Digital Music Trends – Episode 45

This week: an interview with Kami Knake, host of the Bands Under the Radar (BUTR) music Podcast as well as being a consultant for Topspin, Brite Revolution and Mobile Roadie. In the news: Warner Music quarter one figures reveal digital revenues gaining weight, Google sues a small US label seeking a court ruling that would once and for all declare that the corporation is not liable for including copyright infringing search results, digital distributor Tunecore shows with its latest figures that the album may indeed be a dead format, the Ning platform is going to phase out free and to conclude a revenues update from RealNetworks.

But let’s start with this week’s interview with Kami Knake. Here are the links to her projects:
And thanks again to Kami for taking part in the show! And now for the news:

Warner Music Quarter One figures

http://online.wsj.com/article/SB10001424052748704370704575227853370120376.html?mod=WSJ_business_whatsNews

This week Warner Music posted its first quarter revenues. The company has lost 25 million dollars for the quarter ending on March the 31st, which compares favourably with the 68 million dollars loss posted for the same quarter a year earlier. The result, though not brilliant, outperformed market expectations and it only equates to a loss of 17 cents per share, whilst a loss of 30 cents per share was widely expected. The digital revenues are becoming more and more important for the company. The Examiner reports that the company’s digital revenue grew by almost 14 percent over the prior-year earning and amounts to $117 million domestically, accounting for 46.8 percent of the company’s sales, up from 41% a year ago. Warner also benefits from a lesser involvement in the funding of tech music start-ups that had in the past couple of years resulted in the company losing several million dollars in investments. Billboard business reports a few interesting quotes from the Chairman and CEO of Warner Music Edgar Bronfman Junior. He expressed his confidence that the value of the digital products will rise as more ISPs start looking at providing content to their customers. Also in his words you can read the struggle of the industry towards Apple. On the one side Apple is still a huge player and the value of its devices as a legitimate way to acquire content is certainly appealing to the industry, as is the fact that the iTunes store is not based on special discounts or offers. At the same time the industry welcomes competition to apple’s dominance, both in terms of hardware and services. So I guess they are worried about losing the income that comes from iTunes right now but they would not mind if another company was to come in and start generating part of that income instead of iTunes reducing its market share, since this would also weaken Apple’s negotiating power.

Google is looking for judicial clarity by effectively suing a small indie label.

http://www.billboard.biz/bbbiz/content_display/industry/e3i8f1f42046a622bdab320f8d7ef599b73

Google made a bold move last week and decided to effectively sue Blue Destiny Records, a small blues label based in Florida. But wait a second, why is google bothering? Well, because there is quite a bit of back-story to this. Blue Destiny had sued google, Microsoft and Rapidshare, stating that google and Microsoft were favoring the exchange of copyrighted material by offering search results which consisted effectively of rapidshare links that were offering that content. Blue Destiny then withdrew its suit in March – the articles I read do not state exactly why that was. In short, Google decided it was time once and for all to have a court rule that they do not have responsibility for the links provided in the search results in case these lead to copyright infringing material, so it decided to file a counter-suit in a court in California which apparently would be more friendly to Google’s arguments than, say, one in Arizona. google is asking the court to provide declaratory judgement as to whether links to cyberlockers constitute infringement or not. So from what I understand the suit is not against the label itself, but it’s a way of settling a debate that had been left hanging in the air and set a precedent with the courts that providing links to site such as Rapidshare does not in itself constitute infringement. Problem google versus Blue Destiny equals to David versus Goliath – let’s not forget as billboard points out that Google’s revenues are much larger than the entire revenue of the world’s entire music industry. This is both a smart and very dangerous move for Google – as flexing their legal muscles will make it very clear that there is no way of winning against a corporation as powerful as they are and could generate a backlash.

Ning moves away from free, reveals pricing details.

New Pricing

Ning, one of the biggest Web 2.0 success stories of the past couple of years is phasing out its free service and community administrators have until July to start paying or their communities will be shut down. This will not affect some 10,000 networks which were started by educators and will remain free. This is a story that was covered quite a bit on mainstream media including Fortune and New York Times blog, since it represents the crumbling of the web 2.0 free model. Ning was hailed as a great success, it had 120 million dollars of VC funding behind it and was at one point valued over 750 million dollars. It allowed you to create your own social network and your own community online and the process was free – although to access certain features you had to pay a premium. The model was based on the payments made by this small percentage of premium users and on advertising. But neither of those income streams were enough to keep the company afloat, as the Fortune article points out three quarters of the revenues were coming from 6% of the company’s networks, and Jason Rosenthal who took over from Gina Bianchini and became CEO of the company about two months ago had to take this radical step as a last ditch effort to give the company a chance of becoming profitable. The lesson here is that perhaps the free model that was so important to the boom of Web 2.0 is not sustainable if it’s not supported by a sound business model or if it does not generate the kind of attention that the Facebooks and Twitters of this world are receiving right now. The platform is introducing three price tiers going from $2.95 a month to $49.95 depending on the size of the community. Also the company is planning to scrap advertising for the site, hoping to more than offset the loss through the new subscription income. Ning is also willing to help communities transfer onto different services if they decide they don’t want to pay the fees. This is a very brave move for the company, because with the Internet being as volatile as it is it’s easy to see many of the smaller groups disappear and move onto other services. It’s going to be interesting to see how music groups react to this, as many artists have created their own social network on Ning and I wonder whether these changes will affect them at all. If you are an artist out there and these changes are affecting you please email me at digitalmusictrends@gmail.com

