TuneCore Says Upgrades, Features Behind its Price Increase
-- Digital distributor TuneCore has been getting some grief in the last few days about its increase in the fees it charges for digital distribution of an album. The annual fee for a single album was recently raised to $49.99 from $19.99.
Why such a large increase? New features and upgrades, plus a shift to all-inclusive pricing, the company explained in a blog post May 7. TuneCore customers started getting 34 new features on March 22, including distribution to an unlimited number of stores (instead of a per-store fee), artist pages at Apple's Ping and the ability to include an unlimited number of songs on an album.
When opting for a different pricing plan, the company opted for an all-inclusive price. Extra features such as weekly iTunes chart ($7.98 per month), additional TuneCore media players ($1.98 per month) and a la carte reports ($1.98 per month) and additional per-song charges were bundled into the basic level of service. In addition, TuneCore offers volume discounts (for savings up to 14%, according to the company).
In a nutshell, TuneCore positions the changes as responses to consumer feedback. "You keep telling us what you want, we'll keep building it," the blog post concludes.
But the complaints appear to have been substantial enough to spur TuneCore to write an explanatory blog post. The comments in a May 6 post at Digital Music News reveal some of the sentiment in the marketplace. "I'm going to start looking at other options for my band," one person wrote. "A dollar or two is OK, but that hike is unacceptable." "[Founder] Jeff [Price] and I go way back but to raise your renewal fee that high is outrageous," another person wrote.
These reactions are a big deal. TuneCore is practically synonymous with independent music. The innovative company has played a major role in opening digital services to all artists. And the flat fee pricing structure meant artists keep more of their money, especially the more successful artists that can do more than just break even. In a business filled with gatekeepers and middlemen, TuneCore broke barriers and built a business on financial modesty.
So why so much negative feedback when the price change showed up last week? The company's publicist notes the new pricing and features were communicated to all TuneCore customers in March through a press release, an e-mailed newsletter and a town hall meeting broadcast on Ustream. However, the new price was buried in the press release and was easy to miss. So, the word may not have gotten out. And over time customers have been notified of the price increase when it came time to pay the annual fee. In addition, a price hike is probably going to elicit this type of reaction when the company made its name with low prices.
(A little background on the business model: TuneCore distributes digital music for a flat annual fee and the artist retains all proceeds from the sale or use of the songs. With a higher annual fee, an artist needs to sell more units in order to break even.)
In the aftermath, competitors are using the issue as a wedge between TuneCore and its customers. CD Baby president Brian Felsen offered a 50% discount to TuneCore customers who want to switch at a post on the Velvet Rope. CD Baby does not charge upfront or annual fees but takes a distribution fee on revenue. At the same time, BFM Digital is offering to waive set-up, encoding and UPC fees during May.
7digital CEO: 'Freemium Model Alone is Unsustainable'
-- It's interesting to read that 7digital CEO Ben Drury said, "the freemium model alone is unsustainable." The comment came after Spotify took over its own MP3 sales, a function previously performed by white label service provider 7digital.
Let's be honest, the freemium model isn't even going to get a chance to prove whether or not it's sustainable. The tides of influence are clearly against it. We saw evidence of this last month when Spotify had to cut back on the amount of free listening afforded to its unpaid users.
No, rights holders want paying customers and fear the freemium business model will not adequately convert free users into paying customers. As a result, the most common freemium model could be the one that gives only non-interactive streaming to free users while granting to paying customers on-demand access to a large catalog of songs. This type of compromise could be the best way to get the freemium model in front of consumers. We already know price-sensitive listeners enjoy Internet radio.
Rights holders don't have to feel like they're giving up the farm. And digital service providers can attract both price-sensitive Internet radio users and price-insensitive on-demand users. So the freemium business model need not be dead after all.
Digital Music To Benefit If Venture Capital Rebounds
-- Is venture capital poised for a rebound? Clearstone Venture Partners managing director William Quigley argues, "A venture capital revival is upon us." Digital music stands to benefit if that is indeed the case.
Many have wondered if today's tech cycle is a repeat of the dot-com bubble a decade ago. At first glance, current valuations of Groupon and Facebook, for example, might seem out of whack with historical precedent. But Quigley points out a few key differences between then and now.
First of all, Internet penetration is far greater than it was in the late 1990s. The Internet was hardly mainstream. Now, broadband penetration is high in many parts of the world, giving today's startups the ability to both quickly reach scale and reach a more global audience.
But music startups may not have those advantages. While any music startup certainly benefits from high broadband penetration as well as growing smartphone usage, that startup's business model will determine whether the product can quickly have a global reach. If licenses from rights owners are necessary to the product, the startup will be able to grow only in markets where licenses have been acquired. If licenses are not required, a startup could operate just about anywhere and have a chance of reaching users across the globe.
But music startups will benefit from increased venture capital activity. And as time passes, investors seem to be more cognizant of the differences between startups that do and do not require licensed content. For the VC firms that desire to stay away from rights quagmires, plenty more opportunities exist.
(Quigley Report, .docstoc)
Are Media Investments Hot Again?
-- Media investments are hot again, the Financial Times notes, as improved lending terms and an economic recovery are expected to make media investments hot through the end of the year. "Many media businesses have been owned for at least three years," a director at a private equity firm said. "Even if you bought in 2007 you are two-thirds of the way through the holding period. Most are looking for an exit."