Chris Bisha's Blog

Broadband speeds will get considerably faster over the next four years, according to a research note issued Tuesday by Parks Associates. The Dallas-based group noted that more than 33 million US households will enjoy speeds of 10mbps (megabytes per second) or higher by 2012, a jump from 5.7 million currently. This increased speed is a critical ingredient for continued innovation from companies leveraging internet-based technologies, particularly music, video and game delivery.

Research like this supports my contention that, as we move through the digital maturity process, technology that delivers content to jukeboxes will inevitably change. For instance, faster throughput, higher capacity and greater reliability in the broadband infrastructure will make streaming technology feasible and viable. And as DRM-free, unprotected music files become the industry standard, more digital music options will become available to operators. (I was interested to note that Amazon’s MP3 store now offers DRM-free music from all four major labels.)

According to the Parks associates report, just 9% of households are currently wired with 10mbps or faster broadband service. But users are thirsty for extra bandwidth, and ISPs are likely to satisfy the demand. This increased speed will obviously be available to locations, as well. Cable companies like Comcast and Cox are upgrading their cable infrastructure and AT&T is busy laying miles of new fiber in an effort to compete with the cable companies. 10mbps is coming soon to locations on every operator’s route.

Fattening pipes will power a continued surge of innovation in music, video and gaming. The next four years will likely see a dramatic shift in technology delivering content to locations. Operators will do well to keep their eyes on this dynamic and rapidly changing environment and be ready to take advantage of new opportunities. Be aware that the contracts and hardware you commit to today might not support the profitable technologies of tomorrow.

If you’re involved with music, check out a site called digitalmusicnews.com. Read their top stories and you’ll see that there is a vicious, blood-thirsty battle being waged over how music will be delivered to us and how the interested parties will get paid. Now that jukeboxes are beginning to go digital, they are just a tiny part of this vast commodity market. And keep in mind that digital music is in its formative years; formats will likely change before a standard is established.

How can the jukebox distinguish itself in this cutthroat world of music overload? I believe there are two unique qualities of the jukebox that have established it as an icon of American culture: compelling designs and unique features. Our industry may have lost sight of these qualities in its rush to embrace an evolving technology and an uncertain business model.

Industrial design has always been a vital part of the jukebox music experience. Jukeboxes have a presence in a location and strongly influence its décor and vibe. The Wurlitzer 1015 “Bubbler” is still the undisputed standard-bearer of jukebox industrial design. One of my personal favorite designs is the extremely rare “Yellow Submarine” model that Rock-Ola made to honor the Beatles’ beloved cartoon feature film.

Today, the jukebox business is more about selling music and software and less about noteworthy design. I recall jukebox legend Glen Streeter remarking that he didn’t want Rock-Ola to be a software company. “I want to build jukeboxes,” he told me. Another jukebox luminary, my colleague Joel Friedman, echoed Streeter’s sentiments. “The AMOA Expo used to be built around the introduction of new jukeboxes. Manufacturers have gotten away from the glitz and glamour of design. The jukebox has become a glorified radio station. Have jukebox manufacturers forgotten to manufacture jukeboxes?”

In the early 1990’s, the industry was in the process of making a wholesale shift from vinyl 45-rpm records to compact discs. The new machines were revolutionary in their incorporation of album cover art into their designs. The sexy new technology and the innovative new graphic element fueled a jukebox renaissance. Sales soared and jukeboxes were welcomed into new upscale locations.

Today’s new machines, while technologically advanced, lack a compelling design aesthetic. They tend to have the sterile feel of an ATM, with serviceable and dull cabinets. Their touch screens don’t have the tactile intimacy of buttons and they’ve lost the captivating mechanical element of whirring gears and spinning discs. In a world increasingly dominated by computers, we want our jukeboxes to be warm and inviting with a friendly glow of nostalgia.

