CD's strong in "album" market

Even though we have seen large scale reports of CD's virtually apocalyptic drop in sales, the latest numbers bring out some interesting paradoxes. It turns out that CD sales are still holding strong on sector in particular, "the album." Whereas digital sales are successfully cannibalizing the CD singles market, in digital albums, digital has a very small footprint.

That's because most people using something like iTunes to purchase music are looking for "the hit" on the album and purchasing a track or two. CD's are still the best format to experience an album. There really is no duplicate or better experience out there that is as compelling as the package a CD gives the buyer (soundcrank is working on a new format to solve this digital problem).

PriceWaterhouseCooper's predicted that CD's would decline from about 80% of revenues for the average record label, to around 40% within 4 years. That trend is not holding. In CD singles, the decline is actually matching quite well with the prediction but in album sales of CD's, revenues are actually still on track and in some cases actually GROWING! JB Hi-Fi's revenues from CD album sales increased by 30% last year and are on track to do the same this year (http://www.smh.com.au/news/business/music-on-discs-are-still-in-the-pink/2007/07/31/1185647900952.html).

Maybe the CD isn't dead, at least when it comes to the album format? According to JB Hi-Fi's president:

"Lots of people are trying to forecast the future, but the drop of CDs predicted [years ago] doesn't seem to be happening yet. Digital has made real inroads into CD singles but it hasn't made much of a dent in the albums market."

Until digital albums can provide as much or more of what a physical CD does in terms of content and experience, album lovers (and there are fewer and fewer of us) will be buying CD's.

Trend towards illegal downloading rises sharply

Some interesting statistics have come out of an online music survey recently. The survey, created by Entertainment Media Research with accompanying media lawyers Olswang (http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/07/30/bcnmusic130.xml), has a few facts of note.

1) Last year, purchases of legal music downloads through sources like iTunes and Rhapsody, rose by 40% (Telegraph 2006). This year, the number of legal downloaders has only grown by a meager 15%.

Already, digital music download growth is declining at a staggering pace. Digital music is not keeping pace nor making up the difference for the loss in CD sale revenue. And now, it is looking less likely to ever even match the anemic pace of currently CD sales.

2) 43% of participants are downloading illegal music. That is up from 36% last year. 22% of people who bought a legal download last year admitted that they have "not legally download a track for at least 6 months."

Why is illegal downloading on the decline? According to Russell Hart (CEO of Entertainment Media Research), "more people are turning to music piracy because official downloads are seen as too expensive and the fear of legal action has eased as memories of a number of high-profile piracy prosecutions have faded."

3) The survey infers that social networking is playing a big part in the trend towards piracy. 40% of users have music embedded on their social networking page and even higher with 65% among teenagers.

Social networking is paving the way to democratize music and word of mouth is showing to be the most powerful music recommendation system (which it always has been offline anyway). 53% of participants said they actively surf social network sites to discover new music and artists.

The site had 1,700 participants between the ages of 13 to 60. More to come on this. The industry has a real opportunity to capitalize on this social networking craze. It is painfully difficult to actually purchase a song you like on another person's MySpace page. Even if someone wanted to get it legally, it's way to hard for the average user. Generally, most people want the artist to get paid. Make it easy for them to buy a track by lowering the price, using a variable pricing scheme, take off DRM, and put the purchase experience in 1-click of where they found and listened to the track. Fix that and we have a good start.

UK copyright not going to be extended

The implication of Britain refusing to lobby the EU for longer copyrights is almost surreal. Basically, the UK is not going to argue the EU's copyright protection laws which are much shorter than US or British standards. According to Newsweek:

"Under EU rules, authors of songs and their families benefit from copyright for the whole of their lives plus 70 years, while performers of songs and their producers benefit for just 50 years from the date of recording.

In the US, performers and producers hold recording rights for between 95 and 120 years, while performers in Mexico get 75 years and 70 years in Chile, Brazil, Peru and Turkey. "

What's so surreal? In 2013, many of The Beatles catalog songs will be public domain in the UK! Of course, artists are fuming over the whole issue. But the UK government's explanation sounds somewhat reasonable:

"An extension would not benefit the majority of performers, most of whom have contractual relationship requiring their royalties be paid back to the record label," the government report concluded.

It also said that an extension would lead to increased costs to industry - such as those who use music, whether to provide ambiance in a shop or restaurant or for TV or radio broadcasting - and to consumers who would have to pay royalties for longer."

We probably haven't heard the last of this. The UK may be the best place in the world for western music right now so it is a bit funny that their copyright laws are less protective of that music than other developed nations.

Simplify Media - P2P in disguise

I'm not sure how long this will last but there is a really cool software product called "Simplify Media" (http://www.simplifymedia.com/) that just became available for beta download. Simplify basically acts as a plug-in to your desktop music library. Friends can subscribe to your library over the web and listen to tracks that you own that are streamed to them. This does not allow users to pirate the music (at least not easily). It then prompts the listener to purchase the track via iTunes if the person likes it.

