Into The Unknown

[Update, 27/07/2009]

As this article is proving to be one of the most popular on ITU, and it's REALLY long, I thought I'd add a quick menu to allow you to jump to the key sections.

Article Sections

1: A Little History

2: What's in an album?
How much does it actually cost to press an album? Well, here's an accurate breakdown of the usual costs, plus a comparison with a digital release for comparison.

3: The Cost-Benefit Calculation

4: Some Final Thoughts

A Little History...

Here in the UK, Tesco is arguably the most aggressive major retailer. They have fingers in many pies; after running rampant through the usual grocery and non-food sectors through their chain of supermarkets, they rapidly expanded into many other sectors. In no particular order, these include "non-food" items sold in supermarkets (washing machines, toasters, kettles etc), online grocery ordering delivered to customers' doorsteps, followed by direct-to-home sales, again delivered to customers' doorsteps.

This is just the tip of the red and blue iceberg - go to their web site and explore a little to see just how many projects they now run. Tesco isn't the only major supermarket chain trying to make inroads though - Asda also has a fairly formidable online presence, followed closely by Waitrose, The Co-Op and Sainsbury's. However, if you come to the UK, the Tesco brand is fairly ubiquitous given their market dominance throughout the mid-90s right into this decade.

Enter Tesco... Image credit: Building

A couple of years ago, Tesco began to sell digital music via Tesco Digital. To begin with, their service solely offered DRMed Windows Media format - today they sell MP3s and DRMed WMAs for many albums, along with a selection of TV and films in DRMed WMV format. According to Tunetuzer Tesco Digital's bitrates are 192kbps for WMA, so logically their MP3s will be the same.

Now, while Tesco is a massive force to be reckoned with in regular retail, they have to largely play by the rulebook when retailing digital media, due to the requirements to pay mechanicals and whatever other royalties mandated through their arrangement with the various labels. According to the MCPS' current ratecard, the rate for downloaded audio (JOL) is 12%. Tesco Digital sells their tracks at 77p per track - when you consider the cost of an iTunes purchase was (until very recently) 79p, with iTunes Plus coming in at 99p/track, this doesn't leave much scope for profit by anyone's measure.

So, what really perplexed me was when Tesco decided to sell the new U2 album. They must have figured that it'd make a good loss leader, because in the opening week of sales, No Line On The Horizon went on sale for a measly £3.97 - if you purchased the whole album in one transaction. Individual tracks were, and still are, on sale for 77p each. Over the course of the next few days, they lowered the price even more - to just £2.78! However, it's currently on sale for £5.46, which equates to a shade over 49.5p per track when purchased as one album.

Quips about the true value of U2's music aside (personally I think it's worthless), this is very interesting. A major retailer prepared to experiment with some radical price cuts in order to drum up business? Is the demand that low for digital music? We continue to hear proclamations of year-on-year increases in digital music sales; heck, in 2005 the IFPI reported sales of $1.1bn, three times that of the year before, with The Register remarking that actual profits from those sales was probably closer to $280m given the apportionment of royalties. By 2008, the 2007 sales estimates were around $2.9bn, and in January this year sales figures were up once again to $3.7bn; "internationally... a sixth year of expansion."

I am all in favour of the music industry making money through legitimate retail, and through reasonable levying of royalties on those sales and performances. However, impressive statistics from industry bodies aside, there remain some important - crucially important - considerations for consumers with regards to the perceived value of digital music. Is the 80p mark for a digital audio track still too high? I began to wonder whether Tesco were experimenting with seeing if customers purchased tracks if the offer was appealing enough, based on their own perceived value of the music on offer.

I will readily admit that I am not your 'garden variety' consumer when it comes to digital media. I am well aware of the alternatives available, both legitimate and 'grey area', and in the past I've usually relied on the latter for music discovery - I have, in my many years of digital media consumption, only ever purchased one digital download (a charity single for Pirate Day last year, from the DRM-free indiestore.com).

However, I still buy many CDs (and a shedload of vinyl), and I do all my own ripping, encoding and transfer to my customised DAP (which is not an iPod - it's an iRiver H340, running Rockbox). While this puts me in a smaller camp of people who are a little more 'exacting' with where they obtain their digital media, I like to think I still have a solid grasp on the purchase habits of the majority of music fans, both ardent and casual. There is no denying that the ubiquity of iTunes+iPod is a strong market force, but Amazon's digital music service has a killer triple threat: massive brand awareness, higher audio bitrates (256kbps) and total platform agnosticism. Every digital audio player available today, including iPods, will happily play MP3s.

That said, iTunes has recently rolled out a store-wide upgrade of all audio to iTunes Plus (which also removes the layer of DRM from the audio, but increases the price). However, the quality is not that much higher - 256kbps AAC, which is on a par with Amazon's offering, but not playable on many players other than Apple's (but Apple's closed loop of iPod+iTunes is at once their biggest strength and their greatest weakness). There are other digital retailers in the UK marketplace, including some on par or competing with iTunes, AmazonMP3 et al (Play, 7digital and TuneTribe spring to mind), but today the market is saturated with hundreds of legal online retailers.

Now some of the avenues for legal digital music have been discussed, I can move on to the key point of this discussion - the true cost of digital music. What follows is a case study based on my own empirical research and first-hand experience, and is a fairly accurate representation of the costs a label faces when retailing music online. But first, let's break down the cost of a CD...

What's in an album?

