The Future of Music Distribution

Author: Sam@Chaishop.com
Date: Jul 28, 2005
Views: 4573

Sam@Chaishop.com talks about music distribution of tomorrow


Date: Jul 28, 2005
Text: Sam@Chaishop.com
Interview: Liese@Hamburg.de

 

Photos: Sam@Chaishop.com, Jan Weber, P.O.R.N. Recordings

 

The Future of Music Distribution

Who gives us orientation and identification when we’re young? Who tells us what to dress, where to go out, what friends to make? Who is there for us in any hour  - in good and in bad times?

It’s neither our parents nor our best friends – it’s music!

Music is one of the oldest types of entertainment and recreation that exists. It’s older than theater, older than sports, older than TV, Playstation or alcohol – probably the only thing older than music is sex!

In the anonymous populous societies of today people have started to utilize music to identify themselves with ideas, values, status – to put it short: a lifestyle. With the help of music they created sub-societies: smaller, less anonymous – an alternative family. The trance scene is such a sub-society: A mélange of hippie values and hi-technology. A meeting point for those who want to break out – either completely or part-time. A playground for ideas, sounds and cultural interchange. Where ever we go on this planet: We will find Trancers that have similar ideas and that will like to show us around in their environment giving us a sense of home and family. We will start to talk about the music – and might end up as good friends!

The music comes in discs – either big or small, black or silver – has it always been like this? Every ten or twenty years the media changes: gramophone record, radio, tape, vinyl, CD - what’s next? In my opinion the media of the future is flexible as everybody can write on different types of media these days (CD, USB-stick, mobile phone, PC, iPod). But the way music is obtained will be dominated by music downloads from the Internet. Let me explain why!

A Step Further

Music lovers need a reason to change their habits. A reason can be the quality, the comfort to obtain the music or the price. While a rise in quality to the CD is hard to recognize for our ears music downloads offer significant improvements to comfort and price.

Email and WWW have made the Internet a “must have” for everyone. Even grandma does now have her own email address and applications like free Internet Telephony and Internet Radios will further expand the use of the 60’s invention of the US military. With a DSL connection to the Internet it’s possible for everyone to immediately obtain any type of music everywhere in the world! No walk to the record store, no closing hours, no sold-off, no wait for the parcel from the CD-mailorder or Internet CD-shop to arrive. You visit a Music Download Shop of your choice, “prelisten” what they have to offer, make your choice, buy the music, pay and download it. A few minutes later you listen to the first track in high quality. And you paid even less (or nothing!) than you would have with buying a CD. That makes sense, no?!

Music For Free?

P2P (Peer to Peer) Networks like Soulseek and Fasttrack have already conquered the hearts of many music lovers. While not too fast or comfortable they are at least free – and that’s always a good argument. P2P Networks are cool, stealing is cool and the artists will eventually stop producing music as they can’t live of it anymore – is this the future?

A Harvard study has the theory that music in the future might be free to the consumer and financed by merchandising (T-Shirts, Bags, little plastic artists that you can place on your kitchen shelf). This will automatically lead to a further concentration on the “big names” like U2, Eminem, Phil Collins, Robbie Williams, etc. A not too bright future…

I don’t believe in this. I believe that most people want to support their favorite artists, they are fine with spending some money on their favorite music and they don’t like to steal. However they don’t like to have a harder life with buying music than with stealing it. When buying music becomes more comfortable than stealing, people will do it!

Apple’s iTunes did a good approach on this. They created an online shop amazingly easy to use and sold over 400 million tracks already – giving a strong push to the whole idea of music downloads. But what the users slowly start to realize is that they agreed to a step back in quality and flexibility. iTunes offers music in their proprietary 128 kbit/s AAC format – a quality way too low compared with the CD. Furthermore the music that iTunes offers has a so-called Digital Rights Management (DRM) that limits you to copy “your” music to a maximum of five computers and prevents you to play it on other mobile devices than the iPod. This can’t be the future as well…

MP3, DRM, SSL, WTD - What To Do?

