Frank Hecker

Well, I significantly underestimated how far eMusic was willing to go in terms of changing its pricing to attract major label content. My personal guess was that Sony demanded a minimum price of at least $0.30 per track, but based on the new US pricing it appears that the new floor is actually $0.40 per track.

More specifically, the plan changes are as follows:

• The eMusic Basic plan is still $11.99 per month, but has been reduced to 24 downloads ($0.50 per song) from the previous 30 downloads ($0.40 per song), or a 25% per-track price increase.
• The eMusic Plus plan is now 35 downloads for $15.89 per month ($0.45 per song) vs. $14.99 per month for 50 downloads ($0.30 per song) under the previous plan, or a 50% per-track price increase.
• The eMusic Premium plan is now 50 downloads for $20.79 per month ($0.42 per song) vs. $19.99 per month for 75 downloads ($0.27 per song) under the previous plan, or a 56% per-track price increase.
• The eMusic Connoisseur plan is now 75 downloads for $30.99 per month ($0.41 per song) or 100 downloads for $40.99 per month (also $0.41 per song) vs. 100 downloads for $24.99 per month ($0.25 per song) under the previous plan, or a 65% per-track price increase. Also, the new Connoisseur plans are available only as upgrades from another plan, and require a minimum 3-month commitment; previously the Connoisseur 100 plan was offered as an option at sign-up time, with no minimum commitment required.
• People with annual and 2-year plans will be moved to higher-priced plans when their old plans refresh. In my case the default choice offered is to move from my (grandfathered) Basic 2-year plan offering 40 downloads a month for $89.91 per year ($0.19 per song) to a standard Premium Annual plan offering 35 downloads a month for $171.99 per year ($0.41 per song), or a 119% per-track price increase.
• When downloading at least some complete albums with more than 12 tracks, only the first 12 downloads will be counted against the subscriber’s monthly quota.
• Booster pack downloads now range from $0.60 per track (when bought in packs of 5 or 10) to $0.50 per track for a pack of 50. I don’t have a complete record of the old pricing, but as far as I’m aware this is not a major change from previously.
• eMusic is offering a free one-time 15-track booster pack to subscribers who stay with eMusic past July.

I’ll have more to say about the overall changes at eMusic in future posts, but for now I wanted to note a few additional points regarding the new pricing:

• Presuming it came from eMusic directly and was not a misquote, the comment in the New York Times article that eMusic says it will slightly raise prices and reduce the number of downloads for some of its monthly plans was extremely disingenuous, to say the least. As far as I can tell all US plans have had the number of downloads reduced, and per-track price increases of 50% (for eMusic Plus), 56% (for eMusic Premium), and 65% (for eMusic Connoisseur) are hardly slight.
• As noted above, it appears that $0.40 per track is the new floor for eMusic US prices. I cannot find any published option offering a per-track price less than $0.4095 (available through the eMusic Plus Annual plan). There does not appear to be an annual option for the Premium or Connoisseur plans, and 2-year plans appeared to have been eliminated altogether.
• Subscribers get just less than a 10% discount for choosing an annual plan vs. 12 months of a monthly plan. (The eMusic Basic Annual plan is $129.99 or $10.83 per month vs. $11.99 for the corresponding monthly plan, while the eMusic Plus Annual plan is $171.99 or $14.33 per month vs. $15.89 for the corresponding monthly plan.)
• By eliminating the Connoisseur plan as an option at sign-up and offering only three options (Basic, Plus, and Premium), eMusic has reverted to a more straightforward Goldilocks pricing strategy, with the eMusic Plus plan presumably the one eMusic would like most subscribers to choose.
• eMusic has mitigated the price increases slightly by offering subscribers the ability to download selected albums with more than 12 tracks and be charged only 12 downloads. However it remains to be seen how many albums will actually be priced in this manner. (I suspect that this may depend on individual labels and whether they choose to do this for all or some of their releases through eMusic.)

All in all this is the biggest change in eMusic pricing for quite some time, and judging by the reaction of the subscribers who frequent the eMusic message board, probably the most controversial change since eMusic was originally acquired by Dimensional Associates and discontinued its all you can eat unlimited download model.

Danny Stein, eMusic’s new CEO, dropped some major news just now on eMusic’s semi-official 17 Dots blog. As reported in more detail in the New York Times, Sony Music Entertainment (home of Arista, Epic, Columbia, and RCA, among others) has decided to release its back-catalog material (anything over 2 years old) to eMusic—basically what eMusic management has apparently been urging them and other major labels to do for ages. (For example, David Pakman addressed this in several of his interviews.)

