September 21, 2004
What Price for Music?
Steven Levy argues that the record labels should reduce their share of song sales, leading to a price cut while making up the losses in higher purchase volume. He discusses the six-fold increase in Real’s sales after they cut their prices in half; that’s double the increase from when Rhapsody cut its burn prices in half.
The Independent reports on what the labels are getting from online sales. This report is not nearly as novel as the authors make it sound. Also, one problem with their argument is that while the labels’ percentage share has gone up, their actual cut hasn’t necessarily changed that much. To understand why, let’s first take a look at how the pie is split up for a CD, as described in Professor Fisher’s Promises to Keep. From an $18 CD, labels would get about $9.50 (~53%). About $0.76 of that would go to music publishers, with another $1.42 (~8%) for manufacturing, leaving the label at that point with $7.32. Now, the Independent is looking at figures for singles sales, but let’s assume for the moment that the cut is the same for the album, or simply focus on an example with 10 songs. From a $10 dollar album, the labels would receive 62%, which is $6.20. But, still, one might wonder how the labels get away with increasing their percentage cut – well, the cost of retailing and distribution, the other 47% of a CD, have gone way down. Stores like iTunes are quite squeezed, but they don’t necessarily need that full 47% to survive.
The real key is that the economics of the CD and album are changing. The labels are trying to take that larger cut and get nearly the same amount because they’re still focused on a CD-album based set of revenues, and replicating that in the online world. To them, buying a single on iTunes is like a lost album sale. The labels will need to adjust their biz model to the fact that albums are not necessarily going to be the standard sales unit any longer.
Filed by Derek Slater at 1:33 pm under General news
Comments Off on What Price for Music?
