Swindleeeee!!!!! is dead, long live Swindleeeee!!!!!

It was over six years ago that I first subscribed to eMusic (in the waning days of Universal’s ownership and the all you can eat business model), and over three years since I started my Swindleeeee!!!!! blog to provide an outlet for my eMusic-related musings. My posting frequency (never that high) has in recent months fallen off drastically. I either don’t have anything I want to write about eMusic, or I don’t have time to write anything.

Rather than have Swindleeeee!!!!! join the millions of other blogs that have dribbled off into nothingness, I’ve decided to give it a dignified exit. More specifically:

• I’ve moved all my old Swindleeeee!!!!! posts over to my personal blog under the music category, in case you ever have occasion to read them or link to them.
• This will be the final post to be published at the original Swindleeeee!!!!! site. If you read Swindleeeee!!!!! using a newsfeed reader (e.g., Google Reader, NetNewsWire, etc.) and you want to see future posts on similar topics, please subscribe to the new feed URL http://blog.hecker.org/category/music/feed/.
• I’m turning off comments on this site as of now. Comments will remain open on the corresponding posts at my personal blog.
• As time permits I will redirect I have redirected all permalinks for the old Swindleeeee!!!!! site to the corresponding posts on my personal blog, so that the old URLs will still work for anyone who’s referenced them in a blog post or other context.

Thanks to all of you who read and commented on Swindleeeee!!!!! posts. Please follow me to my main blog if you’re still interested in what I might have to say on eMusic and the music industry.

P.S. Since I’ve turned off comments on this site, if you want to comment on the end of Swindleeeee!!!!! you can do so at this post on my personal blog.

Disruptive innovation in music

I’m contemplating ending my Swindleeeee!!!!! blog and moving all the old posts over to my regular blog, though that might not happen for a while. In the meantime I’ve started posting some things over at my other blog that might be of interest to anyone still reading this one. The latest one is a long post (over 7,000 words!) on the rather oddball idea of applying Clayton Christensen’s theory of disruptive innovation to music.

Is eMusic moving away from the health club model?

As all long-time eMusic watchers are aware, eMusic’s business model has always been based on the health club model, i.e., the assumption that a certain percentage of customers will pay for but not use the service. In eMusic’s case that corresponds to subscribers who download fewer tracks per month than they’re paying for. The result of these unused tracks or digital breakage (as Digital Audio Insider refers to the phenomenon) is that the per-track payout from eMusic to labels was somewhat higher than it would be otherwise. That in turn made distribution through eMusic somewhat more attractive to labels that the nominal per-track pricing might otherwise indicate.

However with the recent price increases and the introduction of album pricing I suspect that eMusic is consciously moving away from reliance on digital breakage. One problem of eMusic’s model from the labels’ point of view is that the per-track payouts were in no way guaranteed: If a greater percentage of eMusic subscribers happened to use their full monthly quota of downloads then per-track payouts would inevitably decline. The vast majority of the reported disputes between eMusic and labels, including those labels who’ve left eMusic, revolved around this issue.

I’ve previously criticized labels for the single-minded focus on per-track revenue and profit as opposed to total revenue and profits, but labels have at least two reasons for their position:

• While per-track payouts might fluctuate, labels typically have fixed costs they need to cover per track, most notably for mechanical royalties paid to songwriters and music publishers. If the per-track payout becomes too low then labels lose money on every track distributed through eMusic, with no way to make it up on volume.
• As CD sales continue to decline labels are under pressure to maintain their revenue and profits. All other things being equal, the simplest way for labels to survive, at least in the short term, is to try to hold the line on pricing of digital tracks and charge as much as the market will bear. In theory they may be giving up some revenue and profits by pricing tracks too high and thus forgoing sales to more price-sensitive buyers, but (at least based on a recent Billboard analysis) it may be that in practice higher prices do not hurt sales enough to offset the benefit of higher per-track payouts.

One obvious way to increase per-track payouts is for eMusic to increase the price of subscription plans and/or reduce the number of monthly downloads included with a plan. This is essentially what eMusic did with its recent price increases; the eMusic Basic plan had a reduction in number of downloads, while the Plus and Premium plans had a price increase as well. These changes had the effect of fixing a minimum per-track price of about $0.40. However the per-track payout would still vary based on the behavior of eMusic users and the amount of digital breakage in a given month.

Enter album pricing, which as implemented by eMusic in cooperation with Sony and other labels can be thought of as a way to achieve the same effect as breakage while eliminating (or at least minimizing) the element of chance associated with breakage. For example, consider a user on the Basic plan who has a monthly download quote of 24 tracks. In the absence of album pricing the user might in a given month download an album of 4 (long) tracks and another album of 8 tracks, and then not use the remaining 12 downloads. The breakage is thus 50% of the user’s quota, and the effective per-track price is about $1.00 per track ($11.99 divided by 12). However in another month the user might download 18 tracks, corresponding to 25% breakage and an effective per-track price of $0.67, and in a third month might download all 24 tracks in the monthly quota, resulting in a per-track price of only $0.50 and no breakage.

