Tag Archives: emusic

eMusic bids the Stones goodbye

Sometimes I can’t help but agree with Bob Lefsetz’s thesis that the music industry is well and truly f*cked, and this is one of those times.

As every eMusic subscriber knows, not too long ago eMusic did a deal with ABKCO to sell the early Rolling Stones back catalog under standard eMusic terms (DRM-free MP3s sold at 33 cents per track or even less depending on your subscription plan). eMusic pulled out all the stops to promote the releases, eMusic subscribers were ecstatic, and by eMusic’s account the folks at ABKCO and Universal Music Group (ABKCO’s distributor) were “incredibly impressed” by the amount of business generated—business that was likely almost pure profit from the point of view of ABKCO, UMG, and everyone else involved, and that almost certainly wouldn’t have been generated under the standard iTunes 99 cents per track model. (As I and others have noted many times, eMusic caters to dedicated music listeners who spend a lot of money on music and prefer paid downloads over P2P, but are very price-sensitive.) I’m by no means a Stones fan, but even I took advantage of the opportunity and purchased Let It Bleed and Beggars Banquet (the full albums, not just the singles).

Of course, this being the music industry someone had to spoil the party, and now the Rolling Stones have been pulled from eMusic, along with other ABKCO releases. It’s not clear exactly why this happened. Perhaps there was a unresolved rights issue left over from past legal battles between the Stones and Allen Klein, a senior executive at ABKCO or UMG who got cold feet, or just the old excuse about low-priced downloads devaluing the art. In any case somebody somewhere had both the power and the inclination to torpedo the deal, and did. Presumably Rolling Stones fans (or potential fans) who don’t want to pay iTunes prices will now either stop buying the Stone’s music or will download it via P2P.

Bob Lefsetz and many others have proposed licensing P2P on a flat-fee all you can eat basis; sometimes Lefsetz has instead talked about a eMusic-like model combining a monthly subscription plan and drastically lower per-track prices. I’m not confident that either of those things will ever come to pass. The music industry appears to suffer from a classic prisoners dilemma problem: It’s more rational for everyone to try to maximize their own piece of the pie and screw everyone else, with the result that the industry as a whole ends up worse off than it would be if everyone cooperated. Thus the labels and artists want radio stations to pay performance royalties, the radio stations want to get paid in turn by the labels for promoting music, and the songwriters and publishers don’t want to change their traditional royalty arrangements to move to a percentage-based model.

Sometimes I think the only thing that would save the music industry from itself would be the government voiding every music contract ever signed and every statutory royalty and compulsory licensing arrangement ever established, and forcing the industry to start from a clean slate. Of course the government would never do this; it’s bought into the industry’s line that maximum control of music and other copyrighted material equals maximum benefit to society, even to the point of considering appointment of an intellectual property czar to lead the war on piracy. (I’m sure such an IP czar would be just as successful as our drug czars have been waging the war on drugs.) However where the government does not act the people will act for themselves, and if P2P use continues to grow then for all practical purposes it won’t matter at all what the contracts say and what the royalty arrangements are supposed to be.

CMO and CRM

I don’t have time to follow every little bit of eMusic news, but I do find it interesting to look at eMusic’s press releases from time to time. One that recently caught my attention reports the hiring of Kip Morgan and Anna Punsal as Chief Marketing Officer (CMO) and Vice President of Customer Relationship Management (CRM) respectively.

There are at least two interesting aspects here. The first is that this is a sign of where eMusic finds itself now that the rumored Amazon deal has fallen through (if it ever existed in the first place) and no new buyers appear to be showing up (at least if published rumors are any indication). As I’ve written multiple times, eMusic is not a Web 2.0 darling that can sell itself at an inflated valuation based on hype and promise; it’s a pretty conventional online service with a straightforward business model and a valuation that can be reasonably well estimated based on its financial results. (In fact, if I ever have the time I might take a shot at doing this myself; the result would likely be off by almost an order of magnitude, but the process itself might be interesting and educational, for myself if no one else.)

Dimensional Associates’ best hope for a future eMusic sale (or IPO, though I think that unlikely) is therefore to try to drive growth in the two numbers that ultimately determine eMusic’s value: total subscribers and profit per subscriber. Increasing total subscribers is a function of getting more subscribers on the front end (hence the mention in the press release of customer acquisition through direct marketing) and retaining subscribers on the back end (hence the mention of customer retention, loyalty programs and the like). Leaving aside the cost side of the equation, increasing profit per subscriber could be done by cross-selling and up-selling subscribers (e.g., convincing them to buy audiobooks and/or other future products in addition to music), as well as by attracting and retaining subscribers who are more casual users and hence more profitable to service.

