Our music retail partner Emusic has been running a countdown of their favorite albums on their blog. They’re most of the way through now, releasing ten per day, with 3 days left to go. It’s obviously a very personal list, obviously, but it might introduce you to a few things you’ve missed over the last 10 years!
The debate on music piracy is a bit like that on global warming; vocal and vehement, and extremely polarised (pardon the pun). Evidence can be produced to support the most extreme opinions, and is wrangled over until those in the middle don’t know what is believable. Consensus seems to be that even though music pirates are active music fans, and likely to be buying music as well as ’stealing’ it online , piracy is damaging to sales of actual music tracks, although this may be slightly offset by increased gig attendance and other types of premium content purchase – box sets, t-shirts etc.
It also seems to be accepted that legal methods of ad supported, free-to-the-consumer streaming is the best way of combating the rise of piracy – the great user experience that Spotify has been able to offer has seen it expand faster than it can deal with; attracting users to use a great free streaming service isn’t hard, but finding a way of profiting from all those users is, balancing ad revenue against streaming and licensing costs, and Spotify’s launch in the States has had to be delayed while they evolve their model, and figure out how to move people onto their £10 a month premium service.
While they figure this out, MOG is stepping up to the plate in the States with their £5 a month subscription only model, that allows playlisting and file searching in a pretty similar way to Spotify’s interface [see the video at the bottom of this post]. A poll conducted by Demos (a company that sends people out with clipboards) suggests that revenue (income and adoption) would be maximised at the £5 price point:
But this doesn’t account for the costs inherent in delivering the amount of music that people tend to consume through such streaming services; leaving the computer streaming music all day, an individual could incur a lot of charges for their service provider.
So which footpath of digital development is going to turn out to be the music superhighway of the future? In my humble opinion, it’s going to come down to user experience: if we discount piracy as a viable future for the industry (no revenue means no artists) then we’re left with paying per track, either for streams or downloads, or for a month on month subscription service. These will remain as competing options, probably with iTunes still in pole position of the download market, given it’s current market dominance, and the relentless success of the iPod and it’s cousin the iPhone, and for the rest it’ll come down to whoever provides the slinkiest, most versatile service for whatever the music industry decides is the rock bottom price per stream, plus the minimum streaming cost. I for one hope that the big 4 accept thatad-supported music streaming is the best and only real way of putting an end to piracy, that they come to terms with the smaller license fee and infrastructure that will be demanded by this model. Of the options currently available, I think that Spotify has the most user friendly platform, I’m proud that we’re working with them, and I suggest that you upload your music to their service, via RouteNote’s digital music distribution platform right…. Now.
It’s been a while since we reiterated this: RouteNote is here to help YOU get your music online and selling. There are a lot of other players in the digital distribution market, all offering different models of payment and return, different combinations of stores, different packages and percentages, but we think we have the simplest, most efficient and cheapest service on the net.
We don’t charge any upfront or subscription fees, and only charge a 10% fee out of any revenue that you get once you start selling music. Other sites either expect you to shell out fees that can end up totalling hundreds of dollars before you even sell a single track, or take big chunks out of your back end in return for their services (The Orchard will take a flat rate of 30%). Other places will charge you depending on how many stores you want to sell through (Tunecore, Musicadium) – we don’t do any of this stuff. We just want you to confirm that you can license us the rights to distribute the music you upload, tell us the email address attached to the paypal account you want us to send revenues to and then upload your music. Our contract doesn’t make any claims on the music’s copyright, just enables us to make, store and send copies of your files, and it has a break clause of 60 days, so if you get fed up with us, or suddenly get signed by Warner you’ve only got a couple of months maximum wait before you can make a move. Once you pass our moderation (we need to check you’ve not just uploaded a Spice Girls album, or some hateful tirade against Guinea Pig owners) we’ll turn it around within 4 weeks and get your music to iTunes, eMusic, Spotify, Amazon MP3, Snocap, and other online digital stores that cover more than 95% of the online market.
