Music Labels Continue to Ignore Basic Economics

It continues to astonish, but the recording industry STILL does not have a clue WTF they are doing. Utterly amazing.

A story in the NYT Thursday reveals that the actual levels of business knowledge and economic understanding that exists in the recording industry. The answer, it turns out, is nonewhatosever.

Proof for this revelation is what the RIAA braintrust now thinks is hurting CD sales: its legal digital downloading that is holding back CD sales. Not illegal P2P, as the RIAA likes to tell us, but legal sales!


NYT: As blockbuster hits go, the R&B smash "So Sick" is
hardly new territory for the 23-year-old singer known as Ne-Yo. Before crooning
the song on his own album, he was a co-writer on the 2004 chart-buster "Let Me
Love You" for the singer Mario.

But there’s one big difference: even though fans could hear "So Sick" on the
radio for the last two months, they couldn’t buy it at popular online services
like iTunes or Rhapsody, or anywhere else for that matter. Breaking from the
music industry’s current custom, the singer’s label — Island Def Jam — decided
not to sell "So Sick" as an individual song before Ne-Yo’s album hit stores last
week. Label executives worried that releasing the track too early might cut into
sales of the full CD — a fear that figures heavily in the music world’s
lumbering entry into the digital marketplace.

The results of fans’ pent-up demand for Ne-Yo are now clear: his CD "In My
Own Words," burst onto the national album chart yesterday at No. 1, with sales
of more than 301,000 copies, easily ranking as the biggest debut of the year so
far. And just as eye-popping: the digital single of "So Sick" sold almost
120,000 copies in its first week, according to Nielsen SoundScan."

Let’s ignore for the moment the collossal business savvy reflected
there:  Even though our customers have demanded digital downloads for
nearly a decade now, LETS NOT GIVE IT TO THEM. My physician has
advised me to avoid these absurdly perverse discussions without
consuming healthy doses of valium prior.

Instead, lets consider what is being ignored by the industry — its amazing that the focus remains in the wrong place.

The rocket scientists in the recording industry would have you believe it was all the pent up demand that led to all those sales, because they held back downloadable singles. I guess that means the other  all the CDs that opened big that also allowed downloads were anomolies (um, not).

You have a read little further down in the article to get to the true reason for the very strong CD sales of Ne-Yo’s CD "In My
Own Words"

"There is still plenty of debate over the effect of holding off on sales of
the digital single; many also note that Island Def Jam offered a discount to
retailers who stocked the album, allowing it to sell at stores like Target for
$7.98 last week."
(emphasis added)

Holy snikes! In case you missed that small detail, allow me to repeat it for you: The CDs were sold for




Unless you go to Amazon, in which case it is $7.96

How much more obvious does it have to be to get these microencephalic idiots to realize they have priced themselves out of the mass consumer market by charging $15.99 per? How many more brick and mortar retailers have to go belly up before they get a clue?

Consumers have long ago figured out that CDs as sold by the major labels represent a poor deal for the dollar. How many times can I buy a CD soundtrack (Hi-Fidelity, Garden State, The Big Chill) that costs more than the DVD of the film?

Whether a CD gets played mre than a DVD is irrelevant to the person standing in Target, with a 45 minute audio CD in one hand ($15.98) and a DVD of the same — 2 plus hours of Audi/Video Movie, plus hours more of interviews, outtakes, directors commentary, etc.  for the same or less money.

The bottom line is while all other media entertainment has dropped in price or given you alot more for the same price — games, DVDs, internet, software, etc. — CDs retain their prior price point. In the fiercely competitive market for consumer entertainment dollar, they Recording Industry has simply  become non-competitive.

Economics 101 is why CD sales have slid so perniciously. Until sub $10 CDs become  the norm, I expect to see the slide continue.

Amazing that these guys are allowed to run companies; If it were up to me, they should only be handling rounded safety scissors . . .


UPDATE March 10, 2006  3:43pm

I almost forgot — this is the music industry — these guys are anti-competitive, serial price fixers. First with  CDs, and now they stand accused of price fixing digital downloads.

No wonder the whole concept of competition is so foreign to them!



Labels Halt Downloads to Increase CD Sales
NYT, March 9, 2006

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What's been said:

Discussions found on the web:
  1. David Silb commented on Mar 10

    I knew it! The record industry just doesn’t want me to buy music they just want my money.

    I think the RIAA is really saying. We want a tax on 18-35 year olds and….well everybody else as well.

    They produce nothing and we pay. Sounds like a new slogan to me.

    “Pay us and you get nothing.”

  2. anonymous commented on Mar 10

    Even better than the case of the soundtrack vs. the DVD:

    There have been cases where I’ve purchased a concert DVD rather than the CD version of the same concert because the CD was substantially more expensive. This is absurd. The DVD media is more expensive, and the audio for both items is identical.

  3. niblettes commented on Mar 10

    I couldn’t agree more. However if we just look at the world through “their” eyes and business model for a moment, I think we can see how to connect the squirrelly dots of the record industry’s twisted logic.

    (Hopefully I’m not just stating the obvious or repeating what’s been posted here already)

    Here’s an old article by Seth Godin from about 5 years ago. His point is that many companies are in the business of selling the wrapper rather than what is wrapped. For the record industry that means they’re in the business of selling the physical plastic discs, not the music on them.


    So if you’re in the business of selling the wrapper (plastic discs) digital distribution, which eliminates the wrapper, is terrifying because it *will* kill your business. It will do so by either putting you out of business, or by forcing you to change your business–either way your business as it is today is over. Pretty damned frightening prospect for any business, especially one as fat and anti-competitive as the record industry.

