By George Ziemann
The RIAA (Recording Industry Association of America) has a real funny way of looking at things. Not funny - "ha ha", Funny - "odd."
Before you read the rest of this story, I heartily encourage the reader to click on the RIAA link above. Make your own judgement before you hear a thing I have to say. Take your time. Be sure to look at their Market Data because I'm going to be quoting it.
The sky is falling! The music industry is doomed! Woe is everyone. The pirates have stolen all the gold. What will we ever do? How can we possibly recover? You've poured water on us and we're melting!
Let's quote a few of the RIAA's statements. The first quote comes from the report on 2001 year-end shipments. The title -- "Recent study Illustrates Internet Piracy's Impact on Music Market"
Time out. Total number of units fell 10.3 percent. Total sales dropped 4.1 percent. Sorry, Hilary, there is a simple explanation -- The economy sucks, you guys raised prices anyway while promising to copy-protect everything and make it harder to listen to. The consumer took a step back.
And here is another contributing factor, from their article, "The Value of a CD". Last time I looked, this was the top story on the RIAA home page.
While this is true, all of those costs will be fully recovered from the record company out of the big 8 cents per song the artist gets paid But that's another argument for another day. Here's the interesting part.
I was very happy to see them provide this information, because after compiling the RIAA's market data, I had noticed that the "new releases" data which had been present in all of the information from 1992 to 1999 had somehow been overlooked when the RIAA put together the 2000 and 2001 summaries.
PDF file with data recalculated to 1992 dollars -- Prepared by Dimitri della Faille, Université du Québec à Montréal
So the record industry cut their inventory (and artist investment) by 25 percent and sales only dropped 4.1 percent, even though the economy is at rock bottom. There were almost 12,000 fewer new releases for the consumer to choose from in 2001 than 1999. The record companies are making more money per release than ever.
Up until two years ago, modems were too slow to download music. Duh. Did anyone ask these consumers if they were downloading major releases or freely uploaded Independent music? If it was the latter, that's exactly what we want the consumer to do. If piracy is the problem, why is it that sales didn't start declining until AFTER the RIAA had Napster shut down?
Let's see how the "sales displacement" theory holds up under scrutiny, using the RIAA's own statistics. All of these figures came from the RIAA's web pages, with the exception of Average Unit Price, which was calculated based on figures given. Some of the 2001 data was not included on the site either and had to be extrapolated from what information was provided.
Okay, sales are down 6 percent over the past two years. Considering the economy, that doesn't seem like such a serious problem. I'd also say that pushing the average price (these figures are net after returns) over $14 a unit probably didn't help any, either.
If the record industry had gone forward with the 12,000 releases that it cut back over the past two years and only sold 3,000 copies of each title (a loser in record company terms), both the units shipped and total sales would have continued to climb as they had in previous years.
Here are Hilary Rosen's concluding remarks on the state of affairs at the end of 2001.
The source of the $4 billion figure is attributed to "IFPI, the international association representing the recording industry worldwide." Good thing she passed that one off on someone else. I just don't see where the justification for that figure could possibly come from. The numbers are simply not there. In short, this is total bullshit.
But wait. Something is missing from the 2001 statistics, at least the ones I could find. Singles. For some reason they stopped reporting this information. The reason is obvious. The single is dead. This is what the record companies are screaming "pirate" about. This is the product that the Internet has killed. And yet, this comes nowhere near the fictitious $4 billion in "lost sales" mentioned above.
Disproving the theory that "You'll never go broke underestimating the taste of the American public" (H.L. Mencken -- thanks to the slashdot crowd for pointing out my error), U.S. buyers have apparently come to the realization that $3.50 to $5.50 is too damn much to pay for one song.
You'll note that, even with the 1992, 1996 or 1997 figures, it would take 10 years for this to add up to the $4 billion in "piracy losses" that someone is pulling out of the air (or a somewhat lower area from which things like this are known to emerge). Hilary Rosen is going to have an even tougher time trying to explain what's going to happen next without making the tale of pirates sound even more like the fictional account than it is.
Before I continue, however, if anyone spots an error in the charts above, let me know and I'll correct them. As I said, some data was extrapolated. If you've got a real number, let's hear it (and the source). Not that's it going to matter much. The record companies are going to realize that the pirates are not the consumers that downloaded a few mp3s. The real pirates are coming and they're going to do more than steal a few songs from you.
We're going to tear down your castle walls.
