In a post yesterday, I took issue with a quote in The Wall Street Journal by analyst Aram Sinnreich that said albums were on their last gasp. Aram emailed to me some comments and I am posting them here. He has a much different outlook that I have on the way music will be presented in the future. I believe the album format will continue to live through changes in music stores and services. Over 400 million albums were purchased last year. Fewer will be purchased this year, and fewer next year, but I see no signs of complete extinction or irrelevance within the next 20 years. Here are Aram's comments:

As to the LP sales, I would argue that they could almost be reclassified as merchandise, rather than recorded music -- a significant number of purchasers are buying them to /have/, not to listen to (the audiophile market notwithstanding).

And, yes, digital album sales are relatively strong, but neither the single nor the album product format adequately addresses the way today's music fans are actually listening.

The new dominant consumption format is the playlist. Only business models that address this behavior -- such as online radio, subscriptions, and ISP taxes -- will take full advantage of consumers' rapidly expanding tastes. The album -- ten songs by a single artist in a fixed order -- just doesn't cut it in this context. And the inevitable death of the CD as a distribution format (it will live on as a storage format) will cement the death of the album, which is essentially an arbitrary product based on the limited capacity of 20th century recording and distribution technology.

My quotes were taken in the context of this larger argument, and of course, were presented as stand-alones in the final article.

Thank you for the context, Aram. Even with that added color, I still disagree wholeheartedly. Some people listen to music in playlists, but they also switch to shuffle and listen to music randomly. The random button is no more a death blow to the album than is the playlist. My main point is that playlists are a popular way to enjoy music but not nearly as popular a way to purchase music. The Wall Street Journal article was about purchasing, not listening. A distinction between the two must be understood. Even if people do not always listen to an album from start to finish (I prefer listening to an album from start to finish, and do it all the time) they will still buy (or steal, or copy) a collection of tracks, often bundled with artwork and probably some liner notes, in a format called an album. Stores and services will continue to offer playlists, I have no doubt, but they will be just one way to acquire and experience music.

The underlying message of the WSJ article is that artists will act in their own self interest, and in many cases offering only an album is in their best interest. But it goes beyond that. It is in the self interest of nearly all recording artists to offer more than individual songs. When those songs are bundled, we call it an album. In 20 years, maybe the bundle will be called something else (I won't get too caught up in semantics). It's a product that works well. This has everything to do with marketing and nothing to do with 20th century storage devices. Selling singles is a less efficient way to monetize demand and make use of time spent creating the finished product (think of costs differences between large batches versus single runs). For many fans, purchasing an album is in their best interest. It is the most economical way to obtain music the they want. If everybody is acting in their self interests, albums will continue to exist.

Update: I'm tacking on Aram's reply in an email exchange. We could probably go back and forth on this forever. We're on the same page in some areas and miles apart in other areas. The album debate is always a good one, isn't it?

> Why dismiss billions of dollars in consumer >> spending? Because sales aren't what they used to be?

Yes, that's part of it, but the diminishing sales are only symptomatic of the larger structural problem(s). The sales aren't what they used to be because (a) labels are shipping fewer units of fewer albums by fewer
artists, (b) brick-and-mortar retailers are devoting fewer square feet to CDs, in favor of higher margin entertainment goods like movies, games and portable electronics, and most importantly (c) because consumers no longer see value in the album as a format. How could they, when the iPod they just got in their stocking holds 20,000 songs?

> Playlists are a way in which music is organized and heard, correct? (And
>> occasionally purchased at digital music stores.) That's different than
>> the way music is packaged by labels/artists and purchased by customers.
>> To say playlists are "consumed" does not draw a distinction between
>> purchasing and listening.

This is true, but the health of an industry can be measured in terms of how closely product models match consumption habits. The delta tends to be greater in industries that are consolidated and capital-intensive
(like the music industry used to be) and lesser in those that are more diversified and have a lower bar to entry (the direction the industry is moving in, major label mergers notwithstanding).

> Even if ISP-based, all-you-can-eat
>> subscription services become the norm, artists will still release albums
>> and people will still acquire albums.

This is probably true in the near term, because both artists and consumers are comfortable with the format, and because marketers know how to promote them. But they'll be albums in name only; already, we're
seeing singles released as ringtones and video game soundtracks before they ever get (officially) burned to a CD. Eventually, the album becomes a pure ersatz marketing event, and the innovative artists and marketers will be those that successfully shatter the illusion and find a different way to bundle music for consumers. Pioneering independent musicians are already doing this by releasing new songs, drafts, and
even individual tracks on their web sites and blogs, as they produce the music.

Nashville blogger Yewknee has posted two IFC videos of a independent music web panel that features Muxtape's Justin Ouellette, Vimeo's Jakob Lodwick and Idolator's Maura Johnston. (I'm focusing on Ouellette because the copyright issues faced by Muxtape is of particular interest right now.) This panel's topic was third-party, music-sharing websites.

