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Tuesday, December 30, 2003

the meta-roj music store

online music stores quickly converged on 99 cents, because it’s close – real close – to making a little money. close enough that you can fudge it in the business plan. i like fudge, so, today, i’m going to launch the meta-roj music store.

the top line

based on previous material, we know that the top-line is going to converge quickly at 99 cents per track, unless i decide to take on walmart at 88 cents.

i’m going to make an executive decision that we’re going with the pack on this one, at 99 cents. that could make me either greedy or conservative. maybe both.

what does the music cost?

i’ve seen at least two credible breakdowns for online music sales:

The download services pay music labels around 79 cents per track in royalties.

billboard/reuters [pdf, via delvian records]

Sources present at the meeting say the terms offered to the indies were identical to those granted to major-label participants: a 65%-35% split of proceeds from the 99-cent downloads, favoring the labels, with payments every month.

for the meta-roj music store, let’s say that i make the label’s cut 72 cents (that’s about halfway between these estimates).

what does the sale cost?

now that we have the music, we need to sell it, and that introduces transaction costs. since i’m not a credit-card company, i need to make a deal with one. typical terms from the big-two (visa and mastercard) are 25 cents plus 2.5%. (walmart has had some success taking on the big credit card companies, so, maybe there’s some negotiating room).

to really estimate this expense, we need to know how many tracks get sold in a typical transaction – and that’s going to be hard to pin down.

a one-track sale at 99 cents would cost 25 cents + 2.5 cents = 27.5 cents per track.
a two-track sale at $1.98 would cost 25 cents + 5 cents = 15 cents per track
a 14-track album sale at $9.99 would cost 25 cents + 25 cents = 3.6 cents per track.

i don’t have much leverage, and i think many sales will be single-track situations. then i need to add in some other per-track and per-sale expenses, like the fractions of pennies that add up as i transfer the few-megabytes of song data and such.

let’s say that my transaction costs come in around 18 cents per track (because that’s just going to make a nice round number).

ya gotta build it before they come

now, we come to the issue of building a big site and keeping it running. some servers, some code and some labor to get everything ripped, encoded, tagged, encrypted, rights-managed and ready for sale. and i need to promote this thing, so you’ll find it.

$500,000? $1,000,000? let’s go with a million.

the bottom line

i get 99 cents per track, but it costs me 90 cents on each one. my margin is 9 cents per song, and i’ve got a $1 million hole to dig myself out of… it takes 11.1 million tracks at 9 cents each to get to $1 million.

Between June and November, music lovers bought 7.7 million songs online, but only 4 million single-song CDs at stores.

that’s enough to pay for about 2/3rds of the meta-roj music store, in just 4 months! and the business is accelerating! only 13.3 other stores to go. itunes recently announced their 20 millionth track, but you have to dig a bit to decide how the dollars fall out from that mark. with 750,000 albums at $9.99 and 11 million singles at 99 cents, that means itunes has grossed about $18.4 million. if itunes follows our 10%-ish margin, that’s $1.84 million. now how much did apple spend to build it and promote it?

eh, no matter. those crazy kids love their music. plenty of room.

what’s the potential?

we have some data on the global market for recorded music – about $30 billion per year. that is based on 92.5% of sales as albums and only 7.5% as singles, revealing an average unit-price of $9.8.

unfortunately, the meta-roj music store is in the singles business (the evidence is hard to ignore). if it’s anything like itunes, it’s more like 5.5% albums and 94.5% singles. the itunes experience suggests an aggregate unit price – singles plus albums – is about $1.49.

from here we can make two assumptions – the $30 billion is going to stick. as they are given more choices, and more options, people will buy more music. they’ll buy just as many dollars worth of music as they did before, so we’ve still got a $30 billion pie to split up. at 99 cents per track, that’s 30.3 billion tracks sold per year, so there’s plenty of room for the meta-roj music store in the market. i only need .037% of the market to break even ($11.1m/$30.3b). sounds just like every other “if we just capture 1% of the market…” pitch!

the other possibility is that they will buy about the same amount of music as they did before. and then we get two more paths to follow, both of which lead to some more-troublesome math (and a lot more assumptions).

let’s start with unit-sales of 2,850 million albums and 230 million singles. if (and this is a great debate) each album really has only one or two good tracks, let’s give them credit for three “equivalent singles per album.” based on that assumption, we’ll call the market at 9 billion tracks (8550 + 230) per year. we’ve just watched the market collapse from about $30 billion to about $9 billion. big change, that.

another way to come at this is to just work the unit price data. $30 billion at $9.8/unit is 3 billion units. 3 billion units at $1.49/unit is $4.5 billion. even bigger change, but i can still make the “1% pitch” even at this level – $11.1m/$4.5b = .25%!

there’s room for everybody

even with the $4.5 billion market, and 14 competitors (that’s the 13 announced players plus the meta-roj music store, of course), we can split this evenly and each take $320 million! with 10% margins, we net $32 million! each! every year! and, of course, the meta-roj music store is going to get the lion’s share of the market. we should be able to double or triple that!