The major trade-off (no pun intended) seems to be that eMusic has agreed to slightly raise prices and reduce the number of downloads for some of its monthly plans, in effect imposing a per-track price that is higher than its current prices, which range from $0.40 per track for the eMusic Basic plan (30 downloads for $11.99 per month) to $0.25 per month for the eMusic Connoisseur plan (100 downloads for $24.99 per month). What we don’t know yet is exactly which plans will be affected, and what the price increases will be. My personal guess is that the eMusic Basic plan will remain the same, but that the other plans will be revised to bring the lowest per-track price up to $0.30 or even higher.

So much for the bad news. On the positive side, this deal will give eMusic subscribers better access to the important works of past musical eras, will make eMusic more attractive to potential subscribers, and if successful may persuade other major labels to do likewise. This in turn makes it more likely that eMusic will survive and even thrive as a (relatively) low-price outlet for customers looking beyond the latest hits.

In his blog post Danny Stein raised a point about how this might change how customers might perceive and experience eMusic:

We’ve been requested to carry major label titles for years, but we always have gone back and forth on whether it would change the fabric of eMusic. We don’t think it makes sense to exclude great artists simply because their label partner is one of four specific companies. We look to some of our favorite music—The Sex Pistols, The Clash—and we certainly never think to ourselves Major Label. What do you think? Do major and indie mean anything to you or is this just industry jargon?

In the past the record labels now aggregated under the term major were in fact where the most important innovations in popular music were happening (as Bob Lefsetz never tires of reminding us). I think that including older releases from some of those labels in the overall eMusic offering is perfectly consistent with eMusic’s current positioning of itself as the internet’s corner music store, especially if eMusic is going to pull out all the stops on providing context and recommendation. (Which I expect will happen—to the extent that this is an experiment, eMusic has every motivation to make it successful.)

I think the major downside other than the price increases is that people will be very mistrustful of having a repeat of the Rolling Stones fiasco. That apparently wasn’t eMusic’s fault, but if Bruce Stringsteen or whoever decides that they don’t like their music being cheapened by being sold at eMusic prices and is successful in getting it pulled, or if Sony upper management gets cold feet and decides to kill the entire deal, that’s going to leave a pretty sour taste in the mouths of eMusic subscribers, especially given that the new higher prices will likely remain in effect.

Bob Lefsetz recently published another broadside in his continuing crusade to drag the music industry into the 21st century. In this one he asked the following question:

How long until there’s enough unfettered new music, tunes the creators control as opposed to the fat cats, that someone from the outside can roll up these rights and create a viable alternative to the established game?

This I think is the key question, since I agree with Lefsetz that industry incumbents are extremely unlikely to innovate, and long copyright terms, existing contracts and statutory licensing arrangements, and political battles over compensation (e.g., regarding performance royalties for terrestrial radio) will slow down if not halt altogether any major revamp of business arrangements for existing works. In particular I doubt we’ll soon see Lefsetz’s preferred all you can eat for one monthly price scheme for legalizing P2P downloads of major label content—a skepticism shared by others.

Thus the only remaining possibility is as Lefsetz outlines: Wait until there is a critical mass of commercially viable new works controlled by artists and corporations willing to play by new business rules. My guess is that we’re talking about a 5-15 year timeframe for this to happen, because this will likely require a combination of the following:

