"Well i wish i was pulling the big bucks like you. where im from CD's cost 30 bucks, and to be honest i simply don't have the disposable income to by any."
You're in New Zealand. $30 in New Zealand dollars is $15 US. So, you're paying more than we do in the US for CDs, but not much.
Be careful of making the same mistake that others have -- with digital goods, it's audience size, not the cost of manufacturing, that's the metric. Any particular piece of digital media -- let's say a song, or a movie -- has a finite set of potential customers. How many of those customes choose to pirate, vs. pay for it, determines the revenue.
I don't think the GP or anybody here is trying to tell you that you shouldn't pirate. By all means -- if you'd rather save your money for something else, then fly the Jolly Roger and God bless you. However, you're on shaky ground when you try to infer that the pirate vs. buy decision doesn't affect others.
Well, the thing to understand is that these folks aren't really saying "$1 is too much" -- they're saying "$CURRENT_PRICE is too much."
I recently picked up a copy of The Bird An The Bee's new album in glorious, non-DRMed MP3 form quite legally for $4.00. Amazon's MP3 store has lots more great music, new and old, for $0.60 a track or less, and most new CDs can be had for $12 or less. This is the way that the music market is going, and you can be sure that when $.50 MP3 tracks are the norm, folks like the "$1 is too much" poster will still be using price to rationalize piracy.
"If 10 million songs are sold at 10 cents each, that's a profit margin of 95%, which only goes up if more copies are sold, which they will be."
The math breaks down pretty quickly. Remember, the statutory minimum royalty for composers and lyricists is $0.08. If you've written both the songs and the notes you don't get to double-dip, so for many tracks it will be less, but in many cases, $0.16 are paid out in statutory royalties before the performer is even paid.
Elasticity is very important to consider here. If, say, a track has an overhead of $0.40, then that's a total margin of $0.60 when sold at a buck, and $0.10 when sold at $0.50. This means that the track would need to sell 6X the volume at $0.50 than it would at $1.00 to make the same profit. I just don't see this happening -- I don't even see the music download market achieving unit elasticity, where a $0.50 track would sell 2X more copies than a $1.00, and 4X more copies at $0.25.
Your example of ten million songs sold does not match the reality of the scope of the music market. That's decuple-platinum. The best-selling digital track of all time has sold three million tracks. And, of course, the vast, vast majority sell far fewer. As we've covered above, pricing and elasticity isn't the issue here -- there has to be demand.
I think what we're running into here is a set of ideals and assumptions about making and selling music that's colliding head-on with the actual factual realities of same. I wish it were so easy -- there've been tons of Slashdotters to whom it's patently obvious that -- well, duh! -- the easy solution is just to sell music for $0.20 a track. If it were truly easy, somebody would have done it.
"Hmm... of course the station needs to get money from somewhere. I always thought that record companies pay stations to play their songs."
I'm loving the fact that your post is 5, Informative.
By now it's been pointed out that it works the other way. Radio stations pay the rightsholders. In terrestrial radio, the songwriters and performers get most of the money (this is a good thing). The record companies, feeling left out, got the rules changed for Internet radio so that they get a sizeable piece of the pie.
You know how we're always saying that artists don't need record labels any more, and that they can Harness the Mighty Power of the Internet to get their music out? It's generally not as easy as most Slashdotters make it to be, but Pandora is one of those rare exceptions. It's a great equalizer -- if you're unsigned, and your music is good, Pandora will play it. You'll make some money, and you'll get exposure. I've discovered lots of artists on Pandora, and it makes no difference to me whether they're signed or not.
Now if Pandora worked the way you believe it to -- with money coming in from the record labels -- where would that leave the independent artists, the ones whom we claim no longer need the record labels?
"The labels are trying really hard to get radio stations to pay royalties, so they can get some of their payola money back..."
Webcasters have been paying royalties to the record labels for a couple of years now. The rates continue to go up, which is precisely why Pandora is experimenting with audio ads.
Rather than looking for a third party to pay for the service of filtering Pandora ads for you, why not just subscribe to Pandora? It's $36 a year. That's $3 a month. You can afford it.
Sadly, the tone of many of the posts so far is that Pandora is now evil. That's really quite sad. They've been providing you a free service for years, while absorbing the cost of broadcast royalties.
I've been a Pandora subscriber for a while. Not so I'd get anything out of it (but as a bonus, I'm not hearing the ads), but because I believe in what they do and because they've helped me find a lot of great music.
"It may not be inflated. Remember what the music industry considers piracy: Copying your library to an MP3 player, burning a CD for your car, putting your library on a laptop, etc. The industry doesn't like the fair use provisions in copyright law, so they frequently pretend like they don't exist."
But the analysts who came up with this number don't count that -- they're just looking at traffic on the P2P sites, and comparing it to digital music sales. P2P traffic is huge... much, much huger than legal digital sales. I haven't done the math myself, but I have no reason not to believe the 95% number the analysts have come up with. It sounds about right.
