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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.'"
I thought all you guys stole all your music.
Hardly news considering the article was posted on Oct 12th, 2004!
Who the hell approved this?
And you expect sympathy somehow? I mean, let's be serious: the music industry did all it could to make music a "commodity and throwaway product". I sorry, but what did you expect? You wanted to sell a commodity product, then you live by the rules of commodity products. Geez.... These people are obtuse...
Ahhh...the great dumpster continuum. Many a free computer will be found there. -- sowth (748135)
$0.17 Musicians' unions *Typical
$0.80 Packaging/manufacturing
$0.82 Publishing royalties *e.g The rights to the song itself
$0.80 Retail profit *Poor bastards. No wonder they're going out of business.
$0.90 Distribution
$1.60 Artists' royalties
$1.70 Label profit *Hmmmmmm.
$2.40 Marketing/promotion *So why don't 20 year old albums cost any less?
$2.91 Label overhead *Upgrade your equipment, jesus.
$3.89 Retail overhead *Because if it weren't for music, they'd be selling crack in that space.
Oh yea...No scam here. I'm not sure if it's just the bloated nature of the business or what, but this is a steaming pile of crap from my perspective. It's a fricking dollar seventy to make it and get it to the store, but the "price" is fifteen bucks?
Breaking down the rest, we notice that all the combined "profits" amount to twice the cost of manufacture and distribution, and that the combined "overhead" is equal to more than all the profit, cost, and distribution combined...I imagine that's calcuated on the costs to maintain the machinery, the retail space, etc, that makes all the stuff possible.
The whole thing screams bloated industry to me. Overhead is 50% of the cost? There is something wrong with your model. Fricking newspapers do better than that.
Nice to see the evil of Wal-Mart being turned to a good purpose (subjugating the recording industry). Something nice about the world when two wrongs do make a right. One choice quote: "For the music industry, having such a dominant retailer is like being stuck in a bad marriage." Doesn't that sound like everyone elses relationship with the RIAA?
ad logicam Claiming a proposition is false because it was presented as the conclusion of a fallacious argument.
I personally think an CD costs way too much. When a movie with multi-million dollar production costs can be sold for the same amount, that's one big indicator that they are charging too much. I currently buy my music pretty much only on eMusic, because it comes down to about $4 an album, which is what I consider fair. A CD (or download of) really should cost less than $5, in order to bring it into the point where it's an impulse buy, and people just buy them without even considering if they are getting a good deal or not.
Anthropic principle: We see the universe the way it is because if it were different we would not be here to see it.
If a very large retailer prices something at a loss for a very long time, consumers expect that will be the "market value" and will balk at paying more. They will assume, usually correctly, that if it can be sold for $10 over the long haul, it can be sold for a profit at that price or that anyone selling it at that price can continue to do so indefinately.
You see this with cars and "free with rebate but only once or twice a month" computer software, where consumers won't buy when incentives are removed.
When is the last time Joe Sophisticated Consumer paid full price or for that matter anything more than sales tax for Acme Antivirus?
Knowledge is how to play a game, intelligence is how to win, wisdom is knowing what game to play.
Let us price it like one. Whoever thought that it would be Wal-Mart to break the industry.
Somehow its odd and appropriate to see the RIAA that has been hounding consumers find itself the "Big fish in the small pond."
On the other hand, what does it say for the future of ANY goods producer when WallMart wields that much muscle in your sales chart?
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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.
When you do business with Walmart, you should know that you're going to be asked to reduce your price. When you stop supporting mom-and-pop shops by not giving them the volume discounts you give to Walmart, to the point where Walmart has a potentially sufocating grip on your retail pipeline, then you're in trouble.
This is what happens when you dance with the devil... you find out he's clumsy and steps on your feet, and has bad breath to boot.
There's an op-ed piece written by the founder of Snapper that sheds a lot of light on why/how a manufacturer should choose not to do business with Walmart. Too busy to dreg up a link, but well worth the read, for anyone who cares enough to do a google search.
