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Music executive says the way to increase revenue from digital music is with easier shopping

Music labels are seeing profits dwindle compared to previous years when physical music formats like CDs were the most popular. In the music industry today, digital music sales are soaring, but the lower profit margin on digital tracks means lower revenues for the labels.

Digital track sales and piracy are the two most cited reasons for the decline in revenue seen by most of the record labels. According to Universal Music Group (UMG) executive Rio Caraeff, the key to stopping piracy isn’t DRM and mass lawsuits. This is evidenced by RIAA announcing it will not sue alleged music pirates into oblivion and is ending its legal crusade.

Caraeff told CNET News that he doesn’t believe that litigation is the answer to the piracy problem and he says he doesn’t believe in DRM. Anyone who had purchased DRM laden music knows that the only person the DRM typically affected was the one who bought the music and couldn’t transfer it to devices at will.

According to Caraeff, the way to increase the sales of digital music is to make buying digital tracks easier. He cites pruning a shopping method that takes ten clicks to buy down to one along with nurturing new revenue streams as keys.

Caraeff had a lot to say in an interview with CNET News. When asked about the change in the attitude in the music industry from trying to kill digital music to understanding and growing with it he said, "The removal of DRM on songs and albums is also a major example of how we've changed, both in terms in enabling existing retailers that works on devices like iPods. We're not saying we're inflexible. We're saying we're going to change, we're going to adapt, we're going to listen to what the market is asking for, we're going to accommodate."

He believes that pirates have all of the advantages when it comes to digital music. They don’t have licenses, they don’t have fees, and they don't play by the rules of the music industry. Caraeff says that he doesn’t think that piracy will ever be eliminated by progressive and aggressive policies.

Caraeff has a background in software and mobile devices. Under his tutelage, UMG began to embrace mobile devices like cell phones by launching ring-back tones as well as voice and audio tones. UMG also launched full over-the-air music downloads and video services that are paid and free with support by ads.

Over two years at UMG Caraeff says that his policies focusing on mobile were able to grow income directly attributed to sales for mobile devices to over $100 million. UMG also helped Amazon integrate its music store into the Google Android platform. He maintains that while there are not a lot of Android platforms at this time, the Android users out there do purchase lots of music via over-the-air downloads.

At this point UMG says that about 40 to 45 percent of its overall digital business is coming from mobile channels like Verizon and AT&T. Speaking on YouTube as a music hub, Caraeff says that YouTube is a large driver of its growth in and out of the U.S. thanks to the global appeal of YouTube. Revenue from the YouTube deal is in the tens of millions according to Caraeff.

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Digital value for money...
By darrellt on 1/14/2009 10:57:35 AM , Rating: 5
Isn't it time that the publishers stopped being so negative and realised the potential in digital distribution? Give the customers incentives to buy the material; free concert ticket vouchers, codes to redeem on merchandise, signed T-shirts, etc?? Stop complaining and threatening and alienating your potential customers and start constructively using your riches by using your imagination and befriending those that feed.




RE: Digital value for money...
By 306maxi on 1/14/2009 11:09:06 AM , Rating: 3
Agreed. I for one haven't pirated a game since Steam came along. Heck I even went onto Amazon and bought a few games which I had pirated in the past and now wanted to own legitimately. The main problem lies with content, ease of purchase and with cost. Music today is too expensive and it's crap whereas there are a lot of great games out there which are worth spending money on.

Why would I bother pirating games when they're reasonably cheap to buy on Steam, quicker than going to a store and buying and they're also good quality games.

I firmly believe that companies should be rewarded for quality products and right now there isn't a lot of quality music out there..... PLEASE stop with the manufactured crappy music and give us some original/innovative music and people might start buying again!


