Hard Day’s Night
PC Magazine‘s John Dvorak has words of warning for the recording industry:
When Edison first released his prerecorded cylinders, they sold for $4 each. With mass production, he eventually brought the price down to 35 cents, nearly a 90 percent reduction. If the same ratio held true with $16 CDs, the cost of which has been perpetually propped up by price fixing, they would cost $1.40. Since it costs less than 25 cents to mass-produce a CD, $1.40 is reasonable and profitable.
Of course, the industry would need to adjust from extravagance and sloppiness to frugality and normality. Less Dom Perignon, for starters. And it’s not as if record companies and artists won’t make money. 45-rpm singles used to cost 50 cents each, and it was a big deal to sell a million of them. Elvis Presley led a good life, it seems to me, by leveraging his career with those old profit margins. Heck, he was giving away Cadillacs.
It’s a matter of competition. A manufactured CD for $1.40 can compete with a bootleg copy: Manufactured CDs generally play better and come with nice packages and liner notes. The industry can still make millions of dollars, just not billions. And many artists can go back to making money the old-fashioned way
It says in this interview that album prices have been tracking with inflation over the last 30 years:
File Sharing
That would mean that CDs aren’t overprices after all. I haven’t checked that claim, though. But when Dvorak says that singles used to cost 50 cents that was in cents from 30 or 40 years ago. That would be 3 or more Dollars in todays money. Not such a great bargain.
What record industry? As someone who is interested in buying music, and pretty fussy about what’s worth even my time – let alone money – I find the music industry baffling. In the last 15 years, there have been about as many “albums” worth listening to (among the mainstream recording artists). I noticed this phenemon when Bonnie Raitt’s “Nick of Time” came out in ’89 (?). This record was designed for an adult audience, and many adults bought it as the only contemporary record that they had purchased since the 70s. A few more of these come to mind, but not many. On another note, I just saw Paul M. at $250 a pop. Although I’m not a huge Beatles (let alone McCartney) fan, it WAS worth the money. He played like he was one of the best rock stars ever. He also gave a product that people are quite obviously hungry for, melodic, driving, and thoughtful rock n roll. That said, I HATE just about all the music that I have easy exposure to – radio, the hot 20 at target, etc.
It doesn’t seem as though Dvorak’s argument takes into account the production costs of making a record. It takes at least 200K to 300K to produce an average album. More if the artist is a big name. Sure, $18 CDs are a rip-off, but $1.40 is cutting the profit-margin a little low.
Maybe not Britney alone, but Britney and Jenna and a whole other kind of laser disc…
Wouldn’t it be amazing if musicians had to actually play instruments to make money? All we have now is a bunch of no-class-ass-clowns who rap about their hometowns and rims. yikes.
Most products with any sort of technical process do not track with the price of inflation. Take your VCR–what did your first one cost? Try another product–can you now afford a DVD player? How long before you have a DVD recorder on your shelf?
If the VCR, et. al moved with the price of inflation…good god, it would be $800-$1000, if not more.
In short, delivery formats for entertainment are getting cheaper to produce — it won’t be too long before it’s feasible to download your favorite movie and burn it yourself. If the entertainment companies do not respond with prices that reflect what is essentially an increase in supply, the “market” will find a way.
Dvorak is mostly right…the train has left the station, etc.
You know the professor will pick this up of course. It’s his favorite topic. You must be looking for a spike in hits.
CDs cost less to produce than cassettes. CDs retail for more than cassettes. Part of it is your basic increased demand-increased price curve, but that’s not the whole picture.
Take your $300K production costs (assuming Dvorak hasn’t) and spread them over 300,000 discs, and we’re talking $2.40 for a CD.
No question there is price fixing involved, no question that price fixers are on a bad footing to moralize, and no question that reasonably priced CDs (reasonable is not a function of LP price + inflation; it’s a different technology) would eliminate a lot of the bootlegging problem.
