Do It Yourself: Modern Music Distribution

On October 10, 2007, legendary rock-and-roll band Radiohead released their latest album, In Rainbows, with an innovative new business model. They sold the album on their website via mp3 download, and fans could pay whatever price they chose, whether it be $0 or $50. This event was widely covered by the media, and proved to be quite profitable for the band. However, some argue that the success was brought by the media. Sarah Lewitinn, co-founder of Stolen Transmissions Records told the New York Times that "for one thing, only established acts with an extremely dedicated fan base could prosper that way. For another, the novelty would wear off quickly." Whether or not Radiohead started the trend, or was merely the most public example, many models of digital music distribution circumventing music labels are beginning to gain popularity. The most successful of these are CD Baby and TuneCore (at right), the latter of which was financed $7 million by Opus Capital on October 27, 2008. These companies distribute music through Amazon MP3, iTunes, Napster, Rhapsody, and more, with no need to be signed to any record label. Artists also retain ownership of the master recordings, and 100% of the royalties. While businesses like these do not help the major labels recover from their already faltering album sales, I think that they are ultimately good for the music industry, because it puts power in the hands of artists, and allows for young artists to grow.

CD Baby's business model works as a percentage cut of income received from the purchase of an artist's work. They keep 9%, and pay the artist 91% of the money made on digital downloads, they also will sell artist's physical CD on their site, of which they keep $4. This is a great way for small bands to have a national distribution for nothing more than the one-time $35 start-up fee. Part of the mission statement for CD Baby reads: "We only sell music that comes directly from the musicians. No distributors... In a regular record deal or distribution deal, musicians only make $1-$2 per album, if they ever get paid by their label. When selling through CD Baby, musicians make $6-$12 per album, and get paid weekly." TuneCore delivers a similar service with a slightly different method of setting up accounts. With TuneCore's setup, the artist pays a $19.98 annual fee per album for maintenance and storage, $0.99 per song, and $0.99 per online store, per album. Once these fees are paid, the artist receives 100% of the income received from purchases of their music, regardless of how popular they are. Cnet writer Matt Rosoff calculated in his blog, Digital Noise, that TuneCore will always be the better deal in the first year, because of the start up fees, but after that, an artist must sell around 370 downloads a year to do better with TuneCore than they would with CD Baby. For large acts, 370 downloads would be no problem at all, and a few established bands have already taken advantage of this, Nine Inch Nails probably being the most notable.

Around the same time as Radiohead ditched their label and tried alternative distribution channels, Nine Inch Nails front-man, Trent Reznor, announced that they too would be self-distributing their album Ghosts I-IV. Their sales system would include a 9-track free sampler, and a 36-track album for $5 available only on AmazonMP3 through TuneCore. In his blog Music Business and Trend-Mongering, Berklee Music professor Mike King does the math and shows that Trent Reznor only had to pay $56.61 to list his 36-track album on AmazonMP3. A TuneCore spokesman who commented on the blog verified this fact: "He did! He paid the same as everyone else, no special deals. I suspect Mr. Reznor can afford it. :)." After being listed, that album went on to make $1.6 million dollars in the first week. This is an extreme example, but makes the point that services like TuneCore and CD Baby have the ability to make an artist's income from record sales directly linked to their success, which is not always the case in the major label system.

Radiohead's system requires that the band be already established, and just making music available is not enough to make it popular or successful, no matter what the distribution channel. Major labels can promote musicians in unrivaled ways, and that is why artists still sign with them, and in doing so, forfeit most of the money made in their name. That's why do-it-yourself distribution is good for the artist. Although it is harder to gain attention as a new band, if any notoriety is reached, there is much more to be gained. More importantly, the success will be based on musical merit rather than marketing dollars. In his blog, Future of Music, Dave Kusek writes: "There is a lot of discussion these days about free music and the decline of the power and influence of the major record labels. However, I would argue that music has always been free in one form or another, throughout history and that the relationship between the artists and their fans - the artists and their patrons is what really matters." In my eyes, distribution companies like CD Baby and ToneCore do more than ever to directly, and globally, connect musicians and fans, and in doing so help pioneer the future of the music industry.