Why do I think this won't be around for long?

Unless Simplify Media has some kind of licensing deal with all the major labels (which it doesn't appear that they have at least based on their website and background information), isn't this just a Peer to Peer (P2P) network in disguise?

Early versions of iTunes allowed for this exact functionality but it was removed by the request of the labels. Now, all you get in iTunes, is the local area network library sharing (good for inter-office but very restrictive).

How long will this last? On Simplify's FAQ page, they address the legal issue as follows:

"Yes. Music is streamed friend-to-friend, and only within small, private groups. There are limits to how many friends can be on your Media List and how many listeners can concurrently stream music from your computer. Friends cannot burn remote songs to CDs, transfer them to an iPod or mp3 player, or access them when you are logged off. Links to partner stores let you purchase music you wish to own."

What's funny is this sounds exactly like other networks which the RIAA has militantly pursued and shut down. I think the legal ground here is shaky. I wish it wasn't because this is a cool idea.

How much does it cost to catch a music pirate?

Variety (http://www.variety.com/article/VR1117968691.html?categoryid=16&cs=1&nid=2567) ran an interesting article on the real costs of combating piracy. As you might expect, the cost of catching the pirate greatly outweighs the earnings from the pirate's demise. But I never dreamed how far the industry would go and how much they would spend to bring down a single pirate. You know what the worst part was?

The pirate turned out to be a legitimate music consumer who had done nothing wrong!

"A federal judge has ordered Capitol Records to pay nearly $70,000 to cover the attorney fees and litigation costs of a woman the company unsuccessfully sued for illegal downloading."

This ruling is a first of its kind. Never before have labels been forced to reimburse people for the RIAA's constant anti-consumer attacks. The RIAA's response almost seems as though they don't really see anything wrong with persecuting innocent people.

"We respectfully believe that this ruling is in error and is an isolated occurrence. Our interest in these cases is enforcing the rights of the record companies and artists, while fostering an online environment where the legal marketplace can flourish and the music industry can invest in the new bands of tomorrow. In the handful of cases where the person engaging in the illegal activity in the household is not the person responsible for the ISP account, we look to gather the facts quickly and do our best to identify the appropriate defendant."

If that is true, then why was this woman dragged into court for the past 3 years to defend herself from a false charge? That doesn't seem like the RIAA "gathered the facts quickly" to resolve the issue.

Its about time someone stepped in to shield the consumer. Stopping piracy is one thing, but 3 years to prove innocence for stealing music, that's ridiculous!

Oversupply - culprit behind music industry decline

An interesting opinion piece appeared in the DailyBulletin (http://www.dailybulletin.com/lifestyle/ci_6417477) last week. The author, John Weeks, provided a step-by-step description of how the music industry could save itself from impending doom. His solution...

Cut the supply of new music to an immediate stop.

In other words, don't allow any new music to be created or produced. According to the theory, if people could not get new music, they would start realizing how much they want it and how painful it is to live in a world without new music to "steal". Consumers will then come to their senses and start being happy to pay for artists to produce new music.

We've heard this argument before. It goes something like this:

If pirates keep stealing music instead of paying for it, more and more artists will leave the industry or stop creating new works because they can't make a living from all of the piracy. This will create a huge vacuum where there is almost no new music and what music there is, will be of the poorest quality.

There is one fatal flaw with this dark vision of music's future... Artists are making more than ever before. Why else would big acts like Prince be giving away copies of their CD to get more people out to their live shows? Its because, as Prince puts it, he could care less about the labels making money. Instead, he makes all his money on live performances. If anything, the Long Tail has proved that mass supply of new music is here to stay. Now we just need some better filtering mechanisms.

Classical music to save the industry

It turns out that in an industry where sales are down over 20% in the first half of this year alone, there is some good news. Classical music sales are actually up 22% in 2006. MSNBC.com has an interesting article on why classical is tracking opposite of the rest of the music industry:

http://www.msnbc.msn.com/id/19877908/site/newsweek/

Classical music actually lends itself a lot better to The Long Tail trend for a couple of reasons.

• Piracy is much lower among classical music listeners. Since classical music can vary widely between releases (some have 3 tracks, some as much as 25), there is great value in purchasing and downloading classical music.
• Classical music is almost always purchased as an album or compilation instead of a track-by-track digital download. Its just not subject to the standard 3 minute instant gratification song size as pop music.
• There are many new young virtuoso artists in the classical genre which appear to the new listener environment where genres don't matter like they once did.

Believe it or not, classical music was the fastest growing music genre in 2006 (http://arstechnica.com/news.ars/post/20070117-8641.html) with a 23% increase in the US alone. That can only be a good thing for the world's IQ and the evolution of musical tastes.