RE: Digital value for money...
By kelmon on 1/14/2009 12:26:30 PM , Rating: 3
Unfortunately, one man's trash is another's gold. I see a lot of complaint's about music being "crap" these days (myself included) but you have to realise that just because you don't like it does not mean that not everyone does. If people buy "crap" then the companies will just make more because that is what the market is demanding. We're our own worst enemies...

Personally, I'd like to see an end to the endless Movies films (Scary Movie, Date Movie, etc) but it seems that isn't going to happen any time soon since people keep going to see them.


RE: Digital value for money...
By tastyratz on 1/14/2009 2:56:25 PM , Rating: 3
quality is still crap though.

Why is it you can pirate 320kb/s mp3, flac, uncompressed, etc over the internet almost as a standard, yet amazon being the best quality mp3 reseller I have found only has 256kb/s mp3's? Talk Itunes and everyone else and you get stuck with 192kb/s which is just absurd and unacceptable if you ask me.

Maybe if they started selling competitively they would have some more business. They aren't even trying to play a level field, they are trying to sell an inferior product and don't understand when people don't buy.
Trent Reznor had it right when he offered his cd's on his website in many formats whether its mp3, flac, or even 96khz wav files...


RE: Digital value for money...
By GeorgeH on 1/14/2009 3:54:08 PM , Rating: 4
Don't forget DRM-free. I'm still discovering songs in my library that I bought years ago and no longer have the "right" to play. This is due only to the fact that I've moved my collection multiple times and can no longer remember which store (if it even still exists) I bought a particular track at 6+ years ago.

If I buy a song I want it to be:

1) The best possible sound quality. I have multiple TB's of storage; I really don't care if a song is bigger than a few MB's, but I do care what it sounds like.

2) Mine to listen to for as long as I choose to maintain a copy. This means no DRM at all, unless you can satisfy me that 50 years from now your DRM scheme will still let me listen to my music in a no-hassle and transparent fashion.


RE: Digital value for money...
By kelmon on 1/15/2009 4:03:51 AM , Rating: 1
Not that it probably makes much difference to your argument but iTunes is mostly 256kbps AAC rather than the old 128kbps.

I'm sure that there are people who can tell the difference between a downloaded track and one from a CD but I'm not one of those people and you probably need relatively expensive audio equipment anyway. Personally, I'd like to see someone who thinks they can tell the difference do a "Pepsi Challenge" just to prove it.


RE: Digital value for money...
By Reclaimer77 on 1/14/2009 11:09:59 AM , Rating: 3
I believe companies that can't embrace and adapt to new technologies should falter and then die.

Digital media has been here, and it's not going anywhere. They can either get on board, or suffer.


RE: Digital value for money...
By Ryanman on 1/14/2009 11:10:18 AM , Rating: 3
I think concerts are going to be the "safe haven" of music revenue. You can't pirate the experience of being at a show, and more of the money goes to the artist that way. You can't possibly expect free concert vouchers to be distributed in any sort of scale.

When it comes to merchandise though, you're absolutely right. Look at Ghosts I-IV. Renzor made a KILLING off of the premium packages, and higher bitrate music. People who actually enjoy your art are always willing to pay to support YOU (as opposed to a record exec).


RE: Digital value for money...
By darrellt on 1/14/2009 11:50:42 AM , Rating: 3
I wasn't meaning that concert tickets should be given with each download, more that a digital lottery can be offered so that to be in with a chance of discounted merchandise, collectible stuff or tickets you need to buy the content. All about the incentives to buy and I don't feel that the publishers are actually trying anymore, they just expect that all will pay regardless of quality or customer satisfaction.


Finally
By MrBlastman on 1/14/2009 11:38:49 AM , Rating: 5
Someone who sort of gets it. Stop victimizing the consumer and you take a giant leap towards making progress.

The only thing I didn't hear was - "We've also realized we need to start promoting artists who can actually make real music."

Baby steps it seems.




RE: Finally
By darrellt on 1/14/2009 11:53:10 AM , Rating: 2
Love your reply. Cheers!


