The Digital Lowdown

Interview with Voice of the Brand

Here's a recent phone interview that I did with Seth Adler from Voice of the Brand:

Listen to Interview

Hope you enjoy this.

No Transparency For You! (tube)

Do you know who is handling your music?  You sign up with a digital distributor like CD Baby.  .  Perhaps you are an artist that selected all the services and options (e.g., Youtube, streaming, etc.).  Hopefully, next thing you know, your content is everywhere.  All is good.  Right?  Not always.

A recent article at Techdirt highlights a growing problem in the digital distribution community:  Transparency.  The main issue with this story is the trend for digital distributors to outsource a key revenue stream, Youtube’s content matching system.  In this case, CD Baby utilized Rumblefish to manage their Youtube monetization process.  (This system is a fingerprinting technology that can automatically recognize when a video has a certain sound recording in it.  Then the administrator of this content – in this case, it was Rumblefish and not CD Baby - can decided to monetize the video by placing ads or issuing a takedown or do nothing.)  

I don’t blame companies for trying to maximize their revenue streams.  That is what artists and labels want from their distributors (physical or digital).  But the process has become layered and opaque.  It needs to be more transparent.

With Rumblefish, CD Baby fostered a typical channel conflict between Youtube and the original artist.  The artist received a notice that Rumblefish was claiming rights to the artist’s song and that there would be ads placed on the video.  Ordinarily, this would not necessarily be a bad thing.  After all, Youtube’s ad revenues are providing significant income for a lot of indie artists.

In this situation, however, the artist had no idea why Rumblefish was making the claim.  The band actually held the copyright to the song themselves and had signed on to do business with CD Baby, not Rumblefish.   The automatic email notification from Youtube did not even have an email contact for Rumblefish. 

The transparency issue gets even cloudier when the artist visited Rumblefish’s home page.  At first glance, it looks like all they do is sync placement for film/TV/ads.  Only the truly persistent and inquisitive artist would find the FAQ page and the proper email to voice their objections.    Unfortunately, a less than sympathetic employee responded to the artist and reasserted Rumblefish’s authority to monetize the artist’s video .  Clearly, CD Baby and RumbleFish had not anticipated this conflict.  Nor had they developed a plan on how to respectfully deal with the artist’s reasonable complaints.  

The problem in this scenario is not related to outsourcing or sub-distribution.  Every distributor uses third party resources to one degree or another.  There are always situations where it may be better, faster, and/or cheaper to subcontract versus doing it in-house.  The challenge for distributers is to allow transparency without giving up their primary responsibility of customer service.

Some distributors might want to hide the man behind the curtain. That can be fine if the distributor takes responsibility for any conflict resolution.  Unfortunately, secrecy usually wins and the client (the artist or label) is left wondering who to contact.  When a non-transparent situation arises, it is further compounded by the immense size of most distributors.  CD Baby handles 10,000's of artists and labels.   Youtube claims from this large a catalog can exceed 100,000’s per month.  It is no wonder that CD Baby decided to allow a third party to manage their Youtube account and deal with all of the disputed claims.  It was a simple calculation of resource allocation versus ROI.

As with most complaints about the digital marketplace, it all falls down to customer service.  The digital landscape is rife with channel.  This is the nature of the beast and cannot be fully avoided.   Outsourced customer service is another inherent flaw that seems to be the result of scalability and cost cutting.

The artist’s music is their single greatest asset.   When they choose a company to distribute it, they are placing an immense amount of trust in that company. Transparency is the only way to maintain the trust and confidence to permit distributors to maintain their client relationships.  In the case with CD Baby and Rumblefish, a little transparency would have gone a long way to avoid the anger and frustration that that Artist must have felt. 

 

 

 

 

 

 

Clouds, Streams, A La Carte: And The Winner Is…

About six years years ago, David Goldberg (then GM of Yahoo Music) made a pronouncement that a la carte downloads were dead.  Yahoo Music was the purveyor of a very ambitious music subscription service that has been gone for almost 4 years.   At the time (circa ~2006)  iTunes was advancing incredibly fast and proving itself to be the dominant online music retailer.   The term “cloud computing” was not a common phrase (note:  the first occurrence of “cloud computing” is arguably August 2006 by Eric Schmidt of Google).  Spotify was just a dream.  Rhapsody was going strong.  Napster had launched its legal subscription service to great hoopla but slow adoption. Though I seriously questioned David’s pronouncement back in 2006, I find myself re-examining it in light of all the “cloud” and subscription services now being offered.

