Nielsen Soundscan numbers for the first half of 2006 came out last week and much of the press focused on the upward slope of the digital sales curve and the downward slope of CD sales. Album sales went down from 282.6 million this time last year to 270.6 million for the midpoint of 2006, while downloaded tracks soared 77% to 281 million in the first 26 weeks of 2006.

To make it apples to apples, there's still a big gulf between 271 million physical albums and 14.7 million digital albums (sales of which were up 126%), but the market share of digital music is increasing, from 2.2% last year to 5.2% this year.

I suspect the argument that digital music is cannibalizing CD sales may be simplistic. The CD side of the business has already enjoyed much of the recycling boom that comes when people re-buy old music in an updated format, whereas digital music, which is getting some baby-boomer love, still has that wave to ride.

It's been a bad year for new music, sales of which have dropped to just 22% in the first half of 2005, compared to 39% in the same period last year. If CD sales are indeed more dependent on new music for sales juice than are downloads, then the preceding statistic might explain some of the growth disparity. No, there's not a 50 Cent or Norah Jones to drive sales, but I suspect that the annual trend of fewer and fewer new releases is also playing a role.

Rupert Murdoch and Billy Bragg: you have to wonder how these guys got in bed in the first place. It's a notion that'll induce Scanners-esque head explosions and I wouldn't spend much more time it, as the avowed socialist Bragg has taken his toothbrush and, we presume, did not let the door hit him on the way out of avowed capitalist Murdoch's crib.
Irked by terms of service that apparently gave MySpace "a non-exclusive, fully-paid and royalty-free, worldwide license (with the right to sublicense through unlimited levels of sublicensees) to use, copy, modify, adapt, translate, publicly perform, publicly display, store, reproduce, transmit, and distribute" his music, British songwriter Billy Bragg pulled his music from the social networking site.
Bragg's MySpace.com page offers this explanation: "SORRY THERE'S NO MUSIC," because "once an artist posts up any content (including songs), it then belongs to My Space (AKA Rupert Murdoch) and they can do what they want with it, throughout the world without paying the artist."
As Publishing 2.0 notes, the falling out is a harsh reminder of the lengths MySpace will go to compensate for not owning any of the content (read: the underlying value upon which much of the enterprise depends) posted on its sites and of MySpace's still-showing Web 1.0 roots.
Naturally, MySpace chalks this all up to a bit of sloppy lawyering.
"Because the legalese has caused some confusion, we are at work revising it to make it very clear that MySpace is not seeking a license to do anything with an artist's work other than allow it to be shared in the manner the artist intends," Berman says. "Obviously, we don't own their music or do anything with it that they don't want."
Whew. Well, I'm relieved; how about you? As we all know, when someone dismisses the tiny print in a contract as "legalese," that part is immediately invalidated, right?

In other news Radiohead hinted at a digital-only release strategy.
"To keep things more fun and spontaneous, we will be playing new songs that are work in progress," the group said. "We will also be releasing music to download when we are excited about it, rather than wait twelve months for a full blown album release."
Here's more from frontman Thom Yorke, posting on the band's blog, Dead Air Space, from Radiohead.com:
"... i think we ve always worked best when we arent bothered
about making mistakes.
theres a lot of baggage about the old way of doing things that is hard to get over...
all the 'album' crap..just this level of pressure that is ridiculous..
we're just going to do what feels right at the time
quite intothe idea of singles at the moment(that dont get on the radio)"

Ok, so to recap: France's lower house passed legislation that will force Apple, Sony and everyone else to open their DRM, effectively mandating interoperability. As expected, Apple complained loudly, averring that the legislation amounted to "state-sponsored piracy:"
"The French implementation of the EU Copyright Directive will result in state-sponsored piracy," said Apple spokeswoman Natalie Kerris. "If this happens, legal music sales will plummet just when legitimate alternatives to piracy are winning over customers."
I'm not alone in opining that the lady doth protest too much. Bear Stearns analysts Andrew J. Neff, Bill Hand and Ted Chung were sanguine about the legislation's impact on Apple:
"We believe that interoperable DRM could increase the appeal of iPod to [a] wider consumer base by providing them with different options for online music purchase[s]."
Well, since we're all huffing and puffing about this, I'm gonna risk going Bill O'Reilly by asking, "How important is France?"
Shaw Wu, an analyst at American Technology Research, told Reuters that less than 5 percent of Apple's overall revenue comes from sales of iPods and iTunes songs in France.
If Apple sincerely believes the legislation will unravel the razorblade model it's got going with iPod/iTunes, then it wouldn't seem to be risking much by simply walking away from France. But if French lawmakers succeed in convincing their counterparts elsewhere in the European Union to adopt similar legislation, then there's only so far Apple can run.
Personally, as a voter, I'd prefer that competition, rather than government, be the force that compelled Apple to open its system, as competitors would be forced to step up and whip Apple straight up with better products. But if better products always won the day, we'd have been replacing Betamaxes instead of VHS players. There's a lesson looming in all this, but I suppose it hasn't shown itself yet.

