"That's their problem, what are they doing with their 70% cut? Burning it? It certainly isn't going to the artists."
It goes to all the other employees and the various expenses of running a business. If you were to drill down into Warner's financials (the only big publicly traded record company that I am aware of), you'd likely find that as a percentage of gross revenue, nobody makes more than the artists -- not even the CEO. It's a big pie but it gets rendered into a lot of very thin slices.
Unfortunately, all bureaucracies are like this. True story: I hold a director-level position at a computer peripheral company that everybody reading this is familiar with. I'm responsible for about $30MM worth of business, yet my salary is less than 1% of that. Applying the typical Slashdotter logic reserved for record companies, I might say "the company keeps the rest," but the truth is that the rest of it goes to pay all the other employees who have a hand in keeping the company running, as well as paying for R&D, marketing, and all the other realities of running a business.
Now, say I was running a tiny little computer peripheral company; say, the sort that buys those 1/4 page ads in the back of of the Mac magazines. My compensation might be a much, much larger percentage of the company's total revenue, but it might be a lot less in dollars, as well. Plus, I'd have all the risks of running a tiny operation in an ocean of big fish, including the risk of going out of business each month.
And so it is if you're a musician looking for a recording contract: if you decide to self-produce, you're likely to keep a bigger chunk of the total sales, since you're controlling how the money is spent. If you go with a ten-person indie record label, you might also get a bigger cut of the sales (a fellow I knew who ran an indie label once told me that he was proud to pay much higher royalties than the big guys; then again, he paid himself the princely sum of $25K per year). If you sign with one of the majors, you'll have a much bigger chance of making a lot of money, but you'll be a tiny cog in a big machine.
"I think you mean that Warner CLAIMS it lost money last quarter."
Nope, that's the numbers they posted to the street. While posting dishonestly high numbers is all too common (Enron) they have absolutely NO reason to post a loss if they didn't actually have one. It does awful thing to share value.
I'm sure that Warner did some slushy things internally to make some projects look more profitable or less profitable than they actually did; lots of companies (even companies that most Slashdotters think of as "good") do this. But the bottom line is that Warner is bleeding red.
"According to Vivendi, they pull in ~$0.70 per song, while apple pulls in around $0.29 a song (well, TFA cites euros -- but I'd wager that the margins in USD sales are identical). I wonder how different that is from the model of physical distribution."
That's Vivendi's point: they resent the fact that Apple charges a much higher markup than typical retailers. Target and Amazon (the #1 and #2 music retailers in the US; iTunes is #3) make about 15% margin -- half of the iTunes markup.
"I'll bet that the IP owners make more on the CD. It probably costs less than $0.40 to press a polycarbonate CD (total guess w/ nothing to back my numbers up), presuming that you're doing more than 5000 at a time. Add in another buck for packaging, and another few bucks for distribution. You're up to maybe $3.50 (again, total guess) out of a $15 average album. That comes out to netting (before paying royalties, etc) around 78 cents on the dollar - about 8 percent better better than the iTunes model, and that is before you factor in the fact that we're comparing a per song cost to a per-disc cost."
Sorry, I've lost you. CDs haven't averaged $15 for a while; the stuff on the Amazon top 100 tends to be $10 - $11 per CD, with the exception of the double discs, CD+DVD, etc. Amazon buys the CDs for $8 - $10. That $8 - $10 is all that the record company sees.
As for the theory that the record company nets 78% -- well, keep in mind that after several quarters of having terrible net margins (sub-5%), Warner Music lost money last quarter. If Vivendi's financials are like Warner's (and it's a safe bet that they are), they're probably in the sub-5% business as well. This actually isn't too bad (Wal-Mart makes do with similar margins) but 78% net is off the beam.
"To Vivendi, I say: cry me a river."
Agreed. It's just as if they'd signed a deal with Amazon, and then Amazon found a way to sell CDs for $14 - $15 on average instead of the $10 - $11 that they do now. Digital distribution is set to take physical CD distribution, and Vivendi is facing the fact that the successful online distributors (which is just iTunes for now) are making a hell of a lot more margin than the retailers they're used to dealing with. If Vivendi wants more margin, they should sell direct to the consumer.
"Maybe so, but something tells me that brick and mortar stores have similar deals (didn't find the info after a quick google)"
They don't. That's the Vivendi dude's point!
The iTunes store adds a 40% markup. Typical markup at Amazon and the big box stores for CDs is 15%.
"So while we all agree that record studios figure in the need to recoup their costs for investments for the profit margin, maintaining such a high margin (and demanding more) for the equivalent material in digital form (which has less manufacturing costs - and potentially less capital depending on how they figure in iTunes advertisements)"
No: the iTunes markup is twice as much as it is at retailers for CDs. This is why Vivendi is whining.
"Thank you SO much! That's a point I've been unable to formulate, a logical link I'd never seen stand by itself. Yes, the point of downloading things is not only price, but convenience. It is so EASY! I'd happily pay for most content, really. What if my ISP gave money to some artists I name on a list, what with my 100/month bill. In my case, I'd see it that way : My ISP charges 50 for a month, with a 50GByte limit. Beyond that, it's priced 1/GB. I'd be happy to know that some percentage of that goes to the copyright holders of the things I download."
Well, here's the problem with that: you mention "goes to the copyright holder" and "goes to the artist." The record company holds the rights to the recording, and the composer and lyricist own the rights to the music and the words. I think you really meant the latter, in which the record company is cut out of the picture.
Many people have suggested the same thing: that we set up a system in which only the artist is compensated when we pirate music. The trouble is that record companies are typically for-profit ventures and have finite resources. We like to claim that the current business model is dead, but the alternative model of "record companies provide the cash and expertise to record, produce, and promote the music, with money going only to the artists" does not work well, either. Of course, I'd like to be proven wrong... if anybody reading this wants to set up a service like this (where, again, you get the artist's music produced, and they keep all the money from the sales or donations), then please do. If you can make it work, you'll be a hero among Slashdotters everywhere. A flat broke hero, but a hero nonetheless.
