June 7, 2004
Volume 4, Issue 12
Online Advertising Standards
Excerpted from Jim Meskauskas in Media Post
Rules of engagement and best practices: years ago these and other issues were brought to the fore by attentive media nerds and seasoned publishers as necessary foundations for a stable and sustainable business. Without the problems they raise being elucidated, and solutions to those problems being found, reliable protocol for conducting business would never really materialize.
So it was that, way back in the late 90s, agencies and publishers got together to establish what has become the IAB/AAAA's Standard Terms & Conditions. A little over 2 years ago, version 2.0 of this document was released to the online advertising community. Since then, its use has been anything but standard.
Fingers have been pointed across many a conference room, auditorium, and industry conference hall placing blame for the lack of standardized adoption. The reasons for the Ts & Cs not finding peace are many, but all break against the same reef: control.
Standardization in any business ultimately means that methods of operation, modes of conduct, and even the specifications of product eventually get fixed. Until that happens, pretty much anything goes.
Those interests with an eye to the future of their continued and uninterrupted existence, when faced with impending standardization, buck for the formulation of standards that address the best strengths of those interests.
This is certainly where standards for creative came from. Big and powerful publishers essentially proffered the ad units they already had in use as those against which standards would be set. Do you really think the 336x280 would be a "standard" unit if C|Net wasn't using it?
Some form of standardization is necessary for any industry to have its constituents operate efficiently and prosperously. Think about it; societies that have well established traditions of a rule of law tend to be more prosperous than those that do not. So it goes for businesses.
It is incumbent upon agencies as well as publishers to adhere to the same code of conduct and the same rules of engagement if we are to move out of the wild and into the city beyond the walls of Uruk (see Epic of Gilgamesh).
A lot of progress was made regarding terms and conditions at the iMedia Summit last week. For the first time in a long time, hope and amity were evident on both sides. But it is going to take agencies as much as it is publishers to put the capstone on civilizing the society of online advertising.
Report from CEO Marty Lafferty
 According to NY-based NPD Group, retail prices for pre-recorded music CDs declined more than previously during the first quarter of 2004. This trend is cited as a major reason for increased album purchases in the US year-to-date.
Specifically, NPD reported last week that prices in Q1 2004 were 4% lower than the same quarter last year. That compares to a drop of 2.5% from 2003 over 2002.
The average price of a CD is now $13.29, with titles older than 18 months averaging $12.99. Titles offered by mega-stores Wal-Mart and Best Buy were about 5% lower than the average.
NPD President Russ Crupnick attributed this trend in part to the file-sharing boom, and also to competition for entertainment dollars from movie DVDs and video games growing at double-digit rates.
Industry market-share leader Universal Music Group led this trend when it first slashed retail prices of its titles by 5% between the first quarter of 2003 and 2004.
Clearly the music industry is now engaged in a long overdue price-value adjustment, seeking not only to optimize the profitable response to CD offerings of new releases and catalog titles, but also to include entirely new revenue streams as the digital marketplace continues to expand.
While most agree that the music sector is now searching for a new CD price-point upon which to standardize in 2004-2005, NPD has also recently reported that early adopters of digital music stores and active music file sharers are highly likely to purchase physical CDs - up to 80% more than those who are not online music users.
As time goes on, the emergence of digital online subscription services will also expand with new revenue streams flowing to rights holders based on costs to mainstream consumers that support the perceived value of such offerings. What is still missing from the mix, however, is an established retail model to be adopted by the major labels for legitimately distributing their music through the P2P distribution channel.
These are big changes for what has been essentially a single-revenue-stream industry. The movie industry may have an easier time adding P2P per-title and online subscription offers to its sequential-distribution-based model, with already established multi-tiered pricing for first-run theatrical ticket sales, home-video DVD/VHS sales and rentals, PPV/VOD distribution, premium and basic cable subscription channels, and advertising-supported broadcast distribution.
As previously reported, consumers have a basic right to more attractive pricing being afforded to them by the efficiency of new distribution technologies.
Rumors reported in the NY Post that retail prices for downloadable songs from centralized online stores like iTunes may increase would be an outrage given relative costs. The initial price for online tracks of $0.99 was derived from and intended to be uncompetitive with the effective per-track price of CDs. It should be sharply reduced.
Tracks delivered over the Internet do not need to contribute their share of cost recoupment for CD retail mark-up (est. $0.27), marketing and administration (est. $0.17), VAT (est. $0.14), or compact disk manufacturing and shipping (est. $0.12).
To yield CD-comparable allocations for artist royalties (est. $0.13), publisher mechanicals (est. $0.085), and A&R (est. $0.08), the wholesale cost into P2P could in fact be below $0.30 per track.
In the digital realm, and particularly with P2P, consumers willingly bear the costs of manufacturing, storage, transmission, and even some of the costs of marketing - and have demonstrated clearly that they're willing to pay a fair price for digital content.
How much further ahead would the music industry be in its recovery if P2P pricing had already been established in a reasonable relationship to CD pricing and the P2P channel embraced by the majors?
For example, at a 50% ratio, which conservatively could return the same or higher amounts per sale to rights holders as offline sales, per-track P2P pricing could be $0.49-$0.55 and albums could be $5.99-$6.50.
