What You Can't Get From iTunes

A recent article in the San Francisco Chronicle turned to the experts to see how to survive as an independent record store. Tower Records may be out, Virgin may have experienced a $493 million loss in the past two years, yet somehow several independent record stores have managed to stay in tune with their customers and pin point exactly what the customers want. Amoeba has remained one of the largest independent record stores in the Bay Area. Joe Goldmark, co-owner of the Haight Street store, has credited this to the store’s focus on customer service. It has survived the plummeting CD sales by offering DVDs, and is now looking towards offering downloads. The idea here seems to be to make a trip to the record store an experience. Amoeba offers free concerts on location and a staff that can “name that tune.” The store also accepts trade-ins, a downfall of digitally downloaded albums. In the event that a customer accidentally chooses the wrong CD, or listens to a CD and decides it is not worth the purchase for one good song, the customer can return the CD and receive store credit.

Other stores focus on rare finds that will never reach iTunes, such as the music at Tweekin’ Records. The store also allows customers to visit its website, and to listen to mp3 clips of all new releases. Here is a store that knows what Generation Y wants. It is catering to this generation’s fascination with the Internet. Now customers do not even have to waste time in a store. They can go online, check out a new release, and then head to the store to buy it. Perhaps leaving the computer may be a waste of time, but in this case, if the music cannot be found on iTunes, at least the customer knows where it can be found.

Recycled Records has moved with the times and used eBay auctions to help offer its customers a wider variety of music. It also has embraced collectibles from movies and posters to books.

What these record stores all have is the personal interaction that the Internet cannot offer. There are still those music fans that love to talk to a record store employee and receive a personal review of a CD. As far as vinyl, vinyl sales have actually skyrocketed in the Bay Area. Perhaps the independent stores have the key to selling music in these changing times. They understand that Generation Y needs a reason, other than just for the songs, to drive to a record store and purchase a CD or a vinyl record. The question is whether this will be enough to compete with stores like Best Buy, who can slash prices on new releases and consider the loss an advertisement for the latest stereo systems or whatever other technology the store is trying to sell. It seems, however, that the independent record stores interviewed in this article are ahead of the game and already distinguishing themselves from the mega-retailers.

Suing Students Semesters at a Time

A reporter in the Kansas City Star coined it the “copyright crackdown”. The copyright crackdown- a ridiculous amount of law suits filed by the RIAA against poor college students. Lets just acknowledge for a moment: these students don’t have money – they are stealing (file sharing illegally) because they can’t pay for the music in the first place. The association has sued about 18,000 computer users nationwide since September 2003, that figure includes about 1,000 university students. In the association's latest effort to “crackdown on piracy colleges nationwide have been given letters to forward to students suspected of music piracy. Students are advised to settle with a broker at the association first, in order to save money, time and give the students a chance to settle early with no public mark on their record.

It is happening everywhere a rumored thirty-something on USC’s campus have been prosecuted and numbers keep growing. There has been outrage on the internet about he RIAA and many college campuses are going haywire. Kids will be kids – but the RIAA is forgetting the fact that these “kids” and their “kids” and their friends are CUSTOMERS- or shall I say no longer customers.

A letter to one Ohio University student told her that she distributed 787 audio files, putting her total minimum potential liability at more than $590,000. The letter further explained that the minimum damages under the law are $750 for each copyright recording that had been shared. I mean come on – are they crazy? Why would anyone sue a young college student up to $600,000 in fines- the poor thing hasn’t be able to make any money; and will not because for the rest of her working career, money will be shoveled out to the RIAA.

Back to the advisement of settling early: the RIAA quoted $3,000 is the standard settlement offer, though cases have settled for as much as $5,000. Ok 3,000 is a lot less than 300,000, but still- are students penalized this much for smoking an illegal drug? Its music we are talking about. However riduculous..be warned -settle early.

It seems the RIAA want to make a clear message- “don’t mess with us”. Yet instead I read it as – “uh... we are scared…because the younger generations are more computer savvy than us – and due to the fact we have no idea how to outsmart hackers and come up with better plans – we are going to sue….ya sue! Because we have more money and more power than you.”

http://www.riaa.com/default.asp

The Right To Royalties

Many leading publishers suing XM Satellite Radio, on the grounds that XM has neglected to pay the proper royalties incurred on its time shifting devices. The National Music Publishers' Association (NMPA), which represents more than 600 US-based publishing groups, has officially joined the RIAA in their ongoing complaint pursuant to this problem. The publishers also are complaining that XM Satellite radio has violated previous agreements related to the payment of non-interactive streaming music which was introduced in XM’s MP3 offering. The claim includes a sample of 175 songs that the satellite and the NMPA want $150,000 for those works infringed upon. In a statement issued Thursday, the NMPA stated "XM has been profiting at the expense of others," said Debra Wong Yang of Gibson, Dunn & Crutcher LLP, the lead attorney on the case and the former US Attorney for Los Angeles. "The XM + MP3 service constitutes pervasive and willful copyright infringement to the overwhelming detriment of copyright holders, legitimate online music services and, ultimately, consumers."

