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CDs Want To Be Free
Dotnaught writes: "An article that I wrote about a new music promotion service called fightcloud.com and CD pricing in general has just gone up on Salon. And heeding the advice of Dave Winer, I also posted the full transcript of the interview on my Web log, Lot 49, for those curious about what got left on the cutting room floor." Rather than complaining that Big Recording's CDs are overpriced, it sounds like this company is simply demonstrating that music (even on physical media) just don't have to cost that much.
The blank CD-R, the case, and the mailing label. Paying someone to put the blank in the burner, take the blank out (and label it?), putting it into a jewel case, putting the jewel case into an envelope, and putting a label on it.
Capital costs on the CD burner and the Hard Drive to store the master on. Paying someone to "upload" the tracks onto the server.
I'm impressed. The artists get more per disk than with a major label. Customers get more music per dollar. If they can keep their costs down and remain an ongoing, growing concern, we're all better off.
OK, so that all costs some money, right? Well, that's NOTHING compared with the cost of food, travel, housing that many recording labels provide their artists while they are recording.
You know jack shit about the music industry, my friend. All those things are what are called RECOUPABLE EXPENSES.
When a record label advances money to an artist, or spends money in certain areas, to make, market or promote a record, the artist must pay back that money before the label begins to split the profits with the artist. Paying back that money out of record sales is called "recouping." If the record stiffs, even at the fault of the label, the artist of course owes nothing. But if the record sells some units, and the label decides to put out another record, the debt is NOT wiped clean if the artist is unrecouped. This nasty little fact is called "cross collateralization" and what that means is that if the artist makes Record Number Two for the label, but hasn't recouped from Record Number One yet, the back owed funds come out of the sales from the new record before the artist ever sees a dime from the new record. So you can see how difficult it is to get ahead...which is how a label (meaning Def Jam) would explain why Slick Rick is unrecouped after all these years and 5 albums later.
As an example, let's say the artist has an unrecouped balance of $200,000 on the day his record drops (his advance and recording budget were $150,000 and $100,000 was spent on the video for the first single, half of which is recoupable--that's $200,000). Let's say the label did its job properly and had a good four month set up on the album (set up is the amount of work that goes into a project to build awareness prior to its release), and the artist has a strong buzz in the marketplace. So pre-orders are looking good (the amount of records the retail stores ask for, based on the anticipation of sales for the release) and the label decides to ship 300,000 units initially. If the label is in the Universal family, for example, and offers a sales discount because it's a new artist, a $16.98 anticipated retail price will position this CD at $10.78 wholesale. So the label can anticipate an income initially of $3,234,000 (300,000 x $10.78). And by the way, the label feels as though it has already lost $189,000, because the full retail selling price of $17.98 would have brought the label $3,423,000 (300,000 x $11.41) and since they discounted the record one dollar, they're already losing money. Here's the ugly side of label accounting and recouping: the artist's contract stipulates that the artist's share of the back end is 12 points, which really means 12% of the retail price (less a whole bunch of stupid provisions for breakage, free goods, return reserves, and container charges, producer royalties, etc) which leaves the artist about $1 a record. That means that the artist's share of the income from one record sold at $16.98 is roughly $1. Recouping means that the artist has to pay back the money spent out of his share (which is $1 a record sold). So in order to pay back that $200,000 spent prior to the record even coming out, 200,000 units must sell.
After the initial order is shipped, the artist incurs promotional costs which the label advances to him. The independent radio promoters, video promoters, tour support, remixes, etc, are all shared expenses that come out of the artist's money. So you can see how easy it is for an artist to remain unrecouped. If he finishes his project two or three singles deep, it's easy to come into the next project already at a high negative balance. The artist is artificially unrecouped, however, because the label has made back the money it spent off the top. Let's look at our above example. Let's say the label gets paid (meaning every retail store sells every copy with no returns) for every copy of the initial 300,000 units it shipped at $10.78 a copy. And let's also assume they did not spend any additional money to sell those records (also highly unlikely). The label has made $3,234,000. The label has also recouped $200,000 from the artist for the expenses, so that $3,234,000 is almost pure profit (except for the unrecouped costs of running their business and the overhead of running their business). Meanwhile, the artist has made only $100,000 (less the artist's overhead costs). According to my calculator, that's only 3% of the share.
And the massive screwjob doesn't stop there, not by far. Labels pay royalties on 90% of sales which assumes 10% breakage, a holdover from the vinyl days. From that amount is deducted the advances and recoupable expenses such as studio time, engineers, producer, etc. However, a distributer is often given 15-30% of his albums free on which there is no royalty. Overseas sales and sales to military stores are at a greatly reduced royalty. Some Talent may be more popular overseas than in America which means they see very little royalties. If albums are returned and then sold at discount, Talent receives virtually no royalty on those sales.
The theory of relativity doesn't work right in Arkansas.
So you either have:
1) way to damn many middlemen--in which case you need to improve your efficiency so that you can compete on price, or
2)a few people who are excessively greedy (and potentially fixing prices with the other labels, since everyone seems to have the same range of hyperinflated pricing).
Think hard: do the artists at fightcloud have no costs to record and engineer their music? Is it really likely that the costs of a good amateur production studio are so infinitesimally smaller than a professional studio? Do they have no gigging costs? No artwork costs? Keep in mind, the "professional" releases can spread their costs over millions of CDs whereas the amateurs are lucky to spread them over thousands--you'd expect the amateur productions to have those costs make up a BIGGER percentage of the per CD cost, even if the total costs are less.
Finally, you need to go re-read Courtney Love's essay about who bears the production costs with the majors--it comes out of the artist's royalties, which are a small fraction of that $18. That's true for big artists and small on the major labels; it's not like the label is paying that artist extra specially to stick around in most cases.
7 November 2006: The day Americans realized corruption and incompetence weren't addressing 11 September 2001
I'm indie: see URL above. I worked with Ampcast to help them set up their CD program and I have a pretty good idea of how much CDs really cost physically. Mine go for $12: that is with a color four-panel two-sided insert, a color but one-sided tray liner, Red Book uncompressed CD master from high-resolution originals: in other words, very very near to major-label technical quality, and in some ways (sound quality) substantially better than the average major label release. And that is why I set my price so a couple bucks go to the artist, rather than setting it so that I get nothing.
It'll cost you about 8$ to 10$ per CD to run a business that sustains itself producing CDs that are like major label releases. If you're good with having no artwork, or God forbid 'CDs' burned off mp3s and the like, you should be able to bring them in for much cheaper than that.
Note, however, that the RIAA releases tend to be mass production- even 1000 is in its way mass production- and it sure as hell costs them less than $8 to cover everything involved. There's a lot of people gobbling caviar and Chateau Lafite in that business. Many are label people. Some are artists. For the artists, it means they will never see a royalty check so long as they live- but so long as they're allowed, they'll live high as if they were going to get paid. It's relatively cheap to give an artist a limo ride rather than pay them what you REALLY owe them, and if you own the limo company, hey- even cheaper. The whole industry is a big con.
You can charge whatever the market will bear. So, game producers charge $50 (at least for a few months) for a new game.
How is that different from CDs? Well, the game producers didn't have to settle with the FTC because they were conspiring to inflate the price of CDs. Retailers wanted to sell them cheaper, but the middle-men wouldn't let them!
Even with the antitrust allegations settled, I wouldn't be surprised if this kind of crap still goes on. The RIAA members are effectively a monopoly on the music industry. As a result, the market isn't dictating what price a CD will go for, they are.
Do you even know anything about perl? -- AC Replying to Tom Christiansen post.