Despite their industrial design shortcomings, one of the great promises of digital machines is their potential to harness new technology to enhance the jukebox experience. A good example is TouchTunes’ online affinity network, mytouchtunes, that allows users to create and share playlists. But for the most part, the digital jukeboxes available in the US have very similar software platforms, user interfaces and graphic themes. It seems that much of the technology being integrated is in the interest of gathering information about people in order to sell their eyeballs to advertisers.

At ATEI I was introduced to an intriguing new jukebox feature. I visited with Simon Davis, whose company, Soundnet, is a music provider to digital jukeboxes in the UK and Europe. Soundnet has developed a new proprietary technology they call Trackdial that allows customers to select and pay for jukebox tracks using a mobile phone. The technology delivers all the facilities of the jukebox via a WAP-based mobile phone interface. WAP stands for “Web application protocol,” and it enables access to the Internet from a mobile phone or PDA (think Windows Mobile). Customers can play the machine from areas currently not served by a coin slot such as sitting, smoking and even in the rest room. Mobile selection allows for multiple simultaneous users, as opposed to one person at a time in front of the machine. No cash is required, as all plays are charged to the customer’s mobile phone bill.

Davis talked about how Trackdial can enhance the unique character of a location. “One of the great things about Trackdial is that it can be personalized to the pub, bar or club. Not only will customers receive a message to welcome them and inform them about the service, Soundnet can also create venue-specific track selections to maintain the familiar feel of the location and drive music sales and footfall.”

Trackdial also allows customers to purchase tracks and ring tones that are delivered directly to their mobile phone. This could well become an attractive jukebox feature in the US, as labels continue to look for new ways to deliver legal, paid downloads to music fans.

Jukebox music is an event shared by people. We can listen to our favorite song as often as we’d like on our headphones, but we are drawn to share music with the communities of people at our local taverns. New digital jukeboxes need to do more than increase revenues; they need to inspire people and encourage a greater number of plays. In our tech-savvy digital world, pay-per-play location music can do a better job of distinguishing itself from the seemingly limitless noise pollution in our lives. Bringing digital technology into the jukebox world is inevitable, but let’s make sure that it has the soul that we love about vintage jukes. In a world of iPod nights, 120-gig hard drives and satellite radio, let’s not forget the importance of compelling industrial design and cool features that enhance the shared experience of jukebox music. As Joel Friedman says, “Remember, a jukebox must be a jukebox first.”

Album Sales Drop 15 Percent in US

The US-based recording industry suffered a steep decline in 2007. The tracking firm Nielsen Soundscan reported album sales declines of 15% for the year. Nielsen counted albums sales of 500.5 million units during 2007, a marked decrease from 2006 sales of 588.2 million units.

More specifically, Nielsen reported a 19% decline in CD sales, the record industry’s primary product. This represents a faster than expected decline of physical-format sales.

Digital albums are also included in the total album tally (10 digital tracks equals one album), although their impact was modest. During 2007, digital album sales increased 53% to 50 million units, and Internet-based physical album purchases were up 2.4% to 30.1 million.

In terms of top sellers, Josh Groban grabbed first-place honors with album sales of 4.8 million, followed by Hannah Montana (3.9 million), The Eagles (3.6 million), and Carrie Underwood (3.2 million).

Similar Story Worldwide

In Canada, album sales dropped 9.5% to 41.8 million units for 2007, according to Nielsen. Digital album sales nearly doubled to 1.98 million units, up from 1.0 million in 2006. Individual digital track sales increased 73% to 25.8 million units.

In the United Kingdom, total album sales dropped 10% last year, according to trade group BPI. British downloads continued to grow, with paid downloads totaling 77.6 million, up 47.7% from a 2006 total of 52.5 million.

According to British publication The Economist, global estimates of the decline of physical-format sales range from a 6% decrease in the UK, 9% in Japan, France and Spain, 12% in Italy, 14% in Australia, down to 21% in Canada.