However under album pricing purchasing many albums with less than 12 tracks actually requires 12 download credits, as noted by many eMusic messageboard posters and discussed in a Billboard analysis of eMusic’s recent changes. In our example, instead of using 12 downloads of 24 to download two albums of 4 and 8 tracks respectively, the user could well have to spend 12 credits per album, thereby using up the entire quota of 24. Strictly speaking there was no breakage (i.e., the user spent all the credits to which they were entitled) but the resulting per-track price of $1.00 is the same as under the old plans with 50% breakage.

As more and more albums move to album pricing, it becomes increasingly difficult for a user on a Basic plan to buy more than two albums per month, and if they use eMusic at all it’s like they’ll buy at least two, and thus have no breakage in the traditional sense. In effect album pricing allows labels to remove the element of chance involved in user behavior and manipulate the per-track price themselves (i.e., by designating a particular album of less than 12 tracks as requiring 12 credits, and designating particular tracks as album-only) according to their business objectives.

It’s correct that the per-track price is effectively reduced when an album with more than 12 tracks is sold for 12 credits under album pricing. However in practice this most likely doesn’t matter, since per-track costs such as mechanical royalties typically are not any higher for albums with more than 12 tracks than they are for 12-track albums. (For the full and gory details see the maximum rate per album discussion in chapter 16 of Donald Passman’s All You Need to Know About the Music Business.)

So the labels win in the case where albums have fewer than 12 tracks, and don’t lose in the case where they have more. eMusic keeps the labels happy, and if some users don’t download even the few albums they can now afford (and thus help raise the average per-track price even higher) then it’s just icing on the cake.

Obligatory Michael Jackson post

Given the extent to which Michael Jackson the person was crushed beneath the weight of Michael Jackson the commercial phenomenon, it’s sadly appropriate that his death should allow Sony Music Entertainment and eMusic to conduct a natural experiment in maximizing profits through price discrimination. Jackson’s death has rekindled interest in his music, to the point where Michael Jackson albums now dominate the charts at the iTunes Store and Amazon. As far as I can tell all the Michael Jackson digital releases on the iTunes Store are being sold at full-price; the same is true for Michael Jackson releases in MP3 format at Amazon. Individual Michael Jackson tracks range from $0.99 to $1.29 on both services.

Quite coincidentally eMusic’s recent deal with Sony will shortly result in Michael Jackson’s back catalog being available on eMusic, at prices ranging from about $0.41 per track to $0.50 per track on the new eMusic plans. Since Michael Jackson died before his releases hit eMusic, Sony has a period of a few weeks during which it can sell Jackson’s releases in digital format at full price to buyers who are not price sensitive, after which more price-sensitive buyers are free to buy them through eMusic at significant discounts. For example, an eMusic buyer who doesn’t care about bonus tracks should be able to snag a copy of Thriller for $3.69-4.50 on the standard plans (9 tracks at $0.41-0.50 per track), representing a 50-63% discount relative to Amazon or the iTunes Store.

By having such a delay Sony can maximize profits by avoiding offering lower prices to buyers who are very price-insensitive and must have the albums as soon as possible after Michael Jackson’s death, while still being able to get sales from price-sensitive buyers who don’t mind waiting a bit. (See my earlier blog posts on the economics of the Sony-eMusic deal and optimizing eMusic vs. non-eMusic sales for more on price discrimination in the eMusic context.) It’s essentially the same strategy Sony is employing by holding current releases back from eMusic until two years have passed, only with a much shorter release window for the full price version.

By looking at iTunes and Amazon sales figures before and after Michael Jackson’s albums show up on eMusic, Sony should be able to get a pretty good idea of the extent to which sales through eMusic are cannibalizing sales through other digital music stores. If it turns out that offering Jackson’s releases through eMusic has little or no effect on iTunes or Amazon sales, that would be an argument for Sony reducing the two-year delay for offering other Sony releases to eMusic customers. If this indeed happens it would be an oddly providential side effect of Michael Jackson’s death.

One final thought: My comments above might seem cold and calculating, but they would not have been foreign to Michael Jackson himself, who famously counted his friendship with Paul McCartney as less important than the opportunity to acquire publishing rights to the Beatles catalog. The King of Pop understood that as far as the major labels are concerned the true value of music is simply the present value of that music’s future sales.

