Tuesday, January 24, 2006

The Pricing War Continues...

Labels are still transfixed by the idea that they need to figure out another way to rape the public instead of creating a price (and a product) that consumers will be happy to pay for.

To have a meaningful discussion, let's actually talk about the revenue breakdown of a CD.

On a 10 song CD that has a suggested retail list price of $13.98, the cost is broken down as follows:
  • the retail store buys the CD for about $8.00 from the distributor
  • the distributor buys the CD for about $6.00 from the label
  • $1.00 for manufacturing and printing (cost of goods sold)
  • $1.25 for performer royalties (based on a 12% of SRLP with standard deductions)
  • $.80 for songwriter (mechanical) royalties.
  • the gross profit on each release (before recording and promo expenses) is about $3.oo
  • the gross profit per song is about .30
Now let's compare that to a vendor like an iTunes, who sells individual tracks for .99 and albums for $9.99
  • iTunes pays labels .65 per song or about $6.50 for an album
  • there is no packaging cost
  • performer royalties are .11 per song or $1.19 for an album without any deductions**
  • mechanical royalties are still .08 per song or $.80 for the album.
  • the gross profit on a full album is about $4.51
  • the gross profit per song download is about $.46
* some labels who go through an aggregator may pay 10% admin fee.
**higher profile artists may get a better deal on digital music
***most labels only pay mechanicals on up to 10 songs on an album for songs written by the artist (controlled compositions.)

So can someone please explain to me what all the bitching is about? What about an overall reduction in price that will bring down the SRLP of legimate downloads- yet retain the current margins? If you look at my label, Blackout! passes along the savings of packaging to the consumer and iTunes prices are only $7.98 for most full album titles. We take the hit because we want people to take the chance on music, and if the album is cheaper- they may buy the whole thing instead of just a track if they like it.

Please feel free to ridicule me if my math is off in any significant way.

No comments: