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« The ugly man behind the curtain in music publicity... | Main | Heard Brilliance Recently? »
Monday
Nov242008

The Long Fail: the cost of digital distribution

Digital distribution as well as promotion has undoubtedly been the best thing that could have happened to music fans as well as musicians. Even bigger content owners are finally seeing the opportunities (instead of the threats) that come  with the technical change of delivering ‘media’ over the last ten years. It is now easier than ever for artists to connect to their fans and delivering the music to them, gatekeepers have been eliminated and (in theory) artists can reach out to millions of music fans out there through the internet. So far, so good.

Everyone who works in music knows that there are various new challenges that have developed through new digital delivery methods and those challenges can make it difficult to monetize digital music. I won’t be going into the issue of file sharing (there are enough people out there who have something to say about that) but I want to explore a common misunderstanding about digital media: “digital distribution is free” (or at least very cheap). It is not at the moment.

Chris Anderson’s ‘The Long Tail’ discusses how we can monetize niche genres through very cheap distribution and how one can successfully make a business outside of the ‘blockbusters’ through scalable distribution methods as well as recommendations, which are enabled through digital technology. For the music industry this means that it should be easier for artists (or labels) outside the Top 100 to find their audience and sell products (downloads, CD, tickets, etc) to them by using those new technologies. This sounds all great on paper until you look at the actual cost of digital distribution. It is actually quite high.

Lets look at a simple example. I’m an artist and I want my album to be available through various download shops. My music has a niche audience but with my distinct sound and existing online following I should be able sell more music by having my album available at more retailers. If I want to do all the work myself I will have to go through the following steps:

 

  • Identify online retailers I want my album to be available at. And there are plenty all over the world.
  • Negotiate deals with those retailers.
  • Deliver my album in the correct specification. Those will vary from retailer to retailer.
  • Make sure I receive regular royalty reports.
  • Check those and send invoices. This will have to be repeated every month or quarter, depending on the reporting period of the retailer, and of course it has to be done for each retailer.
  • There might be some additional unexpected tasks when things go wrong: wrong meta data displayed, you never receive reports from certain retailers, some retailers might not perform well and I would like to withdraw my content, etc.

 

If I add up all the time I invest in the above and associate a cost to that I will quickly find out that the distribution of my album was not cheap after all. Yes, I didn’t have to manufacture any CDs and there are no actual shipping costs but this does not mean it’s practically free to make sure my album is available to download.

Where does this leave us? All the above makes be think of two things: a) the above doesn’t always have to be like this and b) companies that control a lot of content (labels and digital aggregators) are important in the digital music ecosystem for now.

We have to make sure that digital delivery methods as well as reporting formats are standardized. Those currently create a huge workload for content owners as well as DSPs. Deals to get your music on the different platforms can also be difficult to negotiate and standard rates would make this easier for everyone. I could also go into the topic of blanket licensing for all digital music usage but this is probably something for another blog post.

In short: systems and processes will have to be built to really bring down the cost of digital distribution. Some companies already have great internal systems but we will have to work on open standards and make sure all the systems can talk to each other. The more we take out human interaction the cheaper this can become.

I give you one example of a company that has managed to build systems like the above: On Tunecore you can get your music on various retailers by paying a small flat fee. They built the infrastructure to deliver music to iTunes and get reports back without having to add much human interaction. However they cannot deliver to all DSPs but only a selection of digital download shops as well as streaming services.

There are plenty of other companies out there who are working on similar technology and it will be good to see more development in that field. If you are musician or a label today: make sure you find someone to distribute your content for you if you want your music to be available in a range of places.

Reader Comments (17)

It's great to point out that digital distribution (DD) may not be as cheap as people think, but I think some figures for your example would have been great.

However in my opinion the important thing to note about DD is that it can enable an artist to retain a bigger share of the gross than otherwise.

I think last week Ian Rogers referred to it;

"When your costs are low your royalty rate high and your channel direct, the marginal profitability from the artist perspective can be far different than in the old model, to be sure.

And where the mass-marketed approach was low-margin from the artist perspective, the target-marketed approach can be much higher margin (which is how Joe Purdy buys a house on his iTunes sales). Topspin believes there is an entire middle class of artists for whom the system hasn’t worked in the past who will be empowered by this new model."