Fact and Opinion: Facets of the Music Industry

Recently, I have been scouring the Internet for interesting and reputable sites I may reference or study in order to write effectively about the modernization of the music industry. In this process, I came across commentary coming from magazine sources, college professors, people in the industry, artists, music organizations, and more. Whatever the source, however, they were presented in one of three ways, either as a blog, as news articles, or as a combination of both. For the sake of this post, I will define a blog as attempting to present some sort of opinion along with the facts, while a news article attempts to stay objective on the matter at hand. Considering the criteria offered from both the Webby Awards, and the IMSA about what constitutes a good post, I critiqued 20 different sources of music industry- related information online. The aspects taken into account were: content, structure, visual design, functionality, interactivity, and the overall experience. All of the sites have been added to my linkroll, but I will also critique each of them on Amateur Arbitration. Each has aspects of good and bad, and, for the most part, each of them attempts to serve a slightly unique purpose.

In the way of the blogs, Ad-Supported Music Central offers an interesting look at the direction that the industry is heading to. The content in this blog is usually timely, and well reported, however it is not posted frequently enough to make it a staple of music blogs. It is visually appealing, almost to the point of being gaudy. Coolfer (at right) is another blog that deals with very current issues, and does so in a quite concise and informed way. They also do a great job creating an interactivity with their many links. Visually simple, Coolfer is a professional and respectable blog. Not so professional, and possibly more interesting because of it, are blogs Hypebot and Idolator. Both of these blogs comment on very current issues in an irreverent, yet informative way. While Idolator is more visually pleasing, Hypebot is far more functional, serving to link to other related stories and comments. Wired Music comments on some very unique issues. Though it is not particularly interactive or structured in a unique way, Wired does a great job of finding interesting content. The blogs with the best content, however, are all part of the same ring. Future of Music, Music Business and Trend-Mongering, and Music Publishing and Songwriting, are all blogs written by faculty at Berklee College of Music. It appears to be part of their job description, as nearly every faculty member has their own blog. These three in particular are especially pertinent to this blog. The frequent posts prove to be cutting edge in content, and are as well informed, and written as could be expected from college professors in the field. While not visually stimulating, these blogs do a great job of providing links to each other, as well as defining their purpose.

Music industry news sites run the gamut of the criteria as well. Sites like The Daily Chord, Music Industry News Network, and Digital Music News deliver great stories from all aspects of the music industry, as well as networking, or personal ads. Digital Music News even has a login, and a job posting board. However all three of these sites are lacking in structure and visual design. They feel like they are simply a page filled with links and nothing more. This does not make the reader want to explore. On the opposite end of the spectrum are sites like RIAA and Billboard.biz. Their designs are very streamlined, professional, and interesting. They give dependable stories, however they are very geared towards the mainstream, and tend to be a beat behind on the latest issues. Music Radar is a very well rounded news site regarding the latest in music equipment. It is aesthetically pleasing, as well as easy to navigate although a bit crowded. Although Music Radar is a very well-done site, it's niche is too small to compete with sites like Pitchfork (at left), Pollstar, and Last.fm. Pollstar is geared towards the live music aspect of the industry, and Last.fm is geared heavily towards the interactive music community, while Pitchfork chronicles the recording aspect of the industry. Based on their quality content, functionality, visual design and great structure, these sites offer a great overall experience, which is why they are each the leader in their niche.

A few sites offer both opinion and fact, for instance Drowned in Sound mixes industry news with music commentary in a visually appealing way. What Drowned in Sound lacks is an aspect of interaction with the reader. Stereogum also combines the blog aspect with the news aspect, and is structured remarkably well, with different sections of the site easily accessible. The site promotes interaction by giving away and streaming mp3s, but the site lacks relevant or particularly engaging news content. The last site that attempts to do both is Music News Net. It provides news, and reviews, though the news seems more to be a sort of celebrity gossip. It's simple and easy to navigate, though Music News Net, like all the sites that try to combine the fact and opinion don't seem to have a clearly defined function or purpose.

It's important to analyze as many sites as possible, as they are a testament to the music industry. All of the 20 sites in the linkroll help to show me what aspects of the industry people find appealing, as well as gave me a window into the status of the industry and it's issues as a whole.

Digital Rights Management: Wal-Mart's Double-Edged Sword

The best workable model for legal digital downloads has been under debate since the fall of Napster and the rise of the iTunes music store. The solution, for many digital download companies, has been some sort of "digital rights management." DRM is a feature embedded within downloaded music files that control how that file may be used. It could control, for instance, how many times a song may be burned to CD, or if it may be burned at all. The exact DRM regulations vary from digital download provider, and the deals they have with the labels providing the recordings.