As everyone knows, the general debate in the music business is “access vs. ownership.”  The major prediction is that users are not going to want to purchase music as long as they have unfettered and unrestricted access to it.  Such access can be in the form of the cloud that let’s you play your music from any connected device.  It can also be in the form of an “all you can eat” subscription service that hopefully has all the music that you want to hear.

First, what is “The Cloud.” This was formerly (and fondly) referred to as the celestial jukebox.  It refers to services that allow you to access all of your music from any device wherever you have Internet access (i.e., either thru wireless, wired or wi-fi).  Cloud services are offered by major music retailers such as Apple, Google, Amazon, etc.  They can also be offered by third party services such as the beleaguered MP3tunes.com.  In most cases, they will learn/upload your offline music catalog and then offer it back to you via an Internet connection. 

Aside from ubiquitous access to all of your music regardless of your device’s storage, a major advantage of the cloud approach is that most of these services include applying a uniform, upgrade in audio quality.  For example, if you ripped some tracks from a CD at a lower bit rate (to reduce the size of the file), most cloud services will match it to a higher quality version on their servers and play it back at the higher rate and better quality. 

Since a cloud service relies on having an offline music collection that you want to access anywhere or any time, it can be considered a derivative of the a la carte method of consumption.

Opposed to this are streaming and subscription services that try to get the largest catalog possible so that you can always find the music you want.  They need to strike deals with as many labels and distributors as possible in order to ensure that a listener always finds the music they want.  While most streaming services have done very well, there have been some very public gaps in coverage for freemium services such as Spotify.  It’s quite possible for an artist to be one service and not on another. 

I have to agree that both offer a tremendous value to the music consumer.  Personally, I enjoy checking out a new artist by visiting Rhapsody, Rdio or Spotify.  It is highly unlikely that any new artist will not be found on one of these services.  I can easily listen to entire albums or “best of” playlists while I am discovering new music (or, at least, new music to me).    Then, if I want to permanently add it to my collection, I can choose to buy it from these services or switch to dedicated a la carte service like iTunes, Amazon or eMusic.

On the other hand, as a music distributor, I often have a ton of unreleased music in my music collection.  With a cloud service, I can access all of this content (provided that it is not encoded as a wav or aiff file) when I am away from my computer.  This is incredibly useful for me.  It allows me to be completely spontaneous about my listening habits. 

So what is a music lover supposed to do?  The cloud or the stream. 

As I ponder this question, not only do I have the famous Clash song “Should I Stay...” stuck in my head, I wonder what the average music consumer does.  It is very easy on both coasts to forget about middle America where broadband is still nowhere close to 100%, where CDs are still being sold and where “subscription” or “clouds” are more associated with Sports Illustrated and weather reports.

Adding to my growing befuddlement are recent statistics showing that a la carte purchases are not dead.  Recently Digital Music News had a great chart culled from RIAA data. 

(source:  Digital Music News)

Adoption of subscription services are definitely rising albeit slowly.  A la carte sales continue to rise steadily even though subscription services could easily be presented as a much more bang for the buck.  As you might imply from this chart, streaming and subscription revenues have not caught up with the a la carte revenues.  Certainly, they have become a significant percentage of income for distributors such as BFM.  However, in comparison, a la carte revenues are still the predominant revenue stream by far.

One thing that I find troubling is that that even Internet juggernauts such as Sony, Yahoo and Microsoft have all had great difficulties launching and sustaining subscription services.  Microsoft’s Zune seems to be making progress lately.  But it may not be enough.

The greatest concern about streaming and subscription services is that may cannibalize download sales without replacing the lost income.  To date, several prominent labels and distributors (BFM included) have analyzed the data.  All of the analyses indicate that this is not happening.  Subscription and streaming services are proving to be additional income to the still-growing permanent download market.

Spotify has been the only one to have moved the meter, in my opinion.  And still, it’s not a terribly significant portion of the overall music revenue.  It is questionable if business models like Spotify can be sustainable in the long term.

A recent eMusic / AIM study conducted in the UK produced some intriguing stats.  87% of those surveyed still preferred the ownership model versus the streaming model.  The reason being that there is still great doubt about the stability of streaming services and music consumers are worried that their virtual music library could suddenly vanish if the streaming company goes out of business.

