[Dixielandjazz] An alternate music sales channel

[Steve barbone]

No doubt, some smart entrepreneur, younger than Wiggins or me, who still has
some fire in the belly, will figure out there is (maybe) an OKOM jazz niche
for this type operation.

If Chinese and Kenyan pop music sells there, why not OKOM?

Cheers,
Steve


Buying Music From Anywhere and Selling It for Play on the Internet

NY TIMES By ROBERT LEVINE - January 9, 2006

Working in the media and entertainment group of the consultants McKinsey &
Company, Greg Scholl got a firsthand look at the inefficiency in the music
business: the major record labels focus on creating hits, and they rarely
make money on releases that sell less than a few hundred thousand copies.
Skip to next paragraph

New York Times technology reviewer David Pogue is at the 2006 Consumer
Electronics Show, posting blog entries and daily video updates.

Now, as chief executive of the Orchard, a music distributor that sells to
iTunes, Napster, Yahoo and other digital music services, Mr. Scholl is
trying to exploit that inefficiency.

The Orchard is seeking to make money by purchasing music from small
independent and foreign labels, and then distributing it to digital music
services. In most music stores, CD's of, say, Chinese or Kenyan pop music
would be consigned to the world-music bin as a good will gesture. But the
economics of online stores is changing the financial calculations of the
music business, making it profitable to sell a relatively small number of
copies of a song, as long as a compact disc is not manufactured and
distributed.

So instead of trying to sell millions of copies of hundreds of albums, the
standard music industry strategy, the Orchard hopes to sell hundreds of
copies of thousands of albums. In that way, the company is anticipating that
sales will follow a pattern known as "the long tail," in which a large
number of only marginally popular items can eventually produce significant
revenue. 

"We're not trying to make something a hit in order to make a business work,"
Mr. Scholl said. "We cast a very wide net, and we're going to catch some
hits in it."

So far, the Orchard has made deals to sell about 650,000 tracks from 72
countries to various services, including ring tone outlets. Those tracks
include music from relatively well-known bands like Black Uhuru as well as
thousands of Chinese pop songs. Much of that music is not yet online, and
the company is not sure if all of it will ever be. The plan is to add music
to various services gradually, so it can be promoted appropriately.

The Orchard is not the only company looking to strike gold in the more
obscure parts of the music business. One of the Orchard's rivals, the
Independent Online Distribution Alliance, recently got the rights to
digitally distribute 60,000 albums worth of music from a Chinese state-owned
record company. The Orchard also faces competition from distribution
companies owned by major labels.

The bet that executives of these businesses are making is that online
services will increase demand for music that was not previously popular,
just as eBay stoked the sale of old books and trinkets once considered
largely worthless. 

As Ted Schadler, an analyst at Forrester Research, put it: "In the world of
shiny plastic discs, there are two barriers to getting the music you want:
It's not in the store, or you've never heard of it. With digital
distribution, the first barrier disappears. The second gets eased because of
search engines, recommendation engines, technology like that."

The Orchard was founded in 1997 as a distribution company by Scott Cohen and
Richard Gottehrer, a songwriter whose hits included "My Boyfriend's Back."
Named after its original location, on Orchard Street on the Lower East Side
of Manhattan, it began losing money and eventually acquired a reputation as
being less than prompt with payments.

In 2003 the Orchard was purchased by Dimensional Associates, the private
equity arm of JDS Capital Management, for what Mr. Scholl indicated was less
than $10 million. Dimensional also owns the online service eMusic and a
music publishing company, and was interested in the Orchard partly because
of the digital distribution rights it had acquired.

"We were aware of the reputation," said Mr. Scholl, who was brought in to
run the company, "and we worked to pay everyone back and begin more
transparent accounting."

The Orchard, Mr. Scholl said, is a "digital aggregator," a middleman between
small independent labels and digital music services. Major labels, as well
as most sizable independents, deal with such services directly or through an
established physical distribution company like the Alternative Distribution
Alliance, owned by Warner Music.

The Orchard, as well as the Independent Online Distribution Alliance, mostly
represent small labels in quantity. Along with a smattering of tracks
recorded by stars before they signed with major labels, they offer an
embarrassment of niches: free jazz, black metal and, in the case of the
Orchard, a label that specializes in calliope music. And as the cost of
putting tracks online is low, anything that can sell a few copies is
worthwhile. 

"I'd say we more or less want everything," remarked Kevin Arnold, founder
and chief executive of the independent alliance.

Most digital distribution deals give the distributor 15 percent of the
wholesale price of a track, usually somewhere around 65 cents, according to
several people in the industry. Mr. Scholl said that the Orchard generally
receives a higher percentage because it can effectively promote music to the
services that sell it. To generate attention for some of the music from
China, for example, it arranged for Jackie Chan to provide a list of his
favorite tracks. 

"It's the equivalent of taking the music from the backroom, where you'd have
to look for it, into the store," Mr. Scholl said.

For some of the Orchard's international partners, the strategy is working.
Epsa, an Argentine tango label, distributes about 500 albums through the
Orchard. Laura Tesoriero, the label's chief executive, who also works with
the Orchard as a representative in South America, said it had sold 10,000
digital tracks last quarter - no more than a rounding error by the standards
of the United States pop music market, but enough to leave her feeling
encouraged about the future of digital sales. A significant number of those
sales, she expects, were to Argentines living in this country.

The most significant growth in the sale of foreign music could come as the
idea of buying online gains traction among such immigrant communities.

"People in China don't think of Chinese music as world music and neither do
Chinese people in the U.S.," said Yale Evelev, president of Luaka Bop, an
independent label owned by David Byrne that specializes in pop music from
Africa and South America.

The Orchard will face greater competition as major labels sell the music
they release internationally in the United States. The EMI Group, for
example, plans to make available in this country a majority of the music it
sells anywhere in the world, Adam Klein, a vice president, said. As an
example of the potential of this, Mr. Klein said that Hotei, a band signed
by EMI in Japan, had one of the top 10 rock albums on iTunes after one of
its songs appeared on the soundtrack of "Kill Bill: Volume 1."

Even with a business model that does not rely on hits, they would be
welcome. "One man's niche is another man's mass market," Mike McGuire, a
Gartner analyst said.