As an aside, I think your notion of a socialized music system (where artists are paid a percentage from ISP fees using the assumption that people are using their connections to pirate music and films) might work in Europe, where I suspect people tend to be a little more comfortable with socialized commerce. But here in the US and Canada, I do not think it would work. US residents already pay a tariff on music CD-Rs for much the same reason, and Canadian residents must pay an even higher tariff on ALL CD media. These laws are highly reviled around here. I personally hate them because I don't pirate music or films, and I certainly don't want to subsidize the entertainment industry on behalf of those who do.
"What I find really shameful is that this revolt has been going on since I was a kid on the internet, and the big labels still haven't simply changed their models and given into market pressure to reprice their music and content to a reasonable price."
When you were a kid (let's say 1997), CDs cost about $18. That's $22 in today's dollars. Due to market forces (piracy or otherwise), you can get most new CDs for $10 or $11 on Amazon.com and $12 - $14 at Target. Prices have dropped in half.
Back in 1997, the record companies were extremely leery of online distribution. Legitimate online availability was scarce and tracks cost $3 each (about $4 in 2007 money). Today, millions of tracks are available legally for less than a buck.
I understand your point here -- as long as we claim that the record companies aren't changing with the times, it gives us that feeling of moral and intellectual superiority that justifies piracy. But you must understand that in light of the facts, it is intellectually dishonest.
It may be that "reasonable price" for you is a sliding scale -- it's always below current market pricing, so as prices continue to freefall, you'll simply claim that they are not yet "reasonable." If you and your friends are going to proudly fly the Jolly Roger forever, that's fine -- lots of my own friends do. But don't expect prices to continue to free fall. Market pressure (again, from piracy or otherwise) has brought Warner Music to its knees; after several quarters of awful profitability, they've gone into the red. Not much more bottom to plumb. "Record companies make obscene profits" is another intellectually dishonest statement that's common among piracy advocates, but the sad fact is that the record industry has always been a low-margin business, and it's only getting worse for them.
"I reside in the great nation of Canada, fuckwit, where downloading music is still legal due to the levies we pay on storage mediums like blank CD's which go to the CRIA."
It goes to the copyright collective; the majority of it ends up going to SOCAN. The whole "record companies evil, artists good" thing falls down in consideration of the fact that SOCAN represents the composers and lyricists. They represent the artists in the way that the CRIA represents the record labels. I point this out because if you are to defeat your enemies, you must first understand them.
Either way, I agree that the Canadian levy is wrong because:
Many people (yourself included) make the connection that because you pay a levy, you are legally and/or morally allowed to pirate. But it's not socialized music production. As you inferred from your Celine Dion reference, only Canadian artists get the money. If you pirate because you think the levy is helping support your favorite artists in lieu of your purchase of their albums, you're most likely wrong unless you only pirate Canadian artists.
As mentioned, unlike the Canadian tariff, it covers data CDs in addition to audio CDs, so everybody pays the tax... not just the pirates.
Social programs can work great... socialized medicine, social security, and so on. But Canada (or any country) doesn't need a socialized music program. Music isn't a rare and precious item; new CDs are around $12 here in the US and you can always find free, legal music (the radio being an excellent source). But the biggest problem is that it penalizes everybody. I pay for my music, thanks. I would not want to pay twice.
"This was back before we could even create CDs at our own PCs and when CD prices were at their premium of $16-18 each. (Then again, aren't they still around that price?)"
No. The average price of the top ten CDs on Amazon (the nation's #1 music retailer, apparently) is $10.28. Audiophile recordings, CDs with bonus DVDs, and the like can get up to $16 - $18, but nowadays, the effective price for most new CDs is $10 or $12.
"Yes, I know there is more than just manufacturing..."
Manufacturing is typically the smallest component of the cost of sale. The record company typically pays more in royalties than they do in manufacturing costs. And, of course, that doesn't include production costs, shipping, returns, marketing programs (a big piece of the pie), overhead and the myriad other costs that are a reality of the retail business no matter what you sell. But, for what it's worth, finished CDs don't cost $0.25 to produce.
"but consider that every $.25 profit to each disc was 100% profit. So, even if the labels made $1 profit for each disc sold, they made 400% profit."
I am not sure I follow your math. A buck net profit per CD sounds a bit right. If they sell in to distribution at $8, and net $1, that's about 12 points of margin.
Remember -- after several quarters of reporting really, really low profitability, Warner Music lost money last year. I know the "record companies make obscene profits" story is a popular one on Slashdot, but it is generally not correct.
"Where have you been? The Simpsons died more than 10 years ago."
NB that the South Park film grossed something like $50MM at the US box office. The Simpsons Movie earned more than that in its opening weekend, even after adjustment for inflation.
"So when traditional music distributors charge $20 for a CD with 12 songs on it ($1.67 / song) they are simply pricing themselves out of business."
I take it that you are referring to Australian dollars? New releases here in the US average sub-$14 and have for a while. In a perfect example of your explanation of prices finding the right point on the curve, CDs were $20 in the US about ten years ago. Then P2P and some other factors came along and CD prices went into freefall.
"Even when printing CDs the cost per CD is almost non-existant when you're buying in extremely massive bulk quantities so the overhead is ultimately very low compared to something like cars which cost far more to produce per unit."
True, but the vast majority of CD releases are not produced in "extremely massive bulk quantities." Sure, the blockbusters are, but 10K piece runs are more the norm for most CDs sold.
For a 10K run, a finished CD with case, artwork, booklet, security tags and the like will cost about a buck, maybe $1.25. Add royalties of $0.10 - $0.20 per track and you're up to $3.25 in a worst-case scenario. Record companies sell in to distribution for about $8, so your material costs and royalties are about 40% of your sell-in price. That's not too bad (it's roughly on par with the ratio for many computer peripherals), but it's not "almost non-existant."
"ok, I know it's not unheard of to spend millions to produce an album, but once you've spent those millions you can make as many digital copies as possible."
Pity it's not that simple. "Capacity to duplicate is infinite, thus amortized cost of production is a limit approaching zero" is a popular fallacy around here. It makes us feel good about pirating, but of course, it's not true. It's the amount sold that counts. Record companies tend to set budgets for production that are in line with sales forecasts, which is why the industry runs on razor-thin margins. Sure, they can pay Timbaland $100K to produce tracks for releases they know will recoup their investment, but Joe and Jane indie artist get budgets far less than that.
