Selling Music in a Digital Age: Recent Developments

Following up on my last post, I would like provide updates on some recent developments within the digital music retail world. First - and quite a personal dismay - is the new website Made Loud, which is a digital online music retailer for the independent artist / social networking site. Obviously, the developers of Made Loud read my most recent post that covered this exact business opportunity and stole the idea from me (wink, wink). Despite my personal resentments, after perusing the Made Loud site, its apparent that they have put a lot of thought into the project. Artists can create a page, upload their music and set a price-per-download rate, and then commence with reaching out to fans. It is a win-win situation for the artist who owns all of his or her own master recordings. In fact, according to the FAQs section of the site, "Artists keep 80% of all digital download sales and 85% of all merch sales. Artists also choose their own pricing." (par. 3). Purchasing is made almost too easy through Pay Pal. In a music world that has been dominated by conglomerates and umbrella corporations for decades, Made Loud and sites similar to it are paving the way towards the future of this industry.

The second exciting development that caught my attention is the new digital music retailer LaLa, which offers 10 cent downloads of songs as well as a full, free preview listen of the whole song prior to purchasing. The catch: one can only listen to his or her songs via a web browser, meaning an internet connection is required at all times during use. At first, this sounds like a major annoyance, but in a tech-obsessed world dominated by internet phones and computers, the idea makes a lot of sense. With all of one's data stored electronically on the company's servers, there is no need for the information to be stored on a personal hard drive; all one would need is a phone or computer with an internet connection. According to this article by Michelle Quinn, a staff writer for the LA Times, the company also offers an MP3 download for an extra 79-89 cents, which of course can be store on a hard-drive. Quinn further states that, "Lala has a deal with labels that lets it scan a user's music library and offer the user those same songs via any Web browser [...] That gives Lala information about a person's tastes so it can target music suggestions" (par. 15-16). Additionally, according to the "How It Works" section of LaLa's site, the service can "quickly match the songs on your computer to Lala's licensed catalog [...] Songs you already have and playlists you've created are instantly added to your Lala collection for free" (par. 2).

It is important that these sites continue to develop and spawn multiple imitators. For too long, the music industry and its consumers have had only one option for the purchase of music - the record store. With these recent developments, the industry and its constituents are finally adapting to new, simple methods of e-commerce, albeit light-years behind other industries. With the major setbacks brought on by the pirating of digitized music and the state of the U.S. economy in general, things for awhile were looking quite bleak. Yet, these exciting new websites prove that there is light at the end of the tunnel for the music industry.

Digital Rights Management: Can We Sell Music Without It?

Steve Jobs, Apple's visionary CEO, published an open letter in February of this year that addresses the hotly debated topic of Digital Rights Management (DRM) in digital music downloads. His main focus of the letter was to inform readers of a pressing issue between what he calls, “the four big record companies” (Universal, Sony BMG, Warner, and EMI), and online digital music retailers such as iTunes. The issue is centered around DRM and why Steve Jobs thinks music companies and online retailers need to collectively agree to abolish it. Jobs' primary reason for seeking such a drastic change is that, based on Apple's market research, most of the music that people have in digital music libraries on their computers or digital music players is DRM free. He claims that under three percent comes embedded with DRM and that “the remaining 97% of the music is unprotected.” Based on this he believes that if all of the parties agreed to abandon DRM altogether, music would be more compatible across digital music players, computers, and people.

Ultimately though, one must speculate - who does this benefit? As the satirical image above suggests, consumers are sick and tired of DRM. Jobs purports that his proposition is “clearly the best alternative for consumers” as it will allow them to purchase music from any online retailer and listen to that music on their computer or digital music player of choice. And since Apple's market share of digital music players as of the end of last year was the highest at 57 percent with their iPod, it is easy to say that Jobs is hoping that the more music people buy due to a lack of DRM software, the more iPods will sell as well. Furthermore, since iTunes dominates the digital retail market with a current share (if you can call it sharing) of 88 percent, Jobs probably does not have much to worry about at the moment in terms of future competitors.

The real question is whether or not digital music will sell without DRM. It is highly unlikely that the four big record companies will license their music without the assurance of DRM to any online music retailer. Therefore, while this could be damaging to iTunes, (a lack of licenses will presumably limity Apple's content), other companies have thrived in this so-called “indie” environment. Take eMusic for example, which has proved to be a huge success since its inception in 1998. Nate Anderson, an author for Ars Technica, discusses eMusic's uncanny success in his post "Making money selling music without DRM: the rise of eMusic." He states, “the answer was simple: you offer songs as high quality, variable bit rate MP3 files instead. DRM is removed, consumers are happy, and the vast white fields of the iPod are ready for harvest.” The idea behind eMusic is to play to iPod users who enjoy a low price and the interoperability (see image to the right) associated with DRM free music, and as Anderson points out, this business model has proved to be quite practical and profitable. In this light, Steve Jobs' proposition holds a lot of merit – make music more accessible to canny and educated consumers, and it will sell.

The big four record companies need to be put to the test – can they recoup the loss of what little copyright protection DRM offers at this point by appealing to consumer demands and provide licenses for the sale of DRM-free music? Many people, (such as Thomas Wilburn – the author I wrote to last week), seem to agree that this is not only a feasible decision, but a smart money-making move as well. Or as Greg Sandoval, staff writer for CNET news, relates in an article interview with an industry talent scout Elise Malmberg, "'Ultimately I don't think digital music will be a primary product,' Malmberg said. 'I think it will be a value-added thing that's used to sell other products.'" Essentially the idea is to make music less of a marketable commodity and more of a promotional one; something that promotes the sale of other more profitable commodities such as artist merchandise and/or concerts. If record companies reduce their costs in creating and marketing music to nullify any losses incurred through licensing DRM-free music, it seems plausible that everyone could benefit through the shared creation, distribution, and sale of music. The big four record companies could argue this concept and say that they have a right to utilize DRM as a form of copyright protection of their most valuable asset. Even Sandoval admits that it is hard to tell if this "is the way to cure what ails the record industry," and that record companies "may be right to tread lightly here." The important thing to take away from all of this is that music should never be simply handed-out for free as the interests of artists and record companies are very much at stake. Yet the overall idea of adapting business models to fit the current technology and consumer demands is one that should be taken seriously.