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Must a CD Cost $15.99?

kdawson posted about 6 years ago | from the selling-partner-who-does-not-care dept.

Music 586

scionite0 sends us to Rolling Stone for an in-depth article on Wal-Mart and the music business. Wal-Mart is the largest music retailer selling "an estimated one out of every five major-label albums" in the US. Wal-Mart willingly loses money selling CDs for less than $10 in order to draw customers into the store, but they are tired of taking a loss on CDs. The mega-retailer is telling the major record labels to lower the price of CDs or risk losing retail space to DVDs and video games. (Scroll to the bottom of the article for a breakdown of where exactly the money goes on a $15.99 album sale.) "[A Wal-Mart spokesman said:] 'The record industry needs to refine their business models, because the consumer is the ultimate arbitrator. And the consumer feels music isn't properly priced.' [While music executives are quoted:] 'While Wal-Mart represents nearly twenty percent of major-label music sales, music represents only about two percent of Wal-Mart's total sales. If they got out of selling music, it would mean nothing to them. This keeps me awake at night.' [And another:] 'Wal-Mart has no long-term care for an individual artist or marketing plan, unlike the specialty stores, which were a real business partner. At Wal-Mart, we're a commodity and have to fight for shelf space like Colgate fights for shelf space.'"

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586 comments

Wait (5, Funny)

Anonymous Coward | about 6 years ago | (#22861690)

I thought all you guys stole all your music.

Re:Wait (5, Insightful)

sm62704 (957197) | about 6 years ago | (#22862260)

I thought all you guys stole all your music.

Well, stealing music [wikipedia.org] is only a misdemeanor with a few hundred dollar fine if you get caught. copyright infringement [uncyclopedia.org] is a civil matter that can cost thousands upon thousands if you get caught.

So is it any wonder that those guys steal it rather than infringe copyright?

Myself, I'd rather buy indie music on CD from the bands themselves. $15.99? Hell, $10 is too much, most of the time they'll sell me two or three CDs for ten bucks. And it cost them a hell of a lot more to get them recorded, stamped, and packaged than it costs the major labels.

No matter what you think about WalMart, they're in the right on this one. As evil as WalMart may be, the major record labels are far more evil.

-mcgrew

2004? (4, Insightful)

DigitalisAkujin (846133) | about 6 years ago | (#22861696)

Hardly news considering the article was posted on Oct 12th, 2004!

Who the hell approved this?

Re:2004? (5, Funny)

night_flyer (453866) | about 6 years ago | (#22861732)

Take it easy on him... he's a slow reader

Re:2004? (-1, Flamebait)

Anonymous Coward | about 6 years ago | (#22861778)

Only kdawson could have posted a story this old... What a tool. Come on slashdot! Smarten the fuck up!

Re:2004? (5, Insightful)

The-Bus (138060) | about 6 years ago | (#22861946)

Well, it's been brought up again recently [yahoo.com].

All Wal-Mart needs to succeed with this is to have one record company break off and decide to join them and have $5 to $10 CDs. Which brings me to this point:

Maas referenced the DVD business as a model for tiered pricing. "(It) has been around for years and has worked very well," he said.
DVDs weren't always so dirt cheap. Aside from dot-com era startups selling DVDs for $1, DVD prices were extremely high for a long time. Even in 2000, it was difficult to find a lot of DVDs for much under $15-$20 at your big-box discount stores like Best Buy, etc. I remember reading an article around that time that one of the executives at Warner Bros. wanted to make a DVD an impulse buy, with a price matching that of a magazine ($6 or so). At the time, it sounded insane. A few years later, it was a reality: bins of $5 titles at Wal-Mart. Two-for-$5 titles on Black Friday. Even at corner drugstores, $10 DVDs.

Record companies have done this. They usually repackage artists into a new "best of" and sell it for $11 or less. And Best Buy has had new releases of artists for $7 and below for many years, although that's usually limited to a single week and a handful of new untested artists.

If one of the majors breaks off and starts offering discs at below-iTunes prices, the others will have to follow. They can still follow what they've been doing by mirrorring the DVD market: sell the basic CD for peanuts, sell the enhanced CD+DVD with a t-shirt or a poster or more tracks for $20.