Getting cable (notice that Zonk has written "I have chosen not to have cable." Not "I can't get cable.")
I will go ahead and complete Zonk's sentence for him, as his implication is brutally clear:
"Hey NBC: I have chosen not to have cable, but want to pay you for Heroes. Guess what my only alternative will be if you pull it from iTunes? Yes that's right I will pirate it! And you have made me pirate! It is YOUR fault that I am breaking the law, NBC! YOUR FAULT!"
...and yet he started his sentence with "I have chosen not to have cable."
Hey Zonk: that's why lots of people pirate: because they choose not to pay. Stop playing yourself as the victim. Your sense of entitlement is way out of control.
"Somewhere in Bentonville, Arkansas, a Wal-Mart executive is deciding how to respond to this pricing move. When the decision is made, calls will go out to record companies, telling them what Wal-Mart is willing to pay. That's what really scares the RIAA."
The record companies are already Wal-Mart's bitch. Remember the Universal price-fixing settlement a few years ago? You can thank Wal-Mart and Best Buy for that.
When WM and BBY started selling CDs at or near cost as a draw to get customers into the stores, Tower Records and a few other music-only retailers freaked out. They couldn't sell CDs at Wal-Mart prices, since they didn't have acres of other high-margin inventory to sell once they'd lured customers into the stores. So, they complained to the record companies. Universal put them on a MAP (Minimum Advertised Price) program, in which they got some funds for advertising if and only if they advertised CDs at full retail value.
Wal-Mart and Best Buy got wind of this, complained to the feds, and the rest is history. If you'd purchased a CD at Tower Records at full retail price (or were willing to just say you did), you got a check. Tower Records went gently into that good night, and today Wal-Mart and Best Buy are among the nation's biggest music retailers.
This is a good thing if you like low CD prices, you hate the record companies, or you subscribe to the "What's good for Wal-Mart is good for America" philosophy. It's not so great if you bemoan the demise of the indie record shop.
"Because, as we all know, customers who want CD's at a decent price are OBVIOUSLY pirates..."
You joke, but many Slashdotters do claim that CD prices are a justification for piracy. The justification is on two levels: the price itself (we pirate to save money), and the perceived profit margin (we pirate because the record label and retailer's profit margin give a moral free pass to do so).
"Really? They've only been losing money from that? Not from their heavy handed tactics driving people away from buying CDs?"
If you read Slashdot long enough I can see how you'd make that assumption, so I understand where your question is coming from. But it's not correct. There are certainly fringe folks who are boycotting the music industry, but as a whole, consumers are buying as much music as ever. For instance, iTunes' growth is still accelerating. Around here folks like to state that the business model is dead, and that piracy is the holy sword of justice that has delivered the killing blow, but I disagree.
Is piracy hurting record sales? To some extent, yeah, but I won't hazard a guess at how much. The important thing is that Warner's sales have been flat for a while (Warner might like to tell you that they'd be seeing growth if it weren't for you and your lousy pirating friends), and the really important thing is that their net margin is down -- in the red, in fact. And it's because people (like me) are replacing CD purchases with online purchases. Warner hasn't yet figured out how to make as much money on digital sales as CD purchases (and here again is where the "amortized cost of sale for digital delivery is zero" crowd gets utterly boggled), and they'll be bleeding red for a while until they figure this out.
"Maybe finally the RIAA will realize that allofmp3's pricing scheme and business model works and proves that if you price it right and don't use DRM, people will readily pay for music even if it is available for free on P2P."
Laws would have to change here first. Although the record companies have ways to get around it, statutory royalties are $0.08 per track each for the songwriter and lyricist. This wouldn't go over well with the "the artists don't get enough money" crowd, as adopting Russian-style pricing would require that the artists get screwed even more.
"Rather than try and sue them out of business, the RIAA should instead drive them out of business the capitalist way - with some nice good competition. Offer the same selection, convenience, organization, and interface as allofmp3, and compromise prices between allofmp3's (admittedly too low) and the RIAA's (way too high for "impulse buys" of tracks/albums I'm not sure about."
The iTunes Store is still experiencing accelerating growth. A buck a track is below the impulse buy point for many, many people.
Remember, Warner posted a loss last quarter because people are buying too many digital tracks, and they're just not enjoying the profit margins they made on CDs. Let's all repeat this like we have been doing for ten years: "Record companies make high margins on digital tracks. The cost of distribution is zero and thus amortized cost of production is zero." Now, let's check. Is it true? No. Did repeating it magically make it true? No. Let's keep chanting it for another ten years, then, and wonder why the record companies haven't caught on to the brilliant idea of selling tracks for a dime apiece.
In the meantime, I'm still waiting for somebody here in the US to take AC's sage advice and figure out how to pay the artists, pay for the costs of production, and sell tracks for a dime each (the Russians are able do it because they need only fork over a percentage of the sale price, and are not responsible for the costs production). Not a week goes by when some Slashdotter doesn't point out how brutally obvious this business model is. Yet nobody steps up.
"SACEM is the French performing rights organization, equivalent to either ASCAP or BMI in the US, or SOCAN in Canada. They're not a lobby group comprised of commercial record labels. They collect royalties from broadcasts and performances on behalf of French musicians."
This bears amplification.
SACEM, ASCAP/BMI, SOCAN, etc.: performing rights organizations which represent artists, composers and lyricists. THE GOOD GUYS.
The French equivalent of the RIAA is the IFPI. The RIAA and the IFPI represent the recording industry. THE BAD GUYS.
Performing rights organizations represent a potential revenue stream for artists, composers and lyricists that the record companies generally don't see and can't touch. You know how we all want the record companies to go away but for artists to be compensated, in a way which doesn't require us to pay for the music? Performing rights organizations are the way that can happen. The summary's statement that SACEM is the equivalent of the RIAA was dangerously misleading.
"What kind of idiot still believes illicit downloads = lost sales."
Nobody, but I'm not sure of your point here. Not even the study referenced in the Ars Technica article makes this claim. I'll presume this is just a failure to RTFA (as most people do), rather than a deliberate attempt to set up a straw man.
The problem is that music fans are largely disenchanted with the market. By and large, music fans think that music is too expensive, and that much of what is available isn't very good. 58 percent of those responding to a study commissioned by Rolling Stone magazine and the Associated Press said that music is declining in quality.