With CDs, the biggest profits have always come from economies of scale. Once your CD is mastered and sent for pressing, the manufacturer can just as easily press 1,000 units as they can 10,000. If we take a scenario which I'm sure many smaller/indie labels are faced with when they produce a new CD, the costs will most likely be similar to these...

Artwork:

• Barcode: ~£10 (although many labels will have blanket arrangements with the de facto provider for barcodes in the UK, GS1)
• Artwork design: negotiable, sometimes done in-house
• Artwork print planning: I've been told estimates of £300 for smaller runs (runs of <1,000)

Production:

• Cost per CD: usually between 0.15p and 0.25p (1/4 of a penny, not 25p). Prices can be as low as 0.11p, but only for multiple million unit pressings.
  
• Booklet: depending on page count and complexity of artwork and page arrangement, for 12 page booklet can vary between 0.20p and 25p for the first 1,000, roughly half for 2,000 or more.
• 8 page booklet: price decreases by ~1/3
• 4 page booklet: price decreases by ~2/3
• Slip case / O-card: between 0.20p and 0.30p per unit, loose or shrinkwrapping is between 0.01 and 0.04 per unit (NB: most shops will not stock items if they are not shrinkwrapped)

Delivery costs: negotiable depending on arrangement with pressing company, often between £30 and £50 per 1,000 unit run. 500 units not much cheaper - CDs weigh an absolute ton when they're boxed 20 to a carton with 20 or more cartons in a box!

Doing some quick sums, just pressing a 1,000 album might well cost around the £450-470 mark for a label, which is a good wedge of cash by anyone's measure. Then there are distribution costs, promo costs, and other costs (especially if an artist has an advance as part of their contract).

Another important thing to consider are the MCPS costs (the mechanicals) - a mechanical must be paid for every CD produced, and this is arranged by way of an AP1/AP2 licence from MCPS. If the label doesn't have one of these arrangements, they are falling foul of copyright law. Smaller labels have an AP2 or an AP2a - the difference between those being the payment terms (AP2a deals allow a label longer to pay the royalties, which can be crucial for small runs or albums which sell a steady amount but over a longer period of time). The royalty to pay is around 20% based on the net price - not the Recommended Retail Price the customer sees, but the lowest price. Net Realised Price is a term commonly used to describe this amount. NRP itself is based on the PPD (or dealer price), which is what the retailers pay to buy the stock.

There are also often 'file discounts' - the major labels will generally have smaller file discounts than the indie labels because for indie labels, the balance of power is firmly in the retailer's court (so the label has to effectively sacrifice more profit to get their stock purchased and sold in the shops).

Returns have to be taken into consideration as well - if many units of stock do not sell, the label has to ensure that they have enough money in the pot to refund the distributor or retailer after the returns are completed. This can often take several months, causing major complications and frustrating periods of little income for artists who are signed to smaller labels (because if the artist was paid by the label based on every single unit of their CD being sold, but half of the stock was actually returned by the retailers, the artist ends up owing the label money!)

I may have missed some aspects out, but they are the main things to consider for physical releases. Now, compare all that to considerations for digital releases of the same material:

• Banking charges when money from sales is passed on to labels
• MCPS mechanicals (yes, you have to pay a 'mechanical' royalty on every digital sale! This is usually incorporated into the cut the retailer takes from each sale)
• Other digital store fees (most stores will take a cut of each sale, in late 2008 iTunes was paying about $0.70 of each track sold to the label but this can and does change)

... and that's it. No production costs other than the artwork (which probably already exists if the album was simultaneously released on CD), a bit of promotion and the usual promo costs if the label engages in promotion.

The cost-benefit calculation
Digital versus physical, sound quality and the eternal value for money discussion...

Yet, although digital sales are relatively uncomplicated by comparison, how come they still cost so much? With CDs you get the original quality audio which you can encode yourself really quickly with iTunes/Windows Media Player/your software of choice (I use EAC & Lame for top quality). You also get artwork you can hold in your hand, liner notes, and a nice case to put on your shelf. You really do get what you pay for - whereas with iTunes or just about any other digital music store, you still get far less for paying about the same amount as the same music on CD. There are only very few digital music stores selling audio in lossless format - and aside from Beatport and Bleep (and a few other boutique retailers), all of the lossless digital music stores focus on classical and jazz; Passionato and Linn Records are two notable examples offering exceptional quality music (which itself is stunning) in a variety of formats to suit the listener.

Why aren't more labels and retailers pushing for this progress to be made? Who knows; maybe the mentality of "every downloader is going to steal and share their music if they buy it" is still prevalent - but people have shared music for decades! How else do other people hear about new music? And also, the attitude of music listeners being treated as 'consumers' as opposed to 'customers' is still worryingly present in the music industry. People do not treat music like they treat groceries - therefore it is inaccurate to classify music fans as 'consumers' when they are nothing of the sort.

Returning to the issue of sound quality - classical and jazz fans are regarded as appreciating high quality sound more than regular music fans, but that is not an excuse for all mainstream digital music stores to offer poorer quality audio. The BBC is currently implementing AAC+ online streams for its radio stations - you can already listen to songs on Radio 1 or Radio 2 in higher quality than you can by paying for them and downloading them, and amazing services like Spotify already offer high quality VBR MP3 tracks available to stream immediately for no cost to the listener - again, the quality of these is usually higher than the quality of the same tracks from many music stores. Services like Spotify, now launched in the UK, should be highlighting the need for the industry to step up its game and offer something to the customer which is a true deal-breaker - lossless audio would do that for me. The quality of the audio file, and the assumption of DRM schemes that you will infringe copyright (as opposed to the trust model which has worked for CDs for years) are my main reasons for still not buying digital music.

