In your recent interview on Bloomberg you said the DJ is your primary customer. When I heard about the EMI deal, which brings artists like Kylie Minogue, Depeche Mode and Kraftwerk into the Beatport catalog, I wondered if you were expanding focus on the non-DJ. Is that true?
We are still
completely for DJs, I think a lot of things we do reflect that. Our whole site is designed around making sure our DJ customer can preview as many tracks as possible, as efficiently as possible so that they can really feel like they know what's available to them to put in their set. That's very different than building a record store at Amazon or iTunes in terms of the behavior that you're trying to support so yeah, we are just about DJs... The only time that the clubber or fan is really in my equation is when I can help DJs reach those fans. They're not my music customer.
Some people have voiced concern that having big name pop artists on Beatport will drown out smaller names and labels. What's your response to that?
That is not only a really good question, it's the very question we asked ourselves before really entering and negotiating for these deals. So I have a few different answers for that. One: it's worth mentioning that we signed Warner months ago. We didn't do a press release or maybe we did and a bunch of people didn't notice, but we signed Warner months ago and it clearly has not negatively effected the indies because I'm not getting any complaints. And Warner has put out some great records for us—they're relaunching their Big Beat label. You know, think what you want about Skrillex, but that record was explosive for us and that record was a Warner Brothers, Deadmau5 partnership and we didn't see that record coming
at all. The week that record came out we didn't feature it, we didn't know it was going to be as big as it once and it happened organically on its own and frankly we got behind it as it was exploding, not beforehand. Beatport's business is all about independence and it's all about, frankly, the independent music creator.
I don't know if you know my background, but I've been a vice president and senior executive at Napster, at Amazon, at Music.now at AOL. At almost any, if you've worked at a big record store too or anything like that, in most music environments, Spotify absolutely included, the major labels make up somewhere in the neighborhood of 60 to 80 percent of all consumption of music. Obviously that's why they're the majors. In Beatport, there is not a single label—and we obviously have tens of thousands of them—not a single label including the majors we have that make up more than three percent of our sales, which I think is really really unique about Beatport and is one of the reasons that I was excited to come work here. I think that's because, If I'm going to go out and DJ this weekend, I want to make darn sure that my set is reflective of me and doesn't just sound like the guy who's going to go before me and the guy who's going to go after me. So our customers are digging in the crates incredibly deep, I mean that's just what DJs do, that's not just Beatport's customers because, you know, although you might want to play the Fedde Le Grand track this weekend, you're going to want to make sure most of your set is unique to you and as a result, there's a really big spread across the music that Beatport offers because people want it big, they don't want to have the same record that everyone else has. So I really doubt that the major labels will begin to squeeze stuff out of our charts. I mean let's face it: if you're a generic pop fan, you're not going to come to Beatport anyway. It's more expensive than going to iTunes or Amazon, it's not the same kind of shopping experience you're used to if you're a non-DJ.
That said, I think those are valid concerns, and we're watching it. The lifeblood of our community is independent creation of art and what I'm really excited about is I actually feel like the majors are kind of joining us on our playing field. I've done deals with majors for much much bigger companies and we really waited until the majors were willing to do business with us on our terms. We're also, as far as I know, the only people offering a two minute preview of major label content because, as far as I'm concerned, DJs need at least two minutes of a preview to determine if something's going to work in their set. So my meta-answer to all this is I think everyone's concerns on all this is totally valid. We're keeping an eye on it, but the world is changing and especially in our environment where I don't even think our customers ultimately care who made the record they're previewing, they just care if the record they're previewing sounds like it would be good in their set. And that's the way I've always been: I don't really care where a record came from, I just care if I want to play it.
So basically what you are saying is that the reason people come to Beatport is to find something that will make their set unique, and in that environment, pop will never win out over underground music.
As a matter of fact, we see this life cycle in which when one thing hits the top ten, you know, the coolest DJs in the world are probably finished with it. So we're keeping an eye on that because it's important to me that our charts and our editorial are reflective of our community and not reflective of some large corporation's business agenda and I think we're doing a good job of it so far, but I'm keeping an eye on it.
Some of our users expressed suspicion about the accuracy of Beatport's top ten charts.