This special service XM + Mp3 service allows users to save songs on specific portable satellite player, and access them at their leisure. Since users aren’t buying the music- rather they are renting the music, this constitutes a major problem; and violate the first use doctrine that states – once bought, the user can utilize the work at a his/her discretion. In the first sale doctrine one may not rent music. Thus it can be arguing that XM is creating a means for users to rent copyrighted material and violating the law. However the service does not allow the user to remove the recorded tracks and listen to them outside of the device, a key component of the XM defense. XM is arguing that its service is “shielded by the Audio Home Recording Act (AHRA), which protects the ability of consumers to record and time-shift audio content for personal use.” The RIAA, and now the NMPA, claim the portable players—no different than the iPod. There are so many undefined laws and grey areas pertaining to radio, wireless and digital music it seems impossible to side with one company or the other in these lawsuits. It seems 2007 is the year of the digital wars.

Another act related to the subject is the 1992 Act that protects a "digital audio recording device," which is defined as "any machine or device of a type commonly distributed to individuals for use by individuals ... the digital recording function of which is designed or marketed for the primary purpose of, and that is capable of, making a digital audio copied recording for private use." The outcome for the artists, seems a bit unfair, anytime they are not being paid-already unfair royalties- it becomes sad to think they will be receiving even less earned monies. I might have to agree with the publishers on this one. Music isn’t allowed to be rented and recorded for free. XM must realize they are infringing upon the artists’ right s– or copyright owner. Even though it would ruin a great service and make a major blump in their business model… they must be creative to either pay fees – or re-structure their service.

http://www.digitalmusicnews.com/stories

Breaking Barriers

Rap has finally entered the Rock and Roll Hall of Fame. Grandmaster Flash was inducted March 12, leaving questions about where music is heading. Predictions have been made that there will be a switch from additions of 70’s punk performers to hip hop performers. Hip hop has been held back in past years due to the requirement that an artist cannot be inducted until 25 years after his or her first release. Since hip-hop is such a young genre, rock artists have filled the hall in the past. Grandmaster Flash is credited with being the first popular rapper to present a social theme.

This however, does not mean that rock is out of the picture. Recently 60,000 indie-rock fans showed up to the Coachella music festival. Rock sales are also up, with Modest Mouse’s latest release selling 80,000 copies, and making number 19 on Billboard’s album chart. For indie-rock file sharing has been a blessing, and fans have started spending once again. Websites like Myspace have probably also contributed to indie rock’s rise. Ask almost anyone in Generation Y where to find information about an upcoming band, and the answer will almost always be on Myspace. These band profiles offer music to listen to and download, pictures, tour dates, and you can even be friends online with your favorite band. Fans can feel a personal connection as they leave comments on the band’s profile page. Even MTV and larger radio stations are beginning to take notice, and play music from upcoming indie-rock bands. Devin Gordon of MSNBC Newsweek says, “We’re in the golden age for pure songwriting.” The only problem is that no one wants to take the lead. Supposedly the cynicism about the music being put out in the recent past has made upcoming indie bands not have the desire to become major stars. More and more bands are viewing their music as a hobby rather than a main focus. This is too bad considering that Geoff Mayfield of Billboard claims that “alternative rock” has made bigger strides than rap, increasing its market share over the past five years. MTV added five rock clips to its show “Buzzworthy” last week, which has not happened in four years.

Indie artists are bringing rock to the front lines again, without the help of major labels. They are focusing on marketing themselves through merchandising and ads for major companies like McDonalds. Rather than being viewed as selling-out, this is the lesson indie rockers are taking from hip hop artists in order to afford being able to stay with an independent label. Independent labels offer more artistic freedom, and one singer, Todd Baechle of the Faint, explains that signing to a major label “is more like a sentence than an agreement.” Now that bands are starting to find ways to better market themselves and stay loyal to their independent labels, major labels are soon going to find themselves searching for business. Major labels may have to start focusing on fully developing new artists if bands are not willing to leave their independent labels.

