The feedback on the P2P downloading debate has been terrific; Let’s add a few additional bullet points into our repertoire of arguments:
First, let’s consider what actual P2P losses are to the industry.
They are much more difficult to calculate than the RIAA would have you believe. Why? First, downloaders pull songs they would never buy; I have Outkast’s "Hey Ya" somewhere; I consider it a goofy novelty song, and the only reason I have it is that someone else sync’ed it to a Peanuts animation (everyone on stage dancing to Schroder’s piano). It was an amusing but unauthorized use, which I downloaded, smiled at, and never saw again.
Oh ya: The CD that song came from — OutKast’s 2003’s release, Speakerboxxx/The Love Below — sold 10-million plus copies.
Lost sales? Hardly.
Consider the biggest of all downloaders — mostly-broke college students. They have a computer their parents bought them, and the campus gives them a big, fat pipe. They get access to music they would never have bought, resulting in future post-college sales. But the one-to-one lost sales argument is transparently false.
Next, let’s consider what the damages to the industry are. Consider the issues of substitution: What would it cost to purchase an "unlimited amount" of digitally distributed music? The answer is found in the Napster-to-Go model:
"The Napster to Go model . . . shows that the RIAAs claims of a lost sale for every download to be demonstrably false. If you can download an unlimited number of songs via napster and play them for as long as you continue to subscribe, then the maximum loss the RIAA suffers from a single downloader cannot exceed $15/month no matter how many songs a person downloads." — via boingboing
Over the course of 10 years, that represents total gross losses of $1,800, of which Napster keeps between 15 and 20%. Net loss: $1,500 dollars.
But wait, there’s more: The Rhapsody Music Subscription from Real Networks charges only $10 per month. That’s $120 per year. Over a decade, the loss downloaders present to the industry by not signing up for Rhapsody are: lost revenue of $1,200 (gross). In other words, the total net industry losses are ~$1,000 per decade. Hardly as apocalyptic as portrayed.
By approving the Napster/Rhapsody subscription models, the music industry has unwittingly created a viable legal defense, at least when it comes to damages portion of their litigation, for defendants in a RIAA P2P litigation. The claims of losses in the $100,000 or even $10,000 are silly — as long as this $1,000 net loss per decade option exists.
Of course, that doesn’t consider studies (such as the one from Harvard/UNC CHapel Hill) that shows P2P drives CD and concert ticket sales. I only buy music that I hear
and like. Since that hardly happens via the radio anymore, P2P is
my most common source of new music (that, and Apple adverts).
Further, the industry’s disingenous claims that its the artists are getting ripped off by downloaders are rather misleading. (Putting aside the industry’s own long and storied history of ripping off their artists for another day).
A recent NYT article reveals that most musicians make their bread and butter not by selling CDs, but by touring and performing:
"According to a new list of the 50 top-earning pop stars published in Rolling Stone, over the hill is the new golden pasture. Half the top 10 headliners are older than 50, and two are over 60. Only one act, Linkin Park, has members under 30.
The annual list, which entails some guesswork, reverses the common perception of pop music. Not only is it not the province of youth; it’s also not the province of CD sales, hit songs and smutty videos.
While sexy young stars take their turn strutting on the Billboard charts or MTV – or on the cover of Rolling Stone – the real pop pantheon, it seems, is an older group, no longer producing new hits, but re-enacting songs that are older than many of today’s pop idols."
This has serious financial repurcussions for the business model the industry is presently wed to. And the list of artists who are making the big bucks reveals industry mismanagement has led to mostly ignoring the key economic demographic driver of our century: The baby boomers.
Here’s a little secret the RIAA would rather not have you know: Musicians make most of their money performing and touring — not selling CDs or downloads. Rolling Stone has a detailed analysis of the top 50 acts . . . here’s a top 10 list to whet your appetite:
2004 Music Money Makers
1. Prince $56.5 MILLION
2. Madonna $54.9 MILLION
3. Metallica $43.1 MILLION
4. Elton John $42.9 MILLION
5. Jimmy Buffett $36.5 MILLION
6. Rod Stewart $34.6 MILLION
7. Shania Twain $33.2 MILLION
8. Phil Collins $33.2 MILLION
9. Linkin Park $33.1 MILLION
10. Simon and Garfunkel $31.3 MILLION
Note that 9 of the top 10 grossing performers aren’t the hot new thing — they are the better known rock classics — which the labels have mostly also been paying little attention to for so many years.
