Hey guys,
It's Taylor again and I just wanted to share with you our recent feature in The Wall Street Journal which ran on 4.11.07. Below is a copy and pasted version of the article, check it out:
TuneCore Marches to Own
Beat
An Upstart
Distributor
Of Digital Music
Rattles
Industry With Flat
Fees
By ETHAN
SMITH
April 11, 2007; Page
B4
The digital music business has
only been around for a few years -- but that was long enough for a start-up
called TuneCore Inc. to upend the business model in one corner of the
industry.
Most companies involved in the
business of formatting a song or album and preparing it for online music
services take a percentage of sales as their payment. But in a departure from
standard practice, TuneCore charges its clients -- independent labels or artists
-- flat fees, and then passes 100% of the wholesale price on to its clients. It
is still a small market: Digital distribution of independent labels not
affiliated with one of the big music companies' distribution arms was likely
worth no more than $125 million last year, according to Nielsen SoundScan data.
(TuneCore says that figure may be low, because many independent artists sell
their music without the accompanying data necessary for SoundScan to track
sales.)
When the music business went
online with the 2003 launch of Apple Inc.'s iTunes Store, independent record
companies faced many of the same challenges they do in the world of physical
retailing. No single retailer -- digital or physical -- is equipped to strike
separate deals with the thousands of independent labels that release music every
year.
In the physical world,
distributors take up this slack, handling logistics like storage, delivery and
returns -- in exchange for a percentage of sales. When it became clear there was
a need for similar middlemen in the digital realm, several companies jumped in.
Mimicking the same fundamental business model, they took between 9% and 30% of
sales to virtually "package" songs for sale on iTunes and other digital
services.
There is a key difference,
though, between physical distribution and digital "aggregation," as the online
version of the business is known: When music is sold digitally, much of the work
distributors get paid to do no longer exists. There's no warehousing, shipping,
or returns, and no breakage.
Jeff Price, owner of the New York
independent label SpinArt, started TuneCore to provide the same services as
other aggregators, but using a flat-fee model. Clients -- record labels or
artists -- pay a one-time charge of 99 cents a song, plus a handful of other
modest fees. For example, a five-song "album," sold for a year on four different
online music stores, would cost a user $18.89. Each additional year selling the
album on the services would cost $9.98.
TuneCore then passes along 100%
of the wholesale price it receives from iTunes, eMusic.com or others. (That fee
is about 62 cents from iTunes; eMusic calculates its payments to record labels
using a more complicated formula that generally results in much lower payments
per song sold, TuneCore says.)
Mr. Price says he sees his new
venture as a fundamentally different proposition from running a record label.
"We moved out of the exploitation business into the service business," he says.
(All his label's online sales go through TuneCore.) He adds that he started
TuneCore after examining his options as an independent record-label operator.
Most other aggregators, he says, collected fees based on old-line ways of doing
business -- taking a percentage of every sale, despite the fact that digital
distribution is more or less a one-time proposition. "They don't have warehouse
and 'pick and pack,' " he says. And unlike traditional record labels, "they
don't advance money for touring or recording."
TuneCore had a soft launch last
year, and is still technically in "beta," or public testing, mode. Still,
through word of mouth it has garnered about 16,000 albums' worth of music, and
is currently adding 30 to 70 albums a day, Mr. Price says. Performers using the
service include country veteran Joe Ely, independent-rock phenomenons Tapes 'n
Tapes and MC Hammer, the rap musician. Two albums distributed online by TuneCore
won Grammys this year: Ziggy Marley's "Love Is My Religion" and Ricky Skaggs's
"Instrumentals."
To be sure, the market TuneCore
is entering is a niche. And there are some services TuneCore doesn't provide,
such as paying "mechanical" royalties to the music publishers who own the
copyrights to songs. But the company recently added features that enable record
labels and musicians to calculate the royalties they owe and to disburse funds
directly from a TuneCore account to a third party such as a music
publisher.
Guitar Center Inc., the big
national musical-instrument retailer, recently took an undisclosed stake in
TuneCore, and has been promoting the service heavily on its Web
site.
The article also got featured on Idolater, check it out: www.idolater.com
-Taylor