Nobody -- not even the record companies -- believe that each download is a lost sale (we like to SAY that the record companies think this is true, but be careful of underestimating the enemy). Piracy certainly replaces a certain amount of sales, but we can't know what this is. The only meaningful number is revenue.
He's not kidding. The average price of a new CD is about $13. It's been at around this price since 2004; the year before that, it was around $13.50. The average price was around $18-$20 in the late 20th century during the economic boom, but due to the explosion of piracy and digital sales, those days are thankfully behind us.
Note that these are average prices. They're weighted by sales; take a look at the Amazon Top 100 and it'll be hard to find a CD priced higher than $14 unless it's a multi-CD set or a CD/DVD combo. The average is offset by the higher-priced, more esoteric music, and my guess is that this is what you prefer to buy -- not the low-priced popular stuff.
"First off, it only costs $1(us) at most to manufacture and ship a CD. Probably more like $0.50 or less, perhaps even $0.25. So they are likely making $11 to $11.75 for each CD after the physical costs of creating and moving them."
Distributors and retailers get part of the money you spend when you buy a CD. Record companies typically sell CDs into distribution for $8, so if we're trying to break down the margin model for CD sales, it's best to start with $8, not $12.
"Add to that the fact most people don't want to buy every song on a CD, and this means all things being equal, music companies will make more money on average by selling CDs."
You're correct, and that's why the industry is hurting so badly. Customers are buying too much digital media and not enough CDs, and the record companies' profit models just aren't prepared for this.
"Don't they usually charge $15 to $20 for newly released CDs?"
Some stores do, I imagine, but the average price of a new CD is around $13. This average price has held steady since about 2004. All the CDs on the Amazon top ten sell for between $9.99 and $12.99. The one exception is a David Foster CD/DVD combo for $19.99. Target and Wal-Mart have similar prices and Amazon, Target and Wal-Mart probably collectively sell most of the physical CDs in the United States. There might be some retailers that price new CDs at $15-$20 but they're a dying breed. These retailers are taking the extra margin; the CD sold for $15 or $20 was still sold by the record company into distribution for $8 and that eight bucks is all the record company saw.
It's a bit like playing poker with pennies. Technically it's illegal, but it's under the legal radar -- nobody's going to care.
Same with piracy: nobody's been sued for sharing one song. This fact, by itself, does not make the act of sharing one song definitely legal, but it's a non-issue.
This sort of thing has been a risk for a while. For instance, your car might be stolen, then used as a getaway car for an armed bank robbery. Witnesses make note of the license plate, and the police come to your door.
"3) Imagine how many iPods are lost at schools. How many scams can you think of that take advantage of the owner's desire to get their iPod back. Worst of all, show me a pedophile that wouldn't love to pretend to be some kid's classmate wanting to return their beloved iPod in order to lure them somewhere private. Lost iPod + email address of owner = "Meet me by the white van with tinted windows""
Yes, won't somebody please think of the children?
Pirates: "No good music is available onine! I'll stop pirating when the record labels wake up and embrace online distribution."
Record industry: "Okay, our entire catalogs are online now."
Pirates: "But now it's too expensive! Good god, do you think we're rich? I'll stop pirating when music is less than a buck a track. That's a fortune!"
Record industry: "Okay, you win. Now by shopping around, you can find lots of music for $0.80 a track or less."
Pirates: "But you still have that DRM which impedes my fair use rights! I'll stop pirating when DRM is dead. Until then, it's off to TPB for me."
Record industry: "Hey, you know, you were right all along. It took us a while to realize it, but you're right. We've removed the DRM."
Pirates: "PEDOPHILES! PEDOPHILES! YOU'RE ENCOURAGING AND ASSISTING THE KIDNAPPING OF CHILDREN! Because of this despicable act, I'm going to pirate TWICE as much music now!"
I run a blogging site. When the spammers discovered it, I started getting several thousand automated spam comments per day.
I solved the problem (ie. absolutely no automated spam) with a two-step process:
First, I wrote a REALLY quick text analysis script in PHP which looked for the presence of links and other suspicious text. This reduced the spam by 95%, with no false positives.
Since I had to keep examining the spam that got through and improving the filter, I wanted a system that didn't require constant maintenance, and one which did not incur the risk of false positives.
The solution was dead simple: my comment forms now have two sets of inputs for the comment and the commenter's info. The first one is hidden through CSS. The second one is visible.
Real people see only the 2nd form. The spambots see the first one. If there's any data in the first form when it's posted, the comment is dropped on the floor with no filtering, no hits to the SQL database, no nothing.
I haven't had a problem with spam since. Perhaps there'll be a day when the spambots are tuned for my site, but I've been spam-free for two years.