UPDATE: As it turns out, the Michael Jackson catalog on eMusic is being sold under the new album pricing plan, which is really just variable pricing under another name. In particular an eMusic customer would be charged 12 download credits for downloading the album Thriller despite it having only nine tracks. Thus the eMusic price for Thriller for US customers would be somewhere between $4.92 and $6.00 on the standard plans, or between a 40-51% discount off the standard Amazon or iTunes price. Still a substantial discount, but not quite as attractive—more like the Amazon 50 for $5 promotion except all the time.

Supplementing eMusic with other services

In my previous post I lamented the demise of eMusic as I’ve known it, and in preparation for the future discussed my jobs to be done related to discovering and listening to music:

1. Casual listening to familiar music at my computer.
2. Casual listening to familiar music when I’m offline.
3. More focused listening to a) familiar and b) less familiar music while driving.
4. Auditioning music for inclusion in my core collection.

Here’s how my jobs to be done match up with various digital music products and services being offered today:

• Since I listen to my core collection of music both online (job 1) and offline (job 2), downloaded MP3 files (or other download formats playable on an iPod or iPhone, such as AAC or FLAC) are the best choice for jobs 1 and 2. They also satisfy job 3a, that part of job 3 that involves listening to familiar music.
• Either satellite radio stations or Internet radio stations (i.e., using the iPhone to connect over 3G) will work to satisfy my need for novelty in listening while driving (job 3b). (Terrestrial radio stations are useless given my taste for non-mainstream music.) For my purposes I don’t care if the stations are human-curated, or auto-generated based on either genre (like Slacker) or similarity to a particular artist (like Pandora). Note that while driving I can’t afford to distract myself by frequently fiddling with controls, so Internet radio features like song rating or skip-ahead are overkill from my point of view. (In Christensen’s terms they overshoot customer needs, at least in my case.)
• Auditioning music for my collection (job 4) requires listening to whole tracks (not 30-second samples) and ideally being able to listen to a whole album all the way through without being interrupted by ads or having to explicitly hit the play button again. Since I normally audition music while I’m using my laptop and I’m online, job 4 can be done by an on-demand streaming subscription service like Napster or Rhapsody that is ad-free and can play whole albums with a single click. If I don’t mind occasional ads I could also use a free ad-supported service like Imeem (which also supports whole album plays).

Under my previous eMusic plan I didn’t worry too much about downloading things I might not like. With 40 tracks I could download the equivalent of three or four albums per month, and it was OK if some turned out to be clunkers. I don’t have time to listen to all that much music, and can’t readily absorb more than one or two albums per month into my core collection of things I listen to frequently.

Unfortunately eMusic’s new higher prices discourage this sort of experimentation (as many current eMusic subscribers have commented). In order to maintain a roughly comparable monthly expenditure on digital music I’d have to switch to an eMusic Basic Annual plan (at about $10.83 per month for 24 tracks) or an eMusic Lite plan ($6.49 per month for 12 tracks). With only 12 or 24 tracks per month I feel more pressure to make sure that every downloaded album is one I’ll want to listen to more than once.

In the short run I’m looking at the following possibilities, in order of increasing cost:

• Subscribe to the eMusic Lite plan and then use Imeem or a similar ad-supported on-demand streaming service to audition candidate albums for possible downloading via eMusic. Total cost: $6.49 per month for 12 downloaded tracks, or $0.54 per track.
• Subscribe to the eMusic Basic Annual plan ($129.99 per year for 24 tracks per month) and supplement it with Imeem as discussed above. Again I would have to listen to Imeem ads while I’m auditioning an album, and would also be locked in to my eMusic plan for a whole year. Total cost: $10.83 per month for 24 downloaded tracks, or $0.45 per track.
• Do a combination of the eMusic Lite plan and a paid Napster subscription for on-demand streaming; for $5 extra per month this eliminates ads and gives me an additional 5 MP3 tracks a month. Total cost: $11.49 per month for 17 downloaded tracks, or $0.68 per track (averaging across the two services).
• Do a combination of the eMusic Basic Annual plan and a paid Napster subscription. Total cost: $15.83 per month for 29 downloaded tracks, or $0.55 per track (averaging across the two services).

For any of these strategies I can add access to Internet radio stations to address job 3b, listening to new and unknown music while driving. There are a number of choices here, including the iPhone apps for Imeem, Last.fm, Pandora, Slacker, and others. Of these Slacker probably meets my needs best, since it features easy access to genre-based stations—this gives me a bit more novelty than basing a station on a particular artist. I may also continue listening to satellite radio in the car, since it’s more convenient than hooking the iPhone up to the auxiliary input port and a car charger.

(Note that at this time there does not appear to be any service offering on-demand streaming to the iPhone. I’m guessing that this is due to Apple and/or AT&T blocking such access. This is not a major problem from my point of view, but it is yet another annoying aspect of today’s music industry.)