The CRIA is probably going to want its money back.

The Canadian Recording Industry Association, which typically commissions studies that showcase the problems posed by peer-to-peer networks, released a conspicuously un-trumpeted study this week loaded with valuable nuggets about various demographics and the sources of the music on their hard drives.

University of Ottawa professor Dr. Michael Geist has a solid rundown here, (or you can rifle through the 144 pages of statistical goodness here) but here's a few tidbits that I found particularly revealing:

P2P influence on purchasing: 25% of respondents said they never bought music after listening to it as a P2P track, which means 75% of those who've downloaded music from P2P networks went on to buy that music. The highest percentage of buyers belonged to the 13- to 17-year-old demographic, which also happens to be the most prolific purchasing group, buying an average of 11.6 CDs or DVDs in the past six months. 18- to 24-year-olds buy 10.9 CDs and DVDs.

Top sources of music among those who download music from P2P services:

• Ripped copies of their own CDs (36.4%)
• P2P downloads (32.6%)
• Paid downloads (20.1%)
• Shared music from friends (8.8%)
• Downloads from artist sites (5.6%)
• Other sources (2.9%)

So, even among those who download music from P2P services, store-bought CDs remain the largest source of music. Not that that should be surprising. For all the hue and cry about waning music sales, it wasn't that long ago that sales of recorded music were at all-time highs and nearly all of it was in the form of CDs. It will be interesting to see how these numbers change over time. I'm torn between speculating that the percentage of music ripped from CDs will go down and that P2P downloads will continue to whet appetites for the fully packaged, high-bitrate versions available on CD.

As part of its digital music player reviews, MP3.com/CNET performed an analysis that shows that DRM contributes significantly to battery loss. It specifically calls out Microsoft's WMA DRM, which accompanies music from Napster and Rhapsody:
"It takes extra processing power to ensure that the licenses making the tracks work are still valid and match up to the device itself. Heavy DRM not only slows down an MP3 player but also sucks the very life out of them."
Here's CNET's breakdown of the battery lives of various MP3 players playing DRM and non-DRM (I'm guessing 128 kbps MP3s, but that's not explicit in the review):
Creative Zen Vistion:M: 16 hours with MP3s, 12 hours with only WMA subscription tracks
Archos Gmini 402 Camcorder: 11 hours with MP3s, 9 hours with DRM tracks
iRiver U10: 32(!!) hours with MP3s, 27 hours playing subscription tracks
The iPod, playing back only FairPlay AAC tracks, "underperformed MP3s by about 8 percent."

Really, it's probably a lot less painful than it sounds.
Perhaps impatient with the debate over whether and how Apple should open its proprietary formats, French parliamentarians have decided to force the issue on their own. On Thursday they'll vote on a law that would force Apple to open its iTunes online music store and enable consumers to download songs onto devices other than the iPod.
Additionally, consumers would be able to legally use software that converts digital content into any format. It would no longer be illegal to crack digital rights management, as long as the intent is to the convert from one format to another.
"It will force some proprietary systems to be opened up," senior parliamentarian Christian Vanneste told Reuters. "You have to be able to download content and play it on any device."
Interestingly, the law would also mean that other online French music retailers such as Fnac, part of PPR, would have to make iTunes songs available on their Web sites.
Obviously, this is lovely news for consumers, but, unfortunately, it is likely to have Apple heading for the hills. Analysts predict that the law would spur Apple to shut down iTunes in France, out of fear that users outside of France would also use the service to convert songs.
An iTunes retreat from France would be a shame, and not just for consumers. The anti-DRM drumbeat has been getting louder by the day and it would certainly be a milestone for the industry if its bell cow at least experimented with open formats.
Of course, with 75% market share of download sales, iTunes has no incentive to fix what clearly ain't broke. You could make a case that, at least from Apple's perspective, the digital music market is basically iPod owners and everyone else. And with iPods being vastly more profitable than iTunes, why would Apple want any other paradigm for the market? Making iTunes tracks available to non-iPod users isn't likely to convert much of that segment to iPods. And, if the goal is to put an iPod in the hands of every man, woman and child, why indulge the non-iPod market by opening iTunes -- particularly if you're doing your damnedest to drive that segment to zero?
As has often been noted, the iPod isn't terribly dependent on iTunes. With 48 million iPods in circulation and 1 billion iTunes tracks having been sold, that means the average iPod user has bought 21 tracks from iTunes. That's roughly 0.5% of what a 20 Gb iPod will hold (and we can debate offline about the sources of what's filling the other 99.5%). So, for Apple's cash cow, opening iTunes isn't much of a risk. Hell, eMusic, iTunes' nearest competitor, has mustered 9% market share -- in spite of having no major label music -- mostly due to its strategy of selling mp3s that play on iPods and any other device out there.
And, let's remember that openness -- in the form of Windows-ready iTunes and iPods -- is what gift-wrapped the digital music market for Apple. That's why I'm rooting for Apple to take the plunge -- iPods will continue to sell ridiculously well, but now iTunes, armed with more consumer value, can lead the industry out of DRM's dark cave.