Re:2004? (4, Interesting)

MrAnnoyanceToYou (654053) | about 6 years ago | (#22862218)

The really interesting thing about those two articles in tandem is that the quotes go from Wal-Mart being 10% of the record industry's business to 20% in three or four years.

Can anyone say, "Vlasic" [fastcompany.com]?

Re:2004? (5, Funny)

peipas (809350) | about 6 years ago | (#22862108)

Hardly news considering the article was posted on Oct 12th, 2004!

Who the hell approved this?
There's more. It's a dupe [slashdot.org]. Wow.

Re:2004? (1, Funny)

Anonymous Coward | about 6 years ago | (#22862192)

Lets do the time warp again!!!

Proposed new budget (1, Interesting)

tekiegreg (674773) | about 6 years ago | (#22861700)

Proposed new budget (in my opinion):

$0.17 Musicians' unions - keep this, someone needs to be a voice for the artists
$0.80 Packaging/manufacturing - eliminate some of the paper involved, betcha I could find a dime there so now 70 cents
$0.82 Publishing royalties - first thing to go, we'll halve this to 41 cents safely I imagine
$0.80 Retail profit - Wal Mart has to do it's share, take 60 cents per CD
$0.90 Distribution - that's fairly tight...transportation and all with oil prices being what they are, no change
$1.60 Artists' royalties - mega artists can get skimpier - down to $1 a CD even
$1.70 Label profit - worse than the artists, 80 cents a CD now
$2.40 Marketing/promotion - do we really need so much hype $1.20 a CD
$2.91 Label overhead - pinch a little, 2.60 cents a CD Now
$3.89 Retail overhead - pinch a little, 3.70 a CD (retail is tougher to save overhead, they run thin as it is)

New Cost: 11.35 (though double check my math) Well better than 15.99 but maybe someone here can be more creative still and get it below the $10 mark, I'm sure someone here will try :-)

Re:Proposed new budget (4, Insightful)

SatanicPuppy (611928) | about 6 years ago | (#22861808)

Seems arbitrary. I notice you stuck up for the union...God forbid they feel the pinch of the industry.

All this tells me is that artists should market aggressively with digital format music, and keep CD sales as a small-time sideline; they could charge 5 bucks plus shipping and handling and make a ~3 bucks a pop.

Re:Proposed new budget (1, Troll)

tekiegreg (674773) | about 6 years ago | (#22861832)

Well, the union is only asking for 17 cents, a pittance compared to the rest of them...they seemed like the "little guy" if you will...

Re:Proposed new budget (5, Insightful)

SatanicPuppy (611928) | about 6 years ago | (#22861912)

17 cents per CD...I missed where they contributed anything there...Are they singing backup?

They're certainly not doing ~20% of the work that the retailer is doing, or ~13% of the work the artist is doing...Just irritates me. Artists are getting fricking screwed all the time; why do they even have a union?

Re:Proposed new budget (5, Informative)

CRCulver (715279) | about 6 years ago | (#22862070)

Musicians unions often give significant emergency aid to musicians fallen on hard times. Were it not for help from the composers union, for example, Bela Bartok would have been dead two years earlier than he was. I see no reason to protest.

Re:Proposed new budget (4, Insightful)

merreborn (853723) | about 6 years ago | (#22862284)

Artists are getting fricking screwed all the time; why do they even have a union?
The RIAA and its members would steamroll 99% of artists into taking *less* than the 10% royalties they're getting now, if they were unionless. If anything, musicians need a stronger union.

I'd hate to be a small time, MTV2 band without a union to back me up against a major label.

Re:Proposed new budget (1)

terrymr (316118) | about 6 years ago | (#22861918)

But online sales likely cost the artist money ... given that the price point is lower and the record label still deducts all the same costs resulting in negative earnings for the arsist.

(well ok - I'm making this up but it's probably not that far from reality).

Re:Proposed new budget (1)

jacquesm (154384) | about 6 years ago | (#22861812)

so, how about 20 cts per digital download from the artist direct or through some content delivery network. Or variable price, but still artist direct -> consumer.

And 30 second samples ready to download from a huge catalog. And an open format please. And all the back catalog stuff as well.

Who really needs a physical medium ? It's not as if you can actually listen to a CD, you listen to the music stored on it... (unless, of course you drop the CD or break it, then you can actually listen to it).

