Maybe there IS money in digital music.

In an age of declining CD sales and rampant online piracy, can the major labels make money from digital music?

The answer just might be yes. The Music Industry News Network is reporting the latest quarterly results for Warner Music Group, and one thing that stands out to me is that their digital revenues are increasing in real numbers, and proportionally.

Specifically,

* Total revenue of $989 million increased 7% from $928 million in the prior-year quarter, and grew 1% on a constant-currency basis.

* Digital revenue was $141 million, or 14% of total revenue, up 9% sequentially from $130 million in the fourth quarter of fiscal 2007 and up 41% from $100 million in the prior-year quarter.

$141M in digital revenue… 14% of total revenue… 41% growth from the prior year. That’s nothing to sneeze at, and it goes a long way in answering the basic question that has kept many from taking the digital plunge, that being “Where’s the Money?”

Sure, we don’t know the costs associated with bringing in those revenues, but I’d argue that they’re proportionally less than their CD side of the business. No waste, no worry, and my bet is more money to the bottom line.

For some of us that proclaim the eventual death of the traditional music industry (yeah, I’m in that group), these figures also highlight the real facts that 1) consumers place real monetary value on premium content, and that 2) consumers are willing to pay for something that they could obtain for free.

That’s all good news. Although we need a radical restructuring of the music industry’s business model, we don’t want the labels to tank. Like any industry that is forced into change, from horseless carriages to cars, from trains to airplanes, from landlines to mobile phones, we need the major labels to survive by better serving their music acts and servicing their customers. They should have the opportunity to thrive through technological innovation and targeted marketing that only the Internet and mobile arenas provide. They should benefit from economies of scale and efficiencies that result from making their massive catalogs available, well, to the masses.

We want them to succeed, and some–those that are willing to weather the change–will succeed.

So here’s to you, WMG. You’ve made money from digital music sales, and the indications are positive. Congrats.

There isn’t any gold in them thar hills, because the golden days are over. But don’t knock copper mining, either–there’s still plenty of money to be made.

Will the Music Industry’s “Last Stand” be a music tax?

Techcrunch recently ran an article regarding the Music industry’s “last stand” as being a music tax. Coordinated via ISPs, NIN’s Trent Raznor puts it something like this:

“I think if there was an ISP tax of some sort, we can say to the consumer, ‘All music is now available and able to be downloaded and put in your car and put in your iPod and put up your a– if you want and it’s $5 on your cable bill.’”

Yeah, that pretty much sounds like a last stand to me. And it won’t be successful.

You could try that (and people have) for mobile phones and such, since access to free mobile content is offset by “convenient” access to for-pay premium content. But for the Internet as a whole that model won’t fly. Nor should it.

The business model for music has changed forever, and there’s no going back (although the industry will continue to try). Due to unlimited digital distribution of legal and pirated content, as Michael Arrington states in his article, the perceived value of recorded music will approach zero. File-sharing is not always convenient, so yeah–some people will pay retailers for quick access to their top acts. But that’s where the price is going–down, down, down. The market–i.e., the consumer–has spoken.

So where does that leave the performer, songwriter, recording engineer, agent, label executive, etc? Like so many industries before, they’re being affected by circumstances beyond their control. They can either stick their head in the sand and fight for their lost cause or look to the future (or look for a new career). It’s not a matter of being right or wrong anymore, it’s about looking for success within a new business model. Either way, it will be nearly impossible to sustain their previous lifestyle.

Unless, that is, they take advantage of these revolutionary changes and seize the moment. Unless they become innovators in an innovative time. You don’t have far to look–some acts, labels, and sites are doing just that. Successfully and legally.

Fortunately, the costs to record, distribute, and transact music have declined dramatically. These days it costs a couple hundred bucks for professional recording software, and anyone can put their music up and give it away or try to sell it. Furthermore, musicians and all content creators now have access to a global audience that was unimaginable just 10 years ago. Obviously, someone has to *want* your music (notice I didn’t say it had to be good), but the good news is that you don’t need a middle-man to be successful. You don’t need a middle-man to maintain your success. You need talent, along with business and marketing sense. You, the artist, can finally control your destiny. So stop complaining about piracy, copyright infringement and copy protection, and find a way to live and thrive by playing within a new set of rules. You may have an argument, but you don’t have a viable solution that won’t end up biting the hand that feeds you. It’s time to move on.

For aspiring musicians, a new world of opportunity lies ahead, and millions of them are taking advantage of it. For established musicians, they’ll have to work a little (harder)–those days of living high on the hog are over. I recently blogged about Paul McCartney and the Eagles finding new avenues for reaching their audience, which is the approach I’d take if I was an established artist trying to hold on to my listeners. They can still milk their (deserved) reputation for all its worth, even in this new paradigm.

For the rest of us, we can enjoy the advantages of this new marketplace, where more music is available than ever before, and for a price of next to nothing.

As we all know, listening to recorded music is only half the experience. Music is not a product, it’s a message. And the musician is the messenger. If I like the message I’ll engage the messenger–I’ll read his blog, I’ll buy his shirts, I’ll pay to see him/her in concert. I’ll pay extra to subscribe to his site and get behind the scenes access to videos, demo takes, or back-stage access. If he reaches and attracts enough people like me, he might just be able to squeak out a living doing what he loves. If not, he’ll have to pick up a day job to sustain his passion (it wouldn’t be the first time that’s happened).

As you know, I’m with an online publisher, and yes–the same is happening with books and video. Just look at the plummeting price of video downloads and the shortened life cycle of movies. All publishers that depended on assessing value based on restricted distribution means or non-market-based pricing of digital content are in for a surprise. The growing pains we’re in now with music recordings, due to radical industry-to-market non-equilibrium, are already touching these other content industries.

