Newsmaker: Independent music: The mouse is roaring

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objectively. Anytime you talk about how peer-to-peer downloads are affecting CD sales, you're talking subjectively.

It becomes an ideological question?
Arnold: Right. You're talking passionately instead of factually. But I think that in any case, any indie label that's not participating in digital music is leaving money on the table. Even your girlfriend's brother's band has some money to be made out there. And like I said, any good, decent operating indie that's able to successfully put out records for more than a few years is probably missing out on thousands of dollars a month, if not more.

I think it ultimately tracks to what the industry does as a whole. People are saying now that digital might be 2 percent to 5 percent of your physical business, and that by 2009, you're looking at about a quarter of your business.

What about subscription services? That's an unfamiliar model, where returns tend to come as a percentage of subscription revenues, instead of a set amount per download. Does that economically make sense for small indies at this point?
Arnold: The sales are going to be certainly incrementally less than download stores are right now. But they're probably proportionate to the amount of people who are using them. Certainly, I believe that revenue pools should be larger, and that there should be more beneficial terms for indies within subscription services, too. But there are a lot of great advantages to participating in them.

That's the "long tail" argument, that there's less risk, or cost, to the consumer in experimenting with new music.
Arnold: Absolutely. To date, I think you see a little bit better browsing and discovery features in the subscription services. The main point is that the barrier to experimentation is pretty much nonexistent. There's none of this thinking that, "I've only got 30 seconds of this clip, so do I really want to spend a dollar--or $10--on this album?" It's just go for it, play it, try everything you want, just roll around in the field of the flowers to your heart's content, which is great.

One part of me certainly likes the dollar coming out of everybody's pocket for music. There's absolutely value to that with regards to portability and ownership, and that just meets some people's needs. But there are a whole lot of other people for whom subscriptions make sense. I do think subscription services are a good disincentive to going out to peer-to-peer networks and getting music illegitimately--and a good way to put some of that money back into the artists' pockets.

But it's still not the same thing as packaged CD sales. A lot of people are interested in supporting the artist in the independent world, and realize there are ways to support these guys so they can keep creating their art, whether it's going to shows or buying T-shirts or buying physical CDs. The indie world has a much better history of making a more attractive, valuable, collectible product than the majors do. Usually, you get something more than just a jewel case with a single insert. People think about the artwork and make it worth owning.

With the subscription services, you've seen a decrease in price over time, first with Virgin and definitely with Yahoo. Is that disturbing to artists in that there's potentially a smaller pool of money available to them, at least from a given subscriber?
Arnold: It can be in the outset. But I think you need to take a high-level view. Getting more people into these services spending more money over the long term is an important thing to do. I think prices will come up. Certainly these companies want to earn as much money as they can. If they convert a majority of people into subscribers, they're going to do just like the cable company does, and ratchet up the prices.

The rules of the game haven't changed such that this is some magic elixir. It's still a rough game.

But there are other ways to think about subscription services. When people talk about buying CDs or downloads, they're probably only spending a set amount per year. The average user buys what, five or six CDs a year? With a subscription service, at $5 a month that's more than $50 a year, which is roughly equitable. At $10 you're talking more than $100, at $15 that's $180. Overall, that's more money being put into music by fans. That's a good thing.

The other thing that's nice about a subscription service is that with the lack of a barrier to experimentation for music fans, they can try it as much as they want. That means there's no ceiling on the amount that a label might earn on a record.

With individual song downloads you're going to have a wholesale rate, and that song is that person's forever, whether they listen to it a thousand times or listen to it twice and throw it away. With regard to subscriptions, these songs can essentially earn indefinitely. It's not like when someone listens to a song a hundred times you're not going to get paid for it anymore. The next hundred times you're going to continue to earn on that stream. It's a little more of an open ended platform.

Is there an estimate, even ballpark, how much one stream is worth to a given artist?
Arnold: I'd say a fraction of a penny is a good enough guess.

Does digital distribution fundamentally change the economics of indie music at all? Or is it still fundamentally this garage-based business that's still going to have small revenue, but just happens to be coming from a different source?
Arnold: I hope it does. But I think it really remains to be seen. There's a whole bunch of change. We're taking little evolutionary baby steps right now. We're still talking about a (digital) market that's 5 percent of the overall market.

There certainly are opportunities for people to go out and take advantage of this in creative ways, and do stuff that will blow everyone away and create success stories. Then there's probably a ton of people who will go out there expecting the world and not get it, and it will be a great disappointment for them.

The main thing to realize is that it's still very young, and the rules of the game haven't changed such that this is some magic elixir. It's still a rough game.  

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