Again, in that example some figures would have been nice. How much less is DD? How much more savings can we expect from standardization? Of course as CEO of TuneCore he is in a much better position to answer than most.

Overall I agree that standardization would be great, however I also think as we progress we'll see a new type of band manager, that is equipped to deal with all these issues. Even without standards it must be possible for musicians to get value. The same way we can outsourse design/development/SEO/marketing of a website may be the same way musicians will go about these issues (including touring) in 2/3 years time.

On a side note, universities/colleges have a duty to include all these new changes in the industry. I'll have to ask my younger brother if they are learning all this in his Music Management course.

Great article though, as it is now time to look closer at DD.

November 25 | Unregistered CommenterJoe Charakupa

I haven't used TuneCore, but I have used CD Baby's DD a few times and have been very pleased with it. I don't understand the downside of it.

CD Baby takes 9% of the DD royalties, but don't I see that as much of a sacrifice since I don't have to do all that work that you described (negotiating, accounting, etc.)

I just don't see a problem with 'The Long Tail' and DD when using something like CD Baby.

November 25 | Unregistered CommenterStephen Shapiro

Why would you WANT to do it all by yourself, when there are companies like TuneCore and CDBaby who will do the work for you?

CDBaby distributed my music to 50+ online shops. Even if the accounting and means of delivery were standardized, I don't think that I could do all that for less money than CDBaby asks for the service. Plus, I have better things to do than keep tabs on all the digital stores that are out there...

November 25 | Unregistered CommenterJim Offerman

First off, I am not in the music industry, so anything I say here is purely my opinion and from external observations.

I did read the 'Long Tail' and have been a fairly regular reader of this blog. I think the difference in what you are discussing and the point of the book is the difference between what could occur and what is the current reality.

The Long Tail is what could be possible in the future, what you are outlining are the problems being faced right now. Who's to say what the future will be?

If a standard is established for the DD of content, then a lot of the issues will go away.

If someone wants to make a career out of being in a band, then they are going to have to manage their money and that means all of the daily/monthly billings and invoices and receipts are all going to be part of their life.

From my reading of the book, I really see the opportunity for the distribution network to take off. The infrastructure required to sell a couple of hundred copies of a niche song versus tens of thousands of someone else's hit are not all that great. But the opportunity to sell across multiple niches with very little investment appears to me to be the real prize.

November 25 | Unregistered CommenterSteven Willis

Excellent point. People often don't factor in tme as a cost when discussing these sorts of things. Your time is surely worth quite a bit.

November 25 | Unregistered CommenterPat W

I fully agree with you on the standards point. Some efforts have been made by DDEX but for now it seems like everybody is waiting to see what everybody else is doing. Plus the DDEX spec is not final yet.

The problem of disparate delivery specifications does not only exist for artists, labels and distributors but also for online retailers. These also have to comply to the delivery non-standards of the different majors, aggregators and digital distributors. Also, it is not easy for them to administrate thousands of direct deals with small artists and labels. That is why a lot of online retailers are refusing to make direct deals and are redirecting smaller labels and artists to digital distributors and aggregators.

Paradoxically, the best selling content on online retailers comes from direct deals! I have heard this from a few retailers already and, in their words, "it's because the people with direct deals worry about their content and call us to get promotion. The aggregators never call".

So, the problem will not be completely solved by having a standard technical specification. There is also a cost, on both sides, for making and administering the deals. *Warning: shameless plug ahead* Also, for labels with bigger volumes it is not enough with a DIY approach, since it becomes very important to know 'what' releases are 'where' and 'when'. A tool to centralize the whole process is needed. That's why we created the FUGA platform for digital delivery.*End of shameless plug*

November 26 | Unregistered CommenterCesar Gomez-Mora

"In short: systems and processes will have to be built to really bring down the cost of digital distribution."

Systems are already built.

Take CDBaby as an example. $4 per CD sold through them. 9% for digital distribution. 9% is pretty low - what more do you want? If you self publish and get an admin deal with another publisher for example, it will cost you about 15% of your royalites, so 9% for what is essentially like an admin deal for distribution is pretty good.