The CD Gets A New Use

Jeff Rabhan, manager of artists like Jermaine Dupri and Elliot Yamin, has a new view of the CD. He sees what the record labels have not- the CD as an advertisement. Rabhan uses the CD as a way to hype up more lucrative projects like concerts and merchandise sales. CDs introduce the music that fans will hopefully flock to see live. Competition from digital downloads is so fierce that CD sales cannot compete, and digital downloads cannot make up for declining CD sales, so it is time to focus on a new way to earn a profit. Aside from the seven- year decline of CD sales, just in the past three months, CD sales have fallen 20%. This is also due to the closing of specialty CD stores like Tower Records, FYE, Coconut Records, and Sam Goody chains. Even the larger stores who were stealing away business, like Best Buy and Wal-mart, are not faring much better with their CD sales. They have been slowly reducing their CD selections. This however does not mean that people have lost interest in music. People have just turned to digital downloads, or they have been forced to turn to digital downloads, since they can no longer find the music they want at CD stores, or rather they may not even be able to find a close CD store.

Turning to the Internet for music also brings up the issue of illegal downloads. The record labels have not been making many friends, but rather they have been driving away fans. The funny thing is that the labels still do not see this. They praise Audible Magic for creating a new system to monitor illegal downloading, which will probably only be cracked in the near future. The system checks online files against a database of audio and video content, determining whether the material has been approved for use. This is the system that is supposed to catch all of those college students who illegally downloaded 1.3 billion songs last year. It will be interesting to see how long the lawsuits continue for. More than a quarter of the student pirates have accepted an offer to pay a fee over going to court, and thus avoiding a mark on their public record. The fee ranges between $3000 and $5000.

The record industry needs to realize that they should focus on making their money from merchandising and concerts, rather than by suing college students and losing fans. Seeing the CD as a promotional tool rather than a focus to make profit seems to be a good first step. Perhaps this idea of a promotional tool could also be applied to digital downloads.

Who's Selling You Your Next CD?

It has been tough for record stores, as wholesalers like Best Buy or Target take the lead. According to Almighty Institute of Music Retail, a research group, 800 independent record stores have closed since 2003. The Internet has also been replacing these stores, which at one time were the only place to find obscure records. Wholesalers like Target can offer CDs for cheaper prices, and allow the public to shop for CDs while shopping for other house items. What is better than saving time and money? Unlike smaller stores, wholesalers can afford to sell the latest releases at a loss, or at prices that indie labels pay their wholesale distributors. Catherine Andrews of CNN claims that funding is the major difference blocking out small record stores. Not only can Target or Best Buy offer cheaper prices, but they can also afford elaborate advertisements to promote their products.

There is one main thing missing at these wholesale stores though- the wide range of music available. If the song is not played multiple times on the radio, then you probably will not find it at a wholesaler like Target. Eric Levin, owner of the independent store Criminal Records, is counting partly on this fact to survive as an independent record storeowner. He sees this era as a wakeup call for independent record stores to really connect with their customers. He believes indie record stores will survive as long as the stores are inviting, and fun places to socialize with other music lovers. Several smaller record stores have performances in their stores, something that is not found at large retailers. Levin’s plan is to represent the community with each person he hires. All of his employees are either in bands or some form of artist.

Russ Solomon, with the help of his loyal customers, is hoping to also bring attention back to record stores, or at least back to small record stores. Solomon founded Tower Records in 1941, and saw its demise when the chain was forced to close all of its stores in December 2006. The chain was sold to a liquidating company, and all 89 stores were closed in the U.S. The only remains are in foreign countries and online. Solomon’s new plans are to stay small and cater to the customer. He wants to bring back the salespeople who could tell customers about all of the latest releases, or could recommend new artists. His new store will be Resurrection Records, which he plans to open in April. The store should provide nostalgia for old customers, as the new store will open in the old Tower building on Broadway in Sacramento. Customer relationships will be key here, and by staying small, Solomon feels that the stores can quickly react to the latest music trends, something that Target or Best Buy has difficulty doing.

Although it seems unfeasible for larger record chains to survive, perhaps the smaller record stores do have a chance. It is hard for me to see a time when there will not be a market for vinyl, and this is generally a product that most people seem to like to browse through in person. If performances keep up at small stores, this could also increase CD sales for the bands that perform. If fans come out to see the band, then it is more convenient for fans to buy the band’s CD from the store. Customers may also realize that the increased prices at indie record stores are worth it for the environment and knowledgeable salespeople.

Could Indie Labels Take The Lead In The Future?

