Spotify Apps Promise ‘New Direction’ for Digital Music Service, Raise New Monetization Issues

It’s easy for Spotify’s paid subscriber base to appreciate the new set of apps for the digital music service. To date users have largely been left to discover new artists, albums and tracks on their own, from a sea of licensed titles whose depth and boundlessness can be as daunting as it is enticing. With free apps from the likes of Last.fm, Pitchfork, and Rolling Stone, Spotify subscribers gain curators—and likely comfort, in that the service becomes more tailored to how they listen to and discover music already.

Two questions immediately come to mind, however. First: how much is a Spotify subscriber’s discovery of a new song or album worth? Under conventional industry wisdom, discovery of an artist via Last.fm may have led to a listener actually purchasing an album. Now, access to that same album via Spotify may suffice for the subscriber. Going forward, Spotify may face a Netflix-like issue of whether streaming license fees spell enough monetization for content owners to hand over unlimited access to new releases and catalog titles.

Second, as CNET points out: what’s the opportunity of Spotify apps for developers, when they are barred by the music company from charging premiums or including in-app ads? The company lacks a revenue-sharing equation to address this issue at present. (As they exist now, Spotify apps for Web properties like Pitchfork seem to obviate the need for subscribers to check in with their ad-supported sites.) On this score, Charlie Hellman, Spotify’s director of product development, tells Evolver.fm that “the potential for people to build a business on the Spotify platform will happen over time….This is day one, really, of us transitioning from being an app to being a platform.”

Number One With an Asterisk: Billboard to Exclude Deep Discounts from Sales Charts

Billboard is instituting a minimum pricing threshold on its long-running sales charts, casting a frown upon music retailers’ most aggressive promotion tactics as record labels seek to stabilize the value of CDs and digital tracks.

Under the new policy, albums that sell for less than $3.49 during the first four weeks of their release “will not be eligible for inclusion on the Billboard album charts and will not count towards sales data presented by Nielsen SoundScan.” Nor will singles that sell for less than 39 cents during their first three months of release, Billboard states.

The policy goes into effect the week of November 21, enabling the magazine to exclude from its reporting any rock-bottom Black Friday music promotions that may be in the offing.

The changes are chiefly in reaction to Amazon’s 99-cent sale of Lady Gaga’s “Born This Way” in May, which attracted hundreds of thousands of customers to the online retailer in its relentless fight for market share against Apple’s iTunes. At the time, Billboard allowed “Born This Way” onto its sales charts, noting that neither Lady Gaga’s management nor Interscope, the album’s distributor, played any part in the promotion. (Indeed, Amazon reportedly paid full wholesale price for each copy of “Born This Way” that it nearly gave away, taking a loss in the neighborhood of $7.40 per unit.)

Bill Werde, Billboard’s editorial director, defended the policy change in a note this week, stating that the magazine’s decision followed “much thought and consultation with the industry.”

Werde said that the magazine settled upon $3.50 as its threshold price because it represents half the average wholesale price of an album. The new policy, Werde added, “would not interfere with any regular or semi-regular pricing currently in effect at any of the five biggest retailers — Walmart, Amazon, iTunes, Best Buy and Target.

“Billboard doesn’t want to control the marketplace. We just want to count it,” Werde said. “But free or almost-free albums don’t represent a marketplace.”

However, retailer discounts remain an undeniable music market driver. The current top selling album at Amazon’s MP3 store, Coldplay’s “Mylo Xyloto” (released Oct. 24 by Capitol/EMI), fetches just $4.99, roughly half the album’s price on iTunes.

Meanwhile, only two titles on Amazon’s top 10 chart on Friday sold for prices higher than $7.99: Drake’s “Take Care” (released Nov. 15 by Cash Money/Universal) and Adele’s “21” (released in February by XL Recordings/Columbia).

Google Music Launches With Exclusives, Free Tracks

Google added a retail storefront to its online digital music service on Thursday, offering some 8 million licensed tracks from EMI, Sony, Universal Music, and other labels. The store (via Google’s Android Market) also promises hundreds of free songs and exclusive content, with launch-day offers including exclusive music from the likes of Coldplay, the Rolling Stones, and Shakira.

Google Music, as it exists today, is unlikely to topple Apple’s iTunes in digital music retail: for one, it lacks catalog from as much as one quarter of the market, according to CNET. But sites such as TechCrunch maintain that Google Music may yet become a contender for market share. The new store’s cloud-based features — such as the ability to share single plays of purchased tracks with friends that belong to the Google+ social network — also show potential to give Google Music an edge over its competitors, PC Magazine points out.

Spotify To Market Gift Cards at UK Chain Morrisons

Spotify is beginning to market gift cards for digital music at UK chain Morrisons, joining the ranks of digital entertainment companies seeking to establish a physical retail presence. As paidContent points out, Spotify joins the likes of iTunes, Facebook, and Zynga in marketing gift cards at brick-and-mortar retail.

Sales data is scant on digital entertainment gift cards in particular, but the overall gift card segment continues to grow. Nearly 60 percent of U.S. consumers say gift cards are the No. 1 item they plan to give to others this holiday season, according to gift card service provider Ceridian Stored Value Solutions.

More on Spotify and Morrisons at Music Week.

YouTube Inks Music Licensing Deal with Rights Agency for Independent Labels

YouTube’s licensing deal with Merlin — the global rights agency that claims “fifth major” status in the music industry, for its representation of some 14,000 independent labels worldwide — means monetization of even more music on the site via ad-supported videos. YouTube tells AP that the music industry (namely, to date, the industry’s four major label groups) already makes “hundreds of millions of dollars annually” from ad-supported content on the site. More analysis of YouTube’s position in the digital music market via Billboard.