The problem is that these sentiments are constants. Sure, ask any given person in any given year and they'll tell you that they think music is too expensive. I think Ferraris are too expensive, too. Yet the music industry still manages to post sales of billions per year, iTunes' growth is accelerating, and the overall health of the music industry tends to be a good barometer for the rest of the economy. We (as a collective group of consumers) may say that music is too expensive, just as generations past have claimed... yet we keep buying.
Regarding the sentiment that music is declining in quality: that, too, is a constant. Again, ask any given person in any given year and they're liable to say the same thing. Think music hit its peak in the 70s? Go back a few years and you'll find the crowd who thought things started going wrong in the late 60s. You could find folks in the 1870s who thought that the music of the 1850s was the pinnacle of quality. And, bringing us back to modern times, look at the Top 100 tracks for any year in the 1960s or 1970s, and you'll see that it, too, was 90% crap, just as today -- but we filter that out and tend to remember the good stuff, or the stuff that had emotional significance to us. This is simply how nostalgia works and it's not a suitable explanation of decreasing music sales or the increase of piracy -- particularly since the Big Champagne chart of top-pirated tunes tends to match up nearly exactly with legitimate downloads. When we pirate, we want the stuff that's hot now. The majority of music piracy is not being performed by people who like today's music just fine.
On that point, I am likely to get several replies from people who insist that they only pirate music from [insert your favorite decade here] and that they do pirate because today's music is crap, thankyouverymuch. Bully for you if that's the case -- but you're not part of the trend.
I am really not sure if Ars Technica simply doesn't understand this, or if they are being intellectually dishonest in an effort to prove a point. I've noticed that most of their articles on piracy have a pro-piracy slant and tend to come off as editorials rather than reporting (they are getting nearly as bad as The Inquirer), so I fear the latter.
"Walmart cannot stop an artist from releasing a song with offensive lyrics. Therefore, it is not censorship."
I'm not sure what motive you may have for spreading this falsehood, but please -- stop it.
If the dictionary.com definitions are not straightforward enough, take a look at the Wikipedia entry -- it addresses censorship of music by retailers. The article on Censorship of music may also help you understand how broadly defined the term is. If you are truly steadfast in your understanding of the concept, and not just trying to fool some hapless readers, then you know what to do -- edit the Wikipedia entries to reflect your understanding.
"It's not censorship. Censorship can only be done by a controlling body. Typically the government, or other official body."
The above is presently "2, Insightful." This, ladies and gentlemen, is why I love Slashdot.
It's a Venn diagram, folks -- draw a big circle, label it "censorship," and then draw a smaller circle inside it and write "by the government." Government censorship is censorship, but not all censorship is by the government.
Have a blog? Ever delete a comment that somebody's posted? You're censoring. Doesn't matter whom you work for, or how big your blog is.
I think censorship is like piracy and other hot issues: we only define it that way when other people do it. So, we Slashdotters invent increasingly narrow definitions to ensure that the burden falls on others' shoulders. Which is fine, but it's also sad that a certain percentage of you have read Nos' post above and now actually believe that what Wal-Mart's doing isn't censorship.
"Someone wrote in a different forum that the MAFIAA needs to change their business model with cope with the times. Someone replied and asked the first person to suggest a business model and implied that the MAFIAA deserve to be in business and have a 'right' to preserve their business model."
Bullshit. Post a link.
"Hopefully the people here are smart enough to understand that there is nothing that guarantees you or your corporation the right to a sucessful commercial venture."
I've seen this straw man repeated far too many times. Nobody in their right mind would make this claim, but nonetheless, this is how file sharing advocates have spun it innumerable times:
Musician: "umm, guys, it's not too cool to pirate my music if I don't want you to."
Slashdotter: "Fuck you and your greedy ilk. You have no right to make a profit!"
Musician: "uh... that's not what I was saying..."
So, you're right: we all understand that nobody has a right to profit, or any sort of guarantee that their business will succeed. I presume that we also understand that you don't have a right to piracy, either.
"Umm, do you have any proof to back up such a claim?"
I asked Ray Beckerman about this once. He estimated that of all the people the RIAA has gone after, only about half are actually sharing copyrighted content. The other half are mistaken identity.
Consider that Mr. Beckerman is on the side of the consumer here, so I'd think that he is liable to underestimate.
Of course, nobody knows for sure, but we can apply some common sense here. It's in the RIAA's best interest to get things right here. They've taken their lumps (Usher, anybody?), so they've gotten better in their detection methods. If somebody were to tell me that their false-positive rate were 10% - 20%, I'd believe them.
File-sharing advocates like to point out that everybody trades MP3 files. Folks around here boast proudly of BitTorrent's share of overall network usage, relate stories about how everybody at their school pirates music without a second thought, and post links to surveys of young people that confirm that young people don't have much of a moral issue with piracy (I know I sure didn't when I was a teenager). If the Slashdot zeitgeist is to be believed, then even if the RIAA were randomly choosing IP addresses (which we know they are not), they would have a pretty good success rate with just dumb luck.
"If that's correct, then once again I was wrong. I thought that songwriters, not performers, owned the rights and were represented by ASCAP. Of course, the point is rather meaningless when the performer IS the writer."
I was probably unclear. When I used the generic term "artists" I meant the songwriter and/or lyricist in this context. You're correct that very often, the performer and the writer are the same.
"That depends on the contract. I'd bet that most of the copyrights are owned by the music companies (for which the RIAA is acting as an agent). I'm not at all sure that misbehavior on the part of the RIAA is enough to allow a lien to be placed on the music company's property."
Ownership of the music and lyrics is typically with the composer and lyricist. The songwriter might assign their rights to a publishing company. Some publishing companies are small (one- or two- person operations) and some are quite large. In some cases a publishing company is owned by a record company, or owned by the same company which owns a record company (Warner Chappell Music is one notable example -- that "Warner" is the same as in "Warner Records"). But it would be inaccurate to say that "most" of the music and lyric rights belong to record companies.
I believe that half a century ago, it was much more prevalent for record companies to have ownership of the lyrics and music than it is now. It probably still happens, but stating that record companies own all the rights works better as a way of justifying piracy than it does as an accurate statement.
