The Independent On Music eTailing Economics

Record labels still on top despite online revolution, with commentary by Mark Mulligan of Jupiter Research

But figures from the US show that Apple Computer, the dominant legal download business in Europe and the US, retains just 4 cents from each 99-cent (55p) track sale while “mechanical copyright” holders – generally the record labels, who own copyright in the song’s recording – take 62 cents or more. Music publishers take the rest – about 8 cents.

With the sites, the copyright owners have doubled their share of royalties, even though the marginal cost of manufacturing has fallen to almost zero.

The revelation will embarrass industry executives, who meet this week in Manchester for their annual In The City music conference.

Mulligan’s take is a little different:

The split discussed in the story actually misses out a few key costs such as payments etc and is also a bit too heavily skewed towards labels. But it is in the right ball park and the principle remains the same: label costs are a massive slice of digital music prices. The article claims it will send many stores out of business. At Jupiter we take a slightly different tact: that stores with alternative revenue streams are the ones who will survive, using digital music as a loss leader.

Two Postings from Digital Music News’ Blog

Some musings on music business models:

  • The Convergence Of Music And Fashion Due To Technology

    Again it is technology, this time the internet, that will drive an even deeper convergence between music and fashion. If websites such as CD Baby for independent music and iTunes for the major labels and established artists become the new music stores, why can’t cutting edge fashion labels whose websites also reach a worldwide audience, and whose customers crave new music, as well as new fashion, produce and create their own music and sell directly to their customers? Well this has already happened!

    Diesel, the Italian based retail clothing chain and fashion label, is a brand that is a fashion brand actively engaging in the music business in an original and significant manner. Diesel has launched its own a music label, Diesel-U-Music.

  • Can You Make it Without a Label Deal?: The Gospel Truth

    The choices perhaps are easy for the gospel industry – radio is small, church is big, and booking agents are well paid. Hence, the singers have a network to accomodate live performances and sales at the back of the concert hall as the prime way to promote and survive in a professional career. Who needs Universal and Clear Channel?

    The upshot of this discussion? Provided that SOMEBODY performs the intermediary roles of promotion and distribution, an artist can survive very well without a major label. Of course, it is the responsibility of the interested community of artists, fans, and potential entrepeneurs to put the structure together. Jam bands have learned and taught some lessons. But a wider strata of intermediaries still must emerge.

Missed This Break In The Ranks

Conservative group savages anti-P2P bill

The American Conservative Union (ACU), which holds influential Republican activists and former senators on its board of directors, is running newspaper and magazine advertisements that take a humorous jab at the so-called Induce Act–and slams some conservative politicians for supporting it.

“This is the Hollywood liberals trying to crush innovation,” said ACU deputy director Stacie Rumenap. “What’s sad is that they’ve got Republicans on their side.” A Senate committee vote on the bill is scheduled for Thursday.

Ernest, of course, has been tracking this very closely; and there’s this today from The Register: Induce Act tweaks fail to stem concern

US Copyright Imperialism?

A question of copyright [via EFF MiniLinks]

It’s fairly obvious from my photo, but I don’t shave. And while I have no intention of reaching for the razor, I was astonished that the Afghan government has felt it appropriate to pass a law prohibiting shaving, and to punish blade-using with severe penalties.

I feel equally aghast at the actions of the US Senate in deciding to ban the creation of technology which ‘induces’ piracy.

To induce (says the creator of the Act) means to intentionally induce someone else to break the copyright laws: “Intent may be shown by acts from which a reasonable person would find intent to induce infringement based upon all relevant information about such acts then reasonably available to the actor, including whether the activity relies on infringement for its commercial viability.”

[…] The thing is, of course, I don’t live in America or Afghanistan. Laws passed in the Afghan theocracy concern me as someone who takes an interest in international affairs, and laws passed in America concern me equally.

But in the normal course of my life, I don’t have to worry about whether I’m transgressing some California statute, nor do I fret about whether trimming my beard short might be regarded as shaving by ‘a reasonable person’ as defined in Afghan law.

Asking the Ugly Questions About Patents:

A review of Lerner and Jaffe’s Innovation and Its Discontents: How Our Broken Patent System is Endangering Innovation and Progress, and What To Do About It:Does the Patent System Need an Overhaul?

“Our idea is that three things will potentially make a big difference,” Mr. Lerner said. “First of all, this idea which may well have made sense in 19th century of a patent examiner being able to sit and in few hours figure out what a relevant technology is, and then go out and make a decision as to whether a patent should be granted or not, that really doesn’t make sense in an era like today.