Re:Proposed new budget (1)

tekiegreg (674773) | about 6 years ago | (#22861868)

true true...ideally I'd go for online hosting and save a bundle on the majority of those costs (though even there I suspect plenty of inflation), but some people out there still buy CD's else Wal-Mart wouldn't be selling them, your mileage may vary...

Re:Proposed new budget (4, Insightful)

gstoddart (321705) | about 6 years ago | (#22861882)

What amazes me most about that breakdown, is if you look at it, it's hard to figure out why the labels are whining about the iTunes pricing model.

It seems like they'd get just as much money per track, and cut out a lot of overhead. That sorta seems to support this push to get higher pricing on iTunes tracks is just a cash grab (surprise) by the labels.

Cheers

Re:Proposed new budget (4, Insightful)

Animats (122034) | about 6 years ago | (#22861970)

Distribution, $0.90? $900 for a thousand CDs? No way, not for WalMart.

This is WalMart you're shipping to. You ship to them by the truckload, not one CD at a time. Any in-store costs come under retail overhead, not distribution.

The promotion costs need to shrink. Maybe we'll see the labels begging for time on webcasts. Label overhead is far too high. The labels don't really do much today except promote; they don't directly employ artists, they don't run recording studios, they don't manufacture CDs, and they don't do physical distribution and warehousing. That's all outsourced. But management overhead hasn't been cut accordingly.

As the WalMart VP says: "The labels price things based on what they believe they can get -- a pricing philosophy a lot of industries have. But we like to price things as cheaply as we possibly can, rather than charge as much as we can get. It's a big difference in philosophy, and we try to help other people see that."

Re:Proposed new budget (4, Interesting)

j-pimp (177072) | about 6 years ago | (#22862098)

As the WalMart VP says: "The labels price things based on what they believe they can get -- a pricing philosophy a lot of industries have. But we like to price things as cheaply as we possibly can, rather than charge as much as we can get. It's a big difference in philosophy, and we try to help other people see that."

Walmart, sucks to be their vendor, great to be their customer. I love it when two things I consider to be evil lock horns. Its why I'm a libertarian.

Re:Proposed new budget (2, Informative)

tepples (727027) | about 6 years ago | (#22861992)

$0.82 Publishing royalties - first thing to go, we'll halve this to 41 cents safely I imagine
This is the part that gets split 50/50 between the songwriters and their publishers. The Copyright Office dictates a cap for these royalties that is just over 9 cents per track [copyright.gov], and songwriters don't plan to settle for less without a really good reason. Do you want fewer songs per album? Or do you just want albums full of pre-1923 folk songs?

Re:Proposed new budget (1, Insightful)

Anonymous Coward | about 6 years ago | (#22862006)

As someone who used to consult for media companies, let me just say that the article breakdown is craptastic.

If wholesale price is $12 then that only leaves $4 for retailer expenses and profit. However, that's not what the quoted numbers add up to. So right of the bat, we see there is some creative license going on in these numbers.

Now that 17 cents to a union, that union is RIAA, ASCAP, et el.

The 80 cents for packaging and manufacturing seems high but we can leave it be.

The 160 cents ot the artist is probably also high but let's assume it is also true.

The remaining $9.43 goes to the labels/publishers. That includes the distrubtion costs, after all the publishers do most of their own distribution in the US, so that 90 cents really flows back to the label. Also, do you really think it costs 90 cents to truck a cd to the Walmart wharehouse. They can dice the $9.43 up anyway they want to, but the majority of the money is going to the label/publisher. The breakdown is just a matter of creative accounting.

Re:Proposed new budget (4, Informative)

garett_spencley (193892) | about 6 years ago | (#22862010)

I printed 1,000 CDs for a personal indie project that I did (*cough*shameless self plug [cdbaby.com]*cough*) and $0.80 / CD is around what I paid INCLUDING what I paid the artist to do the art work.

There's no freakin' way that that major labels are paying $0.80 / CD when they print runs in the tens of thousands. They should be getting WAY better bulk deals.