The low quality of tracks in P2P networks and in iTunes have convinced many music lovers that MP3 can’t even get close to the CD. Ahead of all are the DJs that have anyway eaten the wisdom of sound with golden spoons. Technically they are right: MP3 does not represent the original sound data exactly as it was recorded. However the human ear is not a computer and has limited abilities to recognize sound. This makes it nearly impossible to spot a difference between a CD and an high-quality 320 kb/s MP3. The rapper Chuck D said in the MIDEMnet Conference this January in Cannes: “If somebody tells me he can hear the difference between a high-quality MP3 and a CD he should best pick a job as a scientist than working in the music industry.” If you don’t wanna become a scientist you might be interested to hear that some online shops have started to offer high-quality 256 or 320 kbit/s MP3s.

However it will take some time until the customer’s trust in the quality of music downloads is restored.

The other trap is Digital Rights Management (DRM). To prevent piracy most bigger labels and shops are using a restrictive DRM like iTunes does. While it usually doesn’t get on your nerves immediately you might find out in some years that you can’t copy your tracks to your new media player! Why would I buy a track that gives me headaches some day when I can download a free version from a P2P network without any limitation?

The music industry is scared. Since CD-Burners and P2P networks appeared they are trying to fight piracy with weapons instead of making an interesting offer to the pirates. Funnily they forgot that all attempts to provide a copy protection to CDs were dropped by the music industry itself mainly due to problems with incompatibilities.

While restrictive DRM will still piss off honest music buyers for some years, another approach is being tested: With a so-called watermark the use of bought music is not restricted but it contains information about the buyer. Using this system major pirates could be tracked down while normal users would keep their freedom.

In my opinion restrictive DRM’s won’t win. Freedom of use is essential for people to trust music downloads. I furthermore believe people will copy less bought music than stolen. Just to remind: A bit of copying was always done so that’s ok – it’s just important that people still buy music also. And I believe they will.

Another important issue for the consumer is security. In times of credit card fraud, viruses and spam people got quite afraid of revealing their personal (or even their payment) data to the net. And who – outside the US – actually has a credit card?!

To address these issues online shops usually transfer this type of data via secure connections, encrypted using the industry standard SSL (Secure Socket Layer). While not impossible to hack it makes it at least extremely complicated for gangsters to access this data. On the payment side many shops added additional payment options like bank debit, Paypal, Firstgate to address those without a credit card. And in the extremely rare case of illegal charges it’s usually possible to reverse the transaction with the payment provider – although this is not a pleasant task to pursue.

In my opinion Internet purchases are quite secure and with a little bit of caution users should not get into trouble. And the super-skeptical should remember that credit card numbers or purses could also be stolen in real-life.

Save Your Music!

Consolidation, concentration, shareholder-value and survival were the top subjects of the music industry in the past ten to twenty years. Why? - I thought this is all about music!

Well it’s not anymore. It’s about the existence and growth of an industry. Unfortunately. The result is the focus on a few “big stars” that bring in money fast – and a lot. There is not much money and time anymore to develop artists – therefore TV shows have been installed that “make” an artist within a month. 80% of the music market is being hold by four major labels. The remaining 20% are held by the so-called Indies (small to medium size labels) – who are having a hard time fighting for a more diverse and independent music culture.

So let’s talk about music – not about industries! If we could eliminate some of the costs that need to be invested in having an artist offer his music – then more artists could do so and we would have a more diverse music market, right? If we could minimize or eliminate the costs for CD-printing, CD-shipping, CD-reselling (Distributors and Shops) the remaining costs would be music production (music equipment, studio rental, etc.) and marketing. Welcome to the world of Music downloads!

Music downloads enable Labels and Artists to sell their music with minimal investments. They can offer music immediately (i.e. a live recording right after the concert) and without a high break-even of the sales-numbers. A lower need of investment means more labels and artists have the chance to release music. A lower share of CD production and distribution costs means a higher share for those who actually make the music – the artists. And this is the aim!

Labels, Artists and Marketing

Suddenly it seems pretty easy to release music. A salsa musician lives on a lonely island with just a few coconut trees, his laptop and a satellite Internet connection. After recording his new coconut groove to his laptop he uploads it to the Internet and starts selling. The only problem: There’s no money machine on the island!

