How much profit is there is Hi-Res?

[tailspn]

Thanks. So does the artist typically get a fixed fee per album sold, independent of format, or a % of sales?

 

That's individual label dependent, and their responsibility, so I can't give a general answer. When the label signed the artist, that was a element of their contract.

[Musicophile]

That's individual label dependent, and their responsibility, so I can't give a general answer. When the label signed the artist, that was a element of their contract.

Thanks.

[tailspn]

Well, I just did a site plan that would fit this bill. If I cut all the corners on it, the absolute nut comes out to be $9740/month with two employees. That covers storage, network, and redundancy (i.e. DR) as well as operations costs.

 

Hi Paul,

 

Thanks for your analysis. The one comment I can make is ~20 sales a day is a stretch, unless it's tied to a promotion (which eats into the available gross income to operate the site). But you're on the right track!

 

As a boutique operation, the download biz is not a get rich quick preposition. It's VERY volume driven.

[Tony Lauck]

Well, I just did a site plan that would fit this bill. If I cut all the corners on it, the absolute nut comes out to be $9740/month with two employees. That covers storage, network, and redundancy (i.e. DR) as well as operations costs.

 

Or at $17.99 - about 560 sales per month. Not that terrifically difficult to do. 1000 sales per month would give enough income to support a little more polished operation and pay for the coffee too. Of course, that excludes start-up or one-time costs, like designing the web site, setup fees to a CC processor, and so on.

 

Understand, this is a shoestring budget, with cheap office space and running everything off Linux PCs. Not a great long term strategy.

 

-Paul

 

 

I run two music websites that offer downloads. (One is not hi-res but that's immaterial.) One is non-commercial, it distributes some of my late wife's piano recordings. It costs me about $40.00 for the web hosting including bandwidth and domain name. The other is commercial and it sells yoga and meditation music. The annual web costs are about $200.00 for server costs including bandwidth and the site fits the "boutique" model. My friend deals with the business side, which mostly involves negotiating with artists (who are mostly the song writers). Again this is very low volume, and if the volume went up at some point we might have to change server plans. For this site I do the ripping of CDs, apply the metadata, package and upload the files to the hosting server and keep a local copy of the web site plus a backup. I wrote all of the software to interface the credit card processor and to manage the uploads, downloads and record keeping of uploads and downloads. When a new album is added to the store it takes me an hour to listen to the music and select sound clips, a half hour to select sound clips and a half-hour to prepare a webpage and SKU for product sales. (This part is very inefficient because we add only a few albums a month, so it has minimal automation.) I monitor the sales each day and it takes me less than a minute a day to verify that things are going smoothly. The software has been updated twice in 7 years, because I don't like to have to support buggy software. The one time sink comes from customer support. There are customers who seem to have trouble downloading a zip file for their purchase, extracting the files, playing them and then not losing the files they've bought. So there is a certain amount of customer support required on my part, perhaps it involves 5% of the sales. My friend has several other businesses that occupy her time, including being the executive director of an International NGO that does disaster relief.

 

In summary, the estimate of two full time staff is grossly excessive for a "boutique" operation. My guess would be about two hours labor to add an album, about one hour labor to assist a customer, prorated to 3 minutes per sale. There would also be monthly business recording keeping, dealing with artists, etc., but I am not involved with this part and don't know how much overhead this takes. Apart from the dedicated servers which are rented, there is no need for dedicated PCs, just a few large capacity disks to hold the library, web site master, and backups.

[Paul R]

Hi Paul,

 

Thanks for your analysis. The one comment I can make is ~20 sales a day is a stretch, unless it's tied to a promotion (which eats into the available gross income to operate the site). But you're on the right track!

 

As a boutique operation, the download biz is not a get rich quick preposition. It's VERY volume driven.

 

I think it would be more like 45 sales per day, which is not all that difficult tot imagine, but a micro-"boutique" operation might be done very very cheaply. On the other hand, to make money at it is a different animal. -Paul

[tailspn]

I think it would be more like 45 sales per day, which is not all that difficult tot imagine

 

It may not be difficult to imagine, but from my personal experience, it's almost impossible to achieve. We give away a greater volume than we sell, all in the quest of building a DSD centric customer database.

[tailspn]

In summary, the estimate of two full time staff is grossly excessive for a "boutique" operation. My guess would be about two hours labor to add an album, about one hour labor to assist a customer, prorated to 3 minutes per sale.

 

It takes Ted Brady and I an average of 2-3 hours to prepare the stereo and multichannel DSD files from a label for sale, and Jared another 1 hour to mount it. That does not include uploading which is done overnight. And that's for recordings that we don't have to chase down the missing content like mp3's for samples, incomplete metadata, cover art and booklets. Thanks to using Amazon Web Services world-wide, customer support requirements are remarkably low. Still it averages 2-3% of orders. We try to put up an average of 15 albums a week.