You can check out our agreement once you’ve input your details in the Register page – don’t worry, you don’t need to sign your life away to look at the agreement – you have to specifically agree before we’re in business! We hope you’ll think it’s equitable (feedback on what you’d change is always welcome), and we look forward to having you join the 1,500 artists and labels who are already working with us to make their music make money.
Music streaming service Spotify is trying to build a viable strategy for US entry. Currently the ‘freemium’ phenomenon is active in Europe only, and is trying to tinker it’s platform into a fully balanced, financially viable form before allowing it’s user base to expand at the incredible rate they saw before they limited sign-ups to invitation only. In the brief period between the end of ‘08 and September of this year during which they opened the floodgates, they upped their roster to 5 million users, roughly 2% of which have signed up to the premium service, happily shelling out £9.99 a month for ad-free streaming, access to tracks offline and on hand-held devices (synching with desktops/laptops rather than streaming live on mobile broadband). Their costs can currently be estimated to outstrip their revenue, so they’ve got to find a way of enticing more of their free users onto the paid for platform, which they can principally do by adding value to the paid for package, reducing the price (which they may consider to be a mistake, given the huge amount of music that people will still stream), or just waiting for loyalty to induce a purchase (we all love them here in the RN office). An interesting point to consider is that the major labels that have signed deals with Spotify have also been given equity equal to roughly 18% of the company, so a win for Spotify is worth more to them than building on Apple/iTunes success in the long run. From a consumer’s point of view, I don’t think a better deal could possibly come along; all the music in the world for the price of a single CD purchase a month, available to put in your pocket on your phone (for which you’re probably paying £30 a month already), seems like a silver bullet to me, generating revenue for the industry and keeping costs down for the user while cutting the pirates out of the loop. I know free is very tempting, but as most music pirates are supposedly music lovers (I enjoyed the contradiction between the IFPI and the Daily Mail’s bubblegum reading of this survey), I’m hoping that the majority will see the light. Take the money you would have spent on the terabyte hard-drive to fill up with stolen music this year, and use the money to pay the premium subscription fees and fill your ears with lovely legal music instead. There’s also the possibility of Spotify expanding into video; I for one would throw the TV out, and stop paying the license fee if I could cache music TV and film in a Steam type model. We’re one of only a handful of distributors giving our artists the opportunity to get music onto Spotify, so we really hope they can balance the model and expand their user base, making more moeny for our contributors. I’m hopeful; their advertising team is still fresh and new to the problem, and bound to increase revenues as time passes, and further innovation and the addition of bells and whistles to the premium service will only become more enticing.
A smaller independent music store and news channel, offering free downloads and streams on some featured music, and paid for downloads on a swathe of other titles. They’re a smaller player, turning over around USD$12 million in 2008 from e-commerce based mainly from their anti-piracy services, but with a large chunk coming from media sales. As a percentage of the overall digital market, their entire SEC listed media sales represent less than a quarter of a percent, although Alexa list them as being the 3,772nd most visited website among their users, suggesting a fairly large marketing reach. This may all be somewhat academic, however, as the company has recently filed to suspend it’s SEC reporting responsibilities, a move the is compulsarily followed within 90 days by a delisting of the company’s stock.
RouteNote does not currently deal with Artist Direct.
First by reason of alphabetic primacy is Amazon’s MP3 download store. This branch of their $13-billion-a-year online retail business was launched in the U.S. back in September of 2007, jumping straight into the #2 slot behind iTunes in the digital download market.
Market analysts NPD report them as having roughly 8% of the U.S. digital download market, and they’ve successfully launched in the UK, Germany and France since then. Concentrating on the States for the time being, the overall digital music market is reported as being worth 36% of overall music sales at a massive USD$1,783,300,000, making Amazon’s 8% share worth $142,664,000. A small part of their $19 billion a year’s worth of total sales, but still a big force in the market, and one with a massive user base making a presence on Amazon a serious part of a coherent music marketing structure.