So, can subscription services beat a la carte downloads or, even, The Cloud?  Who will prevail?

To me, the answer is simple…No and no one.  Different strokes for different folks and some of the folks may use both.  To think that the bulk of consumers will substantially go one way or another is highly unlikely.  If you look around, there are plenty of examples of polarized opposites.  A few come immediately to mind:  car leasing vs owning, free vs. pay TV, VOD vs. movie theaters, monthly subscriptions vs. annual fees, etc.

The music business may be headed for a predominantly digital world.  But that does not obviate the need for a wide variety of consumer options that can exist concurrently.  In my personal world, I love the combination of a la carte, subscription and cloud services.  Together they fit a need that, individually, would leave gaping holes. 

 

Does Size Really Matter? Consolidation In The Digital Distribution Business

(Author’s Full Disclosure:  Steven Corn is co-founder and CEO of BFM Digital, a competitor of both IODA and The Orchard.)

Recently it was announced that IODA and The Orchard are merging and majority stake will be owned by Sony Music.  Universal Music still owns a large stake in InGrooves.  Kobalt just purchased AWAL.  What does all this activity mean for the indie artist?  After all, for most of them, their relationship with their digital distributor is beyond critical.  This appears to another example of the majors trying to do a land grab and the impact on the indie market could be significant.

 (Note:  I prefer the term “distributor” over “aggregator.  Not because the latter has some sort of menacing sound to it.  Rather, “distributor” is much more accurate to describe the functions of companies such as BFM Digital, IODA, and The Orchard.  Distributors are companies that get product placed into retail outlets and work with retailers to develop promotional programs and placements.  Aggregators are companies that buy up product.  You could say that BMG Rights is an aggregator but not a distributor.   So I always prefer the phrase “digital distributor”.)

Normally when large companies merge, there are definitely benefits that aid the bottom line. They will certainly have economies of scale and, no doubt, the combined company will result in redundant offices around the world.  And once they complete their integration process (a very complex procedure), they will not need two sets of delivery and royalty accounting systems. 

Sometimes, large corporate mergers can benefit its customers.  Usually there is a significant amount of spin generated by the joint PR departments that tries to make this point (especially in Europe where sensitivity to anti-trust violations is greater).  Usually the argument is that the new entity will likely have a larger market share.  That in turn creates greater buying power, lower costs that may be passed to consumers, etc.

In regards to the IODA/The Orchard merger, what is the benefit to their labels?  Personally, I don’t think there are many, if any.  Instead, this appears to be a corporate move that will benefit the new behemoth and it’s major label partner, Sony.    In fact, in many ways, it even be detrimental to many of the indie labels currently signed with IODA and The Orchard:

• Small Fish – Big Pond: BFM was formed to give indies special attention (and so was IODA for that matter).  In other words, we strived to create a “big fish/small pond” scenario.  Those days are long gone for IODA already. Under the new merged company, it will be nearly impossible to get the attention of your own distributor.  If you can’t get their attention, then how in the heck are they supposed to get your message across to the digital services?  This new merged company will be as ineffective at “telling your story” as Tunecore and CD Baby is.  But at least with those two companies, they don’t pretend to do so.
• No Longer Indie:  “I” in IODA stands for “independent.”  Not any more.  The Orchard, once boasting the largest catalog of independent music, is now under the auspices of a major label.  Any sense of “indie cred” or caring about the indie artist is essentially gone now that Sony Music is in control.
• No Additional Buying Power: IODA and The Orchard, separately, have very similar, if not identical, deal structures with the major digital outlets such as iTunes, AmazonMP3, etc.  The merged entity will not wind up getting better deal terms.  That is, they will not have greater buying power and can’t pass along that savings to its labels.
• Developing Promotions Will Be Much Harder:  Say that you are an indie label with a dozen albums and you want to create a discount or bundling program to pitch to the services like Amazon or iTunes.  This will require first convincing your distributor that it is worthwhile and hoping that they will do the selling to the services.  Now imagine your distributor has just doubled in size and has twice as many labels to listen to.  They can still only pitch so many discount programs to the services.  The odds of your program being successfully adopted by any of the major services has just plummeted. 
• More Do-It-Yourself Attitude:  The Orchard is well known for its dashboard featuring a lot of plug-in DIY services.  IODA also has its version of such a dashboard and affiliated services.  Together, they will have no choice but to continue down this DIY path and become less and less interactive with their customer labels.  It won’t be economically feasible to offer any real advice or customer service about a widget program or a one-sheet program.  Figure it out on your own.  That will be the likely customer service message.