"Trolls they were, but filled with the evil will of their master: a fell race..." -- J.R.R. Tolkien on Olog-hai
Memo to record labels: What's wrong with having to fight for shelf space like everyone else? Competition? Has it occurred that maybe Wal-Mart would like to sell even more?
C|N>K
Seems arbitrary. I notice you stuck up for the union...God forbid they feel the pinch of the industry.
All this tells me is that artists should market aggressively with digital format music, and keep CD sales as a small-time sideline; they could charge 5 bucks plus shipping and handling and make a ~3 bucks a pop.
ad logicam Claiming a proposition is false because it was presented as the conclusion of a fallacious argument.
In my opinion the key difference between music distribution and movie/TV distribution is that the latter has access to multiple revenue streams.
You make a movie and you show it at the theatres and get money. You sell the cable/free-to-air TV rights and get money. By the time you release it on DVD you've (hopefully) made back most of your production costs or are even showing a profit already.
You make a record on the other hand and when it's played on the radio (the equivalent of free-to-air TV distribution) you don't get any money; in fact it costs you (in marketing or other incentives) to get airplay. You have to make back all your production costs via CD sales. Granted, it doesn't cost as much to cut a CD as to make a (Hollywood) movie, but then there are only limited ways to get your money back, necessitating a higher unit-charge.
If labels would be able to charge radio stations to play their music (something highly unlikely to happen, by the way) I believe CD prices would likely fall.
a world in progress...
What amazes me most about that breakdown, is if you look at it, it's hard to figure out why the labels are whining about the iTunes pricing model.
It seems like they'd get just as much money per track, and cut out a lot of overhead. That sorta seems to support this push to get higher pricing on iTunes tracks is just a cash grab (surprise) by the labels.
Cheers
Lost at C:>. Found at C.
The artists should be making the most profit. If it's not like that, then the system is broken. The producer of an item should always make more money than any other person involved in the process.
Colin Dean Go a year without DRM
17 cents per CD...I missed where they contributed anything there...Are they singing backup?
They're certainly not doing ~20% of the work that the retailer is doing, or ~13% of the work the artist is doing...Just irritates me. Artists are getting fricking screwed all the time; why do they even have a union?
ad logicam Claiming a proposition is false because it was presented as the conclusion of a fallacious argument.
I'd be curious to compare this against the breakdown when the CD was introduced. I vaguely remember something like, "Sure, it's $16 now, but if everyone gets on board the economy of scale will reduce the price closer to the record prices you are used to paying! (~$8)". I think these misc. overhead costs are probably just fudge factors to avoid listing them under profit, like how movie production companies make up data to keep their net profits artificially low.
Distribution, $0.90? $900 for a thousand CDs? No way, not for WalMart.
This is WalMart you're shipping to. You ship to them by the truckload, not one CD at a time. Any in-store costs come under retail overhead, not distribution.
The promotion costs need to shrink. Maybe we'll see the labels begging for time on webcasts. Label overhead is far too high. The labels don't really do much today except promote; they don't directly employ artists, they don't run recording studios, they don't manufacture CDs, and they don't do physical distribution and warehousing. That's all outsourced. But management overhead hasn't been cut accordingly.
As the WalMart VP says: "The labels price things based on what they believe they can get -- a pricing philosophy a lot of industries have. But we like to price things as cheaply as we possibly can, rather than charge as much as we can get. It's a big difference in philosophy, and we try to help other people see that."
I printed 1,000 CDs for a personal indie project that I did (*cough*shameless self plug*cough*) and $0.80 / CD is around what I paid INCLUDING what I paid the artist to do the art work.
There's no freakin' way that that major labels are paying $0.80 / CD when they print runs in the tens of thousands. They should be getting WAY better bulk deals.
Musicians unions often give significant emergency aid to musicians fallen on hard times. Were it not for help from the composers union, for example, Bela Bartok would have been dead two years earlier than he was. I see no reason to protest.
Walmart, sucks to be their vendor, great to be their customer. I love it when two things I consider to be evil lock horns. Its why I'm a libertarian.
--- Justin Dearing http://www.justaprogrammer.net/ We're just programmers.