Well it’s not that easy… Music needs listeners and those need to be found. The magic word for this is marketing (simple: promoting and selling the music). Marketing stays as important as it is with classical distribution – just how you do marketing will change slightly. And this is why Labels have an important role in Digital Distribution as well.

As in classical distribution the labels are needed for the business aspects (music selection, artist development, financing and marketing) so that artists can concentrate on the creative side of the music. However unsigned artists do now have the chance to start selling their music without setting up their own label. The advantage is that they actively promote their music with making it available and that they develop their sales. The disadvantage is that labels might loose interest in signing tracks that are already released online.

Owner Right Societies

Somebody had a cool idea a century ago: A society was founded to collect money from those who played or sold music from a specific artist and then directed most of this money to this artist. However today owner right societies are immobile bureaucratic institutions that sometimes make you wonder weather they work for or against the artists that employ them. The German owner right society GEMA i.e. asks their artists to pay a minimum of 1800 EUR a year for pre-listening tracks that they offer on their own online shop. These artists actually are supposed to get 100% of this money back with their annual GEMA payment – therefore it looks like the only reason to pay this is to provide additional funding to the GEMA and to delay the development of music downloads in order to secure revenue with CD sales.

The strategies of Owner Right Societies regarding music downloads will change. The question is just when. Being innovative and understanding they could actually provide an important service to artists and Music Download providers: They could act as an international clearinghouse for purchases and payments of music – completely Internet-driven. Doing so that would make the life for artists, labels, distributors and shop-owners a lot easier.

   

But also for the music lover they could provide an innovative service. Keeping an optional and international “purchase log” for music buyers they could enable those to re-retrieve the purchased music whenever they want and wherever they want. Either for free or for a minimal retrieval payment – since the money to artist and label was already paid with the initial purchase. Nobody would ever loose his music anymore after his house burned down or his girlfriend got angry – at least not the purchased one. And whenever a new music format of a purchased track is available the music lover could update this track on his computer!

In the meantime shop owners have to figure out a way to make music downloads viable for them. This might be achieved in discussion with their local owner right society or with offering only artists that are not connected to any owner right society (which are many in the trance scene). If this doesn’t help they can still consider to run the shop in a country with a more liberal or non-existing owner right society.

MetaDataStore: A central and international trade platform for meta-data

Instead of having to enter their metadata (i.e. artist name, track name, price, distribution range, etc.) in the different systems of content aggregators and retailer shops, labels and artists can now manage this data in one single and independent database: the MetaDataStore. From therein the data should then be distributed to content aggregators and shops alike. Additionally the MetaDataStore delivers a so-called EPI-file that acts as a purchase receipt and can be used to get additional data about the artist as well as the chance to reretrieve the music at a later time (optionally in a new format).

www.metadatastore.com

   

Status Quo

Right now the Music Download industry looks pretty much like a copy of the classical music industry:

  • Artists sell their music to their usual labels.
  • The labels sell their catalog to so-called Content Aggregators (taking the job of the classical distributor).
  • The Content Aggregators serve the online music shops (or portals) like iTunes, Rhapsody, etc. These portals often contain over 500,000 tracks and therefore make it difficult for the user to orientate.

The time that passes from track production until it’s available in the big online shops can easily be a couple of months – this sounds like classical distribution again. I wonder why! Technically it could be done in a few hours.

The current structure of digital music distribution has been setup by the majors to address their needs. As we know it from the classical music industries, the Indies have to fight their way into this structure. Due to their missing financial power and missing coordination they will always have it a bit harder to participate.

On the other hand the majors are putting a massive amount of money into music downloads. Various million-dollar projects already went bankrupt. Other projects still burn amazing budgets for infrastructure and marketing. And Apple’s iTunes is only successful because of their additional income with iPod hardware sales.

Conclusion: The current structure surely helps to push music downloads. But independent labels and artists have to make an effort to participate. Luckily an alternative or addition to this structure is developing: Direct Sales.

