Our taxes are high, but we have free hospitals, healthcare for all, free schools and education, "free"ways (get the joke!), government funded pension and a lot more which we just take for granted these days.

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Cheers, Thomas
www.in70mm.com
www.dp70.com
www.70mm.dk

Market studies the RIAA chooses to ignore show computer users with CD burners and how avidly download MP3s buy a great deal more prerecorded music than people without CD burners. They don't say anything about that since it would water down their stance that MP3 downloading and CD copying are the root cause of their profit losses.

On better radio stations, yeah, I try to check out Internet based ones that play hard to find music or music that is out of print. But so many of the over-the-air stations in my area have been swallowed up by Clear Channel. Regardless of the station's music format, Clear Channel pretty much guarantees you will hear the same 10 songs every two hours for nearly a year. The short playlists they enforce make my collection of around 400 CDs look like an expansive music museum.

Thomas, considering 10 million more Americans no longer have health insurance than the number just a year ago, you make me want to move to Denmark.

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New Cd's generally cost between 5 and 7 dollars wholesale. The artificial inflation was for newer cd's and only were sent to large retailers.

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If only that were the case (unless you know somethinig I don't know, so I wonder where you're getting your information from). I think you're referring to Super Saver CDs, which sell for $8-$10. Most CDs cost a minimum of about $10.60 wholesale. Wholesale prices in the record industry are much higher than the publishing industry. Generally, if you buy from a major distributor in publishing in bulk (at least 6 copies), you get at least a 41% discount from list. You can get as high as 48% discount buying directly from the publisher. And even with those discounts, independent bookstores have a hard time staying in business.

In my day job, I work in a store which sells CDs (among lotsa other things). We are a small store, so I can tell you that we pay on the average about $11.75 for CDs. Brand new stuff that's on sale costs us around $10.50 or so. I'll be more than happy to fax you an invoice if you don't believe me. Our distributor (which is Alliance Entertainment, one of the largest in the country) pays around $10.50 for the average catalog CD. Billboard magazine quite frequently reports the wholesale cost of CDs.

Where the big stores really get helped by the record companies is in advertising. They get paid to place new releases in high-visibility locations, and they get ads run for them in newspapers. Small stores don't get that kind of help, which is why many of them have to price things a bit higher. Still, at my store we sell all new releases for around $13, not bad.

What SHOULD CDs cost? Ten bucks? That's what a record album cost 25 years ago. You're expecting to get a more durable, more compact, more user-friendly product with twice the playing time and greatly improved sound that's easily digitally copied for the same dollars as 25 years ago? Give me a break. I would guess that a $10 LP from 1978 would probably cost MORE than $15 now, in 2002 dollars.

Sure, albums may have cost X dollars years ago and so on and so forth. But using 20 year old business models to justify the inflated price of an overpriced product does not work. You can find that in marketing 101. Today, we live in a much different environment with many different forms of media entertainment competing for our attention and our dollars. Things like DSS dishes, TiVO, HDTV, DVD, Playstation2 and X-Box did not exist 20 years ago. Back in the 1970's and even the early 1980's, one could justify a high album price since there weren't many other forms of entertainment available.

The very simple fact is plain, bare bones, Red-book music CDs are just not nearly as popular anymore. Given the choice between a DVD and CD, I'm usually going to buy a DVD since it provides much better value for the dollar.

The music industry has to do something different to make CDs attractive again. One thing is making BETTER MUSIC --because most of today's pop music is watered down crap. The industry has to beef up the content and quality of the discs to justify the high price or they have to lower the price. Lowering prices is a much easier thing to do.

They may charge retailers upwards of $10 per disc wholesale. But I do know for a fact they are not paying anymore than $1.50 for the actual true cost of the disc. That is taking everything into account (the album's production, disc mastering, replication, packaging, shipping, advertising and administrative costs).

The music industry is making windfall profits off of CDs and has been for quite some time. They absolutely can afford to slash prices down to under $10 per disc. Or they can just keep watching the pre-recorded music market continue to diminish.

I totally trust that is what you pay for your wholesale cd's. Sure is fun bieng the target of so much proof!

I spend a great deal of time reading, researching, listening, chatting, asking, investigating, etc. Not everything I get is going to be 100 percent accurate, or 100 percent totally thorough.

If I missed some serious details then dammit I am sorry!!!

Who cares anyway? The music industry is on it's way out and I couldn't be happier. Nothing but hippies and freaks all of them!

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The music industry is making windfall profits off of CDs and has been for quite some time. They absolutely can afford to slash prices down to under $10 per disc. Or they can just keep watching the pre-recorded music market continue to diminish.

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Once again, while I think the record labels are all slime, they are NOT making money. They're all losing money. A lot of this is their own fault, because they're only interested in the big hit and they put out so much garbage, but no one is this business is making money right now.

Record companies do make a killing (usually) once an album hits 500,000 to 1 million copies, but there's only a few hundred albums a year, at most, that go Gold. And there's over 40,000 releases a year in the US alone.

For years, the labels did well on catalog product while people replaced their vinyl and tape collections. But once that business started drying up about five years ago, the business has been in severe decline ever since.
And the lousy state of commercial radio hasn't helped the record companies either.

Courtney Love once gave a speech in which she gave an analysis of her perception of the economics. With a few minor changes, this is how she perceived how labels make money:

Label advances a (4-person) group $1 million. Out of this advance comes $500K in recording costs, $100K to their manager, $25K to their lawyer, $25K to their business manager. That leaves $350K of which $170K goes to taxes. That leaves $180,000 for the group to live on for a year while the albums is getting produced (or $45,000 each.)