Re:Proposed new budget (1)

PhilLong (42015) | about 6 years ago | (#22862102)

Walmart means something like this:

0.17 Music Union
0.80 Manufacturing
0.82 Pub Royalties
0.90 Distribution
1.60 Artist Royalties

Your cost = $4.29

Sell us the discs for 8 (or less). We'll charge 9.72. The rest is your problem. Deal with it. We don't care how much you currently spend on payola^H^H^H^H^H promotion. We don't care how much you spend on acts that don't sell. We don't care how much rent you pay for your offices or what you pay your staff or what your profit is. You get 50% margins and if you can't make a business out of that, tough.

Re:Proposed new budget (1)

ricosalomar (630386) | about 6 years ago | (#22862204)

The unions already get their take from our (the artists') checks.
And, as far as I've seen in the past 25 years, they've done slightly more than bugger all for us.

This is not how a business prices things (2, Insightful)

hey! (33014) | about 6 years ago | (#22862252)

The problem with the cost plus model for pricing is that prices aren't fixed.

One of the biggest determiners of cost is volume of sales; for the most part your costs go down as you sell more -- you share fixed costs like your factories over more units sold of course, but even your unit costs tend to go down with sales volume. Of course in special cases you may have per unit costs go up with volume, for example when you've bought all the plastic available at a certain price for your CDs...

When it comes to pricing, what keeps greed in check is supposed to be ... greed. If a label is selling a CD at $15.99, it means that they think pricing it a penny higher or a penny lower will cost them net profits, either through inflating per unit costs (which trims profit on each unit sold), or cutting into volume.

At least that's the way it's supposed to work.

I think the problem with the music industry is not greed -- or at least it's not just unenlightened greed. The problem is imagination.

Think about this: people sashay into Starbucks every day and plunk down $3.99 on a cup of coffee. Not that has anything to do with the price of tea in China, but it means that people do have money to throw around $20-$30 bucks a week absolutely mindlessly. In that context a $15.99 music CD is one of the greatest bargains imaginable provided that you like it enough to play it quite a bit. I have CDs from a decade ago I still play quite a bit.

The problem is in the market demand end of things. People aren't plunking down $15.99 for CDs on a whim, even though they very well could. They can blame it on P2P if they like, but if they can't manage a half dozen or so impulse buys for the average consumer over the course of a year, they've got a serious marketing problem. Even in the world of widespread "piratical" downloads, people will fork over $15.99 for a CD if it contains music they really, really want to listen to. It's not enough money to deter fans from buying a physical token of ownership. It's true that houses burn down, but people lose computer data much, much more often. If music has to be free for people to listen to it, something is wrong with the content they're selling.

So we have a marketing problem, and that includes pricing, but it also includes product definition and promotion. If $15.99 is the wrong price, but $11.35 is the "right" price, they industry is either failing to promote music people want to hear, or failing to reach people who want to hear the music they are producing, or both. I suspect both. I suspect that $11.35 might be more "right" than $15.99, but only because the industry doesn't know how to find, produce and promote music that people want to hear. It's really important to keep people in the habit of buying your product, and that's where the music industry is falling down. They'll have to accept that its not as profitable a business as they imagined it to be, at least until people are back in the habit of buying.

Re:Proposed new budget (1)

AshtangiMan (684031) | about 6 years ago | (#22862302)

So the label gets 2.40 per CD in your new model, with the artist only getting $1. The marketing/ promotion (1.20 again yours) is also a label item. This really is BS. The artist pays for that weather or not they are being marketed. I say give the artist the bulk of that money, and let them pay separately for marketing. The label should be allowed to make a profit, but double billing once for profit and once for overhead just ensures the pork . . . there is no incentive for the label to find a more efficient business model. And again for the retail . . . they have a mark up but >20% per CD? The artist and consumer are getting screwed. When I bill for my time I expect the loaded rate to be no more than 50% of the total. That is for time, why should something with an infinite shelf life be loaded so greatly (a multiple of more than 10, vs what I use of 2). The artists are pulling a big cart, loaded up with a bunch of fat cats smoking some really good cigars (or something).

Commodity? (5, Insightful)

jawtheshark (198669) | about 6 years ago | (#22861710)

At Wal-Mart, we're a commodity and have to fight for shelf space like Colgate fights for shelf space.