The fact that the music industry and the incumbent digital music retailers have not already pushed through parallel offerings of the same music in a lossless format to me is nothing more than legalised theft by another name. Lossy files (such as found on iTunes, TuneTribe, Tesco Digital and many other major players) should be priced even cheaper than they are now, particularly if they are DRMed - and the lossless files should be sold at the original price. Why? Well, with lossless audio, if you burn it to CD, you have an exact replica of the original audio, not a poor imitation of the original audio. Even iTunes Plus is an awful bitrate - 256kbps AAC? Not good enough. Apple already have Apple Lossless in their arsenal, but they're not using it - and there's also the popular FLAC, Shorten and Monkey's Audio codecs for lossless music. Sure, the files are larger - but you can burn them to CD to archive them, and encode MP3s, WMA or AAC files for your portable device from the originals after you purchase them. Heck, these days, with the cost of storage going down all the time, it's ridiculous to not have less than 500Gb of storage in your computer. Who cares how big the files are?

In my mind, if I'm paying as much as I would pay for a physical copy of the album, I want to get exactly what I would get sound quality-wise as if I was buying the original CD. Lossless digital files allow me to at least burn them to a CDR and enjoy the music at the same quality as if I was listening to a store-bought CD; as more and more people get familiar with the poor quality of downloaded music, they are beginning to realise that there is a big gap in quality between digital downloads and the same tracks on CDs.

With digital distribution, the costs to labels and distributors are far lower, so where are the profit margins being eaten up? I still believe an album purchased in digital format should cost far less than it currently does. Some in the industry would then argue that by pricing music any lower than it currently is, it devalues the creative output of artists to the point where it effectively becomes little more than a commodity. I would counter that for years, the music industry itself has itself done just that to music without any help from us - just look at the output of the major labels; there is the occasional gem but most of it is repetitive drivel which quickly gets forgotten about.

To sum up, do I think the price of £4 for U2's latest album in digital format is a fair and accurate price for the actual value of what you're getting? Yes, yes I do. However, the costs that the label and the retailer currently have to either pay or absorb (resulting in them selling at a loss) are still far too high. The structure of royalties and compensation for digital sales needs to drastically change before any real progress is made in digital retail - and while this is waiting to happen, people will continue to download music from the web in much higher quality without paying for it at all. Once the happy medium is found, most people will move away from buying CDs altogether - and there will be more profits for everybody. It feels to me like all the major labels are waiting for somebody else to make the bold move and give it a go - and in that kind of Catch 22 situation, we are never going to make any progress.


Will people disagree with what I've said here? I'm sure some will. I am approaching this from the perspective of a consumer who still feels like they're not getting their money's worth, not from the stance of someone working in the music industry trying to earn a crust. (It is not the framework of label + artist which is faulty, the entire system is outdated and needs a rapid kick up the backside to get it updated for the 21st century.)


Final Thoughts

The irony of all this is that if the U2 album was offered in lossless format for 99p a track, you would actually be getting your money's worth because once you have that lossless audio you effectively have your own copy of the original audio CD. The distribution and production costs are far less for everybody involved - so there's still savings to be had. You are also effectively future-proofed as a customer; when a newer audio format becomes the most popular one out there, you can just reencode your audio into that format without having to pay for it all over again. Everybody who has their music collection on CDs already does this, but everybody who buys from locked in platforms like iTunes is effectively screwed. As an insightful person wrote, quite pertinently;

If a digital music store doesn't give you a lossless copy, then it should provide you the ability to upgrade to a higher quality lossy format at any time.

The alternative is that they haven't sold you right to listen to the music; just a scratched version thereof.

... And I could not agree more.

I hope this article has given you something to think about, and has maybe even persuaded you to reconsider your stance towards digital music and CD albums. I will keep on buying CDs (and vinyl) in shops until the day lossless audio is available to buy for an equivalent price in the format of my choice. What I really want to know is why labels and stores have been dragging their feet for such a long time about this - and why people are still tolerating this inadequate level of quality from digital music retailers. We're in 2009, not 1999.

In the meantime, there's just one thing I encourage everybody to do: demand lossless music from your music label or retailer! Only by asking these questions again and again and raising awareness of this whole issue will we as customers get what we want (and don't forget, the customer is always right). The music industry should be beholden to its customers, rather than the other way round - and it's about time we force the industry to rethink some of the rules to ensure we continue to get a fair deal. After all, when nobody pays for music...

I'd like to issue a full and categorical denial of this. We've never had any request for such data by anyone, and if we did we wouldn't consent to it.

Of course we work with the major labels and provide them with broad statistics, as we would with any other label, but we'd never personally identify our users to a third party - that goes against everything we stand for.

As far as I'm concerned Techcrunch have made this whole story up.

A response from Russ, an employee at Last.fm, over allegations made by TechCrunch recently that Last.fm had essentially handed over massive chunks of private user data to the RIAA so they could find out who was listening to (and therefore, most probably sharing and/or downloading) prerelease leaks of the new U2 album.

Who's telling the truth? As long as no British laws were broken, I don't really care, and I'm sure we'll find out soon enough anyway once the FUD has dissipated. (I'm sure the RIAA and U2's manager are conveniently forgiving Universal Australia for 'accidentally' making U2's latest album available for digital download via their web site a few weeks before its official launch... One rule for them, another for us, just as usual.

