Slashdot Mirror
FTC Settles With Big CD Makers-Cheaper CDs Coming?
kid_wonder writes: "The FTC today announced that they had '... reached separate settlement agreements with Universal Music and Video Distribution, Sony Corp. of America, Time-Warner Inc., EMI Music Distribution and Bertelsmann Music Group (BMG), the five largest distributors of recorded music who sell approximately 85% of all compact discs (CDs) purchased in the United States to end their allegedly illegal advertising policies that affected prices for CDs.'
"
This doesn't actually mean prices for cd's are being lowered. What it means is resellers now have the right to have "sales" on cd's. It may take a while for consumers to benefit from price wars if all the resellers decide to keep prices high. Second thing that could happen is this could be good for large resellers but small business owners may suffer if they can't afford to match the prices of larger resellers who buy bigger quantities and have less overhead. It is potentially good for the customers but perhaps bad for small business
There is competition, and it's on two fronts.
First, the consumer can choose not to deal with the retailers. Just as an example, specialized places like Century Media sell for $11 per CD for things on their label, and $12 on other labels. And of course, CDs from mp3.com is even cheaper and carries a much wider variety of genres. These also have a secondary advantage in that they have a lot more selection that Best Buy. I recall browsing through Best Buy several times, and for all the CDs they had, they just didn't .. well .. have anything.
The second front of competition is one that is still just emerging, thanks to technology and The Internet. The creators of music have the option of not dealing with the big media companies. Independent production is possible now without requiring too much capital, and The Internet is capable of competely obliterating the distribution problem. Musicians have a choice of whether to deal through the big labels and retailers, or going indy and selling other ways. Up to now, that choice has been quite lopsided. But that's changing fast, and it may soon be lopsided in the other direction.
Keep in mind that there's two sides to the MP3 explosion. It's not just about disrespecting IP (as mp3.com showed prior to their dumb idea of offering the my.mp3.com service). I don't see any reason why MP3s (or something like them, such as Ogg Vorbis files) cannot be sold, and they've already proven themselves for marketing and promotion outside of the megacorps' channels (MTV, radio, etc).
(BTW, although I consider myself pretty libertarian, I must admit that I'm sometimes stumped as to how the market can fix certain types of problems. I just think that the current music situation isn't one of those cases.)
---
As copyright owner of this comment, I authorize everyone to defeat any technological measure which limits access to it.
For a lot of major video releases, the initial prices are set high so that movie rentals are boosted. The price of these releases tends to drop a month or two after the initial release.
It has nothing to do with DVDs, it has been common practice for quite some time with video cassettes as well.
The world is neither black nor white nor good nor evil, only many shades of CowboyNeal.
I got a pricelist from a local place that does CD duplication. $1.90 per CD including jewelbox, 4 page full-color insert, and shrinkwrapping. That's when buying 1000. I'm sure it costs significantly less as you increase the volume.
Link to pricelist
numb
It is amazing to me that the record industry has been able to fleece consumers for so many years. How long has it been cheaper to produce CDs than cassettes? Five years? Ten years?
When stamping CDs in bulk, the cost is next to nothing. I don't have any references off-hand, but I am positive that it is actually less expensive for the record companies to produce a CD than it is to produce a cassette.
So if the record companies can make a profit when cassettes are sold for $10, doesn't that mean that the extra $5 for a CD is pure profit? Doesn't that mean that the music companies have basically been sticking consumers $5 a pop for the millions of CDs that have been sold?
It's no wonder that the music industry so fears online music. One way or another, it is signalling the end of their consumer fleecing.
--- Biffster.org
"Bite my shiny metal ass."
Is anybody still selling CDs as loss leaders? Regardless the whole reason this policy was created was to protect small mom and pop music stores from large electronics chains such as Best Buy, etc. who were selling CDs at a loss in order to entice customers into the stores. Most of those retailers abandoned that practice after they grew their customer base sufficiently, and I doubt they'll be going back to it any time soon (i.e., this will probably have very little effect on the price of CDs, which are already very low anyway).
>...spare a thought for those of us in the u.k.
>who (sometimes) buy a cd for around 17 pounds
>(probably about 30 dollars).
Silly brit, the most mundane UK import costs
$30-50 in the USA.
-fb Everything not expressly forbidden is now mandatory.
