Author’s note

Even though I finished writing this just a few weeks ago [late 2011], there have been two major disruptions to an already chaotic landscape that have substantially coloured what seemed like a fairly solid analysis at the time. First, Coldplay released its latest album but refused to allow its release on the Spotify service. Second, Google Music finally launched its on-demand service.

The first of these — Coldplay’s refusal to be “Spotified” — provides a substantial underline to the grumblings of artists about the dismal returns paid by the service. Spotify, at least in terms of hype, has been the latest hope for musicians and audiences alike in the efforts to reverse the fading fortunes of the recorded music business. Coldplay is the first major contemporary artist to actually (and loudly) refuse to participate on the grounds of poor returns. More have followed suit in recent weeks, with ST Holdings Distribution withdrawing licenses to Spotify and a number of other such services for the more than 230 labels it represents. Despite Spotify’s recent alliance with Facebook, the “Coldplay moment” more than likely announces the beginning of the end for Spotify and others like it.

The Google Music development is even more significant. Despite launching without a deal in place with Universal (though they have deals with the other three majors), Google’s business plan includes direct dealings with independent artists, a move that iTunes, Amazon, and the other large digital retailers have so far refused to make. iTunes’ refusal to deal with independents has opened the way for a major new intermediary sector in the digital landscape: the aggregator (more on all of this below). Whether or not iTunes begin allowing individual musicians to bypass aggregators will of course depend heavily on how successful Google is at selling music. This in turn will depend on how well their “first 20,000 tracks free” model goes.

All this so far has been about framing the data I present below. And the message is this: digital disruptions to the music business will continue apace, probably for another decade or more. There is no clear end to the so-called “digital revolution” and not one sector seems happy about developments, except perhaps for aggregators who are the ultimate in digital intermediaries. I offer this piece as a temporary snapshot in the hope that it might help interested parties to navigate their way through what seems like a morass of non-opportunity.

Background

The speed at which digital value chains are appearing, transforming, and collapsing makes any summary of the landscape necessarily incomplete and temporary. Also, one’s perspective and situatedness at the outset frames the material in such a way that differently situated persons might not easily comprehend. Music listeners might see the digital landscape as a welcome cornucopia of music that was unimaginable a decade ago. Even listeners educated in many aspects of music production and musicianship relish the emergence of Spotify and other such streaming services. But musicians find these services to be of little value. Perspectives are necessarily different from the major label side of the equation, with almost any solution to declining revenues being welcome. Collection and publishing perspectives are also different, with licensing fees on the rise. With these diversities of view in mind, I situate myself in the study as an independent, self-publishing musician-turned-scholar who is heavily involved with the local independent music scene. The following summary should be read with that context in mind.

Hyperbolic terms such as “explosion”, “cataclysm”, and “revolution” frame most of the public discourse on digital music. These are unhelpful in understanding what has been a three-decades-long transformation in commercial music value chains. The transformation began in the realm of music production during the early 1980s with the advent of relatively cheap digital technologies: MIDI, sampling, and sequencing. By the late 1980s, radically cheapened multitrack tape machines gave rise to a powerful “prosumer” recording sector, allowing broadcast quality material to be made for historically low levels of investment. These changes in production technologies permitted a flood of entrants into commercial music production, drastically lowering the price of music in realms such as advertising and soundtrack work, but also in live performance, record production and pre-production, and in the large recording studio sector.

It was not until the late 1990s that digital media presented as a business problem large enough to be noticed by major music corporations. With the advent of broadband and the concurrent invention of new data compression methods (mpeg standards such as MP3 etc) it suddenly became possible for consumers to share music tracks globally. This sparked a raft of copyright assaults launched by large and internationally connected copyright holders, most often against universities in the first instance (they had the age group and technology mix that made high volume file transfer most likely and possible), later against platforms such as Napster, later still against individuals and internet service providers.

It is therefore important to read the following summary in a way best captured by a distinction that Veblen (1923)1 made: industry versus business, with industry being “the making and doing of useful things” and business being the “buying and selling” of those things to make money. What follows is an outline of digital “business” and does not take into account the many changes in industry that have happened with the continued advance of music production technologies. These production technologies bear heavily on the number, availability, and proliferation of recorded music. However I am deliberately not touching on these aspects, though they bear close analysis in the current context and should not be overlooked: without them, there would be no crisis in business. But for the purposes of what is required here they are assumed to be important influences.

Resnikoff (2010)2 notes “a 7.2 percent decline in revenues for recording in 2009”, also noting that “radio advertising, portable player sales, and even musical instrument sales — also suffered significant declines”, with radio advertising and recordings being “the biggest drags”. The overall drop in 2009 was 8 per cent for total receipts of $140 billion. However, he notes that the “worldwide concert sector gained 4 percent to $19.8 billion” and, according to a survey of Rights collection agencies, “copyrights edged slightly upward to $9.6 billion, and performance rights also ticked northward to $1.6 billion”.