The GP is correct that performance rights are managed by ASCAP (which is run by and for artists) and BMI. These rights can be a great way for artists to get a revenue stream from their work that the record company doesn't see and can't touch. But, to make significant money this way generally requires that your song first be a hit on the radio, or enjoy significant CD sales.
Slashdot Mirror
"That's their problem, what are they doing with their 70% cut? Burning it? It certainly isn't going to the artists."
It goes to all the other employees and the various expenses of running a business. If you were to drill down into Warner's financials (the only big publicly traded record company that I am aware of), you'd likely find that as a percentage of gross revenue, nobody makes more than the artists -- not even the CEO. It's a big pie but it gets rendered into a lot of very thin slices.
Unfortunately, all bureaucracies are like this. True story: I hold a director-level position at a computer peripheral company that everybody reading this is familiar with. I'm responsible for about $30MM worth of business, yet my salary is less than 1% of that. Applying the typical Slashdotter logic reserved for record companies, I might say "the company keeps the rest," but the truth is that the rest of it goes to pay all the other employees who have a hand in keeping the company running, as well as paying for R&D, marketing, and all the other realities of running a business.
Now, say I was running a tiny little computer peripheral company; say, the sort that buys those 1/4 page ads in the back of of the Mac magazines. My compensation might be a much, much larger percentage of the company's total revenue, but it might be a lot less in dollars, as well. Plus, I'd have all the risks of running a tiny operation in an ocean of big fish, including the risk of going out of business each month.
And so it is if you're a musician looking for a recording contract: if you decide to self-produce, you're likely to keep a bigger chunk of the total sales, since you're controlling how the money is spent. If you go with a ten-person indie record label, you might also get a bigger cut of the sales (a fellow I knew who ran an indie label once told me that he was proud to pay much higher royalties than the big guys; then again, he paid himself the princely sum of $25K per year). If you sign with one of the majors, you'll have a much bigger chance of making a lot of money, but you'll be a tiny cog in a big machine.
"I think you mean that Warner CLAIMS it lost money last quarter."
Nope, that's the numbers they posted to the street. While posting dishonestly high numbers is all too common (Enron) they have absolutely NO reason to post a loss if they didn't actually have one. It does awful thing to share value.
I'm sure that Warner did some slushy things internally to make some projects look more profitable or less profitable than they actually did; lots of companies (even companies that most Slashdotters think of as "good") do this. But the bottom line is that Warner is bleeding red.
"According to Vivendi, they pull in ~$0.70 per song, while apple pulls in around $0.29 a song (well, TFA cites euros -- but I'd wager that the margins in USD sales are identical). I wonder how different that is from the model of physical distribution."
That's Vivendi's point: they resent the fact that Apple charges a much higher markup than typical retailers. Target and Amazon (the #1 and #2 music retailers in the US; iTunes is #3) make about 15% margin -- half of the iTunes markup.
"I'll bet that the IP owners make more on the CD. It probably costs less than $0.40 to press a polycarbonate CD (total guess w/ nothing to back my numbers up), presuming that you're doing more than 5000 at a time. Add in another buck for packaging, and another few bucks for distribution. You're up to maybe $3.50 (again, total guess) out of a $15 average album. That comes out to netting (before paying royalties, etc) around 78 cents on the dollar - about 8 percent better better than the iTunes model, and that is before you factor in the fact that we're comparing a per song cost to a per-disc cost."
Sorry, I've lost you. CDs haven't averaged $15 for a while; the stuff on the Amazon top 100 tends to be $10 - $11 per CD, with the exception of the double discs, CD+DVD, etc. Amazon buys the CDs for $8 - $10. That $8 - $10 is all that the record company sees.
As for the theory that the record company nets 78% -- well, keep in mind that after several quarters of having terrible net margins (sub-5%), Warner Music lost money last quarter. If Vivendi's financials are like Warner's (and it's a safe bet that they are), they're probably in the sub-5% business as well. This actually isn't too bad (Wal-Mart makes do with similar margins) but 78% net is off the beam.
"To Vivendi, I say: cry me a river."
Agreed. It's just as if they'd signed a deal with Amazon, and then Amazon found a way to sell CDs for $14 - $15 on average instead of the $10 - $11 that they do now. Digital distribution is set to take physical CD distribution, and Vivendi is facing the fact that the successful online distributors (which is just iTunes for now) are making a hell of a lot more margin than the retailers they're used to dealing with. If Vivendi wants more margin, they should sell direct to the consumer.
"Maybe so, but something tells me that brick and mortar stores have similar deals (didn't find the info after a quick google)"
They don't. That's the Vivendi dude's point!
The iTunes store adds a 40% markup. Typical markup at Amazon and the big box stores for CDs is 15%.
"So while we all agree that record studios figure in the need to recoup their costs for investments for the profit margin, maintaining such a high margin (and demanding more) for the equivalent material in digital form (which has less manufacturing costs - and potentially less capital depending on how they figure in iTunes advertisements)"
No: the iTunes markup is twice as much as it is at retailers for CDs. This is why Vivendi is whining.
"Thank you SO much! That's a point I've been unable to formulate, a logical link I'd never seen stand by itself. Yes, the point of downloading things is not only price, but convenience. It is so EASY! I'd happily pay for most content, really. What if my ISP gave money to some artists I name on a list, what with my 100/month bill. In my case, I'd see it that way : My ISP charges 50 for a month, with a 50GByte limit. Beyond that, it's priced 1/GB. I'd be happy to know that some percentage of that goes to the copyright holders of the things I download."
Well, here's the problem with that: you mention "goes to the copyright holder" and "goes to the artist." The record company holds the rights to the recording, and the composer and lyricist own the rights to the music and the words. I think you really meant the latter, in which the record company is cut out of the picture.
Many people have suggested the same thing: that we set up a system in which only the artist is compensated when we pirate music. The trouble is that record companies are typically for-profit ventures and have finite resources. We like to claim that the current business model is dead, but the alternative model of "record companies provide the cash and expertise to record, produce, and promote the music, with money going only to the artists" does not work well, either. Of course, I'd like to be proven wrong... if anybody reading this wants to set up a service like this (where, again, you get the artist's music produced, and they keep all the money from the sales or donations), then please do. If you can make it work, you'll be a hero among Slashdotters everywhere. A flat broke hero, but a hero nonetheless.
