Rock 'n' Roll Meets Storage

A look at synergies between digital storage services and your fave raves

January 11, 2008

11 Min Read
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It's only rock 'n' roll but it's content. And it's generating a quiet revolution in the music business, one that bodes a new era in specialized storage networking and services.

Thirty years on, Internet access to Zeppelin performances, Cream's multimedia PBS archive, and the Allman Brothers Band's merchandising Website is fast and easy. But the fact is, many long-established musicians and record companies are failing to profit from the digital revolution.

In New York last year, a Time Warner Music executive told this author, "We make less on digital downloads than we did on CDs." When asked what he was planning to do about that situation, he said only, "I don't know."

This disconnect between artists and their fans is open to a solution that includes digital storage. A few artists and their record firms are generating profits from the storage and distribution of their own digitized musical content. Let's take a look at how this is happening.

Ten years after

Ten years ago, musicians and record companies were feasting on the consumption of CDs – physical storage sold per unit.Today, CD sales have dropped as online digital music consumption has risen. This is important to note, because physical distribution of music presents an opportunity for artists to get a piece of the action.

Consider the following analysis of the situation:

  • In 2006, online digital music sales grew 30 percent worldwide to over $1 billion, but that is only 10 percent of the market for CD sales, which nevertheless decreased 34 percent in the past year.

  • In 1996, digital music sales were $0. In 2006, digital music sales were $941 million total, and downloads were valued at over $1 billion.

  • In 1996, sales of physical units (CDs) reached 1.1 billion total units valued at $12 billion. In 2006, physical unit sales were 642 million total units valued at $9.6 billion – a revenue decrease of 43 percent.

Bottom line? Today, CDs account for 84 percent of the market dollar-value in the music distribution business, but only 41 percent of physical unit sales.

To Page 2

Music Economics 101
The drop in physical-unit distribution of music, combined with the growth of downloading as a distribution mechanism, indicates that there's room for storage solutions that can help brand-name artists to self-distribute music through networks they control.The kinds of storage solutions we're talking about are service-based. A growing roster of specialized hosting companies, deploying digital media servers geared to fast-transfer data rates and audio/video file structures, are starting to supply the missing link in the music business supply chain (between artists and fans). This trend could help make up for the $2 billion lost in the music distribution market over the past ten years.

Digital media services have a range of advantages for music distribution. As the marginal cost of adding another digital customer to a hosted storage service is approximately zero, with no physical inventory of CDs to finance or ship, and no returns to deduct, digital distribution enables pricing flexibility, impossible with CDs. Digital media services are also turnkey, or easy for artists and their managers to use.

The financial value of these features is clear in basic market data: EBITDA (earnings before interest, taxes, depreciation, and amortization) margins for an index of digital media companies is 55 percent. EBITDA margins for music companies averages 25 percent.

Therefore, the quicker storage companies understand how to develop strategic “music-content” partners and the quicker musicians understand the digital storage business, the better off they’ll both be, due to digital media having a 100 percent greater profit potential.

Easier said than done

Ask a few big storage players like EMC, IBM, and HP, and you may not get a direct answer about the music segment. Indeed, a quick poll by this author turned up little response, other than the following comment from an IBM spokesperson: "It's a pretty small market right now."The market size is debatable. It is estimated that some 30 percent, or 1,500, of the artists who were under contract to major labels in 1996 are currently without a record deal. That includes bestsellers Heart, Joe Cocker, Linda Ronstadt, Billy Squire, Little River Band, The Motels, Earth, Wind, & Fire, Loverboy, and Kenny Loggins. This Olympic pool of talent is very deep pocketed. Many of the artists could be very open to finding out how to digitally distribute their new music (as their previously released work remains the property of the record labels who paid them to record it).

To date, though, no one legacy recording artist has undertaken the task of managing the IT to enable sales of their own catalog. But that doesn't mean it's not possible or desirable. If you’re a rock band without a label and have a catalog of new material to market, there are solutions available to you today that will provide you with the platform you need to manage your market outside the reach of iTunes, Real Networks, and the like.

There are also a handful of music companies who are actively taking the reins to improve their distribution profile via digitized storage and services. Let's take a look at these examples, which highlight the benefits and pitfalls of taking the digital route:

Radiohead
Radiohead's IT management declined to comment for this article through their New York publicists. Nonetheless, they just finished a groundbreaking distribution campaign for their latest album “In Rainbows," making it available only online at their Website and leaving the pricing up to the buyer.

Note: While Radiohead's model features pricing flexibility, it apparently lacked economic pricing pre-analysis, since it failed to capture any reasonable amount of revenue for the band. Most fans downloaded the album for free, and 38 percent paid $6.Radiohead's distribution strategy has had other problems. Reports indicate that Website crashes left thousands of fans without product. Further, it was reported that fans who pre-ordered the album had no problems accessing a URL to obtain the download album. It was users that logged on to the band’s own Website that were left cold due to server timeouts.

Level 3 served as the content delivery network, but the service provider deflected responsibility for the trouble. Other technical entities serving the band included Virtek Internet and Computing Solutions Web hosting for the site; w.a.s.t.e., Radiohead's “official” download site; and PacketExchange, the data center where the Virtek servers were housed, facilitating connectivity to Level 3.

TAXI.com
Taxi is an online independent artist and repertoire company founded more than a decade ago. They specialize in providing digital storage solutions to artists, bands, and songwriters, giving them access to the wholesale buyers in the music business who have the power to sign them to record deals.

Taxi does not sell either singles or albums online; they only provide storage for record labels SEEKING to find artists.