November 26 | Unregistered CommenterNatalie

A very interesting article, and i have appreciated the comments. I agree that until recently digital distribution has been quite expensive for independent but especially unsigned artists. This does point towards an ambiguity in the long tail theory, which makes us believe that distribution costs are almost non existent. Struggling bands, as we all know, are always tight on money and you are right to point at time being an important part of the equation.

But there as you say there are other and far cheaper distribution platforms on the way. Sorry for the plug (but i think this is relevent to the topic at hand) but I at the moment work for an up and coming distribution service called Record Union (.com) which is trying to make this free cost of distribution a reality. We provide global distribution to a large selection of music shops for anyone with a track to upload. There will be no maintenance fee, and the service is pretty much free. We hope that this will allow all those artists who have hesitated to sign up for global distribution to come forward and enrich us with their music! There really will be no excuse not to do it.

I think that the greatest challenge for the long tail is coming up with clever ways of navigating it. There is a huge amount of music now and this will just continue to grow. What I think we need are ways of organising this so that listeners of certain tastes can find the music which they will like, and for those music listeners who have diverse tastes, a good environment to engage with new music. Though there are already such environments in place, but I think this is where we should be directing our time.

thanks again for an interesting post.

November 28 | Unregistered CommenterFredrik

It doesn't matter how much money or time you spend to produce the cd or mp3s. If you can easily copy the song digitally a billion times the effective cost per copy approaches $0. Instead of wasting time wishing people would understand the true cost that was put into a song, (ie things you can't control) how about trying to sell things that can't easily be copied?

I suggest giving away your songs, build a following then sell the best fans something of value like immediate access to new songs, behind the scenes videos and photos, live webcasts, and so on.

November 29 | Unregistered CommenterWill

This is a response to a few of the points that I think that Will was getting at.

As I see it, musicians should have to give their music away for free, and think its unfortunate that we have landed in a situation where artists who are struggling to make ends meet are encouraged to do so. Artists put their heart and mind into the music they create, and just because it happens to be able to be copied a million times does not mean that they have any less right it asking for something in return. Just because a piece of music can be copied makes it no less unique to the person who is engaging with it – listeners of music are not passive recipients, but active participators. The individual connection with a piece music cannot be copied, and think there is room within the changing environment of the online music industry to make this have monetary value (and this would benefit artists and listeners alike).

Giving away free samples is the oldest trick in the book for companies wanting to introduce people to their “product”, and this can be a good way for bands to get exposure. But endorsing an environment which encourages artists to give away all their music for free and focus on other revenue streams is wrong in my eyes. I think that the fan base of an artist should not be built up about what other services they can offer their fans, but the way the music itself can move and affect the people who listen to it, thus its the music itself which should be the selling point. Should the music industry really encourage musicians to become marketers and product developers? If the artist has to focus on anything else than creating music, then they wouldn’t be artists. I think that if you like a song, you should be able to reward the artist for the music itself – this way artist don become distracted and can continue to develop their music.

November 30 | Unregistered CommenterFredrik

I use Tunecore and I couldn't be happier. Except itunes or someone withholds a copyright fee in australia and nz. I'm the copyright owner so I don't get that.

Otherwise the reports are really easy to understand and the support is also quite fast. Definately recommended.

December 1 | Unregistered CommenterDave Anderson

@Fredrick - thanks for your comments. I agree with your point of view as well as the media futurists out there. Selling some songs and giving away others can work too. My point was to get artists thinking of other revenue streams besides just music. Just because you focus on writing great songs doesn't mean you can't market as well or at least delegate some of the work. This is where most musicians sorely lack interest or ability in marketing. It'll be interesting to see how this all plays out.

December 2 | Unregistered CommenterWill

Open-source e-commerce plugin for Wordpress. $0.00

Paypal account. $0

Selling digital downloads directly from your website? PRICELESS

digital distibution is easy to accomplish and doesn't cost a thing!

December 2 | Unregistered Commenterevolvor

Contrary to your post, I believe services like Tunecore.com, songcast.com and other emerging one-stop digital distribution platforms are quite easy and cheap for indie artists.

December 11 | Unregistered CommenterEric Galen

I think Jonas's point is very valid. Whilst many comments here have pointed out the numerous services that can supply the majority of download retail they are at best dubious. They focus on selling to bands rather than selling to fans. The job of marketing and selling your music comes down to you and that is NOT CHEAP. If you sell your music thru a non editorial distributor then you will need to spend money on PR and marketing. The big difference between oldskool physical and the nuskool digital is that previously the marketing of the retail product was included in the service - that now has to be paid for if you are serious about selling any meaningful numbers.