I don’t get the complaints. Yeah, the record industries make a lot of money. Welcome to capitalism. Maybe you don’t think Britney’s worth a jillion dollars, but apparently enough screaming girls and horny guys do. Free market, and all that. Check Robert Nozick’s Wilt Chamberlain example for the philosophical justification.
You’re welcome to not buy the products if you think they’re priced too high. But considering that they make their money off of a luxury item that no-one is forced to buy, it’s not clear what the issue with price fixing is. Other than the fact that people don’t want to pay for the product and would like to get it for free or for a pittance.
I don’t know if it started with Napster or if it was around before, but there seems to me to be an unbelievable sense of entitlement on the part of music fans, as if it’s their birthright to get music for free. And those dirty record companies are evil for actually charging a price to maximize their profits.
This is like sports fans crying about increased ticket prices and high salaries. Maybe you don’t like it, but other people are willing to pay, so you’re just SOL. You’ve either been priced out of the market or you’re helping to support the system. Either way, that’s life.
I’m with Patrick. Britney and Jenna on a DVD (or even a grainy mpeg!), and the RIAA can have my soul.
K
Obviously this is an issue near and dear to my heart. The real crime isn’t that CDs cost $18. It’s that the bands get less than a $1 from that $18. The other crime is that the big labels are obviously in cahoots with radio. When was the last time you heard a Fugazi song on HOT FM? Never. Yet they sell 100,000+ of every release. (they also rarely play shows for more than $5!)
Buy indie.
Most indie rock labels cut a 50-50 deal with their bands. Merle Haggard recently said he never got paid a royalty til he signed to a punk label. (He’s on Anti now).
I have the same solution to John’s disgruntlement: you can’t find anything you like? You aren’t looking hard enough. True, FM is obscuring the real talent, but check out any number of indie music websites (Insound and Epitonic spring to mind) for anything that suits your fancy.
A market solution to the problems? Buy enough indie labels CDs at $11, see enough $5 shows, keep indie music sites filled with traffic and the big boys will come around. Or else they’ll go out of business.
Rock out,
T
Let’s face it, 90% of all pop music is crap. It was true when I was a kid, and it’s true now. How many of the popular songs today will be remembered a year from now? Ten years from now? Not many.
The big problem is that the music industry refuses to accept a new business model. They choose to stay with one that is almost 100 years old and becoming irrelevant, and want everyone else to do the same. How many of the ‘artists’ under contract with the record labels actually receive the royalties they are due? An album costs $300,000 to produce, another million or so to promote, some more hundrerds of thousands or millions to distribute. It isn’t until all of those costs have been recovered that a recording artist sees a dime for their work. It also seems that many albums these days have one, or at most, two decent cuts on them and all of the rest are drek. I know I don’t want to spend $16+ for a CD with only one or two worthwhile songs. It may be thet my memory is faulty, but I seem to recall a large number of albums in the 60′s, 70′s, and 80′s with a half dozen good songs on them (and they weren’t ‘The Best Of..” albums).
Electronic distribution is cheaper, faster, and becoming more popular. Customers can already sample cuts from albums at places like Amazon, etc., before they buy. If the RIAA doesn’t watch out, they will become superfluous as more artists take to the ‘net to promote and sell their music, cutting out the big boys and leaving them to wonder ‘Wha’ hoppen’d?”
I no longer buy CDs except for a very few artists who, time and again, appeal to my tastes. The days of plonking down a few bucks for a cassette on whim are over for me. When I want to hear something new, I check out local bands, and, yeah, I’m one of those fools paying a couple c-notes for Stones tix.
I support artists. But I won’t support the “music industry,” because they no longer offer me value for my money. A 15 dollar CD with two good cuts on it doesn’t, well, cut it.