RE: Finally
By Heir on 1/14/2009 12:25:36 PM , Rating: 2
And who gets to say what real music is?

I agree with your first part..but who are you to say what real music is? Music, as art is in general, is subjective.


RE: Finally
By IcePickFreak on 1/14/2009 12:42:28 PM , Rating: 5
Something with more than 3 chords and 5 words is a good start.


RE: Finally
By MrBlastman on 1/14/2009 12:43:36 PM , Rating: 2
The consumer - of course. Who else would decide? Sales are down, way down, in the music industry right now.

Obviously the consumer is speaking - they are saying: "We don't like what you are selling, please try again."

Free Market in its simplest form. They aren't catering to our desires so they are losing potential revenues to other forms of entertainment.

They should try selling us music... that we want to buy. Could there not be a simpler answer?

Or, I'll take a stab at personally stating real music:

Not real (noise):
Britney Spears
(insert favorite post 2000 pop star here)
Gangster Rap

Real:
Mozart
Beethoven
Haydn
Telemann
Pandolfi
Orbital
Queen
Talking Heads
The Police
etc. etc.


RE: Finally
By cplusplus on 1/14/2009 2:31:23 PM , Rating: 2
quote:
Obviously the consumer is speaking - they are saying: "We don't like what you are selling, please try again."

Free Market in its simplest form. They aren't catering to our desires so they are losing potential revenues to other forms of entertainment.

They should try selling us music... that we want to buy. Could there not be a simpler answer?


But here's the question for you: Do they drop the "not real music" that's selling 1-5 million albums, plus all the singles and ringtones and other revenue, or the bands that you probably like that are selling a few hundred thousand albums.

I hate Lil' Wayne as much as the next person, but the man brought in millions of revenue. Is that who you drop? Or the promising art-rockers who only sold 300K but got great critical reception?


Duh
By Smilin on 1/14/2009 12:14:51 PM , Rating: 5
This has always been the answer.

The music company took the immediate stance of "we can't compete with free! Not fair!" and proceded to try and lobby, threaten and sue their way out of it.

They should have realized that their distribution model just became obsolete almost overnight.

Here is the thing, you CAN compete with free . It can be done very easily. The perfect example is bottled water. There is a water fountain in every public building in the country yet people buy water in bottles. Why? It's clean, easily transportable, has an "image" of sorts, and the competition albeit free, leaves much to be desired in terms of rust and germs.

What about this free music they compete with?
-You get highly variable download rates. Frequently crappy.
-You end up with a collection that has no consistency. id3 tags are jacked, bitrates vary from track to track.
-You frequently get 'rickrolled' or truncated tracks.
-Your download location often drops off so you have a big mass of half finished downloads.
-There is no guarantee that want you want is 100% available right this second (important to todays impatient consumer)

What they need to offer:
-Everything available right now. Snag that impulse buy.
-Fast downloads.
-Guaranteed downloads.
-Good id tagging, album art, high and consistent bitrates.
-A reasonable non-free price.

Will there still be piracy? Sure. It won't matter though the sheer volume of sales combined with the low cost of delivery will let the record labels roar into a new future instead of dying like a dinosaur.




RE: Duh
By Belard on 1/14/2009 12:28:09 PM , Rating: 2
The other thing that seems to be happening in someplaces... (or should be)

Is the ability to go to a store and download track(s) to your MP3 players, for people who don't have internet or have an impulse buy. The music industry is trying to sell SD cards with tracks on them.... so that is kind-of a step. 1GB cards with 320kb MP3s. I'd still prefer OGG files... cheaper too.

There are many people, such as myself - who avoid buying online. But I'd be content to plug in my SD card into a KIOSK at a store, swipe my credit card - download the tunes and walk away...

