|FROM ||Ruben Safir
|SUBJECT ||Subject: [NYLXS - HANGOUT] DRM Free MP3s - Forbes
|The recently revived debate over usage restrictions on digital music
probably seems old hat at eMusic, which has sold songs in the universally
compatible MP3 format since its founding in 1998.
Still, Apple (nasdaq: AAPL - news - people ) Chief Executive Steve Jobs'
recent call on major record labels to drop so-called "digital rights
management," or DRM restrictions--and EMI Group's (other-otc: EMIPY -
news - people ) subsequent decision to do exactly that--has the potential
to spur changes in the market for online music.
And that, in turn, could have important implications for eMusic, which,
with 10% of the U.S. market for song downloads, is the second-largest
online retailer of digital music, according to research firm NPD Group.
EMusic has enjoyed rapid growth even though it only sells music from
independent music labels, which, until EMI's recent move, were the only
labels willing to sell all of their music without restrictions. The
company also requires users to sign up for subscriptions, although unlike
other subscription services like RealNetworks' (nasdaq: RNWK - news -
people ) Rhapsody or Napster, eMusic's song downloads are DRM-free.
In an interview, eMusic President and Chief Executive David Pakman
discussed his company's prospects in this changing market.
We've heard you were in serious talks to sell eMusic to Amazon.com. What's
the status of those talks?
I can confirm there are no talks right now with any strategic buyer. The
company's not for sale. The company is in no need of financing, and
our growth is off the charts. We've talked to every media company on
the planet, we've been approached by everyone. The company has had 100%
year-over-year sequential growth for the last three years. It's doing
something right, and there are a lot of people who have come knocking
to talk to us. But we really believe in our ability to succeed as
Now that EMI has agreed to sell its music without usage restrictions,
we'll presumably see other online retailers allowing independent labels to
sell restriction-free digital music as well. That would seem to present
a competitive challenge for you.
Our assumption all along has been that if there's going to be a healthy
digital industry, there's going to be a healthy number of digital
retailers. Our differentiation will not be in the format. It'll be who
we serve as customers. Whole Foods (nasdaq: WFMI - news - people ) is a
highly differentiated supermarket chain. They differentiate themselves
based on what they carry, what their brand is and what type of customers
they target. They're not for everyone. We are that. We are a specialty
retailer who will always do better at satisfying the needs of the type
of customer we go after than a one-size-fits-all retailer. As a result,
we'll never be as big as iTunes. We don't want to be, and we don't have
to be in order to be very successful.
You're in talks with EMI to sell their music in the MP3 format. Once
you start carrying music from major labels, won't that affect your focus?
No. We would only carry the stuff from the majors that our customers want
us to carry. We would not take their entire catalogs by any means. You
would not see a lot of Janet Jackson in our service. But what we would
see from EMI--the Blue Note catalog or EMI Classics--would do hugely
well. Their label Astralwerks is probably an underperformer at iTunes
but would do really, really well here.
As a business model, what are the advantages of selling digital music
via subscriptions rather than as a la carte downloads?
It just delivers better value to customers. It's sort of a trade-off. If
you're a customer who buys a lot of music, you get a much better deal
out of a service like eMusic where you'll be paying $10, $15, or $20 a
month but you get 30, 50 or 75 songs, so you can get music for between
25 and 35 cents a song. But because you're agreeing to spend $10, $15,
$20 a month, that's a lot of money on music compared to the average
[digital-music] customer. The average iTunes customer spends [much
less than that]. The subscription model delivers better value for a
customer but it also extracts more money from their wallet for the music
industry. And that's the trade-off--spend more, get a better deal.
Victory Records [an independent hard-rock record label] recently
pulled out of eMusic after you launched your discounted, high-volume
"Connoisseur" subscription plans. How much does a record label keep
under a Connoisseur plan versus your cheaper plans?
Some clarity first: The Connoisseur plans are the same pricing as
our top-tier plan [used to be]. Our top tier was $19.95 a month for
75 songs. We just took the same pricing and we [applied it to] 100,
200, 300 songs. It's just so we can get more music to customers and
get more money. The Connoisseur 300 plan is a $75 a plan. You want to
spend $75 a month on music? You've got to give them that. If they want
to spend that much money, that's fantastic. We've got 13,000 labels on
the service. Fewer than five have ever left. They decide what's best
for their artists, where they want to sell their music and at what price
points. We're just one retailer.
But is there a significant difference in how much money flows back
to a record label when a customer downloads music via a high-volume
subscription plan versus a basic plan?
It doesn't come down to a wholesale price, it's a revenue share. We
take all the revenue the company generates from every plan and cut it in
half. Half of it gets paid out to all the labels each quarter pro rata
based on the number of downloads they got. The important thing to note is
if you signed up for the Connoisseur 300 plan at $75 a month and you went
on vacation for a month or you just didn't use the service or you only
downloaded 10 songs, we still take the $75, put it in the pot, divide
it by half and pay [it] out to all the labels. On average, customers
don't use their full allotment of whatever they're paying for. It's
the same thing with a gym or a health club. Do you go everyday? Some
guys do, and they get the most value. For us, subscription business
optimization is about making sure customers are never always maxing out
their plans. That way, the customer feels they have some headroom and
we're able to optimize the profitability of our business.
What's ahead for eMusic?
We look a lot at long-tail television. I'm not announcing that we're going
there, but we have an interest in that. TV is such an ephemeral medium,
It gets shown once and then it's gone. The only stuff that tends to be
sold through iTunes or put up on the networks' Web sites are the hits. But
what about the shows that don't become hits or don't go into syndication
or are only around for a season or half a season? There is, we think,
a huge amount of content owned by either production companies or studios
or networks that has some viability if you could find the target customers
that would be interested in it. And we think we could sell it very well.
-- http://www.mrbrklyn.com - Interesting Stuff http://www.nylxs.com -
Leadership Development in Free Software
So many immigrant groups have swept through our town that Brooklyn, like
Atlantis, reaches mythological proportions in the mind of the world -
RI Safir 1998
http://fairuse.nylxs.com DRM is THEFT - We are the STAKEHOLDERS -
RI Safir 2002
"Yeah - I write Free Software...so SUE ME"
"The tremendous problem we face is that we are becoming sharecroppers
to our own cultural heritage -- we need the ability to participate in
our own society."
"> I'm an engineer. I choose the best tool for the job, politics be
damned.< You must be a stupid engineer then, because politcs and
technology have been attacted at the hip since the 1st dynasty in
Ancient Egypt. I guess you missed that one."