Universal Commands Top Marketshare

According to album-specific figures released by Nielsen Soundscan, Universal Music now controls a share of 31.9%, up from a year-ago share of 31.61%. In second-place is Sony BMG, with a 24.97% share, down from a year-ago figure of 27.44%. In third, Warner Music increased to 20.28%, up from 18.14% in 2006. Last place goes to EMI which fell to 9.37%, down from their year-ago figure of 10.20%. Interestingly, independent labels improved to 13.48%, up from 12.61% in 2006.

Paid Download Sales Plateauing?

Paid downloads clearly gained last year, though concerns of a plateau remain. According to Nielsen Soundscan, paid downloads reached 844.2 million units in 2007, a 43% jump over the 2006 total of 581.9 million. The 2006 number represents a 65% gain over 2005 sales of 352.7 million paid downloads.

Most worrisome is the fact that absolute gains are showing softness. In 2007 paid downloads increased 262.3 million, just slightly higher than the 2006 increase of 229.2 million. Paid download performance was similarly flat in the UK where absolute gains were approximately 25 million in 2006 and 2007.

In any case, there is general agreement among music industry experts that the increase in paid downloads is not adequately compensating for the decline in sales of CD’s.

New Year, Same Problems

2008 isn’t starting out any better for the major labels, as first-week sales continued last year’s downward trend. For the period ending January 6th, year-over-year album sales were down nearly 4%, again according to Nielsen Soundscan. Specifically, album sales totaled just over 9 million units, 3.7% below year-ago performance. Within that total, physical-format sales of CD’s declined 16% to 6.14 million units.

Predictably, the digital story continued to show improvement. Paid downloads jumped 31.9% to 28.4 million, a figure boosted by iTunes Store gift cards and new iPod owners.

There is no denying the music business is embroiled in a massive downturn.

New schools of thought in the music industry suggest that a subscription service is becoming a more attractive option for digital jukebox music. Under a subscription model, operators would still contract with a music provider for access to digital music. However, this model would differ from the current one in that the operator would pay a flat monthly fee per jukebox, instead of paying the music provider as much as 20% of gross revenue per box. For this flat rate the jukebox would have access to all songs on the music service. Music would be streamed via a broadband connection. I like this model and think it would have benefits for our industry.

Subscription services are becoming more popular in the broader consumer digital music market. Napster and Rhapsody are now subscription services. I subscribed to Yahoo!’s Music Unlimited service earlier this year. The service costs $6 a month and requires the Yahoo! Music Jukebox player software. As a subscriber I can listen to any of the 2 million-plus songs in their library, streamed to my computer. I can purchase tracks at a reduced price (typically 79¢, $9.99 for albums) which I keep even if my subscription lapses. Purchased tracks can be transferred to a portable device or burned to a CD. I have found Yahoo!’s catalog deep and rich, covering more genres than I knew even existed. It’s been rare that I haven’t found something I’ve been looking for.

Record labels, weary of slumping CD sales and the erosion of profits, have seen the writing on the wall for the traditional distribution model and seem to be warming to the idea of a subscription model. Non-traditional label insiders contend that a subscription model is the best hope for a crumbling industry. Legendary producer Rick Rubin, famous for reinvigorating Johnny Cash’s career, was recently hired by Sony to co-head Columbia Records and made this assessment of his new employer and the industry in the New York Times:

“Columbia is stuck in the dark ages. I have great confidence that we will have the best record company in the industry, but the reality is, in today’s world, we might have the best dinosaur. Until a new model is agreed upon and rolling, we can be the best at the existing paradigm, but until the paradigm shifts, it’s going to be a declining business. This model is done.”

Rubin went on to say that he believes the subscription model is the only way to save the music business. He contends that if music is easily available at a price of five or six dollars a month, piracy could be drastically reduced.

For the subscription model to be effective in the consumer digital music market, all the record companies will have to agree. The so-called “big four” – Sony BMG, EMI, Universal and Warner – have been in rabid competition for years and haven’t shown much willingness to play nice together. We'll see how this plays out.