This merger looks to me like a means for a major record company to capture a portion of the recorded music market that they have been unable to monetize and control.   Now, Sony will generate profits from sales of its own copyrights, distributed labels and 10,000’s indie artists.  More importantly, since they will have a majority stake in the new merged company, what’s good for the goose (Sony) is going to have to be good for the gander (Indies).

I guess I shouldn’t complain. These kinds of mergers leave the truly independent digital distribution companies like ours more and more attractive to a growing pool of labels and artists.  After all, based on the lack of clear benefits for artists and labels with these types of mergers, where else are they going to receive personalized digital distribution and marketing services?

P.S. – Moments before publishing this blog entry, layoffs were announced at The Orchard/IODA:  “Today [The Orchard has] made some personnel adjustments to ensure that the Orchard is efficiently structured to serve the needs of our expanded client base and won't have any negative impact to our clients.”  I have to wonder how a smaller staff and a larger clientele equates to better client service.

 

 

Pride of Discovery vs. Pride of Ownership

I am not sure why I felt inclined to rediscover one of my favorite bands, Styx.  Of course "Come Sail Away" is a perennial favorite of classic rock stations.  But I can't recall the last time that I intentionally listened to one of their albums.  Last night, I listen to "Grand Illusion" from start to end and loved every minute.  For those of you a bit younger than me, Styx was one of the most successful progressive rock bands of the late 70's and early 80's.  They had four, triple platinum albums in a row!!  Although I am sure that there are some other superstar artists that have had this accomplishment.  I am quite confident that it is a very elite club.     

Aside from the excellent music (all done without the aid of computers, sequencers or autotune!), I was reminded of when I purchased this album.  As with most of my other record buys, it was stimulated either by radio play or friend recommendations.  Occasionally, a record store clerk would suggest a new artist or release.  But, generally speaking, I already knew what I wanted when I entered the record store. 

As we all know, the overall music business has shrunk drastically.  Digital downloads have not replaced the decline of CD sales and subscription services have failed to be the savior everyone has predicted they would be.  Online radio and music discovery services like Spotify, Pandora, etc are ubiquitous now.  But their revenue streams are still not able to sustain the music industry.   I know that many music pundits, much smarter than me, have written volumes explaining the lack of music sales.  After listening to Styx and remembering my old buying habits, it suddenly became clearer to me what happened.

The one thing that has not changed since my youth is the "pride of discovery".  To discover a new band or some new music was as much a marker of coolness as it is today.  Back then, we shared our musical discoveries with cassette tapes or listening parties or just one-on-one.  Today, we share our discoveries with playlists, blogs, and other cool tools like the new "soundtrack your life".  Helping expose your friends (and, now, friends of friends of friends) to great music is real sense of accomplishment.  I'm not sure exactly why.  But it always feels great to know that someone else is enjoying music you helped them to discover. 

The biggest difference between then and now is not the "pride of discovery".  It's the "pride of ownership".  Back then, in order to share any music, you had to own it.  That is, you had to go down to the store and actually buy a physical product.  You could make a copy of a cassette loaned to you.  But after a few generations, these copies would be unlistenable.  So eventually, you bought the album.  It was only after making such a purchase that you could then fully enjoy the music as well as showing your friends how cool you are.

Today, there is no requirement to buy anything in order to show how wonderful your musical tastes are.  You can blog about new albums (as some of my staff do).  You can create and share playlists.  You can share Pandora stations.  You can send links to full length streams in Soundcloud.  You can repost music videos from Youtube.  The methods are many and practically endless.

The one common theme here is that none of these techniques require any purchases.  In other words, there is no longer any need for a "pride of ownership."  I think that the desire to find and share great music is no less than it was 30 years ago.  The only thing that has changed is that the requirement to buy music before you expose others to it has disappeared.  The entire music industry has been struggling for the past fifteen years to figure out how recapture the pride of ownership.  So far, it has not succeeded.  

I'd like to challenge my readership to share your buying habits and, possibly, that of your kids:

1)  What was the last album that you bought?

2)  What format was it (e.g., CD, digital, 8-track, etc.)?