The peak year for recorded music sales was 1999, with global revenues topping $40 billion. IFPI reports that in 2010, “revenues to record companies fell by 7.2% to US$17 billion, with the world’s two biggest markets, the US and Japan, making up 80% of the decline”3 Year on year since 1999 there has been a steady decline of between 5-9% in total revenues for recorded music to produce an overall greater than 50% fall since the peak year. In 2008, total retail revenues were “$29.922 billion in 2007, a 5.6 percent drop from 2006”. Over previous years there was “a 19.1 percent drop from a 2002 figure of $36.995 billion” and a ten year view “shows a deeper, 22.1 percent decline from a 1997 tally of $38.414 billion” (Resnikoff, 2008)4

Digital Growth

Growth in the recorded music business is confined to the digital sector. It is worth summarising the IFPI figures for 2010 (IFPI, 2011). Digital is currently valued at $4.6 billion globally. It is growing by 6% per year (roughly the percentage by which overall revenues are falling). This represents a 1000% increase in the value of the digital market since 2004. IFPI records 13 million licensed tracks and 400 licensed digital services, with digital revenues representing 29% of global record company receipts. This coincides with a 77% decline in the average debut album unit sales worldwide, a 17% fall in the number of people employed as musicians, dramatic drops in the number of charting local releases, and a 12% drop in revenues for the top 50 touring acts during 2010 (IFPI, 2011).

Overall, the effect of digital music business seems to be: declining overall revenues, smaller numbers sold at the top end of the market, an historically unprecedented minority of overall available tracks being licensed by record companies (13 million out of a total 97 million), a displacement of revenues from record companies to publishing companies, a massive proliferation of available tracks, drastically reduced per-track revenues, and a severe drop in sustainability of music careers.

Current “trade value” of the digital music market worldwide is US$4.6 bllion (IFPI, 2011).5 According to IFPI there are now 400+ licensed music services involving 13 million tracks. However, (apropos of Attali’s thesis on the stockpiling of time), there are 97,000,000 songs in Gracenote according to MusicHype CEO Kevin King.6

Detail of Digital Music Value Chains

There are multiple digital value chains, and the value chain for each sub-sector is not necessarily connected with any others. Online publishing offerings, for example, have little connection with online retail, apart from standard mechanical collection arrangements that operate in non-digital domains.

Beginning with raw “digital retail”, iTunes dominates the market with over 10 billion sales and 18 million songs in its catalogue. The iTunes business model has developed as being tightly tied to proprietary software and hardware standards. The iTunes software is a multi-platform standard that is tied directly to the online Apple digital store. The store also integrates with iPod and iPhone hardware platforms. By way of comment and comparison, the Apple store leads another enormous global market: “apps” for mobile phones and tablets such as the iPad. It is presently on the verge of selling its ten billionth app and it has done so in half the time it took to sell ten billion songs. Bjork has recently combined these two markets selling her latest album as an app. iTunes also sells movies, television shows, and books. It has become somewhat of a gold standard in online music retail. It has moved from dealing solely with aggregators to dealing with individual creators under the following conditions:

Content Requirements:

  • At least 20 albums in your catalogue
  • UPCs/EANs/JANs for all products you intend to distribute
  • ISRCs for all tracks you intend to distribute

Financial Requirements:

  • A US tax ID
  • A valid iTunes Store account, with a credit card on file
  • Apple does not pay partners until they meet payment requirements and earning thresholds in each territory. You should consider this before applying to work directly with Apple as you may receive payments faster by working with an Apple-approved aggregator. (Apple, 2011)

Apple’s iTunes business model is straight retail by commission: “Out of each 99 cent song, Apple currently pays artists and labels an estimated 65 to 70 cents per song, 9 cents of which they currently pass on to publishers”. 7.

The Ping social network add-on to the software seems to have been a failure in terms of engaging consumers. The “Genius” sidebar offers recommendations based on a taste algorithm. However, these features seem to bear little upon the success of the platform. iTunes established itself courtesy of a totally integrated, platform-independent software system that plays “scrobbles” (records tracks played and transmits the data), and organises music while also serving as a shopfront for the store. The software also integrates with iPod and iPhone portable media. Apple has been successful in negotiating contracts with major labels on national and international bases.

iTunes Facts of Significance

  • The service has made over ten billion sales at 2010 (Luttrell, 2010).8
  • It has over 18 million tunes in the catalogue (iTunes, 2011). Note: this conflicts with the IFPI (2011) figure of 13 million licensed tracks.
  • It accounts for 28% of all music sales in the US (Brandrick, 2010).9
  • iTunes’ 2011 deal with the Beatles is credited with “saving music sales” because it ‘drove overall digital music sales 16.8 percent higher even though CD sales fell nearly 9 percent’ (Sutherland, 2011). 10

The mass and market dominance of iTunes is unprecedented in music retail. A single retailer with what is ostensibly a single point of presence can now, through a single deal with a single artist (one that has not made a new recording since 1970), increase global music sales by almost 17 percent. The last point of significance also reveals something about the recorded music market: a back catalogue that enjoys the publicity benefits of the mass media age is a sector that will continue to be of greatest value to the major record and publishing businesses for the near future (succinctly: “the past is the future”). This will probably be the case until mortality trends bring a change to the record buying demographic. This fact has implications for investment in new and emerging artists, sustainability of careers for new artists, and the future shape of revenues for acts that are born digital.