New revenue from a la carte P2P sales can be further bolstered by P2P delivered subscription offerings, ranging from simple volume-based discount packages (or "all-you-can-eat" approaches) to more specialized theme and genre offerings.
What is certain is that the answers to questions as to the relative popularity of each of these offerings: how individual consumers will spread their purchases across various formats, and whether the music industry can do what the movie industry did when it finally accepted VCRs - dramatically increase net revenue per consumer - will be better with P2P exploited commercially than without it.
Missing Digital Sales Blues
Excerpted from Tony Glover in the Business
Twenty years ago, the music industry's favorite joke was to ask what the difference was between EMI and the Titanic. The answer was that the Titanic had a good band.
After last week's disappointing full-year figures it looks as if EMI will need more than a good band to save it. In its 1960s and 1970s heyday, London-based EMI was the world's hippest record label, signing talent such as the Beatles, Pink Floyd, and Queen.
But the company's problems go much deeper than finding the next Beatles. Just as EMI's success in the 1960s was fuelled by the explosion in music technology in the form of cheap record players, transistor radios, and mass merchandising, the industry is going though another sea change.
Today's pop fans are increasingly forsaking the record store for the Internet. EMI failed to spot the shift in time. Last week, it reported a net loss of $125 million for the year ended March 31, compared with $408.9 million in profits the previous year. Revenues fell from $3.79 billion to $3.70 billion in the same period.
EMI says falling revenues are a result of fans resorting to Kazaa and Morpheus instead of buying CDs. It has said it will axe 1,500 jobs next March, cut its artistic roster by 20%, and outsource CD production.
But the company's tragedy is that its decline was far from inevitable. At the height of the dot.com boom five years ago, EMI was crowing that its back catalog of some of pop music's greatest artists meant the company was ideally positioned to take advantage of the opportunity the Internet would bring; promising investors it would generate additional income from selling its back catalog over the Web.
When the dot.com crash struck in 2001 the company applied the brakes to its nascent Internet strategy - a big mistake. While EMI and other record labels returned to traditional sales channels, young music fans were starting to download music straight to their computers as digital files.
This trend grew as Microsoft made recordable CD drives a standard feature on PCs running Windows. This was followed with another death blow for the music labels when portable digital music players, notably Apple's hugely successful iPod, began to replace personal CD and mini-disc players.
EMI and others left the gate open for competition from what they term "piracy" and music fans call "file-sharing".
The problem for the record labels is that a new generation of fans has been educated away from paying for pop music. While teenagers are happy to save up for the latest iPod or stereo system, they are loath to spend money on the music itself when they can download it for nothing.
EMI's argument is that this deprives the artists and the labels of the revenue needed to fund new music carries little weight with teens, who often regard the labels as parasites living off the remains of their rock heroes.
Heartened by their success in closing down the first version of Napster, the record labels thought they could enjoy equal success in stopping file-sharing.
In one of the greatest public relations disasters, the industry exerted the full force of the law on a young girl from a single parent family who had downloaded Disney tunes. Although the industry is prosecuting hundreds of music fans in the US and in Europe , the chances of being caught are so slim that all the labels' efforts have really done is lend teenage file-sharing a whiff of glamour.
Go Ahead and Share
Excerpted from Joan Andeman in the Boston Globe
A funny thing happened when music fans began sharing songs by the Boston band Jim's Big Ego on Napster several years ago. The band got bigger. So much bigger that when the record companies began cracking down on file sharing and blocked JBE's music, frontman Jim Infantino wrote a letter to Napster asking them to make his songs available, copyright or no copyright.
What Infantino wanted was to share his music freely without sabotaging his career, a notion that major record companies would argue is untenable but that Infantino is discovering makes plenty of sense. In September he released "They're Everywhere," JBE's fourth full-length album, under a Creative Commons license -- a free, flexible copyright with the slogan "Some Rights Reserved."
Creative Commons, cofounded and run by Stanford Law professor Lawrence Lessig, aims to find a balance between the extremes of strict regulation and unchecked exploitation. Creators can mix and match from a menu that helps express the terms under which they'd like to share their work. Infantino, for example, allows the public to copy, distribute, perform, and sample from his songs as long as it isn't for commercial purposes, the author is given credit, and any derivative works are distributed under an identical license.
So far so good. "They're Everywhere" has already dramatically outsold any of JBE's previous releases.
"I honestly don't know how much of that is due to the way we've licensed this, but allowing people to share our music certainly hasn't hurt our sales," says Infantino. "We're giving away the music and selling more CDs."
Lessig isn't surprised. "For talented, up-and-coming artists like Jim's Big Ego, the key to becoming successful is getting known and making your art available," he says. "Free downloading doesn't mean cannibalism. And the data doesn't support the argument that file sharing harms sales."
One track on the album, an effervescent pop tune called "Mix Tape," is something of a valentine to the idea of sharing music. "The song is about people finding music they might not have heard about through friends making compilations of songs that aren't on the radio," says Infantino.
There will, no doubt, always be a slice of the population that simply takes what it can get for free. But people like Infantino are testing the waters of community-based art patronage, which is, he believes, the model for the future.
"I don't see how it can be stopped," says Infantino. "It doesn't require a record contract to write a song and publish it everywhere. We're there. And the responsibility for patronage has to come from everyone. When you as a band act in good faith, you invite your fans to act in good faith."
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