Harvard law - universities have legal ground to ignore RIAA

According to a Harvard Law article (http://cyber.law.harvard.edu/home/filter?wid=379&func=viewSubmission&sid=2802) analyzing the RIAA's grip on Universities, their assessment is that the RIAA shouldn't be able to use the university to violate student privacy.

"It is the university's duty to follow its own mission and not that of a private business trying to protect sources of revenue. "

Universities are not obligated nor do they have an value-based motivation to assist the RIAA in providing student digital music related data. The legal opinion further says:

"The university strives to create knowledge, to open the minds of students to that knowledge, and to enable students to take best advantage of their educational opportunities. The university has no legal obligation to deliver the RIAA's messages. It should do so only if it believes that's consonant with the university's mission. "

"We believe it is not. "

When universities go to so much trouble to rid themselves of any corporate or commercial interests, why would they so easily allow the RIAA (which is not a governmental organization) to run its aggressive anti-consumer campaign? This is not a biased and overly negative opinion towards the RIAA as the authors go on to state:

"The university does have an obligation to teach our students to be good citizens. Good citizens should be accountable for their actions. If our students are breaking the law, they should pay the price. That’s not the issue here. The RIAA has already sued well over 10,000 people, including many students, directly... The issue is that the university should not be carrying the industry’s water in bringing lawsuits. "

They are on solid legal ground here and this is one of the most compelling arguments I've heard on educational institutions standing up for their rights. If only more universities saw it so clearly.

Disney's new CD format

Disney has announced a new compact disc standard entitled CDVU+ (pronounced "CD view plus"). What this new format gives you is exclusive content beyond the tracks themselves and packaged right onto the CD. Engadget ran an article yesterday (http://www.engadget.com/2007/07/19/disney-reinvents-enhanced-cds-with-cdvu/) berating Disney for the new format. Their critique revolves around the fact that so called "enhanced CD's" have been around for years and have gone absolutely nowhere (which is true by the way). I echo their skepticism and add to it that I am shocked that Disney thinks this is going to work! Isn't Steve Jobs on their board?

Why release all this content and this new standard for a dying format? CD sales are down almost 20% in the first half of this year alone.

The format Disney chose may be wrong but the content is pretty compelling. Here's a list of some of the things Disney's first CDVU+ artist, "Jonas Brothers" (up and coming punk band) are putting on the disc:

• Song lyrics, 10 video segments, behind the scenes footage
• Video guitar instruction lesson to learn to play the band's songs
• 75 photos of the band
• Customizable autographed poster creator so fans can create their own custom poster

That's just a few of the really interesting things on the list. That kind of content is really compelling. What if, instead of putting that content into an offline and stagnant physical format, Disney instead linked that content directly into the listener's regular music experience? If it was integrated directly into the player (either iPod or PC media player) and automatically updated, I think that's the secret sauce that's needed to make a digital track valuable enough to purchase. We are working on a web-based format that plugs directly into iTunes to bring all this kind of content and more directly to the listener via their music player. Our first version is available for free at: http://www.soundcrank.com/. CD's are dead on arrival. Time to switch to a new format. Come check out soundcrank and see what we have to offer.

Steve Jobs - King of online music revolution?

Blender magazine has just named Steve Jobs the "undisputed king of the online music revolution" (http://inhome.rediff.com/movies/2007/jul/19jobs.htm). They go on to say:

"'The iTunes Store and the iPod have done more to change the way people listen to music than anything since the CD, and maybe since the sound recording."

What! Did I hear that correctly? Undisputed?

Let me dispute this. First of all, Steve Jobs is selling iPods, not songs. He has hijacked the music industry to sell more of his proprietary hardware. Besides the fact that you can fit more songs on an iPod, is it really that different from a Walkmen not too long ago? I hardly think that is "changing the way people listen to music".

Second of all, I will grant that Jobs definitely figured out a way to monetize music (but I contend it was only because they needed the songs to get more iPod sales - remember, the value to Apple in this whole thing is in the player itself, not the tracks). I will even grant that he brought DRM to the masses (not something to be proud of by the way). In fact, you could say that Steve Jobs brought legitimate digital music to the masses on a pay-for basis. But to say that he is the "king of the online music revolution" is outrageous. Anyone ever heard of a little company called Napster? Or a guy named Shawn Fanning?

If anyone really brought digital music to the masses and started this whole revolution, its Napster (circa 2000). Jobs is brilliant at marketing and has made some really cool products but the only thing he's "king" of, is Apple.

Warner says no to EMI purchase

According to a Wall Street Journal, Warner is "out" on the EMI acquisition deal (http://www.247wallst.com/2007/07/warner-music-wm.html). They were unwilling to match Terra Firma's (http://www.terrafirma.com/) offer of $4.88 billion. Warner is now in 3rd place in terms of market share in the industry and purchasing EMI's catalogue would have made this a strong 2nd place contender.

