Digital Music

An Industry Insider’s View Of eMusic

Reaction to my piece yesterday "My Problem With eMusic" questioning payout formulas and  the use of free music has been strong on both side of the debate. In an effort to learn trying to learn more, I spoke to an industry veteran who told me that every other digital retailer pays 70% of retail gross at a minimum and gets special permission for each free track. eMusic pays 60% of net after deducting about 25% for expenses. In essence, they pay about 42% of gross (or 60% of 75%).

Some sources have said they believe that eMusic gives away and does not report…

about 25% of all tracks. If true, this would put their payout
at about 34% of retail. Our source said. "No matter how you compute it,
they are keeping 58% to 66% of retail instead of a standard 30% or
less. If they just charged the (industry standard) business model of
70% of gross, payouts would grow considerably. (It’s) safe to say eMusic keeps 50% to 100% more margin than any other digital retailer. Great friend to the indies."

TOMMOROW: How eMusic Save Its Soul…And Help Indie Music

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  1. Again, I’m surprised there is so much attention paid to per-track payout and not total revenue. It is a narrow and incomplete view of the service’s impact. Once the industry get over their fascination with per-track payouts, business models will really start to take off. If a label is so concerned with maximizing per-track margin, I suggest selling direct to consumers. No distributor fee. No cost of physical production. Just IT costs related to selling downloads at the label’s and artist’s websites. Enjoy getting 100% of next to nothing, though.
    The number of tracks eMusic gives away — and how transparent those are to partner labels — is another issue. Anything that dilutes the payouts should naturally be a matter of importance.
    Like I wrote yesterday in the comments, selling music at eMusic is an opt-in decision. Nobody forces the labels to sign up, and one must assume a label does some homework before signing on the dotted line.
    The fact that eMusic’s catalog has exploded in the four years I have subscribed says it is doing something right. But there are checks and balances. The fact that some labels have pulled out, in addition to the higher per-download fees charged to customers over the last few years, means eMusic is taking into consideration the feedback and concerns of some labels.

  2. Glenn, good arguements, but keep this in mind:
    You say “Anything that dilutes the payouts should naturally be a matter of importance.”, but consider the impact on payouts given emusic’s royalty pool business model.
    Essentially they take all of the revenue for the quarter and pay out labels based on their percentage of total downloads for all of emusic. The more downloads that take place within a given quarter, the lower the price per download.
    By adding the free downloads into the equation, you’re giving labels more pieces of the pie in terms of quantity, but the slices are smaller.
    This will benefit the more popular labels and aggregators, since it is reasonable to assume that new subscribers are more likely to spend their free trial downloads on artists with name recognition. But smaller labels and artists, who are unlikely to be downloaded during the trial period, will suffer because of the reduced price per download.
    My question is this: do any other companies pay labels for free downloads? I know iTunes doesn’t pay a dime for promotional downloads, but does anyone else have any insight regarding other online retailers?
    If they don’t, then I don’t know why emusic is being held do a different standard. They’re free, nobody is profiting from them, they’re a gimmick to get people to pay the monthly fee, which every label profits from.

  3. The really fishy thing about eMusic?
    That Taylor Swift album has been in the top 2 for more than six months!!

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