• The emergence of lots of popular new artists who have grown up in the new world of digital distribution, social networking, etc., and are prepared to exploit it to the hilt. If you believe in the 10,000 hour rule popularized by Malcom Gladwell and its application to popular musical artists, this could well take 5-10 years (assuming that we’re starting basically from zero). However note that the rule does not necessarily apply to talented people helping to create new genres, which leads to our next factor.
• Generational, demographic, and geographic shifts that help foster new commercially successful musical genres, with an accompanying new group of key managers, promoters, and (to the extent they still exist) labels associated with those genres. Again, if we’re starting from scratch (i.e., these new genres don’t yet exist, except perhaps in embryonic form) this could take a fair amount of time. Compare the 10-15 years from the emergence of rock and roll in the early 50s to the mass success of the Beatles and other British invasion bands in the mid-60s, or the 10-15 years between the early days of hip-hop in the late 70s and the mass commercial success of rap in the 90s.
• Maturation of the business and technological environment around digital music distribution. The Internet took 25 years from its invention to when it became a major phenomenon (early 70s to late 90s). At this point we are only 10 years past Napster, and are still some ways away from a fully-changed music industry. After a couple more generations of iPhones and similar devices, plus accompanying advances in wireless networks, the music player of choice will be a smartphone with sufficient storage to hold all but the most fanatic listener’s music library and always-on high-speed network connectivity suitable for paid downloads, jukebox in the sky-style streaming, and/or P2P networking. The current generation of rights holders will of course try to restrict how users access music, as will wireless operators (trying to assume the role of radio as a chokepoint), so as in the past changes in technology will outpace changes in the business environment. Music and wireless industry incumbents will ultimately be foiled by the emergence of a new generation of music industry players and increased competition in the wireless market respectively, but again this might take as long as 10 years or more.

So, my prediction: Lefsetz will possibly see his hoped-for revolution within the next ten years, but definitely not within the next five. We’ll see if I’m right.

On the eMusic message boards I just saw a post from rednano74 about Amazon offering 50 albums for $5. Silly me, I thought this meant for $5 I could buy 50 albums, or $0.10 an album. This of course was just a fever dream; Amazon is simply continuing its standard practice of discounting selected MP3 albums from $9.99 to $5 or less.

It’s interesting though: I looked through these 50 albums and didn’t see anything that was attractive to me at a $5 price point. This seems to be my general experience with Amazon’s discounted albums. (I subscribe to the @AmazonMP3 Twitter feed, so I see pretty much everything that appears.) When offered an essentially random collection of discounted albums, a $5, $3, or even $2 price is typically not sufficient to motivate me to purchase something I’m not already seeking out; only at the $0.99 per album level do I tend to make an impulse purchase from Amazon.

This is somewhat at variance with my eMusic experience, where I download lots of complete albums that fall into the $2-4 range. I think this is due to a number of factors: First, and probably most important, eMusic’s download-based system hides the true prices to some extent; I just know that I have X downloads and I need to use them for something. This is also related to the issue of mental accounting costs (aka mental transaction costs): I’ve already paid my money for eMusic, so (unlike Amazon) decisions about what to download don’t invoke the paralysis by analysis of deciding whether a particular album is worth spending money on.

Second, I know that everything on eMusic is already discounted, so I can just explore the catalog on my own and not have to wait for discount offers to come to me. Finally, I think with 17 dots, the message boards, etc., eMusic is doing a better job of explaining exactly why I should download something; as I noted, Amazon is just spraying discount offers at me at random with no context or justification. This ties in with my previous argument that a good strategy for eMusic would be to pursue a role as a thought leader and trusted advisor for its customers.

I happened to be reading Bob Lefsetz recently on the Rolling Stones moving to Universal from EMI; after a few minutes I thought to myself, Hey, I think I know why the Stones catalog got pulled from eMusic so unexpectedly soon after its arrival. Note that this post is 100% pure speculation; I have absolutely no inside knowledge about what actually happened.

As previously noted by Yancey Strickler, eMusic did a fair amount of due diligence with both ABKCO (the company holding rights to the Stones’ older releases in the US, the only region in which the eMusic Stones releases were made available) and Universal (the major label through which ABKCO distributed those releases) in order to make sure there were no impediments to the proposed deal. However something happened between the time of the contract signing and the time the releases were pulled, something that caused either ABKCO or Universal to get cold feet and kill the deal.

I’m guessing that sometime during that period Universal senior managers started discussions with the Stones about switching from EMI to Universal. The discussions may have started right after the eMusic announcement, or they may have started after eMusic and ABKCO/Universal signed a contract and before the actual release.

It’s possible that the Universal and/or ABKCO managers negotiating with eMusic may not have known about the Universal/Stones talks, having been kept in the dark by more senior managers. A more cynical reading is that the Universal managers working with eMusic were in fact aware of the discussions (and perhaps even involved in them) and let the eMusic deal go forward anyway, for whatever reason. For example, they may not have wanted to tip their hand about possible complicating issues, or they may even have let the deal go forward just to test the waters and see how well the eMusic model worked in terms of stimulating demand through lower prices.