And you expect sympathy somehow? I mean, let's be serious: the music industry did all it could to make music a "commodity and throwaway product". I sorry, but what did you expect? You wanted to sell a commodity product, then you live by the rules of commodity products. Geez.... These people are obtuse...

Re:Commodity? (1)

tekiegreg (674773) | about 6 years ago | (#22861758)

I think the fact that the record company is starting to realize it's a commodity product is the point of the article, they're keeping awake at night now because they just realized they're on the shelves because of Wal-Mart's good graces...this may not be anyore at least according to Wal-Mart...

Re:Commodity? (2, Insightful)

jawtheshark (198669) | about 6 years ago | (#22861824)

Of course, but *my* point is that they dug their own grave. They made it that way themselves instead of favouring diversity and art, they favoured run-of-the-mill-pop-starlets. They could have had a business respected by everyone, being fair to the artists and customers (not comsumers!) and promoting art... but noooooo.... Quick buck was better, because the alternative means hard work.

Nope (0)

Anonymous Coward | about 6 years ago | (#22861714)

They cost much much less used.

It's like they say... (0)

FooAtWFU (699187) | about 6 years ago | (#22861716)

Not doing business with Wal*Mart is awaiting death.

Doing business with Wal*Mart is inviting death.

The breakdown (4, Insightful)

SatanicPuppy (611928) | about 6 years ago | (#22861724)

$0.17 Musicians' unions *Typical
$0.80 Packaging/manufacturing
$0.82 Publishing royalties *e.g The rights to the song itself
$0.80 Retail profit *Poor bastards. No wonder they're going out of business.
$0.90 Distribution
$1.60 Artists' royalties
$1.70 Label profit *Hmmmmmm.
$2.40 Marketing/promotion *So why don't 20 year old albums cost any less?
$2.91 Label overhead *Upgrade your equipment, jesus.
$3.89 Retail overhead *Because if it weren't for music, they'd be selling crack in that space.

Oh yea...No scam here. I'm not sure if it's just the bloated nature of the business or what, but this is a steaming pile of crap from my perspective. It's a fricking dollar seventy to make it and get it to the store, but the "price" is fifteen bucks?

Breaking down the rest, we notice that all the combined "profits" amount to twice the cost of manufacture and distribution, and that the combined "overhead" is equal to more than all the profit, cost, and distribution combined...I imagine that's calcuated on the costs to maintain the machinery, the retail space, etc, that makes all the stuff possible.

The whole thing screams bloated industry to me. Overhead is 50% of the cost? There is something wrong with your model. Fricking newspapers do better than that.

Nice to see the evil of Wal-Mart being turned to a good purpose (subjugating the recording industry). Something nice about the world when two wrongs do make a right. One choice quote: "For the music industry, having such a dominant retailer is like being stuck in a bad marriage." Doesn't that sound like everyone elses relationship with the RIAA?

Re:The breakdown (3, Interesting)

gEvil (beta) (945888) | about 6 years ago | (#22861802)

Shhh. Nobody tell SatanicPuppy that the Manufacturing and Distribution costs are the same for that $60 video game he just bought.

Re:The breakdown (0, Troll)

SatanicPuppy (611928) | about 6 years ago | (#22861836)

Yea, but it only takes 3 guys in a garage with a couple grand worth of gear to put out an album that will sell a million copies, whereas few games will ever sell that many, and all big commercial games require many MANY more people to produce.

The economies of scale are what make it ridiculous.

Re:The breakdown (4, Insightful)

gEvil (beta) (945888) | about 6 years ago | (#22861894)

Somehow I knew that this would be the first response. "But making a video game costs money! It doesn't cost anything to produce a record!" I'm not saying that I agree with how the major labels operate (I worked in the music industry for a number of years, FWIW. And part of that was for a major label.), but it's disingenuous to say that it only costs a coupla grand to make an album that will sell millions of copies. Or should we also base the entire software world on the success and relative costs on something like, say, Geometry Wars?

Re:The breakdown (4, Informative)

SatanicPuppy (611928) | about 6 years ago | (#22862136)

Having dealt with both sides, it's a hell of a lot cheaper to put together a good album than it is a good game. The tools you need to put together a good album are cheaper, they don't suffer from the pace of obsolescence that afflicts high tech gear. You need the musicians, you need a sound guy (if you're not doing it yourself) and you need a decent recording space.