“Second, to see the patent review process as ‘one size fits all’ is again a mistake. There has to be way to figure out how to devote more resources to those patent applications which are really the important ones, and less to the unimportant ones.”

The two professors say one solution is to get more information into the hands of patent examiners.

“Our recommendation is that we create very real incentives to third parties to contribute information to the patent-examining process,” Mr. Lerner said. “There should be one level of review before and after the patent is issued, but within the patent office.”

The authors’ third remedy is to reverse the trend toward jury trials for patent lawsuits.

“Over the last 30 to 40 years, there has been real replacing of judges by juries,” Mr. Lerner said. “Patent disputes by and large tend to be highly technical disputes, and in many cases a lay person without much training in the area is hardly an expert.”

Slashdot: More Calls for Patent Reform

The Push for Music Subscriptions Is On

A look at the different business model/fee structure underlying the current subscription model, and the stake that this part of the industry has in Microsoft’s Janus technology: Music Sites Ask, ‘Why Buy If You Can Rent?’ (see also the BBC’s Virgin seeks slice of net music and CNet’s Virgin launches online music service)

Jupiter Research estimates that 2.1 million people pay for music subscription services, including the cheaper Internet radio services. By contrast, 8.5 million people have paid to download a music file. (All of that is still dwarfed by the 23.4 million people who said they downloaded files free from sharing services like Kazaa in the month of July, according to a survey by the NPD Group.)

That track record does not scare Zack Zalon, the president of Virgin Digital. “Two or three years out, subscriptions will overtake à la carte because it is a much more interesting proposition,” Mr. Zalon said. “It has just been difficult to articulate to consumers what it is.”

[…] Mr. Cue said that Apple might consider a subscription service in the future, but it has no plans to do so now. “Customers are speaking loudly with their wallets.”

Though that may be true, it is far more profitable for online companies to offer subscription services. Typically, an online store pays 65 or 70 cents to the record companies for each 99-cent track sold. But with subscription services, the online services split the fees 50-50 with the record labels after deducting certain expenses.

That fee-splitting cost structure is leading to what may turn into a price war among music subscription services, which generally cost just under $10 a month. AOL offers a subscription service to its members for $8.95 a month. Now Virgin is $1 cheaper than that.

[…] New technology from Microsoft, which is being adopted by most major electronics makers like Samsung, Rio and iRiver (though not by Apple) will allow devices to play songs downloaded in a special format from subscription services.

The songs will be programmed to expire on a set date, but that date is automatically extended when users connect their players back to the music software on their computers. If the user does not continue paying the monthly subscription bill, the songs will not play.

Plus, there’s these prognostications, and a bit of the music industry’s dream of endless format changes as revenue:

Others in the industry point out that surveys a decade ago said that cable subscribers preferred pay-per-view movies to subscription channels like HBO, but the channels turned out to be far more popular.

Moreover, Richard Wolpert, the chief strategy officer of RealNetworks, which offers the Rhapsody subscription service, says the idea that people buy music once and own it forever has not held true over the last few decades.

“I bought the Eagles ‘Hotel California’ on vinyl,” he said. “Then I bought it on 8-Track, really, then on a CD, and now I’ve bought it as a download.”

“What I really wanted,” Mr. Wolpert added, “was to be able to listen to the album wherever I wanted, whenever I wanted.”

Author Artifacts and Publication Rights

Hemingway Bullfight Tale From 1924 Turns Up

The documents fall into a quirk of copyright law. While the text may not be published without the permission of the Hemingway estate, the letter and typescript may be sold as artifacts, according to Patrick McGrath, a books and manuscripts specialist at Christie’s in New York.

Mr. McGrath said the auction house had authenticated the letter as written in Hemingway’s hand. The five-page carbon copy of the story has also been authenticated, he added, because of its provenance and because the words “The End” were in Hemingway’s handwriting.

It is not clear why permission to publish the documents was withheld. According to Mr. Stewart, the Ernest Hemingway Foundation granted him permission to publish the story and the letter in return for $500. The foundation, representing scholars and enthusiasts, is a legal entity endowed with some rights over unpublished Hemingway material, said Prof. Gerald Kennedy, its vice president and an English professor at Louisiana State University in Baton Rouge.

But under an agreement reached in 1983 after the death of the author’s widow, Mary Hemingway, joint permission from the foundation and the estate is required for the use of any previously unpublished material.