Any of the current subscription services’ music libraries would work for the coin-op industry, but public performance rights would also have to be secured with the performance rights organizations (PROs) – BMI, ASCAP and SESAC. This would be no small task.

The subscription model would benefit the operator by taking the music provider out of the collection process. The operator would be back in an autonomous relationship with the location. He could set play pricing and commission splits. He could even operate machines on a cash-only basis if he so desired. It would also benefit the music provider by creating predictable revenue streams. Even the record labels might be happier, since music would be streamed to the jukebox with no copy remaining on the juke's hard drive.

Certainly, there are some significant hurdles that need to be cleared before a subscription service is viable for our industry. Encouragingly, an open, third-party music source is the official position of the AMOA. Its jukebox subcommittee is pursuing this option in its ongoing dialog with the PROs.

Check out one of the subscription services and see if you think a version of the model would be good for the coin-op industry. I'd like to hear more opinions on the subject.

Picking songs on any jukebox is a challenge. Whether it's digital, CD or 45, it is an art that's part mix tape concoction and part DJing. There are obvious pitfalls -- no one really needs to hear "Sweet Caroline" or "You Shook Me All Night Long" again, right? (Don't get me started on "Free Bird.") Can you impress your music-geek pals with the right mix of crowd-pleasing hits, obscure album tracks and blasts from left field? But of utmost importance is having a feel for the vibe at the location to keep from detonating a musical land mine. For example, just because a metal bar has Michael Jackson's Thriller on it doesn't mean that everybody wants to hear "PYT" at midnight on a Friday.

This is the danger of the digital jukebox: If every jukebox offers essentially infinite choices we run the risk of homogenizing the location music experience (or at least turning the place into some dork's personal slumber party). Personally, I don't want someone to be able to play Justin Timberlake's "SexyBack" at my favorite watering hole, just like I don't want to go eat at TGIFriday's when I visit Chicago. Homogenization has contributed greatly to the death of over-the-air broadcast radio, pushing radio fans toward satellite in search of variety and a bolder editorial voice. The same thing could happen to jukebox music.

The jukebox has traditionally made a statement about the location. Walking into a joint and finding a lot of Gretchen Wilson and Rascal Flatts on the jukebox is very different from finding the juke packed with show tunes. A good location is a community, and I think a jukebox that's all things to all people runs counter to that notion. It's nice to be able to play the Replacements and Wilco at any place I want, but when I find those bands waiting for me on the "record machine" I feel it's a place that I belong.

Happy 25th birthday to the venerable compact disc! 25 years ago on August 17, 1982 the first CDs were pressed in a Philips plant in Hanover, Germany. By most accounts, a recording of Strauss's Alpine Symphony conducted by Herbert von Karajan was encoded on those first CDs. But ABBA's last album, The Visitor, was the first pop music to grace the shimmering new discs. Philips and Sony teamed up to develop this first mass-market application for digital technology, and 200 billion CDs later, the format has been a massive success.

CD player sales overtook sales of vinyl record players in 1986, about the time the first CD jukeboxes were beginning to emerge. But there was early skepticism in the industry about the new format. Some veterans of Rowe International are said to have developed their first prototype in an engineer's garage in Grand Rapids, because management felt the technology would never supplant 45 rpm records. By 1988 sales of CDs had overtaken vinyl records, and CD jukes were revitalizing a flagging jukebox market. The sexy new technology opened doors that had previously been closed to jukeboxes. While definitive figures are had to come by, industry insiders estimate that upwards of 300,000 CD jukeboxes have been sold to date.

Now the next wave of digital technology is grabbing headlines and challenges CD's dominance. According to Soundscan, MP3-type digital album sales (where an "album" is defined as 10 digital tracks) were up over 100% in 2006. Early returns for this year show digital album sales matching that pace in 2007. Meanwhile, CD sales were down about 8% in 2006, and are down about 20% through the first half of this year.