Amazon MP3

Amazon MP3 has the next largest offering to iTunes with around 17 million tracks. It is though of a vastly different order of magnitude, with reportedly around 27 million tracks sold in the first half of 2008. It bought the enormous Amie Street catalogue in 2009. The service is tied to downloader software for albums, though individual tracks can be bought and downloaded with a standard web connection. Amie Street had direct connections with artists and was one of numerous online services that allowed artists and aggregators to upload and sell tracks globally. The sale went through without notice to artists and the deal between artists and Amazon is unclear. My attempt to clarify the artists’ end of the Amie Street sale resulted in an autoresponder message referring artists to their distributor or aggregator. An exhaustive number of further attempts to contact Amazon about the Amie Street sale were utterly fruitless.

Google Music

Google Music launched in 2011 as a hybrid subscription and retail service, though it is too soon to tell what kind of an impact it will make. It will compete with iTunes and Amazon, though its advantage has yet to be made clear. There have been numerous other attempts to set up digital retail since the early 2000s, though these have remained largely inconsequential if not entirely failed experiments. Most have been web-based “shopping cart” efforts, transporting the retail shopping paradigm into the digital realm. They include Getmusic, CD WOW!, ABMP3, NuttyMP3, Payplay, Loudtrax, Starzik, and a seemingly infinite number of other equally unheard of online outlets. They follow in the footsteps of major online retail failures by the likes of Barnes & Noble, Coca Cola (mycokemusic), Kmart, Tower Records, and Sony among many others. By being the first to successfully set up a vertically integrated service – from sales to player – that worked across platforms, iTunes has cornered the retail market.

Aggregators (Digital Distribution Services)

By placing aggregators between themselves and creators, Apple, Amazon, and others have provided a substantial business opportunity. Aggregators have a range of business models that combine percentage- and fee-based arrangements.

“CD Baby”: The largest global platform for independent and self-publishing artists. Represents more than 260,000 artists. It has paid $157 million to artists and has three million tracks in the catalogue. Individual artists can participate. $35 set up fee, $20 UPC fee, 9% commission on all sales. Offers a wide range of digital distribution options that go from zero digital to everything including unpaid options. It currently lists 16 paid outlets (see screenshot, left).

IODA: two million tracks. Deals with aggregators only. Takes 15% of net revenues where net revenues are defined within specific business models. For example, in the case of Last FM, net revenues are defined as: all gross revenues less (i) credit card transaction fees; (ii) sales tax; (iii) mechanical license and performance licence fees; and (iv) ad agency commissions (but the allowance for such commissions will not exceed fifty-five percent (55%) of gross revenues).11

This definitional clause is interesting because it shows how many other business models are at work on artist revenues even at this very abstract level of aggregator and platform interaction. Equally informative is this following quote from an article in Wired announcing the “end” of music piracy:

“Most download retailers send about 70 percent of each sale to the record companies that own the music. Artists with 15 percent royalty deals get 15 percent of that 70 percent, or about 10.5 cents per dollar of sales. Those who write their own music and own their own music publishing companies—an increasingly common arrangement—get another 9.1 cents in “mechanical royalties”. Every download sends almost 20 cents straight to the band.”12

To be more accurate, and overlooking apparent confusions between mechanical and publishing royalties, the reporter would state that the money is going straight to the label and would eventually be passed on to the band.

Musicadium: Recently rebranded ValleyArm. Offers distribution, publishing, and marketing services on a fee-per-service plus annual fee basis. Deals with individuals and aggregators. Charges per track are: single to iTunes worldwide $1 with a $20 annual fee. Album to iTunes worldwide $29 with a $20 annual fee. Album to “100s of outlets worldwide” $169 with a AU$100 annual fee. Video single into worldwide distribution $199 with a $149 annual fee. Website states that “the annual fee covers the costs of maintaining and delivering content updates, producing sales and royalty reports, processing payments, partnering up with new stores and distributing royalties”.13 Note: Assuming that ValleyArm’s pricing is proportionate, this indicates that the cost of administering business exceeds the costs of the primary distribution service by an order of up to 20:1.

Tunecore: Fee based service. Single Track: $9.99 for ONE song. $9.99 per single maintenance and storage per year. Album: $0.99 per song. $0.99 per store per album. $19.98 per album maintenance and storage. Artist keeps 100% of royalties. UPC and ISRC registration are free.