I know that the instant reaction is "hooray", and ultimately this will result in lower proces at places like Best Buy (remember when they used to sell new releases for $9.99?).
But this isn't necessarily the case of record companies gouging consumers, so much as record companies "protecting" stores.
Every store buys their CDs for pretty much the same wholesale price (maybe $11), and the MSRP is $15-20. But Best Buy was a new kid on the block and was will ing to lose a dollar on every CD to get you in the store, hoping you'd pick up a CD player or a video game while you're there.
Now this sounds like a good deal until you realize that a Record Store can't sell their music for less than what they paid, and essentially have no chance of competing with a megastore that can treat music as a loss leader. So record stores have been closing, and our musical choices at Best Buy are (needless to say) more along the lines of Britney Spears than Indy Imports.
Granted, this is pretty much the same issue as brick-and-mortar places will face in regards to online retailers offering significant discounts, even willing to lose money to build business the same way best Buy did the first few years.
But economics doesn't go away just because CDs are cheaper for a few years. What happens when everyone but Best Buy (or CDNow or whoever) has gotten out of the CD business? When all the local record stores have closed, and Best Buy decides to start charging $15/CD again? You're screwed, because there's no more record stores. Best Buy can survive a war of attrition a lot longer, and once they win they have no requirement to keep the proces low.
Not that this will necessarily happen (in fact i consider it unlikely simply because online retailers will always be available for CDs at the lowest retail cost).
But it isn't an imaginary fear that the record stores have -- look at the stores that have closed in the wake of the Wal-Martization of america...
Recursive: Adj. See Recursive.
...spare a thought for those of us in the u.k. who (sometimes) buy a cd for around 17 pounds (probably about 30 dollars).
Cant think why mp3 sites are so popular...
It took me a few seconds to realize that Swindle and Leary are the last names of two commissioners on the FTC! FTC doesn't like swindlers, and they're leary (leery) of any minimum advertised price policies.
And the men who hold high places must be the ones who start
To mold a new reality... closer to the heart
If the resulting lower prices reduced pirating, increased cd sales and made these companies more money.
134340: I am not a number. I am a free planet!
You see, its OK for the recording industry to screw consumers, but it's not OK for consumers to trade music over the internet because it costs the recording industry too many lost sales. Whatever.
-D
Of course there is no free market for entertainment content.
I'm amazed at all these naive posts on /. saying they don't "know" what's CD printing cost. Just do a search on "printing CDs" and you would find that in a qty of 1000 you can have them printed for $0.90 a piece, with a box and a paper insert, DVDs - same for $2.00.
So, what is reasonable sale price for them - I would say with over 400% profit - $5 is very reasonable. So, all you RIAA agents vining about "Napster Kids" asking for $5 pricing - shut up and enjoy this illegal (in terms of antitrust) situation while it lasts. And if you sell DVDs at $5 - then you'll have to "starve" on a 150% profit...
The fact that CDs and DVDs are not selling at $5 proves that there is NO such thing as a free market for these goods and services. Learn to live with that all you libertarian buddies :-) And $2 profit per CD is more then enough to feed the artist, as well as run the studio and other supporting services.
Vassili Leonov
This agreement has more to do with allowing mass merchandisers to advertise their low, loss leader prices without losing ad dollars from the majors. So in certain ways it's a blow to stores that deal exclusively in music. They sell only music, and make their money at this, while stores like Best Buy really just want to sell you a new Microwave.
The FTC estimates that U.S. consumers may have paid as much as $480 million more than they should have for CDs and other music because of these policies over the last three years.
No wonder the RIAA hates
That is a huge rip off man..
"`Ford, you're turning into a penguin. Stop it.'" -THHGTTG
A moment's thought about the magnitudes involved would show that this couldn't possibly be true. If legal services were a significant factor in making CDs more expensive then 1) it would be the legal practices making huge supernormal profits, not the record companies, and the FTC would have no case against the record companies. 2) Music industry lawyers would be as rich as rock stars; there are rather fewer lawyers working in the entertainment industry than there are recording artists with record deals. 3) Utterly implausible things would have to be true about the economics of CD manufacturing. But of course, a moment's thought is far too much for the average slashbot.