You might be unintentionally putting words in my mouth. I profess to no knowledge or even a wild guess as to how many outbound bytes those songs in her share directory... I was simply clarifying that the copyright owners and authorities tend to go after copiers and distributors. I've heard the opinion that downloading is fixing to a permanent medium, but I personally don't buy it. Copyright law focuses on reproduction and distribution... I don't believe there are any statutes related to possession of pirated works per se. For those of you speed-reading, NB that I didn't write "pirated works for sale" or "distributing pirated works."
"So yeah, it's not what people are being sued for but it would also be dishonest to claim it was clearly legal."
Agreed. Many Slashdotters believe and/or wish that her actions were clearly legal, but Slashdotters are often at odds with legal experts. One thing that many folks don't understand is that the law is a living, breathing organism that sometimes moves slowly, and sometimes moves quickly. Sometimes it hurts people, too, so the best analogy for Slashdotters is that law is like the horta from that Star Trek episode.
At any rate, "making available != infringement" is a nice, tasty loophole, and loopholes like that don't last. If I were the sort that doffed an eyepatch and a parrot, I would not treat this news as permission share my music collection with Kazaa.
"What's fucked up though is that a pirate who illegally downloads 10 songs has created a potential revenue loss of about $15 bucks to the record companies. But the record companies want to sue that individual for $15,000. The punishment does not fit the crime."
The record companies are generally suing folks (including Ms. Thomas) for distributing -- or, at the least, making them available for distribution.
You're 100% correct that Jammie downloaded relatively few songs -- but that's not the issue. When she downloaded them, they were placed into her share directory (possibly without her knowledge) where they were available to others.
We don't do favors by repeating the notion that people are being sued for "downloading." The record companies are generally dishonest; let's not fight that with more dishonesty. If I run over your cat with my car, I might take some heat for killing the cat; it would be incorrect to state that I got in trouble just for driving a car.
More granularity is required here. In accounting terms, a paid download has no cost of goods (COGS) costs, but it does have cost of sale (COS) costs.
You're correct that a download performed, say, via BitTorrent or from one random person to another has no costs which are charged back to the software company or record label (although these companies would love to convert piracy statistics to losses on their balance sheets!). Costs of sale, on the other hand, are very real.
I wasn't aware that you're liable to not get a tax credit for donating software you've developed -- that's an interesting fact. I wasn't aware of this because I'm not a independent/hobbyist software developer so I wouldn't pretend to understand the intricacies of how it works. I do, however, have an intimate understanding of cost analysis for retail goods.
You've actually amplified my point. There's a huge difference between parts cost and actual cost per sale, and an essential difference between net margin and gross margin.
That mouse you might see on sale for $19.99 might have less than a couple of bucks worth of plastic. But the cost sheet developed by Acme Mouse Incorporated might have a dozen line items consisting of R&D charges which are amortized into product costs based on forecasts. These are very real costs that can't be ignored. You're correct that they're paid upfront, but Acme needs to get the money, and if Acme is in the sole business of selling mice, then they recoup those costs one mouse at a time. The amortized overhead and development costs are as real and genuine as material costs in the eyes of accountants and investors. It's not play money; it's not "soft dollars." If the mouse has $2 in material costs and another $4 in burdened development costs, if they sell the product into distribution for less than $6, they're losing money.
And record companies aren't much different than than mouse companies. Even with digital goods (and whether it's a song or a piece of software or a stock photo), up-front costs are amortized as a cost of sale. Record labels are primarily in the business of selling music, so it's the sales that must recoup the development costs.
I know this may seem counterintuitive or even nonsensical for many Slashdotters. But it's a concept that folks in the retail industry understand all too well.
Some folks have pointed out that if supply of digital goods is theoretically infinite, then amortized cost per sale should be a limit approaching zero. The issue here is that amortization applies to sold items. If you sell 10,000 instances of software and a metric squillion copies are pirated, you're only allowed to amortize your costs over those 10,000 sold. Taking the analogy to hard goods, Acme Mouse must amortize R&D costs over the forecast of units sold; even if they bury a million mice in the Arizona desert or shoot a billion into orbit via Space Shuttle missions.
"Artists get ripped off majorly. somewhere around 95% of the revenue artists create is sucked up by the RIAA. The money isn't tied up in costs to produce the media, marketing, distribution or anything like that - it wanders into the pockets of the fat cats."
It's been amply covered elsewhere that the record labels are hemmoraging money. One reason is because they're just not yet prepared for the move to digital downloading. Warner Records, for instance, is losing money because people are choosing (surprise!) to download only one or two tracks from each new CD, rather than buy the entire thing. Additionally, I believe Warner has set up their internal accounting so that physical CDs are the money makers; with CD sales falling faster than they anticipated, they're losing money on unsold inventory and not making enough of it on the downloads.
Anyway, downloading a track or downloading a CD or buying software or a gallon of milk or a pair of jeans are all very similar from the supply chain perspective. The retailer often grosses the most; ie. Best Buy might have a 40% markup. The iTunes store pays around $0.65 for each track it sells for a buck; Amazon makes about 15% margin if their model for downloads is the same as it is for other products. This is all money that the manufacturer doesn't see.