In the end I’ll likely go with the combination of an eMusic Basic Annual plan for downloads, Imeem for on-demand streaming, and Slacker for Internet radio. This should take care of me for the near-term, assuming that Imeem, Slacker, and other music services are able to continue in business offering free services. We may also see Spotify in the US at some point, which would provide another option.

However I can’t help thinking that this is much more complicated than it needs to be. It would be great to be able to hire one service to do all of my musical jobs to be done, at a price that’s reasonable. Would such a service be possible? What would it look like? What would it cost? These are questions I’ll address in my next post.

eMusic and my musical “jobs to be done”

In less than a month my grandfathered eMusic Basic 2-year plan (40 tracks per month at a cost of $7.49 per month or $0.19 per track) will end, and I’ll face a choice of what to do next. eMusic’s suggestion is that I go for a eMusic Plus Annual plan: 35 tracks per month at a cost of about $14.33 per month or $0.41 per track. However rather than simply going along with an almost doubling in cost of my music buying habit, I’ve decided to rethink how I actually discover and listen to music, and look at additional possibilities beyond eMusic (or to supplement eMusic) that might serve me better at a comparable cost to what I’ve been paying. This also leads to some thoughts on how eMusic could become a better service from my point of view or, alternatively, how a new service could replace eMusic in my affections.

For a long time now I’ve been a fan of disruptive innovation theory as pioneered and popularized by Clayton Christensen and his colleagues. One of the key concepts in Christensen’s theory is that people hire products because they have certain jobs to be done. To quote the folks at Innosight (a consulting firm co-founded by Christensen):

Using the jobs-to-be-done concept requires first understanding the problems a customer faces—whether at work or in daily life. We find it helpful to push for as much specificity as possible when describing a job. Complete a job statement that looks like the following:

[Customer] wants to [solve a problem] in [this context]

Identifying the context is particularly important. For example, trying to access the latest news while you are on an airplane is a fundamentally different problem than trying to access the latest news while sitting in front of your television or commuting to work.

Thus, for example, when it comes to music and music-related content I have at least four separate jobs to be done:

1. Occupying my mind while I work, do spare-time writing like this, or surf the web. For this purpose I typically prefer to listen to music I already know (to avoid encountering unfamiliar songs that might break my concentration) and to listen to full albums (to prolong the time before I need to select something else). In this context I’ll typically be using my laptop and have an Internet connection.
2. Occupying my mind while I work or read on plane or train trips. My listening patterns are the same as with job 1, but I’m typically using my iPod (or the iPod app on my iPhone) instead of my laptop, and (at least on planes) have no way to connect to the Internet.
3. More actively listening to music while I’m in the car driving. Sometimes my listening patterns are the same as in jobs 1 and 2; other times I prefer to listen to random music chosen by others, to avoid having to distract myself by choosing what I want to listen to, and also to increase the novelty factor. (I’ll refer to these are jobs 3a and 3b respectively.) In this context I have a choice of satellite radio, my iPod (no network connection), or my iPhone (Internet connection over the AT&T 3G network).
4. Auditioning music for jobs 1 and 2, i.e., deliberately seeking out new music and actively listening to it in order to determine whether I want to make it part of my core collection of things I listen to on a regular basis. I typically combine this type of listening (which I do on my laptop) with reading music reviews on eMusic, Amazon, or other sources, or looking for recommendations on 17 Dots or the eMusic message boards. Since I tend to listen to albums I typically audition entire albums and not individual tracks.

Note that the above simply reflect my personal uses for music, and are far from exhausting the range of possible jobs to be done involving music. For example, one might listen to music to accompany exercise, to pump oneself up for a sports event or a big presentation at work, to establish a mood for a date or other occasion, or to serve as a marker signaling ones’ membership in a social group or subculture (e.g., Williamsburg hipsters). However since I’m part of eMusic’s target audience (music lovers in the underserved 25-54 demographic) I suspect that many eMusic subscribers share at least two or three of my jobs to be done.

There are a couple of other factors to take into consideration; again I suspect I share these with many eMusic subscribers:

• I am price-sensitive, but not extremely so. On the one hand, I’m not willing to buy music at the typical present-day price points, e.g., $0.99-1.29 per track or $9.99 for an album. On the other hand, I have little or no interest in spending extra time tracking down free downloads (whether authorized or not), buying or trading for used CDs, or waiting for periodic sales (e.g., Amazon’s Daily Deal or 50/$5 promotions).
• I pay little or no attention to current mainstream pop, rock, or hip-hop, and am content to buy primarily from independent labels or (to a lesser extent) from major label back catalogs.

Given the above, what types of music products and services should I hire? More on that in my next post.

Economics of eMusic and Sony

Most of the press coverage of the eMusic/Sony agreement has been either regurgitated press releases and echoes of the original New York Times story, or stories about the backlash from eMusic subscribers. I have a standing Google search for eMusic and see tons of this stuff. However there is actual smart analysis being done out there, and here are two examples. As seems to be typical nowadays, these are not from traditional media or business journalists but from a blogger turned pro and a musician who blogs.