-- the most controversial site on the Web
I have a better theory for you. This is imunization from consumer class action AND getting the Feds off their backs. If the FTC found them guilty it would expose them to the ligation of the millions of consumers who got fleeced. Imagine if they had to pay even some of that money back to consumers in some kind of mass settlement.
Hmmm kinda sounds like what a company in Redmond might experience.
Gee, so if prices drop down to $10 US, what excuse will all the Napster kiddies use? I know, they'll just insert the new price and make the same argument! "Dude, CD's are way overpriced at $10 bucks. I'd buy them if they were priced at $5, they way they should be." Moderate away
$480 million in 3 years. Here is CNN's article, which informs us that these companies cost us around $480 million over the last 3 years. When the industry starts playing fair again every CD should be $2-5 cheaper. This is ridiculous. And my local paper said the FTC doesn't plan to pursue fines. So we all lost out. And they wonder why we turn to napster, while they are constantly screwing us with illegal business practices? I'm through, from now on I buy only used CD's, or use napster.
I just finished taking intermediate micro, and one thing that I came away with is that libertarians spend way too much time explaining away how public goods will be provided, and all the efficiency arguments, and way too little time on antitrust.
Anti-trust is probably the biggest weakness on the economic side of libertarian theory. The biggest weakness overall is probably what do you do with children? I mean, babies are supposed to be pretty much property, but adults are supposed to be free to do whatever they want. So can a 16 year old refuse to go to church?
The first thing to say about anti-trust is that it isn't as big a problem as people think it is. Sure, we're getting overcharged for CDs, but most of that is just a transfer from consumers to record companies, but money never actually disappears from the economy, so the stockholders in record companies have more money to spend. This is becoming more obvious to people now than in the past, because people are starting to realize that big companies aren't own by rich megalomaniacs (they just run them), but by retirement funds, mutual funds, and that guy down the hall who doesn't have any kids to support.
But there is an actual loss caused by incorrect incentives for the number of CDs produced. You buy less CDs because they're too expensive. It's hard to estimate what this is. A figure mmy econ professor gave was that these Dead-Weight Losses add up to about 1% of the economy, according to a study in the 1950s. There are a lot of reasons this is so small. One is that most things you buy aren't controlled by an oligopoly. Another is that the number of CDs sold at oligopoly prices isn't that much different than the number under a competetive industry.
The one that probably offers the most hope to libertarians is that it's very hard to keep a cartel going. OPEC is around 10 members, and they have trouble keeping everyone in line (remember, OPEC is "legal"). In the music industry, it's probably fairly easy for the producers to keep the price a little above the competetive price, because there isn't much incentive to try to sell more CDs by lowering the price from $17 to $15 when your total cost with all the middlemen is $13, since you wouldn't necessarily sell twice as many CDs at the lower cost. But if the cost is $13, and the cartel price is $25, you've got a lot of room to make some money. Drop the price to $20 and you can make $7/CD on a higher number of CDs. So the higher the price is, the harder it is to keep the cartel going.
The other libertarian argument is that a lot of cartels couldn't exist without favors from government. Some that I can think of specific to record companies would be:
1. Government will go to a lot of trouble to prosecute copyright violations, and the violater will be severely punished. The punishment is out of line with the damage.
2. The government will prohibit sale of stuff that might impact the record companies income, like taxing recordable media, or DCMA enforcement against Apex (regionless DVD player).
3. Copyright is a government granted monopoly. Perhaps copyright could be modified to require everyone (including the copyright holder) to license the work in question at the going rate, and then revenues go back to the copyright holder.
One that isn't specific to record companies is that the government allows for companies to commit criminal acts with no liability for the management. This tends to encourage very large corporations. It might be necessary to keep the capital markets working, but there might be other ways to do it.
I'm actually an anarchist, and think that the existence of government is itself immoral, but I think there's a lot of room for improvement even without doing away with government. Some of the above may be unconsciously stolen from David Friedman's Law's Order, on the economic analysis of law. It's available online at http://www.best.com/~ddfr/
--Kevin
It's so obvious why the recording industry settled this case. Taking it to court would have raised the profile of the case, and eventually some journalist who thinks for himself would have asked the inevitable question: Is the mp3 issue the biggest problem facing the entertainment industry, or is the real story that the entertainment industry takes every opportunity to act in unison, to the detriment of the consumer.