As an aside, I think your notion of a socialized music system (where artists are paid a percentage from ISP fees using the assumption that people are using their connections to pirate music and films) might work in Europe, where I suspect people tend to be a little more comfortable with socialized commerce. But here in the US and Canada, I do not think it would work. US residents already pay a tariff on music CD-Rs for much the same reason, and Canadian residents must pay an even higher tariff on ALL CD media. These laws are highly reviled around here. I personally hate them because I don't pirate music or films, and I certainly don't want to subsidize the entertainment industry on behalf of those who do.
"What I find really shameful is that this revolt has been going on since I was a kid on the internet, and the big labels still haven't simply changed their models and given into market pressure to reprice their music and content to a reasonable price."
When you were a kid (let's say 1997), CDs cost about $18. That's $22 in today's dollars. Due to market forces (piracy or otherwise), you can get most new CDs for $10 or $11 on Amazon.com and $12 - $14 at Target. Prices have dropped in half.
Back in 1997, the record companies were extremely leery of online distribution. Legitimate online availability was scarce and tracks cost $3 each (about $4 in 2007 money). Today, millions of tracks are available legally for less than a buck.
I understand your point here -- as long as we claim that the record companies aren't changing with the times, it gives us that feeling of moral and intellectual superiority that justifies piracy. But you must understand that in light of the facts, it is intellectually dishonest.
It may be that "reasonable price" for you is a sliding scale -- it's always below current market pricing, so as prices continue to freefall, you'll simply claim that they are not yet "reasonable." If you and your friends are going to proudly fly the Jolly Roger forever, that's fine -- lots of my own friends do. But don't expect prices to continue to free fall. Market pressure (again, from piracy or otherwise) has brought Warner Music to its knees; after several quarters of awful profitability, they've gone into the red. Not much more bottom to plumb. "Record companies make obscene profits" is another intellectually dishonest statement that's common among piracy advocates, but the sad fact is that the record industry has always been a low-margin business, and it's only getting worse for them.
"I reside in the great nation of Canada, fuckwit, where downloading music is still legal due to the levies we pay on storage mediums like blank CD's which go to the CRIA."
It goes to the copyright collective; the majority of it ends up going to SOCAN. The whole "record companies evil, artists good" thing falls down in consideration of the fact that SOCAN represents the composers and lyricists. They represent the artists in the way that the CRIA represents the record labels. I point this out because if you are to defeat your enemies, you must first understand them.
Either way, I agree that the Canadian levy is wrong because:
Social programs can work great... socialized medicine, social security, and so on. But Canada (or any country) doesn't need a socialized music program. Music isn't a rare and precious item; new CDs are around $12 here in the US and you can always find free, legal music (the radio being an excellent source). But the biggest problem is that it penalizes everybody. I pay for my music, thanks. I would not want to pay twice.
"This was back before we could even create CDs at our own PCs and when CD prices were at their premium of $16-18 each. (Then again, aren't they still around that price?)"
No. The average price of the top ten CDs on Amazon (the nation's #1 music retailer, apparently) is $10.28. Audiophile recordings, CDs with bonus DVDs, and the like can get up to $16 - $18, but nowadays, the effective price for most new CDs is $10 or $12.
"Yes, I know there is more than just manufacturing..."
Manufacturing is typically the smallest component of the cost of sale. The record company typically pays more in royalties than they do in manufacturing costs. And, of course, that doesn't include production costs, shipping, returns, marketing programs (a big piece of the pie), overhead and the myriad other costs that are a reality of the retail business no matter what you sell. But, for what it's worth, finished CDs don't cost $0.25 to produce.
"but consider that every $.25 profit to each disc was 100% profit. So, even if the labels made $1 profit for each disc sold, they made 400% profit."
I am not sure I follow your math. A buck net profit per CD sounds a bit right. If they sell in to distribution at $8, and net $1, that's about 12 points of margin.
Remember -- after several quarters of reporting really, really low profitability, Warner Music lost money last year. I know the "record companies make obscene profits" story is a popular one on Slashdot, but it is generally not correct.
"Where have you been? The Simpsons died more than 10 years ago."
NB that the South Park film grossed something like $50MM at the US box office. The Simpsons Movie earned more than that in its opening weekend, even after adjustment for inflation.
"So when traditional music distributors charge $20 for a CD with 12 songs on it ($1.67 / song) they are simply pricing themselves out of business."
I take it that you are referring to Australian dollars? New releases here in the US average sub-$14 and have for a while. In a perfect example of your explanation of prices finding the right point on the curve, CDs were $20 in the US about ten years ago. Then P2P and some other factors came along and CD prices went into freefall.
"Even when printing CDs the cost per CD is almost non-existant when you're buying in extremely massive bulk quantities so the overhead is ultimately very low compared to something like cars which cost far more to produce per unit."
True, but the vast majority of CD releases are not produced in "extremely massive bulk quantities." Sure, the blockbusters are, but 10K piece runs are more the norm for most CDs sold.
For a 10K run, a finished CD with case, artwork, booklet, security tags and the like will cost about a buck, maybe $1.25. Add royalties of $0.10 - $0.20 per track and you're up to $3.25 in a worst-case scenario. Record companies sell in to distribution for about $8, so your material costs and royalties are about 40% of your sell-in price. That's not too bad (it's roughly on par with the ratio for many computer peripherals), but it's not "almost non-existant."
"ok, I know it's not unheard of to spend millions to produce an album, but once you've spent those millions you can make as many digital copies as possible."
Pity it's not that simple. "Capacity to duplicate is infinite, thus amortized cost of production is a limit approaching zero" is a popular fallacy around here. It makes us feel good about pirating, but of course, it's not true. It's the amount sold that counts. Record companies tend to set budgets for production that are in line with sales forecasts, which is why the industry runs on razor-thin margins. Sure, they can pay Timbaland $100K to produce tracks for releases they know will recoup their investment, but Joe and Jane indie artist get budgets far less than that.
"Uh, watching it for free over-the-air?"
There's also:
I will go ahead and complete Zonk's sentence for him, as his implication is brutally clear:
"Hey NBC: I have chosen not to have cable, but want to pay you for Heroes. Guess what my only alternative will be if you pull it from iTunes? Yes that's right I will pirate it! And you have made me pirate! It is YOUR fault that I am breaking the law, NBC! YOUR FAULT!"