Taxi serves a catalog of over 6,000 individual artist accounts, each of which allows for uploading ten 10-Mbyte MP3 files. Here are some basic statistics:

  • Total size of storage available to customers: 1TB

  • Brand of storage: Apple Mac servers

  • Back-up provisions: Redundant servers

  • IT design: Not revealed

  • Architecture, hardware: Apple Mac

  • Software: Not revealed

Wolfgang’s vault
This online digital service features live recordings of Jimi Hendrix, The Rolling Stones, The Allman Brothers, Steve Miller, Led Zepplin, the King Biscuit Flower Hour, and many other live concert performers from the 1960s, 1970s, and 1980s, streamed free. Downloads of entire concert-length performances are $9.98, without advertising. Customers have access to 5,000 hours of videotaped concerts and a comparable quantity of related audio.

To Page 3

Closely-guarded secrets

The aforementioned cases are only a hint of other projects underway by the Grateful Dead, the Rolling Stones, and other corporate musical entities. The fact that so few name-brand bands and their promoters are willing to go on record about how they're making money on digitized music indicates the level of expensive hands-on technical expertise they're using to stay competitive.

There are few factors, though, that can be deduced as key to any project involving IT for music distribution. These are the factors storage companies and service providers that fit the music bill will require for success:

  1. Recording artists are too busy to learn a new technology. They want a system that is turnkey.

  2. Brand-name artists require a system they can rely on to eliminate piracy. Therefore DRM (digital rights management) must accompany the deployment.

  3. Artists prefer to contract on a revenue-sharing basis with a reputable firm that guarantees the artist some upfront advance against royalties. This aspect of their culture will never change.

  4. Artists want a system that reports in real time and pays them weekly.

  5. Top-name recording artists assume you will be able to provide them with a system that scales depending on the demand. Due to the reports of trouble from the Radiohead project, they will shy away from that model.

Suppliers and service providers who can meet these demands in a music-distribution system based on digitized storage stand to benefit from over one thousand brand-name recording artists, each selling an average of 12,500 download albums at a price of $4. These accounts are ripe for the picking, as the artists behind them are without record label deals and prefer to control their output in terms of creation and distribution.To Page 4

Solutions at hand
Clearly, recording artists have a need for a reliable, scalable, and robust infrastructure to deliver Web 2.0- and digital download-related services. While many of them, like Radiohead, are turning to specialized VARs and teams of providers, things don't necessarily have to be that complicated. Some emerging storage services offer an the alternative to a build-it-yourself option.

These services offer a turnkey, pay-as-you-use service model that enables artists to focus on creating, not managing, and helps them accelerate their time-to-market for revenue-generating products to the shortest time possible.

Any recording artist with a brand name seeking to immediately capitalize on the growth of media-centric content should seriously consider this model because with little or no initial capital required, this approach suits up-and-coming and high-growth market entries into digital music storage.

Partnered storage delivery services are designed to make Web-scale computing easier, providing a simple Web services interface that can be used to store and retrieve any amount of data, at any time, from anywhere on the Web.Amazon S3 is built with a minimal feature set so that you can write, read, and delete objects containing from 1 byte to 5 gigabytes of data each. The number of objects you can store is unlimited. Each object is stored in a bucket and retrieved via a unique, developer-assigned key.

A bucket can be located in the United States or in Europe. All objects within the bucket will be stored in the bucket's location, but the objects can be accessed from anywhere. Authentication mechanisms are provided to ensure that data is kept secure from unauthorized access. Objects can be made private or public, and rights can be granted to specific users. Amazon uses standards-based REST and SOAP interfaces designed to work with any Internet-development toolkit.

Amazon's network is built to be flexible so that protocol or functional layers can easily be added. The default download protocol is HTTP. A BitTorrent(TM) protocol interface is provided to lower costs for high-scale distribution.

For Amazon S3, pricing is "pay only for what you use." There is no minimum fee. Storage is priced at $0.15 per Gbyte per month of storage used. A range of data transfer rates apply on top of this, most ranging from $0.10 to $0.18 per Gbyte per month.

Other service providers are emerging with music distribution and storage capabilities. Among these is Nirvanix, which has taken aim at Amazon's market of hosted service providers.Below is a table comparing the features of these two storage delivery service providers:

Table 1:

Comparative Analysis of Storage Solution for Music

Nirvanix

Amazon S3

Maximum file size

256 GB

5 GB

Basic ability to upload, download, and delete files

Y

Y

Full file system functionality to rename, copy, and move files and nested folders

Y

N

Search files and folders based on metadata and tags

Y

N

Share files and folders with hosted links

Y

Y

HTTP Upload call to transfer files directly from a browser, avoiding extra bandwidth costs

Y

N

On-demand, Internet scale storage

Y

Y

Clustered geo-node architecture

Y

N

Dynamic load-balancing storage

Y

N

Management portal with granular control of usage limits and reporting

Y

N

Dedicated, multi-tier support with 24/7 offering

Y

N

Reference applications and code available to speed up development

Y

Y

Developer Center with forums, support, resources, and expert participation

Y

Y

Bandwidth and storage limit enforcement at the end-user level

Y

N

Straight forward business model. Easy to foresee your cost

Y

N

Have a comment on this story? Please click "Discuss" below. If you'd like to contact Byte and Switch's editors directly, send us a message.

  • EMC Corp. (NYSE: EMC)

  • Hewlett-Packard Co. (NYSE: HPQ)

  • IBM Corp. (NYSE: IBM)

  • Level 3 Communications Inc. (Nasdaq: LVLT)

  • Nirvanix Inc.

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