In part two, some questions were posed to Ouellette about Muxtape (his music sharing site that has attracted the attention of the RIAA):

• How is that legal? A non-answer.

• How to make money with Muxtape? Another non-answer.

• What happens when labels start calling? "I would like to work with all labels of all sizes and with individual artists.... Everything I've been thinking about for the future has been related to, What can we do to create an equitable landscape for everybody?" Earlier, when asked about a scenario in which a label complained about copyright infringement, Ouellette said, "I have to honor that. I think that some people will make a decision that they don't want to interact in that space, and I think they're foolish not to. But I have to respect it. I really do."

When the panel started talking about intent and what it means to "help an artist," there was potential for really good discussion. But it fizzled. Overall, though, the videos are definitely worth watching and offer some insights into the sort of entrepreneurial and idealistic mindsets that are shaping today's (and especially tomorrow's) online music.

Music service Napster is showing more cracks. It's subscriber level dropped in Q2 to 708,000 from 760,000. Now the company has reportedly killed its Napster on Campus program.

In an effort to boost its number of subscribers, Napster is offering a discount on Napster To Go. It has a promotion of 6 months of the subscription service plus 50 free MP3 downloads for $69.99.

Will a bundle of MP3s lure new customers? Will Napster be able to retain a good percent of those new customers? Some and sort of. Using MP3 tracks as bait ignores the serious, fundamental problems that face the company. Even if it has modest success with this promotion, Napster is saddled with a product that has limited appeal.

Using MP3 files as bait strikes me as an act of desperation. It's not a coincidence that both Napster and Rhapsody are using MP3 files as bait -- Rhapsody hopes its new MP3 store will help grow its subscription service. Ownership, the marketplace believes, trumps access. And access is becoming easier to get for free (last.fm, imeem, etc.)

When Rhapsody and Napster started selling MP3 files, I wasn't sure it was a good idea to place side by side DRM-free tracks and subscription tracks with DRM. It sends mixed messages. A consumer looks at that and has to wonder, What is the product here? If it's a subscription service, why can't you just stand behind your product? Why mix the two?

As a company, Napster should consider having one identity and sticking to it. If it's going to be a subscription service, then it should try to be the best subscription service it can be. That may mean getting MP3s out of picture. In an effort to get some incremental MP3 download revenue, it may be harming its main product. Looking at its financials, however, I think Napster may almost be out of time.

• Jonas Brothers' A Little Bit Longer dropped 72% in its second week (lots of preorders?) but sold 147,000 units and held on to the #1 spot on the album chart. Unit sales were down 4.7% from last week and 13% from the same week last year. (Billboard.biz)

• Lime Wire has licensed the catalog of digital distributor The Orchard. The addition of 1.2 million songs pushes Lime Wire's catalog of DRM-free tracks over two million. (Press release)

• The blogger who posted unreleased Guns N' Roses tracks has been arrested. Of all the lawsuits against regular Joes relating to digital music, this could actually have some value as a deterrent. The guy's blog has some notes on the court proceedings. "The U.S.A. requested bail be set at $50,000. Skwerl’s court-appointed attorney thankfully called B.S. on that one and recommended his bail be $5,000. ... In the end, the Judge ruled that his bail be in the form of a signature bond at $10,000." (The Telegraph)

• Latvia's largest BitTorrent site has been shut down and two administrators arrested. (TorrentFreak)

The Wall Street Journal's Ethan Smith and Nick Wingfield have a very good article about some artists' and labels' unhappiness with the weak economic realities of a la carte downloads. In the past, labels would stop shipping CD singles and EPs with a popular song so those sales would not cannibalize album sales. These days, artists from Kid Rock to AC/DC are choosing to offer only an album. For some it's about money (and making more of it). For others, like Radiohead, the songs were meant to be heard as a complete album.

All of this shows not even iTunes, considered by many to be the savior of the music industry, is above consternation. We are in the midst of digital growing pains that will trouble the industry for years to come. In an effort to give consumers more choice, some find the option is not always an equitable one.

If there is any comforting aspect to these pains, it is that they are most often felt by successful, established artists who represent a select group of wealthy musicians. The concern should be more on the side of their labels and managers. And there will be examples of single-driven hits by new pop or R&B artists that don't convert into album sales, and that has been the case for decades. In those cases, deciding whether or not to remove the a la carte option will have artist development implications.

In a sense, labels are showing a bit of pragmatism by selling a title as only an album and not giving consumers the ability to cherry pick tracks. A critic would argue that consumers will be driven to P2P to acquire the songs they want. Such a strategy, however, shows labels are thinking more about profits and less about the murky morality issues that surround digital piracy. That isn't always the case.

The worst quote of the article came from Aram Sinnreich of Radar Research. "This is a last gasp for the album format," he said, adding that most albums are merely a few good songs plus "filler material." Sinnreich may be right about filler content, but I believe he's horribly wrong in his prognostication. In a year of strong sales by Lil Wayne, Coldplay and Hannah Montana -- and a huge increase in LP sales -- one shouldn't dismiss outright the album format. If nothing else, one can look at the numbers provided by Soundscan: At the mid-point of 2008, the rate of growth for digital albums exceeded that of track downloads 34.4% to 27.7%. That's right. Digital albums were faring better digital tracks through the end of June. That's hardly the growth rate of a format suffering through its last gasps.