To be honest, I'm far more interested at the moment in an announcement from Indian scientists who say they've developed a method of using enzymes to take carbon dioxide emissions and convert them into things like cement and other useful building materials. How cool is that!

Some sad (but not entirely unexpected) news to start off with today. A couple of days ago, on the 4th of September, one of the first companies to 'get it' and try to provide a legal source of digital music, Wippit, closed its virtual doors for good.

In a statement made to to Distorted Loop, and now on its web site, a spokesperson for Wippit said;

Ok, these thoughts have been simmering on my brain's back burner for a while now. In preparation for my open letter to the music industry, I thought I'd warm up with a little brainstorming of my own, laid out in public for all to see.

We're hardly short of recent developments in the digital music arena: RealNetworks is launching an MP3 online music store under the Rhapsody brand, teaming up with the music discovery service iLike and US mobile provider Verizon - most likely with an aim to compete against AmazonMP3 and iTunes Plus. Warner Music has finally relinquished and agreed to distribute its music catalogue on Nokia's "Comes With Music" digital platform - less than a year after withholding its content from the same platform due to 'concerns over illegal downloading' (...your guess is as good as mine on this one). The $5-a-month RED music subscription service launched to much fanfare, with the promise of raising money to combat AIDS... And the BPI proudly announced that label revenue, outside of traditional direct music sales, is up 14% this year (t0 £121.6m), which makes a change from the cries of doom and gloom we usually hear.

(Oh, and Prince is suing people again for ludicrous reasons, which just amuses me.)

You might think that this is all well and good, and that things are slowly looking up - but I continue to be disappointed by the lack of progress the industry is making in the online sector. In fact, I think the current situation we have is actually worsening the situation for everyone, and it frustrates me. As a result of this, in my free moments, I've been pondering a solution which I think is quite workable, would benefit all involved in the industry (from labels to artists) and wouldn't be that hard to implement - and I'll explain. In due course.

But first, an overview of the new RealNetworks MP3 service... Their DRM-free platform is a step in the right direction, but I still find myself left wanting. From the DownloadSquad article covering the launch;

The Rhapsody MP3 store has music from all four major labels, with over 5 million tracks available for download. Most songs are priced at 99 cents, and most albums cost $9.99. That's about the same price that Apple charges for DRM-free AAC audio files, but a bit more than Amazon MP3 charges for many songs and albums. All songs will be encoded at 256kbps, and will be playable on any device that can handle MP3 audio. RealNetworks isn't killing off its DRM-restricted music service, but rather, plans to have the two services peacefully coexist. You can pay $12.99 a month to stream unlimited music to your computer, or you can pay per download to save songs that you can play forever.

RealNetworks is also rolling out a service that will let Verizon Wireless customers download music for their handsets. For $15 a month, users will be able to download an unlimited number of songs (with DRM) on a Windows PC and sync those songs with their cellphone. Currently seven handsets are supported, with several more coming soon.

The Rhapsody MP3 store is offering a $10 credit to the first 100,000 customers who purchase an album by July 4th. You need to sign up for an account and fork over your credit card information to qualify. But hey, free music, right?

All four majors... To the rest of us, that's Warner, Universal, SonyBMG and EMI. 'Right, 256kbps MP3 - that's great quality,' you might think, but you'd be wrong. The quality of online offerings is slowly increasing, but at a much slower rate of change than both the storage industry's developments in raw storage capacity and the computing industry's developments in raw computing power. Once again, an industry artificially stymied by the lack of willingness of its participants to move with the times. That said, whilst a 256kbps bitrate isn't ideal, I agree that this higher quality audio is better for both the customer and the industry as a whole (which, aside from a couple of notable exceptions, still seems somewhat reticent to up the quality of its digital music offerings - although there are no downsides to doing so already). But (and it's a big but) anyone who buys an MP3, WMA or iTunes AAC file when the CD is available is an idiot for helping to perpetuate this flawed business model. Why do I yammer on so much about buying CDs? Well, it boils down to quality and ability. Why does the quality matter so much? Because we as consumers need to be future-proofed. Until an online music store offers their music in a truly CD-quality format, the industry is doomed to repeat itself ad nauseum, and we'll never make any real progress in moving our music consumption from the expensive (for everyone) physical world to the higher-profit, digital world.

Why do people still buy CDs? Well, they're one of the only truly future-proofed formats left, as they can be encoded to whatever format is the format du jour. Want to put some of your classic 2004 rock music onto your 2-terabyte, thumbnail-sized digital music player, using the best format around at the time? Sure thing, just rip the tracks from the CD, encode them, and plop them onto your device. Sorted. You have the ability to do so at any time, and the quality of the original is sufficient to do so too. You wouldn't dream of reencoding an MP3 or WMA file - it would sound even worse than it did the first time.


I will not be satisfied with the retail digital music industry until they stop exclusively dealing in lossy audio formats. The general buying public have the herd mentality, unfortunately - they sometimes can't see past their nose, and this has been happening for a few years now. Put simply: Rhapsody is a con. iTunes is a con. AmazonMP3 is a con. We7 is a con. Any and all online digital music stores that don't offer PCM audio or lossless download options are, when push comes to shove, blithely conning their customers. Linn Records is breaking the mould in the classical arena - in some cases offering albums in 24/96 FLAC 'studio master' quality, higher quality than the retail CDs(!) - and they should be both encouraged and heartily congratulated for going against the grain. Similarly, electronica retailer Beatport has offered PCM audio downloads at an acceptable price point for some time now, as have a few niche labels' own web sites - unfortunately nowhere near enough sales to even make a dent on current consumer trends in the digital music retail market.