Victory Records’ Tony Brummel offered a colorful and, I think, utterly wrongheaded rant to Hits Daily Double (registration req'd) about why his label’s music, which includes Hawthorne Heights’ debut, is not included on iTunes. His comments are in bold, mine are in italics.

1) Why did the major labels bend over and super serve Steve Jobs free content without negotiating a % of each iPod sale, variable pricing of singles (if the labels CHOOSE to make one available from an album) and other say in how the content is sold?
Tony seems to be mistaken about where the leverage lies in this relationship. Apple could sell a hell of a lot of iPods even if there were no such thing as iTunes. When and if iTunes shows itself to be a profitable enterprise at the operating level, I suppose Apple will merely consider it gravy. If Apple killed iTunes, the labels would be in much more trouble than Apple would be if the labels’ pulled their content. In the meantime, the average iPod is filled with quite a lot of content that wasn’t procured from iTunes and I suspect that, if major labels were capable of gratitude, it would be for the portion that wasn’t ripped or downloaded off of unlicensed peer-to-peer networks. The idea that labels are owed some portion of iPod sales is quite akin to Exxon demanding some percentage of SUV sales.

2) I absolutely believe that allowing people to cherry-pick the tracks they want from each album cannibalizes full-length album sales and is ultimately detrimental to the artists who created the music.
Know what’s even more detrimental to music? Crappy albums. Yes, I realize “crappy” is a subjective term, but I think we all know filler when we hear it. I have my quibbles with the a la carte model, but I appreciate the flexibility it affords. Take any boondoggle double or triple album, such as the Clash’s Sandanista! or any hip hop album released in the past decade. If a la carte services didn’t give me a way to cut directly to “Police On My Back,” you can bet I’d be rooting around KaZaA for it. What everyone in the business besides Tony seems to realize is that the toothpaste is already out of the tube – people want single tracks and they have no shortage of venues to get them from. A la carte services such as iTunes are the only such venues that trouble themselves with delivering some split of the revenue to the labels and yet these are the people Tony takes aim at. Perfect.
Thing is, albums owe their existence to singles, inasmuch as the format began merely as a repackaging of singles. And they’ve proven themselves to be a pretty resilient format: Radio was supposed to kill albums, as were eight-tracks, cassettes and later CDs. Now downloading is supposed to do it. Sorry, Tony, I just don’t see it.
 
3) If only 4% of this business is iTunes, who cares? Focus on the 96% which is traditional retail. Traditional retail supports music 1,000 times more than iTunes does. If someone does not want to leave their house, they can go to our webstore, Amazon or the hundreds of other online sites that sell music. For the very casual consumer. there are digital consumption models that will work when and if properly deployed. People are using iTunes because they like the iPod. When Dell or Samsung makes a better device, iTunes will lose relevancy.
Hm, I could’ve sworn Dell et al have taken a crack at this business. Oh, that’s right – they did. Apparently, Tony thinks it’s still 2001 and those 1200 record stores that went belly-up in the wake of the majors’ Faustian bargain with Wal-Mart and Target are still around. “Traditional retail” these days is Wal-Mart and I’d be quite surprised if the folks in Bentonville, who account for 20% of all music sales yet only derive 0.1% of their revenues from music sales, are 1,000 times more supportive of music than anyone in Cupertino is. But who am I to let facts get in the way of a good rant, right Tony?

4) It is important for people to experience the entire album. Not just a track(s).
Tony, to my knowledge, there is no service that is selling songs to the exclusion of albums and, if there is, it’s not iTunes. If you want to buy the whole album, I’m pretty sure they’ll sell it to you.

