AN INDEPENDENT'S GUIDE TO DIGITAL MUSIC
By Kevin Arnold
Digital music is a complicated and confusing world, made up of advanced technologies, confusing rights issues and legislation, pirates and thieves, lawyers and geeks. What does it mean to the independent artist or label?
Digital download services such as Apple's iTunes Store are proving that independents can make money and increase exposure in the digital music space. This guide gives a broad overview of the digital music landscape today and what it means to independent rightsholders—the labels, musicians, and songwriters of the independent music community—who control the sound recording and composition copyrights embodied in every song they create.
1. A Brief Overview of Digital Music Today
Although peer-to-peer networks, such as the old Napster and Kazaa, drove the mass popularization of digital music, today it is clear that legal digital downloading is here to stay. Apple iTunes alone sells over 1 million songs daily, and subscription services such as Napster, Rhapsody, and MusicNet each boast several hundred thousand monthly subscribers.
While peer-to-peer networks enable illegitimate file-sharing without compensating artists, they did nonetheless teach independent rightsholders some important lessons. First, the networks established that music fans love downloading digital music. Second, the Internet will continue to play a larger and larger role in the music industry. Independents have quickly picked up on this, and were the first to really maximize the use of the Internet and file-sharing as a promotional tool. However, the problem remained that the artists, record labels, and songwriters who made the music still weren't getting compensated.
Enter the legal download services. These services, along with portable digital music players, have been steadily growing in popularity since their inception. Their appeal is undeniable: No "Trojan Horses" or dummy files that corrupt computers, fast and reliable downloads, high fidelity audio, organized catalogs and affordable prices. Giants such as Microsoft, Wal-Mart and Sony all believe in the future of download services and are investing heavily in digital music. Unfortunately, the existing digital music services, as well as the many organizations that manage and administer the rights and royalties, are almost entirely focused on the major labels and mainstream music catalogs, leaving most of the independents out in the cold.
Independents collectively represent over 20% of the total music market, a share that represents billions of dollars of business every year. As the digital music services mature, it has become increasingly important for them to include indies in their catalogs.
Opinions about digital music and file-sharing within the independent music community range across the spectrum, it's seen as a terrifying plague by some and as a great new promotional vehicle by others. Regardless of the stance, the one thing that most independent labels and artists agree on is that they want to get paid for their work—to be able to make a living from what they are most passionate about. Most also recognize that digital music will play a very important role in the future of the music industry.
2. The Digital Music Service Landscape
Because the digital music industry is still very new, there are a variety of options offering different types of value and experience to the music fan. These services give listeners a unique, convenient, high-quality and reliable means of discovering and interacting with their music. They provide users with access to huge catalogs on demand (most services boast upwards of 600,000 tracks), dependable high-quality audio files (no decoys or bad files), clean organization of catalogs, and easy, reliable access. Additionally, many of these services provide specialized radio programming and customizable radio. Catalog information, editorial notes, and suggestions from editors or other community members encourage discovery of new music. The downside is that much of the hard-to-find music that's usually available on peer-to-peer networks (from unlicensed artists or out-of-print releases) is under-represented in most services, and typically there are limitations to how, when, and where the music can be accessed. And, of course, users have to pay. Here's an overview of what's out there:
On-Demand and Downloadable Music Services — By our count there are close to 150 music subscription and download services offering a wide range of digital delivery methods including on-demand streaming, CD burning, time and/or location limited (tethered) downloads, unrestricted downloads, and a variety of interactive radio options.
Apple's iTunes Store
Tied to their popular iPod player, the leading provider of downloads
Napster
Portable streaming/downloading service with over 600,000 subscribers.
Real Networks RHAPSODY
- Currently the leading subscription streaming service, with nearly 800,000 members.
Yahoo! MusicMatch
- Poised to make a play through tie-ins with Yahoo's Launch Radio and Yahoo! site visitors.
Liquid Audio
- Runs the back end for Wal-Mart, Tower, Music Rebellion, and more.
Sony Connect
- Download service from the music industry giant, in connection with their portable music players.
Microsoft MSN Music Store
- Web-based download service from Microsoft attempting to go head-to-head with iTunes.
On Demand Distribution (OD2)
- Europe's leading provider of digital music, started by Peter Gabriel, now owned by Loudeye.
MusicNet
- Powers AOL Music, Virgin Online, Cdigix, and other subscription services.
Emusic
- The first in the industry, currently selling 1.5M tracks monthly from independent labels. Internet Radio — Internet radio has been popular for a long time on the web, and typically comes in two flavors.
Interactive radio is generally a premium service that allows the listener to skip songs, rate songs to affect your playlist, build custom stations based on your artist preferences and otherwise influence the listening experience. MusicMatch, Yahoo! Launch, Rhapsody, and Napster all offer such services.
Non-interactive radio is most like the normal radio experience, just a constant stream of music that the user cannot influence, usually programmed to a specific style of your choosing. It may come with or without commercial advertising, often depending on a subscription. Most of the services mentioned above offer a non-interactive radio option, often for free, as do products such as Realplayer, Windows Media Player, Live365, and countless other independent and small webcasters. And, of course, many traditional radio stations broadcast across the Internet.
3. Getting Paid For Your Music Online – Digital Music Rights
Digital song files embody the same rights that songs on physical media do:
- a musical work copyright for the composers of a particular song or piece of music
- a sound recording copyright that covers the specific recording of a composition and the creative work of those involved in that recording.