(This last point has of course been key to eMusic since its beginnings: all other things being equal, the less a subscriber downloads the more money eMusic makes. In the limit a subscriber might download nothing at all, and their monthly fee would then be pure profit for eMusic—and for the labels, under eMusic’s revenue sharing scheme. Of course subscribers making no use of the service would presumably cancel their subscriptions eventually, but eventually might be a long time, and in the meantime they would have inflated eMusic’s average profit per subscriber—and helped subsidize the downloading habits of subscribers who do download their entire quotas every month).

As it happens, eMusic shares this basic financial model (relatively stable recurring revenue from subscription fees, significant fixed costs for infrastructure and labor, and variable costs per customer based on usage) with other subscription-based businesses, including in particular ISPs. It’s perhaps not a coincidence that in hiring a CMO and VP CRM eMusic didn’t bring in music industry veterans but instead looked to one such ISP, namely EarthLink.

Whether this will be a successful strategy or not remains to be seen. The second aspect of this announcement, and a somewhat ironic one, is that eMusic was apparently able to hire Morgan and Punsal in large part because of downsizing prompted by EarthLink’s deteriorating business. Regardless of how successful EarthLink was at extracting financial value from its existing customer base, in the end it fell prey to larger industry trends, most notably the decline of the original dial-up business and the rise of a telco/cable broadband duopoly—a duopoly in which the ISP business produces only a portion of telco and cable revenue (albeit an increasing one), and can be cross-subsidized from the cash cows of the legacy telco and cable businesses.

Could eMusic face a similar fate? I think that ultimately depends on whether eMusic can offer real value to its customers, value that is not totally dependent on the current state and structure of the music industry. Better customer acquisition and retention in the narrow sense may give eMusic the financial strength to weather the industry transition, but I think customer satisfaction in the broader sense will be key to eMusic prospering in whatever the next phase of the music industry turns out to be. (I hope to post more on this topic in the future.)

Please eMusic, Select some indie classical

Now that I’ve gone and hyped eMusic Selects, I feel I’ve earned the right to make a suggestion, for any eMusic poobahs who may be reading this: As I understand it, eMusic will have monthly Selections, which at two per month adds up to 24 Selections per year. eMusic also has a fairly substantial group of people into classical music, and has been successful in getting subscribers to try out classical releases (as noted in this recent story).

So, why not have one or two Selections this year to highlight some of the upcoming composers and performers who are bringing a true indie sensibility to the classical music scene? Yancey and friends won’t have to go far to get some advice: Justin Davidson recently wrote a New York article on the next wave of classical scene in New York (highlighting, among others, the good folk at New Amsterdam Records), and Alex Ross did a similar article for the New Yorker last year. eMusic could probably find some worthy Selects without even having to leave the five boroughs.

So, come on eMusic: please make us indie classical fans happy in 2008!

eMusic Selects a strategy

I thought I should say a little bit about the new eMusic Selects program. eMusic really wants people to know about this; in addition to a link on the eMusic home page, there’s a press release, an eMusic Magazine article, a 17 Dots blog post, and a message board post. Presumably the folks at eMusic feel that eMusic Selects is strategically important to the future of eMusic, and we should take them at their word. So what’s going on here?

Let’s start with the press release, and focus on two key phrases in the release’s title. The first is A&R program, which refers the work of discovering and developing new acts. This press release is in effect a message to the music industry in general, and to independent labels in particular, that eMusic is now prepared to take on a key label function, at least in a limited way. (eMusic is asking artists only for a 60-day exclusive period for digital release, after which they are free to seek other digital distribution channels.)

From the perspective of indie labels this could be viewed in one of two ways. On the one hand, this may be a way to demonstrate to labels the ability of eMusic to drive new artist sales, and thus the desirability of working with eMusic. It also offers labels an opportunity: with unsigned artists eMusic will do the upfront work of marketing artists and attempting to jump start sales of their digital downloads. Labels will then have the chance to pick up artists who have a proven record of digital sales success and can market those artists through other digital music services, including the iTunes Store and Amazon, where per-track payouts are higher. To the extent that this actually occurs, it’s an example of eMusic providing an extra benefit to labels to offset the lower prices they’re asked to sell at.

At the same time eMusic is perhaps making the same implied threat to indie labels that Apple has been accused of making to major labels: Don’t assume we’ll always need you. That threat (if indeed it is one) will play out over the long term; for now and years to come eMusic is and will remain dependent on indie labels for products to sell.