The first is from Billboard columnist and Coolfer founder Glenn Peoples, who welcomes the fact that Sony is now pricing for profits, not margin. In other words, rather than trying to maximize its margin or profit per sale (i.e., by selling only at relatively high prices), Sony is now looking more seriously at maximizing its profit overall: The goal is not to maximize per-unit margin but to reach more consumers and gain incremental revenue and profits.

How will Sony do this? By practicing price discrimination to identify and sell to more price-sensitive buyers:

A person who doesn’t want to pay more at iTunes may be willing to shop elsewhere to save money. How does Sony find this group? It licenses its music to a store known for offering downloads at relatively low costs to high-volume buyers. … Per-unit revenue may be lower but total revenue and profits should increase.

If Sony can profitably sell through eMusic (and presumably the new $0.40 per track floor price is designed to allow them to do that), and if selling through eMusic doesn’t cannibalize sales through higher-priced outlets (which the 2-year delay in releasing to eMusic is designed to address) then any incremental sales through eMusic are pure gravy as far as Sony is concerned. Those sales are money that Sony would not otherwise have seen—either the buyers would have downloaded unauthorized copies via P2P or they wouldn’t have bothered to get the releases at all.

(I’ll once again plug the book Information Rules, which addresses the problem of pricing information goods like digital music in a quite readable and accessible manner. You can get a flavor of the book by reading the paper Pricing Information Goods by Hal Varian, one of its co-authors—who not so coincidentally is now Google’s chief economist.)

The second example is from David Harrell of The Layaways and Digital Audio Insider, who contends that even with higher prices eMusic’s per-track payout may not change:

… it seems likely that the presence of more name brand artists and albums in eMusic will result in less digital breakage by subscribers. So while subscribers will have fewer downloads available, they’ll be more likely to use all of them, which may be enough to offset the effect of the price increase on the final per-track payout to labels.

Without significant digital breakage, the per-download payout is bound to be less than 30 cents a track, even under the new pricing model. No doubt some breakage will continue to occur, but it seems likely that the current breakage rate will decrease significantly. Hence, it seems likely that the new subscription plans are more likely to preserve the recent payout amounts I’ve seen, as opposed to substantially increasing them.

(Digital breakage is the term—apparently coined by Harrell himself—for the money eMusic and labels realize from eMusic subscribers not using all the downloads that they paid for, analogous to the similar phenomenon with gift cards. The music industry term breakage dates back to the days of fragile 78 RPM records, when labels would pay royalties on only, e.g., 90% of records manufactured and shipped, on the assumption that the other 10% were broken in transit and thus never reached consumers. The practice evolved into a standard up-front cut of sales that labels took for themselves on all music sold, no matter the format, and used to reduce royalties paid to artists.)

The final outcome of all this is going to depend on the following factors, among others:

• the growth in the number of eMusic subscribers due to adding major label content;
• the changes in per-track payouts due to changes in subscriber behavior (both by new subscribers and existing subscribers); and
• the changes in the relative fractions of downloads going to indie labels due to competition with major label releases.

If the per-track payout changes are a wash then from an indie label perspective this deal is a net plus only if eMusic significantly increases its subscriber base and indie labels are able to capture a reasonable portion of downloads from the new subscribers. This is obviously a bet the company strategy for eMusic, and it will be interesting to see how it plays out. Digital Audio Insider has the most in-depth analysis of eMusic payouts around, and will be a key place to find clues as to whether eMusic’s bet is paying off for indie labels and musicians.

The letter Danny Stein didn’t write

As is amply clear from recent postings on the eMusic message boards and comments on 17 Dots, eMusic pretty much made a hash of its announcement of the Sony agreement, angering current subscribers not just about the accompanying price increases but also the way in which eMusic CEO Danny Stein’s 17 Dots blog post addressed—or rather, didn’t address—those increases. While I’m quite unhappy about my personal eMusic habit more than doubling in price, I can also see the economic justifications for why eMusic did what it did. I thought it would be an interesting experiment to create a fictional letter to subscribers that Danny Stein might have written in some alternative universe.

My goal was to write something that treated eMusic subscribers as the mature intelligent adults they (mostly) are, while still announcing all the service changes that eMusic made, including the more unpopular ones. Remember, this is a work of fiction. I don’t work for eMusic, do not in any way speak for eMusic, and have no formal relationship with eMusic other than as a usually-satisfied customer.