December 14 | Unregistered CommenterLandslide

I'm a musician and since I would like to sell my songs,I guess by default,that puts me in the music business.I don't see why digital distribution is so complicated.I don't know all the intricacies of the music business and stuff like that,but I would venture to guess that a musician with the tech savvy is going to come along,create the prototype for bands to sell their music online and have it be profitable.Maybe not be millionaires,but be able to survive.

Because I look at it this way.I'm in my 40s,but I always ask my 20 year old nephew what's going on.He has a Blackberry,cellphone,sidekick and all this stuff I can't even remember.And he like other young people,have made these devices a part of their lives.Young people are somewhat impatient and that impatience can be a good thing.It drives them to get something as soon and as easy as possible.Shawn Fanning created Napster while he was in college,if I
recall correctly.And if you think about the concept,it makes so much sense.One person trading their music.

To me,it's an extension of something I remember when I was in high school...

You're one of the first people to buy a new album,your friends come over to listen to it.

It doesn't matter if it's a couple of schoolgirls listening to a new single by The Beatles in their bedroom.A bunch of guys getting high and listening to Pink Floyd's "Darkside of the Moon" in their dorm room or some teenagers with a ghetto blaster playing LL Cool J or Run DMC sitting on the stoop.

It's the same thing,but amplified.Now you don't actually have to be there to listen to the music.And you get to know people by their user id.You might not even care what their actual name is.If they have music you think you'll like,you'll strike up a friendship.And when you're both online,you'll communicate.And people talk about percentage of this and profit margins and I get that.I'm scared of getting ripped off like anyone else.

But there's a band out there somewhere who's walking around with their demos on their ipod and going up to people at concerts and asking them to listen to their songs.And if the other person has an ipod,i'm sure they'll have a way to copy their songs to the other person's ipod.

And while us ADULTS are going on about the legal ramifications of all this (which are certainly important),young people are getting it done.It can be called blissful ignorance or whatever,but they're gaining fans while record execs are scratching their heads.So what do I think is one way to work out this problem?

The people who understand all the legal stuff.Observe how the young people are getting their songs in the hands of other people.Online,offline whatever.

And get in their heads and see where they are going with all this.Because I'm sure some think about being on a major label and being on MTV etc...but there are some who are living DIY (do it yourself)and all they want to do is get their music in the hands of potential fans and they don't care HOW they do it!

Because why would they sign some contract and get entagled with all this legalese,when they can put the music out themselves and get more money.They come up with the music,they can hire a music lawyer,hire a promotions and marketing firm etc...and yes I'm making it sound so easy.

But why would you want to hear about...

"Recouping your money after this.."

"Can't leave the label after this.."

"You owe us 4 more albums etc..."

I think future musicians won't even be thinking about albums.You go in the studio,write a song.If you think it's good enough to be released,you have your "people" take care of it for you and next thing you know,groups are putting out songs a couple times a month.And they can be inspired by whatever is going on at that time.

Whether it's a new president or something in pop culture.

And no,not all of this music will be good,but to paraphrase Frank Zappa...

"If people want to buy crap,why shouldn't they?"

And with the advent of home studios,some musicians are going to do it all by themselves in their bedroom and put it online.And I think there will be some bands that are going to do it all themselves,possible become wealthy in the process and never touch a record company.

And the whole music business,it will go beyond being turned on it's head.I see people working in promotions,marketing etc...lawyers,engineers,producers etc...growing in demand.Some of them might even be independent contractors because they won't have a record label where to work.Bands won't put up with ineffienciency (hmmm..is that a word?).

And a band will stand before you,on the right they'll have their handpicked lawyer,on the left they'll have their handpicked marketing firm.Standing in the background are the producers, engineers etc...and they'll look at a record exec and say...

"What the hell I need YOU for?"

January 27 | Unregistered Commenteralex

...for OLIVES!
- Organisation
- Leadership
- Investments
- Vision
- Enterpreneurship
- Support

If musician is going to work as manager, he/she will not make so much music any more...

June 23 | Unregistered CommenterDavor

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