Volume Looking Up in U.S. Album Sales

U.S. music consumers have purchased 228.5 million albums in 2011 to date (through September), a 3.3 percent increase over the same period in 2010, according to Nielsen SoundScan (via Billboard). As a result, the music industry is on pace to post its first annual album sales increase since 2004, Billboard reports.

Hit titles are part of the story — Adele’s “21,” released in February, has sold nearly 3.8 million copies through September (both physical and digital units). But the year has also seen a breakthrough in purchases of digital albums, which are up 19.7 percent to 74.1 million units through September. Digital represents nearly one third (32.4 percent) of the total albums sold in the year to date.

Why They Buy: A Rationale for Ownership in Digital Music

Approximately nine in 10 online music consumers prefer to “own” the music they like rather than stream it, according to findings of a survey commissioned by subscription service eMusic.

Among the results of the eMusic survey is the conclusion that 86 percent of the digital music audience “feel that ownership gives them security that their files will not disappear.” The stat should also comfort marketers of video downloads, including forthcoming UltraViolet movies.

How do the other 14 percent of online music consumers from the eMusic survey perceive “ownership?” The survey results are silent. Perhaps they download music from iTunes, Amazon MP3, or eMusic itself (which, while a subscription service, sells MP3 downloads) soley for instant gratification; over the years, these paid services may have earned their trust, and there is no need to search for music elsewhere.

Or perhaps these consumers are no longer interested in building digital music libraries of their own; they enjoy the breadth, depth, and immediacy of music access that services such as Spotify Premium offer. Yet even though streaming music has been around for more than a decade, the majority of consumers are only beginning to become aware of such services.

Among the survey’s other data points: 39 percent of online music consumers say they would consider storing music files they own in a cloud-based locker, so that they can listen to them anywhere.

Research firm Insight Research Group conducted the eMusic survey in August and September, obtaining responses from 1,000 online music consumers ages 18-64 nationwide. An unspecified portion of the survey group subscribe to eMusic’s service.

Music Sales: Some 300,000 Get ‘Carter’ at iTunes in First Week

Digital music continues to deliver feel-good numbers, with sales of Lil Wayne’s “Tha Carter IV” (Cash Money Records/Universal Republic Records) topping 300,000 copies at Apple’s iTunes within four days of its release last week, according to the record label.

The digital store began selling the album at midnight on Aug. 29, as part of a retail promotion that was timed to follow Lil Wayne’s performance on the MTV Video Music Awards the night of Aug. 28. The new album bests first-week iTunes sales of Jay-Z and Kanye West’s “Watch the Throne,” which itself set a new record three weeks ago with 290,000 copies (via Billboard).

The first-week numbers for “Carter IV” will feel even better if album sales remain strong in the weeks to come. Lil Wayne’s previous album, “Tha Carter III,” sold more than 1 million copies (both physical and digital) in its first week of release in June 2008, and went on to become the year’s top album with 2.87 million copies sold, according to Nielsen SoundScan.

It has been a relatively stable year for recorded music sales overall, with sales of track-equivalent albums up by 4.8 percent from 2010 in the year-to-date, according to Nielsen. Billboard muses that the industry could end the year “in positive territory,” depending on how upcoming releases perform.

How Will iTunes Match Stack Up Against Streaming Services?

It’s still unclear whether iTunes Match will offer music streaming, despite a video clip (via Insanely Great Mac) demonstrating what appears to be a streaming function in Apple’s forthcoming service.

An Apple spokesperson tells All Things Digital that iTunes Match users will need to store songs on their iPad, iPhone, or computer after they access them from their cloud-based iTunes Match account. Even though it has released a beta for iTunes Match to developers, Apple is remaining cagey on whether the service requires actual downloads of songs to devices, or whether users will be able to store songs in a temporary cache, as Spotify Premium users can to play songs while in an offline mode.

We may have to wait until Apple’s fall introduction of iTunes Match to ascertain just how it stacks up against a paid streaming service such as Spotify Premium. But one fundamental difference between Apple and its streaming rivals is already evident.

Although Apple will charge an annual $25 fee for iTunes Match, customers will only be able to access music that they have purchased from iTunes (or acquired from elsewhere). This is in keeping with the access-upon-ownership model that Apple, in cooperation with studios, recently effected for television programming on iTunes.

Spotify Premium is more akin to the subscription model of Netflix: users pay $120 a year for unlimited streaming access to most any music in the company’s 15-million-song catalog. Users can supplement their Spotify playlists with music that they have acquired from iTunes or elsewhere (e.g., Beatles tracks); but Spotify does not offer even Premium users the ability to store music in a cloud-based streaming locker.

Digital Companies Join Brick-and-Mortar Giants on Music Retailer Trade Group’s Board

With digital distribution now representing nearly one third of all U.S. album sales, Jim Donio, president of the National Association of Recording Merchandisers (NARM), tells CNET that the music retailers’ trade group has attracted to its membership a “critical mass of companies that aren’t predominantly selling physical product.” Of NARM’s five new board members, three hail from the digital world.