Without further ado, my imaginary missive (with footnotes from me as indicated):

Dear eMusic subscriber,

I’ve been actively involved with eMusic for several years as CEO of Dimensional Associates, the company that acquired eMusic in 2003, and as executive chairman and now CEO of eMusic itself. [1] The eMusic staff and I are proud of eMusic’s position as the internet’s corner music store, offering a deeper, more personal alternative to mass market digital music retailers, at prices that provide good value compared to other retailers’ standard pricing. Over the years we’ve worked to make eMusic better by increasing the depth and breadth of music we offer and the help we provide to make music discovery easier. Today I’m writing to tell you about the latest evolution of eMusic and how it will affect you.

Our focus from the beginning has been on music from independent labels. We are proud to offer more than five million tracks from over 60,000 record labels that span every conceivable music genre. We also strongly believe in providing music listeners digital music in industry-standard formats free of DRM and related restrictions, and our independent label partners were early leaders in selling music as high-quality MP3 files. However at the same time we believe that great music is great music wherever it comes from, and the major labels of today offer extensive catalogues of quality music from many of the most innovative labels and artists in history. We’ve therefore talked with various of the major labels over the years to try to find ways to offer that music to our subscribers in DRM-free form at a price that provides good value to our subscribers and in a manner that’s consistent with our focus on helping our customers expand their listening horizons. [2]

Today I’m pleased to announce that we’ve reached an agreement with Sony Music Entertainment to offer our U.S. subscribers access to music from the catalogues of labels like Arista, Columbia, Epic and RCA, beginning later this year. This agreement (which we’re working to extend to non-U.S. subscribers as well) will include all Sony releases more than two years old [3], and will bring to eMusic works by artists including the Strokes, Bruce Springsteen, Leonard Cohen, The Clash, and many more. We’ll continue our tradition of helping you discover great albums and tracks among this wealth of music, through recommendations, reviews, and in-depth articles from our knowledgeable staff. Our editorial director Yancey Strickler has more information on how we plan to integrate these new releases into eMusic while continuing to highlight the independent offerings that have always been the heart and soul of the eMusic experience.

Our goal in offering music from Sony (and perhaps other major labels in the future) is to make eMusic a more attractive and comprehensive service to current subscribers and new subscribers alike. We also want to attract even more independent labels, and more releases from the independent labels already on eMusic. That means finding price points for music that provide good value to our subscribers while still enabling all our label partners (both independent and major) to profitably offer their releases through eMusic under our traditional subscription-based model. [4] Based on our discussions with Sony as well as with our independent label partners, we’ve concluded that a per-track price of at least $0.40 [5] will enable our label partners to make eMusic a sustainable business proposition and us to continue to invest in improving the service we offer to you, while still providing a significant value compared to the typical prices offered by other digital music services.

We’ve therefore changed our eMusic U.S. plans to reflect this new approach, with an eMusic Basic plan now offering 24 downloads for $11.99 per month ($0.50 per song) and other standard plans offering better prices (as low as $0.41 per song) in exchange for higher monthly commitments. We’ve also changed the pricing for our non-U.S. plans to be more consistent with U.S. pricing, and in anticipation of our being able to offer more labels’ music to our subscribers outside the U.S.

When making past price changes we’ve offered at least some existing subscribers the option to continue their plans at the previous price levels. Unfortunately we can no longer continue that practice; it is not financially sustainable in the long run, and arguably is also unfair to more recent subscribers who cannot take advantage of older plans. [6] We’re therefore requiring all subscribers under such grandfathered plans to select from one of the current plans when their existing plan refreshes. We will offer you the default choice of a current plan most similar to your existing plan.

We recognize that these new plans represent a significant price increase over previous plans, especially for long-time subscribers and subscribers with Plus, Premium, and Connoisseur plans, and could make eMusic less attractive to many current subscribers. We appreciate having your business over the years, and we hope you’ll stick around to check out our new expanded offerings and the many other improvements we’ll be making in the coming months and years. For those subscribers active as of August 1 we’ll provide a free 15-track booster pack as a small token of our appreciation for continuing your subscription.

We’re also working to make eMusic a better value by addressing a long-standing issue with our track-based subscription model. We know that many of our customers are avid listeners who tend to purchase entire albums, not just individual tracks. Unfortunately purchasing an album with a very large numbers of tracks through eMusic is often more expensive than purchasing the same album from other digital music retailers. We’re moving to correct this problem by offering album pricing that will allow you to download selected albums of 12 or more tracks for the price of 12 downloads. [7] In cooperation with our label partners we will work to extend this album pricing to more and more releases over time, so that eMusic subscribers don’t have to hesitate before deciding to download a complete album.

This is a major event in the history of eMusic, and we understand that many of you are concerned that the eMusic you know and love will be no more. The eMusic staff and I are committed to ensuring that eMusic remains the best place on the Internet for discerning listeners to discover and purchase new music at value prices. We appreciate your past business, and hope you’ll continue to be part of the eMusic community.