So why did Warner get cold feet? It's a sign of the times. With the cataclysmic drop in CD sales (http://www.musicdystopia.com/2007/07/lowest-music-sales-in-25-years.html), who would want to be in the record label / publishing business? Warner had to have looked at its stock price (which is down over 50% this year on poor earnings) and realized, the risk was too great. They are bleeding cash right now.

Terra Firma may be wishing it had bid lower at this point. The future is not bright for EMI. Even with their no-DRM catalogue's popularity, sales are down over 15% this year alone. Of course, even Terra Firma's offer is on shaky ground. Less than 5% of EMI's shareholder's have approved the deal (although many may have been holding out for Warner's offer) and there is a 48 hour deadline now to do so. What does EMI do if neither offer works out? I guess they just keep losing money.

RIAA organizes P2P "entrapment" operation

In the ongoing (and totally ineffective) battle against online music piracy, the RIAA has enlisted Media Defender (http://www.mediadefender.com/) to create fake P2P websites. These sites prompt users to download fake software (which is actually spyware in disguise) in order to download illegal tracks from the site. One of the sites is http://www.miivi.com/ but as soon as this news broke, the site was taken down due to traffic overload.

When a user logged into this site or one of many others, they were prompted to create an account at which point their IP address would be tracked as well as other personal information by the RIAA. Once the user downloaded the software (which was actually spyware), their entire hard drive would be searched for illegal and copyrighted media files and reported back to Media Defender. You can read more here: (http://www.techspot.com/news/26021-mpaa-sets-up-fake-p2p-site-to-lure-pirates.html).

This seems beyond belief in terms of privacy violations. Again, the Internet makes it really hard to tell who is who in terms of users and web traffic so there would be tons of "false-positives" in an operation like this which would make unsuspecting consumers all the more angry about the situation.

Still, you have to hand it to the RIAA. If their charter is to make customers cower in fear and suffer every kind of copyright injustice (which it isn't by the way, but seems to be the only thing the RIAA spends it time doing), then the RIAA is right on track.

Touring vs. album sales

Mark Ellen, editor of The Word magazine made an interesting comment in an article from BBC news (http://news.bbc.co.uk/2/hi/uk_news/magazine/6897178.stm).

"Five years ago people toured in order to sell records and called the name of their tour after their recording, and probably lost money in order to promote and extend the life of the album. That balance has shifted and now people put out albums to justify going on tour and charging more to go on tour. "

Isn't that interesting? The shift has moved full circle. Whereas in the early days of the industry, it was all about the live show and radio was heavily leveraged to bring in those patrons. With the progress of recording technology and radio, things moved to a model where it was all about selling the physical "artifact" of a record/8-track/cassette/CD. Now we are coming around to live shows being the prime revenue earner for artists.

There are some real benefits to the decline in the value of a CD and the increase in the value of the live performance. 1) Live shows provide a much more rich experience for the fans and allow the artist and the fan to interact on many levels. 2) This does create a more equitable relationship between the artist and the consumer. Especially since consumers have grown increasingly hostel to the big record labels who they perceive to be stealing from the artists.

All this press about Prince's latest free CD is making a lot of artists question the entire model and with bands like Radiohead abandoning the CD format itself in favor of smaller track lists and concepts, the balance is being shifted back to the artist.

Is Prince's free CD that big of a deal?

EntertainmentWise.com (http://www.entertainmentwise.com/news?id=34738) reported on Prince's free CD release today that went out with over 3 million newspaper copies. The "Mail on Sunday" newspaper included the CD as a free giveaway with their Sunday edition. The wording of the title of the article on EnterainmentWise.com is what bothers me:

"Prince Attacks the Music Industry"

That is indicative of a lot of the press lately in their reporting of music industry news. I don't think Prince believes this to be much of a "big deal". Look at his comments:

"It's direct marketing and I don't have to be in the speculation business of the record industry which is going through a lot of tumultuous times right now."

What is even more telling is the Mail on Sunday editor's response:

"Prince has done this because he makes most of his money these days as a performing artist."

It just shows more and more that the former iron grasp of the music industry on artists and media is quickly weakening. Artist's are starting to take control of their own business and making more money than they ever had in the past. If anything, this article's title should have been "Prince marginalizes the music industry."

Future of radio

Shelly Palmer has an interesting blog about the future of the radio business "When will radio die?" (http://www.huffingtonpost.com/shelly-palmer/when-will-radio-die_b_56165.html). His main point revolves around the fact that there is such an install-base of radio-capable devices (ie: cars, clocks, stereos, etc.) that radio will take a long time to die out. What's the fatal flaw of radio long term?