We have already discussed in a previous article the addition of a possible “fifth major” to the record label family, but could indie labels as a group surpass the top four? Indies from over 12 different countries have now joined Merlin, the nonprofit licensing agency that caters to independent labels. The agency allows online music stores to negotiate licenses for music under multiple independent labels through one transaction with Merlin. According to Tim Bajarin, president of Creative Strategies, “The indies are where we see some of the fastest growth in the next generation of music adoption.” So apparently not all of the record labels are suffering. The indies seem to be doing something right. Although in the past the indies have only made up 30% of the revenues from music sales, this percentage is expected to increase due to the fact that most of the latest music is found by this generation’s listeners through social networks and personal recommendations.

This last fact is too bad for major labels, considering the ways they have restricted the use of their music through various DRM strategies. This would restrict how music from major labels is spread over social networks, or between friends. Most independent labels on the other hand sell their music in MP3 format so that the songs can be passed on. Independents view the sharing as further publicity. The songs can be downloaded, emailed or copied to other computers, cell phones, or CDs without limits. At least EMI is considering taking a lesson from the indies. It is going to offer free streaming music on Baidu.com. This site is where 90% of music is pirated in China. EMI also licensed its music to Qtrax, a site that uses ads to earn money from its music downloads.

The independents might also soon compete on the radio. Due to accusations of payola involving Clear Channel, CBS Radio Inc., Entercom Communications Corp., and Citadel Broadcasting Corp, these large radio-station chains have agreed to help out independent music. The stations will pay a total of $12.5 million, and allow for 8,400 half hour segments of independent music over the following three years. Hopefully this will encourage discouraged independent labels to submit their artists’ music for play on commercial radio stations. FCC Commissioner Jonathan S. Adelstein claims, “If you take payola out of radio, then music gets heard on the basis of merit, not the basis of who’s got wads of cash backing the artist. That’s likely to make radio fresher and restore its vitality.” Could this be true? Perhaps by playing more indie music, Generation Y will turn to commercial radio as previous generations have, and learn about the latest music. By accepting payola in the past, these stations may have been aiding in their own suicide, as they lost listeners due to poor, homogenous content selections. Although payola will most likely always be present, maybe stations will get a small glimpse of how diversifying content selections to include music from independent labels could help out the station’s popularity.

Majors also seem to be following independent labels steps with podcasting. Warner Brothers has also in a sense disguised itself to appear to be an indie podcast. The podcast is called Bands Under the Radar. The controversy it is causing is due to the description which claims the podcast focuses on unsigned artists and indie bands. In fact, the podcast is created by a Warner Brothers employee, plays Warner Brothers music, and is delivered from Warner Brothers servers. There is also a button on the site to donate money. It will be interesting to see the other new schemes the major labels have in store, and whether strategies that have worked for independent labels will be feasible for major labels too.

Aimme Street

Here’s an interesting website that I stumbled across the other day: Amiestree.com. This is another site that offers an innovative business model to combat the current issues that the music industry is facing with regards to the DRM battle. Here’s a quick overview:

All songs are free to start. Prices fluctuate over time based on demand for the song. This demand based pricing model seems like a good way to sell music. Users can search, browse and listen to music for free. Users who have purchased a song can recommend it to their friends using a limited number of “rec’s” that they receive (users get one per dollar they add to their account). Once recommended, users will get account credit if the price of the song increases, giving them an incentive to find and recommend good music. Here’s an example:

“If you REC a song at 1 cent or above Amie Street will pay you half of the difference in the prices. So, if you REC a song at 10 cents, and it ends up at 90 cents, we will pay you 40 cents (half of the 80 cents difference).
If you REC a song while it is still free (0 cents), and it ends up at 98 cents, we will deposit 98 cents into your Amie Account. Amie Street pays you more for RECing a song while it is still free because you take more of a risk and because we want everyone on Amie Street to be RECing those great undiscovered songs.”

Artists keep 70% of proceeds after $5 in sales. They are not required to sell their music exclusively through Amie Street, and can remove it at any time. I believe that this model, for the artist is extremely well thought out. Since the vast majority of bands are not concerned with people stealing their music - they just want people to listen to it. .

Based on my previous blog regarding Spiralfrog.com in comparison- I am very surprised that after further due diligence, Aimme Street has not received more publicity or attention from the record labels. This site offers a pricing structure based on a consumer demand model for the music. That seems more like a plausible solution. Payment for music based on the consumer demand - isn't that how things should work? I tell you: I feel comfortable paying a certain and amount, you win my favor and my pocket book, in return I will give you my business and continue to do so. Makes sense to me. That is how things are going to have to work from here on out in some sense; because at this point who will pay for music at full price- when they can get it for free - legally or illegally?

http://www.techcrunch.com/2006/07/23/amie-street-awesome-new-music-model/

Who Will Cave In?