NARM’s changing makeup coincides with signs of that gains in digital distribution are begging to offset declines in physical music sales. Last week, Nielsen SoundScan reported during a NARM webcast that overall music sales have increased 4.8 percent year-over-year through Aug. 21, while overall album sales are up 2.4 percent during the same period (via Variety). Digital album sales, which currently represent 32 percent of the U.S. album market, are running up by 19.1 percent in 2011, while physical album sales are running down by 4 percent.

iTunes Captures Two Thirds of ‘Watch the Throne’ Sales During Album’s Debut Week

With a four-day exclusive on Jay-Z and Kanye West’s “Watch the Throne,” Apple’s iTunes seems to have captured nearly 67 percent of the album’s first-week sales. The Apple store is reported to have sold some 290,000 copies of the album — a new record for iTunes (via The New York Times). Nielsen SoundScan reports physical and digital sales for “Watch The Throne” totaled 436,000 units between Aug. 8 and Aug. 14; other music retailers only began selling the album on Aug. 12 (via Billboard).

Walmart To Exit Digital Music Retail

Walmart is planning to shutter its MP3 storefront by the end of August, after more than 7 years of trying to position itself as a contender in the digital music marketplace.

Either the mass merchant decided it had become too costly to fight for any significant share of digital music spending — the dominance of Apple’s iTunes has never been threatened by any rival service since its 2003 debut — or Walmart concluded that digital music does not lure online shoppers into making larger non-entertainment purchases in the same way that CDs did in years past. Both considerations may be at work.

“The sale of physical [recorded] music products on Walmart.com as well as in Walmart U.S. retail stores will remain unaffected,” the retailer told distributors. Meanwhile, Walmart Soundcheck, the retailer’s website for cross-promotions between music acts and consumer brands, “will remain operational as a live streaming site without any download options.” Digital Music News first reported the retailer’s decision.

As with many other products it sells, Walmart’s chief tactic in digital music retail was to tout discounts that consumers wouldn’t find anywhere else. But Walmart peddled marketed music files in the also-ran Windows Media format for nearly five years before switching to DRM-free MP3s.

What’s more, the retailer failed to establish itself as the destination for discounted music. Even though it sells downloads of select hit songs for 64 cents (representing a 50 percent discount from iTunes), Walmart has lost the deep-discounting battle to Amazon.com’s MP3 store, whose 99-cent album promotions have at least some music consumers checking prices on the site before they buy an album on iTunes. Yet Amazon has reportedly paid full wholesale price for its biggest promoted titles (e.g., Lady Gaga’s “Born This Way”), incurring costs that, in the long run, are only justifiable if shoppers stick around to buy more than just the digital doorbuster.

While unit sales of both digital albums and tracks are up in 2011 — consumers purchased 660.8 million digital music units during the first six months of the year, an 11 percent increase from 2010, according to Nielsen SoundScan (via Billboard) — the effects on download sales of new cloud music services from Amazon, Apple, Google, and Spotify remain to be seen. Walmart’s exit may prove well-timed, allowing the retailer to allocate its online resources to more profitable goods and services before the next digital music inflection point forces further consolidation of the marketplace.

Spotify Music Service Launches in U.S.

Streaming music company Spotify is making its long-anticipated U.S. debut with three service tiers, ranging from a free ad-supported computer access to an ad-free, $9.99-a-month plan for computers and mobile devices.

Invitations to the free beta version are extremely hard to come by, reports USA Today; those eager to sign up for the paid versions (including a computers-only access plan for $4.99 a month) can do so immediately.

The service promises a streaming catalog of more than 15 million songs. Expectations for Spotify’s success are high among tech boosters. Napster co-founder Sean Parker, for example, hails Spotify as “the answer to piracy: migrating millions of piracy-based music fans to a legitimate platform where their consumption of music can be monetized and the artists who dedicate their lives to creating music can finally get paid” (via TechCrunch).

Billboard has details of how the U.S. version of the service differs from is Eurpoean counterpart. In Europe, Spotify claims some 1.6 paying users and 10 million registered users in total (via The Wall Street Journal).

Music Has Its First Digital Million-Seller

Eminem’s “Recovery” has become the first album to sell more than 1 million digital copies in the U.S., according to Nielsen SoundScan.

The Interscope album took a little over a year to pass the million-unit mark, debuting atop Billboard’s album chart in June 2010. Sales of “Recovery” likely have been helped by Eminem’s appearance as one half of the group Bad Meets Evil on the current chart-topping album, “Hell: The Sequel.”

Billboard notes that Adele’s “21” (Columbia, released in February 2011) will soon join “Recovery” as the industry’s second digital million-seller.

Groupon Takes Another Stab at Digital Music

Four days into its promotion of an exclusive David Gray album, Groupon’s New York City page has added fewer than 1,500 units to the English singer-songwriter’s career sales of 12 million. The social commerce site’s $6 promotion for Gray’s live “Lost and Found” album ends on Friday.

Groupon has offered only a few digital music deals, but they have been nonstarters. Last holiday season, a half-off Groupon promotion for a Rihanna album (in a campaign with Island Def Jam) netted just 4,100 takers.

In contrast, a half-off deal for an Amazon.com gift card at rival site LivingSocial garnered more than 1 million buyers earlier this year. And Amazon itself sold an estimated 450,000 copies of Lady Gaga’s “Born This Way” after marketing the MP3 version of the album for 99 cents during two days in May.

Shazam: Song-Discovery App Yields 400,000 Track Purchases Daily

Having raised $32 million in new funding, Shazam is expanding its music-discovery app to serve as a marketing tool for television networks and advertisers. But the app’s global audience, Shazam says, has already hit prime time in the digital music space.

