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Rory Cellan-Jones

Digital music - who's making money?

  • Rory Cellan-Jones
  • 8 Oct 09, 08:28 GMT

Suddenly there is a plethora of choices for anyone who wants to obtain music online via a legal route - a rare breed if you believe figures suggesting there are 20 illegal downloads for every legitimate one.

has just relaunched its subscription service in the UK, cutting its starting price from 拢10 to 拢5 per month. , an ad-supported free streaming service, is boasting that it has more visitors than any other British music website. And of course is the flavour of the month, adding both a mobile application and desktop downloads for those willing to pay for a premium subscription.

But, as someone who's been using Spotify for a while, and has tried out both Napster and We7 this week, I'm none the clearer as to which will be the first to make a profit - or indeed whether any of them will be around a year or so from now.

Napster, which of course had zillions of users when it was the first major unauthorised download site, has struggled to make an impact since it went legit in 2002. Its UK marketing director Dan Nash told me that a price of 拢5 a month - which gives you unlimited streaming plus five mp3 downloads - would do the trick, attracting casual music buyers as opposed to the limited band of connoisseurs who sign up at present. Whether 拢5 is a sustainable price is another matter - but Napster now belongs to the American electronics retail giant Best Buy which presumably is willing to fund it for a while. The new service will also be marketed through the Carphone Warehouse chain which is now working with Best Buy.

As for We7, the chief executive Steve Purdham admits that his service is in the "investment" stage at the moment. He is a technology entrepreneur with an impressive track record, having built and then sold the security business Surf Control for a very tidy sum. He claims that what makes We7 different is that its service is simple and its business strategy ultra-cautious. So instead of making users download an application, as Spotify does, the online jukebox is available through your web browser, and rather than a classic dotcom global land-grab, We7 is focusing on the British market for now.

Mr Purdham says that's a contrast with some rivals: "What they've gone for is pure scale without building in advertising right from the beginning." By contrast, We7 users won't be able to miss the adverts: "In 30 minutes you'll be exposed to 36 ad opportunities."

Mind you, Mr Purdham admits the digital music landscape is littered with the corpses of start-ups which thought free music supported by advertising was the way ahead.

So one service aims to get users to shell out a little cash every month, another expects them to tolerate a blizzard of ads as they listen for nothing. Where does that leave Spotify? Somewhere in the middle. It has rapidly wooed millions of users with an attractive service supported by just a few adverts, which, according to most in the music business, is losing money hand over fist. But it needs to move many of them pretty rapidly to a 拢9.99 per month subscription, with the carrot of a mobile application and now the ability to keep some of your music on your computer. In the acerbic words of one rival,'they've executed supremely as a PR vehicle," but Spotify now needs to prove its roadworthiness as a business.

Of course, all of this is a massive bet on the behaviour of the modern music fan. For years those who've flocked to the likes of Pirate Bay and Limewire have insisted that they would be happy to use legal alternatives, if only they were both cheap and user-friendly. There are now plenty of services which fit both descriptions - but will music fans step up to the plate and make them profitable?

Comments

  • Comment number 1.

    The main issue is that people want ot "own" the music and to be able to put it on their iPod or whatever and take it with you. Streaming just isnt the same as that. And 5 downloads a month? Thats just ridiculous.

  • Comment number 2.

    The answer will come. Established groups like napster will get a model that works. Until the copyright issue is sorted there will be confusion. While the producers of music continue to rip off the consumer and the artist the pirate sites will continue. Once it all levels out there will be a market for cheap quick downloads, free samples and higher price quality content. It will happen. We need a better broadband network in this country for it to be viable just yet. Only half the country can engage in downloads and streaming at present. Many are on crappy connections that don't support music. Or video. or anything more than browsing or emails actually. oops, going off topic again soz.
    chris

  • Comment number 3.

    "For years those who've flocked to the likes of Pirate Bay and Limewire have insisted that they would be happy to use legal alternatives, if only they were both cheap and user-friendly."

    I think the majority were lying.
    Personally I download music because I want to take it with me and play on ANY device without restriction and without (most importantly) ADVERTS!!!

    It's the same with TV and Movies, the ripped versions don't include adverts and to me, THAT is of upmost importance, I personally am sick of people trying to sell me things and THAT is why I would never use the legal services.

    I am sure I am not alone either.

  • Comment number 4.

    We need lossless quality, DRM-free downloads.

  • Comment number 5.