The Big Four labels, and the major online retailers they sell through, might counter that they are mainly responding to demand for the most popular formats like MP4-AAC, MP3 and WMA with the current online store offerings - but who is going to take that next step and dare to be radically different by offering a service BEFORE the market asks for it? If that step isn't taken, the market will never realise that it's both feasible and reasonable to expect it. We have a classic chicken and egg situation, except knowledgeable people and the labels themselves already know the answer - the labels just seem to want to ignore it for a while. Sticking one's head in the sand was never a bright idea, especially in this day and age.


By the way, if you're wondering what lossless audio is - logically, it's the exact opposite of lossy audio... And MP3, AAC and even Ogg are all lossy formats. (For some info, read this and for an excellent primer - with pictures! - read this ExtremeTech article.) The reason MP3s are so small is because when they are encoded, not all of the original audio information is retained - the codec uses clever techniques to 'recreate' the missing/lost portions of the audio spectrum, and each codec has its own algorithms which result in either increased efficiency under certain circumstances or improved filesizes. Lossless audio formats are formats like FLAC, ALAC and Monkey's Audio, which are still digital music files (just like MP3s in this respect) but which contain ALL of the original audio information from the source, compressed in such a way that none of the information is lost forever. So, if you create a FLAC file of a track you've ripped from a CD, you effectively have an identical, 1:1 copy of that audio in said FLAC file. This would not be so had you made an MP3 instead. If you burn that track to an audio CD from the FLAC file, the track on the CD you've just burnt it will sound absolutely identical to the original because it effectively IS the original. The beauty of digital copying at its simplest (and the root cause of the music industry's past decade of squirming, too).

MP3s, no matter how well they've been encoded and decoded, are never quite the same as the original - they might sound slightly different, the audio spectrum will definitely be different from the original and you will, to put it bluntly, have lost some of the sound. I know this is an oversimplification, but think of an MP3 - even a high quality one - as a fresh tape cassette recording from a CD. You'll never have the track in the same quality you would have if you had the CD in your hands.



So, why am I going on about quality? Well, because I think we still pay far too much for what we get, and the market has a bit of a cartel effect going - there is no way to shop around, like there is for physical CDs. The music labels are pushing mandatory minimum percentages onto the distributors as a final act of desperation, meaning the retailers have to enforce an artificially high price for their music in order to even make a half-decent profit for themselves. As a result of this, barring the few online music stores that work on either a subscription basis (eMusic) or a popularity basis (like the indie-centric Amie.st) there is no disparity in prices between one online music store and another.

Look at the price point for buying an MP3 from one of the panoply of legal download sites. Between 79 and 99 cents? 79p for an iTunes file (99p for iTunes Plus) if you're in the UK? For what... A 'nearly-there' copy of a track? It might sound ok through your crap iPod headphones, but what happens when you want to play it on your good soundsystem at home? What happens if you get one of those nice networked streaming audio devices like a Squeezebox or a Sonos? You want as high quality as possible to get the most from your music, but you're stuck with your awful quality MP3s.

What happens in a couple of years when my precious music collection, which I've paid for of course, becomes complete obsolete - just because it's all been encoded at a low bitrate in a format which is more than a decade old? If I had the CDs, I could just reencode them in a better format. An increasing amount of people, myself included, are buying albums, ripping them and encoding them to lossless audio formats such as FLAC, and then storing away the original purchases to make sure that they don't get scratched / broken / lost. Sites like MP3Tunes offer you secure, private online lockers in which you can archive very high quality audio for streaming to wherever you are at that time, be it work, home or elsewhere. (Incidentally, EMI have once again hilariously misinterpreted MP3Tunes' core concept, and are trying to sue the company out of existence under the misguided assumption that it is intended to aid piracy, instead of promote responsible safeguarding of your own music. Send EMI hatemail until they see sense.)

Companies are marketing devices which store your music in archive quality and make it instantly accessible over your local network, or even over your Internet connection to any device which has web access - this is just the tip of the iceberg. Even my old iRiver H140 MP3 player can play FLACs with a bit of custom firmware - I just load them on via its USB cable as I would do an MP3 or an Ogg file, and I can listen to them straight from its internal hard drive. I can also play them on my PC just like I'd do with MP3s.


Still with me? Good, let's talk shop. Let's work in US dollars for the moment so we can do some comparisons. If we look at the sweet spot for album pricing from a US high street retailer, we can see that the most popular range is between $10 and $14. (this is according to Best Buy's site, which lists the amount of items in each category). Coldplay's new album is on sale for $13.99. (From Amazon.com, it's $9.99, but I'll use the RRP here even though in reality few online retailers actually use it as a guide price). The album has 10 tracks on it, and at $0.99 each, the 256kbps download from Rhapsody clocks in at $9.90. For albums with more than 12 tracks on, buying the physical album can actually be cheaper than buying the same album as a digital download. (11x$0.99 = $11.09). With an increasing amount of stores even offering free delivery on all purchases, many are realising that the instant gratification itch can wait to be scratched for a day or so. But yet, we are still left wanting something... Something a little more flexible, a little more value for money, a way to get the true CD quality without going to the hassle of ordering the CD (or travelling to the store to pick it up). 'Surely it must be possible,' and you'd be right.