I’m also not a music pirate. I am, however, a big CD-burner fan. I mix music I’ve purchased to suit myself. Frankly, though, I’d rather pay the industry a couple bucks to do it for me. I’ve ripped all my CDs onto the computer as MP3 files. Now, even at 160-bit compression, there is a loss of audio quality, at least to my tender ears. I sacrifice a little quality for a lot of convenience.
Now, if the record labels weren’t so short-sighted, they’d offer me the chance to pay a small fee to download, then burn, my own mixes — at full CD-quality.
I’d get my music my way, and the record companies would open the tap of a new revenue stream. As thing stand now, they get a few bucks from me a year, and I consider them lucky to get it.
Meantime, they’re trying to use the force of law — not free markets — to lock the music-buying public into an outmoded distribution method.
I can’t, won’t, make any philosophical justification for music pirates. They’re thieves. But the record companies are doing their lobbying damnedest to become legal thieves.
Screw’em.
-S.
Stephen Green
http://vodkapundit.com
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Subject: [VodkaPundit] New Comment Posted
A new comment has been posted on your blog VodkaPundit, on
entry #2694 (Hard Day’s Night).
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Comments:
I don’t get the complaints. Yeah, the record industries make a lot of money. Welcome to capitalism. Maybe you don’t think Britney’s worth a jillion dollars, but apparently enough screaming girls and horny guys do. Free market, and all that. Check Robert Nozick’s Wilt Chamberlain example for the philosophical justification.
You’re welcome to not buy the products if you think they’re priced too high. But considering that they make their money off of a luxury item that no-one is forced to buy, it’s not clear what the issue with price fixing is. Other than the fact that people don’t want to pay for the product and would like to get it for free or for a pittance.
I don’t know if it started with Napster or if it was around before, but there seems to me to be an unbelievable sense of entitlement on the part of music fans, as if it’s their birthright to get music for free. And those dirty record companies are evil for actually charging a price to maximize their profits.
This is like sports fans crying about increased ticket prices and high salaries. Maybe you don’t like it, but other people are willing to pay, so you’re just SOL. You’ve either been priced out of the market or you’re helping to support the system. Either way, that’s life.
I have no problem with record companies trying to charge whatever they think they can get. Capitalism is a good thing. I do have a problem when they start whining about decreasing sales with a corresponding decrease in profits, remaining oblivious to what might be causing it to be that way.
Maybe sales are going down because most of what’s out there is overpriced crapola.
Maybe people are, in fact, voting with thier wallets.
Maybe they’re tired of paying too much for shitty music.
Maybe the record companies will take notice and do something different.
But I doubt it.
Any cd that sells in the stores for $18.99 will cost that store about $12 to buy from either the label or a one-stop distributor (since Sony has no interest in selling directly to Todd’s Music Shack, but will sell direct to Tower/HMV/Wherehouse). So that means the retail outlet can make a $6 profit on which they will pay taxes, employ workers, pay rent, and make a little profit. That $12 that the label gets (ignoring onestop distributor markups) goes to pay a mulititude of things.
Royalties- obviously some bands have better rates than others. Any decently negotiated contract rewards a band that sells larger amounts with a sliding royalty rate. U2 makes more money on the second 500,000 cd’s that are sold than the first 500,00 because they may get a $0.10 increased royalty rate for those sales (since I don’t know their actual contract, the amounts are speculation, but the mechanism is true).
The label also spends money on employees, 401K’s, medical insurance, payroll taxes, other taxes.
The label is also responsible for paying for advertising campaigns (which is partially recuopable from the artists pimped… advertised).
Other recoupable costs are signing advances to the artist, studio costs, and other royalty advances so the band can buy good equipment with which to tour with. These recoupable costs eventually come out of the artists royalties.
Most major labels will put out about 20-50 albums a month. They expect 10% of those to make a enough money to make a good profit for the label, but also to help subsidize the production and distribution of the other 90%.
Fortunately for the labels (and any stockholders) they do make a profit. Unfortunately that means they have to charge a lot of money.