I argue that we ought to be looking at a lot more than CD prices here. What about the price of movie tickets? What about the cost and features of your local cable television monopoly^H^H^H^H^H^H^H^H service? What about the retail cost of (ahem) Microsoft Windows and business applications for the PC when they are not bundled into a PC at purchase?
There are dozens of examples of consumer goods and services where no effective competition exists, at least in the industrialized countries. I am not as much of a populist as it might seem from what I've said. But, the least these multi-national companies could do is to let the retailers compete on the price.
--
Dave Aiello
-- Dave Aiello
Last night, on All Things Considered they had a really wonderful story about the thing. Check it out (ya need Real Audio).
Basicly, the record companies pay for the ads that the stores run, but they will only pay for the ad if the store does not advertise a price below what the record company wants it to be sold at. Well, call it price fixing or whatever, but payola is payola.
The story also goes into MP3s and how people are really fed up with paying $17 for a crap CD with one good song on it.
Is it just US imports that are expensive in the UK, or is it all cds? If it's all cds, then whose fault is it really? UK imports purchased in the US also cost an arm and a leg, usually from $30 on up. Pretty much any Euro imported cds are priced similarly. It would seem like both sides are getting screwed on the imports, and this case seems unlikely to affect that.
It's not enough to bash in heads, you've got to bash in minds. - Captain Hammer
Does the entertainment industry (in the USofA) have any sort of statuatory exemption from antitrust regulation, similar to that held by major league baseball? As a non-lawyer, it seems to me that many things the recording industry does (DVD "regions" comes to mind, as does SCMS) are gross violations of antitrust regulations and potentially vulnerable to class-action lawsuits on behalf of _all_ consumers. Am I missing or misinterpreting something here?
sPh
If you check out 'Behind the Music' on VH1 for a lot of bands, including TLC, you will find out that they make pretty much dirt from CD sales. TLC made $.50 per CD, divided among the 3 group members. And they had to pay all of their own production costs. So they sold 5 million CDs and were broke.
Kintanon
Check out JoshJitsu.info for Brazilian Ji
True, but with the rise of sales, the record industry will have a difficult time proving harm in their various mp3-related lawsuits. Granted, it might not be a requirement in every case, but if it is, i'm not sure how they would offer proof of harm. Same goes for the MPAA in their DeCSS lawsuit. I hope the injunction against the defendants is overturned due to the fact that there is simply no evidence of "irreparable harm" to the movie industry.
It's not enough to bash in heads, you've got to bash in minds. - Captain Hammer
I said in the Metallica story that CDs are too expensive. You would figure that since the medium is so cheap, they would be about the same price at tapes used to be. Prices jacked up all over. What the hell do they think they are pulling? Really think everone is going to pay thousands of their salary for a few crappy CD's?
Eh...
(MP3 would be a lot less popular if companies would sell me the records I want. Is it really illegal if there's no other *convenient* way to get the music?)
- A.P.
--
"One World, one Web, one Program" - Microsoft promotional ad
"Remember when the U.S. had a drug problem, and then we declared a War On Drugs, and now you can't buy drugs anymore?"
1) A lot of parties want desperately to make sure intermachine communication never becomes "protected". For example, making it a crime to snoop network traffic between personal (as in "not at work") computers. Traditionally, "pirates" made money selling bootlegs. It is a modern phenomena that freely traded software and music (no profit motive) has become a crime. After all, the radio stations pay a pittance (and they earn PROFITS) for the right to distribute music to millions of people. Trading all music freely, and boycotting CDs, is a great way to bring this issue to the forefront -- "Does the government, or any other entity, have the right to control the information passed between two privately owned personal computers?" I say no -- if they suspect a crime, they need a warrant, etc. This decision, one way or the other, will have to come about some day.
2) Western tradition has many instances of "The People" getting fed up with racketeering capitalistic monopolies and taking the law in their own hands. People like you say "Well, if someone rips you off, don't buy anything there--just turn your back". This action may be valid for you, but not necessarily for someone else. Our culture has a long history of hatred, violence and law-breaking in the name of freedom or just exhaustion from the "gutting" these (few?) renegade corporations do to us. I simply WILL NOT abide by the rules as laid down by the RIAA. In my opinion, they are a far more criminal organization than any person trading copyrighted CDs for free. By their actions, thay may set a precedent for legalized corporate intrusion to our personal computers -- machines with microphones, and sometimes cameras attached--that will take hundreds of years to roll back.