Either way, it’ll be an exciting ride.

The CD Celebrates Its 25th Anniversary! Ho-hum…

Yeah, that’s right–CDs have reached a milestone–25 years. I think it’s fair to say that we won’t be having a 50th anniversary celebration, and my bet is that ten years from now we’ll have an easier time cloning a Dodo bird than digging up a CD. And the demise of this once-popular digital format may happen much sooner than we think–as the article states, 553 million CDs sold last year, down 22% from the peak of 712 million in 2001. In an age of 80 GB iPods and iTunes music downloads surpassing 3 billion, more music is being consumed than ever before.

Let’s not mention the growth of illegal music downloads…

It’s obvious that the world has quickly passed the point where there’s any value in carrying around music on disc. Up until two years ago I might have burned hundreds of mp3’s on a CD and played those on a laptop or something, but music is now so pervasive to the point where you don’t need to keep it in multiple places. Plug in your iPod into your car, stream your iTunes music through the home, and store more music than you could ever possibly listen to on a 500 GB hard drive.

Although it was revolutionary at the time, 700 MB digital storage capacity is now a joke. And, don’t let the audiophiles sway you with music quality concerns of mp3s or the demise of CD cover art or lyrics. The world has changed, and music is now convenient and quite listenable–anywhere you might be, and through any means imaginable. And if you want the album art, iTunes has it ready for you.

Wither the CD? You bet, just like the vinyl LPs that preceded it. DVDs are next, and printed books after that. As you know, I work at Lulu, and we’re definitely thinking about it. Everything will go digital–it’s just a matter of time.

Disruption is good, especially for consumer…

HBH

Blockbuster, we hardly knew ye…

Maybe it was too good to be true, but the idea of receiving DVDs in the mail and returning them at a local store for more free DVDs got me to switch from Netflix to Blockbuster Online. By browsing on their website I could rent the hard-to-find DVDs–classics like “I Married a Monster From Outer Space,” or “Destination Mars”–, which I’d receive in the mail and view at my own leisure. When I was ready to return them, I could drive down to the Blockbuster at Cameron Village and exchange them for more current titles–all I wanted, for free. What a deal!

Blockbuster had a tremendous offering, or good enough for me to switch from NetFlix, anyhow. As a matter of fact, during the latter days of my Netflix relationship I was feeling uncomfortable because I felt that they delaying movie rentals to keep my monthly activity down. I’d send a movie back to them on Monday, and it was Thursday or so before they said they had received it, and I wouldn’t receive my next title until the following Monday. Where’s the fun in that?

So I was happy when Blockbuster came along, and praised the model–it seemed to be a slam dunk, customer-focused solution.

I’m not so happy anymore…

Because, I think they’re now playing the same Netflix game, and playing me for a fool. Recently I’ve noticed that my returns lingering a little longer “at the store,” delaying the cycle of replacement rentals coming my way. And now comes this note today, from Blockbuster:

Dear Henry, Due to changes in our subscription plan pricing, your current BLOCKBUSTER Total Access™ plan, Unlimited Online DVDs up to 3 at a time plus unlimited in-store exchanges each month for $17.99, will no longer be available at the current price. You will be moved to our new plan that includes Unlimited Online DVDs 3 at a time plus up to 5 free* in-store exchanges for $17.99. This plan will not include an e-coupon for in-store DVD and/or game rentals. The new subscription plan and pricing will go into effect on your regular monthly billing date following August 31, 2007.† In addition, exclusively for BLOCKBUSTER Total Access customers, we have introduced in-store movie rentals for $1.99* per movie should you need more than the in-store exchanges included in your plan. If you don’t feel this plan is right for you, please feel free to take advantage of one of these other options:

So I guess it was too good to be true, right? Now, to receive the same level of service I’m used to, I’ll need to pay $24.99 instead of $17.99. That’s quite a hike, and something I wasn’t prepared for. Of course, I could stick with the $17.99, receive fewer free in-store exchanges, and then pay the $1.99 for additional rentals. In essence, I’ll pay the same for down-graded service. That sucks.

I really think this change reflects badly on the goodwill that Blockbuster has earned with their current subscribers, and I guess I’m more disappointed than anything about this move. Blockbuster has done a lot of things right–like getting rid of late fees–but they’ve now received a black mark in my book. DVDs are getting cheaper, there’s more competition out there for online rentals, Amazon’s unBox isn’t half bad, and iTunes movies and TV shows are looking more attractive every day.

I’m not sure Blockbuster thought this one through for the long term…

Henry

Finally, we have “legal” DRM-free MP3s

Thanks to our friends at Amazon, your favorite music can now be legally downloaded in mp3 format. Check out the Wall Street Journal article (you have to be a subscriber), or from Slyck.com. Things are finally moving in the right direction…

Amazon.com Inc. plans to launch a digital music store later this year that will sell all songs without antipiracy technology, creating a rival to Apple Inc.’s iTunes store.

The Seattle online retailer said its music store will have “millions of songs” in the MP3 format without so-called digital rights management, or DRM, software, which prevents consumers from freely copying and transfering their music among a variety of devices.

Amazon said the store will launch with music from EMI Group PLC, which said last month it would allow Apple and others to sell its music without copy protection.
The burning question is whether it’s too late to matter. Mp3s are freely available everywhere, and most musicians don’t make the lion’s share of their income from downloads. Will consumers change their behavior? It comes down to convenience, price, and, in the case of illegal downloading–guilt.

Time will tell…

hbh