Aside from all of the above, I have and will never sign a deal with any company that tells me, “The deal is non-negotiable. Go to our site, download the Agreement, sign it and fax it to us. Everyone is paid the same amount (really…) and has the same terms. Regardless, we will not insert or include any Most Favored Nations language in the Agreement to back this up.”
Yeah, as opposed to Wal-Mart, which is known for its sweetheart deals (and by “sweetheart,” I mean “prison bitch”) with suppliers. I wonder what concessions Tony got for this.

I swear I'm not shilling, but I came across an interesting slice of data from the Center for Media Research that showed that iTunes' dominance is not yet all-consuming, or at least not always. For the last week of January, AOL Music topped iTunes in unique audience numbers, 11.8M to 10.7M. As I said, it's a slice, so it's not clear how that delta has changed over time or what the trend line looks like, but it's interesting nonetheless and perhaps says something about streaming vs. download.
More interesting to me were some of the audience characteristics for online music. The male-female split is roughly 50-50. Listeners aged 35-49 accounted for 33.51% of the unique vistors, while the 45 crowd accounted for 36.88%.  Households earning $50k-$75k accounted for the largest segment comprised the largest share of the market -- 26.38% -- followed by the $25k-$50k crowd, which amounted to 23.41%. Perhaps that's not surprising, since those numbers probably look like the bell curve of US households if you shoved it to the right a little bit.

At the risk of having this blog renamed "The Ian Rogers Man-Crush," I'd like to shine a light on a recent post of his that is a pretty refreshing bit of transparency about Yahoo!'s music licensing efforts. Using Mojo Magazine's Mojo Filter as a scorecard, Ian looks at the past three issues and tallies up how much of what Mojo reviews is available on Yahoo! Music (and, just as admirably, shows where it's available, if at all, when it's not on Yahoo!).
I share Ian's esteem for Mojo as an arbiter of truly great music, but I agree with one poster that there's a fairly evident iTunes/iPod bias at Mojo, if the "What's Rocking Your iPod?" section is any indication. Sure, I'll give Mojo the benefit of the doubt that they're looking under every rock for great music, not just iTunes, but it still seems likely that iTunes' broader selection of indie labels would be reflected somewhat in Mojo's selection of albums to review. And, yes, I know reviewers get promotional album copies directly from the labels.
Regardless, given all the product management focus on features such as playlists, it's heartening to see someone vigilantly looking over the transom for what's most important -- the music.

Amid much chest-bumping, Belgian and Swiss authorities shut down Razorback2, one of the biggest servers on the eDonkey network.
The Motion Picture Association heralded the crackdown, noting that, aside from movies, music and software, users traded child porn, bomb-making instructions and terrorist training videos.
“Razorback2 was not just an enormous index for Internet users engaged in illegal file swapping, it was a menace to society,” MPA EVP and Worldwide Anti-Piracy Director John G. Malcolm said in a press release.
But p2p foes shouldn't break out the pom-poms just yet.
Even though Razorback accounted for one-third of the network's users, the raid's effect on the eDonkey network traffic was practically nil.
"On a technical level that isn't particularly surprising," Andrew Parker, chief technical officer at CacheLogic, a UK-based watcher of Internet traffic patterns, told the E-Commerce Times. "The Razorback server is purely an eDonkey index server. It doesn't actually contain any of the illegal content itself, just the details of who is sharing what content."
Indeed, it seems that Razorback's downfall amounted to an episode of online Darwinism, as the network was somewhat less than state-of-the-art.
"Razorback2 uses the old eDonkey protocol, which is in some ways similar to the old Napster protocol in that it relies on central servers," Fred von Lohmann, a staff attorney with the Electronic Frontier Foundation in San Francisco told the E-Commerce Times. "For the last four to five years, peer-to-peer protocols have been decentralized, so in some ways, by shutting down Razorback2, they're shutting down an antique in the peer-to-peer world."
Parker, of CacheLogic, explained that modern eDonkey clients, such as eMule, automatically download a list of index servers at startup. With Razorback2 out of the picture, eDonkey clients are just rerouting traffic to the more than 100 index servers still in operation.

If the RIAA were as prolific with quality new music as they are with ways to frustrate, annoy or outright screw their customers ... well, my already low post count would be non-existant.
But, things being what they are, the RIAA's latest release is this turd-bomb: "Nor does the fact that permission to make a copy in particular circumstances is often or even routinely granted, necessarily establish that the copying is a fair use when the copyright owner withholds that authorization. In this regard, the statement attributed to counsel for copyright owners in the MGM v. Grokster case is simply a statement about authorization, not about fair use."
Translation: If you're thinking doing anything with a CD besides playing it in your car with fewer than two people present, you'd better get a legal opinion.
Apparently the RIAA has been paying tuition at the Jack Valenti School of Consumer Rights. Causing even more head scratching is the MGM lawyer Don Verrilli's comment, which the RIAA referenced:
"It's perfectly lawful to take a CD that you've purchased, upload it onto your computer, put it onto your iPod."
So, it's the RIAA's world and we (and, in "we," I'm including Congress and the Supreme Court) just pay rent here.

