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DJ Magazine Interview

Reported by Element-7 on June 26, 2004

DJ Magazine are publishing a feature on dance music downloads in the near future and had some questions for Nolan.

DJ :: When and why did you and your colleague set up your web service?

TID :: The concept was born early spring 2003, we started receiving too many emails informing us of the demise of this distributor and that label, big names were disappearing from the dance scene they had been integral in building. People talked about a clubbing decline but our weekend manoeuvres and DJ'ing all over the world confirmed dance music was very much alive and kicking. Something somewhere was wrong and it was clear that something needed to change. The industry behind dance music was still revolving at 33rpm around DJ's turntables, of course with vinyl as the format of choice, consumers had moved on though. Technology had provided every home computer with the ability to download and burn CD's, Pioneer gave us an industry standard CD deck in the CDJ series but the recording industry failed to offer CD sales. iTunes successfully launched in the States in April 2003 showing exactly where the future of music sales was at, the music industry was being pushed forward by huge corporations who's core business had no connection to the music industry, Apple, Amazon, Coca Cola, Pepsi and Microsoft all jumped on the digital music bandwagon but wont offer the specialist service dance requires. Just as we had always purchased our records from specialist independent record shops rather than high street chains, we knew dance music would need a focused portal offering a specialist service if sales were to go digital.

DJ :: Had you worked before in the music sales / distribution or dance music areas or did your team come from an Internet background?

TID :: Jon Rundell came from a distribution background as a label manager at one of the largest 12" distributors in dance. Jon regularly DJ's around Europe and has a catalogue of releases on his own and other top labels.

Ed Real is the former A&R and label manager of Nukleuz Records; CIN Market Share leader for 12” vinyl sales for the last three years and winner of the Music Week Dance Label of the Year award. Ed DJ's around the world, runs the award winning Riot! events at legendary London venue 'The End' and is just about to roll out the first release from Riot! Recordings, a new label from himself and BK.

BK is a man that needs little introduction. The most successful hard dance producer in the world and a feature in the DJ Magazine Top 100 DJ’s for the last 3 years. Ben tours the world performing and is a regular feature in the dance press.

Nolan Shadbolt promoter of award-winning Riot! events and the Hard Dance Awards.

DJ :: Do you think that Net users have got over the idea of paying for MP3s and not getting them for free?

TID :: I think you have to put it into context. iTunes are selling a wide range of commercial tracks by the millions, there is no doubt that as P2P becomes more and more risky to use for fear of virus infections and that little thing called THE LAW, the safe convenient services will continue to win the support of the average user who are happy to pay for the products they are receiving.

The dance market is a different animal, DJ's are as desperate to have the latest tracks as teenage boys are to loose their virginity. An upfront dub plate in the drum and bass scene is hard currency inside the P2P networks, you certainly don't get that with the latest Brittany Spears track. Breaking this behaviour has to start with the labels themselves being much tighter on who receives promo copies in the first place but the whole concept of MP3 downloads should speed up release schedules. With most of the financial risk and manufacturing / distribution delays cut out of the equation labels can move to release months ahead of what they can achieve now. Hopefully this will translate to less lost sales due to people downloading before the track is made available for sale.

The biggest gain for dance music is that it opens up the boundaries, until now unless you owned a set of decks there would be no point in buying a record, downloads provide the customer with far greater flexibility. Living in an area of the world that doesn't have a specialist record shop is no longer an issue, buying records from web sites and then waiting days if not weeks for them to be delivered is a thing of the past, depending on your internet connection you can have access to your music in a matter of minutes. For some people paying for downloads is going to be a necessity, for others a novelty and for a select few a harsh reality - if people do not support the labels and artists they will continue to disappear.

DJ :: Do you think that P2P services like Kazaa and Soulseek have hindered your performance and growth?