The London-based app developer claims to be growing by more than 1 million users per week, as it approaches a total audience of 150 million users worldwide. A Shazam spokesperson tells M&E Daily that the user data consists of people who have both installed the app on a mobile device and have used it to look up (or “tag”) a song, TV show, or commercial.

What’s more, Shazam says, its users’ 4 million daily tags lead to “more than 400,000 music tracks sold daily,” through the app’s affiliation with Apple’s iTunes. That attach rate means that Shazam can take credit for 146 million track sales a year — a sizeable chunk of the world’s $4.6 billion digital music market.

Shazam’s recent television work includes integrations with MTV and NBCUniversal shows, as well as an Old Navy commercial campaign.

Music Fans Give Turntable.fm a Spin on Facebook

Turntable.fm is the latest music sharing and discovery startup to attract a crowd online, having touched 30,000 daily active users in the first few weeks of its beta rollout (via AppData).

Sites including TechCrunch and All Things Digital praise the free Facebook app for being fun and addictive. Users create live playlists to share with friends and strangers alike by selecting songs from Turntable.fm’s own catalog (supplied by MediaNet, a licensed digital content provider) or by uploading tracks from their own libraries. Listeners get to rate the songs as “lame” or “awesome” and follow their favorite DJs, among other social features.

The app developer views itself as Web radio service that is fully compliant with the Digital Millennium Copyright Act (DMCA), according to All Things Digital. But it may yet raise a few eyebrows in record labels’ legal departments.

Impact of iCloud on Streaming Music Prospects?

In contrast to the cloud music services of Amazon.com and Google, Apple’s “iTunes in the Cloud” lacks a streaming component. That surprises some music industry observers: Wired, for example, had expected Apple would introduce new streaming-based features to iTunes such as online song sharing or collaborative playlist building capabilities. On its face, Apple’s forthcoming iTunes Match seems to be about increasing access to music, but as All Things Digital reports, the service remains rooted in the concept of ownership, with Apple continuing to emphasize the primacy of downloading content to individual devices.

Younger digital music startups contend that none of the new cloud-based services go far enough in developing new models for record labels and publishers. “We can’t enrich the music industry,” says Beyond Oblivion CEO Adam Kidron, by “going to the same five percent [of consumers] who already pay for music.” Kidron’s company advocates integrating the cost of an unlimited music license into the price of new entertainment devices or services.

Apple Positions ‘iTunes Match’ as Premium Cloud Music Service

The “iTunes Match” service — part of a slate of new iCloud products that Apple unveiled at its Worldwide Developers Conference on Monday — will offer music fans a simple way to sync their digital music collections across multiple devices, while providing record labels and music publishers with another potential revenue source.

For a $24.99 annual fee, Apple will provide iTunes users with cloud-based storage of up to 20,000 songs, automatically “matching” music that wasn’t purchased in iTunes to high-quality, DRM-free equivalents from the iTunes retail catalog.

During his conference keynote, Apple’s Steve Jobs pitched the value of iTunes Match as saving users time. Compared to rival cloud music storage services from Amazon and Google, which require users to upload their libraries to online accounts, Apple’s hard-disk scanning capability means that music library transfers are complete in “minutes, not weeks” (via The Wall Street Journal).

Apple made no mention of licenses by record labels or music publishers for iTunes Match, but the industry’s major players are reported to have agreed to new licensing terms with the company, which remains the leading digital music retailer in the U.S. The new service, if successful, would seem to provide record labels and publishers with some compensation for downloads that music consumers continue to acquire illegally.

While iTunes Match is set for a fall launch, Apple made available on Monday a free beta version of “iTunes in the Cloud,” offering syncs of users’ previous iTunes music purchases across as many as 10 Apple devices.

Separately, Apple announced at the conference that it would market its Lion upgrade to the OS X operating system exclusively via the digital Mac App Store. The $29, 4GB release will be the first operating system upgrade that is unavailable on optical disc.

More iCloud and iOS news at Ars Technica.

Gaga on the ‘Nice Surprise’ of Amazon’s 99-Cent Album Promo

Does Lady Gaga feel her new album is worth more than 99 cents? “No. I absolutely do not,” the artist tells The Wall Street Journal. “Especially for MP3s and digital music: it’s invisible. It’s in space. If anything, I applaud a company like Amazon for equating the value of digital versus the physical copy, and giving the opportunity to everyone to buy music.”

Gaga does qualify her statement, however. “It also wasn’t really 99 cents, because Amazon paid the difference on all of those purchases as part of their promotional campaign for one of their new services. I think it’s amazing and it was a really nice surprise and I felt honored that they chose my record to be part of it.”

Mobile Music Firm: iTunes Users Listen to Just 19 Percent of Their Libraries

A firm that helps iTunes users transfer music playlists to Android devices says that its customers never play most of the songs and albums they have acquired.

“The average iTunes library has 5,409 songs of which 4,195 have never been played. Put another way: we listen to about 19% of the music we own,” according to Music WithMe, which tells Music Ally that it derived its figures from anonymous customer data.

The company concludes that services such as Google Music, which invite users to upload their entire music libraries to cloud-based lockers, largely represent a waste of users’ time. (While in its beta version, Google’s music storage service is free.)

Some question the accuracy of WithMe’s numbers. Digital Music News points out that song play counts reset in iTunes when a collection is loaded onto a new computer; the mobile music firm does not appear to account for zero play counts in rebuilt iTunes libraries.