Composition copyrights are traditionally administered and distributed by publishing companies for mechanical and synchronization rights, and by performing rights organizations like ASCAP and BMI for radio and other public performances. The sound recording rights are usually owned by the record labels that fund and release the music or by the artists themselves.
The licenses for sound recordings in most digital settings are exclusive and voluntary, meaning that the creators of the recording must explicitly grant another party the right to deliver their work. The exception is non-interactive radio, which is treated much like traditional radio with the exception that the sound recording rightsholder is also paid a royalty for each transmission. Aside from this exception, anyone offering music on the Internet must get permission to use that music from the people who created it. The RIAA site provides a good description of what uses require what licenses.
Types of Digital Rights
1. Unrestricted download – The basic and well-known delivery of an encoded, compressed copy of a sound recording, these downloads (in formats such as mp3, Windows Media Audio, etc.) are generally easy to use with a wide array of freely available computer players or portable digital music players. They're ubiquitous, permanent, and can be freely moved around and copied, lacking any control mechanisms for tracking ownership and file trading. The quality of the audio is usually good but not quite CD level (though many services consider 128kbps encoding "CD Quality"), and the user must wait for the file to download to the local computer before listening to it. These are typically sold in pay-per-download stores that do not carry major-label music (such as EMusic or Audio Lunchbox).
2. CD burn – this type of delivery enables the user to make a copy of a downloaded file to a recordable CD, enabling users to take the music anywhere (or even rip the music back off the CD into another portable format). CDs burned from downloads sound inferior to store-bought CDs to some, as compression degrades audio fidelity. Rhapsody offers CD burning options as part of their service.
3. Restricted download –; These downloads include DRM (Digital Rights Management) Technologies that place restrictions on copying the file. Typically, restrictions involve the number of computers, digital music players, or simply the number of times a file can be copied. They usually do not restrict the user in terms of CD burning. In terms of sound quality and download wait time, there is virtually no difference from typical mp3s. Apple iTunes, Napster, Real and most download stores with major label content put this DRM on their files. There are a number of DRM technologies, with varying degrees of limitation; these translate to different rights and license rates.
4. Tethered download – A type of delivery similar to renting, with users having access to the file for a limited amount of time. The limits are enabled by various DRM technologies that track information such as where files are moved to and how many times they are used. Again, the quality is usually the same as mp3 or other common download formats, as is the download wait-time. Services such as Napster and MusicNet offer this type of download. Microsoft is currently toying with this idea as well.
5. On-demand interactive streaming – streaming delivery of music over the network "on-demand," or when the user requests it. Most services advertise "CD-quality sound" and there is typically no download wait-time — the music begins playing immediately after the user clicks (although bandwidth and network limitations may affect this). On-demand streams are available from services such as Rhapsody, MusicMatch, and Napster.
6. Interactive radio – streaming delivery of music over the network like traditional radio, but allowing the user the ability to skip songs or rate tracks and artists to influence the experience. No download time or wait for access with quality ranging from lo-fi to "CD-quality" depending on bandwidth limitations. Can be subscription or non-subscription offerings, and separate licenses that address the specific features and value provided by each product are required.
7. Non-interactive radio (compulsory license) – streamed delivery of songs over a network strictly adhering to radio programming rules. The DMCA (Digital Millennium Copyright Act) created a compulsory (or statutory) license that allows webcasters that meet certain conditions to broadcast non-interactive radio stations without obtaining an explicit license from rightsholders. The Library of Congress arbitrated and set rates for these webcasters through negotiations with the RIAA and the webcasting community, and millions of dollars have been paid to rightsholders for these licenses. Sound Exchange is the organization appointed by Congress to collect and distribute these royalties to rightsholders.
8. Other non-interactive radio – radio services that don't meet the DMCA compulsory license requirements for a variety of reasons, such as radio stations that promote or advertise a product or brand. Separate licenses to address the specific features and value for each product or service are required.
The above rights also apply to a number of other digital delivery mediums, such as wireless, satellite, and cable.
Because there are no standard rates for these voluntary rights there's a huge amount of work that must be done by services and rightsholders to reach the licensing agreements necessary to make the music available.
5. Looking Forward
The opportunity for independents in digital music is clear.
Indies are thriving in the industry now more than ever, in part due to the impact of digital music, and if independents take advantage of these new opportunities in digital distribution they have everything to gain in the long run. Acting now, independents have the opportunity to control their own future and guide the development of the digital music world.
From the Washington Post, 2/28/05, Downloading: The Next Generation
Contrary to what some online music executives believed at the outset of the pay-to-download business, the depth of the catalog has a direct impact on business. In a 2003 interview, RealNetworks' Richard Wolpert questioned the need for a digital service to have millions of tracks in its catalog, saying, "Eighty to 90 percent of the songs people download [on free services] are the same couple hundred songs."
After nearly two years of watching his own customers, Wolpert jettisoned that supposition. "Catalog does matter," Wolpert said, noting that the company's customers download 90 percent of RealNetworks' million-song catalog every month. That monthly figure remained steady even as the company doubled its catalog.
"In digital there is a 'long tail' of tracks that will sell," Sony's Thomas Hesse said. "There is a great opportunity here to go even deeper in the catalog. People will actually find this stuff." Added EMI's Ted Cohen, "The whole promise of this unlimited digital shelf is playing itself out."
Kevin Arnold is the founder of IODA.
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