[JPL] emusic article

Garrett Shelton garrett at sunnysiderecords.com
Mon Jul 31 16:47:49 EDT 2006

Hey -
After all the-sky-is-falling talk today and yesterday, I thought I'd send
this over. 
Read below... eMusic doesn't pay the highest royalities of the bunch (not by
a long shot), but as of April 18% of all downloads on their service were
categorized as jazz and its their 3rd best performing genre.  That elusive
and important connection between the left-leaning rock and hip-hop fans
happens on this site.  It's pretty cool to see.  
In general, eMusic markets to the underserved and it's working out. And with
the prices they charge, its easy for people to check out genres like jazz
that they might less familiar with.  
I also like Rhapsody as well and of course, iTunes.  All three have their
pros and cons, actually.  
I don't really put too much importance on the aggregate jazz numbers that we
bludgeon each other with every year. There's too much distortion in them for
me, too much information I don't know. 
- Garrett
PS - I don't know if you seen it, but we have a Steven Bernstein out.  :)
Now that's advertising value!  Cheers!
EMusic's pitch: Download song — and own it
Posted 7/30/2006 8:29 PM ET 
By Jefferson Graham, USA TODAY
LOS ANGELES — The smash success of Apple's iPod is paying huge dividends for
a less-well-known music industry player, online retailer eMusic.

Apple has sold nearly 60 million iPods since 2001, and music fans regularly
frequent the company's iTunes online store to buy songs for their iPods —
giving iTunes a nearly 70% share of the music-download market.

Rivals Napster, Rhapsody, Yahoo Music and others compete with similar online
offerings. Their songs don't play easily on iPods, however, hindering their

Then there's eMusic and its more than 1 million songs, which do play on
iPods — and the company isn't shy about letting customers know. "Get 25 free
iPod-compatible downloads just for trying us out," eMusic says in its
current TV ad.

Like Napster and Rhapsody, eMusic is a subscription service. Unlike those of
its competitors, eMusic customers fully own the songs after downloading,
with no restrictions. How does it do that? EMusic's songs are unprotected
MP3s, which means they play on any device. Rivals sell copy-protected songs
aimed at preventing unauthorized trading on file-sharing networks. 

EMusic's supplying labels don't worry about such trading because eMusic
users tend to be older, sophisticated music fans who are less likely to
engage in online song-swapping.

Napster, Rhapsody and Yahoo have deals with the four major labels to sell
the big hits. EMusic does not. It sells only independent label music, which
it says is more popular than most people think. *It cites statistics from
the American Association of Independent Music that independents' market
share of CD sales is 28%.*

EMusic believes that copy-protecting files hinders sales, and that view is
shared among many in the industry. Yahoo Music, for one, recently persuaded
major label Sony/BMG to let it sell a song by pop diva Jessica Simpson
without copy protection, as a test.

Getting feedback 

Consumers are responding: EMusic has quietly climbed into second place to
iTunes, albeit with an 11% market share to iTunes' 67%, according to market
tracker the NPD Group. The company sells monthly subscriptions, and those
numbers have doubled since December, to 200,000. The company averages
downloads of 5 million songs monthly.

"There's no question the iPod success has worked in our favor," says David
Pakman, eMusic's 37-year-old CEO. "The consumer confusion over interoperable
formats gives us a great advantage."

That eMusic has found any traction is surprising, as it doesn't have any big
hits. No music from major labels means nothing from chart-toppers such as
Shakira, Beyoncé or U2 — but plenty from Scott H. Biram, the Pipettes,
Dashboard Confessional and Peaches.

They are some of the popular eMusic artists, a roster that also includes
household names: Johnny Cash, Ray Charles, Credence Clearwater Revival,
Miles Davis, Van Morrison, Moby, the White Stripes and Diana Krall are a few
of the independent label notables, in a roster more heavily weighted to
jazz, classical and indie rock than pop. 

Daniel Raymont, a 37-year-old New York actor, is a heavy subscriber who pays
$19.95 to download 90 songs monthly.

"For the curious-minded music shopper, iTunes isn't very helpful," he says.
"This is a service for music junkies with wide-ranging tastes."

EMusic's origins pre-date iTunes'. EMusic was one of the first legitimate
online digital music retailers. It always specialized in independent music.
Before Pakman arrived, the firm offered unlimited downloads for a monthly
fee. When Pakman's Dimensional Associates — he's a partner in the firm —
bought eMusic from Vivendi Universal in 2003 for an undisclosed price,
Pakman decided that business model had to go and changed the structure.
Subscriptions now start at $9.95 for 40 downloads monthly.

The company has 75 employees, mostly in New York, and will turn a profit
next year, Pakman says.

"David took a catalog that wasn't the strongest in the world, but with
effective marketing, motivated consumers to pay," says Ted Cohen, a former
executive with EMI Music who now runs the TAG Strategic consultancy. "He's
created a great environment for finding new music."

Classical music label Naxos North America is eMusic's biggest seller.
"ITunes exists to sell hardware," says Naxos CEO Jim Sturgeon. "EMusic is
about selling music. Their primary concern is to sell content, and that's
why they do so well. It's like an independent record store vs. a Wal-Mart."

Naxos, which also sells music on iTunes, has no qualms about offering
material without copy-protection, or digital rights management (DRM), as
it's called in the industry.

"The majors have caused themselves nothing but grief with DRM," says
Sturgeon. "What are they protecting? Any kid can figure out how to get
around it. What they are really saying is, 'I don't trust my consumer.' " 

Gene Rumsey, general manager of Concord Music Group, which released Ray
Charles' chart-topping 3 million-selling Genius Loves Company album and owns
the historic Fantasy, Milestone and Riverside jazz labels, supports eMusic's
no-DRM strategy because he says eMusic fans are not the typical college-age
file sharers. They are more rabid fans who he believes are less likely to
engage in online song swapping. On the other hand, if iTunes and the others
dropped DRM tomorrow, "I don't think anybody would make money selling
music," he says. "It would all end up on the file-sharing services."

'Dramatic' results 

Pakman spends many hours trying to convince the majors otherwise. He has a
juicy pitch: Give him out-of-print material that consumers can't get their
hands on and let him promote the material heavily on eMusic, minus DRM.

"The results would be dramatic," says Bob Frank, who runs indie label Koch
Records. "EMusic would market the hell out of those songs."

The proposal has been accepted at all the major labels by lower-level
digital executives, but gets stuck when it goes up to the executive suite,
Pakman says.

It's a fun idea to consider, he says, but he assumes it will never happen.
"There are too many political hurdles to jump through at the labels," he
says. "We've built a business based on independent music, and we're very
bullish on the future."

Garrett Shelton
Sunnyside Records

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