Apple Said To Sign Sony Music For Cloud Service

Following a CNET report that Apple had completed deals with EMI Music and Warner Music Group for a soon-to-be-launched music storage and streaming service, Bloomberg reports today that the computer maker has signed a licensing agreement for the service with Sony Music as well. That would leave Universal Music Group as the last among major record companies to reach an agreement with Apple for the anticipated service, which could be previewed at Apple’s developers conference in early June.

Meanwhile, GigaOm reports on the speculation that Apple may incorporate “scan and match” technology into the service, eliminating the need for users to spend time uploading their music collections to a virtual locker (as the cloud services of Amazon and Google require). Apple acquired the technology — which scans a user’s hard drive and matches song files to those already stored on company servers — when it purchased the Lala streaming music service in 2009.

Report: Two of Top Four Record Companies Have Inked Cloud Licensing Agreements with Apple

Apple has signed cloud-music licensing agreements with both EMI Music and Warner Music Group, and could complete similar deals with Sony Music and Universal Music Group as early as next week, according to a CNET report.

Citing “multiple music industry sources,” CNET says that it appears increasingly likely that Apple will launch a cloud-based music storage and streaming service, with potential support from all of the world’s top four record companies. An announcement could come June 6, when Apple opens its annual worldwide developers conference; though CNET’s sources have cautioned that they have no knowledge of Apple’s product rollout plans.

Amazon’s launch of a cloud music service without record company support in March, and Google’s introduction of a similar service earlier this month (also without label licenses), may well have changed the tone of labels’ long-rumored cloud licensing negotiations with Apple. More at TechCrunch.

Google Looks To Gain Leverage with Music Beta

A Google executive tells The New York Times that the launch of its cloud-based music storage and streaming service, sans support from record labels, is a negotiating tactic to win the Internet giant more “sustainable” licensing terms from music companies. But exactly how much leverage Google will gain with its Music Beta remains to be seen. An early hands-on review of the service gives it poor marks for functionality and ease of use (VentureBeat).

Digital Music: Track Sales Up in Year-To-Date

On the heels of the RIAA releasing its 2010 music market figures, Billboard reports that growth has returned to digital track sales in 2011.

Through May 1, sales of new release tracks are up 10%, while catalog tracks are up 7%, according to Nielsen SoundScan. For all of 2010, track sales growth had slowed to just 1%.

CD sales are down by 9% through May 1, Billboard adds.

While the digital music sales are encouraging, specific market drivers — e.g., a potentially favorable new release schedule compared to 2010 — remain unclear.

Digital Music Posts Gains in 2010: RIAA

Music fans in the U.S. purchased 1.16 billion digital tracks in 2010, representing a 2% increase from 2009, according to year-end figures released by the Recording Industry Association of America (via MusicWeek).

The value of the single-track market was up 12% last year, to $1.36 billion, as labels priced more hit song downloads for $1.29 each on iTunes. That value could prove to be short-lived, however, if Amazon succeeds this year in capturing market share with its newly introduced 69-cent pricing of hit tracks.

Overall, the RIAA says, the digital music market in 2010 was worth $3.2 billion — an increase of 3% over 2009, despite double-digit declines in mobile music products. On the physical distribution side, CD sales declined 21% to $3.36 billion.

Amazon Cuts Price of Hit MP3 Tracks

Ever aggressive in its bid for a greater share of the digital music market, Amazon is lowering its sale prices of select hit tracks to 69 cents each — nearly half off of what many of the songs fetch on iTunes.

Amazon’s 69-cent MP3 store lists some 200 best-selling songs, all of which are transferable to the company’s new Cloud Drive and Cloud Player services upon purchase. Apple markets many of the tracks for $1.29 each.

Whether the tactic gives digital music consumers enough of an incentive to change their habits remains to be seen: more on this angle at the Los Angeles Times.

Forecast: Digital Music Will Overtake CDs In Value Next Year

U.S. consumers will spend more on track/album downloads and other digital music than CDs for the first time in 2012, according to research firm Strategy Analytics. While CD sales will ebb in 2012 to $2.7 billion, online music revenues will grow to a projected $2.8 billion next year.

The study expects streaming subscription services to establish themselves and gain a certain amount of favor with consumers in the coming years. By 2015, single track downloads will still account for the majority of the digital music industry’s value (39%), followed by album downloads (32%), subscription services (14%) and advertising (14%).

Amazon Aims for the Cloud with New Music Services

With its Cloud Drive and Cloud Player, Amazon is betting that it can entice customers to upload their entire digital music collections to the company’s servers, in exchange for the ability to play songs on any computer or Android mobile device.

In launching the new services on Tuesday, Amazon is also looking to gain a jump on Apple and Google, both of which are reportedly mulling introductions of similar cloud-based offerings later this year.

“We’re excited to offer you the ability to buy anywhere, play anywhere and keep your music in one place,” Amazon’s chief executive, Jeff Bezos, says in a letter sent to account holders today (via The Wrap). Customers who purchase an MP3 album from Amazon will now receive a cloud-based copy of the music for streaming as well. Users of Cloud Drive can upload up to 5GB of MP3 or AAC files for free, gaining additional storage by purchasing music at Amazon’s MP3 store or by paying an annual subscription fee.

Customers can use the service to store photos, videos, or documents as well, according to Amazon.

Apple, in comparison, still urges iTunes customers to back up music that they purchase via iTunes onto physical discs.

Amazon rejects the notion that it needs to renegotiate its music licenses with labels to offer the new services. “We don’t need a license to store music,” Craig Pape, Amazon’s director of music, tells The New York Times. “The functionality is the same as an external hard drive.”