Distribution Steps and Shares *1

Step

1

2

3

4

5

Party

Artist

Label

Distributor / Content Aggregator

Shop

Consumer

Jobs

creation, identity

production, marketing, financing

distribution to shops

sales to consumers

enjoy

and pay!

Classical distribution (CDs etc.)

8%

38%

27%

27%

100%

Online distribution
(normal)

8% *2

41%

16%

35%

100%

Online label direct sales

8% *2

92% *3

X X

100%

Online artist direct sales

100% *4

X X X

100%

*1 All numbers are average and based on the net amounts
*2 Presuming labels use their standard contracts from the classical distribution
*3 Label has to pay shop infrastructure (35%)
*4 Artist has to pursue marketing and pay shop infrastructure

Content Aggregators

Setup

Fee / CD

Revenue Share *3

Payout

Exclusivity

Term

Open for everyone?

Marketing

IODA

No detailed info yet as IODA didn’t reply my request email.

The Orchard

$ 14

$ 35

30%

quarterly

no

3 years

yes

Big Fish

-

$ 10

25%

quarterly

no

1 year

no

INgrooves

-

-

40%

quarterly

limited *2

1 year

no

yes

CD Baby

-

$ 35

9%

weekly

yes

3 years

yes

no

*2 Limited exclusivity to the services that INgrooves is working with
*3 Applied to the incoming revenue

   

Direct Sales

Music Lovers buy music because they love the music of a specific artist – or sometimes of a specific label. They don’t buy music because they love the distributor or the shop. Still in the classical industry people buy in reseller shops and only rarely from the artist or label himself. That’s understandable, as artists and labels couldn’t set up physical shops all around the planet. Even online CD shops and mail-order shops are a challenge, as you have to employ staff and rent rooms to take care of the orders.

   

In the Internet everything’s just a click away and highly automated. Artists and Labels can easily setup their own shop and sell directly to the music lover. The nice side effect: No delay with publishing music and fewer companies that want to have a part of the pie (which means more money for the artists and labels). With advantages for publisher and consumer Direct Sales will become more important in the future.

For most labels and artists they will be an alternative channel to the distribution via content aggregators and portal shops. For some they might become an exclusive distribution channel.

MusicDock

MusicDock is a shop solution for labels and artists that want to sell music downloads by themselves (direct sales). Using a web interface they can create their own shop, upload tracks, customize the design, integrate it into their website and start selling right away. MusicDock offers the shop-, server- and payment-infrastructure for which they charge 30-40% of the achieved revenue. There is no setup- or monthly cost and shops can be opened online without any paperwork involved.

http://www.musicdock.net

   

Trance And Music Downloads

The trance scene – being founded by dropout in Goa – is famous for it’s alternative values. These include participation, non-commercialism, spiritualism and equality. Having no “pop-stars”, no money and a lot of friends is not the perfect humus for a flourishing music business. Music copying or downloading is widespread, labels have a hard time to exist and artists earn most of their money not through music sales but through live acts on parties. The willingness to buy music is among the worst of all music genres.

But responsible for the high rate of stolen music are not only the consumers but also the distributing industry. A good range of trance CDs is generally only to be found in special record shops in the bigger cities or in the Internet. Music downloads are only available of a few labels that made it into the bigger music portals. A designated and complete trance download shop does not exist yet. It doesn’t surprise that the most active in P2P networks are Brazilians – since imported CDs are absolutely overpriced (the Brazilian government takes a 50% tax on imported music and the Brazilian currency, the real, is not too healthy).

Another reason that speaks against buying music is the ephemerality of trance music or electronic music in general. DJs (that make probably 50% of the music buyers in the trance scene) usually only play a track for a couple of months from release – if at all! After that it’s “used off” – the exception proves the rule. Waiting for weeks for your music to arrive from the online shop overseas, while your friends have it already from before the release date, is not really satisfying.

But how about Astrix uploading his new track on Friday morning to his own download shop and sending a mailing out to his fans. DJs would buy and download the track on Friday afternoon and play it on parties Friday night around the planet. Music lovers ask the DJs about this track and buy the download on Saturday morning. After a week Astrix has sold his track 1000 times – and made more money than with a CD-single release!