The second key phrase in the press release title is highly-curated boutique music space, a phrase that strictly speaking refers to eMusic Selects but which can also be seen as an attempt by eMusic to influence the perception of the service as a whole via the halo effect. The message here is directed to music industry analysts and potential eMusic buyers: don’t compare us to Amazon, especially as Amazon moves past eMusic to become the acknowledged number two digital music download service behind the iTunes Store; eMusic wants to be positioned as a boutique service, not as a general-purpose music retailer.

Based on the highly-curated reference, another implied message could be don’t compare us to Last.fm and other music 2.0 companies. Unlike services like Last.fm that are built primarily upon user-generated content (e.g., listening data, track ratings, artist pages, etc.), eMusic wants to emphasize its reliance on knowledgeable music experts. Finally, the word space points to eMusic’s desire to be seen as more than an e-commerce site. (This desire is also apparent in the mention in recent press releases of the message boards—excuse me, vibrant online community—and other non-store aspects of the eMusic web site.)

As I’ve previously pointed out, eMusic really isn’t a Web 2.0 company as that term is normally used; rather it’s just a specialty retailer, the online equivalent of a well-stocked independent record store with a knowledgeable sales staff. So with this highly-curated boutique music space theme eMusic is basically making a virtue of necessity: it can’t compete directly with the likes of Last.fm or Pandora, so it’s trying to do a better job of what it’s already doing. As I’ve also pointed out, the nature of eMusic’s business is such that it’s relatively easy to value (simply look at the current subscriber base, average profit per subscriber, and likely growth in those figures). This means that eMusic is not likely to command an outsized YouTube-style valuation when it is sold; however at the same time managed properly it could be a solid and lucrative business for the right buyer.

Perhaps eMusic is best compared not to the latest trendy music 2.0 companies, but rather to a company like O’Reilly Media. O’Reilly started out in the traditional (and rather boring) business of publishing technical books (as O’Reilly & Associates), caught the Internet wave, moved into digital publishing ventures (most notably the Safari subscription service), acquired a reputation (via Tim O’Reilly’s writings and those of others he brought onboard) as a thought leader in the Internet and web space, and eventually parlayed that reputation into related lines of business, most notably hosting conferences.

O’Reilly consciously tailors and markets its offerings to alpha geeks, looks to them to see what was hot and upcoming, and then uses that knowledge in creating new product offerings. eMusic’s strategy with eMusic Selects seems very similar: begin by serving that subset of music listeners who are dedicated fans of non-mainstream genres, determine what the most knowledgeable and au courant fans (both on eMusic’s staff and otherwise) think might be the next new things in those genres, and then use that knowledge to put together products of interest to the general eMusic subscriber base. It may not be as sexy a strategy as some, but I think it’s one that leverages eMusic’s strengths and minimizes its weaknesses.

Out of context

In the past I’ve discussed several ways in which I think eMusic could improve itself for the benefit of both its customers and its suppliers (i.e., the music labels and the artists). Recently I read three interesting posts that touch on this subject. The first (to which this post is dedicated) is from Ian Rogers of Yahoo!, recapping his presentation at the Aspen Live conference in December:

Today users are creating tremendous value and for the most part we’re ignoring it. They’re writing blogs about your artists, putting bios on Wikipedia, documenting last night’s concert on Flickr and video sharing sites, showing what songs are most popular by their behavior on Last.fm, building box sets on community sites, etc. How has the music industry leveraged this? What tools have you created to enable or encourage it?

Nothing and none, and what we’ve done is forced a disconnect between content and context. As I mentioned in my October presentation, iTunes is a (mostly) context-free content experience and the Web is a (mostly) content-free context experience. Whoever puts the two together wins.

This has always been a major complaint of mine about eMusic: When I discover an interesting new artist on eMusic I go through a period during which I want to seek out and experience everything I can about them. Can I do that through eMusic? Unfortunately not. eMusic is self-consciously curated: Except for subscriber reviews, descriptions in subscriber playlists, and message board posts, the eMusic site is a walled garden in which all content is provided by eMusic staff, contractors, or partners.

Unfortunately eMusic doesn’t have enough people to provide deep coverage of all the artists whose work it offers, or enough partners to fill the gaps. Even the eMusic subscriber base isn’t large enough to provide comprehensive coverage all the way down the long tail. Also, a lot of the information I’d like to have, including band bios, lyrics and liner notes, and information on upcoming concerts and releases, is (or at least should be) most easily obtainable directly from the artists and/or their labels, as opposed to getting it second-hand from others.