But as sources tell the Times, digital copyright laws may be more nuanced. The legality of the streaming service may also stand as a separate issue from Amazon’s purported ability to store customers’ music collections.

Billboard reports on how the services are vexing labels, while paidContent gives Cloud Player a spin.

Music Sales Up For Fifth Week in A Row: Billboard

The recorded music industry has not enjoyed such a five-week hitting streak since 2004, Billboard reports, citing retail sales data from Nielsen SoundScan. Catalog album sales are up 10.6% from the same five weeks in 2009, while digital album sales are up 23.5%, and Internet CD sales are up 19.8%.

The particular drivers of the sales lift are difficult to pinpoint, however. The five weeks in 2011 saw fewer hit new releases than in 2010. Executives muse that catalog sales at Walmart and Amazon.com, along with labels’ own direct-to-consumer marketing efforts, may be fueling the trend.

Japan’s Digital Music Market Slips

The Japanese market for digital music — historically the world’s second-largest, behind the U.S. — declined by 6% in overall volume and 5% in value in 2010, according to new data released by The Recording Industry Association of Japan (via Billboard).

As the trade group’s data shows, sales of mobile products such as ringtones still outstrip download sales of songs and albums in the country. Though the Japanese market may be somewhat unique in this respect, the overall numbers reveal another key territory in which the digital distribution business has yet to stabilize.

Report: Apple Looks to Lockers for Digital Music

Apple’s long-anticipated complement to its iTunes digital music store will not be a stand-alone subscription streaming service like Spotify, but rather a cloud-based rights locker for iTunes customers to access their music purchases from any Apple device, the Financial Times reports.

The service could debut as early as this summer, the paper reports. Meanwhile, Spotify is still reportedly negotiating with major record labels to launch a U.S. version of its European subscription music service. Google also is fixing to enter the space with a cloud-based locker service of its own.

More at Ars Technica, which spotted the FT report late last week.

Radiohead Leaves Behind ‘Pay What You Want’

Radiohead turned music marketers’ heads in 2007 when it offered its fans a pay-what-you-want option for the digital version of its album “In Rainbows.” That option may have proven a useful pricing experiment for the band, which has licensed and marketed music itself since parting ways with EMI ahead of the “In Rainbows” release.

Fans can preorder a $9 MP3 or $14 WAV version of Radiohead’s forthcoming album, announced Monday, direct from the band’s site. Meanwhile, the band is taking preorders for a deluxe physical edition that will include clear vinyl discs, a CD, printed artwork, and digital files. The so-called “newspaper album” version starts at $48.

More on Radiohead’s strategy at Billboard.

Number-One Album Sales Lower Still This Week

Cake’s comeback album, “Showroom of Compassion,” is on track to top this week’s album sales with a new lowest-ever total: 42,000 copies, according to Hits Daily Double.

The total falls below last week’s low-water mark of 52,000 units for Taylor Swift’s “Speak Now.”

Granted, it is slow season for recorded entertainment sales. In addition, the Cake album does not appear to be available at the deep discounts that helped propel more than one album last year to chart-topping status (and larger sales figures). Amazon sells an MP3 download of “Showroom of Compassion” for $7.99, while iTunes markets the album at the store’s standard $9.99 price.

Research: More than 60 Apps Downloaded Per Apple Device

Total app downloads from Apple’s App Store have not yet overtaken cumulative digital music sales at iTunes, as market research firm Asymco expected they would by the end of 2010. But Asymco asserts that app downloads, if they reach the 10-billion mark in January, will surpass iTunes track sales by the end of March.

The total-apps figure already represents an attach rate of more than 60 apps for every iPhone, iPad, or iPod Touch sold, the firm estimates. As Gamasutra points out, Asymco does not take into account users that have replaced an old iPhone or iPod Touch with a new version; this factor likely  drives the actual app attach rate even higher.

Also among the unknowns: the balance between free and paid content, something that has not historically been much of a factor on iTunes.

Pink Floyd Settles Online Royalties Squabble with EMI

As part of a new five-year marketing and distribution agreement between the band and its longtime label, Pink Floyd has settled its pending legal disputes with EMI Music.

Terms of the agreement were not disclosed. In early 2010, the band sued EMI over the label’s sale of individual tracks from albums such as “Dark Side of the Moon” on iTunes and other online stores. The band argued EMI had no contractual right to break apart albums that were designed as cohesive artistic works (see story on Wired).

Classic Pink Floyd songs such as “Money” now sell for $1.29 each on iTunes.

EMI Group CEO Roger Faxon — who reportedly was instrumental in bringing the Beatles to iTunes late last year — said of the Pink Floyd deal, “We’re looking forward to continuing to help the band reach new and existing fans through their incredible body of work.” Label press release here.

Assessing Amazon’s Impact on Music Marketing

Amazon.com is continuing to generate headlines this year with its strategy of selling digital versions of hotly anticipated albums at deep discounts. What impact has the strategy had on music marketing in general?

Not much, according to Billboard. The magazine estimates Amazon’s MP3 store to have a 2% share of the overall music market, compared to iTunes’ current 28% share. Hence its $3.99 MP3 loss-leaders have played only a supporting role in the success of Billboard chart-toppers such as Kanye West’s “My Dark & Twisted Fantasy.”

Still, the magazine reports that the West album sold an estimated 59,000 digital albums through Amazon during its first week of release. That figure represents 26% of West’s first-week digital sales.

