It’s clear that the new world of music listening involves more — more music, listening in more places, with more styles of music from more places in the world. So, naturally, it makes sense that we won’t pay per-album fees for everything we hear; even if you were addicted to your indie college radio station 20 years ago, that’s the case. (And I’ll be you didn’t buy everything you heard, though you probably bought some of it.)

The question is, how to model those costs, so the people making and distributing the music make money. Make whatever argument you like about “all music should be free,” but someone will want to turn it into a business model. And it’s not necessarily fair to say all that money will come from live gigs; on the contrary, the best way to make your live gigs work as an income stream is to have other income streams.

This week, I’ve been playing with the beta of a new version of lala.com, an online streaming and discovery service. (See next.lala.com; lala.com is the old site.) Their model is this:

1. The first time you listen to a track — any in their large library — it’s free, via online streaming.
2. Add it to your library, and you can listen to it an unlimited number of times via streaming, for 10 cents a song. (Believe it or not, that adds up, but they give you 50 to start with.)
3. If you want to keep the track, you can buy a DRM-free, reasonably high-quality MP3 for 89 cents a track (slightly less for a whole album).

The sky is falling! A free, mechanical service that provides unlimited music on demand! People can hear music whenever they want, without buying records! Oh, wait … we’ve done this before. And it drove the entire record industry. Hmmm… Photo (CC) Roadsidepictures, via Flickr.


This should sound familiar: it’s very close to existing subscription services like Napster and Rhapsody. But those services have had their problems. First, the flat fee isn’t necessarily appealing to everyone. Psychologically, people seem not to like paying a big fee for music that they don’t “own”; despite the fact that this makes listening to massive libraries affordable, users complained that if they canceled their subscription, their library went away. At 10 cents per track, you can add 120 tracks to your library each month with Lala, and listen to them forever — not including the tracks you only listen to once, which likely includes a lot of consumption on the subscription services.

DRM is always the deal-breaker

But the bigger problem has been DRM. The whole selling point of Napster, Rhapsody, and such is that you can take media and load it to your device. What they don’t tell you is that this requires a compatible device, a Windows software client, and buggy and awkward license loading on both your computer player and mobile device. Yuck. It’s a practical issue as much as one of principle: DRM breaks stuff, so people don’t like it. It’s unnecessary technology that ironically reduces the value of what you’re supposed to be buying.

Now, you can ignore these and simply use these services as high-quality streaming services, which is how I’ve tended to treat them, and as that, they’re great. Assuming you’re regularly near your computer and not in your car or on the go, you get a whole lot more content for less money than satellite radio gives you. Too bad these services have also been plagued by clunky online interfaces. Rhapsody’s will work on different OSes — I’ve even run it under Firefox in Linux — but it’s not nearly as friendly as it could be. Lala bests them on this, too, with nicely-designed interfaces and cleaner layouts. In short, it’s simply more usable.

The record industry still doesn’t get it

Despite all these problems, many in the record industry still view subscriptions as the future, even though they would mean less money in their own pockets and a technology roundly disliked by consumers. They also assume such subscriptions require DRM. Ars Technica has a good story on this bizarre angle:

If music DRM is dead, the RIAA expects its resurrection

And this is where things get weird: it’s as if the industry is more in love with DRM than it is, you know, actually making money selling music. (I wish I could get to be a suit.)

Lala isn’t perfect, but it’s immediately apparent that the basic model is right — and it flies in the face of everything the industry is telling you.

1. It’s a subscription without DRM — and that works fine. (Keep in mind, streams don’t sound as good as downloads, and even though bandwidth prices are coming down, people would rather turn that into profits than higher-quality streams.)

2. It supports DRM-free downloads as the desired end goal. When they really love something, consumers have demonstrated that they want to listen to it again and again, where and when they want, without DRM or format/platform restrictions. I’m personally much happier now that I buy DRM-free music online and manage it with software of my choice, copying it to where I want to play it.

3. You can wind up spending more, not less, on music — but you also get more.

Anyone remember radio?

Everything new is old again: remember, radio was once terrifying new technology. Things haven’t changed as much as some people argue, because the basic appeal of music remains the same. Photo (CC) The Rocketeer. (Hmm, awesome vintage gear and geeky Flickr ID. Nice.)

Here’s the thing: consumers have long had a “tiered” diet of music. It’s what the entire record industry has been built on since the dawn of radio. You listen to a big stream of music for free, pick out what you want, and listen to that over and over again. Whether it’s Britney or the Beatles or Beethoven, people find music — bubblegum and masterpieces alike — addictive. And that’s what makes the model work.

Lala is indeed not perfect. I find the streaming quality to be really poor; I’d actually pay a small subscription fee to get premium content. (Suggestion: how about “pro” accounts with high-quality streams and a bundle of discounted download purchases?) The library is still incomplete. I’d love Last.fm hooks and RSS feeds of music I’m hearing. But then, Lala is still early in its development, and I expect it will be one of many, because I think this basic model works.

In other words, you have two tiers:

  • The “radio” tier: Free or dirt-cheap streams of music with easy online access across platforms (not in any one player)
  • The “ownership” tier: Files you buy and keep in high-quality, DRM-free formats.

In that context, in fact, even band-subsidized releases, like those from Nine Inch Nails, start to make sense. They encourage online ownership for bands that have other revenue streams that can support them — or independent artists who need to make their stuff more easily available. But it’s also clear that for many artists, selling downloads will continue to make sense.