...and yet he started his sentence with "I have chosen not to have cable."
Hey Zonk: that's why lots of people pirate: because they choose not to pay. Stop playing yourself as the victim. Your sense of entitlement is way out of control.
"Somewhere in Bentonville, Arkansas, a Wal-Mart executive is deciding how to respond to this pricing move. When the decision is made, calls will go out to record companies, telling them what Wal-Mart is willing to pay. That's what really scares the RIAA."
The record companies are already Wal-Mart's bitch. Remember the Universal price-fixing settlement a few years ago? You can thank Wal-Mart and Best Buy for that.
When WM and BBY started selling CDs at or near cost as a draw to get customers into the stores, Tower Records and a few other music-only retailers freaked out. They couldn't sell CDs at Wal-Mart prices, since they didn't have acres of other high-margin inventory to sell once they'd lured customers into the stores. So, they complained to the record companies. Universal put them on a MAP (Minimum Advertised Price) program, in which they got some funds for advertising if and only if they advertised CDs at full retail value.
Wal-Mart and Best Buy got wind of this, complained to the feds, and the rest is history. If you'd purchased a CD at Tower Records at full retail price (or were willing to just say you did), you got a check. Tower Records went gently into that good night, and today Wal-Mart and Best Buy are among the nation's biggest music retailers.
This is a good thing if you like low CD prices, you hate the record companies, or you subscribe to the "What's good for Wal-Mart is good for America" philosophy. It's not so great if you bemoan the demise of the indie record shop.
"Because, as we all know, customers who want CD's at a decent price are OBVIOUSLY pirates..."
You joke, but many Slashdotters do claim that CD prices are a justification for piracy. The justification is on two levels: the price itself (we pirate to save money), and the perceived profit margin (we pirate because the record label and retailer's profit margin give a moral free pass to do so).
"Really? They've only been losing money from that? Not from their heavy handed tactics driving people away from buying CDs?"
If you read Slashdot long enough I can see how you'd make that assumption, so I understand where your question is coming from. But it's not correct. There are certainly fringe folks who are boycotting the music industry, but as a whole, consumers are buying as much music as ever. For instance, iTunes' growth is still accelerating. Around here folks like to state that the business model is dead, and that piracy is the holy sword of justice that has delivered the killing blow, but I disagree.
Is piracy hurting record sales? To some extent, yeah, but I won't hazard a guess at how much. The important thing is that Warner's sales have been flat for a while (Warner might like to tell you that they'd be seeing growth if it weren't for you and your lousy pirating friends), and the really important thing is that their net margin is down -- in the red, in fact. And it's because people (like me) are replacing CD purchases with online purchases. Warner hasn't yet figured out how to make as much money on digital sales as CD purchases (and here again is where the "amortized cost of sale for digital delivery is zero" crowd gets utterly boggled), and they'll be bleeding red for a while until they figure this out.
"Maybe finally the RIAA will realize that allofmp3's pricing scheme and business model works and proves that if you price it right and don't use DRM, people will readily pay for music even if it is available for free on P2P."
Laws would have to change here first. Although the record companies have ways to get around it, statutory royalties are $0.08 per track each for the songwriter and lyricist. This wouldn't go over well with the "the artists don't get enough money" crowd, as adopting Russian-style pricing would require that the artists get screwed even more.
"Rather than try and sue them out of business, the RIAA should instead drive them out of business the capitalist way - with some nice good competition. Offer the same selection, convenience, organization, and interface as allofmp3, and compromise prices between allofmp3's (admittedly too low) and the RIAA's (way too high for "impulse buys" of tracks/albums I'm not sure about."
The iTunes Store is still experiencing accelerating growth. A buck a track is below the impulse buy point for many, many people.
Remember, Warner posted a loss last quarter because people are buying too many digital tracks, and they're just not enjoying the profit margins they made on CDs. Let's all repeat this like we have been doing for ten years: "Record companies make high margins on digital tracks. The cost of distribution is zero and thus amortized cost of production is zero." Now, let's check. Is it true? No. Did repeating it magically make it true? No. Let's keep chanting it for another ten years, then, and wonder why the record companies haven't caught on to the brilliant idea of selling tracks for a dime apiece.
In the meantime, I'm still waiting for somebody here in the US to take AC's sage advice and figure out how to pay the artists, pay for the costs of production, and sell tracks for a dime each (the Russians are able do it because they need only fork over a percentage of the sale price, and are not responsible for the costs production). Not a week goes by when some Slashdotter doesn't point out how brutally obvious this business model is. Yet nobody steps up.
"SACEM is the French performing rights organization, equivalent to either ASCAP or BMI in the US, or SOCAN in Canada. They're not a lobby group comprised of commercial record labels. They collect royalties from broadcasts and performances on behalf of French musicians."
This bears amplification.
SACEM, ASCAP/BMI, SOCAN, etc.: performing rights organizations which represent artists, composers and lyricists. THE GOOD GUYS.
The French equivalent of the RIAA is the IFPI. The RIAA and the IFPI represent the recording industry. THE BAD GUYS.
Performing rights organizations represent a potential revenue stream for artists, composers and lyricists that the record companies generally don't see and can't touch. You know how we all want the record companies to go away but for artists to be compensated, in a way which doesn't require us to pay for the music? Performing rights organizations are the way that can happen. The summary's statement that SACEM is the equivalent of the RIAA was dangerously misleading.
"What kind of idiot still believes illicit downloads = lost sales."
Nobody, but I'm not sure of your point here. Not even the study referenced in the Ars Technica article makes this claim. I'll presume this is just a failure to RTFA (as most people do), rather than a deliberate attempt to set up a straw man.
I take issue with this:
The problem is that these sentiments are constants. Sure, ask any given person in any given year and they'll tell you that they think music is too expensive. I think Ferraris are too expensive, too. Yet the music industry still manages to post sales of billions per year, iTunes' growth is accelerating, and the overall health of the music industry tends to be a good barometer for the rest of the economy. We (as a collective group of consumers) may say that music is too expensive, just as generations past have claimed... yet we keep buying.
