Digital Distribution: CDBaby.com Returns $200,000 To Members

Portland Oregon based CD Baby, the largest online seller of all-independent CDs, announced Sunday through their community website they were returning everyone's money who signed up for the companies five month old digital distribution program. $40 per album to everyone who paid the $40 for Digital Distribution. $200,000 total. (ouch!)

In his post, Derek Sivers, president/programmer, stated, the program is now a free service for CD Baby members. Members pay $35/per CD to go into CD Baby's online store catalog.

In an exclusive online interview, Derek explains the logic behind this historic anti-corporate decision.



Q: I understand about your fixed costs, but what about
the variable costs (encoding, delivery, and
accounting)? Can you cover these costs working on a
9% margin?

Yep!

Here's the thing:

We're already encoding every single CD that comes in the door.
We need to, in order to make the sound clips for the website.

So with the new system I've built, adding someone to digital
distribution is just a single click on our side.

Then the files are automatically encoded into all the different WMA and
AAC formats needed by the digital retailers, then automatically
uploaded to their servers within a couple days.

The accounting, too, is also all automated now.

The monthly reports will come in from the music retailers.
My script parses them and adds them to the musician's next CD Baby
check.

So - eventually yes this will be worth all the effort.
Until then I'm just waving off the $100,000 expense as a hard lesson
learned.

We've had a very good year, so it's been profitable anyway, even with
this chunk taken out.

Q: How is DD different from your barcode program?

One is a distribution deal.
One is a co-op resource we can give.

Q: Did your announcement generate a massive wave of DD
activity from your community?

Yep. Doubled our catalog in 2 days.
There are about 9000 artists signed up now.

Q: If an artist signs up
for the program today, how long will it take before
their CD is encoded and available for download?

Encoded and delivered: immediately.
Available : that's up to the retail/download service. Out of our
control, so I can't speak on it.

Q: Do any of the DD retailers have a program where
artists or labels can go into their catalog page and
add information?

Nope.

They just use the information we give them, which comes from the
database of information the artist gives us.


Q: Is there now a list of CDBaby artists that have their
music in DD catalogs?

Nope.

Same as my answer a few days ago:
This is still just beginning. I have no idea how long it will take now
for the digital music services to start making the music available that
we are giving them.

Once it's up and available on their service, THEN we'll be pointing to
it.

Until then, that's jumping the gun.