Digital Noise: Music and Tech

Forrester Research published a report on the music industry earlier this week entitled "The End of the Music Industry As We Know It," and it offers some conclusions that shouldn't surprise anybody who's been following the music industry for the last few years: as users have shifted their behavior to computer-based digital music, the recording and technology industries have not made it easy enough to discover, share, and buy new music in new media and formats. Hence, the rise of all-digital sales will be too little, too late, to compensate for the fall in CD sales, and record companies will have to get into new businesses, like so-called "360 deals" in which they take a cut of all proceeds related to an artist--not just record sales, but also touring and merchandise. (Sounds like an even worse deal than artists used to get, but I suppose the devil's in the fine print and the percentages.)

While the report's conclusions weren't surprising, some of the specific market data buried inside were. For example:
Radio rules. A Q3 2007 survey of more than 5,000 U.S. adults with online access showed that 94% of them still listen to the radio, and on average spend 43% of their overall audio-listening time with radio--far ahead of #2, CDs, which occupy only 20% of listeners' time. I'd guess that a lot of this time is spent in the car, and with talk radio rather than music, but those numbers still surprised me. Apparently not everybody likes to program their own playlist. An interesting and related point: among survey members who owned an MP3 player, radio listening time was dramatically lower at only 25% of total, but still comes in ahead of the time they spend listening to their MP3 player, which was only 22%.
PCs beat MP3 players. I thought the main reason you'd want to get your music onto a computer is so you could get it onto another device, like an iPod. But the survey showed that 62% of the subjects listen to music files on a PC, while only 43% of them listen to music on an MP3 player. Even 48% of them listen to Internet radio--again, listeners want to be surprised from time to time.
A quarter of iPod sales are repeat customers. Of the iPod owners in the survey, 25% of them say they'll buy another in the next twelve months. That's phenomenal--I can't think of another consumer electronics product that had such high repeat-purchase figures after only about five years on the market. Walkmen, maybe. DVD players as a group, perhaps, but not one particular brand. This just shows how dominant Apple is in this market.
Zune 1.0 was a non-factor. When researchers asked MP3 player owners which one they bought most recently, the Zune was in second-to-last place, with only 2% of respondents naming it. Nearly everybody else--Toshiba (2%), iRiver (3%), Samsung (4%), Coby (4%), Creative (8%), Sandisk (11%), Sony (11%), and Apple (43%)--was ahead, with only Archos trailing. Now, this was before before Microsoft had cheaper Flash-based Zunes, while most of these other companies have multiple models on the market. Still, given the amount of marketing Microsoft put behind the Zune, I was surprised to see so many other companies ahead in the U.S.--the global figures are probably even lower, given that Zune isn't available anywhere else. The Zune group's recent silence about market data and price cut on the 8GB model don't bode well, but we'll see what the figures say for holiday 2008.

MP3 players are great if you know what you like, own it, and want to listen to it exclusively. But what happens when you're sick of your music collection? Or when you're simply feeling lazy and want somebody else to do the programming for you?

Slacker has the answer: portable Internet radio. The company's been demonstrating its devices since the South by Southwest music conference in March, but it looks like the company's finally taking pre-orders.

You can get the basic idea just by visiting the Slacker home page, which has an embedded version of the software player on it. Choose from dozens of pre-set radio stations in the expected categories (classic rock, acid jazz, and so on) or program your own. Slacker's station-building process is much more customizable than Pandora, which uses educated guesses to build a station for you based on your favorite artist. With Slacker, you can add individual artists you like--imagine Led Zeppelin, Miles Davis, and Mr. Bungle on the same station, which you'll never hear on your FM (or XM or Sirius) dial--and each time you add an artist, Slacker suggests several dozen other artists in the same category.

Today, the company launched a Premium service that has no commercials, lets you skip any song you don't want to hear, and save favorite songs to playlists.

But it's the portable players that could take the service from merely interesting to potentially groundbreaking. Not only will they function like a regular MP3 player (playing AAC and WMA files as well), but they'll also connect over any public Wi-Fi network or a USB connection and update the stations automatically. And a car kit planned for next year will let you connect over unused TV satellite bandwidth.