  4. Captain Obvious commented on Mar 10

    For the sake of argument, let’s say that the average CD has 12 songs on it. And, let’s say that it retails for $14. On average, that is $1.17 per song. That doesn’t sound like a big difference from the $0.99 sales price on iTunes, but it is an almost 18% difference.

    Looking a little deeper though, on average, how many songs on a given CD are really good enough that you want to buy ALL OF THEM? For every instant classic where every track is strong, there are 4x as many CDs where there are 2-3 strong tracks. To be generous, let’s say that consumers, on average, want 1/3 of what they get when they buy a CD. Based on that math, the songs they want cost $3.50/song in CD format, vs. $0.99 at iTunes. Even if you assume that the extra songs on that CD are worth half (generous in many cases) of the iTunes price, then you are still paying (on average) $2.39/song for the songs you really want on a CD vs. $0.99/song on iTunes.

    Looking at it through this lens, I can understand why recording execs would much rather sell CDs (even with the packaging and transportation costs, the margin has got to be a lot higher) than digital music. But it also perfectly explains why the non-Luddites among us would prefer to buy digital music via the Internet. Neither has much to do with copyright infringement/fair use issues and almost everything to do with simple micro-economics and consumer choice.

    My guess is that the recording industry continues to stick to their guns and that customers continue to vote with their pocketbooks…until such time as the recording industry has no choice but to change its ways.

  5. Barry Ritholtz commented on Mar 10

    Two things you are overlooking:

    1) The marginal cost of a download is nothing; CDs’ cost money to mfr;

    2) Most of us have learned our lesson about buying the full crappy CD with one good song on it.

    The better comparison may be really a digital download sale versus nothong at all!

  6. Michael C. commented on Mar 10

    Like you say, just let the economics play out and ignore all the bitching, whining, and blaming of the recording industry.

  7. Zach commented on Mar 10

    What if DVDs had the soundtrack as a seperate playable option? I have a 5 disc DVD/CD player, it should be relatively easy to stick a special audio track on the DVD that would allow the sountrack to be played as a sort of CD and have the ability to switch from the audio soundtrack-track to the movie part. THEN what would music studios do?

  8. David Silb commented on Mar 10

    I think, in all seriousness, the point of the record industry fighting so hard on this front is the fact that they are becoming more irrelevant as time goes on. With digital downloads why do we need a Record Company at all. They see the writing on the wall.

    Here in Miami there tons of musical acts are recording at home or in independent studios. If they can get their music played in mainstream forums without a label behind them they would.

    It is only a matter of time before music will be controlled by the artist who will decide how to distribute content and not by Record execs.

    If I was a record company I’d fight to sell the wrapper, since that’s all I got is the wrapper. You would too, unfortuneately the record execs know all to well how they treat talent and they know its about to come back around real soon.

  9. Rudy commented on Mar 10

    It’s important to remember that media doesn’t exist entirely in a regular buisness environment. Everything they produce is guaranteed something like a 100 year monopoly.

  10. brian commented on Mar 10

    What is really is amazing is how long it takes for an album with 45 minutes of material to be produced. Most bands/singers take 2 years or more to release a new album. I find it hard to believe it takes that long to craft the tunes and lyrics, but it does.

  11. Jimmy commented on Mar 10

    I couldn’t agree more with you on the RIAA! I would recommend a medium-bodied Italian red over a valium, though.

    While I was reading your post, I got to wondering if there is any research out there about music sales in an economy where piracy is regarded as more rampant than the US. What do sales look like for popular music albums in an Asian market, where free downloads and pirated copies are readily available?

    Another interesting area to explore is radio airplay as a source of the Big Five’s power. Is there a place where radio airplay would not represent such a large barrier to entry to an upstart label?

  12. Rusty commented on Mar 10

    Sorry to be the contrarian here, and I’m no fan of the RIAA, but the comparison between the CD Soundtrack and the DVD price doesn’t hold up necessarily. My problem with it is the timeliness factor – you can go see Garden State in the movie theatre ($20 for two single-use viewings, btw), and then walk right out and buy the CD soundtrack immediately. That DVD – well, you’ll have to wait a few months for that to be released, by which time the “value” of it has diminished. Although some movies are classics, the general rule is that there is a shelf life, a staleness factor.

    Which, if you think about it, ought to apply to music, too. The stuff you are seeing on MTV or hearing on the radio or talking about at the water cooler that you desperately want to get should be priced higher than, say, Rick Astley’s debut album from 198X. But, oddly, the pricing doesn’t seem to work that way.

  13. Jim Manley commented on Mar 11

    Yeah, the RIAA is stupid when compared to the video folks. But remember that they went to Congress together to get their monopolistic protection EXTENDED from 75 years to 95 years! Our representatives determined that it is essential that media be protected from rapacious capitalism, while doing everything they can to minimize the protections that patents provide to drug makers. Why don’t we look for consistency in monopolistic protection? Why make the government a partner in ripping Intellectual Property from drug developers, giving it to generic manufacturers? That IS different than individuals using P2P to rip off single copies of content for personal use. This is governmental collusion to transfer wealth from IP developers to other organizations that will share the wealth with the government — through lower priced products to Medicare and Medicaid.

  14. ivan commented on Mar 13

    I blame intellectual property rights. The music industry quest for the continuing expansion of these rights indeed show how much they hate competition (and it’s custumers aswell). IPR’s are not property rights.They are monopoly rights, especially in it’s current form. Why should the music industry have a right to maintain a cartel?

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