At 25 the compact disc may be entering its golden years, but we're not going to be attending its funeral any time soon. Digital albums accounted for just 6% of the over 588 million total albums sold in 2006, while CDs accounted for 94%. The real problem in music is that the recording industry itself is ailing. Total album sales were down 5% in 2006. While digital sales erode profit margins, industry A&R pros find blockbuster artists increasingly scarce. As genres continue to subdivide and music fans become more empowered and mercurial, record labels will cling to the physical format over which they exert total control of production and distribution.

The demand for a physical format for recording is still strong, as well. The CD continues to be a favorite method for sharing music and playlists. The inclusion of a CD or DVD writer on almost any new mid-level personal computer is evidence that we still value and desire a physical format for recording, copying, sharing and archiving our favorite music. A lot of this activity is actually legal, as well.

So don't dump the CD just yet for the latest hip technology. Savvy operators are still finding creative ways to make money with their existing CD jukes, many of which are now owned free-and-clear. The new digital technology and hardware that is making its way onto locations now is quite likely not going to be the system that ultimately reigns supreme for the next 25 years anyway. So, watch the length of the contracts you sign, stick with the disc and keep more of what you earn.

The technology shift is on in the jukebox business. And the growing pains we're currently experiencing are similar to those experienced by Hifi companies in the mid to late 90's. Enco Systems not only supplies compact disc technology to the jukebox industry, we have also worked closely with some of the top Hifi companies on their CD designs. This experience gives us a unique perspective on today's technology shift in the jukebox market.

With the introduction of CD technology in the mid 80's, boutique Hifi companies immediately began designing distinctive, high performance CD gear. However, these companies were never satisfied with the 16 bit, 44.1 kHz sampling rate resolution of the CD format. Designers clamored for a higher resolution version that packed a higher density of information onto the disc. When DVD was announced in the mid 90's, just the buzz surrounding this yet-to-be-delivered technology caused sales of Hifi gear to fall off dramatically. Audiophiles were convinced that DVD would be the Holy Grail for high-resolution audio and no one wanted to get caught on the wrong side of another format war. Many of us remember the battle between VHS and Beta video equipment. Some may also remember competing digital formats such as DAT (digital audio tape), DCC (digital compact cassette) and Minidisc.

Well, a funny thing happened while audiophiles awaited the arrival of the Holy Grail; they decided to stick with their CD rigs. After ten years of mastering experience, the sound quality of CD's had improved markedly from the first strident, harsh, irritating and thin sounding discs the labels had foisted upon music lovers. Sound quality on disc improved to the point where, to this day, "CD quality audio" is a description for the very best sound. Savvy Hifi companies like Madrigal Audio Labs (now a part of the Harman Specialty Group) recognized that audiophiles were retrenching and sticking with CD. Madrigal took the decision at the end of the 20th century to make the most of a supposedly marginalized technology. Over the eight-year period from 1999 to 2006 they enjoyed better than expected sales of their standard two-channel CD players and transports. And to date, the new high-resolution formats, such as SACD and DVD-A, have never quite taken hold. The point is that in the face of format uncertainty, audiophiles stuck with what they knew to be a solid performer and waited for the manufacturers to fight the format battle amongst themselves.

We face a similar situation in the jukebox business today. There is much uncertainty in the market about the current offering of digital downloading machines. Everything from sound quality to the business model is in a state of flux. And there are serious questions as to whether the technology being so aggressively marketed right now will even be the long-term format winner. It also seems unlikely in an environment of shifting technology and cut-throat competition that all the current players can survive. As more deals are made, music providers' margins erode. And in the next round of licensing negotiations, the record labels are certain to demand a bigger piece of the per-play pie.

The bottom line, as it always is in this space, is that operators can still do well if they stick with compact disc. Let the manufacturers beat each other up as this transition period plays out. Certainly operators themselves tell us that they are experiencing increased revenue in their best locations with digital machines. But they should also be careful of the terms to which they agree in contracts, and they should keep the duration of those contracts short. So consider going digital on your "A" locations, but keep more of what you earn with CD on the rest of your route.