Reverbnation: A hybrid Web 3.0 service. Is a distributor and platform. Provides marketing, promotion, publishing, merchandising, and live event services for members. Includes bespoke merchandising manufacture. Free services plus premium. Online distribution is $34.95 setup including ISRC and UPC registration. 100% royalties to artists.

Subscription services

MP3.com launched in 2000 as the first subscription based music service.14 When it launched it held 424,000 titles from 67,000 artists. It is currently the property of CBS Radio which also owns Last.fm, Yahoo Music, AOL radio, and Radio.com. As with many other streaming services, the Radio.com properties (apart from Last.fm) are unavailable in Australia (see below).

Low Payments to Artists

Spotify is a much-touted model for the future. However, like many web based businesses, it is currently running huge losses: “Since opening operations in 2007 and extending through 2010, financial losses at Spotify have topped $67.76 million, according to publicly-available financial documents spread over the multi-year period”. Quoting at length from a Digital Music News story: “Spotify lost a significant amount of cash in 2010 … revenues and subscribers boomed in the period, though after tax losses moved from £26.54 million ($41.5 million), compared to losses of £16.61 ($26 million) in 2009.”15

MOG’s Anu Kirk says that “[i]t sucks that right now artists are getting paid so little money … but there’s just a lot of music”. Spotify pays “$0.04-per-album payout rate, which shrinks to $0.004-per-play assuming ten tracks per album”. Kirk’s defence is that poor artist payments are just a fact and the “broader problem of artist poverty … goes far beyond subscription services”. He offers the following Soundscan figures by way of illustration (of CD sales):

  • Album releases in 2009: 98,000
  • Number exceeding sales of 5,000: 2,058 (2.1%)
  • Number exceeding 10,000: 1,215 (1.2%)
  • Number exceeding 1,000,000 (platinum): 22 (0.02%)

He also notes that poor payment is an established practice:

  • FM radio pays $0.00 (to the performer in the US).
  • Pandora (according to Kirk) pays $0.001 per play and is still ‘not profitable’.
  • Sirius XM Radio pays $0.002.

He summarises the problem thus: “we shouldn’t be arguing over fractions of a cent. The real discussion we should be having is how we get more people to listen to more music, and appreciate it more. That’s our real problem”16

Spotify’s audience is not large in global terms. It has “more than 250,000 paying users in the United States since it opened up shop in July, according to three people familiar with its data” and “well north of the 2 million paid subscriber number that Chief Executive Daniel Ek revealed last month”.17 Recently there has been another defence by the subscription services over poor artist payments: namely that the major labels have been paid “tens of millions” of dollars each year in advances by the services and that they are bound to trust the record companies will distribute these advances to artists.

Combining the subscriber base with recent financial data, we can begin to see how the model operates: Its total 2010 revenues stood at £63.17m [A$99.79m] — a huge leap from £11.32m [A$17.88m] in 2009. Its revenues from advertising saw a similarly sharp increase, going from £4.51m [A$7.12m] to £18.06m [A$28.53m] in the same period.

Its losses, however, are widening. In 2010, it lost £26.54m [A$41.93] — compared to a loss of £16.61m [A$26.24] the year before.18

Advertising and subscription fees form the revenue base. Advertising accounts for almost 30% of revenue while subscription fees of around $70 million or so are extracted from around 2 million subscribers (around $35 dollars per year or $3 per month).

Presently most subscription services are fighting battles on two fronts. Artists, distributors, and labels are complaining about the poor returns from the services, both in terms of price and information. Carr (2011) notes that Lady Gaga ‘was rumoured to have earned only $167 for more than 1 million plays of “Poker Face” on Spotify’.19 See payments from Spotify listed on a CD Baby artist accounts page, right. Figures on the right of the table are per unit and total distributions.

Subscriber Issues

On the other side of the equation, subscriber behaviour indicates that subscription pricing is extremely sensitive. Last.fm is also currently charging $3.00 per month. Competitive strategies involve removing listening time limits (Pandora recently increased its limit from 40 hours to 320 hours per month), charging premiums for ad-free subscriptions, offering music across multiple platforms, and the freemium model, which offers an introductory free period before charging the subscription rate.

Mog, Napster, and Rdio offer $5-a-month plans for Web- and device-streaming. For $10 a month these services additionally offer streaming and downloads to their free iOS apps. If you’re willing to commit for an entire year, Napster also offers annual plans. For $50 a year you can have Web- and device-streaming; with mobile access and downloads included, the price is $96 per year.20

Available catalogue and access to tracks varies with each model, with some subscription services also doubling as retailers: Each of the services has music libraries numbering in the millions of tracks. Rdio boasts more than seven million streaming tracks, Mog has approximately nine million, Rhapsody has more than 10 million tracks, and Napster’s catalog includes over 11 million tracks (the services constantly update their catalogs so raw numbers don’t mean a lot). Rhapsody and Mog display only tracks that you can stream. Napster also includes tracks and albums that can’t be streamed but that you can purchase. Rdio will occasionally display tracks and albums that you can’t stream or buy. (Breen, 2010)

