Biz – The Access Model

As in: access over acquisition.

Charles M. Blow, on one hand, could be viewed as late to the record industry implosion party, (or RIIP,) in gaining some exposure on the NYT’s editorial page. Swan Songs? July 31.2009 On the other hand, he makes some killing points.

I.

The problem is that if people can get the music they want for free, why would they ever buy it, or even steal it? They won’t. According to a March study by the NPD Group, a market research group for the entertainment industry, 13- to 17-year-olds “acquired 19 percent less music in 2008 than they did in 2007.” CD sales among these teenagers were down 26 percent and digital purchases were down 13 percent.

II.

This is part of a much broader shift in media consumption by young people. They’re moving from an acquisition model to an access model.

III.

A study last year conducted by members of PRS for Music, a nonprofit royalty collection agency, found that of the 13 million songs for sale online last year, 10 million never got a single buyer and 80 percent of all revenue came from about 52,000 songs. That’s less than one percent of the songs.

(My comments) Behavioral economics would suggest that the high time/effort investment in downloading, whether as a paying customer or freeloader, favors only those downloaders who appraise that the investment has a positive payoff. Freeloading is not very efficient, but, it does have the upside of quantit. In fact this would figure into a positive behavioral model—even if the end result is acquiring more music than one could ever hope to listen to. (Ha! Visit my basement.) This also favors fanatical listeners, always a tiny slice of for-a-price music consumption.

The move to access rather than acquisition constitutes a different behavioral model altogether because, obviously, access-on-demand means the consumer is matching their listening time precisely to, as it were, turning the web radio on. There really is no business model for this from the record industry’s point of view.
But, it’s easier to shut down for the time being. The record industry could vanquish iMeem and Pandora and Grooveshark and all the others open access DIY podcasting services. Except then crowd sourced casting would really erupt, especially if people served tunes back ‘up’ into the network. Instead of menus of streams, you’d literally have crowd sourced clouds. This will eventually happen anyway. My guess is we will go through some heavy handed industry quashing of the DIY services, so it will swing back to acquisition for a while before the transition to crowd and cloud.

None of this matters much in the broad sweep of things. The record business, both tangible and digital, is just about finished.

80% from less than 1% of all available songs? Sounds familiar. But, the actual consumption when you include freeloading, is probably many times the size of the paying market. I don’t know the metrics, but it is safe to say the amount of music being listened to has never been greater than in today’s environment.


Side note: I’m still a customer of eMusic. This is after they jacked up (for me – 150%) the per track cost at the level of the monthly subscription, and, also let the other shoe drop by ending the ability to count your monthly downloads as single tracks against your monthly quota irrespective of how many tracks were on an album. (So, a six track album can count 12 credits.) Does that sound complicated? It is. eMusic’s principle innovation was to make the downloading model really complicated.

This is stupid on their part, but it’s understandable as a short term money-making bridge to eMusic’s going belly up. An objective eMusic seems hellbent on realizing. But, eMusic is almost completely in their own universe of stupid in an industry that has redefined the term stupid.

Still, I am a happy customer. eMusic remains a tertiary source of interesting music.

War of the Worlds

Ahhh, eMusic, what have you gone and done now?

A little background: I joined eMusic in 2000 at the tail end of their unlimited mp3 tracks for $14.99 orgy. I knew that was too good to last. Heck it was insane. But, over 9 years, they’ve grandfathered my monthly package at every price increase bump in the road. The end result is I’ve paid $1,400 for 6000 or so tracks, the equivalent of 700+ albums, and paid about $2 per album. How good is that? It’s great and almost insane.

Over that time, eMusic has been a trendsetter on the low-margin mp3 boulevard, you know the street that runs smack dab through the middle of the town called, Absolutely Free Music. As a user you made your deal: cheap music and lousy bit rates but with no DRM, and, eMusic’s inventory of small indy labels was heaven sent. If you the user was a muso and fan of the margins of various genres. Count me in.

A few years ago eMusic was sold to an investment firm. A price hike followed. But, eMusic kept doing their thing, offering non-major label tracks (and full albums,) at a great price. On June 1st they changed their own landscape. Taking my own customer commitment as an example, my monthly package will remain $11.99, but my download will decrease to 30 from 50. This works out to a 16 penny per track increase, to a 40% increase. Bummer. Read about it. Fury.