Of the money that the manufacturer does collect, most of it goes to employees, suppliers, and contractors -- not the fat cats. Again, this is the same whether it's that track you've downloaded or the shirt you've bought. It's here where the record labels see the artist as just a contractor or supplier -- so they're liable to get a meager percentage.
The "wanders into the pockets of fat cats" assertion can be tested with some math. Going back to Warner Music -- they made $3.5B (yes, BILLION) last year; their profit margin was negative 1.5% and their operating margin was 6%. If Warner's CEO made $10 million last year, that's about a third of a percent of the company's revenue.
This would mean that for each $0.99 track Warner sold last year, that $10MM per year CEO made a whopping a third of a cent. Doesn't sound like much, but if he makes a third of percent of all revenue, there's his massive $10 million payday.
But compare that third of a cent to what Warner paid out for each track downloaded: Apple (the good guys!) got $0.35. Amazon got $0.15. Any composers or lyricists who didn't perform the songs they wrote got about $0.08. Even MasterCard and VISA got more from the transaction than Warner's fat cat CEO.
Do musicians make too little money when they sign to the big labels? Absolutely. Are record executives overpaid? Unless Warner's CEO took more than $1 last year, then definitely -- negative one percent margin is deplorable. But it's also essential to understand that when we buy music, that pie is sliced into hundreds of pieces, and the little guys get away with a lot more pie than the fat cats.
"Yes, but 0.1% of something really large is still a significant number. I agree that the price can't go to zero for buying a song online, but I fail to see how it couldn't go down to say $0.10 per song."
The laws would have to change for this to happen. Mechanical royalties (we're talking downloads, not the new interactive streaming model discussed in TFA) are around $0.08 by law. The lyricist and the composer of the music each get their own mechanicals, and this doesn't include performance royalties -- the per-track royalty that the performer negotiates with the label.
There are exemptions and other tricks that the labels use to lower the mechanical royalties, but for a track that, say, has music written by Joe, lyrics written by Fred, and is performed by Lindsay who's negotiated $0.05 per track, the royalties are liable to be more than $0.20. Record companies can't hold back mechanicals to pay for production costs, but even if they hold back Lindsay's $0.05 because the record hasn't yet made money (which is the case for most records), the record label still owes the mechanicals.
There's also a big disagreement about the true costs of producing a track. Many Slashdotters believe that production costs are next to nothing, and that record companies don't have significant costs for marketing, salaries or overhead. This helps foster the notion that each download is cost-free to the record label. The popularly understanding among people who are familiar with business is that record labels do indeed often have significant costs, and those costs are amortized into the cost of sale.
Your assertion that there's no reason that tracks won't go to $0.10 is hugely popular on Slashdot -- no doubt about that. I encourage everybody who truly believes this to start their own record label and sell music for $0.10 a track. Paraphrasing Gandhi, you can be the change in the music industry that you want to see.
Mea culpa. I should have read one post upward from yours.
I can't make heads or tails out of the parent poster's statement. Throwing out his nonsensical "copyright infringer" vs. "pirate" claim, he appears to be stating that the law treats you differently if you're selling copies vs. giving them away. Selling copies is liable to put you into criminal infringement territory (S506(a)(1)(A)), but my understanding is that the feds have treated the expectation of in-kind reciprocation -- ie. trading warez -- as a form of financial gain. That's how they're busting the scene kiddies, even if they're not being paid hard cash for their efforts.
Your analysis is correct. When using the legal system you often tend to go for the charges you think will stick, rather than taking it to the extremes of what you could nail somebody for. As you mentioned, the burden of proof is much lower in the civil court. Although the RIAA tries to go for people who are sharing thousands of files, my understanding from reading the judgements is that damages are found for sharing just a few tracks. The threshold for criminal infringement is $1,000 worth of material (e.g. a thousand copies of the same item worth a buck, one copy each of a thousand items worth a buck, or any combination in between). While I've no doubt that some of the MP3 file sharers who've been busted have provided more than a thousand audio tracks valued at a buck each, that would be tough to prove.
When people are busted for criminal copyright infringement, it's usually the federal government bringing the charges, and the bustee is usually somebody who's leaked a movie before its release, or the idiot who's selling counterfeit software.
That's why it's important that we kill this meme. If somebody succumbs to the Slashdot "copyright infringement has no criminal penalties" nonsense and then goes about leaking a movie to the torrent sites before it's released, that's one more person who went to jail who shouldn't have.
Slashdot Mirror
"Well i wish i was pulling the big bucks like you. where im from CD's cost 30 bucks, and to be honest i simply don't have the disposable income to by any."
You're in New Zealand. $30 in New Zealand dollars is $15 US. So, you're paying more than we do in the US for CDs, but not much.