Amazon offers a fully DRM free catalogue from all the majors and a growing number of independent labels, a lower per-track price than iTunes, and a higher bit rate on downloaded tracks. They are also introducing an on-spec CD manufacture service, whereby artists can upload music files and artwork in order to have physical discs manufactured for sale through the Amazon retail site, alongside the same tracks in the Amazon MP3 store.
Bolting on an MP3 download service to their existing customer base meant that they became more or less instantly the second biggest single outlet for pay-per-download digital music in the States, and their international presence will continue to grow.
Spotify has received a lot of press in the last few days cause they are planning to move their European only service into the US market. The story was broken over at Forbes and I think this could be a very big move for the music industry as a whole. Spotify is a free ad supported music streaming service which allows users to listen to anything in their catalogue as often as they want. Spotify offers a free service which is advertising supports, a day of free advertising and then also a full unlimited service. Users can also build and store playlists; so that if you turn on shuffle, after awhile it feels like a Pandora station with only your favorites or the iTunes collection you wish you could afford.
Ive used Spotify since private launch and it is so addictive and one of the best services I have ever used. Their currently library has over 5 million tracks with thousands more uploaded on a daily basis. Spotify has attracted more than 2 million users in the UK and another 4 million across Europe. The company also wants to let you take you playlists with you anywhere you want. An Android app is in beta and an iPhone app is being tested.
Key issues when entering the US market is:
Disclosure: RouteNote is currently a Spotify partner and will be allowing our artists to get their music onto the service in the coming weeks.
It has been reported yesterday that Pandora has secured a new round of funding. If you are not aware what Pandora is, its a personalised online radio service. Pandora lets users choose which artists they like and then suggests new artists to them with the hope that they will also like their music. Pandora currently is based in the USA and is only for USA users, which is why most people here in the UK and outside the USA havent heard that much about Pandora.
However, within the next few months we hope to offer a new option to only a select few of RouteNote users, which is going to allow them to get their music onto the Pandora service and help promote their music in the USA. The downside is that only USA artists who are signed up to ASCAP and BMI can receive royalties for their streams. However, here at RouteNote we still believe this is a great opportunity for our artists to gain a lot more exposure in the USA, plus Pandora provide one of the leading iPhone applications which links in very nicely with iTunes, so if users enjoy your music they can purchase straight away. In the future we hope to have a more all round deal with Pandora but this is going to be very difficult until they launch in other markets outside of the USA.
A lot of people get in touch with us to ask how many digital stores we distribute music to, and what proportion of the digital music market they represent. We also hear comments on the relatively small number of people we deal with in comparison to the huge lists of partners at some of our competitors, e.g. CDbaby, Emubands, IODA…(without mentioning the duplication in the last two).
The simple truth is that while a long list of digital music stores might look good, beyond the top 3 or 4 retailers it makes very little difference to overall sales how many your music’s in. It’s fairly common knowledge that iTunes is the biggest player in the market, but the scale of their dominance is pretty staggering. Neilsen (the ratings and market reporting firm) reports total US music sales of 1,513 million units in 2008, with 1070 million of those sales being digital downloads. That’s a billion digital music downloads across the entire US.
In 2008, across all territories, iTunes sold more than Two Billion tracks.
| Apple iTunes Store Music Sales | |
| Date | Tracks Sold (Millions) |
| 01/08/2004 | 100 |
| 16/12/2004 | 200 |
| 02/03/2005 | 300 |
| 10/05/2005 | 400 |
| 18/07/2005 | 500 |
| 10/01/2006 | 850 |
| 23/02/2006 | 1,000 |
| 12/09/2006 | 1,500 |
| 10/01/2007 | 2,000 |
| 09/04/2007 | 2,500 |
| 31/07/2007 | 3,000 |
| 15/01/2008 | 4,000 |
| 19/06/2008 | 5,000 |
| 06/01/2009 | 6,000 |
Excuse the horrid old excel graph, I’m still running Office ‘03…
It’s difficult to get a believable estimate for the size of the global digital music market, but given that the USA is the biggest single economy by a long way (the whole of the EU only just beats it in the CIA factbook at $14.98 trillion to $14.58 trillion), you begin to get a picture of how much of a monopoly iTunes has. Their competitors are of a different order: Amazon weighed in at 27 million digital tracks sold in the first six months of 2008, and the CEO of eMusic (David Pakman) estimated that Amazon have got about 4%-5% of the US music market, which going from Neilsen’s estimates puts them at about 48,150,000 tracks annually. Pakman also claims an approx. 10%-15% market share for eMusic, with 7 million downloads sold monthly (7*12 = 84).