    The awkward fact is that no one is making enough money. The record labels aren't seeing enough income from digital to offset the lost revenue resultant from declining CD sales; the premium services aren't persuading enough people to pay; the ad supported services aren't getting enough money from advertising. That's not to say digital revenues won't substantially increase - they will - but it will take time, and part of that process will be learning what is the right mix of services. It won't be a winner takes all game because one size does not fit all, but if the right mix isn't hit upon, music revenues will continue to plummet.

  • Comment number 6.

    I want high bitrate, DRM free music at a good price.

    I haven't seen that appealing price yet.

    Another thing to note is the way legally purchased items like DVDs and Albums contain advertising but their illegal, free counterparts don't

  • Comment number 7.

    As others have said the problem with legal services is that people want (no I would go further - expect) to own something when they buy it and to have no restrictions.

    The other advantage of illegal downloads is that pretty much everything is available in one place regardless of what the labels (or the artists) want us to have.

    Try downloading the Beatles legally and see how far you get but you could get their entire output illegally in a few hours! Until the industry give people what they want people will continue to take it anyway.

  • Comment number 8.

    No, downloaders won't 'step up to the plate' as you say for a very simple reason that no-one in the music industry is willing to recognise. People today, especially young people, no longer believe that music is a marketable product. We believe that is simply advertising for the 'true' product which is live music and gigs. People are no more willing to pay for music than to watch adverts on the telly. Until the music industry adjusts to that fact they will never conquer 'illegal' downloading.

  • Comment number 9.

    When CD's first hit us in the mid 80's the take up was slow as consumers where used to either vinyl or cassette . They where also more expensive as where CD players. The technology got cheaper but the CD itself did not and little by little the vinyl and cassette versions crept up in price as the CD became more popular. Back catalogues of artists where cut to CD as the record companies slapped themselves on the back for selling us the same item again at essentially a small cost to them but an inflated price to the consumer. This when on throughout the 90's until the supermarkets and the likes of Amazon brought the prices down.
    The original Napster idea was the record companies worst nightmare - it broke the model they had sold to the public for half a century. The cartels flapped around shouting theft and to this day are attacking the very public who brought them the riches in the 1st place. Their heads hit the sand in the late 90's hoping threats and the law would stop the horror. It didn't and now we have a potential generation who view music completely differently. A generation who view music as a commodity, throwaway - no real intrinsic value, just a file on a computer.
    iTunes (and other buy sites) has proven that the legal model can work and work well and has gone some of the way to enable consumers to appreciate the substance of the music - it IS more than just a file on a computer, a more physical form. Something vinyl and the CD will always have over a download. iTunes recently added iTunes LP option furthers the idea.

    The subscription models go completely against this method as it feels more like renting a DVD from a store - never really owning and eventually having to go back. Eventually the cartels will see past subscription models inc Spotify. Spotify is an interesting idea but I'm already using it myself to 'try before I buy', I can't see the cartels living with that for to long.

    Personally I enjoy the music I buy and I am happy to buy it now the cartels have had a good hiding and prices are sensible. I do not think consumers have a right to peoples work for free and to use the greedy cartels as a reason to do so is at best weak. It's easy to have ten thousand hooky tracks in your library, but what do they really mean to you, and more importantly what do they say?

  • Comment number 10.

    As others have said, people want to own their music. They're not interested in subscribing to a service that may not be here this time next year. The record companies have made money by reselling the same product in multiple formats (i.e. vinyl, tape, CD, DVD) and streaming is just another way to keep you paying for the same product again and again.

    I too want high quality music at a fair price. How can they possibly justify downloads being only slightly cheaper (or often the same price) as the physical disc. There are no manufacturing or distribution costs associated with downloads (though there would be negligible bandwidth costs). Allofmp3.com used to sell mp3s for small change and they still made money - until they were effectively shut down by the music biz.

  • Comment number 11.

    I love Spotify, since becoming a user I have not illegaly downloaded any music.

    Contrary to others I do not want to keep physical copies of my music, having it taking up space on my harddrive and having to physicaly copy it from device to device.

    All I need now is a mobile streaming device and I can never purchase a cd or download again.

  • Comment number 12.

    I think there's a lingering effect of the music industry's terrible attitude to their would-be customers over the past few years; while people would have been happy to jump on board legal services if they'd been good, DRM free and user friendly a few years ago, they actually got a great big 'screw you' instead. Now that the industry is slowing catching up they're left with a huge legacy of ill-feeling towards them to overcome, as well as a realisation on the part of fans that they actually don't need the record companies for anything.

  • Comment number 13.

    As a user of we7 more or less since it started, I'd like to point out that much of their content can be downloaded as 256bit DRM-free mp3s once you've registered, so you can transfer them to your mp3 player of choice and keep them on your PC forever. If their advertising model proves unsustainable, then enjoy it while it lasts!