Be careful of making the same mistake that others have -- with digital goods, it's audience size, not the cost of manufacturing, that's the metric. Any particular piece of digital media -- let's say a song, or a movie -- has a finite set of potential customers. How many of those customes choose to pirate, vs. pay for it, determines the revenue.
I don't think the GP or anybody here is trying to tell you that you shouldn't pirate. By all means -- if you'd rather save your money for something else, then fly the Jolly Roger and God bless you. However, you're on shaky ground when you try to infer that the pirate vs. buy decision doesn't affect others.
Well, the thing to understand is that these folks aren't really saying "$1 is too much" -- they're saying "$CURRENT_PRICE is too much."
I recently picked up a copy of The Bird An The Bee's new album in glorious, non-DRMed MP3 form quite legally for $4.00. Amazon's MP3 store has lots more great music, new and old, for $0.60 a track or less, and most new CDs can be had for $12 or less. This is the way that the music market is going, and you can be sure that when $.50 MP3 tracks are the norm, folks like the "$1 is too much" poster will still be using price to rationalize piracy.
"If 10 million songs are sold at 10 cents each, that's a profit margin of 95%, which only goes up if more copies are sold, which they will be."
The math breaks down pretty quickly. Remember, the statutory minimum royalty for composers and lyricists is $0.08. If you've written both the songs and the notes you don't get to double-dip, so for many tracks it will be less, but in many cases, $0.16 are paid out in statutory royalties before the performer is even paid.
Elasticity is very important to consider here. If, say, a track has an overhead of $0.40, then that's a total margin of $0.60 when sold at a buck, and $0.10 when sold at $0.50. This means that the track would need to sell 6X the volume at $0.50 than it would at $1.00 to make the same profit. I just don't see this happening -- I don't even see the music download market achieving unit elasticity, where a $0.50 track would sell 2X more copies than a $1.00, and 4X more copies at $0.25.
Your example of ten million songs sold does not match the reality of the scope of the music market. That's decuple-platinum. The best-selling digital track of all time has sold three million tracks. And, of course, the vast, vast majority sell far fewer. As we've covered above, pricing and elasticity isn't the issue here -- there has to be demand.
I think what we're running into here is a set of ideals and assumptions about making and selling music that's colliding head-on with the actual factual realities of same. I wish it were so easy -- there've been tons of Slashdotters to whom it's patently obvious that -- well, duh! -- the easy solution is just to sell music for $0.20 a track. If it were truly easy, somebody would have done it.
"Hmm... of course the station needs to get money from somewhere. I always thought that record companies pay stations to play their songs."
I'm loving the fact that your post is 5, Informative.
By now it's been pointed out that it works the other way. Radio stations pay the rightsholders. In terrestrial radio, the songwriters and performers get most of the money (this is a good thing). The record companies, feeling left out, got the rules changed for Internet radio so that they get a sizeable piece of the pie.
You know how we're always saying that artists don't need record labels any more, and that they can Harness the Mighty Power of the Internet to get their music out? It's generally not as easy as most Slashdotters make it to be, but Pandora is one of those rare exceptions. It's a great equalizer -- if you're unsigned, and your music is good, Pandora will play it. You'll make some money, and you'll get exposure. I've discovered lots of artists on Pandora, and it makes no difference to me whether they're signed or not.
Now if Pandora worked the way you believe it to -- with money coming in from the record labels -- where would that leave the independent artists, the ones whom we claim no longer need the record labels?
"The labels are trying really hard to get radio stations to pay royalties, so they can get some of their payola money back..."
Webcasters have been paying royalties to the record labels for a couple of years now. The rates continue to go up, which is precisely why Pandora is experimenting with audio ads.
Rather than looking for a third party to pay for the service of filtering Pandora ads for you, why not just subscribe to Pandora? It's $36 a year. That's $3 a month. You can afford it.
Sadly, the tone of many of the posts so far is that Pandora is now evil. That's really quite sad. They've been providing you a free service for years, while absorbing the cost of broadcast royalties.
I've been a Pandora subscriber for a while. Not so I'd get anything out of it (but as a bonus, I'm not hearing the ads), but because I believe in what they do and because they've helped me find a lot of great music.
The second T in AT&T stands for "telegraph." The CP in NAACP stands for "colored people." Both, like "phonograph," are archaic terms.
"It may not be inflated. Remember what the music industry considers piracy: Copying your library to an MP3 player, burning a CD for your car, putting your library on a laptop, etc. The industry doesn't like the fair use provisions in copyright law, so they frequently pretend like they don't exist."
But the analysts who came up with this number don't count that -- they're just looking at traffic on the P2P sites, and comparing it to digital music sales. P2P traffic is huge... much, much huger than legal digital sales. I haven't done the math myself, but I have no reason not to believe the 95% number the analysts have come up with. It sounds about right.
Nobody -- not even the record companies -- believe that each download is a lost sale (we like to SAY that the record companies think this is true, but be careful of underestimating the enemy). Piracy certainly replaces a certain amount of sales, but we can't know what this is. The only meaningful number is revenue.