According to Palmer, its that radio is too generic. Programming a great radio station is an art form in and of itself that very few stations are capable of doing. Add to that, the complexity of getting a fresh track list, and the HIGH cost of royalties to play the songs, and you start to see why 99% of Clear Channel stations absolutely suck.

Internet radio technology is interesting in response to this argument. Whereas, radio's technology prevents it from being able to customize a stations content based on user preferences and feedback (at least on the micro level), with Internet radio technology, this is not only possible, it is being done by companies like Last.FM and Pandora. Assuming, the royalty fee situation gets worked out, these technologies are not perfect, but they are personalized (maybe too personalized in some cases as they block a lot of good music from getting to the listener and are too narrowly focused).

But all is not lost in traditional radio. If you want to see how a great station can be operated and programmed, look no further than Seattle's 90.3 KEXP (http://www.kexp.org). Pure brilliance with an eclectic blend of all kinds of music that encompasses anything innovative, fun, or interesting. You will never be bored listening to that station for hours. Its listener-powered so there are no commercials and it is the farthest thing from "corporate", you have ever heard. Maybe there is hope after all.

Australian dance clubs getting screwed on licensing fees

When I found out about this, my jaw dropped. I found this article out of an Autralian newspaper called "The Age" regarding dance club licensing fees for public play of songs. Supposedly, the Copyright Tribunal reached a decision to raise rates on dance parties and nightclubs on the songs they play. Quoting the article:

"It lifted rates for recordings played in nightclubs from seven cents per person a night to $1.05 per person. The dance party rate rises from 20 cents to $3.07 per person."

At those prices, clubs might not want to "pack the place" as it would cost them an arm and a leg. Just in case you're counting, that's a 1000%+ percent increase. According to the article, about half the money goes to the artists, the other half goes to the labels. You can read the details here:

http://www.theage.com.au/news/entertainment/latest-club-hit-doofdoof-kerching/2007/07/10/1183833519305.html?s_cid=rss_age

So fees are outrageous in Australia and climbing fast here in the states. That got me thinking, at some point, it becomes inequitable to play a popular song. Especially in the dance club scene, where many times, DJ's are mixing and mashing up tracks and beats for hours on end. I think there is a real possibility that we could see the day in the near future where music is being created improv-style and/or the DJ IS is the artist performing the live music via drum machines and electronics.

With the democratization of creation tools for music and the massive influx of new artists and ideas, there just isn't enough room or staying power behind popular music. Unfortunately, record labels may be pricing themselves out of the market.

Napster (2000) - opportunity squandered

I've been doing research for an upcoming article I'm writing about the progression of popular music history. Lately, I have been looking specifically at the rise of Napster (circa 2000) and the cataclysmic change it caused to the entire industry.

In 2000, Napster had over 38 million active users. It was a genuine phenomenon. An interesting poll was run in 2000 by Webonize (http://www.businessweek.com/2000/00_46/b3707213.htm) where current Napster-using college students were asked if they would be willing to pay a monthly subscription to continue using the Napster service. 68% of users responded yes that they were willing to pay a fee upwards of $14.99 per month.

If you do the math on this, it means that roughly 25 million active users would pay a total of $375 million per month to use the service (that cost next to nothing to run by the way). Over a year, that translates into billions in recurring revenue for the record industry (because they already had Napster in their cross hairs by this time anyway) and a hole lot of happy customers.

I might even go so far as to contend that this was the last big chance the industry had to save themselves from the woes that are being experienced today. Think of what Napster could have become in terms of a whole new way to find music. It would not have taken much to turn it into an amazing social network where people discovered and shared music. Back then, people were actually willing to pay for music.

Slippery slope of regulation on digital music over ISP's

This is scary. I can see this getting out of hand. A Belgian court has ruled that a Belgian ISP has to install filters to prevent users from downloading illegal music. You can read the details here:

http://www.businessweek.com/print/globalbiz/content/jul2007/gb20070710_974117.htm

When I first heard about his, I wondered how it would work in practice. There is no such thing as a commercially available filter that can tell whether a download is legal or not. How this works 90% of the time, is that they just block all content from certain IP's or from certain applications (in this case, most likely P2P software of every kind). Now that scares me.

If this sets a precedence, what's next? What kind of content can be consumed on the web and what cannot? Does that mean that this ISP must block YouTube.com also because it has illegal and copyrighted material? What happens if a user downloads a legitimate MP3 from a non-listed source? Software can't tell whether this is a legal or illegal download.

I guess, if the technology worked perfectly in determining between a legal and illegal download, there might be a case to be made that it MIGHT work. What really amazes me, is that the court determined that the legal responsibility was on the ISP! Who, frankly, wasn't doing anything wrong. What about the consumer of the downloads? Aren't they really the ones breaking the law?