The industry can scapegoat P2P for all their woes, but a closer analysis of the math demonstrates the claim is illusory. (Mis)management is the primary sources of the industry problems.
UPDATE FEBRUARY 16, 2005 11:13am
Apparently, viewers didn’t think much about the Grammys; What does that say about this industry?
http://www.washingtonpost.com/wp-dyn/articles/A24838-2005Feb14.htmlhttp://www.nydailynews.com/entertainment/story/280865p-240715c.htmlhttp://news.bbc.co.uk/1/hi/entertainment/tv_and_radio/4266423.stm
If you keep suing your customers, then soon no one will be watching this show . . .
>
>
Sources:
Balding Rockers and Big Money
JOHN LELAND
NYT, Sunday, February 13, 2005
http://www.nytimes.com/2005/02/13/weekinreview/13lela.html
Napster-to-Go reviewed, math done
boingboing, Sunday, February 13, 2005
http://www.boingboing.net/2005/02/13/napstertogo_reviewed.html
Money Makers
Robert Lafranco
Rolling Stone, Posted Feb 10, 2005
http://www.rollingstone.com/news/story/_/id/6959138/prince?pageid=rs.Home&pageregion=single2
The Effect of File Sharing on Record Sales: An Empirical Analysis
Felix Oberholzer, Harvard Business School
Koleman Strumpf, UNC CHapel Hil
http://www.unc.edu/~cigar/papers/FileSharing_March2004.pdf
RIAA Bad Math
Barry Ritholtz has exposed the RIAA once again….
” most musicians make their bread and butter not by selling CDs, but by touring and performing:”
Er, no. Phil Collins and Shania Twain can play big shows, and charge premium ticket prices, which boosts their profits.
Performers who are playing small shows at clubs can’t do that. There are no $150 seats at The Hideout or the Double Door in Chicago. There are no skyboxes. I’m guessing that someone with a modicum of name recognition like Aimee Mann makes a small profit on her live shows. Others probably break even, if they’re lucky.
You can’t generalize from a handful of big-name tours listed and assume “most musicians” are operating under similar economics.
thats true — not all musicians can sell out big shows.
But then, how many CDs are these players selling?
Aimmee Mann sponsors her own tours, and they are profitable —
Same for many other bands. Check out Jacob Slichter’s So You Wanna Be a Rock & Roll Star.
http://www.amazon.com/exec/obidos/ASIN/0767914708/thebigpictu09-20
Even a band like Semisonic with big single never saw much revenue from sales
Now hold on… In my younger days I was the A & R rep for a VERY SMALL record label in Flower Mound, TX. Our artists did not get especially rich from CD sales or live performances. They did, however, frequently “break even” on their live performances. My recollection is that 1 in 7 albums we produced generated enough profit to pay for studio, engineering, duplication, and distribution costs. And the label I worked for barely scraped by with those that did profit.
So I have to agree with the previous poster; bands that aren’t making money from their live shows probably aren’t making money from their albums. So the concept of using digital media files to lure prospective live show attendees isn’t too far fetched.
At the end of the day it’s up to the artist to decide what to do with their music. If they want to release it into the public domain, great. If they want to release it with a Creative Commons license, equally great. If they want to release it with traditional copyright protections (i.e.- you have to ask before you copy,) well that’s just super for them.
In my mind it gets sticky when people start talking about DRM and other technologies that limit “fair use.” Yes, I know, you’re about to make some snide comments about why I’m no longer an A&R rep… ’cause I go around talking about fair use. I’m all for protecting artist’s rights (and even record label’s rights.) But not at the expense of the public’s fair use rights, ‘kay?
I’m a big fan of the concept of the library. Most DRM schemes I’ve seen would make it extremely difficult to purchase media for use in a public library. Fortunately, we can still purchase non-DRM’ed music for use in the library. When I was in school, I learned a lot about music simply by playing jazz and classical albums from the library. And no, I didn’t steal them. When I got out of college and started making money, I bought CDs with all my favorites: Schoenberg, Scriabin, Bartok, Zappa.
So… while I agree with the labels that sharing music on P2P networks is “wrong,” I also think that DRM as the solution is worse than the problem.
Those are the artists who *keep* the most money, not the ones who *make* the most money.