By browsing eMusic’s sales milestone press releases, you can plot a rough course for their sales:
| eMusic Digital Music Sales | |
| Date | Tracks Sold (Millions) |
| 01/09/2004 | 0 |
| 01/12/2004 | 3 |
| 01/12/2006 | 100 |
| 25/09/2007 | 160 |
| 14/04/2008 | 200 |
| 20/11/2008 | 250 |
I’ll spare you another ugly graph. eMusic has sold 250 million tracks since it’s relaunch in 2004, and Amazon’s only been going for about a year now, 300 million tracks let’s say, which pales beside iTunes’ 6 billion total sales.
One can argue with the estimates, but the main thrust of my argument is hopefully becoming clear. A conservative 15% market share between Amazon and eMusic, along with iTunes’ >80% doesn’t leave more than 5% for any other players in the USA: with just those three selling your music for you online, you’ve got 95% of the market covered. It’s not that the remaining 5% isn’t worth catering to, but the law of diminishing returns kicks in, and customers in the last few percentiles get harder and harder to chase down, especially given the plethora of blossoming and failing little music shops that appear and dissappear. We concentrate our efforts on the vendors that matter.
P.S.
The controversial bulk of music discovery and consumption in the electronic wilderness, outside the paid-for enclosure, is happening on torrent sites like the embattled Pirate Bay, and the more respectable Limewire and Mininova, and promoting RouteNote artists on these channels is something we’re looking into. Ubiquitous innovator Trent Reznor or NIN positively encourages people to download his music from P2P networks, in order to drive sales of his ‘premium’ paid for content.
Amazon has been trading in mp3 downloads for a year now, and while it’s still nothing like a serious competitor to itunes, it’s made a healthy start in the market. Amazon is the biggest e-commerce organisation in the world, so they did start with a captive audience, albeit not as well targeted at music consumers as Apple’s list of ipod owners. From a standing start they’ve sold 130 million tracks in their first year. The vast bulk of these being in the USA, the only country where they were operational until their UK store opened earlier this month. As impressive as this volume of sales is, it pales in comparison to the 2.4 billion tracks that itunes is predicted to sell by the end of the year, eighteen times what Amazon have sold.
iTunes and the iPod/iPhone deliver a package that’s hard to beat; ease of use with a really good looking piece of technology,
ad it’s hard to see how Amazon can break people out of that neat circle of consumption. Their fledgling relationship with Google might prove an ace in the hole; they’re working together to provide MP3 downloads on the G1 – Google’s iPhone competitor. This will probably end up being another iteration of the age old mac vs. pc battle, greater stability and efficiency coupled with higher prices on the mac side, with more flexibility, content and bugs on the pc/Google side, although the search giant is a new factor in this battle, having so neatly taken effective control of the search and contextual advertising sectors of the net, and stripping Microsoft’s flagship Office software out from under it’s nose with their Google documents suite.
However this pans out, Amazon and iTunes will still own between 75% and 85% of the digital music market between them, with the rest of it divided up between a turbulent and ever changing multitude of other minor players. This market is only going to get bigger, especially now the lines between phones, mp3 players, web tablets and personal computers are blurring so fast. I wouldn’t be surprised to see Amazon’s next generation of their Kindle reader have a phone, web browser and mp3 player built into it using Google’s Android/Chrome platforms.
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