Album sells 1 million copies. The band is entitled to $2 million in royalties.

However, what comes out of that royalty payment is the $ 1 million advance, and half the costs of $400K in tour support, $600K in radio promotion and a $ 1 million video. The promotion totals $ 2 million of which the band has to pay $1 million. The band winds up with $0.

The label had to pay the $500K manufacturing cost, the $1 million advance, $1 million in promotional videos, $200K in tour support, $300K in radio promtion, $2.2 million in other Marketing costs and $750K in publishing royalties. This works out to $5.95 million on revenue of $10 million. The label earns $4.05 million or a 41% margin.

The only problem (aside from the fact that the band gets nothing aside from the advance) is that most groups don't sell a million copies of an album. If the album goes Gold (500,000 copies), the band winds up owing the label $1 million and the label itself only makes $300K in profit. Below 460,000 copies the label loses money on the deal.

Conversely, if the album manages to sell 2 million copies, the band gets another $ 2 million in royalties, but the label really does well - they earn $11.55 million on income of $20 million or 58% margin. This is why they spend all of their time looking for the really big hit.

But in most cases, the entire label/marketing/artist compensation system really doesn't work very well. The only way this can work is if labels cut way back on marketing, promotion and videos and they can get radio to "sell" albums the way that it used to. And the music creation process needs to be simplified. You can't spend $500K in the studio.

The cost model you are showing only works if the labels are behaving in an honest and fair manner toward their artists. Much of the time they are not. And some of the cost quotes don't make sense. $500K to manufacture a CD? Maybe for a major pressing of 1 million units. But that is in a mere handful of cases. 40,000 CD releases a year? That's not all from major label output. Much of that is indie work pressed in small quantities.

A mere fraction of recording artists can count on getting a significant percentage of album sales. Most artists get nothing except for a creative accounting statement showing a loss. The labels practice the same "rolling break even" accounting model movie studios use. Sometimes the artist even gets a bill, with the recording label demanding percentages of their concert ticket sales and merchandise money. Most recording artists are signed to very unfair contracts that pretty much enslave them to a bad deal.

At the other end of the spectrum, you have those few A-list acts that get a lot of pampering from the studio at a great deal of cost. And that is just plain bad business. Totally stupid really. It is all on the labels if they want to waste money kissing some brat snob's ass. Just don't pass that extra cost onto the customer --I won't pay for it. Sony dumped out of Michael Jackson's contract because the fellow's lifestyle was busting their budget. Mariah Carey pretty much fell out of her contract for the same kind of thing. We need to see more of this kind of thing happen. It might actually make the A-list recording acts produce some better quality music to finance their jet-setting lifestyles.

Music labels have to control their costs and get records produced more efficiently. And they can do it. I don't have to spend a year shooting heroin and drinking Jack Daniels in New York's Electric Lady Studios to come up with a good album. You can put together a professional home recording studio for as little as $20,000, if even that, and produce professional quality material. CD replication is cheap to do. It is cheap enough that many garage level bands have produced their own CDs and even gone so far as to get them distributed without being signed to a major label. And very often, you can buy those CDs for under $10. If the little indie acts can manage that, the major lables better figure out how to do so as well.

More likely, the scenario is more like:

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And some of the cost quotes don't make sense. $500K to manufacture a CD? Maybe for a major pressing of 1 million units. But that is in a mere handful of cases. 40,000 CD releases a year? That's not all from major label output. Much of that is indie work pressed in small quantities.

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My example was if the group sold 1 million copies. Manufacturing cost on this quantity was calculated at .50 per unit. In actuality, it's a bit higher, but since some of the manufacturing is owned by the same companies that own the labels, the 50 cents made sense. In small quantities, a CD dup with 2-color label, a jewel case, a booklet and rear jewel case insert can easily cost $1.50 or more and that does not include mastering or plate charges.

Indie labels are actually part of the industry problem. While major labels control 83% of the sales, they actually release only 29% of the product. And if you look at the numbers, indies aren't making money either:

In the year 2000, Soundscan tracked almost 289,000 albums. Of those, 71% were released by indies. But indie sales were only 16.6%. The average indie title sold only 635 units at retail. (These numbers probably do not include internet sales, and especially not sales of CDs directly by artists web sites.)

In terms of new releases, Soundscan tracked just under 36,000 albums. Of those, 83% were released by indie labels. The average new indie title sold under 1000 copies. No one is making money selling 1000 copies of a new album. And the market cannot handle the flood of product from both the big labels and the indies.

In addition, less than 1% of all titles = 50% of all units. The industry sold 942.5 million units in 2000 (in the US). This means that the top 2886 albums (which obviously includes catalog product) sold an average of 163,000 units each. The next 285,705 albums sold an average of 1650 units each. In the days when albums were made in a few days in the studio and the labels didn't have to make videos and "pay off" promoters to get airplay, everyone could make some money selling 163,000 units of an album. But today, almost everyone gets screwed, the artists most of all.

As of earlier this year, only 86 albums in the entire history of the album format have sold 10 million copies or more. The top five albums of all time, all selling over 20 million units, are:
Eagles Greatest Hits
Thriller (Michael Jackson)
The Wall (Pink Floyd)
Led Zeppelin IV
Greatest Hits Vol 1 and 2 (Billy Joel)

Of course, these artists and their labels both made a ton of money on these albums.

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