Tunecore http://www.billboard.biz/bbbiz/content_display/industry/e3i5a1636af3715b03bd05d47fc3de05830

Digital distributor Tunecore revealed its 2009 figures which show that independent artists are starting to achieve significant sales through the numerous outlets offered by the company. Interestingly, even though a lot of the artists distributed by Tunecore are unsigned, album sales account only for 2.3% of sales. This for me is a surprising figure that shows that music buyers are now so used to the single-track download that they adopt the same behaviour for small “cult” bands as they do for major single-driven acts. I would have definately placed my bets on higher album sales for Tunecore compared to the rest of the industry because I would have though that the average Tunecore artist would engage with its audience in a way that draws them to buy into the whole project. Actually I was just writing down these thoughts when I saw an Ars Technica article pop up on Google which highlights exactly this and is entitled The Death of the Album (in handy graph form), the link is in the show-notes.

Streams are definitely rising and represent 57% of sales, whilst single track downloads, though definitely growing in terms of number, only made up 40% of units. One thing that I personally found confusing about the articles covering this story is that although the incredibly poor performance of the albums is evident the graphs refer to the number of tracks sold as singles, sold as albums or streamed. This naturally in no way relates to the income that was generated by those assets, because I would bet that even though streams represent 57% of sales they didn’t generate a great deal more if at all more than the 2.3% of album sales and that the lion’s share of the income came from single sales. Unfortunately I could not find a link to the actual figures relating the number of sales to the dollars generated so at this stage it’s all speculation… Billboard Business also reports that the company has entered a partnership with Myspace that will allow any band with a Myspace account to receive a half price discount on Tunecore’s services – which means pretty much every band on the planet will be able to take advantage of this offer. Also, users taking advantage of this offer will also receive $50 in MyAds credits so they will be able to advertise the release on MySpace. I personally have never used the Myspace advertising platform though I’ve used Facebook’s ads several times. If you have any experience advertising your own project or band drop me a line, it’d be interesting to know if it was useful or not!

RealNetworks

http://www.reuters.com/article/idUSN0612500220100506

And finally let’s close with another quarterly earnings report from RealNetworks. Although revenue fell 9% to 128.6 million dollars, the net profits rose from a loss of 12.1 millions a year earlier to a profit of 3.2 millions. The revenues actually beat analysts expectations but Rhapsody as a service is still having a hard time, having lost another 25,000 subscribers. AP reports that even though the company has reduced the subscription price by 5 dollars and implemented changes in its mobile application that allow for the cashing of tracks on mobile for offline access this has not reversed the fortunes of the service whose ownership – as i reported earlier this year – is now evenly split between Viacom and RealNetworks, neither of whom is majority stakeholder. RealNetworks is a well-known name in the States as is Rhapsody,  but users don’t seem to be responding well to the subscription model given that their numbers are reducing. RealNetworks in fact, being now a separate company from Rhapsody is concentrating on producing a whole other host of web-related products including games. The lack of traction for Rhapsody may indicate that the public is not keen on subscription or – more likely – that other services have come along that more than fulfill their music needs, like Pandora for example. This is also interesting news for Spotify – the company is supposedly planning a roll-out of their service in the States in quarter three of 2010, and to succeed it needs the same momentum it achieved in markets like the UK for example. This momentum though could only be guaranteed by maintaining the free ad-funded feature that spurred its viral spread over here and was used to convert users to pay for the monthly subscription which includes mobile access. At the moment though it is not clear whether Spotify will be introducing a free version in the States – a factor that could greatly reduce its viral spread. The first question is – do people want subscription? And the second is – is a service in this space by Apple likely to kill all competition in a short amount of time? The second question is interesting in that if the majors felt that they could get more money through a successful Spotify (let’s not forget that all the majors have a steak in the company) than from an Apple-led subscription model – they could ostracize a streaming deal with Apple to prevent their service from killing off Spotify before it even has a chance. As far as I can understand the agreements that Lala had with major labels do not automatically transfer to Apple so the terms and fees paid for streaming and other cloud-based services would have to be renegotiated. It’s definitely an interesting time for streaming models…

Don’t forget that I will be at the Future Music Camp in Manheim in the last weekend of May so if you are planning to attend drop me an email (digitalmusictrends@gmail.com) Have a great week and ’till next time!

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