Regarding the sentiment that music is declining in quality: that, too, is a constant. Again, ask any given person in any given year and they're liable to say the same thing. Think music hit its peak in the 70s? Go back a few years and you'll find the crowd who thought things started going wrong in the late 60s. You could find folks in the 1870s who thought that the music of the 1850s was the pinnacle of quality. And, bringing us back to modern times, look at the Top 100 tracks for any year in the 1960s or 1970s, and you'll see that it, too, was 90% crap, just as today -- but we filter that out and tend to remember the good stuff, or the stuff that had emotional significance to us. This is simply how nostalgia works and it's not a suitable explanation of decreasing music sales or the increase of piracy -- particularly since the Big Champagne chart of top-pirated tunes tends to match up nearly exactly with legitimate downloads. When we pirate, we want the stuff that's hot now. The majority of music piracy is not being performed by people who like today's music just fine.
On that point, I am likely to get several replies from people who insist that they only pirate music from [insert your favorite decade here] and that they do pirate because today's music is crap, thankyouverymuch. Bully for you if that's the case -- but you're not part of the trend.
I am really not sure if Ars Technica simply doesn't understand this, or if they are being intellectually dishonest in an effort to prove a point. I've noticed that most of their articles on piracy have a pro-piracy slant and tend to come off as editorials rather than reporting (they are getting nearly as bad as The Inquirer), so I fear the latter.
"Walmart cannot stop an artist from releasing a song with offensive lyrics. Therefore, it is not censorship."
I'm not sure what motive you may have for spreading this falsehood, but please -- stop it.
If the dictionary.com definitions are not straightforward enough, take a look at the Wikipedia entry -- it addresses censorship of music by retailers. The article on Censorship of music may also help you understand how broadly defined the term is. If you are truly steadfast in your understanding of the concept, and not just trying to fool some hapless readers, then you know what to do -- edit the Wikipedia entries to reflect your understanding.
"It's not censorship. Censorship can only be done by a controlling body. Typically the government, or other official body."
The above is presently "2, Insightful." This, ladies and gentlemen, is why I love Slashdot.
It's a Venn diagram, folks -- draw a big circle, label it "censorship," and then draw a smaller circle inside it and write "by the government." Government censorship is censorship, but not all censorship is by the government.
Have a blog? Ever delete a comment that somebody's posted? You're censoring. Doesn't matter whom you work for, or how big your blog is.
I think censorship is like piracy and other hot issues: we only define it that way when other people do it. So, we Slashdotters invent increasingly narrow definitions to ensure that the burden falls on others' shoulders. Which is fine, but it's also sad that a certain percentage of you have read Nos' post above and now actually believe that what Wal-Mart's doing isn't censorship.
"Someone wrote in a different forum that the MAFIAA needs to change their business model with cope with the times. Someone replied and asked the first person to suggest a business model and implied that the MAFIAA deserve to be in business and have a 'right' to preserve their business model."
Bullshit. Post a link.
"Hopefully the people here are smart enough to understand that there is nothing that guarantees you or your corporation the right to a sucessful commercial venture."
I've seen this straw man repeated far too many times. Nobody in their right mind would make this claim, but nonetheless, this is how file sharing advocates have spun it innumerable times:
Musician: "umm, guys, it's not too cool to pirate my music if I don't want you to."
Slashdotter: "Fuck you and your greedy ilk. You have no right to make a profit!"
Musician: "uh... that's not what I was saying..."
So, you're right: we all understand that nobody has a right to profit, or any sort of guarantee that their business will succeed. I presume that we also understand that you don't have a right to piracy, either.
"Umm, do you have any proof to back up such a claim?"
I asked Ray Beckerman about this once. He estimated that of all the people the RIAA has gone after, only about half are actually sharing copyrighted content. The other half are mistaken identity.
Consider that Mr. Beckerman is on the side of the consumer here, so I'd think that he is liable to underestimate.
Of course, nobody knows for sure, but we can apply some common sense here. It's in the RIAA's best interest to get things right here. They've taken their lumps (Usher, anybody?), so they've gotten better in their detection methods. If somebody were to tell me that their false-positive rate were 10% - 20%, I'd believe them.
File-sharing advocates like to point out that everybody trades MP3 files. Folks around here boast proudly of BitTorrent's share of overall network usage, relate stories about how everybody at their school pirates music without a second thought, and post links to surveys of young people that confirm that young people don't have much of a moral issue with piracy (I know I sure didn't when I was a teenager). If the Slashdot zeitgeist is to be believed, then even if the RIAA were randomly choosing IP addresses (which we know they are not), they would have a pretty good success rate with just dumb luck.
"How can we contribute?"
Just keep pirating music, and keep encouraging your friends to do the same. Hit them in the wallet.
It's not enough to keep saying "their business model is dead." To make that happen you need to keep actively helping to kill it.
"If that's correct, then once again I was wrong. I thought that songwriters, not performers, owned the rights and were represented by ASCAP. Of course, the point is rather meaningless when the performer IS the writer."
I was probably unclear. When I used the generic term "artists" I meant the songwriter and/or lyricist in this context. You're correct that very often, the performer and the writer are the same.
"That depends on the contract. I'd bet that most of the copyrights are owned by the music companies (for which the RIAA is acting as an agent). I'm not at all sure that misbehavior on the part of the RIAA is enough to allow a lien to be placed on the music company's property."
Ownership of the music and lyrics is typically with the composer and lyricist. The songwriter might assign their rights to a publishing company. Some publishing companies are small (one- or two- person operations) and some are quite large. In some cases a publishing company is owned by a record company, or owned by the same company which owns a record company (Warner Chappell Music is one notable example -- that "Warner" is the same as in "Warner Records"). But it would be inaccurate to say that "most" of the music and lyric rights belong to record companies.
I believe that half a century ago, it was much more prevalent for record companies to have ownership of the lyrics and music than it is now. It probably still happens, but stating that record companies own all the rights works better as a way of justifying piracy than it does as an accurate statement.
The GP is correct that performance rights are managed by ASCAP (which is run by and for artists) and BMI. These rights can be a great way for artists to get a revenue stream from their work that the record company doesn't see and can't touch. But, to make significant money this way generally requires that your song first be a hit on the radio, or enjoy significant CD sales.