I'm not sure why a tape which has at a minimum:
2 case sides, two 2 part spindles, a tape leader, the tape substrate, the electromagnetical coating that actually records the data, 2 rollers, the metal thing to push against the read head and the sponge to not scratch the tape, and 2 clear windows, possbly 5 screws if the case doesn't snap together, possibly 2 inserts if the case is clear
is easier and cheaper to manufacture than a CD, especially know that CDs get more economies of scale than tapes. The fact that AOL switched from floppies to CDs probably also shows that CD manufacture is cheaper (though i'm sure it wasn't the only motivation in the switch.)
As far as the CD being an arbitrary price point, i remember when Public Enemy came out with "There's a Poison Going On". Their album was $8 for a download, $10 for an autographed CD. Once their label imploded (they were true pioneers in internet distribution, though a bit too early and the infrastructure wasn't ready for them yet) the same, non-autographed CD was sold in Virgin for 17.95. I'm not sure why virgin deserved the 7.95 (or more, depending on the value you put on the autograph) price delta.
As an aside, people don't recognize that Public Enemy was one of the first bands to really use the internet. They have several blogs and websites, released Bring The Noise 2000 on the internet for free (before the label made them take it down), released the single Swindler's Lust for free, and for Revolverlution, pre-released some tracks and asked for the remixes to be sent back to them, and included a pretty good remix (plus the original of course) of "Give the Peeps what they Need" on the Revolverlution disk.
I'd hate to be a small time, MTV2 band without a union to back me up against a major label.
Sorry, the person who risks his own money should get more reward than everyone else. In this case, the record labels pay to produce records that may not make any money. The artists risk nothing. In more familiar terms, the artists are employees and they don't get to make the rules. If they don't like their deal, they can try to negotiate a better one or take out a loan and produce their next album themselves.
The burden of risk is the most expensive thing thing in the economy. It is more expensive than talent, education, good looks, and everything else. In my opinion, the system is broken if the people taking the risks don't get the most reward.
Musicians that fall on hard times can get a fucking job like the rest of us.
I rarely read replies, it's my opinion and if you thought about your opinion a little more, I'm OK with that.
Or they can plan ahead. Purchase insurance like the rest of us, have a savings plan like the rest of us.
I am Jack's complete lack of surprise.
Membership in a union that promises to take care of you is a sort of insurance plan.
If the record companies just decided to agree to tell Wal-Mart to go fuck themselves, what would actually happen? Do they matter SO much that that is not a possibility? Do people buy music at Wal-Mart just because they saw a CD there (a CD they wouldn't have bought otherwise) or would they actually go buy that CD elsewhere if it wasn't at Wal-Mart.
Even though record companies are by no means my favourite, they would gain some tiny bit of respect if they decided to just drop Wal-Mart. A way of saying "we only do business with people who care about music". Though we know that it's not true.
Ok. CDs cost money to produce, but the article is dated, and I think a more interesting question with respect to the cost of music is "how do the costs translate to online sales?" I am clearly guessing here, but if anyone else has real numbers, please reply. Given that everyone likes to talk about Radiohead's "In Rainbows", I'll base my estimates on that. The album has 10 songs, so...
Online Distribution (10 songs / CD)
$0.17 - Musicians' unions - no change
$0.22 - Packaging/manufacturing - 2% of revenue to license mp3 format for content distribution, AAC is free for distribution, don't know about Fairplay DRM.
$0.82 - Publishing royalties - no change
$1.00 - Retail profit - 12 @ $.10/song
$0.10 - Distribution - Bandwidth ~5MB/song (downloaded from Radiohead) = 50 MB * 0.0005/MB=$.025 (the estimate is for Video on Demand, but that's all I could find). I bumped it up a little to cover hardware maintenance.