Logistically, there is no real way to track the pirates, that's why the ISP became the victim. P2P networks by their very nature are not easily shut down. But P2P networks have a lot of garbage mixed in with good tunes. Do you want to know where the really good stuff is? Try the newsgroups. High quality, reliable, and free music all the time and for some reason, no one goes after them.

Timbaland on popular music - "its boring and stale"

I couldn't agree more. Supposedly, the uber producer is thinking about quitting music altogether. His quote is priceless:

"I just do music. It can easily get stale, so I'm always creating, innovating new stuff. I don't get into it that deep, I just do whatever I feel, it's real simple."

"I don't need to do anything for money. I'm just glad to have a job. But music is boring right now. I'm too innovative for the world. I've been doing it so long, I'm about ready to throw in the towel. I'm about to de-crown myself and pass it over to one of the up-and-coming producers under me."

I'm not exactly sure about his statement "I'm too innovative for the world" but I definitely see where he is coming from on the "musical freshness" side of things. Look at the top 40 charts right now, (3 of the top 20 are Timbaland produced by the way) and you will see almost nothing new. There are records on there that are over a year old. You start listening to samples of these albums and after a while, you can't tell the difference. It's especially bad in pop music where the standard R&B hustle is tired and worn out.

Where are the new records? Its been a month since I found something I really liked. In this world of massive supply, why does everything feel so stale?

Lowest music sales in 25 years

For the last 10 years, music revenues have never fallen more than 7%. This year the prediction was 4-8%. Now reality sets in. The actual numbers are looking more around 11%+. That would be the lowest sales in over 25 years. In fact, the last time the numbers were that low, people were buying records (which I would argue is a better product than what you get for your $0.99 digital download today).

It could actually get much worse than 11% because the first half of this year (2007), sales were down 20%! The industry is planning on making up some of those losses at the holiday season when they are releasing extensive back-catalogs to bolster sales.

The analysis seems to suggest that one of the biggest factors for this decline is due to the fact that people are buying songs, not albums. It is getting harder and harder for labels to pass off "filler" as valuable enough to purchase with the songs that people actually like. According to Times Online:

"The problem began in January after a surge in sales of digital music players over Christmas. Apple’s dominant iTunes online record store allows listeners to buy two or three single tracks in preference to a whole album, depressing revenues. "

You can read more details here: (http://entertainment.timesonline.co.uk/tol/arts_and_entertainment/music/article2045335.ece)

What was the industry's reasoning for why this is happening?

What for it....

Piracy!

While that is no doubt true, we're all tired of this line. The battle for piracy is lost. Let's stop talking about what doesn't work, fighting a losing battle, and start talking about what is working. Where is revenue WAY up?

Ringtones, royalties, live music, and music DVD's. I think I see a trend...

Music royalties getting out of hand

How bad must it suck to be working for a record label right now? Especially at the big three. Some of the schemes that have been employed to try and enforce royalty payments truly boggle the mind. A friend of mine, Mike King (http://www.indielectronicaonline.com/) who runs an excellent online radio station sent me an article yesterday about royalty enforcement. One of the stories involved a small coffee shop in Florida who allowed up and coming performers to play live music on Friday and Saturday nights.

The performers were not paid nor did the establishment have a cover charge to watch. Many of the acts played covers of popular songs. A few months after the live shows started, the shop got a call from ASCAP (http://www.ascap.com/) as well as letters informing the shop that they owed royalties on the songs that were performed live to the tune of $400. The shop, not wanting to be dishonest, payed the fees but because it was not profitable, they had to do it on a payment program.

Over the next few months, more and more labels and organizations began calling and claiming royalty fees that were owed. It got so bad that many days there were 3 or 4 phone calls from different organizations claiming money was owed. The calls got nasty even to the point of threatening to shut down the shop which had only been putting on the live music as a fun diversion for customers. It got so ridiculous, that the shop had to discontinue live music on the weekends.

$400 dollars! How much money and effort was spent trying to collect this money and subsequent payments? Who is running this business? It sounds like something out of a Saturday Night Live script (about as unfunny too). The worst of it came from an owner of a sports bar who was contacted because he showed Monday Night Football and the theme song "Are you ready for some football?" by Hank Williams Jr. is played before each game. He ended up having to turn down the volume at the beginning of each broadcast to avoid the fees. More details are here:

http://www.floridatoday.com/apps/pbcs.dll/article?AID=/20070708/NEWS01/707080343/1006

This quote says it all from the coffee shop owner:

"There are so many damned companies you don't know who to pay. One guy called and said I had to pay him if I played any gospel music at all. It's really a mess."

And that's the real issue here. There is no real way to know who is legitimate. Who do you pay if you are trying to be honest? Do the artists care? Unless you are Metallica, the answer is no. Think of the goodwill and record sales that are generated by other bands covering a popular song. If the industry wants to get paid, they need to make it easier for a consumer to be honest.