   

There are a few initiatives in this direction. A few labels have managed through a time-consuming process to get their music online on the mainstream download portals like iTunes (i.e. Porn Recordings). A few artists and labels have opened their own download shops (i.e. Plusquam Records, Digital Structures, Hilight Tribe). Trackitdown.net invested some effort on the Psytrance catalogue of their download portal. Cytopia.org initiated a trance portal that offers tracks from unsigned artists. The content aggregator INgrooves from the US is working on getting trance labels and artists into the mainstream download portals. And a new international cooperation that – among others - involves Chaishop and Plusquam Records (former provider of the first trance download shop clickatrack.com) are working on a broad trance download portal.

The internationality of the trance scene, the high acceptance of the Internet as a community and informational media and the ephemerality of the music are perfect prerequisites for (paid) music downloads to work. It needs online shops with a reliant, fast, complete and convincing service to start Trancers use it. And it needs time for Trancers to understand that buying is an option!

Join the discussion at http://www.trancersguide.com/ futureofmusic

INgrooves

INgrooves is a digital record label and content aggregator (mobile and internet). Their specialty is their included marketing that produces features on shop portals, radios and other media for their artists and labels. INgrooves also actively licenses music from its catalogue to be embedded in consumer electronics devices and synched to films, video games and commercials. They are furthermore interested in working with trance artists and labels and already count Infected Mushroom, Shpongle, BNE, Hommega, Iboga, Phantasm Records and others to their customers.

http://www.ingrooves.com


The author - Sam@Chaishop.com

   

Links

Trance Download Shops:

Content Aggregators:

Shop Engines for Direct Sales:

   

Interview with Matthias Delay of P.O.R.N. Recordings

Q: Why did you decide to do it?

A: Digital sales mean to P.O.R.N. an additional and contemporary way to reach the worldwide audience.  This technology is already widely accepted and it will become more important in the future. We want to leave the choice to the buyer which format of the music he wants to possess. Digitally downloads bring a lot benefit for the customer and the label. For the customer: almost worldwide access, 24/7, huge offer of quality music and it is very easy and comfortable. There was never a broader access to music before. Additionally it is suitable for all DJ who like to use CD Players or special analogue/digital systems like Final Scratch.  

We will continue with physical formats for collectors and vinyl junkies, vinyl won't disappear, I am not so sure about the future of CD.... 

Q: How do you choose your partner?

A: This is a highly dynamic and growing market: the individual providers verify regarding the way of trade, terms, general conditions and available digital formats. Further they are targeting on a diverse audience. There are portals specialised on DJs and their needs, this could be compared best with the idea of an online record shop. And there are superstores like iTunes and their likes with a huge mass of content of all styles. 

The future will show, which strategies and which portals will succeed, it will be finally the choice of the customers. The convenience of the procedure and the offered music will make a difference. And this market will leave place for more than a few suppliers.

We are working concentrated with several providers and a handful of content aggregators like finetunes.net, deeep.net and cdbaby.com, who supply other suppliers. 

P.O.R.N. Recordings is member of the Verband Unabhängiger Tonträgerhersteller VUT e.V., the Association of Independent Record Companies of Germany. This organization puts a focus on the pros and cons of the new technologies and provides participating labels with special conditions and carefully checked contracts, mostly with better member conditions. 

Q: What did you experience?

A: We see, that different people use different sources, and we notice growing download sales. It isn't a big share yet, but it is a share and highly appreciated. It is a lot of work getting the tracks online. This goes for all portals. The necessary procedure is pretty different for each and every portal and mustn't be underestimated. I am talking about filling up metadata files, converting the music into the necessary format and so on. 

This is why we want to highlight partners like finetunes.net, beatport.com, deeep.net and cdbaby.com as reliable and professional partners and great sources for quality tunes, last but not least they are well connected to the independent scene. 

Q: Would you recommend it to other people?

A: Yes. And a little biased: we are offering consultant services to independent labels. Just contact me. (matthias@playoutrightnow.com)

   
Join the discussion at http://www.trancersguide.com/futureofmusic
   

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