If you were to put up a list of the richest men and women in financial analysis, I’d bet dollars to Atkins-friendly doughnuts that you’d come up with a list of high-rolling hedge fund managers and private investors. The fact that Fidelity and Capital wouldn’t appear on that list doesn’t mean that what they do isn’t important.
But the point is htat the labels misrepresent the impact of P2P — of course, some artists will feel some impact.
But the reality is its the labels who bear the brunt of 90% of P2P’s impact — not the artists. That hasn’t stopped the RIAA from using artists to put a Human face on the issue.
Hur mycket förlorar egentligen skivindustrin?
The Big Picture smular sönder argumenten: The Big Picture: The False Mathematics of the RIAA Tjänster som Napster-to-Go gör att skivbranschen inte längre kan hävda att man förlorar så mycket på nedladdningen av…
The RIAA’s funky math
Ouch! Barry L. Ritholtz of The Big Picture nails the RIAA: The feedback on the P2P downloading debate has been terrific; Let’s add a few additional bullet points into our repertoire of arguments: First, let’s consider what actual P2P losses are to the…
The RIAA’s funky math
Ouch! Barry L. Ritholtz of The Big Picture nails the RIAA: The feedback on the P2P downloading debate has been terrific; Let’s add a few additional bullet points into our repertoire of arguments: First, let’s consider what actual P2P losses are to the…
The RIAA’s funky math
Ouch! Barry L. Ritholtz of The Big Picture nails the RIAA: The feedback on the P2P downloading debate has been terrific; Let’s add a few additional bullet points into our repertoire of arguments: First, let’s consider what actual P2P losses are to the…
For the best part of several hundred years, the whole of what we can call “the music industry” was driven by live performance. Composers were paid to write for public, church or court performance: musicians and singers played. There was no broadcasting, no sheet sales, no recording.
Then came the arrival of sheet music sales. That allowed composers to make money directly from the public, but performers still had to make their money live.
Then came primitive recordings, and then radio, then better recordings and then TV. By the 1950s the music industry became one in which recordings and broadcast fees were important, and so it remained for about 50 years.
But maybe that era is now over. Recording revenues are (apparently) falling, while performance revenues are steady and maybe even increasing. We all know examples of bands who effectively make all their money from gigs (The Grateful Dead for most of their career; Phish more recently) but the same is true of the majority of classical and jazz artists and pretty much always has been. The Dead’s tradition of encouraging bootlegs didn’t hurt ticket sales, and when they did have a rare hit like Touch of Gray it’s main importance was in briniging in new concert fans.
We may look back on the era of high (and highly profitable) record sales as an aberration in what is otherwise the long tradition of making a living by live performance. If the RIAA haven’t considered this possibility then they are fools.
Carnival of the Capitalists
Welcome to the President’s Day edition of Carnival of the Capitalists, the weekly round-up of business and economics blogs.
While you’re here, please take a look at a few of the other posts. The Raw Prawn primarily deals with business, economics, …
Carnival of the Capitalists
The blog hopping [URL=http://the-raw-prawn.blogspot.com/2005/02/carnival-of-capitalists.html]Carnival of the Capitalists[/URL] has become one of the highlights of my Mondays. I usually end up reading more than half the linked to articles. My Favorite…
Absent your analysis is the effect of P2P downloading on the songwriters, the source of the music artists perform. A huge amount of the music popular singers perform (Britney, etc.), and an even larger portion of other genres (country especially) is not written by the artists, so it makes for an incomplete argument to look out only for the artists in this equation.
While royalties from live performance provide income as well, much of the songwriters’ income comes from the mechanicals they receive when albums are bought.
That said, enjoyed your analysis, just wanted to bring up another side that was notably absent from your considerations.
That’s $120 per year. Over a decade, the loss downloaders present to the industry by not signing up for Rhapsody are: lost revenue of $1,200 (gross).
It’s actually quite a bit less: What’s the NPV of a $120/year cash flow?
OK, I’m 35 years old, and there are some bands that I like out there, but none get much airplay. It seems that the 3 mega-companies that own all the radio stations have pigeonholed me into the “classic rock” era. If I hear one more Who/LedZep/PinkFloyd song, I’m gonna blow my brains out.
If I’m in my home, I can troll the webradio casts to see if there’s some interesting music out there. Not at work, and certainly not able to in my car.
So, what does one do to get exposed to new music?