Even at movie theaters, its quicker to use the kiosk than to stand in line... as long as theres enough Kiosks :)


RE: Duh
By bodar on 1/14/2009 3:33:53 PM , Rating: 2
Movie theater kiosks often suffer from the same problem as self-checkout lanes at stores. The line "looks" shorter til you get caught behind a senior citizen or some mouth-breather who takes forever and a day to scan everything and insert their cash. Granted, sometimes there are scanning/tag issues, but this is usually not the case. I'd imagine that these kiosks could be worse, since you'd have people agonizing over which songs to buy. At least online, I only have to compete with my SO for the computer.


RE: Duh
By Smilin on 1/14/2009 3:56:56 PM , Rating: 2
rofl, 'mouth breather'


Lower profit margin on digital tracks?
By BernardP on 1/14/2009 10:58:37 AM , Rating: 2
It don't understand how there can be a lower profit margin on digital tracks. No physical media, no manufacturing costs, no shipping, no loss/theft, no discount bin.

I, for one, find that digital tracks are relatively overpriced compared to a CD.




RE: Lower profit margin on digital tracks?
By kevinkreiser on 1/14/2009 11:15:58 AM , Rating: 2
i disagree. i think the problem is that back in the day they were pressing millions of cds in volume, so that the cost of manufacturing the cd would only be a couple of cents per cd. but because it was a physical medium they felt they were justified in making the cds cost 20 bucks at the store. now after years of being used to making huge profits on each cd, they feel like they are getting ripped of because no one would pay 20 bucks for something digital. So they have to sell the digital tracks for a reasonable price. I guess they shouldn't have ripped us off to begin with by making us pay 20 bucks for a color print, a jewel case, and a 2 cent cd. I know that recording costs lots of money, but that cost is the same whether its distributed digitally or physically. It's the different in physical medium that we are paying for.


By Smilin on 1/14/2009 4:00:41 PM , Rating: 2
Keep in mind for every artist that goes platinum there are tons that flop.

Part of the cost of your U2 CD goes to paying for that David Hasslehof Christmas Carols CD.


By kelmon on 1/14/2009 12:29:16 PM , Rating: 2
You always pay for convenience because you are typically prepared to pay more for it, all other factors being either equal or relatively unimportant. Prices are based on what you will pay, not what something costs.


By wempa on 1/14/2009 12:31:22 PM , Rating: 2
They lose out because people are only buying the 2-3 good tracks per album. With a CD, they force them to pay $10-$15 to get those 2-3 good songs along with a bunch of crappy ones. With digital tracks, they get the good ones for $3 and avoid the crappy ones.


Price elasticity of demand
By maverick85wd on 1/14/2009 6:02:00 PM , Rating: 3
What labels and vendors are forgetting is economics. I personally don't feel like paying $1 for almost any song. So if I buy 2 songs a month they make $2. However, at .50/song it becomes much more attractive. I'm much more likely to buy 10 or 15 songs per month. That's $5-7.50/month, $3-5.50 more per month they're getting from me now. If they charge .20-.25/song I'd probably just treat it more like I treat Limewire.

And I refuse to buy any music lower than 256k/sec (tho I prefer uncompressed) or anything with DRM.




RE: Price elasticity of demand
By Smilin on 1/14/2009 6:25:39 PM , Rating: 2
Along those lines I gotta say I'm really digging Zune these days.

There are still some DRM songs out there that some artist or label refuses to budge on but in general everything is MP3.

I've also got the Zune pass that lets me 'rent' (DRM) all the music I can download for $15/month. It also then gives you 10 songs to keep (mp3) per month included in that price.

I actually feel like I'm getting my money's worth from the record companies. Whoda thunk?


By MrBungle123 on 1/14/2009 11:09:04 AM , Rating: 3
If even the RIAA can figure it out you would think people like EA Games, Take 2, and others would see that opressive DRM on games is not going to stop piracy either and that they are only hurting those of us that actually pay for their software.