    I generally find the 2 or 3-second ads at the start of each track (mostly just for we7 itself) aren't that obtrusive, and it's nice to be able to browse and set up playlists straight from the browser.

    They also do the usual advert-free days, competitions and sneak-previews of new albums so I really can't fault them as a free service, whereas I turned away from spotify the instant I realised I'd have to download / install an application and that you could only stream (at that time) and not keep / transfer music.

  • Comment number 14.

    Can I the back catalogues of artists like Dio, Bruce Dickinson, Def Leppard, Girlschool, Iron Maiden, even the Beatles on this new service Napster has "relaunched".

    If the answer is no then the only option open is illegal downloads.

    I think it's fairly safe for me to say that these services are only of any use if you're into mainstream popular music, for the rest of us with some taste illegal downloads remain the only viable option.

    So I'm sorry but the legal route will still not deter people from piracy if they don't start catering for tastes other than the mainstream. Mind you I'm fairly certain money is being made via these new means of legally obtaining music, and probably the record labels are making the most money, whilst accusing it's customers of being criminals and destroying their business...

  • Comment number 15.

    First of all, I was hoping that this article "Digital Music - Who's making the money?" was actually going to tell us who is making the money?

    I've been subscribing to Napster for several years. The range of music available and the quality of it is superb.

    I stopped using the illegal filesharing sites when this genuinely good, legal, unlimited download alternative became available, although I do then use a dodgy bit of software to remove the DRM so that I can actually play it on the device I want to play it on!

    I have been known to give a copy of the odd track to a friend now and then, just like when I was a kid I used to record songs off the radio onto cassette, even though home-taping was killing music. But I don't actively share my downloads on the internet, and I don't endorse mass piracy. I'm a genuine music fan and I want to support the industry.

    The cost for a record company, or an individual artist for that matter, to distribute their music via a service like Napster must be minimal, far less than the costs of producing and shipping CDs. The problem is greed. If the music industry had embraced the new technology instead of worrying about falling revenues from old technology and hadn't tried to stop the technological-evolution it could have established a decent paid-for market. Instead, they have wasted huge amounts of money in the last 10 years fighting a battle that they can't win. Young people these days now expect to be able to download music for free because illegal downloading has filled the gap that a cheap unlimited paid for service could have done years ago. Getting them to pay even small amounts now is going to be very hard.

    Me on the other-hand, I grew up in the days when we did pay for some/most of our music, and the idea that I can get all the music I want, without the virus risks of the file-sharing sites, for a 'reasonable monthly fee' is great. I have spent far more on music in recent years than I ever would have done without Napster, even if I have then had to circumvent the copy-protection. I was hoping this article would tell me how much, but the music industry has made more money out of me than it ever did when I bought CDs, or even vinyl.

    ravenmorpheus2k, you are right that Napster doesn't yet have huge back catalogues of some of the older artists but this is because of the greed of the record companies. But believe me if you are a true music fan then the 拢5 per month deal they are now offering is well worth it. Tunebite is also a very good bit of software.

    I would still like to know how much of this does go to the music industry though?

  • Comment number 16.

    Actually ravenmorpheus2k, I've just checked. There is no back-catalogue for Girlshool or the Beatles on Napster yet, but the latest album from Def Leppard is on Napster, but not the back catalogue.

    Dio, Bruce Dickinson, Iron Maiden, and loads of others that you will probably like are on Napster.


    The quality is always very good, and the downloads are fast. Why not give it a go my friend?

  • Comment number 17.

    "16. At 8:53pm on 08 Oct 2009, Carl_Sberg wrote:
    Actually ravenmorpheus2k, I've just checked. There is no back-catalogue for Girlshool or the Beatles on Napster yet, but the latest album from Def Leppard is on Napster, but not the back catalogue.

    Dio, Bruce Dickinson, Iron Maiden, and loads of others that you will probably like are on Napster.


    The quality is always very good, and the downloads are fast. Why not give it a go my friend?"

    Well personally I have all the music I currently want and don't wish to be paying a monthly subscription to stream music.

    But your post proves my point, not everyones tastes are catered for by services such as Napster, in fact if I was to seek out legal means to obtain all of the albums I have purchased on CD, some 203 albums I've collected over the last 15 years, some of which were hard to come by given the increasing demise of local music shops and online retailers not always carrying stock of less mainstream artists, I'd probably end up spending more than I have done already in subscriptions, and that's even assuming various subscription based services even have them.