The problem with today's digital music stores

If you buy all your music from iTunes - or indeed any online music store locked into a proprietary format, with or without DRM, you're tieing yourself into a locked-down system which mandates that you store your music in a particular format. Unluckily, with some (Apple's iTunes) you're even tied to one manufacturer's device to listen to your music unless you pay a premium on top of the already-expensive regular prices - and the quality isn't even that good for your money. MP3 stores aren't much better, although it's definitely an improvement in terms of being able to move your music to whichever device you happen to own at the time, and you can create (albeit lower quality) CDs to play in your car. The latter also goes for iTunes-purchased music, but it's not an excuse for using a proprietary format (or a lossy one, for that matter).

Amazon MP3, iTunes and a few other providers have absolutely no technical excuse for only offering lossy files - when labels deliver their catalogue to these providers, they have to supply it in lossless format. iTunes Producer rips CDs to PCM audio and uploads it directly to Apple; Amazon MP3 accept CDs in the post, PCM audio or FLAC audio with the appropriate metadata accompanying the files, as do a lot of other providers. Why? Well, so they can reencode the tracks to higher quality... or different formats... should the need arise. If you leave it up to them, you are at their mercy. If you demand the highest quality audio in the first place, you can do as you like when you like. Whatever happened to consumer choice?



So, here's my solution for the digital music retail industry.

Offer all music sold via this new online service in one format, and one format only: FLAC. FLAC is open-source, meaning it's free for everybody to use, and it's cross-platform. The FLAC software and FLAC files are useable on Mac, PC, Unix, Linux and a host of other platforms. No 'vendor tie-in'. The format works on agreed standards too, so both PCs and portable devices can incorporate the standard safe in the knowledge that it won't change in six months' time - so you can get in-car stereos with CDR support and FLAC playback ability! Several albums' worth of music in true CD quality on one data CD which will play in my car and on my PC at home? Excellent.


So, you sell all your music in FLAC format. You also sell the audio for the same price as MP3s are currently sold for: 79-99 cents. You offer whole-album prices. Offer the whole album for a fixed price, which always works out slightly less buying the album's tracks individually and is around the 9-11 dollar mark. However, you still let your customers go a la carte and pay per track. There are a couple of advantages to this: some people might want only a couple of tracks from an album, so that option isn't removed from them. Some people might already have the CD, but they may be trying to encode the album to MP3 for their MP3 player and tracks 2 and 6 might be on a part of the CD which has been too badly scratched (from years of being thrown about in a CD wallet in the car!) - so now the customer can just buy and download FLAC copies of tracks 2 and 6, make their MP3s and make another CDR of the original album for their archive. You get more revenue from an extra, otherwise impossible sale, and the customer has their music in the format they want. Perfect.


You cannot charge a big premium for this service, and the labels will have to come to terms with this. There is, of course no DRM on this service, but DRM is dead, and has been for a long time - it was the great placebo of online digital music retail for too long. Labels might be scared by this - truly CD-quality audio, no DRM... I can already hear the cries of "truly CD quality music available with no protection? All it needs is one person to buy it and share it with everybody else, and we've lost all our revenue!" What do I say to this? Of course they will you idiot - but then, music fans have always done this. Sites like Project Playlist, along with all the existing music blogs, are a magical way to discover new music for yourself (and unfortunately, like any groundbreaking service which dares to be different, the industry can often be found doing its utmost to sue them out of existence).

You only fool yourself if you believe this pattern of usage to be unusual. Almost everyone has either lent or copied a CD of theirs for to a friend, particularly if they are introducing said friend to an artist for the first time. The sharing of purchased music amongst circles of friends is intrinsic to the success of an artist. MP3s made this a whole lot easier, but this practice didn't suddenly start in the 90s.

So, FLACs, no DRM, same price point as current MP3/WMA online offerings.


What is the icing on the cake? Well, you devise a platform which not only provides the digital audio for the core price, you also provide the artwork - and you can charge a little more for this (say, $1/£1) but ideally, it's included in the price of the music so everyone gets it for free. Why? Well, this is the icing on the cake. Let me explain my thought process here.

If I want to buy a new CD, I usually have two options:

1. Go to a shop, buy the CD and go home.
2. Go to a shop's web site, buy the CD and wait for it to be delivered.

Both of these are not particularly efficient ways of getting what I wanted - they involve travel, waiting and cost to both the retailer and myself (travel costs, all the usual costs of running a retail shop and everything else). I might want my audio in as high a quality as I can achieve, but I'm not 100% bothered about the quality of the packaging - it's not like it affects the sound of the music, it's just a bit of pretty artwork. So, you market the service as "bring your own jewel case. We supply the rest."

Here is the killer app: you create your own, pre-scored blank template pages, onto which artwork can be printed and directly placed inside an empty jewel case. You then offer the high quality artwork in a PDF-based file, formatted to the correct size so that it fits exactly inside a jewel case, and you provide it with the audio files at the time of purchase. You write a simple-to-use program for PC, Mac and Linux which streamlines the whole process of printing off the artwork - either the customer can buy some of this custom, blank-template paper, or use their own A4 sheets (and a pair of scissors) - and they print out their own high quality, full colour artwork on their own printer. A few minutes later, and they have the artwork at exactly the right dimensions if they want it. They pop it into their own jewel case, burn the FLAC audio to either FLAC (data) or PCM (audio) CD, and they have an exact copy of the music - just like an old-skool, silk-screened retail CD, with the exception that they've burnt this CD themselves.