Forde (2011) claims that Spotify’s 2 million subscribers makes it the world’s largest, followed by the recently merged Napster and Rhapsody services with 1.5 million. Given that Spotify lost over $40 million last year, indications are that the service needs a further million subscribers to break even (assuming that the service scales with minimal marginal costs per subscriber, though that is far from clear). Despite rumours to the contrary, Spotify claims to have no current plans to launch in Australia.21

Facebook Music

Consistent with a “Music 3.0” strategy (Graham, Brown, Knowles, forthcoming), Facebook recently announced a partnership with “MOG, Spotify, Rdio, Rhapsody” and many others to deliver its Facebook Music service.22 In essence, Facebook are setting themselves up as an aggregator of existing music services, adding to their attractiveness to an advertiser market already rumoured to be worth $2 Billion per year.23 There is no definitive deal in the public domain, but already there are tensions showing in the model. As Robertson (in Orlowski, 2011) points out, “Zuckerberg got Spotify and MOG to bend, and then made Facebook’s authentication system the only option for new users”.24 Forcing Spotify users to authenticate through a Facebook account has caused concern in some areas (Olson, 2011; Orlowski, 2011), indicating that the user groups may be substantially exclusive groups. Also, given Spotify’s current financial status, the wisdom of introducing yet another sharetaker into their business model is not clear. Orlowski (2011) suggests that Spotify has struck a “Faustian bargain” with Facebook, one that is short-sighted and potentially suicidal. According to Orlowski, Spotify’s thinking must run something like this: “exposure to Facebook’s massive user base would eventually drive some people to its paid-for service, it must have reckoned. There is little direct revenue upside for Spotify from the deal … and there’s no new money coming into this system. What money there is, is now split more ways than before.” (Orlowski, 2011)

Spotify’s bet, thinks Orlowski, rests on the sheer scale of Facebook’s 800 million users — an enormous carrot when compared with Spotify’s 2 million users. Facebook’s motivations are somewhat easier to untangle: it gets a cut across the entire range of major music streaming services without the pain of a single negotiation with major copyright holders. Spotify’s side of the deal is speculative to say the least: “Facebook may have a plan we don’t know about for monetising its music services, perhaps by charging money. Perhaps it is going to become a payment platform, and partners such as Spotify will eventually see a share of these new revenues, just as content partners get a cut from Sky’s platform. Perhaps Spotify has a masterplan that we can’t yet see, or views the Facebook pact as a short-term deal. But if none of these things are true, I think its value has just diminished greatly.” (Orlowski, 2011).

Facebook is understood to generate 2 billion in revenue per year25 That is about $2.50 per year per user in gross revenues. Spotify’s revenue per user currently averages out at around $50 per year (including advertising revenues). Facebook’s profit is around $1 Billion per year, or 50 per cent of annual gross revenues. Spotify is losing over $40 million per year in 2010, around 40 per cent of annual gross revenues. Facebook’s revenue model is rather like that of any mass medium: it sells audiences and information to advertisers. However, unlike broadcast media, it is Facebook’s audience that supplies the content, and so what is called ‘audience labour’26 in broadcast media takes on a double-sidedness in Facebook. Spotify and other subscription services have a very different revenue model: they are content aggregators who earn revenue selling very specific licenses to consumers. Meshing these business models will be difficult, and the implications are complex and unpredictable. What is clear, though, is that musicians stand to benefit very little, at least in direct terms as they currently stand, from either model. The meshing of these models suggests that there will be even less revenue (per play) for artists than the currently dismal amounts paid by streaming services. At least one commentator believes that Spotify’s defunct ‘free model’ might be revived by integrating with Facebook:

“Facebook has a potent network of advertisers … and even if Spotify doesn’t get a direct cut of Facebook advertising, it offers advertisers much more information about who they’re targeting. And having the Spotify icon on the home page of Facebook is a massive coup that will drive loads of people to the service. Perhaps more users would mean more ad revenue = more free music.”27

The subscription model currently has a lot of hope and hype invested in it as the future of recorded music sales in the digital age. However, given the scant and often negative margins that seem to be available, given that the subscriber numbers are currently so small, and given that the most attractive model for integration of these markets appears to be Facebook’s “$2.50-a-year user” it is unlikely to provide real income any time soon. The fullest implications of such a merger might mean a version of the broadcast model in which collection agencies would need to license and collect from platforms, with licences being based on a percentage of advertising revenue turnover. And while Facebook currently has music and band pages, usually generated through other platforms such as Reverbnation and MySpace, it has no model for commercialising music (or anything else besides audience labour). The likelihood of increased returns from a merged service is therefore very low.

Summary

A brief tabular summary of features and pricing for the top five subscription services is shown above.28

The only subscription service that pays fees over a cent is E-Music, which pays 20-30 cents per track. However it is important to distinguish the difference between Emusic and the other services listed above. Emusic is a subscription service “offering permanent ownership of a small number of tracks per month rather than temporary access to huge amounts of music. Emusic does not assume that ‘access’ music services will eventually replace ‘ownership’ services.”29 So, even while the service pays relatively well, it is a “cheap” sale rather than a well paid stream.