    You can't get any of the Beatles back catalogue on iTunes iirc (although that's probably mostly down to McCartney), so the chances of Napster having a coup and getting them on there are slim in my opinion.

    So until the music industry makes back catalogues of less mainstream genres of music such as NWOBHM more widely available the likes of me will have to either resort to "piracy" or trawling what's left of local indie music retailers and online shops, and "piracy" is fast becoming, if not has become, the more fruitful option.

    And I doubt the quality is any good on Napster, compared to lossless audio formats such as FLAC, MP3s just are not that good.

    Also what DRM measures do Napster use? As has been mentioned streaming is only good for there and then, I would like to transfer any tracks I purchase to my PSP and 5 downloads a month won't cover that - It's a joke and a very poor one at that.

    I'm sure they will make money from it though, there is one born every minute after all...

  • Comment number 18.

    The global branded promotion industry is worth more than $30 billion annually and is far outpacing both traditional and online advertising. VerveLife in the US has built a profitable business providing an integrated music solution that鈥檚 different than anything mentioned in the article.

  • Comment number 19.

    A rare breed if you believe figures suggesting there are 20 illegal downloads for every legitimate one.
    -----------
    Not surprising when you realise that the majority of illegal downloading is done for the purpose of evaluating music that you would be unlikely to find by other means.

    I will NEVER switch to using a service that requires me to pay for every download, if this is all that was available then I would very rarely download anything unusual or unheard of (and would have missed out on some great stuff). Youtube, Myspace and Facebook all offer good alternatives for this of course but I can not take these services and lsiten to them in the car (where I do most of my new music evaluation).

    I am more than happy to pay for quality, the stuff that I listen to time and again and I will in general prefer a physical CD copy of these albums so that is is under my control, can take it where I want and also (a little egocentric I know) it looks good to have a classic collection on the shelf. I feel that this is actually the most common view amongst most young music-lovers at the moment (I meet a LOT of them at local gigs), whether it is the view of most teenagers who are more casual about music or not I dont know, but then these are not going to be the industry's major customers anyway.

    90% of illegal downloads are simply not a lost sale, they are downloaded by people who through either their own moral failings or the simple fact that they dont like the music will never atually consider buying the track. I would say that a few percent are actually generated sales, downloading random tracks has lead me to dozens of artists I would never have heard of and enerated them album sales from me and people I have recommened them to, this is not uncommon and regularly have conversations of this kind at gigs. That only leaves a few percent that are actual lost sales. Hardly worth crying about.

    It is more an issue wth TV and Movies of course as rarely will people be willing to watch those twice but music is different.

  • Comment number 20.



    Personally I think Spotify i excellent. as long as there is always a spotify (or similar) I see no reason at all to 'physically' own the music at all. I can't be bothered to copy/back-up/load...files when I need them. I just want to type an artist and get on with whatever.

    I was however disappointed that the Spotify application on the Google-phone was actually a subscription service like the Iphone. I can understand apple getting nervy over their beloved Itunes being under threat by Spotify...but they could have used the PC version for the google phone (or any other phone for that matter) with no problem to stream the music.

    Lets face it, if they don't...I am sure that I and other users will be streaming services like we7 from our phones browsers and Spotify will have to think again.

    It seems right to predict that we are entering the second phase of digital music now in light of the endless array of mobile devices and the increasing coverage of mobile Internet networks.

  • Comment number 21.

    5 downloads a month is worthless - two and a bit months to download an album?

    Why does 大象传媒 never mention eMusic in these things? They have a great model with a range of subscriptions - I'm currently on the 拢14.99 a month plan, which gives me 75 downloads that I can keep. The real beauty of the service is in the recommendations it makes, allowing you to discover a lot of new music.

    And as they only feature independent record labels, you're not paying through the nose to subsidise the high-earning "stars" on the major labels.

  • Comment number 22.

    The record labels created this culture of illegally downloading music with their greed and extortionate prices for CD's.

    Personally I am laughing everytime I download music - laughing at the record labels for the way they treat their consumers - treating them like criminals and fools.

    They need to wake up - a better business model would be to pay 10p per track

    Is it not better to have a percentage of something, rather than a percentage of nothing?

  • Comment number 23.

    There are still gaps in the availability in the market. I still can't download a DRM free Beatles track from Amazon so I buy CDs as and when I find them (often second hand).

    I can't stand adverts in the streaming experience so I pay last.fm for their recommendation based streaming service which is a lot cheaper than Spotify/Napster. The only downside is you can't listen to whole albums they way you can with Spotify. This is a useful feature for "try before you buy" listening when new albums come out, but I'm not paying 拢10/month for the privilege.