That comes up all the time and I'm happy to talk about that. I think people worry about that because people do try to game our charts. You could do a Google search right now and you could find a company in Australia that for a fee will attempt to game the iTunes charts for you. Obviously being in the Beatport top 100 or top 10 on the homepage or for a specific genre is very meaningful to a label, DJ or producer's career. You know, getting in the top 10 can really change your booking fees and your whole outlook and so it's incredibly important to us that those things be valid and transparent. So they are based only on sales and we have technology in the background that watches every single transaction to see if there is suspicious connecting behavior. The most obvious is, we prevent the same user ID from buying something more than three times. Sometimes I have to buy something a second time or a third time because I've lost it, I'd rather just buy it again than go hunting for it. But we have, and I'm not going to tell you who, we did find three times people trying to do it. We always catch it before it hits the top 100 and is ever really benefiting from it and we take the content down and we punish the label. Although some people might joke like, "Oh, Beatport makes some extra money," it's so little money compared how much our credibility is worth to us. So that's a common question, it's not that crazy of a question, because I don't know how old you are but I'm old enough to remember when the Billboard charts were fixed and, you know, it's extremely important to us that those charts remain credible, and the customer care team and the transaction team keeps an eye open for that kind of stuff and frankly, since we've been really punishing the people who've all but tried to do it, it seems to have all but stopped because we have been very direct with people that that is an unacceptable behavior.
And frankly, and I don't mind telling this story, the Skrillex record was selling so fast that a bunch of us thought that looked weird, but we went and looked at our tracking technology and there was nothing weird about it. People from all over the world in a gazillion different states with a gazillion different payment methods were buying that record like there was no tomorrow. So when something comes from out of nowhere, I can understand when people ask themselves, "Well how did that come out of nowhere?" So it's a totally valid question and I think it's good to point out, you know, that any label who thinks that's a good idea are really going to hurt their business and any reputation of any artist that they are trying to help.
I do want to comment on one thing a lot of people notice: releases on Mau5trap and Toolroom chart a lot, and someone else on
this thread talked about territory restrictions and I want to talk about territory restrictions for a second and pull that back to charts. So, first off, territory restrictions are not Beatport's fault. We sign labels and they tell us what rights they have to give us and many many labels earn a substantial amount of their revenue from foreign territory licensing, meaning, put out a record in your home territory, grow some buzz in your home territory and then license it to other labels to release in other territories. The problem with that is it creates territory restrictions on content. Most of my favorite stuff is actually British, and the territory restrictions really affect me as a US customer quite a bit. One of my favorite records of last year is the most recent Audio Bully's record. I think it's a great freaking record, but a band like that, their strategy is often to put out their record independently in their local territory and then attempt to get someone to give them advance to put the record out in other territories and bigger territories. So I actually can't buy the Audiobully's "Reset" remix that I want right now because it's territory restricted.
So the short part of that story is: I feel your pain, it sucks. The difference, and I think this is an interesting choice: Beatport's been around for seven years. Beatport's been around before there was an iTunes and some things that we do, like showing you the content that we can't sell you, are legacy decisions. I think showing you that content is interesting––at least you get the chance to know it exists.
That said, I want to tie that back to the charts though because smart labels have figured something out of how to be popular on Beatport and territory restrictions and this is a piece of advice I'm going to give to every label in the world: before you begin your global licensing strategy, you should deliver the release to Beatport as an exclusive for global rights. Build your buzz at Beatport globally, without territory restrictions, and you have a much better shot at reaching the top 10. If a label delivers us one of their records, but they only give it to us for some territories and it's territory restricted in others, just by basic math it's going to be harder to chart, it's going to be harder to get enough sales. And what the good people at Mau5trap and Toolroom do well, and I would love to see other people do this, is think of Beatport not only as their first stop in terms of generating revenue and reaching DJs, but think of Beatport as the first step in breaking a record. One of the jokes we have about Beatport is, "We're the world's most amazing promo service that will also send you a check." Breaking a record at Beatport is important in terms of getting commercial and film and sync licensing deals in the future, it's important in terms of getting great global bookings for yourselves as a DJ. So I would really suggest to people that before they begin their global licensing strategy, they can build their record's buzz at Beatport with a global license and then our customers are the key pacemakers. This guy who's complaining here about territory restrictions––I bet there's been a dozen records this year that he couldn't get and as a pacemaker, he would have been out DJing with those tracks and helping break those records. It's a loss to everybody. So I think the biggest thing I think we can do is to get the labels to think about developing this records on a global basis.
Another commenter asked why Beatport doesn't used demand-based pricing. What can you tell us about that?
It's funny because I've been selling digital music now for over 15 years and I was a big fan of the idea of demand-based pricing... but now I'm going to get really philosophical and Karl Marx on everybody: demand-based pricing makes sense in a world of supply-and-demand. The rules of supply-and-demand don't actually work in the digital media space, demand-based pricing assumes that there is supply and when there's a supply of something. Like, I have a copy here of a Richard Dawkins hardcover book here on my desk and let's say he autographed 100 of them, then there is a supply of only 100 autographed copies of this book and if people want it, then me as the seller has an opportunity to increase the price because I know people want it and there's a limited supply. There is no such thing as a limited supply in digital media, it's just a copy. In fact, operationally the way digital media works is it costs YouTube, Napster, Beatport, etc. the same amount to ingest and package a piece of content that no one wants as well as it does a piece of content that everybody wants.