Promotional Platforms

The bulk of digital activity for music has to date been in promotional sites that are familiar and even “iconic” in the case of the now all-but-dead “MySpace”. The list of such platforms also includes YouTube, Soundcloud, and Labtones. Most sites mentioned here have promotional aspects (naturally), but these sites are distinguished by the way their business model works. Simply, they work like Facebook, using content uploaded by artists and fans to build audiences for sale to advertisers. They permit and encourage promotional activity, but there is no direct monetisation for the artists involved. As primary points of web “presence” the general trend for musicians is away from such sites, and towards more hybrid platforms.

Other digital promotional spaces of note besides social media are: podcasting services, music blogs, and peer-to-peer networks. Hugh Brown (2011) notes the effectiveness of the podcast system for promoting self-published music.30 Music blogs are also a recognised way for artists and labels to get review space in digital and physical spaces. The most controversial of these are the unlicensed peer-to-peer music sharing platforms (Limewire etc). Since at least 1999 and the Annenberg report on Napster and file sharing, it has been argued from data that people who share files are far more likely to buy music than those who do not.31

Record companies have taken the line that each shared track represents a lost sale and is therefore a form of theft, or at least illegal usage. It is not within my scope to discuss the merits of either side of this argument. However, three formats, while clearly generating more exposure and usage of tracks, offer little in the way of data about why and by whom the tracks are used. This aspect of digital promotion will most likely be the battleground of the future, with the service that can not only track usage but draw motivational and relational inferences from data (giving a network visualisation of use) will most likely be very successful among musicians and labels.

Publishing Platforms

Currently there are two digital publishing services for self-publishing artists that seem to be dominating an incipient sector. The smaller of these is local Brisbane firm Hook, Line ‘n Sync. There are no social media aspects to their platform. The deal is a straightforward percentage of sales and royalties. Signing their deal requires the copyright holder to allow the company to own and rename each track, specifically for tracking usage and collecting returns. As the name suggests, the company is almost solely taken up with negotiating sync deals. The platform uses keywords and streaming plays to deliver content to music directors in advertising, film, and television. The deal is 70-30 to the artist.

The other relatively new digital publishing platform is Music Xray. It is a very tech-heavy platform and the implications of its workings are very suggestive in terms of scale, connectivity, and functionality. Rather than manually categorising tracks using genre and keywords, Music Xray purports to operate on the basis of an analytical algorithm that classifies tracks and matches them with what seems like a very wide range of opportunities, including sync, song placement, recording, production, games, advertising, radio play, film and television, and many others. Artists submit music to the platform and are alerted when opportunities arise. Below is a fairly typical email from the service asking suggesting I submit to the following opportunities:

Submission is by way of fee, and the practicalities of the submission process are handled within the web interface. While there are some zero-fee opportunities (ranging up to $25 per track submitted), usually for review opportunities or such like, the platform charges $USD4.00 for handling the submission regardless of the price charged by the contracting entity.

The algorithm is said to operate in the following way: it will first ‘analyze the acoustic properties and mathematical patterns in your music’ (Music Xray, 2011).32

Then it generates matches as follows: the hundreds of industry professionals who use Music Xray to find songs and acts have given us “seed” songs; i.e. songs that have a similar style and sound to those they would like to receive from submitters. Music Xray uses computers to analyze the acoustic properties and underlying mathematical patterns of the “seed” songs and compares them to those found in songs uploaded by artists, songwriters and other song rights holders. Music Xray then alerts the song owners when a match is detected. (Music Xray, 2011)

Note the similarity with other such “suggestive” algorithms, such as iTunes’ Genius, Pandora, and the Last.fm algorithm. Here, the industry professional generates a listening profile that is matched against tracks submitted by each artist. The artist then pays the commissioning professional to listen to the track. Here is an example of what happens next:

Note the “advice” video, the “invite other artists” button (the platform offers a recommendation revenue stream), and the various other methods of generating attention and importing content. The Music Xray platform is integrated with Soundcloud, Facebook, Myspace, SonicBids, Bandcamp, YouTube, iLike, Ourstage, and NextBigSound (a web statistics aggregation service that collects stats for musicians across the web). In this sense, Music Xray is a hybrid platform. But its overall business model is a fee-for-service publishing brokerage for self-publishing artists. The site also offers premium services including a fee-based focus group for artists which gathers a mini sampling of global audiences who provide ratings for songs and advice on how to improve specific tracks. Thus far I have submitted material to 12 opportunities. Of these, 8 were rejected outright without comment, three were helpfully reviewed with a promise to keep an eye out for appropriate future opportunities, and one was selected for inclusion in the Music Umbrella catalogue. Advice received came in the following ways: The Phil Graham Band, We just wanted to drop you a quick line to say that even though we are passing on publishing your song at this time, we certainly recognized the very nice high quality work that it represents. Keep up the good work. It is only a matter of time for you guys. Sincerely, The A&R Staff Sweet Rosie Music This song has really good arrangement. The production is good as well. It is full of emotion and colorful tones that are good for movies but really really good for tv. I would like to discuss placement of the song. I would like to run it by some music sups and see what is out here for placement for it. Will Griggs VP of Domestic Placement and New Media The Music Umbrella

