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Must a CD Cost $15.99?
scionite0 sends us to Rolling Stone for an in-depth article on Wal-Mart and the music business. Wal-Mart is the largest music retailer selling "an estimated one out of every five major-label albums" in the US. Wal-Mart willingly loses money selling CDs for less than $10 in order to draw customers into the store, but they are tired of taking a loss on CDs. The mega-retailer is telling the major record labels to lower the price of CDs or risk losing retail space to DVDs and video games. (Scroll to the bottom of the article for a breakdown of where exactly the money goes on a $15.99 album sale.) "[A Wal-Mart spokesman said:] 'The record industry needs to refine their business models, because the consumer is the ultimate arbitrator. And the consumer feels music isn't properly priced.' [While music executives are quoted:] 'While Wal-Mart represents nearly twenty percent of major-label music sales, music represents only about two percent of Wal-Mart's total sales. If they got out of selling music, it would mean nothing to them. This keeps me awake at night.' [And another:] 'Wal-Mart has no long-term care for an individual artist or marketing plan, unlike the specialty stores, which were a real business partner. At Wal-Mart, we're a commodity and have to fight for shelf space like Colgate fights for shelf space.'"
OK. The article is old news, but it's a good topic for anyone interested in the industry's future to consider, and most of the points are still relevant.
Consider this:
Production costs should be down with the advances in tech and refinement of manufacturing.
Wal-Mart *is* a distributor, so distribution costs should be lower.
Promotion costs *could* be lower if more of the music industry understood new media rather than treating it as somewhere between anathema and tolerable evil.
So, real CD costs should be falling. They probably are *somewhat*, given inflation, but in context of the given advances, it really doesn't seem like enough.
The costs in the article are also interesting. Some of 'em look on, but others don't:
$0.17 Musicians' unions - Unions get royalties on CDs? That's interesting. I've never heard that before.
$0.80 Packaging/manufacturing - You can get smallish (2000-5000) runs for near this cost. A major label release really should be benefiting from an economy of scale here.
$0.82 Publishing royalties - if it's cover songs, sure. If this is original material written for a contract or under licensing from a signed artist, this cost shouldn't be this high.
$0.80 Retail profit - $.80 ain't anything a profit I'd begrudge the retail establishment.
$0.90 Distribution - See Wal-Mart *is* the distributor.
$1.60 Artists' royalties - Given the information available about industry accounting practices, is anyone else skeptical that the artists are getting this money?
$1.70 Label profit - I'm OK with this.
$2.40 Marketing/promotion - Since this is what a label is really supposed to do, I'm not surprised it's this big a portion, and maybe that's OK.
$2.91 Label overhead - What exactly is supposed to be here other than production costs and everything else on this list? I suspect this is really one of two big issues.
$3.89 Retail overhead - And this is the other one.
Those last two numbers pretty much tell the story of why disintermediation is going to continue to be a strong trend for the music industry. Slash them numbers and you're down *below* Wal-Mart's sale price and certainly competetive with prevailing online retailers. Fail to do it and you're not. Especially if you're acting like you're entitled to it in the meanwhile.
Tweet, tweet.
Yea. I was part of an indie band myself. We got 100 discs printed off, full liner notes and everything and shipped to us for under $250. If anyone in their basement can pump out CDs for $2.50 a piece, no reason big name artists couldn't do it cheaper. Hell, had we managed to sell them for $10 each, it woulda only taken 700 copies to completely pay for all our equipment. We put out two albums, so that's 350 of each. Probably coulda done that easy had we cared.
So let's see: assuming that same $7.50 profit on each album, and we'll say you wanna make at least $50,000 a year (which seems more than reasonable to me) and we'll say you put out one album every 3 years. That's 20,000 copies of each. Now, if you can't sell 20,000 copies of an album, you can't really expect to make it big. Or you could, ya know, have another job. Everyone in my band had other jobs, we still played shows here and there, and we managed two albums in about three years. For a better example, all the members of the doom metal band My Dying Bride have other jobs, and they've put out 13 albums in 14 years and tour other countries and continents. It's possible. As I said, if a bunch of kids in their basement can do it, why can't the professionals?
Walmart is the hero in this story because they are trying to drive down prices. Now, when they used the same strong-arm tactics on the Rubbermaid corporation, it resulted in American jobs going to China. That makes them not the hero in that one, to me. The US economy was made weaker by the job loss, and the increase in the already staggering national trade deficit.
The music industry is different. Our pop music is not going to be made more cheaply in China any time soon (I hope). And while market forces would normally drive the price of a good down, with music, all CDs are not interchangeable. If someone makes a cheaper light bulb that's just as good as other bulbs, I switch to the cheaper ones. CDs don't work that way, mostly due to the amazing triumph of propaganda.
Because of this tremendous brand loyalty (people get tattoos of their favorite rockbands... anyone ever get a tattoo of their favorite soap?), the price is pretty high. Competitive market forces have not driven the price down, despite the fact that the cost to produce the product has gone down. Milton Freidman is spinning in his grave!
Further, I just don't agree with your statement that it's impossible to force record companies to take a smaller chunk of the pie without also shafting artists. The artists have been getting shafted all along, unless they're at the very top. The price breakdown in TFA shows the artist getting $1.60 in royalties (80 cents more if they wrote the song too). That's misleading. All artists do not get the same share of the royalties. Plus, the money that artists do get, they often have to give right back to pay for the cost of recording the album. Here's an article from 2000 where Courtney Love talks about how artists get shafted by record companies. In know, she's a train wreck, but she does have experience dealing with record companies.
http://archive.salon.com/tech/feature/2000/06/14/love/print.html
And besides, TFA says that the record company gets $1.70 Label profit, and $2.91 Label overhead - over and above the cost of marketing, producing and distributing. What is label overhead? And why is it way more than the artist gets, even in a best case scenario?