Now the only remaining question is, when will the industry get over their Chicken Little Syndrome, and their accompanying DRM fetish, and get back in the business of feeding the public’s music addiction and making money?

(Hint: if the traditional industry doesn’t do it, musicians and the growing cottage industry around serving them online will.)

  • Darren Landrum

    And of course, metered bandwidth on cable networks is going to kill the whole "subscription" model anyway:

    http://ap.google.com/article/ALeqM5jwm8wu3jZWZLcK

    Well, maybe not kill, but at least maim it a little.

  • http://www.createdigitalmusic.com Peter Kirn

    Darren, I'm not convinced about that at all. First, a 5 GB cap would definitely kill streaming, but audio is significantly lower-bandwidth than video, and Time Warner's 40 GB cap would be plenty reasonable for audio streaming.

    Second, I can't imagine a worse time for Time Warner to be trying this stunt. They're about to go up against a massive deployment of Verizon fiber optic here in NYC. So I wouldn't take that one pilot program in Texas as an indication of what they'll do here.

    The moment these companies have to compete, metering will be out the window — at least at any level that would kill audio streaming.

  • http://voxelectric.net Guillermo

    Awesome!

    will bands be able to sell music on lala?

  • BassTooth

    oh. this would be cool with something like last.fm

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  • http://alonetone.com sudara

    Thanks for the article, Peter.

    It is nice that the first stream is free. But it doesn't feel right. It's not a bold move and the model is not inventive. It basically says: Ok, so, you still must pay per item, but we're going to give you a taste of whatever you want to make sure that item is the item you want. How is this one bit different from iTunes or Amazon or any music service from 1999? Because the whole song is listenable in low quality stream instead of only 30 seconds?

    I'm not sitting here with all the answers, but I truly believe that what 'feels right' is for music distribution to be:

    a) actually distributed (meaning, it's not coming from a few select sources, it moves freely between many many sources) and

    b) much more cheap and often free (true to the fact that the internet actually exists and delivery costs close to nothing)

    This is what the internet has long ago proven that people want. It's a real shame that there is only a handful of artists/companies who see that and are honest with their fans. (I'm talking about Radiohead/NIN/friends.) The sustainability of their particular approach and appropriateness for smaller artists is questionable, but at least they are being creative, honest and walking away profitable. Their approach is right, for their listeners and at this point in time, and the market proves that.

    We've yet to see new model move into the main industry space that branches from the pay-per-item approach of the 20th century and moves to embrace the real life consumers of today. I have nothing against Lala, but I will never go there – it is another old-industry-loving site full of rules and prices where there shouldn't be any prices. A barrier to repeated streaming? Crazy, I tell you, it's only going to hurt them. Unrestricted repeated streams would jack up user loyalty and time spent on the site. Sigh.

  • Sizzurp Sippa

    The model they need to adopt is the model of cable television.

    For $100 a month, I get thousands of channels, tens of thousands of free movies to download, a PVR to record shows, etc. Basically, for $100 a month I get all the TV I could possibly watch.

    Basically, I would pay $100 for a service that has all the music I want. I don’t mean just one label, I mean basically all the music that comes out on every significant label, all that I want to download, with no DRM.

    Sure, I can download the music off of some pirate site, the same way I can download episodes of my favorite TV show instead of getting cable – But it is just so much easier and higher quality to use cable. Likewise, it will be possible for people to illegal exchange that music that they download, but to have all the music at your fingertips immediately with a high-bandwidth connection (vs slow-ass filesharing), linked to reviews, cross referenced to similiar artists and genres all in one place, I would easily pay $100 a month.

  • Monk Edsel

    The direct comparison to broadcast radio isn't valid, because it isn't actually free. It's paid for by advertising, which the listener is then subjected to for minutes at a time at set intervals. We all know that everyone generally hates advertising, particularly on the Internet. No one here is mentioning advertising as a means to sustain a music service, so we'll assume that no one here wants it, either. In fact, everyone seems to agree that a quality streaming music service would require some sort of subscription which, without advertising to subsidize it, it certainly would. The problem the record industry has is that the unwashed teenaged masses (re: the mainstream, i.e. where-the-money's-at) have no interest in paying for anything they can dig up and keep for free on a file sharing service, which—if I may be so bold—essentially ends this whole argument as far as the average consumer is concerned. People who are willing to pay for music they don't actually get to own (music itself still considered a disposable commodity by most) are still in the minority; the average Rihanna fan is not using or reading this website, and indeed is downloading her latest single for free from Limewire as I type. In short, a bunch of neat-o ideas are being presented here, but the market won't allow any of them to take off anytime soon.

  • http://www.createdigitalmusic.com Peter Kirn

    @Monk: Wait a minute here. The ads aren't paying for the radio *content* so much as the radio broadcaster. And plenty of streaming services have additional revenue models — underwriting on public radio online, and ads on streamers from Last.fm to AOL radio. So I'd say the comparison is absolutely apt.

    And anyway, I think the market is speaking, given the explosive growth of some of these sites, especially given they've only barely gotten started rolling out this kind of service.

  • Sebastien Orban

    About the metered bandwith : here in Belgium, it's what we've got, and to be honest, it's not that bothering. Here I've got more or less 100go in download (the upload is not accounted), and between 1am and 1pm all traffic is divided by two (happy hour time). It's enought for most people, and I can get more if I need to.

    But well, it's on a slow ADSL line (3mbps dnw/512kbps up)

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