The rejections typically come from a drop down list of standard reasons to not accept such as: Your song was not selected for the following reason(s): Good candidate but regretfully it doesn’t make the final cut. Can’t use currently but we’re keeping this one on file for future reference. (Music Xray Dashboard for Phil Graham Band)

Music Xray does not take a cut, does not get involved in dealings, and is essentially a business that makes money selling access to “gatekeepers”. Their website puts it thus: When considering the value of an opportunity to submit, ask yourself how much it would otherwise cost you to access the industry professional in question. We believe Music Xray makes industry professionals available who otherwise may not be and we provide that access at a fraction of the cost it would normally require. Artists spend years of their careers and thousands of dollars building buzz and generating the traction required to attract the attention of many of the gatekeepers available on Music Xray. (Music Xray, 2011)

This is a clear statement of the business model, as well as being a powerful acknowledgement of the revolutionary role new technologies have in restructuring relationships at a very basic level.

Hybrid Platforms — the Future

Two Examples

The exemplar hybrid, and probably the most sophisticated platform currently available to self-publishing musicians, is [http.www.reverbnation.com Reverbnation]. The platform includes social media enabled functions for almost every aspect of live and recorded music. It has a promotional “face” that allows artists, labels, and venues to

  1. create a streaming and/or downloadable playlist;
  2. build and present and electronic press kit;
  3. track statistics on fans, plays, messages, and activity on the Reverbnation site as well as most other major social media promotional sites; and
  4. post updates to multiple other social media sites including Facebook, MySpace, and Twitter.

It also has live performance news, venue details including maps, operating nights, and other details; offers live, recording, and publishing opportunities; offers digital distribution through the main digital retail and streaming platforms; sophisticated statistics and fan tracking aggregated on a cross-platform basis; “stream team” hire; premium promotional packages; sitebuilder tools; mobile application interface; local, national, and international charts; a bespoke mobile RN store; and bespoke merchandise (clothing, hats, tote bags, and so on) that can be ordered and sold on a one-off basis and designed online. The platform also distributes half its advertising revenue among artists in what it calls the RN “fair share” program.

The above diagrams are from a free version of a Control Room snapshot from a free subscription to Reverbnation, and a “widget builder page” for the author (see next paragraph).

The platform includes a system of “widgets” that enable users to quickly distribute all photographic, audio, and biopic material and embed these in practically any other web presence. Building and posting a widget literally takes a few seconds.

It is difficult to imagine a more fully featured, or more widely integrated and cross-compatible, platform. While many of the features of RN are offered on a premium paid basis, it remains the most fulsome and well thought out platform available on a “free” basis, offering access to the full array of business models currently available on the Internet.

Nokia’s Ovi is a hybrid multi-platform service that began as an all-you-can-eat subscription service linked to Nokia phone purchases. While that remains the case ‐ the all-you-can-eat is still tied to Nokia phones — the service now has its own “iTunes” style software player with a link to the Nokia store. Individual tracks need to be purchased to be downloaded. Tracks are a standard price and the service is tied to national boundaries. The price per track in Australia is standardised at $1.49. Software is not available for Mac at this time although there is a link indicating that Mac software will be (or has been) available. Nokia has signed licensing deals with Sony BMG, Warner, EMI, Universal, ValleyArm, and multiple national collection agencies for content. It is a hybrid subscription retail model.

Some Business Models for Digital Music

In the first model, artists upload music, videos, photographic, and textual material and interact with their audiences. The payoff for artists is web visibility and a means of efficiently displaying multimedia material (a basic electronic press kit) and connecting with audiences to announce releases, tour dates, etc. The platform raises revenue by becoming an aggregator of creative showcases, thus developing an audience which it then sells to advertisers. Prices are based on the platform’s ability to build large audiences. It offers advertisers a targeted and trackable audience. This model returns nothing by way of money to the artists and so is ultimately doomed.

In the second model, artists and labels pay a commissions and/or fees to aggregators. In return, aggregators prepare material for delivery to online and (in some cases) physical retailers. They also collect revenues from these services for distribution to artists and labels. Most offer premium services on top of distribution, including marketing and publicity, radio plugging, direct to audience sales, and, sometimes, web hosting services.The aggregators provide accounting services and typical commissions on sales run to around 10 per cent. Aggregator incomes from retail, streaming, and on demand services are typically under the terms set by individual services.