The goal, as I see it, is for intermachine communication, of a non-commercial nature, be as protected as speech. No intrusion, for any reason, without a warrant, on a case-by-case basis. Let Let Lars, Mustaine, Dre and the RIAA search door-to-door for all I care. They have to ask for permission to enter my house--at least through the door. They can get their fscking nose out of my network.
By the way, here's a great piece of art that sums up what the RIAA thinks of your freedoms.
Treatment, not tyranny. End the drug war and free our American POWs.
See my user info for links.
How many people think that this is just a quick fix by the record companies to get the feds off their back? Maybe cd prices will go down, but I can't see the prices going down any more than a dollar or two, but nowhere near where they should be.
In other words, this is probably just for show. Then when mp3 pirating continues, the monopolistic pricing excuse just won't be able to hold up.
I think CDs actually cost less to make than tapes (in large quantities).. I always wondered why they were so expensive... I underestood it when they came out (late 80's) because of limited capacity, but now?
I also found it odd that some small bands sell there CDs at 10$ a pop for a small cd run, vs 18 dollars for a mass produced cd. I couldn't figure out how the additional promotional/engineering/mixing cost would not be offset by the "mass production"
This explains it.. Illegal tactics al-la microsoft.
They didn't mention DVD's in the article, but it would seem that the arguments for cheaper CD's could also be applied to DVD's - I wonder if this descision does apply to DVD's, or if they have the same kinds of issues with a lockdown on advertising below a suggested price.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
Competition will I think help. The big vendors will continue to rip off the music stores who will continue to rip off the customer in self defence.
Independants and people looking for better margins will pick up music from outside the expensive megamedia cartel. This is classic business technique. You break into a new market by selling a product to the stores at a higher margin for them but similar RRP to the competition. The stores love you, they want to sell your product more so you get better coverage. If they make more selling one of your CD's versus 5 of the cartels whose CD's will they push. If small bands start granting cheap radio play deals to radio stations who are they going to play more of.
MP3 is just one of the tools, the time is about ripe IMHO for an incomer into the industry to make an absolute killing by making consumers and bands far happier. In fact if they were smart a group of big name bands probably ought to get together to found such a label and get out from under the thumb of the cartel.
Alan
which enjoys a higher profit margin than a music CD... except perhaps for software...
The sad thing is that, of the seven or eight bucks made by the music companies, only a dollar or so usually goes to the artist, and even that only after they pay their promotion fees et al. And then the poor artists are expected to turn around and serve as mouthpieces for the anti-MP3 folks!
Carefree highway, let me slip away on you.
If this is going to cause CD prices to drop for US customers this will further increase the (already significant) difference between CD prices in the UK and the US. It is already clear that the music distributors are taking advantage of strong import rules (as lobbied for by the music and film industry) to screw the British customer.
Even now, before this agreement you can expect to pay 50% more for a cd in the UK than in the US, does anyone know if this will affect prices across the board or will it (as I suspect) just serve to further increase the price difference between our countries? If this is the case what can we in the UK do to improve our situation, we are fed up with our own government supporting this kind of abuse of the British citizen.
Exactly the same situation exists for DVD (that is why I am strong support of the DeCss case) and for a while their was a strong import market until the police/ce (prompted by the government, who were themselves prompted by the US movie industry) raided all the distributors to enforce the region coding system.
The distributors who own the vast majority of popular music were collaborating to fix prices at a level higher than retailers wanted to charge and customers wanted to pay. This is the kind of situation I'd like to see libertarians explain away. Although I agree that many things are over-regulated, it seems like government intervention on antitrust grounds is in this case positive for the consumer and good for business (i.e., the retail businesses gain more than the distributors lose). A small group of companies were using their power to our detriment, while their wide-ranging IP rights made a selective boycott impractical. I can't see how market forces could have solved this one; it's hard to vote with your pocketbook when there's no competition.
I suppose one might argue (as many have) that the MP3 explosion did represent a popular response to the problem. But that too is outside the libertarian system which, if I recall, does respect IP...
- Michael Cohn
-----
Go ahead, blame me... I voted for Nader!