Dave Burke - You gotta love those Russian online music stores

You gotta love those Russian online music stores

I read Nik Cubrilovic's piece on AllofMP3's new AllTunes player this morning on TechCrunch and while I wasn't interested in installing the AllTunes beta player (and jeopardize the harmony of the monogamous relationship between my iPod and iTunes player), I did check out AllofMP3.

I didn't know.

So heck yeah, I registered! Put $25 from my credit card on my AllofMP3 Account Balance and started clicking "Add to Basket!" The discovery of AllofMP3 makes almost everything I said in a recent post on justified iTunes Music Store purchases just plain wrong. The extensive selection on AllofMP3, the smart recommendations function, the great playback support, PRICES, PRICES, PRICES, and, best of all, NO DRM!

I started out by picking up a few Soundtracks: Das Boot, Raiders of the Lost Ark, and Harry Potter & the Prisoner of Azkaban.

I didn't know...

[tags: AllOfMP3, iTunes]

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Posted on 3/30/2006 3:41:00 PM by Dave Burke
Categories: Everyday
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In recording/licensing contracts there are numerous ways from packaging deductions to third party license rates to keep the royalty percentage intact and pay the artist less. For example, the contract can say you have a 20% royalty, but we'll deduct 25% for using expensive packaging, which effectively means you'll have a 15% royalty. So why not say it straight? Because 20% looks better.

If a big label artist has a 20% royalty (which is a BIG royalty but an easy number for this example), for iTMS sales the price paid by the customer is split roughly into 35% to Apple, 13% to artist and 52% to label. This might sound like the label is ripping off the artist. On the other hand, the label acts as an investor, possibly putting hundreds of thousands of dollars into the artist before the money comes in. And there's no point in risky investing if you can't have huge returns.

If the artist is signed to a small label with the same 20% royalty, the small label probably needs a digital distributor to handle the over hundred online stores. So in that case, the store takes 35% of the sales price, the distributor takes 19%, the label takes 37% and the artist gets 9% (or still the 13% if they're strong negotiators).

Then take into account different prices (like the $1.50/album in the Russian site) and you see that just looking at the 20% royalty percentage means nothing.

It's complex, to say the least.

I don't believe Apple can do away with DRM. First of all because the record companies would not allow that and secondly because the protected AAC format on iTunes sells a lot of iPods. And that's where the money comes for them. I'm guessing here, but the 35% they get from iTunes downloads *might* not do much more than pay for the costs of managing the thousands of licensing deals and having a worldwide network of distributed servers capable of sending out close to 5 terabytes of data each day...

3/30/2006 8:05:23 PM Permalink

What the--? Two bucks for an entire album? How can they do that? And I get to choose the bitrate?

This might actually convince me to purchase music online...

mabster |

3/30/2006 8:08:29 PM Permalink

Mabster Man, I actually thought of you when I posted this, knowing your music interests. There's a good discussion on the TechCrunch post on the ethical and legal issues with AllOfMP3. Good arguments on both sides.

Gotta go. I'm in the middle of an album download.

daveburke |

3/31/2006 8:48:18 AM Permalink

Ditto on what mabster said! I clicked over and couldn't believe it. With my handy new iPod I've got a need for mp3's.

Thanks.

Erik Lane |

3/31/2006 9:04:38 AM Permalink

Erik, I hope your experience with AllOfMP3 is as positive as mine has been thusfar. I also hope that AllOfMP3 is paying royalties to the artists as they claim to be.

4/1/2006 4:03:21 AM Permalink

They claim to be paying royalties, but as anyone with a calculator can count, the artists are making hardly anything from the sales. Hypothetically, if an artist has a 15% royalty on PPD (Published Price to Dealers), they would make around around 9 cents from a song sale on iTunes. That's almost five times as much as the *customer* pays for a song in AllTunes and still *fifty* times less than the customer pays for a song in iTunes Music Store.

Niko |

4/1/2006 4:36:01 AM Permalink

Niko, the artists should get 90% of the royalties, if you ask me. This really isn't about price, it's about DRM and recognizing that digital information requires a different pricing structure. The RIAA and Apple (and Microsoft) created AllofMP3, not the Russians. Thanks for visiting and for your comments!

4/1/2006 6:40:53 AM Permalink

Being an artist myself I can appreciate your kind thought. (by the way check my new *free* non-DRM-protected project http://www.softys.net/

But. Having made not all but a considerable part of my living off music for a few years, I also know that 90% is just that: a nice thought. 90% of 2 cents is still over five times less than what the artist would get from other channels. The first rule of music contracts: do NOT look at the percentage. It has absolutely no direct relation to the stuff that matters to the artist: incoming money.

Yes, digital information requires a different pricing structure. Yes, current DRM systems are waste of everyone's money. But the solution is not to rip off the artist through a Russian site.

For music-lovers cheap music is always good, of course.

4/1/2006 8:06:52 AM Permalink

Niko, thanks for sharing more of your experience on this point. Yeah, after I posted the 90% comment, I knew it was just what you said it was. (50% artist, 35% distribution and manufacturing channel, and 15% seller? But then, it's interesting what you said about not looking at percentages.) I'm sure you put a lot of thought into this after I took a look at your work at softsys.net.

I read somewhere today (from some blogger) how Apple could take the lead on this in light of the French situation and do away with DRM. If that were the case, I wouldn't visit allofMP3 ever again and would buy exclusively at iTMS.

4/1/2006 10:47:13 PM Permalink

4/3/2006 5:42:12 AM Permalink

Wow, Niko. You've got the numbers on this issue, don't you? Sounds like one of those engineering quandaries that if it's that complicated, scrap it and start again.

I remember when the Miami Vice DVDs came out, one of the long hold ups was getting permission to use a lot of the music on the original broadcasts. They even had to replace some of them.

Ridiculous!

4/3/2006 5:59:30 AM Permalink

"Scrap it and start again" seems like the best solution to copyrights as whole at the moment. ;)

Just today I was discussing the pirate CD business with a friend of mine and it turned out In Estonia some CD pirates actually pay royalties to the artists. A black BMW drives in front of your door and a bald guy hands you the check type'o'thing. I'm sure this isn't reality for anybody but a few (Estonian?) artists, but it shows that there are actually people out there "scrapping it and starting again", though illegally.

As I said, the situation is complex. It's not a black/white world.

Dave Burke : Freelance .NET Web Developer specializing in Online Communities

You gotta love those Russian online music stores

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