However, unlike the many hundreds of suddenly disgruntled customers, I’m not sent into apoplexy. I get their pain, yet, I never thought eMusic was going to forever hold itself to the match with the projection thrust on their brand. This projection was that eMusic was akin to the ol’ hippie indy or specialist record shop. When the investment company bought eMusic, I figured the bloom scattered from my own more modest illusion.

I don’t envy any business and business model which seeks to peddle at a profit tracks from recordings amidst the scourge or paradise of the world’s biggest ever free record store. Interestingly, the Guardian’s report on eMusic’s new pricing asserts that eMusic has something like 400,000 customers. Alright: basic plan is $11.99, call it $12 x 12 months, equals $144 per customer, times 400,000 = $57,000,000 per year.

Is that a lot of sales? In the scheme of the current record business, it’s at the upper end of the middle of the drastically consolidated music industry. After all, Apple’s iTunes is selling around 60,000,000 tracks per month, and doing $3+ billion worth of annual business. $57 million is equivalent to having a chain of 30 bricks-and-mortar stores doing $2 million each on a yearly basis. But, perhaps eMusic’s sales are half that. *

eMusic gets a tiny slice of the pie. Just as it is, was, for the Rounders and Telarcs, etceteras of the old hard goods music biz world, living on a business model focused on the thin slice of (no-doubt,) fanatic customers for indy produced music, consigns one’s business concern to a thin slice. And, there isn’t any way around this brute fact.

eMusic was driven to revamp their business model because new partner Sony is going to add 2 year old catalogue to their offerings. Not to eMusic’s credit, they showcased to their loyal customers news of the gigantic price increase in the clothing of benefit presumed to derive from adding the pathetic Sony legacy catalogue. This was equally disingenuous, and, patronizing. Uproarious.

By all accounts, eMusic CEO Danny Stein is one of the most arrogant people in the music biz, this in an industry where little napoleans have always been a dime-a-dozen. So, he didn’t help his brand here, with ludicrous rhetoric found in his slapping announcement:

The addition of these bold-face names [Sony] doesn’t change our mission. eMusic will always be an alternative to mass market digital music stores — a deeper, richer music shopping experience. more of the good stuff 17dots blog

It won’t be the last time the hard core fan gets crapped on. (Twas ever thus.) Nevertheless, it seems fairly, if not bluntly, obvious, that eMusic is heading in a necessary direction, given that they cannot grow their pie much, maybe can’t grow at all, if they remain a hip outlet casting a net to the margins, and doing this for even 40 cents per indy track.

Whereas, by undercutting their immensely larger competition, especially doing so overseas, in peddling Sony catalogue, it might be possible to double their user base in due course. If this is close to the mark, then the price increase locks in new customers at a more profitable price point, does the same for older customers, and, probably insulates eMusic from too much attrition in the short term.

But all eMusic can really do is pump up their tiny market slice of digital downloads from, say 3% to 6%. This is not an enviable market position.

Actually, eMusic, iTunes, all the others are–over the mid-term–trying to establish some traction against a truly for-free market space. I have no real idea, but my guess is that for every track somebody pays for, 10 more free ones find a home. Also, I’ll bet that most music fans who have sustained their enthusiasm for collecting music for more than ten years, are likely very resourceful at driving their own marginal acquisition costs down, down, down.

Still, I understand how pissed off the world of the music fanatic is at the world of bean-counting investors. This is true whether it’s eMusic or iTunes. What isn’t true of eMusic is that it ever was really like some hipster’s hole-in-the-wall room of vinyl bins. There used to be, and, to an almost laughably inconsequential sense, still are attempts to make a love-the-music-first business model actually work. But, after 30+ years of observing such things, love-the-music-first is always the canary in the coal mine.


Apple iTunes rival eMusic to unveil overhauled website
“The US company generates 80% of its revenues from the domestic American market, but said its UK business was growing more quickly.

Pakman said the site sells between 7m and 8m songs globally each month, adding that global revenues and subscriptions would rise by 40-50% this year.”

8,000,000 x $0.30 = $30,000,000. (For every mp3 eMusic sells, iTunes sells 8. Sobering.)