Originally, at this point in the story, I outlined a deal that I was offering to those artists who performed at a specific event. This event has since been cancelled, so those details are now irrelevant and I have to rewrite the ending. The basic idea is that -- if the artists must bear all the cost of producing, distributing and payola and the record label is merely giving the artist a loan which must be repaid -- the tables should be turned. The artist should get the majority of the profit and have some say in how their money is being spent.
There are 50,000 independent bands listed at GarageBand.com alone. Thousands more can be found at mp3.com (but far less than a month ago), DMusic (just had to add new servers because their artist base is growing so fast) and Vitaminic, just to name a few. More are cropping up daily. Last year, the major labels only released (according to RIAA statements above) 7,000 new recordings. Less than half of the Indies got a release of any sort. And correct me if I'm wrong, but I think that the record industry is paying a little less than 80 percent of the profit to the artists.
Let's go back to the RIAAs stats for a moment. Potentially, they missed at least 30,000 available acts in 2001.
If only one in 10 releases is successful, we're talking about 300 killer acts (assuming only 10% of the successful acts qualify as "killer" acts). And let's call "success" unit sales of 100,000 (a tenth of what it takes to qualify for the record industry's definition of the term). At $10 a unit, that's $30 million. Take off $2 a unit for actual costs and the profit is about $24 million. I'd give up 75 percent of that, still be very, very happy and have plenty left over to finance the other 27,300 failures. If I can only sell an average of1,000 copies of the "failures," that's still another $2.1 million profit. Take away production costs and I still make more than $250,000 on the "failures."
Radio missed even more music, only playing a small fraction of the abysmally small number of music that actually managed to get released. According to Clear Channel owner Art Mays, at a recent Senate Commerce Committe hearing (Jan 30, 2003), Clear Channel -- representing more than 1,200 radio stations across the country -- added only 3000 songs to their playlists last year, which represented the work of only 550 artists.
The RIAA is looking for pirates. They need to look in the mirror. The biggest threat to the recording industry is that they long ago dismissed as insignificant the two elements without which there would be no recording industry -- the music and the artists.
Your first table uses Total Dollars and # of New Releases to obtain a Dollars per Release. The problem is that Total Dollars is the income from ALL releases not just new ones according to the first RIAA quote in your article. While older releases will have a diminishing effect on income, I do not believe they can be discounted completely. As evidence, check the RIAA's statistics for multi-platinum certifications. Clearly millions of old releases must have been sold in the past year to account for these certifications. Now the math to account for old releases is much more complicated and I'm not sure how easy it would be to obtain the data needed to properly analyze the relation. The only thing I can say for certain is that new releases will make less than you calculated.
Andrew Kreps, Darien, IL
Due to the overwhelming response this article has generated, reader response has been listed separately in three categories.
McCartney Leads Record Touring Year
Historical Notes and References
May, 2000 -- The Federal Trade Commission unanimously found reason to believe that the arrangements entered into by the five largest distributors of prerecorded music violated the antitrust laws in two respects. First, when considered together, the arrangements constituted practices that facilitate horizontal collusion among the distributors, in violation of Section 5 of the Federal Trade Commission Act. Second, when viewed individually, each distributor's arrangement constitutes an unreasonable vertical restraint of trade under the rule of reason.
All Five Major Distributors Agree to Abandon Advertising Pricing Policies
The Federal Trade Commission announced today that it has reached separate settlement agreements with Universal Music and Video Distribution, Sony Corp. of America, Time-Warner Inc., EMI Music Distribution and Bertelsmann Music Group (BMG), the five largest distributors of recorded music who sell approximately 85 percent of all compact discs (CDs) purchased in the United States to end their allegedly illegal advertising policies that affected prices for CDs. The proposed agreements would settle FTC charges that all five companies illegally modified their existing cooperative advertising programs to induce retailers into charging consumers higher prices for CDs, allowing the distributors to raise their own prices. The complaints are the culmination of an extensive industry-wide investigation by the FTC of these practices. The FTC's orders would require all the companies to discontinue their "Minimum Advertised Price" (MAP) programs in their entirety for seven years. The orders contain additional provisions to preclude the companies from maintaining the anticompetitive status quo.
"The FTC estimates that U.S. consumers may have paid as much as $480 million more than they should have for CDs and other music because of these policies over the last three years. These settlements will eliminate these policies and should help restore much-needed competition to the retail music market, consisting of $15 billion in annual sales. Today's news should be sweet music to the ears of all CD purchasers," said Chairman Robert Pitofsky.
Despite this noble effort by the government, the average price of a CD has continued to rise. Thanks to Mick Right for digging this one up. -- GZ
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