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. One example of what’s possible is FoxyTunes Planet, a new site from the creators of the FoxyTunes Firefox extension.

For example, lately I’ve been listening to Clogs, a relatively obscure band even by eMusic standards. Clogs has a reasonably informative eMusic artist page licensed from the AllMusic Guide, along with AMG-provided reviews for two of its four releases, and eMusic subscriber reviews for one of them. On the other hand the FoxyTunes Planet page for Clogs has links to videos and concert footage, the band’s web site, photos, song lyrics, Clogs-related music blog posts, and other stuff. If you combined the eMusic information with the FoxyTunes Planet information, and also added a feedback mechanism to allow judicious editing (e.g., getting rid of all the videos about shoes and news stories about traffic jams), then I think you’d have a killer way to get deep context on any artists popular enough to generate Internet references.

Could eMusic be the service that truly puts content and context together, at least for the genres it specializes in? Beyond any benefits to subscribers, I think this would benefit artists and labels as well. In particular, if labels are unhappy with eMusic’s payouts, perhaps they’d be happier if eMusic provided them more opportunities to directly touch listeners, including providing label-generated content about artists, links to other artists on the same label, and so on. This could also be extended in theory to provide easy ways to generate follow-on sales of tickets, merchandise, and other products. (For example, since—unlike Amazon—eMusic doesn’t sell CDs or other physical media, why not let eMusic subscribers link through to label stores, with eMusic getting a cut of sales generated through such referrals?)

However in the end I’m skeptical of eMusic moving in this direction. Part of the problem is resources; I get the sense that eMusic is having a hard enough time running the business as it currently exists (witness the apparent issues with customer service), and that (having failed to find a buyer in the past) Dimensional Associates is perhaps unwilling to throw any more money at eMusic than might necessary to dress it up for sale. Another problem is perhaps a lack of imagination on the part of eMusic management. As I previously wrote, I don’t think eMusic is really a Web 2.0/long tail company; it’s more the Internet equivalent of an independent music store with well-stocked cutout bins (a good example of a traditional specialty retailing strategy adapted to the realities of today’s music business). Thus far eMusic has made some forays into the brave new world of blogs, RSS feeds, social networks, and mashups. However all of this hasn’t fundamentally changed the nature of eMusic as an ecommerce site with some extra features grafted on here or there.

It remains to be seen whether eMusic management has the desire or resources to revamp the whole eMusic experience. But as time moves on, eMusic’s original value proposition of low-priced DRM-free music will likely be duplicated by competitors, and eMusic will need to go the extra mile to keep its subscribers happy. I think that making context just as important as content would be one straightforward way to do just that.

UPDATE: I quote Ian Rogers of Yahoo! on the importance of context and offer FoxyTunes as an example of providing it, and just a few hours later Rogers announces that Yahoo! is buying FoxyTunes. I had absolutely nothing to do with this, I swear.

Swindleeeee!!!!! migration is now complete

The migration of Swindleeeee!!!!! to wordpress.com is now complete. The domain swindleeeee.com now redirects to the new blog, as do variant spellings such as swindleeee.com (four ‘e’s) or swindleeeeee.com (six ‘e’s). Your RSS newsreader may show you the last few posts again as it picks up the new feed, but otherwise everything should just work without any need for you to change feed URLs, bookmarks, links in your own posts, etc. If you do encounter any problems please send me email at hecker (at) hecker (dot) org.

Last post before Swindleeeee!!!!! moves to wordpress.com

Currently Swindleeeee!!!!! is hosted on a server I administer, and uses the WordPress blogging software. Over the years I’ve grown tired of maintaining my own blogging configuration, and some time ago I wrote that I was considering moving this blog to the wordpress.com blog hosting service. That time has now come. I have imported all my old blog posts and comments to my new wordpress.com blog, and am about to throw the switch on the actual move.

Note that the domain name of the blog will remain swindleeeee.com, and in fact all the existing URLs should remain the same. This means (among other things) that those of you using RSS feed readers should not need to do anything; once the domain is switched to point to the wordpress.com blog you should see future posts automatically.

I’m planning to make the actual change this morning (Thursday January 17) a few hours from now, and then I’ll do another post to mark completion of the migration. If you don’t see that next post by midnight US Eastern time on Thursday then please send me an email message at hecker (at) hecker (dot) org, and I’ll try to debug the problem.