RIAA has guitar teacher on the run

We have finally gotten to the point where almost every move the RIAA makes is more geared towards making an example of someone than actually progressing their charter or protecting copyright. In what can only be described as malicious, David Taub's handy guitar instructional videos that were posted on youtube.com were removed at the request of the RIAA. Over 100 videos had been posted on YouTube where they show students how to play popular songs with close up guitar angles and slow played instructions. The video that caused all the fuss was instructions on how to play a Rolling Stones song. More details are here:

http://www.zeropaid.com/news/8890/RIAA+Strikes+Again,+Accuses+Guitar+Teacher+of+Copyright+Infringement

Now that the video's are gone (which were getting no revenue whatsoever), did revenues and purchases of Rolling Stones instructional guitar DVD's go up? Oh wait... there is no such thing. Guitar instructions for Rolling Stone's songs don't exist for pay elsewhere online. That's what makes this so ridiculous. Put aside the whole copyright infringement argument for a second. How is it bad for a record label, if a fan learns to play one of their artist's songs? If anything, doesn't this make the artist more "sticky"? The record label should have contacted the teachers and asked if they would show specific songs to promote them and then paid the teachers to do even more. That would have probably increased profits long term.

The guitar videos were great fun. I'm sorry to see them go. Another short-sighted and anti-consumer move by the RIAA. NPR did a nice write up on the history of these video lessons and the two most popular teachers on YouTube. Its an interesting read. You can find it here:

http://www.npr.org/templates/story/story.php?storyId=11778602

SongBoom alternative to iTunes

Since the demise of AllOfMp3 (http://musicnext.blogspot.com/2007/07/allofmp3com-dies.html), I have been looking around for a new digital music source with no DRM, legal, and priced reasonably well. A couple of people were mentioned a site called SoundBoom.com (http://www.songboom.com) in the AllOfMp3 forums. I did some searching and things look pretty promising.

SongBoom has a list of alternatives to AllOfMp3 / iTunes that have lower prices than iTunes and in many cases, do not use any copy protection or DRM schemes. The most useful and interesting feature of the site is the "Site Comparison" page found here:

http://www.songboom.com/comparison_matrix.html

This shows a feature by feature comparison of all the sites listed on SongBoom. They are compared on everything from price to what types of payment they accept, whether or not they have a download manager, what digital formats they support, and their DRM (if applicable). Some of the sites listed look like carbon copies of AllOfMp3.com (same pricing, same look and feel).

The other interesting feature they offer is what they call the "Universal Download Manager." This software tool is in beta and allows you to use one application to manage downloads from multiple sources online in one place. Unlike iTunes or AllOfMp3's AllTunes, you don't have to use multiple applications to use SongBoom's recommended sites. Interesting, maybe there is hope after AllofMp3 after all.

Prince destroying value of recorded music

It seems like such a non-event and yet it is being taken as "the end of the world" by Sony BMG UK. Prince is going to give away free copies of his newest record as a bundle with Britain's Mail on Sunday newspaper. CD's and DVD's are used all the time as free giveaways to entice readers to pick up a copy and for promotional purposes. Here are the details of the giveaway:

http://breakingnews.iol.ie/entertainment/story.asp?j=95818560&p=958y886z

Why is Prince doing this? Probably because he sees where the real value is. It is in having a fan base of listeners that are willing to purchase the greater music experience, not just the track itself or at all. Industry reaction was exactly what you would expect. Lots of comments about this just helping to usher in doomsday for record sales, how artists never support the labels that made them rich, and how covermounts (common newspaper and magazine DVD/CD giveaways) are the real problem. What was really telling is this comment:

"... yet another example of the damaging covermount culture which is destroying any perception of value around recorded music." Covermount culture? It's beyond ludicrous. If you want to talk about the single biggest event that damaged the perceived value of recorded music, I would submit that it was the limitless supply and zero cost of Napster. That was the day it all ended.

I can hardly relate to some of the statements. Paul Quirk (Entertainment Retailers Association) made a totally lame comment to the effect of "The Artist formerly known as Prince should know that with behaviour like this he will soon be the Artist Formerly Available in Record Stores." Mr. Quirk, that is not very witty. It just comes off as flat and boring. Besides, is that meant to be a threat?

AllOfMp3.com dies

The good times just stopped rolling for thousands of music fans who were willing to pay for music, just not pay ridiculous amounts for low quality bit rate tracks. AllOfMp3.com was shut down yesterday by the Russian Government in response to the request from WTO authorities who have been on an almost incessant campaign to get the Moscow site shut down for years now. Countless industry comments and pundits have sited AllOfMp3 as an example of the rampant piracy that is hurting the industry. You can get the details on the shut down here:

http://www.msnbc.msn.com/id/19591440/

We all know that AllOfMp3 wasn't paying any royalties, that's why they could charge around 20 cents or less for a track. They were basically charging customers for the download bandwidth and some credit card processing fees. I can't really condone that totally because the "artists" were not getting paid and that is who everyone wants to see get the money in the end anyways.