 

Storage plus download fees on AWS average about $1,500 a month. This is primarily due to a local zipped copy of each of our 500 albums (X2, stereo and multichannel) resident in each of the seventeen AWS data centers world wide. The alternative was a customer waiting 10-20 minuets per album for point of order zipping by Amazon.

 

Our boutique download business has on average five people doing the work of two fulltime, making the business work, and another salaried halftime doing marketing and promotion. The site development costs were about the cost of a small house in Houston Texas.

 

The range of boutiques in the download biz is quite large.

[kirkmc]

Coming late to this thread, and I haven't read everything. I've spoken with people at several classical record labels - indies, not the big ones - and they've all said that it doesn't cost them much more to create and sell high-res files than regular files. There is a bit more work, setting up new SKUs, additional lines on accounting reports, etc, but no more so than for any other format. The general feeling is that "if the buyers want them, and are willing to pay more, we'll charge them more."

[tailspn]

...they've all said that it doesn't cost them much more to create and sell high-res files than regular files.

 

Correct, it doesn't cost the label appreciably more to create multiple resolution formats of a project they recorded. And since their customer is the optical media and/or soft copy distributor, it doesn't cost THEM more to sell either.

 

But that has no bearing on the retail end of the chain, where the retailing incurred costs, and any profit of sales, are realized. Labels as you've spoken with receives between $6 and $7 for their finished SACD album, and $2 to $5 for a CD from their distributors. They receive between 50% and 60% of the net sales, minus their distributor's take for download sales.

 

Your paraphrasing of their cynical "if the buyers want them, and are willing to pay more, we'll charge them more." suggests if they think it's such a great business, they should risk their money and go into it.

[Musicophile]

Your paraphrasing of their cynical "if the buyers want them, and are willing to pay more, we'll charge them more." suggests if they think it's such a great business, they should risk their money and go into it.

It would be really interesting to see what the price elasticity actually is in highres downloads.

 

Obviously, with the current 30-150% premiums over redbook, we seem to have some demand by crazy guys like us on the forum. Probably we aren't that many. Now if somebody were to offer highres for let's say 5% premium, would there be more people buying?

 

Or to take another angle on the questions: Is there a possibility for an Aldi-like business model in music sales that lives on really small margins on really large revenues? (for our US friends, Aldi is the German inventor and leader of the "hard discount" supermarket, the US affiliates are known as "Trader Joe's".)

 

My guess is, probably not.

[tailspn]

I think this conversation is clouded by the fact that they're two different/independent entities being discussed; labels who produce projects, and download sites that sell them. They're not in parallel. Labels make the stuff, and are generally paid a fixed amount per album for their efforts. They're not going to take less and stay in business, so there's no price elasticity there. Distribution also takes a cut, typically 10%, so that's pretty fixed also.

 

What's left is the end selling entity, which in this thread is focused on download sites.

 

As has been discussed, these businesses set the selling price, are very volume driven, and have fixed costs to be in the business. This is really simple stuff. The business that finds the optimum price/demand point will be the most successful, regardless of what we all think.

 

To me, and I hope many computer audiophiles here, the more interesting segment is the speciality boutique and sometimes hybrid label/download sites. These include small scale sites like Challenge Classics, Channel Classics, Blue Coast, nativedsd, HDTT etc., that both produce and sell, as well as comparative giants like Super HiRez/Acoustic Sounds.

 

What I'm suggesting is these businesses should not be lumped into the pricing disfavor/"they're ripping us off" sentiment of the supermarkets, but should be understood for what they are; small scale production and download speciality businesses in a niche market. Their fundamental challenge is building enough sales volume to overcome their fixed costs to remain in business.

 

I had hoped I dropped enough hints of their costs to at least make this an intelligent conversation.

[Ajax]

It would be really interesting to see what the price elasticity actually is in highres downloads.

 

Obviously, with the current 30-150% premiums over redbook, we seem to have some demand by crazy guys like us on the forum. Probably we aren't that many. Now if somebody were to offer highres for let's say 5% premium, would there be more people buying?

 

Or to take another angle on the questions: Is there a possibility for an Aldi-like business model in music sales that lives on really small margins on really large revenues? (for our US friends, Aldi is the German inventor and leader of the "hard discount" supermarket, the US affiliates are known as "Trader Joe's".)

 

My guess is, probably not.

 

It is always difficult for any business to get the price vs volume equation right. The only way to do it IMO is to really understand your market. There has been a lot of recent discussion at CA about how to promote high res and the general consensus is that;

 

(1) the average punter doesn't care enough about sound quality and is actually happy with mp3, particularly the kids.

 

(2) majority of people listen to music via their smart phones using in-ear buds, however, most phones don't play hi-res without special software

 

(3) the difference in quality over CD or 320kps or 256 VBR mp3 can only really be appreciated on high quality gear, which is too expensive unless you are really into digital audio and know about inexpensive high quality products such as the iFi Nano or Dragonfly V1.2 etc,

 

(4) you need to understand how to set up PC or MAC properly using special software such as J River and Audirvana to get bit perfect playback and to get automatic sample rate changes

 

i.e. it is a "nice market" requiring some expertise and therefore the Aldi model of high volume and low margins IMO would fail. The majority of customers today will not pay extra for quality if it is not also convenient.