XM/Sirius if you can afford, or you go P2P, download a whole load of diff’t artists and make up your mind.
I used to buy a whole lot of albums & tapes back in the day. But now at $15.99 plus, with no exposure to new music, I might buy 6/year, all guaranteed hits.
If they were $10.00 each, I’d buy a whole lot more and be willing to experiment.
To top it off, I happened upon a great new band, wanted to put one of their songs on a mixed cd that I was giving to friends, but their DRM (or whatever copy-protection they have) DID NOT ALLOW ME TO SHARE THIS BAND WITH MY FRIENDS. So, instead of telling them how great they are, I’m going to spite them and not tell. Yes, it’s juvenile. But I used to be up on turning my friends onto great new bands. Now it’s different. And they’ll never know, or BUY, that band’s music. And for denying me “Fair Use”, I’m glad they’ll never know of the band.
I know it goes without saying, Dave, but your opinion of what’s “fair use” and the official definition of “fair use” in the Copyright Law are two very different animals.
While the law itself is vague, the uses it specifically mentions are criticism, research, news reporting, teaching, et al, as examples of fair use, so long as the segment copied is only a reasonable portion of the complete work, and not the entire work.
Personally, I’m coming to believe that all this digital encoding nonsense is absurd, but they’re operating well within the existing (absurd) law in doing so. Hopefully in very short time, we’ll see a new model for copyright protection and music consumption. Til then, we’re still bound by the law, no matter how silly it is, no?
Barry Ritholtz, “The False Economics of the RIAA
Do people mainly P2P download songs they wouldn’t otherwise buy? Do musicians make most of their money from performances? Economist and blogger Barry Ritholtz answers these and other questions and in doing so, does a couple of numbers on The
Barry Ritholtz, “The False Economics of the RIAA
Do people mainly P2P download songs they wouldn’t otherwise buy? Do musicians make most of their money from performances? Economist and blogger Barry Ritholtz answers these and other questions and in doing so, does a couple of numbers on The
Barry Ritholtz, “The False Economics of the RIAA
Do people mainly P2P download songs they wouldn’t otherwise buy? Do musicians make most of their money from performances? Economist and blogger Barry Ritholtz answers these and other questions and in doing so, does a couple of numbers on The
I, a college student, wrote a response to this issue that is so very important on my own campus. You can read it on my blog here: http://www.shiaustreet.com/2005/february/24/riaa.php
The False Mathematics of the RIAA
Barry Ritholtz has posted an article over on The Big Picture that outlines informaion that will not come as a surprise to most OMB readers, but is important nonetheless for its specifics:
Further, the industry’s disingenous claims that its the artist
The False Mathematics of the RIAA
Barry Ritholtz has posted an article over on The Big Picture that outlines informaion that will not come as a surprise to most OMB readers, but is important nonetheless for its specifics:
“Further, the industry’s disingenous claims that its the artis
The False Mathematics of the RIAA
Barry Ritholtz has posted an article over on The Big Picture that outlines informaion that will not come as a surprise to most OMB readers, but is important nonetheless for its specifics:
“Further, the industry’s disingenous claims that its the artis
An interesting argument and methodology, RIAA is serving its own members a best interest, that’s their job and to be expected. They’re trying to set an example for headline shock and deterrence value. Nonetheless you have a serious misunderstanding of the “artist” pool that is affected. 90+% of artists don’t sell CD’s in the mega-hit stratosphere of your sample. And the touring old timers really are absent from this issue, its young people hurting new young artists (and the labels, of course). Beginning artists selling 100k-500k units are breaking even or still recouping – and worse may not get that next release approved…. it’s true that labels don’t develop artists anymore, which makes P2P even harder on artists that don’t sell 1mm on their first album. How many of what became the greats from the 70’s could have withstood the hit of P2P on their first albums in today’s environment….. many greats that never would have been. Concert tours for these new artists break even at best (i’m being optimistic), and then when they get shelved their musicians are out on the street as well. Second to your point is that this isn’t about musicians (most of whom aren’t artists). Even without P2P, moderately “successful” artists are personally struggling financially, and many don’t see a cent for years from points on record sales except for their mechanicals and performance (I hope you you know what those are, otherwise nix the whole music article thing going forward). 