Why pursue this method of distribution? The reasons are threefold:

• All of the traditional distribution costs of physical CDs are instantly eliminated; there is no need for minimum pressing runs of a thousand units or so, so less warehouse space is needed for unsold stock. Everybody's carbon footprints reduce - no distribution of stock from manufacturer to distributor to customer is required, no massive energy usage required to manufacture the products in the first place, and even the customer doesn't need to drive to the shop to buy the CD. Given the way the price of petrol is increasing, this could seal the deal on its own.
  
• Tracking of sales, royalties and other monies is far, far simpler. For every purchase you have a detailed audit trail, and a standardised method of logging all this important sales data can be used to ensure that the appropriate information is passed to the appropriate bodies for further meteing out to artists and labels. Mechanicals, a legacy royalty from the days of vinyl pressing (literally, a 'mechanical royalty', paid for each unit you pressed of a record) become far more relevant than they have ever been for current digital sales. A mechanical on an audio file which is exactly equivalent in quality to the original CD audio is quite acceptable, whereas a mechanical fee for an MP3 is almost laughable, yet the industry still enforces it because they can. (a tangible, per-unit fee on an intangible item... you make your own mind up about that)
  
• Distribution is streamlined. The album can go on sale as soon as the master copies of the audio and artwork are uploaded to the central storage point for sale to customers. The traditional delays - manufacturing turnaround times, etc - are gone. Just like that. You might have to wait for your artwork to be finished, but you can always offer that as a later, free download if you want to sell as soon as possible. Oh, and another pleasant side effect of this is that physical items will become much more of a 'special' item, as opposed to a commodity - see the resurgence of the 7" single as a 'limited edition' value-added purchase? The pressed CD could quickly fall into the same category - value added, with the appropriate (moderate) price premium. Of course, something else would have to be offered (exclusive content or goodies inside the jewel case combined with limited edition packaging), so the traditional CD wouldn't die out just yet.

The sensitive topic of job losses is unavoidable at this point. Yes, as a result of these kinds of sweeping changes, some people in both the music and peripheral industries would possibly lose their jobs, notably at companies who supply the traditional music industry - pressing plants, for example, and the printing companies who supply these plants with the finished artwork. But then again, vinyl production has been trickling along for more than a decade since the original rise of the CD, and some genres of music are still based almost entirely around the 12" vinyl as the primary method of distribution. (I happily pay £5 a time for a two-track 12".) Of course, physical production costs might increase again as a result of this move away from pre-manufactured physicals, but this would also be expected. While job cuts are an unfortunate side-effect of a changing industry, this wouldn't be unforeseen, so it wouldn't come as that much of a shock. Change is painful sometimes, but it's for the best.

Nonetheless, this concept is great for the environment, fantastic for the customer and even better for the artists! Treat the customer like a customer, instead of a mere consumer who is lucky to even have access to any kind of digital music, and you foster an attitude between music fans and labels which is far more healthy for the music industry. Give customers what they want and trust them to be adult about it - it's a return to pre-digital mindsets. You buy the music, you get it in a format with which you can do what you like, and you're treated with the maturity and respect a customer deserves. And, in response, you treat the artist with more respect, and you don't set about making copies of the album for every Tom, Dick and Harry who happen to ask for a copy of it. All that I've laid out is with a core aim of revaluing music (as opposed to devaluing), and I believe it could really be very successful.

Why this kind of service has not launched yet is beyond me, and I find it incredibly frustrating. As a knowledgeable fan of both technology and music, this is entirely possible - in fact, it's quite doable with today's technology - and you might as well corner the market niche before other people realise that there is money to be made in catering for people who want that top quality. Unfortunately, I don't think the music industry is ready for this yet - they will be need to be in truly dire straits before they will agree that this kind of service is what's needed to satisfy consumers, and by that time the golden opportunity will have passed. Case in point: AllOfMP3. Instead of squabbling over royalties, legalities and suchlike, they should have taken a step back and analysed the platform. Technologically, it was very different and quite brilliant - the higher the quality file you wanted to download, the more you paid. For 128kbps MP3s, you paid a few pence, and for FLAC, you paid a few times more. Even so, it was still a very good price. You could choose from many different preset and custom formats, Ogg, FLAC, PCM, VBR MP3, CBR MP3, WMA... Whatever you wanted, it was all there. Music industry - why are you tieing yourself down to just a couple of predefined formats when it's clear consumers want more choice?

If I had some Venture Capital funding and could bring a few likeminded people on board to help bring this kind of project to the public, I think I would probably launch this service right now. The market is ripe for this kind of quantum leap, but unfortunately the incumbent labels and online retailers only want to milk every last penny of revenue from the inadequate platforms they currently operate.

Give it 18 months or so, and I bet that a service similar to this will go into development or even launch. Consumers are increasingly aware of the quality of music, and the actual cost versus perceived cost to labels and artists for distributing their music online. They are also increasingly becoming connoiseurs of quality - so to offer this ultimate tier of quality for a reasonable price and instant download is the only feasible way forward. Now then, all that's left to be done is make the labels wake up and smell the coffee. - shouldn't be too hard, right?

... Right?

