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Record labels still on top despite online revolution...

#1
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9/23/04 at 12:46pm
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http://enjoyment.independent.co.uk/m...p?story=564004

Quote:
...figures from the US show that Apple Computer...retains just 4 cents from each 99-cent (55p) track sale while "mechanical copyright" holders - generally the record labels, who own copyright in the song's recording - take 62 cents or more.

With the sites, the copyright owners have doubled their share of royalties, even though the marginal cost of manufacturing has fallen to almost zero.

Emphasis mine. It looks like the record labels are doing their damnedest to quell the "online revolution" mentioned in the article header. Incredible.

He obviously misinterpreted what it means to "be bullish."
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#2
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9/23/04 at 4:43pm
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Quote:
It looks like the record labels are doing their damnedest to quell the "online revolution" mentioned in the article header.


I'm not so sure...I think the labels are gradually waking up and realizing they cannot control web downloads. The best thing they can do is join the revolution. The problem here seems to be that royaltees are bankrupting the business model. They need to trade off high royaltees for more volume.

I would disagree with the headline on the article...in most ways labels are not on top on anything. They are producing fewer albums and have lower revenue and profits - in fact many have losses!

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#3
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9/23/04 at 5:28pm
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Quote:
The problem here seems to be that royaltees are bankrupting the business model. They need to trade off high royaltees for more volume.

While this may be true, I have a bit of a problem with how the split is being represented in that article. I fail to see how publishers are only taking 8 percent, while the label takes 62. In a standard mechanical license, publishing is fifty percent of the whole pie, so where is the rest of this money going? We have only accounted for 74%, and why is the publisher getting so little? The numbers don't add up.

People seem to forget that the costs a label bears are not only in the production and manufacturing of a CD, they are financing a whole gamut of product and artists, many of whom are not making any money, and are in fact losing money. While the big sellers may generate a lot of revenue, those profits are offset by the millions required to get a project off the ground, including production costs, advertising, tour support and artist advances. Although most of these are recoupable, they can't get money from a failure.

In Apple's case, they can afford to sell songs at a loss, as long as their hardware sales make up the difference. For others, its not the same scenario.
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#4
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9/23/04 at 8:29pm
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Apple's not "selling songs at a loss", and the labels most certainly are not.

Back in the early days of the paid streaming "services", I believe that some artists ran into the problem of compound overhead percentages. The paid service would pay whatever amount of royalties to the label. The label would divide up this income the same way as CD/LP revenues, i.e. 85% or more for itself, 15% or less for the artist.

So the artists got next to nothing (i.e., less than 15% of 15%). The labels, in effect, got money for "distribution" that they never performed.
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#5
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9/23/04 at 9:48pm
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Quote:
We have only accounted for 74%, and why is the publisher getting so little? The numbers don't add up.

I question this as well. Although the article does say "62 cents or more", the concrete 62 cents figure had to come from somewhere.

I also firmly believe that the iTunes Music Store is a loss leader.

He obviously misinterpreted what it means to "be bullish."
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#6
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9/24/04 at 6:41am
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Quote:
People seem to forget that the costs a label bears are not only in the production and manufacturing of a CD, they are financing a whole gamut of product and artists, many of whom are not making any money, and are in fact losing money. While the big sellers may generate a lot of revenue, those profits are offset by the millions required to get a project off the ground, including production costs, advertising, tour support and artist advances. Although most of these are recoupable, they can't get money from a failure.


But does it have to be this way? You make it sound (or at least I perceive it) as if this is "just the way things are" and there's nothing they can do about it. I don't know about that. I don't accept a business model in which good bands lose money and it all has to be made from pop starlets (ie, Mariah Carey selling 2 million records was not enough!).
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#7
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9/24/04 at 8:44am
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What business model...? Scorched earth!

Rachael, the big disc cat! I used to be looking for Hi-Vision Laserdiscs & D-Theater tapes, now I'm looking for HD-DVD's and Blu-rays.

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#8
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9/24/04 at 9:03am
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Quote:
But does it have to be this way?

For the most part, yes it does. Most artists do not have the financial backing it takes to launch a career successfully, and are highly unlikely to be able to get it on their own. Sure, many will self produce a record, but that doesn't give them the exposure or clout to advance to a point where they have a sustainable career. Labels are notorious for just carpet signing a bunch of artists, funding their projects, then seeing who sticks. Winners move on, losers get dumped.

I would agree that the big labels have found a good thing in the Apple system. As an independent, I would sure like access to Apple's service, but can't get it without signing on with some slimey middleman.
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#9
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9/24/04 at 10:31am
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Yeah, royalties are bankrupting the business model. In the online model, label profits go through the roof because they have no manufacturing and distribution expenses. And the artists should take a cut?

In Lees world, it always seems that only the corporations are supposed to benefit from decreasing costs. Those bad old artists and publishers need to stop picking on those poor old corporations and 'take one for the team (the industry)'.

The fact is, when you factor in inflation, publishers and artists are getting paid less and less because the rates are only negotiated every few decades. While the labels have made more and more due to decreasing costs and economies of scale.

I think it is absolutely reasonable for royalties to double (not triple) for DVD-A, SACD, DualDisc, etc. And they should also benefit from the more lucrative iTunes, etc.
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#10
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9/24/04 at 7:31pm
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Michael, I'm willing to bet that the publishers would settle for double. I doubt it's been offered. The majors are such bullies. Hey, the publishers needed a wedge and a legtimate one was sitting there, due to song count being part of the royalty rate formula. The rates are so low in the U.S. Europe is normally some higher from what I've read, maybe the publishers do deserve triple what they now get...in the U.S.

Rachael, the big disc cat! I used to be looking for Hi-Vision Laserdiscs & D-Theater tapes, now I'm looking for HD-DVD's and Blu-rays.

I survived the AFI top 100 Film Challenge! I've seen them all.

favourite saying: hard feelings are for park benches... sit on that!

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#11
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9/28/04 at 9:10am
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Quote:
I also firmly believe that the iTunes Music Store is a loss leader.

Not according to Apple's last quarterly earnings conference call. I don't think they could lie in that forum without getting into MAJOR trouble with the SEC.

True, their direct iTunes profit is very slim right now. But I suspect they think it will be much larger in the future, otherwise they wouldn't be fighting tooth and nail to keep other music stores from offering iPod compatible tracks. The prevailing theory is that the iTunes store is a loss leader for the iPod hardware. If that were so, Apple would have a strong incentive to encourage iPod support by others, rather than fighting to prevent it.

The only rational explanation is that in the long run Apple sees far more profit in iTunes than in the iPod, and thus is willing to sacrifice iPod marketshare for iTunes marketshare.

Ted
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