TID :: In a way they have created us, they have forced the music industry to revolutionise the way it works and that has to be a good thing. Many labels are still scared of selling music in digital format for fear that their product will simply add fuel to the piracy fire, so from that angle yes they hinder our growth and performance. As a company we are as concerned about piracy as anyone as it affects our sales in exactly the same way as it does a label. Everyone is talking about DRM (Digital Rights Management) and ways to kerb the file-sharing trend but the truth is there is no effective form of DRM. The most advanced computer software in the world has all kinds of security features but can still be found to download illegally across the internet and P2P networks. Unlike software music has the added flaw that it can be re-recorded, as soon as you give someone the right to burn a CD they can create a fresh copy of a track, rip it from the CD, encode it to MP3 and trade it as usual. MP3 has no DRM technology, some labels and even the governing bodies such as the MCPS shy away from MP3 because of this. Our philosophy is to provide the product that customers want, at a reasonable price, in a safe and convenient way, that has to be the ultimate way of enticing people to buy rather than steal. Providing downloads in other formats that adopt the DRM technology will not stop people trading in MP3 files.

DJ :: What about pricing, how much do you charge per track? Is it enough to undercut buying a whole EP or album and make it worthwhile for users?

TID :: Single tracks are priced at £ 1.50 with special hour long DJ Mix Compilations and Albums priced at £ 6.00. Pricing has really been dictated by all of the surrounding factors. the world was introduced to downloading at 99c, commercial suicide even according to iTunes themselves; ‘The iTunes business model is not viable in its own right and is a loss leader for their iPod business’ (Steve Jobs CEO Apple / iTunes). Most other services followed suit with 99c or 99p downloads but we really couldn't make it work for less than £ 1.50 a track after VAT, credit card processing, bandwidth, and of course the 8% of gross turnover that the MCPS take in the first year and 12% every year thereafter.

We didn't want to undersell peoples music, it has a value, in our opinion that value shouldn't be dictated by a company who specialises in selling computers.

DJ :: Is there any particular style of electronic music you focus on and if so, why have you chosen these areas?

TID :: Our site features focused home pages for 9 genres and a live section.

DJ :: What have been the difficulties / obstacles if any?

TID :: What hasn't been difficult? The whole concept is new territory for everyone involved. Convincing an industry that it needs to pull itself out of the dark ages and embrace the future, convincing the licensing authorities that we are legitimate and should be licensed, building a web site to cater for 9 very different musical tastes. Its been incredibly frustrating at times but so amazingly satisfying to watch a dream become reality.

DJ :: Apparently, the introduction of services like iTunes to Europe has been halted by licensing agreements: Did you experience similar problems when setting up your service?

TID :: It seems crazy that the authority in place to protect the artist are the very people who are holding the music industry back. Applying for the license hasn't been difficult, it ensures that we are doing everything above board and that has to be a good thing for everyone from the artist to the customer. The problem has been the time it has taken to process the application and the financial strain it has placed on companies like ours.

DJ :: How does your service work: do you license a track / EP from a label and pay them a fee upfront - or do you split the sales with them?

TID :: We split the proceeds of the sale with the label. We are exposed to all of the risks and so offer no advance for tracks that we host.

DJ :: If the answer is the latter, that you split the revenue generated by the sales of each track, what kind of % does the label get? Do labels therefore stand to potentially earn more with your service than with a normal distributor?

TID :: As members of our team come from record company and distribution backgrounds we have a very good idea of what a label makes back through traditional distribution methods and are confident that a label does potentially stand to earn more via digital distribution. When pitching our service to labels we decided to clearly offer a figure of money per unit rather than a percentage.

DJ :: Are your agreements exclusive / non-exclusive?

TID :: Our standard contract is non exclusive but we do offer incentives to labels to provide us with 'Exclusive Periods' where the track would only be available from our site.

DJ :: Has it been difficult to get labels involved: If so, what were the main difficulties you faced?

TID :: It has been difficult but that was always expected. Asking an industry to change it's ways and provide a format that is responsible for the rise in piracy was never going to be plain sailing. Some labels have been eager to take advantage while others are completely oblivious to the whole digital generation, educating people has been a big part of our work over the last 6 months. Labels are taking their time to make sure their catalogues are placed with the right services and rightly so.

DJ :: Have some labels been wary of getting involved with an online MP3 distributor because their real-life distributor might put pressure on them?

TID :: Some of the distribution companies have talked of setting up their own download services and so a few labels are holding back to be a part of them. On the whole it has not been a major issue.

DJ :: So many vinyl distributors have gone bust in the past year - Prime, Ideal and Integrale and 3MV (UK) and EFA (Germany) - do you think that this signals that the time is right for online MP3 distribution?

