A Brief Overview of Digital Music Today

Although peer-to-peer networks, such as the old Napster and Kazaa, drove the mass popularization of digital music, today it is clear that legal digital downloading is here to stay. Apple iTunes alone sells over 1 million songs daily, and subscription services such as Apple Music, Rhapsody, and MusicNet each boast several hundred thousand monthly subscribers. While peer-to-peer networks enable illegitimate file-sharing without compensating artists, they did nonetheless teach independent rights-holders some important lessons.

First, the networks established that music fans love downloading digital music. Second, the Internet will continue to play a larger and larger role in the music industry. Independents have quickly picked up on this, and were the first to really maximize the use of the Internet and file-sharing as a promotional tool. However, the problem remained that the artists, record labels, and songwriters who made the music still weren't getting compensated. Enter the legal download services. These services, along with portable digital music players, have been steadily growing in popularity since their inception. Their appeal is undeniable: No "Trojan Horses" or dummy files that corrupt computers, fast and reliable downloads, high fidelity audio, organized catalogs and affordable prices. Giants such as Microsoft, Wal-Mart and Sony all believe in the future of download services and are investing heavily in digital music.

Unfortunately, the existing digital music services, as well as the many organizations that manage and administer the rights and royalties, are almost entirely focused on the major labels and mainstream music catalogs, leaving most of the independents out in the cold. Independents collectively represent over 20% of the total music market, a share that represents billions of dollars of business every year. As the digital music services mature, it has become increasingly important for them to include indies in their catalogs. Opinions about digital music and file-sharing within the independent music community range across the spectrum, it's seen as a terrifying plague by some and as a great new promotional vehicle by others. Regardless of the stance, the one thing that most independent labels and artists agree on is that they want to get paid for their work—to be able to make a living from what they are most passionate about. Most also recognize that digital music will play a very important role in the future of the music industry.

Getting Paid For Your Music Online – Digital Music Rights

Digital song files embody the same rights that songs on physical media do:

a musical work copyright for the composers of a particular song or piece of music
a sound recording copyright that covers the specific recording of a composition and the creative work of those involved in that recording.

Composition copyrights are traditionally administered and distributed by publishing companies for mechanical and synchronization rights, and by performing rights organizations like ASCAP and BMI for radio and other public performances. The sound recording rights are usually owned by the record labels that fund and release the music or by the artists themselves.

The licenses for sound recordings in most digital settings are exclusive and voluntary, meaning that the creators of the recording must explicitly grant another party the right to deliver their work. The exception is non-interactive radio, which is treated much like traditional radio with the exception that the sound recording rightsholder is also paid a royalty for each transmission. Aside from this exception, anyone offering music on the Internet must get permission to use that music from the people who created it. The RIAA site provides a good description of what uses require what licenses.

Types of Digital Rights

Unrestricted download – The basic and well-known delivery of an encoded, compressed copy of a sound recording, these downloads (in formats such as mp3, Windows Media Audio, etc.) are generally easy to use with a wide array of freely available computer players or portable digital music players. They're ubiquitous, permanent, and can be freely moved around and copied, lacking any control mechanisms for tracking ownership and file trading. The quality of the audio is usually good but not quite CD level (though many services consider 128kbps encoding "CD Quality"), and the user must wait for the file to download to the local computer before listening to it. These are typically sold in pay-per-download stores that do not carry major-label music (such as EMusic or Audio Lunchbox).
CD burn – this type of delivery enables the user to make a copy of a downloaded file to a recordable CD, enabling users to take the music anywhere (or even rip the music back off the CD into another portable format). CDs burned from downloads sound inferior to store-bought CDs to some, as compression degrades audio fidelity. Rhapsody offers CD burning options as part of their service.
Restricted download –; These downloads include DRM (Digital Rights Management) Technologies that place restrictions on copying the file. Typically, restrictions involve the number of computers, digital music players, or simply the number of times a file can be copied. They usually do not restrict the user in terms of CD burning. In terms of sound quality and download wait time, there is virtually no difference from typical mp3s. Apple iTunes, Napster, Real and most download stores with major label content put this DRM on their files. There are a number of DRM technologies, with varying degrees of limitation; these translate to different rights and license rates.
Tethered download – A type of delivery similar to renting, with users having access to the file for a limited amount of time. The limits are enabled by various DRM technologies that track information such as where files are moved to and how many times they are used. Again, the quality is usually the same as mp3 or other common download formats, as is the download wait-time. Services such as Napster and MusicNet offer this type of download. Microsoft is currently toying with this idea as well.
On-demand interactive streaming – streaming delivery of music over the network "on-demand," or when the user requests it. Most services advertise "CD-quality sound" and there is typically no download wait-time — the music begins playing immediately after the user clicks (although bandwidth and network limitations may affect this). On-demand streams are available from services such as Rhapsody, MusicMatch, and Napster.
Interactive radio – streaming delivery of music over the network like traditional radio, but allowing the user the ability to skip songs or rate tracks and artists to influence the experience. No download time or wait for access with quality ranging from lo-fi to "CD-quality" depending on bandwidth limitations. Can be subscription or non-subscription offerings, and separate licenses that address the specific features and value provided by each product are required.
Non-interactive radio (compulsory license) – streamed delivery of songs over a network strictly adhering to radio programming rules. The DMCA (Digital Millennium Copyright Act) created a compulsory (or statutory) license that allows web-casters that meet certain conditions to broadcast non-interactive radio stations without obtaining an explicit license from rights-holders. The Library of Congress arbitrated and set rates for these web-casters through negotiations with the RIAA and the webcasting community, and millions of dollars have been paid to rights-holders for these licenses. Sound Exchange is the organization appointed by Congress to collect and distribute these royalties to rights-holders.
Other non-interactive radio – radio services that don't meet the DMCA compulsory license requirements for a variety of reasons, such as radio stations that promote or advertise a product or brand. Separate licenses to address the specific features and value for each product or service are required.