Now, since relatively few people want to buy new Rolling Stones releases, the Stones/Universal deal is primarily about the money to be had from milking the Stones back catalog. (As Bob Lefsetz put it, This is a banking deal, pure and simple. Universal calculated how many they could sell and made an offer. End of story.) Universal already distributed the early Stones catalog, as a distributor for ABKCO in the US and through its own label Decca in the UK (and perhaps elsewhere, though I can’t find confirmation of this on the net). A deal with the Stones for the post-ABKCO material would allow Universal to offer the entire Stones catalog in the US, UK, and perhaps worldwide.

However the deal with eMusic was a complicating factor in the proposed Stones/Universal deal. The presence of an alternate channel offering lower-priced Stones tracks would at a minimum introduce unwanted uncertainty into the financial model for determining the likely revenue and profits from overall back catalog sales, and it’s possible that Universal senior management wanted to eliminate that uncertainty. It’s also possible that the Stones themselves made ending the eMusic arrangement a condition of their signing the overall Universal deal. As noted in the Variety article on the Stones move to Universal, part of the motivation for the deal was launching a long-term campaign to reposition the band’s catalog in the digital marketplace; from the Stones’ point of view the vision for that campaign probably didn’t include selling their releases in what they might have perceived as the Internet equivalent of the record store bargain bin.

I find it an interesting coincidence that the availability of Stones releases on eMusic was ended exactly 30 days after it began (May 3 vs. April 3). This suggests that eMusic was allowed to sell the Stone releases only long enough to satisfy some minimum contractual commitment, and that ABKCO and/or Universal exercised their termination rights as soon as they could. Given the typical contractual requirement for some sort of advance notice of termination, I suspect eMusic itself found out about the problem very soon after the catalog went live on the site.

So, in the end, what did everybody get of it of this? Universal probably came out the best; it eliminated a potential impediment to the Stones deal, but not before getting the benefit of a real-world experiment in the effects on demand of lower pricing. The Stones got to preserve the illusion that all their back catalog releases are actually worth $9.99. eMusic subscribers got a few weeks in which to appreciate the work of one of the world’s once-great bands at a reasonable price point. And the folks at eMusic got to bust their butts to make the Stones launch on eMusic a success, only to have the rug pulled out from under them through no fault of their own. Just another day in the life of today’s music industry.

Back in February I discussed eMusic’s failure to provide more information about the artists whose music it sells, and suggested some ways it could do better. Now Fortune reports on eMusic’s attempt to do just that. This is gratifying, to say the least (though I doubt my post had any influence on eMusic’s plans).

It will be interesting to see how well the new eMusic web site features match up with my and others’ visions of what eMusic could do in this regard. In my original post I wrote that

A concerted approach to provide comprehensive context would combine information from lots of sources: eMusic-exclusive reviews, articles, and interviews, subscriber reviews, relevant message board posts (e.g., linked to from album and artist pages), Wikipedia articles, music blog posts, reviews from multiple sources, news stories, artist and label web sites and other pages (e.g., on MySpace), unofficial fan sites and forums, and so on.

Compare that with the Fortune article:

Let’s say you are a fan of Arcade Fire. You can already read quite a bit about the critically-acclaimed Canadian cult band on its eMusic album pages. Now eMusic will add a wealth of content from the Web 2.0 universe: the band’s Wikipedia entry, pictures from Flickr, and videos of Arcade Fire concerts from YouTube.

When providing context the more the better from my point of view. If eMusic adds context only from Wikipedia, Flickr, YouTube, and other major sites then it will be nice, but I think also a missed opportunity. Here are some key questions:

• How (if at all) will the new site leverage the wealth of user-generated content on the existing eMusic message boards?
• To what extent will the new site provide access to long tail content beyond the major web 2.0 sites, for example, posts in music blogs that discuss artists and releases available through eMusic?
• Speaking of blogs, will eMusic’s own 17 Dots blog be better integrated into the main eMusic site?
• Will the new site provide official mechanisms for labels and artists to make their own web content available (e.g, through links to band web sites)?
• Will the new site allow eMusic subscribers themselves to contribute content, either through direct wiki-style editing of pages or through some other mechanism?

I began my last post with a quote from Ian Rogers (now of Topspin), and I’ll repeat the most salient part of it: iTunes is a (mostly) context-free content experience and the Web is a (mostly) content-free context experience. Whoever puts the two together wins. Could this be a winning strategy for eMusic? I’m certainly looking forward to what next Tuesday brings.