By Nate Anderson
Billboard recently ran a piece discussing a label “revolt” at eMusic, the number two US retailer of downloadable music. According to the article, at least six independent labels are dissatisfied with their eMusic contracts and are considering pulling their catalogs from the service if they don’t get more money per track sold.
The low price of music on eMusic is the biggest issue. Labels do get nearly half the money from each sale, but with eMusic offering tracks from $0.25 to $0.33 apiece, the label cut can be as little as $0.12 per song. That’s not much money, and some labels worried that eMusic is using low prices as a way to build its subscriber base, after which executives will sell the company, pocket mad cash, and walk away—leaving the labels with nothing.
We’ve profiled eMusic and its CEO David Pakman in the past, so naturally we’re curious about the company’s fortunes. Is a mass defection in the ranks? Is eMusic simply offering indie music too cheaply? We contacted the company, who pointed us to this blog entry by Pakman that gives his take on the current situation.
His basic premise is that raising prices on music is the surest way for the industry to keep pulling the trigger on the shotgun pointed at its feet. Music sales have been dropping over the last several years, but Pakman points out that the industry response has been to raise prices on CDs, and we’re seeing the big music labels trying to do the same thing now with iTunes (where EMI agreed to sell DRM-free versions of songs for a $0.30 premium). All this has done, Pakman argues, is contribute to the decline.
The “problem” is that people simply have so many options when it comes to spending entertainment dollars that music is getting a smaller slice of the pot (widespread file-sharing may also contribute to a sense that music is less valuable, though this isn’t an argument that Pakman makes; the death of the album may have something to do with it, as well). Music is an elastic good, he claims, which means that lowering the price leads to a disproportionate increase in sales and therefore to more money. Raising prices has the opposite effect; total revenue actually goes down.
To prove his point, he claims that the average iTunes user spends only $12 per year at the store, but the average eMusic customer spends $168. To labels who don’t believe that low prices are the way to increased profits, Pakman simply says, “Sure, on occasion, a few labels will come and go. And we wish them well. We love their music and wish they would work with us. Our model may not work for everyone.”
The Billboard article did not include any mention of total label revenue from the different download services, instead focusing only on revenue per track. As eMusic has kept prices low and brought in higher-profile indie acts like the Arcade Fire, Barenaked Ladies, and Spoon, its growth has been remarkable. In the last four months, subscriber growth has soared from 250,000 to 300,000, and all of those people are paying month-over-month fees of $10 to $30 in order to download a set number of songs per month.
Billboard also points out at the beginning of its piece that three of the six indie labels being discussed “were listed among eMusic’s top 60 labels this week.” Why “top 60,” of all things? Likely because at least one of the labels is quite close to that sixtieth spot; the non-top 60 labels are ranked even lower. This may be a “revolt,” but it’s a revolt that’s going to need much larger guns if it wants to pressure the king into raising taxes eMusic into raising prices.
In Pakman’s view, it all comes down to a reality of the Web 2.0 era, a reality that some industries are studiously attempting to avoid: the user is in control. “The biggest shock to entertainment companies, in the era of Web 2.0,” writes Pakman, “is that the customer sets the value of the music… The customer now decides which music is successful and how much they’re willing to pay for it. And, the truth is, our customers tell us that $0.99 a song is not the right price for most music—particularly for music that they haven’t heard of before.”
Written by Nate Anderson for ars technica
The Hit Music Academy | 2010
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