The above rights also apply to a number of other digital delivery mediums, such as wireless, satellite, and cable.

Because there are no standard rates for these voluntary rights there's a huge amount of work that must be done by services and rights-holders to reach the licensing agreements necessary to make the music available.

What This All Means For Independents

Opportunity

Digital music represents a powerful opportunity for the independent community, as a compelling new promotional outlet and increasingly as an alternative source of income. The independent music community's 20% share of the market is underrepresented in most online services today, despite the fact that users consistently cite rich and diverse catalogs as a must have for music services.

The design of most digital music software encourages the discovery of new music, and that represents another promising opportunity for indies. Independents have proven to be the breeding grounds for new musical innovation and trends again and again, and represent an important and vital sector of the music industry for many fans and the business alike.

Likewise, they've repeatedly influenced and innovated the way business is done in the industry, and online music represents another chance to make an impact for the better. Indeed it appears that the majors are primarily concerned with preserving traditional physical CD sales and their high profit margins. Yet at this critical point when these new services are establishing themselves and the values of the rights that they depend on are being defined, the majors are the only ones making the decisions. By engaging in this process in a way that works for the rights-holders and also encourages new methods of online distribution, the independent community has an opportunity to help lead the way to new and solid avenues for earning income online.

For rights-holders, royalties from digital delivery services will become an important source of income with many side benefits: there's little or no additional cost to deliver the music online that you already paid to record, manufacture, and promote; the services offer exposure to new fans and new promotional opportunities; and additional physical sales are generated by service partnerships with online retailers. Digital delivery creates many other interesting possibilities for independents, such as making limited edition or out-of-print catalog material available to fans, releasing live recordings or other special projects that are too costly to manufacture or produce physically, and releasing music online frequently and quickly after it's produced outside of normal release cycles. These are opportunities that major labels either can't or haven't taken advantage of.

The Dilemma for Independents

While there's definitely a promising future for indies in the digital music world, it's a confusing landscape and there are barriers associated with every opportunity.

Prohibitive work and cost — there are over 50 services out there, with new ones appearing daily. Most small labels have their hands full as it is just getting their physical releases promoted and in stores. Licensing deals come with contracts and attorneys and take a lot of time and money, resources that are always in short supply for independents.

The Major-Indie Gap — The services often don't understand the nature of the independent music world. Aside from not really "getting it," they've been overwhelmingly focused on the majors; they simply don't have the time or resources to give the multitudes of indies the attention they deserve.

Preferential License Terms — Thus far independents frequently ended up with less favorable contract terms than the major labels. Unfortunately, the lack of relative bargaining power results in the independents being treated with different standards as the majors receive preferential treatment.

Urgency — The digital music industry is developing at a furious pace, and new systems, rules and technologies (and revenue possibilities) are created all the time.

These challenges seem daunting at the outset, but the services are constantly expanding their catalogs and eventually will be able to include a much larger portion of the independent music market.

Technology

Primo Digital Services has built a powerful technological infrastructure to manage each step of your digital strategy.

Encoding

- We receive your CDs / MP3 and immediately start the encoding process to convert your music and metadata to the right format for distribution.

Delivery

We package and send your digital assets to the stores and services of your choice.

Services and Stores

- Our many service partners include ringtones, mobile and subscription services in addition to traditional digital download stores like iTunes.

Digital Distribution

Independent labels, publishers and rights holders who distribute through Primo Digital Services enjoy a wealth of benefits and opportunities. We bring together strategic and technical expertise in the digital music world and a credible, proven history in the independent music community to create a digital distribution partner perfectly suited to guide your music and content into the digital future.

Sign one deal with us for instant access to over 350 digital retail sites.
We continually sign new service deals so you can benefit from new distribution opportunities.
We engage in ongoing rate negotiation with stores and services.
We deliver your content to our service partners within days after we receive your CDs.
We actively market and promote your content to the top music services.

Primo Digital Services distribution services were specifically designed to meet the needs of independent labels. We save you time and money by handling the legal, technical, and promotional aspects of the digital music world -- still giving you the power to manage your catalog, sign service deals, and track sales.

No legal fees to negotiate agreements with dozens of services
No need to encode in multiple formats and deliver to each service
No up front costs -- we only make money if you make money

LETS GET YOU STARTED NOW!

THE FUTURE IS NOW, LET PRIMO DISCOS TAKE YOU FURTHER!

Indies are thriving in the industry now more than ever, in part due to the impact of digital music, and if independents take advantage of these new opportunities in digital distribution they have everything to gain in the long run. Acting now, independents have the opportunity to control their own future and guide the development of the digital music world.