In the third model, the subscription service negotiates licenses with major labels and aggregators and then sub-licenses access to an audience. In reality, such services cannot yet hope to run profitably without negotiated agreements in place with at least three of the four majors in any given territory, plus the main royalty collection agencies. Issues of territoriality make these services non-global in character. In territorial terms they tend to be idiosyncratic because of the nature of the deals that need to be struck with majors and collection agencies. Revenues are generated by a mix of subscription and advertising, with “freemium” models that depend entirely on advertising. Revenue returns to artists are notoriously low. Clearly, the hope here is that scaling up of audiences can be achieved at minimal marginal cost per subscriber.

In the fourth model, the subscription service negotiates licences with major labels and aggregators and then sub-licenses access to an audience. In reality, such services cannot yet hope to run profitably without negotiated agreements in place with at least three of the four majors in any given territory, plus the main royalty collection agencies. Issues of territoriality make these services non-global in character. In territorial terms they tend to be idiosyncratic because of the nature of the deals that need to be struck with majors and collection agencies. Revenues are generated by a mix of subscription and advertising, with “freemium” models that depend entirely on advertising. Revenue returns to artists are notoriously low. Clearly, the hope here is that scaling up of audiences can be achieved at minimal marginal cost per subscriber.

What’s Not Here

I have not included a visual model for the digital publishing value chain because there are only two visible models and the progress of each is unclear. They are also very different propositions: one is fee-for-service with no involvement in copyright or negotiation and the other is commission-based and makes comprehensive claims to copyright control and contract negotiation. Publishing is on the verge of a radical restructuring, with their futures looking far more like that of record companies (Wikstrom, 2007). 33

Sustainability of all the digital value chains here is an unpredictable and shaky area to contemplate. Even iTunes, with its historically massive scale, has issues about delivering information to artists and labels to the level at which an iTunes audience can be fruitfully accessed and managed online. It also remains in place largely by virtue of its integrated store and software model.

This brief summary of digital value chains does not take into account some very important yet intangible aspects of the digital environment. The rise of mobile integration is gaining patchy ground, seemingly dependent on cultural and infrastructural differences among various national markets. The non-western world is also a massive wildcard, with India, Russia, and China all having different approaches to digital access, and in some cases massively different cultural offerings. Despite the relative demise of MySpace, the promotional aspect of all digital platforms remains vital to future business models, and so sites that can achieve this for artists and labels, while also connecting these efficiently with other digital value chains will be primed for future success. Yet it is the actual value of this kind of promotion to artists is dubious, or at least very unclear. A well crafted website with a shop, electronic press kit, blog, and gig guide is probably just as valuable if not more so. Google makes such a site equally as findable as a MySpace page. And given that Reverbnation, flickr, and YouTube all offer elaborate embedding tools for multimedia, there is no reason that an artist’s site should not look and feel as sophisticated as any standard profile page.

The big loser in most of the business models presented here is the artist. This is especially the case for subscription models, which look increasingly unlikely to offer long term sustainability (even for themselves). Whether or not this has to do with the consumerist impulse to own music is entirely unanswerable question. The hype for these services far outweighs the commercial realities at the present time. Whether or not Spotify et al can benefit from a relationship with Facebook remains to be seen — given the relative costs of running them, the likelihood is grim. iTunes remains the best value and most straightforward prospect for artists selling music in digital environments. The prices are relatively high, there are no “giveaways” built in to the site (as there is with most others), and the material is available globally. Yet those strengths could prove to be, long term, failings for the service.

Apart from posse.com, ticketing remains a straight retail relationship and I have not canvassed that sector at this point. There are other models and platforms such as Sonic Bids, Bandcamp, and Kickstarter afoot, though these are incipient in terms of success (Bandcamp is by far the most promising for self-publishing musicians — it offers many of the features that Reverbnation does but it provides a direct digital “shop” for bands rather than relying on aggregators. At the time of writing it claims $12 million in sales). Kickstarter is a microinvestment platform. Sonic Bids takes an online “dating agency” approach to link booking agents, booking opportunities, and bands. These are interesting models that have yet to make a mainstream or widespread impact and remain too idiosyncratic to categorise as one thing or another.

There is a further requirement to aggregate and critically analyse how these digital value chains intersect with the broadcast economy, which still rules the roost as far as building mass audiences goes. The intangible promotional aspects of digital media, along with their non-specific and diverse value offerings (prestige, profile, radio play, indirect sales of performance tickets and so on) also requires systematic analysis. The rate of change associated with digital media technologies indicates that such a study would need to be longitudinal over 3-5 years to give a full picture and clear analysis.

Author

Philip Graham. Article concluded 16 December 2011, published as a special extension of ‘’Music Forum’’, Vol. 18, No.2, February 2012. Entered with minor edits on Knowledge Base 7 May 2013, with some added website links.

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  30. Missing reference. ED↩︎
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  33. Missing reference. ED↩︎

Professor Graham is Head of Music and Sound at Queensland University of Technology

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