... But the current industry major players can't figure out how in the hell they're supposed to wake this sleeping beast. Hands up who else is waiting for some real innovation? Hands up who doesn't think We7 will last in its current incarnation for more than 18 months? Yeah, me too.

In lieu of a more long-winded post (which may yet happen), I thought it wise to note the latest info on paid digital downloads from the OCC:

London - Digital music sales in the U.K. were up across the board in the first quarter of 2007, with digital album sales rising 69.3% from the same period a year ago, and digital singles up 42.3%, according to data compiled by the Official U.K. Charts Company.

Source: DMW

So, what's the industry still complaining about this time around? Oh wait, the $100,000 legal bills they're having to pay from some of their frivolous lawsuits won't be helping. That, and all the other people who don't have iTunes gift vouchers are starting to realise (I think) that the current crop of legal P2P services just aren't fitting their requirements (and are STILL clunkier and less satisfying to use than the original Napster), and so continue to take to the pirate seas en masse.) Yarr!

The sage commentary shall return when I have a free moment to sit down and write more cogently - for now, that's about as intelligent as I get. (Why am I always horrendously busy in fits and starts, with long periods of downtime inbetween? Very frustrating. If anybody can suggest some effective time management strategies, I'm all ears.)

Until next time...

Little by little, the music industry is tearing itself apart. Be it uncertainty, ignorance or unwillingness to accept the inevitable, we may never know (but I have a good idea). Not even a week ago, the RIAA announced that CD shipments are down 17.5% but digital is now 23% of total revenue. Metallica, always late to jump on the bandwagon, are also apparently mooting a Radiohead-style DIY-price-it-yourself release - after Radiohead have announced that their release was most likely a one-off (one thing it didn't do was make them money!)

And, in the same breath We7 finally gets a fuller-scale launch, with the licencing of SonyBMG's content to bolster its indie label content (with more from the other labels on the way apparently). Wake me up when the paradigm changes, because I gave we7 a spin (with some out-of-copyright material) and to be honest I was disgusted by the way the whole concept of forced 10 second preroll advertising on the start of EVERY track devalues the music.

The industry is always harping on about how digital downloads and rampant unlicenced P2P distribution is devalueing and commoditising music to the extent where people don't care about it - but when you have major launches of new web sites like We7 (famously backed by Peter Gabriel!) whose core revenue model revolves around commoditising music by placing adverts before the start of each track, what do they bloody expect? It ruins the listening experience because the technology hasn't yet caught up with the concept, and it's a stupid idea to try and roll an idea like We7 out now when they can only offer a "bodged" end product. I saw an email containing details of revenues to labels for putting their catalogue onto We7 - it wasn't even guaranteed revenue but PROJECTED revenue! And even then, it was an absolute pittance.


I have my own ideas for how to save the future of the music industry, and while they are a little "out there", I have a few good ideas cooking gently on the back burner and they do in places overlap with the shared goals of Michael Robertson. (If you used MP3.com, and particularly my.MP3.com, that was his project.) Unfortunately, Michael's currently being sued AGAIN by EMI for his latest innovation, the Oboe locker which ties in with his (legal) web site MP3Tunes.com. Another classic case of litigation in place of innovation - especially poignant given last month's ruling in the US by a federal judge against the music industry, which shatters one of the key arguments in many of the RIAA's legal cases against individuals accused of illegal filesharing. You can come to your own opinions about that (I'm sure of mine!)


We live in interesting times... Turmoil is still rife; the industry itself predicts that 2012 will be the year when digital revenue overtakes physicals - but I severely doubt the sales channels will even vaguely resemble the form they currently take. Sales platforms like iTunes are nothing more than a flash in the pan (and won't all those iTunes fans be crying into their proprietary players when they buy a different branded DAP and find they can't put their M4P AAC files onto it?!)

The timing on this couldn't be much better - I'm in the process of drafting up my open letter to the music industry, but I thought I'd mention this story in the meantime - I think it pretty much sums up everything bad about DRM...

[Microsoft] has arbitrarily decided that all the music you bought from it is now worthless because it can't be bothered to live up to its end of the bargain. It goes something like this, MS came up with a DRM infection and attached it to its music downloads. When the Zune came out, it decided it wanted a bigger piece of the pie, so it cut out all its partners.

The new toy, the Zune has a completely different DRM infection making any of the things you bought from Microsoft saddled by the old way incompatible with the new way. All the partners that made devices compatible with the old way, and all of the people who bought infected music, well, MS has your money, so you're dumped.

This was about a year and a half ago. Today, MS is saying that come August 31, a week or four shy of the two-year anniversary of the night of long knives, you will not be able to re-authorise your music. That means that the music is yours to keep. On one PC. As long as it doesn't crash. Or you don't update your OS. Or something doesn't just decide to stop the music playing. If you do any of these things, you just lost your music permanently.

Basically, MS is stealing from you. It has your money, but you can't have access the services you bought any more. So they are stopping, and legally, you are screwed. Microsoft has got your money though.

If you were a subscriber to MSN Music, you will have recently found yourself out in the cold when Microsoft decided to arbitrarily turn off their DRM authentication servers, leaving all your music you'd legally paid for in (effectively) stasis. Walmart did this with their video rental service last year, Microsoft this year - I'm glad that it's a discernable move away from DRM, but still... Support your legacy customers, or are you condoning your customers to break the law and strip the DRM from their tracks so they can achieve the same level of functionality as they enjoyed prior to this?

The full article, in all its gory detail, can be found on The Inquirer.