But "its" is the gender-neutral version of "his" and "hers." The folks who mistake "it's" for "its" usually don't write "hi's" or "her's."
I like to point people to how-to-spell-its.com.
He's not kidding. The average price of a new CD is about $13. It's been at around this price since 2004; the year before that, it was around $13.50. The average price was around $18-$20 in the late 20th century during the economic boom, but due to the explosion of piracy and digital sales, those days are thankfully behind us.
Note that these are average prices. They're weighted by sales; take a look at the Amazon Top 100 and it'll be hard to find a CD priced higher than $14 unless it's a multi-CD set or a CD/DVD combo. The average is offset by the higher-priced, more esoteric music, and my guess is that this is what you prefer to buy -- not the low-priced popular stuff.
"First off, it only costs $1(us) at most to manufacture and ship a CD. Probably more like $0.50 or less, perhaps even $0.25. So they are likely making $11 to $11.75 for each CD after the physical costs of creating and moving them."
Distributors and retailers get part of the money you spend when you buy a CD. Record companies typically sell CDs into distribution for $8, so if we're trying to break down the margin model for CD sales, it's best to start with $8, not $12.
"Add to that the fact most people don't want to buy every song on a CD, and this means all things being equal, music companies will make more money on average by selling CDs."
You're correct, and that's why the industry is hurting so badly. Customers are buying too much digital media and not enough CDs, and the record companies' profit models just aren't prepared for this.
"Don't they usually charge $15 to $20 for newly released CDs?"
Some stores do, I imagine, but the average price of a new CD is around $13. This average price has held steady since about 2004. All the CDs on the Amazon top ten sell for between $9.99 and $12.99. The one exception is a David Foster CD/DVD combo for $19.99. Target and Wal-Mart have similar prices and Amazon, Target and Wal-Mart probably collectively sell most of the physical CDs in the United States. There might be some retailers that price new CDs at $15-$20 but they're a dying breed. These retailers are taking the extra margin; the CD sold for $15 or $20 was still sold by the record company into distribution for $8 and that eight bucks is all the record company saw.
It's a bit like playing poker with pennies. Technically it's illegal, but it's under the legal radar -- nobody's going to care.
Same with piracy: nobody's been sued for sharing one song. This fact, by itself, does not make the act of sharing one song definitely legal, but it's a non-issue.
http://www.copyright.gov/title17/92chap1.html#106
This sort of thing has been a risk for a while. For instance, your car might be stolen, then used as a getaway car for an armed bank robbery. Witnesses make note of the license plate, and the police come to your door.
This doesn't make license plates a bad idea.
"3) Imagine how many iPods are lost at schools. How many scams can you think of that take advantage of the owner's desire to get their iPod back. Worst of all, show me a pedophile that wouldn't love to pretend to be some kid's classmate wanting to return their beloved iPod in order to lure them somewhere private. Lost iPod + email address of owner = "Meet me by the white van with tinted windows""
Yes, won't somebody please think of the children?
Pirates: "No good music is available onine! I'll stop pirating when the record labels wake up and embrace online distribution."
Record industry: "Okay, our entire catalogs are online now."
Pirates: "But now it's too expensive! Good god, do you think we're rich? I'll stop pirating when music is less than a buck a track. That's a fortune!"
Record industry: "Okay, you win. Now by shopping around, you can find lots of music for $0.80 a track or less."
Pirates: "But you still have that DRM which impedes my fair use rights! I'll stop pirating when DRM is dead. Until then, it's off to TPB for me."
Record industry: "Hey, you know, you were right all along. It took us a while to realize it, but you're right. We've removed the DRM."
Pirates: "PEDOPHILES! PEDOPHILES! YOU'RE ENCOURAGING AND ASSISTING THE KIDNAPPING OF CHILDREN! Because of this despicable act, I'm going to pirate TWICE as much music now!"
I run a blogging site. When the spammers discovered it, I started getting several thousand automated spam comments per day.
I solved the problem (ie. absolutely no automated spam) with a two-step process:
First, I wrote a REALLY quick text analysis script in PHP which looked for the presence of links and other suspicious text. This reduced the spam by 95%, with no false positives.
Since I had to keep examining the spam that got through and improving the filter, I wanted a system that didn't require constant maintenance, and one which did not incur the risk of false positives.
The solution was dead simple: my comment forms now have two sets of inputs for the comment and the commenter's info. The first one is hidden through CSS. The second one is visible.
Real people see only the 2nd form. The spambots see the first one. If there's any data in the first form when it's posted, the comment is dropped on the floor with no filtering, no hits to the SQL database, no nothing.
I haven't had a problem with spam since. Perhaps there'll be a day when the spambots are tuned for my site, but I've been spam-free for two years.