  • Comment number 24.

    You have to admit that the expectation that we would pay for things is rather a ridiculous one. After all in many cases we have a large amount of material that is available that we have already paid for.

    Everything the 大象传媒 produces is paid for by the license fee, it's available on iplayer so whats the problem with time shifting it by bittorrenting the latest episode of Eastenders. Theres no diference between doing that and watching it on 大象传媒3 or on the ipplayer.
    Anything on Sky/Virgin, you've paid your cable tv bill so whats the difference between watching House on Sky One and downloading it?
    Every commerical tv channel that is supported by advertising spending. We have all watched the adverts and will soon be exposed to in show branding, so we've already paid for the programmes they show as well.

    On the radio, 大象传媒 or commercial. We've been given the music (for the license fee or via the advertising) effectivly free for decades, why should we be expected to pay even more?

    We have already paid for these things, having copies on our pc's/iphones from Bittorrent is no different than videoing/pvring a show off the tv or recording the top 30 onto audio tape which hasn't destroyed the music or tv industry so far.

    If you think that way then you can see why some people are wondering why on earth companies are expecting us to pay them again.

  • Comment number 25.

    r.e. comment 24: "the expectation that we would pay for things is rather a ridiculous one"

    I am astonished at this. Read that sentence back and see if you think it sounds reasonable. How dare they expect us to PAY for their product!

    Your cable TV bill pays for the cost of the cable and the infrastructure needed to run it, aswell as Virgin's (or whoever's) profit - they're not a charity. If you want to have the cost of your downloads included on that, you will need to pay extra money on top of that, which is exactly what the record companies are lobbying for.

    I don't know about you, but I would rather have the choice of paying for what I want from who I want, rather than a blanket fee that will go to cover the costs of multi-million earning stars pumping out mass-market Simon Cowell garbage.

    Between this this sort of unreasonable attitude towards paying for what you consume and the antiquated views of the record industry, this is what is preventing a good, legal system from being established.

  • Comment number 26.

    "25. At 2:37pm on 09 Oct 2009, sporran wrote:

    r.e. comment 24: "the expectation that we would pay for things is rather a ridiculous one"

    I am astonished at this. Read that sentence back and see if you think it sounds reasonable. How dare they expect us to PAY for their product!

    Your cable TV bill pays for the cost of the cable and the infrastructure needed to run it, aswell as Virgin's (or whoever's) profit - they're not a charity. If you want to have the cost of your downloads included on that, you will need to pay extra money on top of that, which is exactly what the record companies are lobbying for.

    I don't know about you, but I would rather have the choice of paying for what I want from who I want, rather than a blanket fee that will go to cover the costs of multi-million earning stars pumping out mass-market Simon Cowell garbage.

    Between this this sort of unreasonable attitude towards paying for what you consume and the antiquated views of the record industry, this is what is preventing a good, legal system from being established."

    Maybe they should be charging us each time we use the record facility on our PVRs then.

    It's exactly the same as downloading after all.

    And if you're enterprising enough you can transfer the recorded program to a PC for storage and viewing whenever you want in the future.

  • Comment number 27.

    An alternative to the commercial model is the world of Creative Commons music, where the music is free but legally so. Artists give away their albums for free in the hope that:

    a) They will be heard because the music is free;
    b) Fans will donate money in thanks;
    c) Fans will purchase other commercial albums by the same artist;
    d) It's fun.

    CC music is not a subversion of the current music industry revenue streams, but a supplement.

  • Comment number 28.

    who Works for "Free" ?.. since when is "Selling" your Talent and (maybe making a living)a Crime ?..no matter what the technology or Future entertainment delivery system ever is,the "TAlenT" must be paid!..just because
    you can copy and enjoy any Performace, does not make it "RIGHT"..how might you feel if "YOU" had your Royalties "not" paid to YOU ?..that's
    what i Thought.,,,you want to get the "FAIR" payment due you !...if
    future Creative People find they will not be paid for the work,..all you'll find are "re-runs"....as an ASCAP Publisher/Songwriter I'll always
    Fight for the Rights of the Creative people ! Joseph Nicoletti

  • Comment number 29.

    The cost? here's a giveaway from 6music's Tom Robinson's web site regarding his back catalogue....

    "iTunes downloads cost 79p per track. Writer/publisher get 6p, Performer 6-8p, Visa/Mastercard 7p, Apple 12p, and Record Company almost 50p. Sod that. Help yourself to my songs & share them with your friends: right-click (Mac: ctrl-click) on titles to download. Optional: if you'd like to help with hosting costs, click below"

 

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