By JimCouch on 1/14/2009 11:30:10 AM , Rating: 2
They should exploit the other profit streams associated with the music and artist. Things like fan wear, posters etc the music itself is like makeup and clothes on a hot chick. The music is there to attract and keep the fans coming back for more consumables that are better controlled for profits. Digital downloads should be extremely cheap on the bands site and downloads from their site should rack up points toward buying other goodies etc. That would do more toward detering pirates than anything...

The artist should look at digital sharing and the new radio waves and focus on making profits from the other things that people DO want to pay to see or have.




Finally!
By amanojaku on 1/14/2009 11:39:00 AM , Rating: 2
A music executive who is willing to acknowledge that part of the problem with piracy lies in the hands of the music industry, itself. It would have been nice if he mentioned *cough* signing better artists, *cough* but the technology is probably the easiest place to improve on.

The other part of the blame clearly lies with you pirates. You can buy individual songs for a dollar now! Stop being cheap and support your artists! :-)




The Answer To Music Piracy?
By H8ff0000 on 1/14/2009 12:09:20 PM , Rating: 2
Master tracks would be the answer for audiophiles. Or myself and the ones I know at least.




Wrong again!
By DarkElfa on 1/14/2009 12:54:11 PM , Rating: 2
quote:
Caraeff says that he doesn’t think that piracy will ever be eliminated by progressive and aggressive policies.


Piracy will never be eliminated, period. The sooner the companies come to grips with that fact, the sooner they can turn to spending their precious time and ours coming up with a way to make it more attractive to purchase products rather than steal them. They could start by making them actually worth the purchase price.




Album value for money
By Soundgardener on 1/15/2009 4:06:37 AM , Rating: 2
Music companies in financial bother, being RIPPED OFF by consumers...why does everyone just run with the fact that this is a bad thing? I can see some downsides, but I can see plenty of karmic payback for the years that they have preyed like vultures on the artists and consumers. And I'm not wasting my time explaining how that's been the case, if you're not across it, pick up a book or two.

Last point - my CD purchases have fallen by 80-90% in the last 5 years. My concert attendance has AT LEAST risen to compensate. I just get more bang for my buck now. Put it like this - most decent people, if downloading a whole band's discography really enhances their life, then they will be prepared to pay to see that band live, as well as merch, DVDs etc. I am paying for 3 tickets all up to see Trent Reznor in Feb, two for me and one for a mate. I did the math on those premium albums he put out - he killed. As Jaz Coleman (Killing Joke) says, there is plenty of money out there for good artists, the model is changing and those who change quicker will capitalise quicker.




Nothing will stop all piracy...
By Beenthere on 1/14/09, Rating: -1
RE: Nothing will stop all piracy...
By HeelyJoe on 1/14/2009 3:11:36 PM , Rating: 4
You should be fined for writing that with a straight face.


RE: Nothing will stop all piracy...
By Smilin on 1/14/2009 6:18:52 PM , Rating: 2
..Or at least banned from DT.


By Soundgardener on 1/15/2009 4:21:41 AM , Rating: 1
Punishment is resented and that resentment is often expressed in harmful ways. It's also not the most effective, or only way, of dealing with negative behaviours or influencing people. Stuffing prisons fuller and fuller isn't a solution; it's actually a problem, a pathological way of dealing with issues that communicates a fundamentally primitive, unevolved (black and white, us vs them, competitive vs co-operative) outlook on life. A remedy to someone stealing an album is them paying for it. Basic fairness and proportionality.

And PS: Analyse the word consumer. It's a cynical corporate word that demeans people by reducing them to functional economic units. Something the music industry is good at. In the words of a Live song: "Warm bodies I sense, are not machines that can only make money."

Music is an enhancing, uplifting experience. Too long we have endured the corporate toll-booth sitting in between artists and their appreciators. Good riddance.


"You can bet that Sony built a long-term business plan about being successful in Japan and that business plan is crumbling." -- Peter Moore, 24 hours before his Microsoft resignation











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