Major labels are the dinorsaurs of our entertainment age. And of course they are going to do what they need to do to survive.
Comparing cd’s to vcr’s and dvd players’s is the wrong anology. Look to the movie industry for a better analogy. Since Star Wars Episode 1 was such a success, does that mean that they can only spend half as much money filming Episode 2. Of course not. Actual manufacturing costs of cd’s is not the starting point for figuring out what you want to sell a cd for. It is the overall expenses + a profit margin + taking into account how much money you just lost on failed acts. Ask EMI how much money they flushed down the Mariah Carey drain.
One of the most successful (in sales) singles ever sold was New Orders “Blue Monday” single. The sad thing is that for every record (lp vinyl) sold for the regular price of about .99 (UK), the label lost .02 because of all the expenses involved.
I could go on forever, but then I would just begin boring myself as well as you.
I just wanted to throw some more information out there, and let you take it for what it’s worth.
Fred
My CD=VCR comparison discussed the increasing cost savings of new technology, and the value added effect of new technology. In short, I noted that most technical products do not keep pace with inflation…rather, they go down in price as the process becomes easier, and/or add additional features.
Buying CD’s in stores? That’s so 80′s.
There is very much a price fixing conspiracy among CD retailers. They call it “minimum advertised pricing” or MAP, it is used by the 5 big record companies to ensure that their distributors keep CD prices at “acceptable” levels.
Even assuming that nothing else changed with CDs, the reduction in cost of disc production should have shaved several dollars off CD prices. The blunt fact is that a brand new CD that represents several hundred k in studio production, several hundred k to millions in artist compensation, etc. is still priced roughly the same as a bargain basement CD with very low production cost (such as remixes, rereleases) or lower artist compensation (which varies from a few cents per CD to several dollars per CD).
In the end the artists’ cut of a CD price is at best a dollar or two and at worst nothing or negative (when artists are forced to pay for certain expenses out of their own pocket). Even with a healthy cut for artists, production, promotion, distribution, and profit a popular CD should only cost about $5. The fact that there are no major CDs available at that price is the best indicator that price fixing is the name of the game.
What is the liner note other than a ghost written two page history of the band and the production of the album.
So a college Lit or History major could strike it off in a day for a case of beer and concert tickets.
Big Whoop Dee Do.
Print the lyrics, print the credits, give a quick interview, two days worth of photogs and the source material for the CD cover is done. Now, decide on graphics, typeface, and editing. This should not take long (or ought to cost much. See needs of young males {and many females} supra). God alone knows that no one is creating a Sistine Chapel here.
Let alone the music being a Bach concerto. (Don’t misunderstand – I like pop music. I just don’t have many illusions as to its longetivity.)
Let’s say productoin costs for the album come to $1.5 million, if they sold a cd for say $5, and sold 1 million copies, they would have $3.75 million profit. Now I’m sure that’s enough to be spread around.
The record industry simply won’t accept that it’s a new world out there.
A couple of facts: the record industry is not particularly profitable. As far as the entertainment industry goes, it has become a financial afterthought. Meanwhile, consumers are continually complaining about prices and quality. Something has to give.
Stephen: in fact, there is a move going on in the industry to a subscription basis much like the one you describe which would make the industry more like cable television, a very reliable cashflow stream for the entertainment industry. It’s coming, but you can’t minimize the technology and legal problems involved in bringing such an enterprise to fruition. They are substantial. Everyone in the record industry (just to be clear, I don’t work for the music industry but I used to) is very concerned about the dropoff in revenues and unit sales and, contrary to popular thought, they are not morons. It’s simply a very sticky, complex situation that is going to take some time to resolve.
The statement that technology-intensive industries have been showing cost declines and so should the record industry is misapplied: the record industry is not a technology but an entertainment industry which has been showing pricing power for the entire modern era. You can’t just say — the price of technology has been dropping therefore the price of CDs should be, too — that is too simplistic.
Anyway, some really good posts on this thread.