Yours truly,

Danny Stein [8]

1. Danny Stein became CEO after the resignation of David Pakman, who had been CEO since the Dimensional Associates acquisition.

2. In several interviews over the years David Pakman spoke of his desire to have eMusic offer back-catalog material from major labels in addition to independent label releases. Apparently at least one such deal was approved by middle management at a major label, only to be killed by senior management.

3. As noted above, eMusic’s focus was always on obtaining rights to sell older major label releases. I’ve never seen any indication that eMusic wanted to go head-to-head with the iTunes Store and Amazon in selling new major label releases. Also note that many independent labels have held new releases back from eMusic in an attempt to maximize revenue from other higher-priced outlets, in an attempt at price discrimination.

4. Recall that under eMusic’s business model payments to labels are sensitive to both the nominal per-track prices (i.e., as defined in the plans) and the fraction of downloads that are paid for but never used (what David Harrell of The Layaways refers to as digital breakage). The more downloads go unused, the higher the per-track payout. (Again, David Harrell has a thorough discussion of how this works in practice; see also eMusic’s own explanation to labels.) Labels typically have to pay a fixed amount of royalties to artists and songwriters for each track, so per-track payouts that are too low mean that labels cannot profitably sell through eMusic. Thus per-track pricing has in the past been a point of contention between eMusic and various independent labels.

5. As can be seen from my overview of the new US pricing, no published eMusic plan offers a nominal per-track prices of less than $0.40. (Some existing subscribers have been offered a non-published plan that works out to about $0.39 per track.) I therefore conclude that having a hard floor at $0.40 per track was a key element of eMusic’s agreement with Sony; in practice the actual average per-track price will be higher, due to both digital breakage and the fact that most eMusic subscribers will be on plans that are more expensive on a per-track basis.

6. The discontinuation of the grandfathered plans is arguably the most controversial part of the changed pricing, both because long-time subscribers with such plans are disproportionately represented among eMusic message board posts, and also because eMusic is viewed as having made a firm commitment to continue grandfathered plans as long as the customers in question continued as subscribers. The argument that offering grandfathered plans is unfair to new subscribers is somewhat weak, but it’s the best I could do on short notice.

7. Assuming a floor price of $0.40 per track, under album pricing a complete album would cost about $4.80. Amazon offers a few albums for less than this as part of its special Daily Deal program, but this would be an everyday low price for eMusic, at least for those albums selected for album pricing. I think album pricing could be a significant improvement to eMusic, but unfortunately eMusic did a poor job of communicating where this might apply and what eMusic will be doing to expand the number of albums offered this way.

8. One more time: Danny Stein didn’t really write this letter, I did.

New eMusic US pricing

Well, I significantly underestimated how far eMusic was willing to go in terms of changing its pricing to attract major label content. My personal guess was that Sony demanded a minimum price of at least $0.30 per track, but based on the new US pricing it appears that the new floor is actually $0.40 per track.

More specifically, the plan changes are as follows:

• The eMusic Basic plan is still $11.99 per month, but has been reduced to 24 downloads ($0.50 per song) from the previous 30 downloads ($0.40 per song), or a 25% per-track price increase.
• The eMusic Plus plan is now 35 downloads for $15.89 per month ($0.45 per song) vs. $14.99 per month for 50 downloads ($0.30 per song) under the previous plan, or a 50% per-track price increase.
• The eMusic Premium plan is now 50 downloads for $20.79 per month ($0.42 per song) vs. $19.99 per month for 75 downloads ($0.27 per song) under the previous plan, or a 56% per-track price increase.
• The eMusic Connoisseur plan is now 75 downloads for $30.99 per month ($0.41 per song) or 100 downloads for $40.99 per month (also $0.41 per song) vs. 100 downloads for $24.99 per month ($0.25 per song) under the previous plan, or a 65% per-track price increase. Also, the new Connoisseur plans are available only as upgrades from another plan, and require a minimum 3-month commitment; previously the Connoisseur 100 plan was offered as an option at sign-up time, with no minimum commitment required.
• People with annual and 2-year plans will be moved to higher-priced plans when their old plans refresh. In my case the default choice offered is to move from my (grandfathered) Basic 2-year plan offering 40 downloads a month for $89.91 per year ($0.19 per song) to a standard Premium Annual plan offering 35 downloads a month for $171.99 per year ($0.41 per song), or a 119% per-track price increase.
• When downloading at least some complete albums with more than 12 tracks, only the first 12 downloads will be counted against the subscriber’s monthly quota.
• Booster pack downloads now range from $0.60 per track (when bought in packs of 5 or 10) to $0.50 per track for a pack of 50. I don’t have a complete record of the old pricing, but as far as I’m aware this is not a major change from previously.
• eMusic is offering a free one-time 15-track booster pack to subscribers who stay with eMusic past July.

