September 18, 2007
Grooveshark and Amie Street: Two Interesting Business Models for Music Distribution

Worldwide physical CD sales are taking yet another dip. Online stores are hardening the competition and being forced to come up with more creative strategies to entice the ever-so-elusive consumer. Meanwhile, certain artists consider profit from recorded music marginal and focus on concerts and other tour-related revenue streams.

It's in this tricky landscape that newcomer digital music stores Grooveshark and Amie Street plan to make their mark. Both companies exploit and reward the fans' loyalties toward their groups and take advantage of the social networking model.

Grooveshark is still in its beta version, but, from the moment you read their motto, "Everybody gets paid," you get a pretty clear idea of what this company is about. Essentially, Grooveshark will operate as a legit peer-to-peer network brokered by the company. Once a transaction is made, both the copyright holders and the user that put his or her server space up get a cut of the sale.

Amie Street has already been out for a little over a year and has had a chance to prove its worth. Their main attraction is allowing users to purchase songs at a price that varies according to demand. Every song is free when it's first put up on the site. As people continue downloading and recommending a song, its price goes up, capping at 98 cents (one less than the giant iTunes).

Users also get a piece of the action by receiving store credit for the price increase in songs they recommended. In a business of secret deals and many, many lawsuits, I find the Amie Street model refreshingly friendly and transparent. Here, each artist (actually, each copyright holder) receives 70% of the money from each song after it has made $5.

At first, I thought they were going to work as an indie rock distributor, positioning themselves with a strong identity within a niche market. As it turns out, Amie Street is going after the big bucks, hoping to appeal to a wide range of audiences. Anyone can upload and sell their audio content over this store, so, even tough you are bound to bump into amateurish e-books and some painfully under-rehearsed garage bands, it's also a great place to discover new gems and get a fix of some old favorites.

Since it works as a non-exclusive distribution platform, Amie Street is a risk free proposition for more established bands. Earlier this year, the company cut a deal with Nettwerk Music Group allowing them to feature some well-known-artists like Barenaked Ladies and Avril Lavigne.

Although I'm doubtful that Amie Street will become the big go-to store where I can discover new bands and get some Ella Fitzgerald, Amazon certainly seems to think that it's a viable model. Just last month they announced that they had invested in the up-and-coming company, an interesting move right before Amazon launches its much-awaited music store.

What is clear is that online music retailers are trying to create new and innovative structures in order to attract and keep their costumers. Some of the keys to do that seem to be related to having a transparent revenue model, incorporating the consumer in that model, and taking advantage of their consumer's social networking activities. Also, I think it's important to note that both of these companies (and theoretically, Amazon as well) work only with DRM-free downloads. Both Grooveshark and Amie Street provide interesting contemporary examples of implementing many of the ideas that the Consortium has written about in the past.




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Ana, I'm curious: How do you think some of these same models would work for independent television producers and/or independent filmmakers? How about independent writers? In other words, do you think these are business models that work partiuclarly well for music creators?

Thinking about how Apple took a model designed for audio and are increasingly stretching it to include new content types, I wonder if you think these are partiuclarly viable for music or could be used for other purposes as well.

On September 21, 2007 at 8:09 AM, Eleanor Baird said:

Ana, great post - very interesting stuff. I wonder if modeling the potential effects/revenue of these models would be a worthwhile exercise? Let's talk about that sometime. Sam also asked me if these models are adaptable to different media see my post on "Streaming Cinema" for that one.

On September 24, 2007 at 1:16 PM, Ana Domb said:

Hey Sam and Eleanor, thanks for the comments, you pose some interesting questions. I do think that music is better suited for these specific models. Just the fact that songs are short and that you can usually get lengthier previews for them gives music an edge. But “having a transparent revenue model, incorporating the consumer in that model, and taking advantage of their consumer's social networking activities” would seem like a recommendable thing to do in any of the creative industries.

As Eleanor pointed out in her post on “Streaming Cinema” “The viewing experience is a more integral part of a film than with television content and shorter video". Here we could look at another interesting model: B-Side distribution, they work specifically with film, allowing of low-res downloads and gradually increasing the price and quality until it reaches $12 for the DVD. I think I’ll write a post about them later on.

TV shows seem to be a good fit for iTunes, but even with those products they’ve been having to make some major readjustments with some companies withdrawing their content and others deciding to give it away.

Eleanor’s post does a good job of pointing out the issues with the current Apple model, but there so much uncertainty out there that it would very useful to look further into these different business models. Eleanor, let’s talk about it very soon!


Ana, I will look forward to your upcoming piece on B-Side, and it will be interesting to compare their model to the model for these music companies...