Dialogue: More with eMusic's Pakman

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Editor's note: This is Part 2 of a two-part discussion with eMusic's David Pakman. Part 1 was published Tuesday.

NEW YORK -- The Hollywood Reporter's business editor Georg Szalai asked eMusic president and CEO David Pakman about sluggish physical music sales trends, the long tail and the digital music service's international business.

The Hollywood Reporter:
Warner Music Group CEO Edgar Bronfman Jr. recently said that physical music sales today often fall off significantly a week or two after a release. Is eMusic seeing different trends?

David Pakman:
The eMusic customer base is typically not as chart-oriented. They don't buy just what's hot because it's hot. The last Paul McCartney record is an interesting example. After the first week, as is typical, sales trickled down at most other retailers significantly. But for us, it held for weeks and weeks. ... Records have a way of organically growing on our service when people recommend them to other members. We see different sales trends than what you see in the mass market. A record can have a lot more longevity, even if it doesn't get played all over the place.

THR:
So, you are more of a long tail play?

Pakman:
We have a catalog now of 2.7 million tracks. It's the largest selection of independent music. Even with a catalog that big, the number of times that each song sells at least once every quarter (is high). More than two-thirds sell at least once every quarter. It's a really long tail. We are the long tail.

THR:
What's your most popular pricing plan?

Pakman:
The most popular plan in any one of these kinds of businesses is always the cheapest one ($9.99). Everyone usually comes into this plan and migrates other time.

THR:
You recently offered Apple Inc. CEO Steve Jobs a lifetime subscription to eMusic to thank him for his stance on digital rights management and the introduction of the iPhone.

Pakman:
I used to work at Apple, so I feel we have a little bit of liberty here. We have been compatible with Apple products for a long time. We are up until recently the only digital music service to be compatible and still certainly the largest non-Apple service that works on iPods. And now we work on the iPhone, too, because that's an iPod.

THR:
Speaking of phones, you recently signed a mobile phone deal with AT&T. Why is AT&T a good partner for you?

Pakman:
In the over-the-air (music download) launch with AT&T we announced four phones. That is growing to 20 by the end of the year, which will be more than half of all the phones they sell.

THR:
Tell me a little more about the mobile music opportunity. In the U.S., consumers have focused more on online downloads so far.

Pakman:
We target an older demographic than most other music retailers. We focus on 25 and older customers, both online and mobile. Their behavior is pretty different from the teen audience's. There is not a lot, our research shows, of ringtone sales and certainly fewer mobile phone downloads to our older demographic. But it doesn't mean that it will always going to be that way. ... All of the (telecom) and ringtone companies today are selling and promoting only teen pop and rap. So, they are targeting kids, because they believe kids will be most receptive. But that doesn't mean only kids will buy music on the phones. There is no question that over the next three years, you're going to spend more time, not less time, browsing the Internet on your phone. If that is the case, then we as a digital seller of entertainment goods, we have to make sure we're really good at selling stuff on the phone, too. I don't think in this country mobile-based downloading of full-length songs is going to overtake PC-based any time soon. But certainly over time, the balance will shift a little bit.

THR: How about Verizon and Sprint? Do you have any or are you planning any similar deals with them?

Pakman:
We have a partnership with Verizon on their broadband side, but not on mobile. We don't have any partnership with Sprint. Those two companies have taken a very different approach to AT&T. AT&T said at the end of the day, this is the Internet on your phone, so shouldn't the brands that are really good on the Internet be available on the phone? You can't expect that AT&T is going to be able to build the next eBay, the next Amazon and the next iTunes and next eMusic and the next Netflix.

Verizon and Sprint said the opposite thing. They said let's build a music store, and let's build a video store and a movie store. I think that strategy is a very limited one and requires the consumer to get comfortable buying from a brand new brand he has never had any experience with in retail. In Europe, the AT&T strategy has become more prominent.

THR: How about your international mobile business opportunity?

Pakman:
Mobile entertainment adoption on handsets is far greater in Europe and the Far East than here. We have great opportunity there. ... There is a lot of activity now in Europe, with carriers saying we didn't even realize you can offer your service on mobile. I'm pretty confident (AT&T) will not be the only carrier that we announce we're working with.

THR: Which international markets are particularly strong for eMusic?

Pakman:
About a quarter of our business is in Europe, and that's spread out across the whole EU. We're the only music service available in the entire EU. We are not in the Far East yet, but obviously we see opportunity there and will probably be more mobile-focused, particularly in Japan, Hong Kong, Korea.

THR: China?

Pakman:
It's on the list. The challenge with a lot of the Asian markets is that the majority of music purchased is indigenous, local content. If we show up in China, our catalog is not very interesting to them until the point where we license the majority of Chinese music.

THR:
I heard that some unknown music and some new bands have exploded thanks to eMusic. Give us an example!

Pakman:
There are a couple of bands we have helped really expose to a much larger audience than they otherwise would have. Bands like Beirut, which really was promoted by our editorial department ... that really helped create a great online buzz for them and sell a lot of units (90% of their sales have come via eMusic). The National is a new one that we have been behind.

THR:
Who's the best-selling artist on eMusic?

Pakman:
The best-selling artist of all time is John Coltrane. A record that has been selling really well is the (latest) Spoon record. Johnny Cash, Tom Waits (are among many others that have also sold well).

THR:
Anything else about eMusic that you feel is misunderstood?

Pakman:
I think the editorial is misunderstood or overlooked. We have 200 people, and they have written more than 3 million words of original content. That are reviews, what we call eMusic dozens, there are columns and features. That's not just written by a merchandiser, but a music expert. I think most retailers underestimate how important -- at least for this customer segment -- context is. It's not enough to say just we think you'll like this, but why. ... There is always a story behind an artist, and there is a story to tell. It's not like selling cars.
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