TID :: Everything is now pointing to digital format and online sales although it could have been a very different picture if the time had been right before the rise of P2P networks.

DJ :: MP3 distributors must have far less overheads - no warehousing and shipping - than real life distributors: is that right?

TID :: It's relative. Our hosting and bandwidth costs are scary, perhaps not that large in comparison with warehouse space but the profit margins on a £ 1.50 download are not very big either. Where we eliminate some of the risk for a label we take on the responsibility and cost of advertising our service around the globe.

DJ :: This was also the first year that sales of MP3s worldwide outstripped that of vinyl: do you think that DJs are also buying MP3s and using them instead of vinyl: are there enough devices on the market now to allow DJs to spin a whole MP3 set?

TID :: Im not sure its a question of enough devices, more a question of enough legal material to buy in digital format. For DJ's its an extremely exciting time, never before have they had so much choice, Final Scratch, home producing and the power of the CD deck has really given DJ's the opportunity to choose the way they deliver their sets. You have to remember that in the UK we are spoilt for choice when it comes to buying music but its a very different story over seas. Parts of the world are desperate to get new music but its either not distributed to their territory or its very expensive, new services such as our own widens the scope.

DJ :: Even if this is the case, surely a lot of DJs will miss the warm, hands on feel of vinyl?

TID :: Will they miss paying at least £ 6.00 a pop?

DJ :: Do you think the above figure - sales of MP3s worldwide outstripped vinyl - signals the death of vinyl?

TID :: It seems we have more of a love affair with the 'death of vinyl' issue than we have with vinyl itself. Isn't it time to change the record?

DJ :: Is your target market DJs or more casual listeners to dance music who would buy a CD? Does your site sell whole albums on MP3? If so, would this be a big part of your sales?

TID :: Our target market is anyone who wants to listen to the music. MP3 seriously opens up the boundaries, until now you probably couldn't buy your favourite tracks unless you had a set of decks to play them on. Its not just the DJ's who know about the music being played on the dancefloor and im certain that many clubbers will be using our service to buy tracks to play on their MP3 players, this could massively increase labels sales figures. If MP3's become chart eligible you will be sure to see much more dance music in the Top 40. We are pioneering the online DJ Mix Compilation, 60 minute mixes by the worlds best DJ's in each genre provided on a monthly basis for £ 6.00. We expect this to be a big part of our sales as it will provide fans a chance to buy a true representation of their favourite DJ as opposed to an over marketed, computer mixed, commercially viable product from a major record label.

DJ :: Shawn Fanning, the founder of Napster, recently said that as a format, the CD is dead: would you agree and if so, would this prompt you to sell whole albums digitally on your site?

TID :: I wouldn't say its dead, far from it, for many DJ's CD has just begun. Optical storage devices certainly seem to be the next move forward. I can't wait to hear people moan in 5 years time that a memory stick doesn't feel as nice as a CD does!

DJ :: Nowadays, there are also MP4s available: is the sound quality much better? Does your site sells MP4s and MP3s or just one format? Do many devices support MP4s yet?

TID :: There is Mpeg-4 and MP4. For the time being I think MP3 is safe, its trusted by the user and delivers CD quality sound at a reasonable file size. As with any format it will become obsolete at some point and be replaced with something better.

DJ :: Is encryption and getting it right, having perfect sound quality a big part of your operation? How do you encrypt, from a vinyl or digital source?

TID :: All recordings are encrypted from the master recordings by the record labels themselves.

DJ :: Do you think services like yours will make it more difficult for the real life, independent record store? Is it a good thing if these small shops die off - or do you just see it as part of an evolution?

TID :: I foresee a trade in second hand vinyl for many years to come, I simply can't walk by a second hand record shop without spending several hours inside and more money than I should.

DJ :: By the same token, do you think services like yours help small labels survive and give them extra revenue?

TID :: Without a doubt, in theory a small independent label can release this years big summer track and take it all the way without having to sign it over to a major.

DJ :: How do you see your service developing over the next few years: will you broaden the style of music or do you think there are and will be enough people catering for pop, rock etc?

TID :: We have some great ideas for the future including our own anti piracy programme. As far as the music goes we will be keeping one step ahead of the competition and hopefully the pirates too.