Now, in terms of our pricing model, we have three categories: there's new release, there's classic, there's general which is really the same as classic and there's exclusives. That pricing is based off of our human labor acquisition costs on the content. It costs us a lot more to make sure we're the first people in the world to have a record for eight weeks before iTunes than it does for us to just sit back and wait for the content to come to us. We have, in Berlin mostly, a team of eight people, full-time, who do nothing but scour the universe for the next kid in his basement making an amazing record. That's very different from what iTunes or Amazon does, which is sort of to lean back and wait for distributors to push content into their system. So it is expensive for Beatport to manage making sure we have all this content as early as possible for DJs to have a unique set. Once the life cycle of the track begins to evolve, we adjust the price to a lower price point, but in fact, and I'm sure most labels know this, your biggest impact opportunity for selling something for Beatport is the first 8 to 15 weeks of release. And that makes sense to me because we're about breaking records and once the record was "broken", then every kid and their mom is going to want to pay 89 cents for it at Amazon and they don't care if they get a high quality audio file, they're just going to listen to it on their earbuds. So demand-based pricing is just an interesting debate in digital media since there's no supply issue. Nothing's rare in digital and our pricing, you know, is reflective of the value we think we're bringing to DJs. You know, I mean a great example is when we bring in this Depeche Mode catalog and Kraftwerk catalog, which I really think we should have, that stuff's classic stuff. You're going to see that, in all likelihood, at our lowest price points.
Another commenter said: "What's up with the price differences from currency to currency? It's not cool how America pays less for tracks than the UK or the EU regardless of tax."
Before the European currency crisis, last year was actually the opposite with people in the US paying more and this may be, maybe as a young person I don't know, because obviously it's been true forever that the same product might cost something different in a different territory whether it be a physical product or a digital product and it is very difficult for us to keep up with currency fluctuations. In fact from our end, because the difficulties the European currencies have been having, as a business we make less money selling a track in the UK now than we did last year, so I understand the frustration as a customer and I would love all of us to exist in a global marketplace, but we're not there yet and this is one of the side-effects. So I want to apologize to that guy's frustration, but I'm sure if he goes browsing Amazon, Amazon.co.uk and Amazon.de, he'd experience something similar. As a matter of fact, I checked iTunes pricing and iTunes has a much much bigger deltas between territory pricing than we do.
So basically it's just an economic truth.
Yeah, I mean again I get the frustration about it, but it's just not something I can control today. If I could, I would. My goal is always to make shopping at Beatport as easy as possible and if people are worried about anything like territory restrictions or, "Gee, could my buddy in Great Britain buy this for me cheaper?" None of that is the kind of thing I want people thinking while they're shopping. I want them to be thinking, "Shit! I need to place this break in my set!"
Another commenter asked why you don't offer discounts for the purchase of a whole EP.
Well, I think that also means, why don't we have what we would call a "Release Price"? I'm sure some people have noticed that sometimes a release or album is just a multiplier of the number of tracks and it ends up being insanely expensive. That's freaking broken and we're gonna fix that!
It's a mistake on the site's part you mean?
What it is is... and it's important again to remember that Beatport was built before iTunes existed... There was no template where you could go look at someone else's business and copy the way they do it and the Beatport platform is totally track-based. In our back end in the database, the system right now, we're fixing it, but the system right now is only aware of tracks and the flash-based UI combines tracks to make it appear that the database understands those tracks are part of an album, when in fact our back end doesn't really know that in a way that we can manage that pricing effectively. We have to fix that and we fix it by hand sometimes when we can, when we see an album that has a lot of interest. It's just broken and I'm sure we would sell more EPs and albums when we fix that. That is on our road map for this year. It's no small task, it really means throwing away our old SQL database and rebuilding it from scratch.
And then the other thing the same guy mentions is why don't we sell FLAC and what's up with the WAV handling fee. The WAV handling fee is something we're looking into for Q3. We're going to have a big, lossless file format product release in Q3 because we all believe that everyone should be buying a lossless file. There's two things we need to do to make that happen—because I'm sick of hearing MP3s in clubs, they make my head hurt. So the two things we need to do are 1) improve the experience of lossless files. We're inventing a new file format that will allow the lossless file to carry all the metadata. I buy WAVs from Beatport right now and there's no metadata in it, it drives me insane. That's not Beatport's fault; WAVs don't hold metadata. So we're looking at FLAC as well as other lossless formats to figure out what's the right lossless format for our customer. The problem with FLAC is there's still a lot of DJ software that can't use it very effectively and it's important to me that whatever you buy at Beatport you can use in your DJ tool of choice. [The second thing is that] we also need to make the pricing of the lossless format easier to digest. I'm totally with ya, I buy WAVs right now and it's not the perfect experience.