There are some potential stumbling blocks--for instance, how will it handle the sign-in screens required by some public Wi-Fi networks?--but Jasmine over at Crave has gotten some hands-on testing time and didn't uncover any show-stoppers.

The devices will come in three levels of capacity: $200 gets you 15 stations with 500MB set aside for your personal collection, $250 gets 25 stations and 1.5GB for personal use, and $300 gets 40 stations and 4GB left over.

Looks like the day of Net radio silence worked. Enough publicity was generated that SoundExchange, the organization responsible for collecting royalties on Internet radio broadcasts, has offered to impose a $2,500 maximum fee per broadcaster on July 15, rather than instituting the per-song fees that could have put many small broadcasters out of business and raised costs for big broadcasters into the tens or hundreds of millions (!) of dollars.

Nonetheless, it's only a temporary reprieve: the original fee increase will still go into effect in January 2008, if SoundExchange has its way. SaveNetRadio, the group that organized the day of silence, criticized (warning: PDF download) SoundExchange's move, noting that the threat of increased fees will have a chilling effect on investment in Net radio.

I suspect that SoundExchange hopes that public--and more important, government--interest in the issue will die down by the time the fees are due to take effect. But Representative Jay Inslee (D-WA), who cosponsored a bill reversing the ruling that paved the way for the rate increase, has vowed that Congress will continue to pay attention to the issue.

Tomorrow, some of the most popular and prominent Internet radio stations will go silent to protest the imposition of new fees that many Webcasters claim will drive them out of business.

The protest stems back to a Mar. 2007 decision by the Copyright Royalty Board to impose per-song performance royalties on Web radio, starting at 0.08 cents per song (retroactive to Jan. 1, 2006) and increasing gradually to 0.19 cents per song by 2010. The former rules forced Webcasters to pay a minimum annual fee and 12% of their revenues. (Small Webcasters might be able to abide by these old rules until 2010.)

The protest is being organized by SaveNetRadio.org, which has calculated that the new fees could increase Webcasters' costs by between 300% and 1200%. In a letter to Congress, CEOs of major Webcasters claimed that SoundExchange, the organization responsible for collecting these fees,will collect $1 billion from the three biggest Webcasters--Pandora, RealNetworks, and Yahoo--alone, up from $20 million previously.

So who's SoundExchange? Today, it's an independent non-profit organization devoted to claiming performance royalites on behalf of copyright owners. But it was originally created by--surprise surprise--the RIAA. That's the same organization of copyright holders that's known for sending threatening letters to alleged file-traders demanding a settlement payment (although a recent judge's decision may put an end to that tactic).

Now, perhaps it's too easy to hate the RIAA. After all, I can sympathize with the recording industry, which has seen the digital writing on the wall for years, and is finally suffering the consequences in a big way--CD sales are down 16% this year from last year, and some are predicting that the 2007 holiday season will be the final curtain for CD sales.

I also understand that royalties are necessary to enable composers, performers, and, yes, distributors, to make a living. (This page has a good overview of how these royalties are collected and distributed.)

What I don't understand is why Internet radio should be subject to performance royalties, which are paid to the copyright owner of a particular recording (usually the record company), while over-the-air ("terrestrial") radio pays only royalties to the copyright owner of the song (the composer and publisher). One justification for exempting terrestrial radio is that it offers promotional value, leading to greater sales. Doesn't Internet radio do the same thing? Other arguments center around technical differences--Web radio results in a temporary digital copy of a song being made; Web radio listeners can skip songs they don't like. But these seem like nit-picks to me.

At any rate, bills have been introduced in the U.S. House and Senate to overturn or modify the CSB's ruling, and SaveNetRadio has a Web page that will help you communicate your support to your representatives.

And for those of you who've never been interested in Internet Radio, allow me to recommend Radio Paradise. Programmed by real live humans who like music and do things like segue songs together in intelligent and meaningful ways. You know, like terrestrial radio used to be?