 

I also feel the extra 50% or more for hi-res over CD is unsustainable and IMO the right direction is to continue to improve the filters in DACs etc and thereby improve the sound of existing CDs, as they comprise at least 80% of even an audiophile's collection, with all future mastering being standardised at 24/96 and distributed as such.

[sdolezalek]

To me, and I hope many computer audiophiles here, the more interesting segment is the speciality boutique and sometimes hybrid label/download sites. These include small scale sites like Challenge Classics, Channel Classics, Blue Coast, nativedsd, HDTT etc., that both produce and sell, as well as comparative giants like Super HiRez/Acoustic Sounds.

 

What I'm suggesting is these businesses should not be lumped into the pricing disfavor/"they're ripping us off" sentiment of the supermarkets, but should be understood for what they are; small scale production and download speciality businesses in a niche market. Their fundamental challenge is building enough sales volume to overcome their fixed costs to remain in business.

 

I had hoped I dropped enough hints of their costs to at least make this an intelligent conversation.

 

Tom: I think you have dropped more than enough hints to clarify the costs of the types of businesses you listed above, all of which the users of this site would do well to see grow. So, the best way for us to lower the prices of downloads is to get more people to see the benefit of hi-res and download albums from the boutique sites.

 

I think the free Mendelssohn download in 4 different formats that you are currently offering on nativedsd is a great way to further that educational process. Thank you for that!

[Musicophile]

I think this conversation is clouded by the fact that they're two different/independent entities being discussed; labels who produce projects, and download sites that sell them. They're not in parallel. Labels make the stuff, and are generally paid a fixed amount per album for their efforts. They're not going to take less and stay in business, so there's no price elasticity there. Distribution also takes a cut, typically 10%, so that's pretty fixed also.

 

What's left is the end selling entity, which in this thread is focused on download sites.

 

As has been discussed, these businesses set the selling price, are very volume driven, and have fixed costs to be in the business. This is really simple stuff. The business that finds the optimum price/demand point will be the most successful, regardless of what we all think.

 

To me, and I hope many computer audiophiles here, the more interesting segment is the speciality boutique and sometimes hybrid label/download sites. These include small scale sites like Challenge Classics, Channel Classics, Blue Coast, nativedsd, HDTT etc., that both produce and sell, as well as comparative giants like Super HiRez/Acoustic Sounds.

 

What I'm suggesting is these businesses should not be lumped into the pricing disfavor/"they're ripping us off" sentiment of the supermarkets, but should be understood for what they are; small scale production and download speciality businesses in a niche market. Their fundamental challenge is building enough sales volume to overcome their fixed costs to remain in business.

 

I had hoped I dropped enough hints of their costs to at least make this an intelligent conversation.

At least on my side it was very clear that we're mainly talking about the distribution side (although as indicated earlier, I'm hoping that an artist actually makes more if the download is up to 3x the price, which as we discussed is a problem of the label and not the retailer).

 

What I was asking is: If you believe business gurus like Michael Porter you have two ways to cover your fixed cost, with low volume specialized high premium products on one hand or a volume business, where the margin on each indivial sale is very small, but it just adds up, on the other hand.

 

I was simply wondering if the high-res business will ever make it from the former (where high premiums of 300% and more can feel very arbitrary) to the latter. Ajax has given some compelling reasons why we probably have to live with the former model for the foreseeable future. Let's just hope (from a consumer perspective, not the retailer obviously) that overl time competition and hopefully increasing demand will eventually drive the premiums down to at least a more reasonable level.

[Jud]

I think this conversation is clouded by the fact that they're two different/independent entities being discussed; labels who produce projects, and download sites that sell them. They're not in parallel. Labels make the stuff, and are generally paid a fixed amount per album for their efforts. They're not going to take less and stay in business, so there's no price elasticity there.

 

I think the real opportunity for growth near term is for labels that have already been paid for their projects, i.e., the more recent catalogs of the mega-corporations that dominate the business. There is likely a fair amount of 24/96 (or possibly 24/88.2) digitally recorded material that could be released in download form that has already made lots of money. It seems to me there would not be a tremendous amount of added cost involved in making this material available in one more format, i.e., the originally recorded 24/96 as well as the 16/44.1, mp3, and AAC that were derived from it; and that this would therefore present an opportunity to sell for costs more comparable to those of CD (or even, for example, per song for $2 each). That would be the way to make a larger market for "original resolution" downloads, which in the longer term, as the distribution matured and people became more accustomed to purchasing music that way, would create the potential for expansion by the boutiques.

[alfe]

Wake up call:

 

http://www.ifpi.org/downloads/Digital-Music-Report-2014.pdf