Wal-Mart Music sent out an email on Sept. 26th to all its digital download service members. It informed them that beginning October 9th, they would no longer be offering DRM support. The Wal-Mart Music Store (seen at the right) began selling DRM-free only downloads starting in February of 2008. This means that any song that was purchased before February 2008 would no have the DRM system to support it, and so would no longer work at all. Their advice was to back up those songs on a CD, to be ripped back off onto your hard-drive and in doing so, losing the DRM limitations.

It is impressive that Wal-Mart would offer nothing but DRM-free downloads at the same price as they offered before. That said, it seems unfair, irresponsible, unethical and even greedy that those songs which were legally purchased would simply cease to work, since many people will be forced to re-buy the same songs they will lose. The only option they offer is to burn CD's in their Wal-Mart default .wma format and rip them back in .mp3 format which means serious loss of quality in the reformatting. This, along with the sheer number of music files people have, makes Wal-Mart's proposed solution a fairly poor one.

If the top music retailer in the country is moving towards a DRM-free format, certainly the whole industry will move that way. This will prove beneficial to consumers and fans, as long as older downloaded songs do not become obsolete. In my research of Wal-Mart's issue, I offered my thoughts in the commentary of two different heavily discussed blogs. The first was on www.readwriteweb.com, the post was titled Wal-Mart Gives Consumers Number 1 Reason Why DRM is Not the Answer. The second was on www.boingboing.net titled Wal*Mart shutting down DRM server, nuking your music collection. The first criticizes the notion of DRM, specifically citing Wal-Mart's move as an example of " the music industry... struggling to gain a foot-hold in the battle with online piracy." The latter argues that by making the older songs obsolete, Wal-Mart is basically punishing those who acted legally, because those with illegal downloads have no such issues with DRM. As well as posting my comments on these blogs, I have posted them below.



Wal-Mart Gives Consumers Number 1 Reason Why DRM is Not the Answer
Post:
I certainly appreciate your laments on the downfalls of DRM protected songs. They cause frustration and inconvience invariably. However, I do think that it is important as well to consider and remember why DRM was put into place to begin with. Not only from a business point of view, but from a historical point of view as well. Granted, it was not too long ago, but the music industry has been forced to change quite a bit over the past 10 years. At the time when iTunes was just unleashing the iTunes Store, Napster had just been shutdown, peer to peer was king of digital downloads, and the record labels were terrified of the idea of any sort of downloading of music. They tried to protect their intellectual property in any way possible, even creating CDs that couldn't be recognized by a computer at all, and part of this protection was the use of DRM in audio files. While it is certainly a hassle to deal with, it was necessary to have for the record labels to get the piece of mind they needed to allow iTunes and all subsequent legal download businesses to get started. Now, the distributors of digital downloads are slowly moving towards rescinding DRM restrictions, and I think you are entirely correct in saying that Wal-Mart has done a poor job of making that move. Whether through oversight or lack of caring, they have not considered the consumer at all. ITunes also is already offering some of their songs in a DRM-free format, and for previously downloaded songs, they offer a 30-cent upgrade. Even without the upgrade, the songs will not become obsolete. Wal-Mart should certainly offer a similiar protection program for those who will otherwise be left with inoperative audio files.



Wal*Mart shutting down DRM server, nuking your music collection.
Post:
Thank you for bringing up the relatively recent moral dilemma that DRM and digital downloads present. The way that Wal-Mart has dealt with moving away from DRM songs is just one more reason to shy away from legal digital downloads. You now can't even be sure that if you do purchase something legally, it will continue to play for years to come. While you don't have to have the hassle of DRM downloading through peer to peer networks, you do have to worry about being sued by the RIAA, and the potential heavy conscience from stealing intellectual property. According to slyck.com, you have a higher chance of being killed in day-to-day living than you do of being sued by the RIAA (http://www.slyck.com/news.php?story=769), but that doesn't mean it can't happen to you. Jammie Thomas is a single mother from Minnesota who was the first person to let an RIAA suit go to trial. She lost the case and had to pay $222,000. Copyright infringement is not cheap to mess with if you do get caught. This hasn't stopped the youth of today, and the disregard for musical intellectual property is changing the way that the industry works. A survey of British kids ages 14-24 revealed that "Around 90% of respondents now own an MP3 player. They contain an average of 1770 tracks - half of which have not been paid for." (http://www.futureofmusicbook.com/2008/06/18/survey-of-british-youth/) This is astounding. Along with new technology comes the slow adoption of it, and eventually the exploration and regulation of it's limitations. This is what happened with file sharing, and now with DRM. They are being pushed into the technological age.