For everybody who modded this "informative:" http://letmegooglethatforyou.com/?q=criminal%20copyright%20infringement
You might be unintentionally putting words in my mouth. I profess to no knowledge or even a wild guess as to how many outbound bytes those songs in her share directory... I was simply clarifying that the copyright owners and authorities tend to go after copiers and distributors. I've heard the opinion that downloading is fixing to a permanent medium, but I personally don't buy it. Copyright law focuses on reproduction and distribution... I don't believe there are any statutes related to possession of pirated works per se. For those of you speed-reading, NB that I didn't write "pirated works for sale" or "distributing pirated works."
"So yeah, it's not what people are being sued for but it would also be dishonest to claim it was clearly legal."
Agreed. Many Slashdotters believe and/or wish that her actions were clearly legal, but Slashdotters are often at odds with legal experts. One thing that many folks don't understand is that the law is a living, breathing organism that sometimes moves slowly, and sometimes moves quickly. Sometimes it hurts people, too, so the best analogy for Slashdotters is that law is like the horta from that Star Trek episode.
At any rate, "making available != infringement" is a nice, tasty loophole, and loopholes like that don't last. If I were the sort that doffed an eyepatch and a parrot, I would not treat this news as permission share my music collection with Kazaa.
"What's fucked up though is that a pirate who illegally downloads 10 songs has created a potential revenue loss of about $15 bucks to the record companies. But the record companies want to sue that individual for $15,000. The punishment does not fit the crime."
The record companies are generally suing folks (including Ms. Thomas) for distributing -- or, at the least, making them available for distribution.
You're 100% correct that Jammie downloaded relatively few songs -- but that's not the issue. When she downloaded them, they were placed into her share directory (possibly without her knowledge) where they were available to others.
We don't do favors by repeating the notion that people are being sued for "downloading." The record companies are generally dishonest; let's not fight that with more dishonesty. If I run over your cat with my car, I might take some heat for killing the cat; it would be incorrect to state that I got in trouble just for driving a car.
More granularity is required here. In accounting terms, a paid download has no cost of goods (COGS) costs, but it does have cost of sale (COS) costs.
You're correct that a download performed, say, via BitTorrent or from one random person to another has no costs which are charged back to the software company or record label (although these companies would love to convert piracy statistics to losses on their balance sheets!). Costs of sale, on the other hand, are very real.
I wasn't aware that you're liable to not get a tax credit for donating software you've developed -- that's an interesting fact. I wasn't aware of this because I'm not a independent/hobbyist software developer so I wouldn't pretend to understand the intricacies of how it works. I do, however, have an intimate understanding of cost analysis for retail goods.
You've actually amplified my point. There's a huge difference between parts cost and actual cost per sale, and an essential difference between net margin and gross margin.
That mouse you might see on sale for $19.99 might have less than a couple of bucks worth of plastic. But the cost sheet developed by Acme Mouse Incorporated might have a dozen line items consisting of R&D charges which are amortized into product costs based on forecasts. These are very real costs that can't be ignored. You're correct that they're paid upfront, but Acme needs to get the money, and if Acme is in the sole business of selling mice, then they recoup those costs one mouse at a time. The amortized overhead and development costs are as real and genuine as material costs in the eyes of accountants and investors. It's not play money; it's not "soft dollars." If the mouse has $2 in material costs and another $4 in burdened development costs, if they sell the product into distribution for less than $6, they're losing money.
And record companies aren't much different than than mouse companies. Even with digital goods (and whether it's a song or a piece of software or a stock photo), up-front costs are amortized as a cost of sale. Record labels are primarily in the business of selling music, so it's the sales that must recoup the development costs.
I know this may seem counterintuitive or even nonsensical for many Slashdotters. But it's a concept that folks in the retail industry understand all too well.
Some folks have pointed out that if supply of digital goods is theoretically infinite, then amortized cost per sale should be a limit approaching zero. The issue here is that amortization applies to sold items. If you sell 10,000 instances of software and a metric squillion copies are pirated, you're only allowed to amortize your costs over those 10,000 sold. Taking the analogy to hard goods, Acme Mouse must amortize R&D costs over the forecast of units sold; even if they bury a million mice in the Arizona desert or shoot a billion into orbit via Space Shuttle missions.
"Artists get ripped off majorly. somewhere around 95% of the revenue artists create is sucked up by the RIAA. The money isn't tied up in costs to produce the media, marketing, distribution or anything like that - it wanders into the pockets of the fat cats."
It's been amply covered elsewhere that the record labels are hemmoraging money. One reason is because they're just not yet prepared for the move to digital downloading. Warner Records, for instance, is losing money because people are choosing (surprise!) to download only one or two tracks from each new CD, rather than buy the entire thing. Additionally, I believe Warner has set up their internal accounting so that physical CDs are the money makers; with CD sales falling faster than they anticipated, they're losing money on unsold inventory and not making enough of it on the downloads.