But the industry could learn something from this. At the risk of incriminating myself, I will admit that I used AllOfMp3 many times. I am totally willing to pay something for a song. I think the price point around $0.25 cents was exactly right. And the fact that there was no DRM and they let me decide what quality bit rate I wanted, was huge (not to mention that their tracks were iPod compatible).

But here is the REALLY BIG thing that happened with my experience on AllOfMp3. I bought MORE music. A lot more. In fact, I took so many risks with new artists that I would have never heard if I had to pay the full $0.99 cents a song or worse, $17.00 for a CD. With a variable pricing, I was buying at least 4 or 5 albums a week on that site. For $2.00 an album, I could get whole track list, check it out and it wasn't a huge loss if I hated it. I found some of my favorite albums of last year just because I could afford to take the risk on these bands. I would never have found these artists or really had a chance to check them out otherwise. What a loss.

In the interest of public service (who knows how long it will last) but I have to mention that Mp3Sparks.com (AllOfMp3's sister site with the same features and pricing) is still currently available and working. I am not sure why it was not shut down but for now, there is still a way to get songs at a reasonable price without the guilt of stealing (sort of).

RIAA compared to the mafia

In a "beyond ridiculous" PR disaster, the RIAA has been caught suing more innocent people for alleged file sharing violations. Tanya Anderson, a 44 year old mother from Oregon who likes "soft rock and country music" was accused of sharing a gangster rap collection of songs on the Kazaa in 2005. The suit went pretty far before being dropped by the RIAA but not before inflicting emotional distress, invasion of privacy, and negligence and her and her family. You can read the details here:

http://www.mp3.com/news/stories/9815.html

Now Tanya has brought a Class Action lawsuit against the RIAA and its affiliates that claims that they engaged in malicious prosecution against here. Who wouldn't agree? This claim isn't baseless. There is a lot of sympathy for this case not to mention the overwhelming public hatred of the RIAA and the music industry in general. The only thing that led the RIAA to sue was the flimsy evidence of an IP address that was allegedly traced back to her.

What kind of industry sues their own customers? Its one thing to sue a malicious copyright pirate, its another to get your facts completely wrong. The only evidence to bring about this lawsuit was an IP address that was obviously being spoofed. If others join in on this lawsuit, it could spell worse trouble for the RIAA than bad PR.

The iTunes backlash begins

Apple may be experiencing the beginning of a PR backlash as Universal Music (http://www.umusic.com) has not renewed their contract with Apple and iTunes. Universal accounts for over 1/3 of all music sales with big artists such as the Black Eyed Peas, Fergie, Will Smith, and Willie Nelson. Their new arrangement with Apple allows iTunes to continue to sell Universal tracks at the standard fixed pricing. But at any time and with very little notice, Universal can sign an exclusive deal with another digital music seller or pull their tracks for any reason. You can read the details here:

http://www.itwire.com.au/content/view/13267/53/

Finally, someone is taking a stand against Apple's monopoly on digital music. This is going to be good in the long run for Universal and iTunes. Typical of American companies who ride the wave of popularity, the industry and general public usually turn on them at some point. If you don't believe me, just ask Bill Gates. Apple is starting to experience this and this news alone may trigger them to act more competitively.

Its not clear if this move was in response to iTunes issues such as fixed pricing, Apple's unwillingness to pay royalties on hardware (like Microsoft already does with its Zune) or the fact that Apple's DRM is completely proprietary. Or it could be that Universal has plans for its own online play / partnership. Whatever the reason, let's hope this prompts Apple to make some changes for the better of the consumers.

Internet radio on life support

An "olive branch" has been extended from the music industry to Internet radio. Yesterday, it was announced that the "per station" fees will be changed from $500 per channel to $2,500 per "radio service". While still a HUGE increase over the current fee schedule, this is definitely a step in the right direction. You can read the details here:

http://www.latimes.com/technology/la-fi-music30jun30,1,103497.story?coll=la-mininav-technology&ctrack=1&cset=true

This $2,500 would be paid per service no matter how many channels the service offered. This opens up the opportunity for some of the mid-tier services to "stay alive" now that the fees are in force. The really small guys (the majority) are not going to pay the $2,500 fee though. Most will probably just hide out until they are caught or go offline completely/underground.

What might spell trouble down the road is the rate time line. The new fee changes are only in place until the end of 2008, not 2010 like the previous fee schedule covers. Why didn't the industry extend the fees? Was this a temporary band aid fix with the expectation that stations will grow so much in the next 2 years to cover the new fees or is this a more devious way to keep people locked in until its too late?