This is an advantage that SpiralFrog didn't have.

Thirdly, all of SpiralFrog's revenue was designed to come from advertising. MSM is aligning with AmazonMP3 to provide it with a download functionality. For content owners, that is great news. The success of MSM is not going to be judged solely on the pro rata share of ad revenue that a track has. Artists will also be able to derive benefit from the additional permanent downloads that MSM will likely create. Not only does this provide artists with an additional revenue stream, it provides MSM with one, too. They can generate revenue thru their affiliate relationship with AmazonMP3 as well as their ads. This is a tremendous advantage that SpiralFrog didn't have. Offering permanent downloads as an alternative buying option is already quite successful with services like Napster and Rhapsody. It is not well known, unfortunately, that these services give consumers an option to purchase DRM-free music which can be burned to a CD or put on any MP3 player. So having this option on MSM is to be expected.

Saying good-bye to SpiralFrog, or any of the many other failed services, is not much fun. I don't think that their absence will create even a blip at the bigger services. Yet, experiments such as this are good for the industry and provide lessons to be learned. I intend to support as many new services as I can and I hope that the creative thinking that spawned SpiralFrog continue to generate new business models.

IFPI Publishes Digital Music Report for 2008

2009-01-28T18:06:09-08:00

I don't usually republish articles or other postings in their full form. But the IFPI Digital Music Report for 2008 just came out. I consider this IFPI report to be the best source of analyzing the digital music market and Mi2N has just published a very readable version of it. Mi2N is one of my favorite places to get music industry news (www.mi2n.com). This report is worth reading several times. Lots of great information here.

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The music industry has transformed its business models, offering consumers an increasing range of new services with leading technology partners. Yet generating value in an environment where 95 per cent of music downloads are illegal and unpaid for is still the biggest challenge for music companies and their commercial partners.

The digital music business internationally saw a sixth year of expansion in 2008, growing by an estimated 25 per cent to US$3.7 billion in trade value. Digital platforms now account for around 20 per cent of recorded music sales, up from 15 per cent in 2007. Recorded music is at the forefront of the online and mobile revolution, generating more revenue in percentage terms through digital platforms than the newspaper (4%), magazine (1%) and film industries (4%) combined.

At the same time, a new generation of music subscription services, social networking sites and new licensing channels is emerging. These were led in 2008 by services like Nokia Comes With Music, MySpace Music and a raft of partnerships with Internet Service Providers (ISPs), such as TDC in Denmark, Neuf Cegetel in France, TeliaSonera in Sweden and BSkyB in the UK.

Despite these developments, the music sector is still overshadowed by the huge amount of unlicensed music distributed online. Collating separate studies in 16 countries over a three-year period, IFPI estimates over 40 billion files were illegally file-shared in 2008, giving a piracy rate of around 95 per cent.

IFPI's Digital Music Report 2009, published today, gives a comprehensive overview of trends in the music business internationally. It shows an industry that has shifted its approach from one based only on unit sales of music to "monetising" access to music across a multitude of channels and platforms.

Single track downloads, up 24 per cent in 2008 to 1.4 billion units globally, continue to drive the online market, but digital albums are also growing healthily (up 36%). The top-selling digital single of 2008 was Lil Wayne's Lollipop with sales of 9.1 million units - 1.8 million more than the 2007 best selling digital single.

The Report also shows how the digital age is expanding the role of music companies in developing and marketing artists and it outlines the progress being made internationally in getting ISPs to cooperate to curb mass-scale copyright infringement on their networks.

John Kennedy, chairman and chief executive of IFPI, says: "The recorded music industry is reinventing itself and its business models. Music companies have changed their whole approach to doing business, reshaped their operations and responded to the dramatic transformation in the way music is distributed and consumed.

"There is a momentous debate going on about the environment on which our business, and all the people working in it, depends. Governments are beginning to accept that, in the debate over "free content" and engaging ISPs in protecting intellectual property rights, doing nothing is not an option if there is to be a future for commercial digital content."

New business models

New "music access" services, such as Nokia's Comes With Music phone, Sony Ericsson's PlayNow plus and Danish ISP TDC's new music service PLAY, emerged in 2008. TDC reports that "churn", the rate at which customers switch to a competitor, dropped significantly since bundling music with its mobile and broadband services.

Partnerships with broadband providers are likely to become more important in the future. TeliaSonera has launched a bundled music service in six countries; Neuf Cegetel runs a similar service in France and BSkyB has announced plans to launch a bundled broadband and music offering in the UK and Ireland.

Advertising-supported services that are free to consumers are also opening up. One of the highest-profile moves in this area was the launch of MySpace Music in the US in September 2008. Several leading music companies have also signed licensing agreements with YouTube, the global market leader in video streaming.

A-la-carte music downloads continue to grow, with AmazonMP3 joining the European market, broadening consumer choice. An increasing number of stores are licensed to sell DRM-free music tracks. In January 2009, iTunes, the leading download store, announced it was making eight million DRM-free tracks available at flexible pricing points.

Music companies are also increasingly licensing music to third parties. One notable success is the games sector, where music games were responsible for 15 per cent of overall game sales in the US in the first half of 2008 (NPD Group). Guitar Hero and its sequels have sold more than 23 million copies in three years, generating more than US$1 billion in North America alone (PWC).

Tackling the problem of digital commerce in the era of "free"

Despite these changes, the Report highlights the critical problem of online piracy, and in particular the impact it is having on the local music sector in markets such as France and Spain. In France in the first half of 2008, album releases by new artists fell by 16 per cent and local repertoire accounted for 10 per cent of albums, compared to 15 per cent in the first half of 2005. In Spain, just one new local artist featured in the Top 50 albums from January to November 2008 - compared to 10 in 2003.

Progress on ISP cooperation

Cooperation from Internet Service Providers holds the key to this problem - something that is increasingly accepted by governments internationally. In 2008 a tipping point was reached, with governments in France and the UK leading the way in looking to ISPs to help bring piracy on their networks under control. In France a draft Creation and Internet Law sets up a system of "graduated response" by which ISPs will write to persistent copyright abusers to educate and warn them about their actions, as a last resort sanctioning them with loss of internet access for between one and 12 months.

Research suggests the graduated response scheme will be effective. Seven in ten (72%) of UK music consumers would stop illegally downloading if told to do so by their ISP (Entertainment Media Research, 2008). Seven in ten (74%) French consumers agree internet account disconnection is a better approach than fines and criminal sanctions (IPSOS, May 2008)

In July 2008 the UK government brokered a joint 'Memorandum of Understanding' between the recording and film industries and the six largest ISPs, binding the parties to work to achieve a significant reduction in unauthorised file-sharing. At the same time, the government initiated a consultation on legislative options to deal with internet piracy.

The momentum for ISP cooperation extends beyond France and the UK. New Zealand will start requiring ISPs to implement a policy of terminating the accounts of repeat infringers in February. Governments are also involved in discussions of the issue in the US, Italy, Australia, Japan, Hong Kong and South Korea.

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