And with the reported Amazon MP3 sales alone, the West album almost could have grabbed the No. 1 slot on the Billboard 200 chart during a slow week this past May — when the top album amassed just 60,000 units (physical and digital sales combined).

Amazon’s contested status as a Billboard 200 kingmaker is only part of the story. What really matters is that for some of the music industry’s most important new releases this year, Amazon’s digital promotions have had a substantial effect. The site is winning sales that would have gone to iTunes, Best Buy, or even independent record stores just 12 months ago — and labels are bound to feel a downward pricing pressure from Amazon’s MP3 deals sooner or later.

Beatles Catalog Tops 450,000 Units in First Week on iTunes

The Beatles sold some 450,000 albums and 2 million individual tracks on iTunes between the band’s Nov. 16 debut and Nov. 22, according to Apple (via Billboard).

Industry sources tell Billboard that the Beatles’ first week on iTunes equated to 119,000 albums sold in the U.S. — including 13,000 digital box sets — while Stateside track downloads topped 1.4 million. Apple reportedly counted box sets as multiple sales units for its worldwide sales total, though it is unclear how many units each set represents (as well as whether the two-volume “Past Masters” represents one sales unit or two).

In any event, Beatles album sales continue to rank high on iTunes as the titles enter their second week of availability. As of this morning, 16 of the 17 Beatles releases on iTunes are among the store’s top 200 best-sellers. “Abbey Road” continues to rank highest, at No. 14; the band’s $149 digital “Box Set” itself ranks at No. 43.

The group also still claims eight singles on iTunes’ 200 best-selling tracks today, led by “Here Comes the Sun” at No. 76.

Amazon Adds Gifting Option for MP3s

On the heels of announcing last week that customers could send Kindle e-books as gifts, Amazon.com debuted a gifting feature at its MP3 store. Recipients of MP3 gifts receive notification from Amazon via email within five minutes of purchase, reports CNET; the site notes that customers, at least as of yet, cannot set the time and date of gift emails (for, say, birthdays or holidays).

In addition to adding functionality to its MP3 store, Amazon continues to wage aggressive price promotions for digital music. The site this week is offering $3 credits toward MP3 album or song purchases, with a “GET3MP3S” promotion code valid through Nov. 29.

‘Call of Duty’ Ad Boosts Stones Song Sales

On the strength of the song’s inclusion in an ad for Activision’s “Call of Duty: Black Ops,” sales of the Rolling Stones classic “Gimme Shelter” have surged in recent weeks, according to Nielsen SoundScan (via Billboard). The exposure — YouTube has recorded some 3.6 million views of the trailer — is credited with driving sales of the track to nearly 11,000 copies during the week ending Nov. 14. That’s double the 5,000-plus paid downloads of the song from the week prior, and more than five times the number of downloads for the week ending Oct. 31, prior to the game’s release.

Groupon Offers Half Off New Rihanna Album in First Digital Music Promotion

Unveiling an online store of its own for the holidays, daily-deal site Groupon launches its first digital music promotion with Universal Music’s Island Def Jam, offering a digital download of Rihanna’s new album for $5. The promotional price represents a 50% discount on the “Loud” album (released Nov. 12); the deal runs through Wednesday.

Groupon is promoting both the artist and the deal in emails and across its social network presence.

Digital Now 40% of U.S. Music Market for Warner; Downloads Flat with Last Year

Digital products now account for 40% of Warner Music Group’s domestic recorded music revenue, though the U.S. market for downloads plateaued during the company’s fiscal 2010 (ended Sept. 30).

Domestic digital revenue amounted to $421 million for the year, up from $419 million in 2009. New albums from Michael Bublé, Jay-Z, Linkin Park, and Muse, along with the “The Twilight Saga: New Moon” soundtrack, helped sustain the U.S. digital market in 2010, as demand for ringtones continued to decline.

WMG saw a global growth for downloads in its fourth quarter, however, thanks to a stronger release schedule. Quarterly digital revenue of $183 million represented a 7% increase over the same period in 2009 for the company’s recorded music segment.

Overall recorded music revenue for the full year declined 7.1% to $2,455 million (down 9.2% on a constant-currency basis). Domestic recorded music revenue declined 11.2% from 2009 to $1,043 million.

Tapering CD demand drove the declines, WMG said. International markets helped overall digital recorded music revenue grow 8.7% over the prior year to $713 million, representing 29% of segment revenue for the year (up from 24.8% in fiscal 2009).

New Manufacturing, Distribution Agreement with Cinram

Seprately, replicator Cinram announced today that it has entered into a series of new agreements with WMG to serve as the music company’s primary supplier for manufacturing and distribution services in the U.S., Canada, and parts of Europe.

Cinram has enjoyed a supply relationship with WMG since 2003, when the company acquired the CD and DVD manufacturing businesses of Time Warner.

Apple Moving to 90-Second Song Samples on iTunes

Apple will soon be lengthening song previews in its iTunes Store from 30 seconds to 90 seconds, in efforts to spur track sales, according to CNET. The site publishes a letter that Apple sent to label representatives earlier this week detailing the plans; longer samples will come to songs over 2.5 minutes in length. Apple had planned to debut the longer samples on iTunes in September, CNET says, but rights negotiations with music publishers stalled the rollout.

Distributor TuneCore Sings Digital Music’s Praises

“Unit sales are up, not down — that means people are buying more music, not less,” says Jeff Page, chief executive of digital music distributor TuneCore, in an interview with the Los Angeles Times. TuneCore’s business model is accordingly looking up: the company charges a flat fee to send song and album files to digital retail, as opposed to the conventional practice of taking a percentage of sales. Since the company’s 2005 founding, TuneCore has grown to distribute as many as 30,000 songs each week, from both aspiring and established artists, to the likes of iTunes, Amazon.com’s MP3 store and Microsoft’s Zune service.