Anyway, downloading a track or downloading a CD or buying software or a gallon of milk or a pair of jeans are all very similar from the supply chain perspective. The retailer often grosses the most; ie. Best Buy might have a 40% markup. The iTunes store pays around $0.65 for each track it sells for a buck; Amazon makes about 15% margin if their model for downloads is the same as it is for other products. This is all money that the manufacturer doesn't see.
Of the money that the manufacturer does collect, most of it goes to employees, suppliers, and contractors -- not the fat cats. Again, this is the same whether it's that track you've downloaded or the shirt you've bought. It's here where the record labels see the artist as just a contractor or supplier -- so they're liable to get a meager percentage.
The "wanders into the pockets of fat cats" assertion can be tested with some math. Going back to Warner Music -- they made $3.5B (yes, BILLION) last year; their profit margin was negative 1.5% and their operating margin was 6%. If Warner's CEO made $10 million last year, that's about a third of a percent of the company's revenue.
This would mean that for each $0.99 track Warner sold last year, that $10MM per year CEO made a whopping a third of a cent. Doesn't sound like much, but if he makes a third of percent of all revenue, there's his massive $10 million payday.
But compare that third of a cent to what Warner paid out for each track downloaded: Apple (the good guys!) got $0.35. Amazon got $0.15. Any composers or lyricists who didn't perform the songs they wrote got about $0.08. Even MasterCard and VISA got more from the transaction than Warner's fat cat CEO.
Do musicians make too little money when they sign to the big labels? Absolutely. Are record executives overpaid? Unless Warner's CEO took more than $1 last year, then definitely -- negative one percent margin is deplorable. But it's also essential to understand that when we buy music, that pie is sliced into hundreds of pieces, and the little guys get away with a lot more pie than the fat cats.
"Yes, but 0.1% of something really large is still a significant number. I agree that the price can't go to zero for buying a song online, but I fail to see how it couldn't go down to say $0.10 per song."
The laws would have to change for this to happen. Mechanical royalties (we're talking downloads, not the new interactive streaming model discussed in TFA) are around $0.08 by law. The lyricist and the composer of the music each get their own mechanicals, and this doesn't include performance royalties -- the per-track royalty that the performer negotiates with the label.
There are exemptions and other tricks that the labels use to lower the mechanical royalties, but for a track that, say, has music written by Joe, lyrics written by Fred, and is performed by Lindsay who's negotiated $0.05 per track, the royalties are liable to be more than $0.20. Record companies can't hold back mechanicals to pay for production costs, but even if they hold back Lindsay's $0.05 because the record hasn't yet made money (which is the case for most records), the record label still owes the mechanicals.
There's also a big disagreement about the true costs of producing a track. Many Slashdotters believe that production costs are next to nothing, and that record companies don't have significant costs for marketing, salaries or overhead. This helps foster the notion that each download is cost-free to the record label. The popularly understanding among people who are familiar with business is that record labels do indeed often have significant costs, and those costs are amortized into the cost of sale.
Your assertion that there's no reason that tracks won't go to $0.10 is hugely popular on Slashdot -- no doubt about that. I encourage everybody who truly believes this to start their own record label and sell music for $0.10 a track. Paraphrasing Gandhi, you can be the change in the music industry that you want to see.
Mea culpa. I should have read one post upward from yours.
I can't make heads or tails out of the parent poster's statement. Throwing out his nonsensical "copyright infringer" vs. "pirate" claim, he appears to be stating that the law treats you differently if you're selling copies vs. giving them away. Selling copies is liable to put you into criminal infringement territory (S506(a)(1)(A)), but my understanding is that the feds have treated the expectation of in-kind reciprocation -- ie. trading warez -- as a form of financial gain. That's how they're busting the scene kiddies, even if they're not being paid hard cash for their efforts.
Trouble is, the US Supreme Court has been using the term "piracy" in the current context since roughly the 1840s.
I don't know what "legal definition" really means, but your observation is pointless. We're all able to cope with homonyms.
Your analysis is correct. When using the legal system you often tend to go for the charges you think will stick, rather than taking it to the extremes of what you could nail somebody for. As you mentioned, the burden of proof is much lower in the civil court. Although the RIAA tries to go for people who are sharing thousands of files, my understanding from reading the judgements is that damages are found for sharing just a few tracks. The threshold for criminal infringement is $1,000 worth of material (e.g. a thousand copies of the same item worth a buck, one copy each of a thousand items worth a buck, or any combination in between). While I've no doubt that some of the MP3 file sharers who've been busted have provided more than a thousand audio tracks valued at a buck each, that would be tough to prove.
When people are busted for criminal copyright infringement, it's usually the federal government bringing the charges, and the bustee is usually somebody who's leaked a movie before its release, or the idiot who's selling counterfeit software.
That's why it's important that we kill this meme. If somebody succumbs to the Slashdot "copyright infringement has no criminal penalties" nonsense and then goes about leaking a movie to the torrent sites before it's released, that's one more person who went to jail who shouldn't have.