...and I shamelessly get an obscure Morrissey reference out of it.
It's debatable whether Dell was cowed by Apple's dominance in hard-drive-based players or  simply saw greater profitability in flash-based mp3 players with NAND output exploding in 2006.
Whatever the cause, Dell is dropping the DJ, hoping to fare better against Apple on the flash front with the DJ Ditty, a $99, 512 Mb player designed to compete with the iPod Shuffle and Nano lines.
So if the world's largest computer maker is unable or unwilling to compete with Apple in this space, who's ready to step up? Perhaps mobile telcos. Sure, their cost structure is inflated by the greater expense of delivering data via mobile networks and, frankly, I don't know how you get around that. But I sure hope they do, because, all the syncing and charging of iPods, cell phones and PDAs has officially become a burden in my life, to say nothing of having to be my own music programmer. Let's just consolidate it all on one device that syncs up directly with the mothership, build in some dynamic playlists based on my listening habits, charge me a flat monthly rate and be done with it.

How's this for a measure of ringtones' frothiness: VoIP pacesetter Skype has licensed music from Warner Brothers to sell ringtones for $1.50 each. Why? Because it's not enough for everyone in a crowded theatre to know your wife is calling when "The Bitch is Back" erupts from your cell phone. Your dog and plants need to know it as well.

Never mind that Skype allows you to choose music (in WAV format, no less) from your hard drive for ring tones. After being purchased for $2.6 beeeeellion by eBay, it's time for Skype to start earning its keep.

Excerpts from EMI Chairman Eric Nicoli’s keynote address at MidemNet are in bold, my translations and interpretations are in italics.

Today’s consumer has much, much more choice than ever – and that choice is expanding exponentially.
To which we’ve responded by giving half of our business to discount retailers like Wal-Mart, who stock a whopping 750 titles, and killed off 1,200 record stores in the process.

Since I took on the Chairmanship of EMI six and half years ago, it’s been clear to me that digital distribution would play a massive and expanding role in our industry.
That’s why we pulled techies like Ted Cohen out of the basement and are counting on them to save our jobs and asses.

We’ve been at the forefront of industry efforts to contain on-line piracy since before MP3.com gave everyone a massive wake up call.
How’s that working out for us? Well, sales are still plummeting and my stock options are worthless, but our lawyers’ kids may never have to work.

As Al Capone once said, ‘you can go a long way with a smile; but you can go a lot further with a smile and a gun’. I think what he was trying to say was that the multimedia approach to business increases your chances of success - and that cooperation between the various constituencies that you work with is important to the achievement of your objectives.
Hoo boy. And if you think Al Capone was talking about a multimedia approach to business, or even knew what one was, then using one of America’s most violent gangsters as a model for customer outreach isn’t much of a cognitive stretch for you. I guess the “smile” metaphor is the package of restrictive music services and spyware-laden DRM, while the “gun” is the threat of lawsuits. Pure poetry, Eric!

When we look at a more recent snapshot in the same country and note that in the first two weeks of 2006, digital sales were up over 120% on the same period a year ago, you can give me a few years of that kind of ‘gloom’ any time you like!
That’s why we propose a Christmas holiday every quarter, so that people will have four opportunities a year to foist the iPod/iTunes system on everyone they know.

We’ve moved on from the days when the main impact of digital technology was to harm our industry by facilitating rampant online and physical theft.
But we haven’t moved on so far as to consider voluntary or compulsory licensing.

And with the launch of subscription services, ringtone and ringtune sites and video streaming and download services, consumers have been presented with far greater choice.
They’ve also been presented with a confusing morass of non-interoperable standards, usage restrictions and omnipresent legal threats. Which is why most of ‘em are still using peer-to-peer services by an order of magnitude.

France has always respected copyright and supported the creative industries, so it seems an aberration that the country has taken a first step towards a ‘global licence’. If continues down this road, it could jeopardise the promising growth we’re now seeing in the legitimate online market.
Math time, Eric: €5 (roughly $6.13) x 12 months x 150M Internet users = just over $11 billion, which, coincidently, isn’t far what the US recorded music industry grossed last year. Which means CD sales, declining or otherwise, would be gravy. Either thank France or go home.