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Blogs Guest Blogs Why Record Labels and Music Publishers Resist Lower Prices for Music Online by Zac Locke
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Blogs Guest Blogs Why Record Labels and Music Publishers Resist Lower Prices for Music Online by Zac Locke | Why Record Labels and Music Publishers Resist Lower Prices for Music Online by Zac Locke |
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| Written by Foresight | |
| Wednesday, 12 March 2008 | |
  In my last article, I wrote that record labels and publishers should agree with iTunes and other music e-tailers to sell music cheaper online. To recap my idea: 25 per song, $2 per album. Some if it’s so good for consumers, why doesn’t the business do it? Here’s why. Music e-Tailers are All For It On the seller side, the biggest online music retailer, iTunes (aka Steve Jobs) would agree to a price reduction. Jobs doesn’t much care how much he makes off of digital downloads. He cares how many iPods he sells to hold that music. At lower prices, demand for music would increase, and thus demand for his shiny toys would increase. As And as I showed in my last article, iTunes would bring in even more revenue from its iTunes store, which, although not that important to Jobs, wouldn’t suck either. Music Industry Resistance So why is the music industry fighting lower prices? Three reasons: 1) Labels and publishers cannot agree on squeezing their royalty rates; 2) Labels are afraid of incurring the wrath of Walmart, and; 3) The entire industry, including artists and retailers, is afraid of the devaluation of music. Publishers want their Dime, Labels want their Percentage Music publishers, who own the compositions (the words and music of a song), get a 9.1˘ statutory mechanical license fee every time you buy a song on a CD. Record labels are used to getting 70% of the retail price on both physical CDs and digital downloads. 70% of 25˘ is 17.5˘. Doh! With the publisher’s share at 9.1˘ and the label’s at 17.5˘, the online retailer would owe third parties 26.6˘. Problem is, under the model I proposed last week, where music is sold online for a quarter, sites like iTunes will only be making 25˘ per song. Clearly, so the labels and publishers are going to have to compromise. Instead of taking 9.1˘ per song, the publishers need to lower their fee in ratio with the lowered download price, taking about 2.5˘ per song. Thus, the online retailer pays out 20˘ on each song and keeps a cool 20% profit (which is what they get under the 99˘ model as well). By not compromising, the publishers will be shooting themselves in the foot. Trouble is, it is easier to get the four major labels to come to a consensus than it is to get the thousands of viable important publishers in the same room. The Elephant in the Room: Walmart Second, big box retailers such as Walmart would not take kindly to labels agreeing to sell their product for $2 online (my suggested price for an online CD), while Walmart tries to sell it for $10 in-store. Walmart does not make much money off CDs. It just uses them to get customers into their stores to buy bath towels and Fruit Loops. But why would customers spend $10 in Walmart when they can just spend $2 online to get a legitimate product? For the most part they would not. Walmart would take away even more shelf space from CDs, probably only stocking the best sellers from the biggest, most mainstream artists, with an older, non-tech-savvy fanbase. (I’m thinking Clay Aiken, or The Eagles). I do not have an answer to this dilemma, I just have another question – so what? With CDs sure to lose importance in the next decade, labels need to think about the future, not the present. As the Buddha said, “in the future, only the future existence will be real”. More than a Danger, a Reality: Music is not Worth as Much as it Used to be Lastly, there is always a danger that by making something extremely cheap, you are taking away its intrinsic value. Film studios have done a great job fighting the devaluation of their films, railing against free giveaways with newspapers in Europe, and only begrudgingly joining subscription models like Netflix. But music is different because the cat is already out of the bag. Music is not only already devalued, for the younger generation it is free! That is why I disagree with some entrenched music industry experts that if you can get people to pay for bottled water you can get them to pay for music. Music used to be bottled, now it is on tap. It is too late to bottle it back up again, unless it is for prices that closely approximate your water bill, at much more convenience. That is what I proposed last month – cheap music in a convenient, high-quality online location. Check out the comments from last month for some examples of what people have been using, and check back next month for where the budding artist fits into all of this madness. About the author: Zac Locke was initiated into the music industry back in ’97 with the independent hip-hop label, Noo Trybe. After a year of listening to 20 wack demos per day in its A&R department, he joined Virgin Records where he worked in urban, international, and college marketing. He then moved into television, producing promos and marketing videos for A&E and The History Channel, where he was nominated for an Emmy®. During law school he clerked for a Hollywood music attorney and in the Entertainment Department of a top LA law firm. He is the Editor-in-Chief of the UCLA Entertainment Law Review, and will earn his J.D. in 2008. Comments
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 written by jtone , March 12, 2008 Copyright 2007. All Rights Reserved.       |
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| Last Updated ( Tuesday, 22 April 2008 ) |
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The first season of AMC's "Mad Men" will cost you $22.99 on the iTunes music store .
The special edition live album from the New Pornographers will cost you $9.99 at the same place.
Mad Men's first season contains approximately 10.5 hours worth of audio and video.
The New Pornographer's album contains about 42 minutes of audio.
Why does Mad Men contain 15 times more media than the music album, yet cost only $12 more? Put another way, how can two music albums, which cost far less to produce and contain only a fraction of the content, be priced the same as a full 14 episode season of Mad Men?