90% of signed AND released artists are just downright broke – as in debt borrowing from mom, dad and the record label. Based on the Soundscan numbers from one album, they’re teetering on the cusp of a future career, or back to momma’s couch. You might run into one serving your next meal in NYC or LA. Doesn’t sound like you would know or care who these people are anyways. Steve Jobs has done more for new artists in the past three years with ITunes more than anyone on the planet – which would be about 1000% more than you after factoring in the counterproductive nature of your article. Certainly P2P is good for raising awareness for those artists people end up purchasing the CD based on what they heard. Or producers like me who need to quick research a song an artist wants to “sound like” on a specific song. The fact is that most tours exist to as a promo sell CD’s and build artist base rather than a profit center, which further demonstrates your lack of knowledge of the industry. 95% of tours break even or lose money. But since they drive CD sales, it’s worth it. Well it was worth it more in the past, that’s for sure. You do know that artists pay for those music videos that didn’t exist over three decades ago, right? The Eagles never had to recoup those disgustingly high pay-to-play cost of advertising production. And don’t blame the labels; the recording side of those businesses is worth 5x EBITDA, as in steel mill range. Bronfman and Tommy Lee saw some opportunity with cost cutting in the Warner recorded business, paid well for the publishing side (thats what they really wanted), but still had a tough IPO, trying to cash out ASAP – and Tommy’s the smartest money around. But more to the point, college and high school students of the past did buy albums….lots more than they do now. That’s where most of my money went as a kid, but now they channel that disposable income towards video games. There is a real market out there killing artists, writers, producers, record companies – or anyone with some ups on a deal. There are many estimates about P2P, none of which i buy into, but in the US (census stats) there’s 60 million between 15-30 (in the US alone), and if half of them download 100 songs a year, what’s the impact? (100 being ones they really like, the actual number is probably higher – my young friends and contacts seem to be around a 300 handle) At 99 cents a song, that would be just under $3bn. Rhapsody model about $3.6bn. Just for the U.S., and we know Europe is huge, and well, China never has to pay for anything legit so that’s a wash anyway. Still, that’s a number worth going after no matter what industry we’re talking about. So while we can whittle down how much artists, writers, et. al. actually lose from there in specific $$ terms based on standard points and mechanicals, more importantly some artists with potential are being shelved foregoing the next level in their career, some who could become the next big touring old timers 20 years from now. My advice would be to lay off the RIAA, if anything i see them as late to the attack and rather wimpy compared to my knowledge of corporate ferverance when it comes to litigious matters (I spent 15 years in i-banking before my music life). If GE had a record label, what do you think they would have done? To me the RIAA is putting a number that’s too low with only compensatory damages. Other fortune 1k’s would set an example much harsher than this, maybe go for nominal and compensatory, even if only for headline sake. In my opinion, the RIAA’s shock value (or lack thereof) isn’t a compelling enough deterrent. So I suppose I have quite a different view than you, though granted that’s not entirely fair since I know how the industry works. You have to know the numbers before you can paint “The Big Picture”, maybe next time.
I am a Uni student and I use P2P network to share music.
The reason why I’m doing that is there’s a simple principle for us — If I have never listened to the music, I won’t buy it. One reason is because the record company today is try to sell instant stars and rubbish to anyone. Another reason is I don’t listen much radio. I don’t agree with people who said the radio can still do the promotion for musicians, at least, not for young students anymore.
Students spend much more time on Internet than listening to radio, that’s why they are likely get information on internet. No pad company will put it’s advertisement on the door of the men’s toilet, right? So why musician should advertising themselves through a media that will hardly get result, or for a particular population group it won’t work?
In my home country, I can say that the record industry is mainly depends on young people. That means, they are the biggest P2P user group, and some of them do enjoy the music which is not available on where they live. That’s why some company started their business by making pirate copy of CD which the original copy was over priced or hard to access. And for these CD for some stupid reason cannot be imported, people will smuggling them in anyway (we are not talking about border control issue here ^.^).
I think the music industry, which include musicians really have to take a serious look at themselves, why some CDs are all over the shelf and no one want to buy, at the same time still people downloading music through P2P networks. The product range, the price, almost everything…
I’m a girl, and I probably spend more money on buying records than clothes, and most my female friends do as well.
natural gas in kidney damage to
Batton Passing
I have finally had a chance to catch up with some of my blog reading. I am noticing many post about passing the batton. It seems that many a blogger are now posting how much hard drive space is…