SongVest: The Music Memorabilia That Pays

Online auctions have proven themselves to be one of the most effective and lucrative ways to make money on the internet. People have sold nearly everything on eBay in the past, so it is a wonder that song royalties have never made the list until now. A new company called SongVest has taken the online auction business model and merged it with the business of the distribution of royalties. Customers bid to own a share of certain songs that are offered, including songs performed by Bon Jovi, Aerosmith, Garth Brooks and more. The winning bid for each song receives a personalized plaque, an RIAA-certified gold or platinum album award, other commemorative items, as well as the royalties awarded on the song prorated to the percentage of the song they own. They get paid whenever the songwriter does. Songwriter Mark Hudson, who has several songs that will be auctioned on SongVest, said: "No one is buying records. This to me is just another angle." In my view, SongVest is an innovative and revitalizing attempt to glean new income streams in an industry that has seen declining profits of late. Although the system doesn't seem completely ideal for the writers to me, this is a good way for them to capitalize in the changing music industry.

Whenever a song is licensed, anywhere from a TV ad to the radio, or a copy of a song is purchased, a portion of the money is paid in royalties to the songwriter. This is not to be confused with the royalties paid to the artist (granted they are sometimes the same person). There are two different types of copyrights at work, one is regarding the recording itself, and other is regarding the song itself, as composed of a written tune and lyrics. For instance Lee Hazlewood wrote a song called, "These Boots Are Made for Walkin,'" which became popular as performed by Nancy Sinatra in 1966, and again in 2005 when it was recorded by Jessica Simpson. If either song is licensed (e.g. used in a TV ad) or purchased (e.g. buying the album), Lee Hazlewood would receive his share of the royalties based on the song copyright through the song publisher (as seen on the right), while the artist would receive her portion of royalties based on the recording copyright through her record label. It is Lee Hazlewood's portion of royalties that SongVest would be auctioning off to the highest paying Simpson or Sinatra fan. The song copyright still belongs in full to the songwriter and publisher, so buying a share of the royalties does not mean buying a vote in how the song may be used.

The auctions work in a way very similar to eBay. A seller can determine a minimum bid, the duration of the auction, and what percentage of their song royalties will be auctioned. Although the first official auction will take place from October 4th through October 18th, SongVest has found success in its smaller test auctions. The first one had a $25,000 buyer for 25% royalty shares of two songs by the 80's Christian-Metal band Stryper. The picture on the left shows GB Leighton fan Toni Reynolds standing with Leighton and her newly acquired 50% share of his platinum song. When a customer wins an auction, SongVest takes responsibility for collecting and distributing the royalties to the winning bidder, after garnering 25-40% off the top of the sale price. With such huge names already in their repertoire, SongVest is expecting as much as $250,000 dollars to be spent on some of the songs in their first auction.

Song royalties are purchased in bundles all of the time, but "They're bought and sold on a pure investment basis," says David Prohaska, co-founder. "What about people who really love the music?" SongVest markets their auctions as the ultimate purchase in memorabilia, not as an investment to make money. It connects the songwriters to the fans, and that is where the value comes from. This is crucial to the preservation of good songwriters in the music industry. While a performing artist can take a top hit and tour the country with it, making hundreds of thousands of dollars per concert, the songwriter doesn't have that ability or income source to fall back on. With the recent and worsening decline of album sales, SongVest, and any other creative services that will emerge if SongVest is successful, help the songwriter capitalize on, and be compensated for their work.

It must, however, be noted that the deal is not completely ideal for the songwriter. A cut of 25-40% can easily be seen as gouging the songwriter, who may be in need of cash (a Hollywood agent only takes a 10% cut). As an Idolator.com writer assessed: "strapped singers and broke bands will happily treat their art like eBay merchandise, provided it takes care of those child-support payments and student loans." In essence, he asserts that SongVest helps songwriting artists sell-out to "the man." This may be true, but the songwriters do not give up control of the intellectual property, only forfeit some of the royalties for a price over ten times what they would receive in a standard music publishing sale, where they would no longer control the song. For a business deal similar to consignment, 40% is a large piece of the pie, but on the other hand making 60% of $250,000 simply because a rich patron really liked the theme to The Monkees would be too good to pass up for many songwriters.