I’ll have more to say about the overall changes at eMusic in future posts, but for now I wanted to note a few additional points regarding the new pricing:

• Presuming it came from eMusic directly and was not a misquote, the comment in the New York Times article that eMusic says it will slightly raise prices and reduce the number of downloads for some of its monthly plans was extremely disingenuous, to say the least. As far as I can tell all US plans have had the number of downloads reduced, and per-track price increases of 50% (for eMusic Plus), 56% (for eMusic Premium), and 65% (for eMusic Connoisseur) are hardly slight.
• As noted above, it appears that $0.40 per track is the new floor for eMusic US prices. I cannot find any published option offering a per-track price less than $0.4095 (available through the eMusic Plus Annual plan). There does not appear to be an annual option for the Premium or Connoisseur plans, and 2-year plans appeared to have been eliminated altogether.
• Subscribers get just less than a 10% discount for choosing an annual plan vs. 12 months of a monthly plan. (The eMusic Basic Annual plan is $129.99 or $10.83 per month vs. $11.99 for the corresponding monthly plan, while the eMusic Plus Annual plan is $171.99 or $14.33 per month vs. $15.89 for the corresponding monthly plan.)
• By eliminating the Connoisseur plan as an option at sign-up and offering only three options (Basic, Plus, and Premium), eMusic has reverted to a more straightforward Goldilocks pricing strategy, with the eMusic Plus plan presumably the one eMusic would like most subscribers to choose.
• eMusic has mitigated the price increases slightly by offering subscribers the ability to download selected albums with more than 12 tracks and be charged only 12 downloads. However it remains to be seen how many albums will actually be priced in this manner. (I suspect that this may depend on individual labels and whether they choose to do this for all or some of their releases through eMusic.)

All in all this is the biggest change in eMusic pricing for quite some time, and judging by the reaction of the subscribers who frequent the eMusic message board, probably the most controversial change since eMusic was originally acquired by Dimensional Associates and discontinued its all you can eat unlimited download model.

eMusic to offer Sony back catalog

Danny Stein, eMusic’s new CEO, dropped some major news just now on eMusic’s semi-official 17 Dots blog. As reported in more detail in the New York Times, Sony Music Entertainment (home of Arista, Epic, Columbia, and RCA, among others) has decided to release its back-catalog material (anything over 2 years old) to eMusic—basically what eMusic management has apparently been urging them and other major labels to do for ages. (For example, David Pakman addressed this in several of his interviews.)

The major trade-off (no pun intended) seems to be that eMusic has agreed to slightly raise prices and reduce the number of downloads for some of its monthly plans, in effect imposing a per-track price that is higher than its current prices, which range from $0.40 per track for the eMusic Basic plan (30 downloads for $11.99 per month) to $0.25 per month for the eMusic Connoisseur plan (100 downloads for $24.99 per month). What we don’t know yet is exactly which plans will be affected, and what the price increases will be. My personal guess is that the eMusic Basic plan will remain the same, but that the other plans will be revised to bring the lowest per-track price up to $0.30 or even higher.

So much for the bad news. On the positive side, this deal will give eMusic subscribers better access to the important works of past musical eras, will make eMusic more attractive to potential subscribers, and if successful may persuade other major labels to do likewise. This in turn makes it more likely that eMusic will survive and even thrive as a (relatively) low-price outlet for customers looking beyond the latest hits.

In his blog post Danny Stein raised a point about how this might change how customers might perceive and experience eMusic:

We’ve been requested to carry major label titles for years, but we always have gone back and forth on whether it would change the fabric of eMusic. We don’t think it makes sense to exclude great artists simply because their label partner is one of four specific companies. We look to some of our favorite music—The Sex Pistols, The Clash—and we certainly never think to ourselves Major Label. What do you think? Do major and indie mean anything to you or is this just industry jargon?

In the past the record labels now aggregated under the term major were in fact where the most important innovations in popular music were happening (as Bob Lefsetz never tires of reminding us). I think that including older releases from some of those labels in the overall eMusic offering is perfectly consistent with eMusic’s current positioning of itself as the internet’s corner music store, especially if eMusic is going to pull out all the stops on providing context and recommendation. (Which I expect will happen—to the extent that this is an experiment, eMusic has every motivation to make it successful.)

I think the major downside other than the price increases is that people will be very mistrustful of having a repeat of the Rolling Stones fiasco. That apparently wasn’t eMusic’s fault, but if Bruce Stringsteen or whoever decides that they don’t like their music being cheapened by being sold at eMusic prices and is successful in getting it pulled, or if Sony upper management gets cold feet and decides to kill the entire deal, that’s going to leave a pretty sour taste in the mouths of eMusic subscribers, especially given that the new higher prices will likely remain in effect.