… and that begs the question

it’s an easy pitch. you can flesh this out in several dozen different ways to make it look good. it can look good for apple. it can look good for walmart. it can even look good for coke. that’s why 99 cents. that’s why everyone’s piling into this game. now, the important question that’s missing from this post: what could go wrong?

posted by roj at 3:40 am  

Tuesday, December 30, 2003

updated comment-post button

in an attempt to clarify the commercial applications license terms, i’ve expanded the “post” button for all comment-forms.

where it once read “Post” it now reads “Post ( I agree to the terms above )”

fear not, good people, this is only there because bad people visit.

posted by roj at 2:00 am  

Monday, December 29, 2003

Phil Goldman

good geek

[brave kids]

posted by roj at 5:30 pm  

Monday, December 29, 2003

save me from the fish!

I was led back to the US Airways ticket counter, stocking-footed and alone, where the agents reasserted that they did not see a problem for me to have a fish on board, properly packaged in plastic fish bag and secured with a rubber band as MJ was. But the TSA supervisor was called over, and he berated me profusely. He exclaimed that in no way, under no circumstances, was a small fish allowed to pass through security, regardless of what the ticket agents said.

i’m glad we have a whole new federal department taking care of these threats. surely an investigation will reveal the lapse in security that allowed lara hayhurst to commit this vicious crime.

fortunately, steps are already being taken to ensure that in the future, both lara and her fish will be shot before the fish has a chance to grab the flight controls.

we really have sunk this far. i am embarrassed.

update (2003.12.30): metafilter has it.

posted by roj at 1:05 pm  

Monday, December 29, 2003

the mini ipods are coming

in a clearly clueful development (and we’re all very happy that apple is still getting the clues), think secret reported several days ago on the rumors of the mini ipod. that development prompted the ubergeeks at slashdot to share their few cents… i took a spin through that quagmire to save you the trouble. the slash geeks missed the clues.

here’s what’s interesting about this (and it has nothing to do with batteries or storage technologies): it more-closely matches the individual listening habits of most people.

sure, a musigeek might appreciate carrying 10,000 or 20,000 (or 75,000 for that matter) songs on their hip, but most people don’t know that many songs, and certainly don’t want to waste the time to load that many tracks, set up playlists, organize and categorize that much noise. most people have a couple dozen songs they really love, and maybe a couple hundred that they’ll listen to “for now.” beyond that, it’s just too annoying. it takes too much attention.

another [less relevant, but valid] view is the dollar-economics. ignore the illegal music sources for a moment, and you’re looking at $600 for an ipod, plus $10,000 or more to fill it up. can you afford to risk loss or theft of a $10,000 gadet? [note to self: ipod track insurance] makes all the noise about battery life seem a bit silly, eh?

so yes. for another week or so, it’s just a rumor that apple will bring us mini ipods in 2004. but i think the nature of the broader music-listening public makes the mini ipod inevitable – even if it has to come from someone other than apple.

a few hundred songs is “good enough” for most people – and that’s important, considering the economics of itunes.

posted by roj at 9:18 am  

Monday, December 29, 2003

new toys for ashcroft

with a little prompting from betsy devine, i’m moving this to the front of the line….

a few days ago, the san antonio current (yes, virginia, that’s in texas) ran a story [included below when the link dies] on bush’s saturday signature of a bill.

the new modus operandi for the republican-controlled senate appears to be the magic of the unaccountable voice vote. we saw this not too long ago with the supplemental appropriation for iraq (and afghanistan).

ashcroft has demonstrated that he is willing to be amazingly creative and flexible when it comes to the law. john ashcroft apparently serves a higher calling – much higher than the law – ashcroft has taken it upon himself to save us from ourselves, and won’t let any annoying laws or constitutional provisions get in his way.

get this man away from my laws.

posted by roj at 9:05 am  

Monday, December 29, 2003

Herschell Hamilton


posted by roj at 7:41 am  

Sunday, December 28, 2003

Ying Ruocheng

actor, prisoner, and minister

posted by roj at 11:41 pm  

Sunday, December 28, 2003

the walmartization of food that will kill us all

alton brown said it first.

alton brown

We are to blame because our culture has come to value two qualities above all else: “cheap”, and “more”. How else can you explain the cancerous creep of Wal-Marts across our landscape, or the ever swelling American waistline?

check your values, people. realize what you’re doing.

update: quote in effect, with a nod to crysflame.

posted by roj at 6:48 pm  

Sunday, December 28, 2003

shareware food at one world cafe

evidence that non-traditioal business models are alive and well in america, i present for your consideration, the restaurant with no menu and no cash register.

inspired or crazy, denise cerreta jumped into a model that spurns every conventional concept of running a restaurant (except maybe the location thing).

they’re making news (well, made news, i’m picking up on this late), apparently making money, and got my attention. next time i’m in salt lake city… they might just get some of my dollars.

read more… tell me what you think

deseret news
salt lake tribune
charles herald
free republic

is it a non-profit model in a for-profit business? liberal pricing? conservative production? interesting? crazy?

posted by roj at 5:45 pm  
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