3)  When did you buy it?

4)  Why did you buy it?

Please post your answers in the comments section and let's see what develops.

 

Is the Cloud Good or Bad?

Two days ago my mother texted me (yes, texting is not reserved for just kids).  She just read a New York Times article about iTunes' new cloud service. Her question was whether the cloud would hurt my business.  I have received this question from many other people including my business partner, employees, and label partners. There has been an amazing amount of chatter on the various blogs and user groups.  In fact, I don't recall another subject in the past couple of years that has stimulated so much discussion.  I dont want to argue the merits of any of their business models (e.g., iTunes' music match). That is too much speculation.  But after a week of reading all of the entries that I can, I feel it is time for me to cast my opinion on the general impact of these new services into the blogosphere.

First, let me share a very nice summary of the big three cloud services from Appolocious:  Click Here

So, now my answer to the Ultimate Question (and it is not going to be "42") of whether the cloud is good or bad for us?

Probably not.

This may sound like an obfuscation.  But it's a serious answer.  I really don't think that any of the cloud services will make much of a difference to the income of most labels.  All of the cloud services are not much more than a glorified hosting service for music that you either already have or purchase from the respective service. They are not going to replace any of the existing subscription or music recommendation services because cloud services don't supply a comparable product.

It is plausible that the cloud services may stimulate purchases of a la carte music because each of the services makes it so easy to put those purchases in your respective cloud accounts.  But their effect will be hard to predict.

It's quite possible that the big winner might be the music publishers. That is so because their share of the cloud revenue is higher than their share of downloads (12% vs. 9%).

In the end, I think that most of the talk aboutnthe cloud is hype.  It will likely be a cool way of accessing your music and seems to be a nice step in the direction of music industry's Holy Grail of a celestial jukebox.  But, I'm sorry to come to the following nebulous conclusion that I really don't think that the cloud services will greatly change the buying habits of the typical music user one way or the other. It makes for fun reading, though.

VOTE FOR BFM DIGITAL IN NARIP'S BEST OF THE BIZ 2011

THE VOTING FOR NARIP'S BEST IN THE BIZ 2011 IS ENDING TODAY!

Please support BFM Digital and cast your vote.  Steven Corn is nominated for Best Digital Music Executive.  It will only take a minute and Steve promises to buy everyone a pony who votes for him (subject to availability and state laws, of course).

To vote, VOTE HERE

Thanks for your support of BFM Digital!

Who Moved My Cheese?

I've been talking with a lot of professional musicians and artists lately.  A common theme is the increased difficulties in making a living thru one's music.  We live in a time of economic stress, disruptive technology and changing valuations of music.  It combines to make today one of the most challenging times during for artists of all levels.

Most people don't realize that It really wasn't until the time of Beethoven that the idea of an independent, musician took hold.  Before that, most composers and musicians were "on staff" by royalty, aristocrats, or other patrons.  In essence, they had a steady day gig.  

Today, it's unreasonable to expect to make a living merely by selling music.  The game has changed.  This is both a good and a bad thing.  Even though it appears that music as a product is becoming devalued, there are many other ways to generate income.  

Digital Music News ran a great article on the many ways to make money with your music:  32 Ways Artists Can Make Money

So what does this have to do with cheese?  Well, one of the best selling business books of all time is "Who Moved My Cheese?"  It's all about the necessity of adapting to changes in revenue sources.  It's a must read for every musician, artist, and label owner. It's a thin book that you can easily read in one session.  

 Who Moved My Cheese?

So, if someone has moved your cheese, get up and move with it.  The alternative is that you will go hungry.

Interview for Times in Malta

Just gave an interview about the lack of a legal download store in Malta.  It was arranged by my good friend, Martin Pursey.  As usual, I think that my most cogent thoughts were left out.  But it's still a good read especially if you like Malta (and who doesn't).

Times Of Malta

2 For 1 Passes to the New Music Seminar

As you probably heard, BFM Digital is co-sponsor of the New Music Seminar here in LA from February 14-16.  (see below link to NMS).  We have some good news / bad news for you...

The bad news is that we already gave out the 20 free passes we had for NMS. 

The good news is that we can offer everyone 2-for-1 passes.  Just click on the link below, go the registration page, select the partner discount and use this secret code:  NMSLASE2322 .
 

For more information on the New Music Seminar, click here

See you there.