Amazon MP3′s Deep Discounting Fuels Another Chart-Topper?

Sales of 33,000 copies Sufjan Stevens’ “The Age of Adz” were enough to land the indie singer within this week’s Billboard top 10 (via Prefix). As with the surprise chart-topping new album from fellow indie rockers Arcade Fire this summer, the question is: how many of those “Adz” copies were downloaded via Amazon MP3’s $3.99 promotion on the album last week?

In any event, the success finds Stevens’ label, Asthmatic Kitty Records, climbing down from a September email to fans that raised questions about Amazon’s promotional practices vis-à-vis the value of music in the digital era. Label A&R man Michael Kaufmann tells the Village Voice: “What gave us pause was that we were also offering the album at a higher price and we wanted to make sure our customers knew that it would be available for half that price on street date through Amazon. We wanted to be honest and transparent about the coming deal so that folks who preordered at a higher price didn’t feel like they have been misinformed, or had a lack of information to make an informed choice.”

Paid Search: Google Floats Fees for Helping Labels To Find Pirate Links

In response to music industry requests for greater help in identifying links to unauthorized files, Google has offered to pitch in — for a fee, CNET reports.

The tech news site points to a confirmed recent exchange between the search giant and representatives from the RIAA and IFPI, in which Google said trade group members could utilize its “site search” service to uncover pirated material at a rate of $5 per 1,000 queries. That rate could amount to several millions of dollars per year for labels, CNET quotes a music industry source as saying.

Under federal law, Google must remove (for free) search results that link to infringing files, upon specific requests from copyright owners. But rightsholders bear the responsibility of discovering the links.

The paid service could be just another bargaining chip with labels as Google reportedly continues to mull the launch of its own digital music store.

Digital Distributor INgrooves Gets Private Equity Boost

Digital distribution services provider INgrooves says that it has received a “significant” injection of capital from Shamrock Capital Growth Fund II, a private equity fund focused on media, entertainment and communications investing. The investment, INgrooves says, will allow the company to expand into ancillary media verticals such as eBooks and make strategic acquisitions in the digital music industry.

With the closing of the Shamrock investment, Shamrock joins Universal Music Group as a minority shareholder in the company. Financial terms were not disclosed (release via PR Newswire).

INgrooves also says that it has extended the term of its distribution agreement with Universal Music for the digital delivery of UMG’s North American catalog to online and mobile retailers within the territory. The label group has been utilizing INgrooves’ ONE Digital platform to manage the distribution of some of its content since making a strategic investment in the company in March 2008.

Holiday Outlook: NPD Forecasts ‘Calculated Consumption’ of Packaged Media, Electronics

An air of caution pervades the holiday shopping environment, with more consumers keeping their purchase intentions close to the chest, according to a new survey by the NPD Group.

Roughly one quarter of consumers (24%) plan to purchase DVDs as gifts this holiday season, compared to 29% of consumers who said they had such plans ahead of the 2009 holidays. NPD notes similar declines in consumer purchase intent for videogame systems and software (15% ahead of the 2010 holidays, compared to 20% during the same period last year) and music (14% in 2010, compared to 21% in 2009).

NPD’s figures seem to comport with the findings of another holiday shopper survey conducted by Nielsen. In that study, just 4% of consumers said they are planning to spend more on DVD and Blu-ray this holiday season than they did in 2009, while 6% of consumers said they plan to spend more on videogames and 2% said they plan to spend more on CDs.

Even the electronics category is facing general consumer caution, according to NPD. Sixteen percent of consumers plan to buy an electronics item as a gift this season (ranging from a TV or home theater system to a computer or cell phone), compared to 24% in 2009. But NPD says that there is a drop-off in intended purchases in nearly every category it tracks.

A majority of consumers (61%) say they plan to spend about the same amount overall as last year, NPD notes. About one-third of survey respondents say they plan to spend less, while 9% say they plan to spend more.

The primary influence on where consumers will shop for gifts this year remains price (60%), followed by special sale prices (58%), and convenient retail locations (47%).

New Chatter On Apple Music Subscription Service

Apple’s top iTunes executive has been trying to revive the concept of monthly digital music subscriptions with major labels, according to the New York Post. The paper, citing an unnamed source, says that Apple’s latest music-subscription pitch envisions a service with tiered levels of music access, and monthly prices ranging from $10 to $15.

Labels are reportedly supportive of Apple’s latest idea, which follows the news that Europe’s much-vaunted music subscription service, Spotify, will be integrated within Microsoft’s forthcoming Windows Phone 7 operating system (as giddily reported by Wired). Of course, integration within Windows does not render Spotify’s U.S. launch a foregone conclusion.

While stateside digital music executives remain skeptical of Spotify’s ad-supported “freemium” edition (see story by CNET), labels now seem to regard a paid-subscription service as having potential to offset the stalled market for music downloads.

Interscope: Digital Accounts for Nearly Three Quarters Of Revenue

Ted Mico, EVP of Universal’s Interscope Geffen A&M division, tells website Digital Music News that his label group now earns 70% of its revenue from digital formats. A recent release from Interscope artist Eminem could mark the first time the company records sales of 1 million digital albums. But all is not lost for physical distribution: “We’re actually selling CDs as well,” Mico adds.

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