Borders issued its Q2 2008 earnings release today. For the quarter ended August 2, the company had a loss of $2.6 million on revenue of $758.5 million.

The company didn't offer many specifics in the release but a bit more information was available in the conference call. Music sales at Borders domestic superstores fell by $12.9 million in Q2 (music was responsible for a 2.1-point drop in comp superstore revenue). Based on last year's numbers, I estimate the year-over-year drop in total (not comp) music sales in Q2 in the 19 to 20% range.

According to the conference call, music now accounts for less than 7% of company revenue (it was 7.3% in fiscal 2007) and is its lowest-margin category. Borders did not specify the percent drop in the music category. CEO George Jones said inventory levels for all product categories have been reduced over 14% and has seen its market shares hold up well on new releases. (Most of the reductions in book inventories came from eliminating titles that sell fewer than one copy per year per store. No similar strategy for CD inventory management was mentioned.)

The only other part about music from the Q2 earnings release is:

The music category continued to experience negative sales trends resulting from declines in overall demand, and as planned, a reduction in inventory and floor space devoted to the category.

Here's the part about music in the Q1 earnings release:

To address declining sales in the music category, as well as increasing space available for improved merchandising presentation and expansion of higher margin categories, the Company has begun reducing inventories and reallocating floor space in its stores.

Those reductions and reallocations, combined with the CD market's natural sag, resulted in a 25.8% Q1 2008 drop in music sales. In fiscal 2007, comp store music sales were down 15.1%.

Also mentioned by Jones during the conference call was Borders' plan to roll out interactive kiosks to all Borders Superstores later this year.

• Virgin Media, which provides cable TV and broadband services in the UK, is planning a music portal. Said the CEO of content for Virgin Media Television, "Increasingly, when we talk to a content provider we talk to them about cooperation in the broadband space as well as in mobile." (New Media Age)

• BBC Worldwide is planning an ad-supported music service that will offer streams and downloads of performances in the BBC archives. (New Media Age)

• A transcript of the Transworld Q2 2008 conference call. (SEC filing)

• For some of its venues in Germany, including the O2 World in Berlin, AEG has opted to go with German ticketing company CTS Eventim over Ticketmaster. (Ticket News)

• The RIAA's best legal strategy appears to be sitting and waiting for the defendant to destroy evidence. Here's a good recap of the Atlantic vs. Howell case that is nearing an end. (LA Times Technology blog)

• Activision, maker of "Guitar Hero," has inked branding deals with Ampeg, Audio-Technica, Ernie Ball, Evans Drumheads, Guitar Center, Mackie, Marshall, Sabian cymbals, Vox and Zildjian drumsticks, among others. In addition, bands will play on stages of virtual recreations of Amoeba Music, Live Nation’s House of Blues Sunset Strip and San Francisco’s AT&T Park. (Hexus Gaming)

Guy Hands has pledged that EMI will sell music in new and innovative ways. Hiring Douglas Merrill away from Google was certainly part of that strategy. Here's another: a promotion with publisher Gannet. Brian Wilson's album is streaming on 33 Gannet newspaper sites and 19 TV stations sites. Here's the album page at USA Today. I couldn't find the promotion at a few Gannet newspapers, such as the Argus Leader in Sioux Falls, but found the page right away on the front page (below the fold) at the Louisville Courier-Journal.

The actual selling part isn't new -- the purchase link goes to Amazon.com -- but the promotion does show the kind of creativity that is sorely needed at major labels. I think this is a great way to find out about a new album. It's interactive. There are buttons for Digg, Facebook, Reddit and other similar sites. The streaming quality is good and the embedded player is as simple as could be. The only big problem I see with the promotion's layout is the album's street date (September 2) is buried at the bottom of the page. I'm not sure if the existence of a comments section is good or bad. Unlike Amazon.com reviews, people who did not purchase the album will be more prone to speak up...and there are some very negative comments there.

While the promotion isn't completely original, the financial terms are -- as far as I know -- unique: Gannet, reported paidContent, will be paid for the promotion based on the number of album downloads sold through the promotion. A better conversion rate means more money for Gannet (whose revenues in the first half of 2008 were down 10%). That Amazon.com is the retailer in this promotion should lead to more sales than if sales went through another retailer (other than iTunes) or the artists' and labels' website.

For older artists, lack of consumer awareness is one of the more difficult hurdles to overcome. Gannet is in a great position to help. EMI benefits from the publicity and the awareness generated by the promotion. Ironically, this is the sort of thinking that Paul McCartney lamented was gone from EMI when he released his last album through Starbucks' Hear Music. And I like that Gannet will get paid on a commission system similar to the bonus system typical in the video business (as opposed to the flat fee system of the music business).