Why most digital distribution start-ups will fail

Music industry blog Coolfer has an interesting post this week about online tools for do-it-yourself musicians in which he points to a relatively new service called Speakerheart. I checked out the service, and while I agree with his assessment of the interface--it's based on Adobe's Flex (an offshoot of Flash) and is very slick and easy to use--I think that Speakerheart, like most other digital distribution start-ups, is going to have a very hard time.

The process is pretty straightforward: Artists sign up with Speakerheart to sell their songs through a digital storefront on the site. Artists have complete pricing discretion, but Speakerheart takes $0.25 per song. Speakerheart's big differentiator, though, are the widgets (known as "Shelves") that offer streaming samples ("Speakers") and the ability for listeners to bookmark songs that they like ("Hearts"). Musicians and fans can place these Shelves on any site that accepts Flash, including MySpace pages. For artists, the idea is that users will be able to stumble across your music on a wide variety of sites, sample your music, then proceed to your storefront to buy a song or two.

The problem with Speakerheart and other digital distribution start-ups is a lack of critical mass. Artists with labels or a significant fanbase don't need the service--they can sell digital downloads through their own site or the label's site. In either case, they (or their label overlords) will keep a greater percentage of the sales price. That means that Speakerheart will continue to draw relatively obscure acts, which means that few listeners will have any reason to visit the site or place widgets on their personal pages, which will keep the service too obscure to draw any acts with a significant fanbase, and so on--a sort of obscurity death cycle. The only way to break this cycle would be for Speakerheart to get a few name-brand artists to place their songs with the service, but that requires big marketing bucks or a lot of luck (a formerly obscure Speakerheart artist becoming the next U2, for example).

The folks at Speakerheart might say "But look at other services that started with independent artists, like eMusic and CD Baby--if they can do it, why can't we?"

In the case of eMusic, the site had first-mover advantage: it's been around for almost 10 years (!), and has been able to sign up a lot of independent labels with rosters including multiple acts. With 2.8 million songs available, fans of independent music already know to look there, and new labels (or the aggregators that serve them, like The Orchard) strive to get their music placed there. With CD Baby, the service started by fulfilling a difficult role for most artists--online distribution of physical CDs, including packaging, shipping, tracking, payment processing, and so on--and only later expanded into a digital aggregator (placing its artists' music on services like iTunes) and direct digital distributor (selling MP3s on its own artist sites).

My point: if you're a beginning artist, I still think the best recipe for success is to give full downloadable samples away on your home page or MySpace, then sell your music through a service like CDBaby or TuneCore (another aggregator that resells your music through iTunes and other services). You've got to go where the people are.