In recent weeks, shots have been fired across the battlefield of profit by Steve Jobs and various recording industry executives. Using words rather than bullets, Jobs has accused the recording industry of being greedy, and they have fired back that profits from online music sales have been too low, and prices need to go up. Here's the dirty little secret no one is talking about publicly: recording studios make more money from online music sales than they do from CD sales.
Let's look at the numbers. Recording costs, production, artist fees, etc. average approximately $2-3 per album. The cost of pressing a compact disc, the case, liner material, and other associated manufacturing costs run approximately $2 per disc. Wholesale prices run from 50-80% of manufacturer's suggested retail prices, so a wholesale price of $8 per CD would be fairly typical. Subtract the manufacturing, production, and shipping costs, and gross profit to the recording studio is only $3-4 per album.
iTunes, on the other hand, pays recording studios between 60-70% of gross revenues (60 to 70 cents per 99 cent song). For each $9.99 album, that's a gross profit of $6-7.
There are other advantages to online music sales. The recording studios incur no manufacturing, distribution, or delivery costs. The downloaded music files are copy protected, so consumers can't make unlimited copies of the songs they purchase and hand them out to friends (or resell them for a profit). The recording studios make about twice as much profit through online sales as they do through conventional CD sales, and the content delivery system is instantaneous and (virtually) free.
So who's kidding who? The recording studios claim they aren't making enough money off of online music sales. The facts say otherwise. I've never seen an industry work so hard to justify greed. :?
How many people buy entire CDs worth of music online? Do most buy entire albums or just their favorite tracks? This could have a huge impact on how much profit is made.
Actually, the behaviour of the industry has not changed at all. What has changed is the public awareness and voice. The industry is responsible for adding tax to audio capable recording media.... even if used for other purposes. Why do people forget about this?
By the way, if you want to really show a true difference in revenue... I still like to tout this idea as (IMHO) it is a more honest analysis. Compare the recorded bit-rate of the audio for CD (1400+/-) and valuate that against the price ratio of what is being sold (128 - 192).
Why is this an important aspect? you have to remember that there is a difference is price point for various hard media. We do not pay the same for audio cassettes as we do for CDs. Why is this? I remember the days past when it was explained that the Audio CD provided for a better and more accurate listening experience. You also have to factor in, as was stated... the cost of resources and delivery. It was always said that cassette manufacturing was less costly then CDs. But I have always doubted this... especially today.
In the end, the truth is that the industry is as bad as the other two aforementioned. I would love to see all 3 abolished (yes I would give up smoking... for that...)
sorry... just a topic that I am very passionate about.
How many people buy entire CDs worth of music online? Do most buy entire albums or just their favorite tracks? This could have a huge impact on how much profit is made.
Yeah, that's very true - I do have to wonder what the ratio of singles to full albums is. I've only ever purchased a few full albums online.
How many people buy entire CDs worth of music online? Do most buy entire albums or just their favorite tracks? This could have a huge impact on how much profit is made.
That is precisely at the heart of the debate.
Accusations of greed aside, the studios have found that flat-rate pricing means folks pay a buck each for the hits on an album and don't even bother with the rest of the tracks; they never get to sample them to even see if they're any good or not.
So, from their point of view, they're losing a $10-12-sale in favor of one or two $1 sales.
Hence the desire for variable pricing; hit singles at $1.5 and album cuts/older tracks at a lower rate, to try to incentivize the purchase of the full album or at least get closer to the $4 per album profit mark.
For me, since I don't much go for hit singles, variable pricing might actually mean significant savings if hit singles go up and obscure albums come down.
<shrugg>
The whole thing is a tempest in a teapot, anyway, as long as CDs remain the dominant (by far) means of music distribution.
Consumers do have the opportunity on Amazon, iTunes, and nearly every other online music service to sample songs for 30 seconds or more before purchasing them. I agree that consumers probably buy more singles than they do albums, and therefore the studios are probably disappointed by the lower revenue per album vs. compact disc delivery. Regardless, the profit margins are higher, and the total profit per album produced is probably about the same as or more than compact disc distribution.
I wonder if we'll see a move towards studios producing albums with ONLY singles - i.e., a four song EP where all four songs are planned singles on the album. If people only buy the "hits", maybe music production will shift towards that way of thinking.
It's true, someone may not buy an entire album at once as often as they might buy singles from a variety of albums. But once they buy ten or more singles from a huge selection of artists from the same big record company, they've purchased the equivelant of an album and so the record companies are going to profit just the same and perhaps more as it would be more profitable for someone to buy, say, twelve singles at 99 cents a piece, rather than an album with twelve songs for $9.99.
The average person who's into purchasing music from iTunes, from my understanding, tends to download quite a bit of it. So whether it's albums, or the equivalent of albums over a short period of time, either way the record companies are lining their pockets with a hefty sum of gold.
I'm not sure that I buy the whole "You just bought a few singles instead of a complete CD so we lost profit opportunities" argument. I have personally bought more music in the last 6 months simply because I COULD buy singles. I am so sick and tired of buying a CD, only to find out that over half the music is lame - repetitive, lacking heart and soul, and just generally boring. How many of you have ended up ripping only a few songs from a CD, rather than load up your PC hard drive with music you're not interested in listening to? As a result, I had literally stopped buying CD's over the last few years, other than from favorite artists that I had confidence in (Sarah McLachlan, for one).
Since I've started shopping at on-line music stores, I've started buying music from other artists that I previously had little interest in - I've often spent an hour or more just browsing and listening to the samples, and then impulse-buying songs - hey, they're only a buck apiece! And yes, I have bought those radio hits, but that's often how you notice an artist in the first place - the opportunity to sample their other songs lets me know if they are more than a one hit wonder.
So from my perspective, on-line music and singles sales has only increased the profit potentials for the studios. I've got to believe that I'm not alone in this behaviour.
The Recording Industry's Dirty Little Secret
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