$1.60 - Artists' royalties - no change
$1.70 - Label profit - no change
$2.40 - Marketing/promotion - no change
$2.91 - Label overhead - no change
$0.00 - Retail overhead - not sure
Total: $10.92
Apple sells "In Rainbows" for $9.99. Amazon sells it for $7.99 as a download. I don't believe Apple loses money on downloads. I'm not sure about Amazon. While this is strictly hypothetical, it would seem the difference between a $15 CD and a $10 downloaded album is more than just the cost of production and distribution of the CD. Assuming I'm not totally off on my numbers, and the numbers that aren't related to production and distribution do not change, it should not be possible for Apple to sell the record for $10 or Amazon for $8. I believe the pricing model must allow for online retailers to make a profit, so what makes up the difference? Are the labels giving up profits? Are they operating more efficiently than they used to?
I can get insurance for instruments and equipment through ASCAP without being part of any union.... Bear in mind, though, that the people in unions are not the artists. The folks in the unions are the studio session musicians, the composer/arrangers on hire by studios, etc. I see no reason that they should be a line item on the CD sales costs, though. They should be getting their money in the form of union dues from the hired musicians in question. That money should fall under the "label overhead" column. The only reason to break that out into a separate column is to make anti-union people see red. Unless, of course, the unions are actually getting money directly from each sale, in which case, the anti-union people should be seeing red.
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I recall there was a Congressional hearing sometime back during the 1980s when several CEOs from various music companies were forced to testify as to why the cost of compact discs were so much higher than audio tape.
/haven't purchased a new CD in over seven years
//have no plans of doing so anytime soon
///expects the music industry to shrink by over half within the next decade
One lady in specific stated that it was due to the higher manufacturing costs associated with digital mastering and compact disc pressing. She continued to state that as the technology became more mature, it would fall in price.
Back then, a compact disc was often between $10 and $12. Today, they are often between $12 and $18. While adjusted for inflation, the real cost of an audio CD has come down somewhat, that cost has not dropped at the same rate as the technology needed to create a disc. In short, we are getting ripped off.
Furthermore, as the article states near the end, most of the costs are due to "fuzzy" expenses as opposed to manufacturing and the costs associated with "brick and mortar" retail outlets. So again, while some prices have come down, others may have gone up.
Vlasic was, for lack of a better word, stupid in their dealings with Wal-Mart.
IIRC from an article I read a few years ago, they agreed to sell industrial-sized jars of pickles to Wal-Mart. For (figurative) peanuts, a few bucks a piece. They were making a loss on every picke sold.
Why'd they still go through with it even though they were taking a loss? 'Cuz they were selling a lot of them!
DATABASE WOW WOW
>I agree that Walmart is the "hero" of this particular story, but to me, the real villain is the record buying public.
How is Walmart the hero? This is another story in Walmart's long history of pushing competitors out of the marketplace and then squeezing suppliers. Walmart is the ultimate middleman in that they have more leverage than either producers, consumers, or even their own workers. That said, I don't even really think that Walmart is a villain exactly (most of the time), they are just an extremely well run business optimizing their profits.
What I think is very wrong is the interpretation that anyone that screws the record industry, the movie industry, or the software industry is somehow a hero. Somehow the slashdot crowd has gotten the impression that these industries are composed completely of useless middlemen who don't deserve to make any profit from their work.
However, this is less and less true since now artists can sell their work fairly independently. This was probably never true with the software industry, where even smaller publishers like Stardock can make it onto Walmart shelves, and the movie industry where actors, writers and directors all get paid pretty handsomely.
The truth is that you can't take money out of the "record industries" pockets without taking money out of artists pockets, especially now that artists have access to smaller or self created labels and the ability to sell their stuff over the internet.
Personally, I buy products at the lowest price I can get them, but I don't go around cheering when the producers get shortchanged.
You're not really making $7.50/unit, because you're not accounting for production, distribution and marketing. If you leave those out, then of course it'll look cheap.
And don't tell me that you can do your own production, distirbution and marketing, because that just misses the point: of course you can do those things, cheaper than the labels would, and maybe even decently well (and I certainly think more musicians ought to do it); but the numbers you're giving don't account for the cost of the time you spent, unless your time is free. You didn't make $7.50 of profit per unit; you made $7.50 minus the value of the time (and equipment, materials, etc.) that you spent on making and selling your CDs.
Yes, I'm absolutely sure many people can make more money as indies than with a major label. But come on, be honest with the accounting.