DRM has been a controversial issue in the U.S. news lately, but could Europe finally be the deciding factor? Apple struggles daily to separate itself from its competition- Microsoft. Each Apple commercial makes a point to see that viewers are aware that Apple is far superior to Microsoft. Too bad it is not working for European viewers who are pinpointing Apple as the next corporate enemy, in company with Microsoft.

Itunes’ once powerful reign over Europe is slacking, and the cause is said to be the DRM on iTunes downloads. In Norway Apple’s DRM is under investigation due to its possible violation of Norwegian law. Other countries performing investigations include Finland, France, Sweden, Denmark, and Germany. If the results prove a violation of law, there could be a big change in Apple’s business.

The case is likened to that against Microsoft, accusing Microsoft of preventing competition through bundling media players and web browsers in Windows. Despite U.S. claims, it was Europe who convinced Microsoft to unbundle the products, and it could be Europe once again that convinces Jobs to remove DRM from Apple Downloads. In Apple’s case the bundling would be iTunes and the iPod, where iTunes can only be played on iPods, and iPods can only play iTunes or DRM free music.

If Apple fails to comply, it could be affected by its loss of 70% of the digital market in Europe. Just with European sales, Apple showed a 30% increase last year. Whether the trend will continue though, is doubtful. With 98% of people against DRM, and recent protest groups, the sales could start to level off. A group called Defective by Design pickets Apple stores in London, and is involving Bono and Parliament in supporting its cause- the ability to have interoperable software. Jobs still has a good excuse for his failure to provide this interoperability though, and he made this clear in his “Thoughts on Music” posted on the Apple website. Basically, he reminds the customers that it is the major music labels that are forcing him to uphold DRM on iTunes downloads. Three of these labels are out of Europe. It will be interesting to see whether Jobs can still keep his image of the “good guy” throughout this battle, and whether consumers will turn to blame only the major labels.

Ringtones For A Cause

The New Mexico-based Center for Biological Diversity is hoping to take advantage of the ringtone craze. Ever wonder what a Central American poison arrow dart frog or a Mexican gray wolf sounds like? Well, Peter Galvin, co-founder of the Center for Biological Diversity, is traveling the world to find out for you. All you have to do is download his free ringtones. Some of the options also include downloads of an Arctic beluga whale, and several variations of South American birds.

So far 24,000 people have gone to the environmental group’s website to download ringtones, and four in five voting-age Americans have cell phones. The hope is that the ringtone hype will help make more people aware of the importance of saving endangered species. Each recording available is of an endangered species, taken from the animal’s natural habitat. The recording of the Mexican gray wolf is one of the only recordings of the wolf in the wild.

This idea is one of the few to really target the younger generations and ask for help. The environmental group wants to attract the younger, computer savvy generation, and to educate them so that they will choose to help out the endangered species in the future. Other foundations that have utilized ringtones for a cause are Bono’s ONE Campaign to help out global AIDS and poverty, and Amnesty International.

It is important that the Center for Biological Diversity is reaching out to younger generations in a way that these previous foundations may not have. It will be interesting to see whether a free ringtone is enough to draw pre-teens and teens to do anymore with the website than just download the recordings. The group will have to also make an effort to invite the younger generations to further research the animals in trouble. Wouldn’t it be surprising if these ringtones actually did start up conversations at school about the recorded animals? Perhaps this is a little too idealistic though.

A Spiral Frog- A Solution to the ongoing DRM Saga?

SpiralFrog based out of New York offers an innovative solution going up against industry giant itunes, by providing consumers an alternative from premium downloadable music. SpiralFrog (www.spiralfrog.com) is a new online music destination offering advertising-supported legal downloads of audio and video content. SpiralFrog offers music-lovers a compelling alternative to illegal file-sharing and pirate sites. How does the record label fit into this equation? The licensed music comes from the catalogs of the world’s leading record labels and from independents. SpiralFrog has made agreements with such industry giants as EMI, UMG and independents as Kudos and Click Record Productions. Does this sound too good to be true? Free music? Well not exactly. Spiral Frog works by exchanging music for advertisements. The management team explains:
“The company’s research revealed that consumers are more than willing to ‘pay’ for their content by watching non-intrusive, contextually-relevant, targeted advertising in an online entertainment environment where advertising is already part of the overall experience.”

This will be an interesting solution and success I believe will be based on the extremity of the advertising that must be consumed in exchange for the free downloads, and repetitive requirements of logging in to maintain membership and access to music downloads. After all nothing is for free.

The site was set to launch Q1, 2007 but is still not up and running. Recent publications have shown that CEO Robert Kent was fired. Other reports say six members of the company's executive team and three directors have left. Possible flaw in the business model?