In the old days, you had to do that in some big recording studio, but these days there isn't any reason you couldn't do it in a sufficiently padded basement with a laptop running some basic music software.

Now some games, obviously, are cheaper than that...Your 60 dollar figure is pretty much aimed at the console market, where the margins are also quite thin since they have all the expenses above, plus a hefty licensing fee. But the vast majority of developers have huge NRE in terms of equipment, artists, programmers, etc, even on failed games that sell poorly.

In short, it's not an apples to apples comparison. It'd be like complaining when a movie DVD is cheaper than a music CD, without acknowledging the tiny difference the box office returns make in the movie profits.

Not True (1)

mpapet (761907) | about 6 years ago | (#22862034)

For every one band that might have possibly been successful this way, there are 1,000 that got successful through big-budget creation and media cartel promotion and distribution.

I was old enough to be around when Minor Threat and the like was (literally) making their own records including gluing the jackets. There were at the time lots of bands doing the same thing. There's a few bands still selling records from that era, but just a few. When the RIAA finally found some tools to pass for punk rock bands, they applied the same amount of resources they would any other act.

My point being, media cartel music production is roughly analogous to a big commercial video game.

Re:The breakdown (1)

Sciros (986030) | about 6 years ago | (#22862152)

I don't know why you were modded Troll, but there are plenty of reasons a game *can* (and should) cost more than a music CD.

1) A game that takes 2-4 years of development by 50-200 people each getting paid an average of $50,000 -- that's a big budget to cover. That's tens of millions they'll need in revenue to break even not even counting the manufacturing/marketing/shipping/etc. costs. Factor those in and $16 per game just won't do it most the time.

2) The market allows for it. There is no cheaper competitor that is beating out $50-$60 games for consumers' entertainment dollars. On the contrary, the game industry is still growing. Even if a game sale amounted to $45 of pure profit, the price doesn't keep people away. Fact is, if most people felt a $16 CD was worth the cost, we wouldn't even be having this discussion.

3) Game budgets have exploded over the years but game prices haven't. The time and money spent on a modern "blockbuster" title is probably orders of magnitude greater than it was in the NES/SNES days, but I don't remember paying $10 per new game. I'd imagine the amount of profit made per game is actually LESS than it was a few years ago, but the scale of the market has offset that. What this means for the consumer is that we've been better production value from our games over the years (gameplay being subjective). Music CDs have not offered that same growth.

Illegal sales cost less... (-1, Troll)

phorm (591458) | about 6 years ago | (#22861910)

I've always thought of it this way:

A "pirated" disc can sell usually between $1.99-$5, and you can get those in shiny stamped (not burned on some computer's CD-R drive) varieties. That's final point-of-sale, and still making a profit.

Surely the record companies can do better than that.

Overhead, look at cereals in your grocery store (1)

Shivetya (243324) | about 6 years ago | (#22861978)

I am pretty sure that you would not see something vastly different. In fact I am not surprised how much is lost to "marketing/promotion", packaging, and overhead.

The problem many consumers have is they don't know all the variables and grossly underestimate many of them. The company I work for sells to both consumers and businesses. We have different price structures based on who we sell to. In my position I see the distribution centers cost and the prices they sell at. That cost is already significantly over the price is actually cost us to buy it from someone as we have all those costs you listed embedded as well BEFORE it gets to the store.

In fact some of the costs you listed is simply because many items before reaching retail are affected by multiple groups and each of their costs affects the final. When someone breaks it down like you have it may fail to take into account that some categories comprise multiple companies in that final cost

Do I think CDs are overpriced. Damn right, most are just overpriced simply because its one or two good songs and twelve items which are filler.

What about DVDs, let alone Blu-Ray. Thirty for a blu-ray version compared to 14.99 for the regular? Is there really that much more in cost in making it? After CDs we need to DVD/Blu-Ray. I won't even touch game cartridges. Then again I don't know all the people who have hands in the chain for these items so some may be justified

Re:Overhead, look at cereals in your grocery store (1)

plague3106 (71849) | about 6 years ago | (#22862194)

What about DVDs, let alone Blu-Ray. Thirty for a blu-ray version compared to 14.99 for the regular? Is there really that much more in cost in making it?

Well, a small Hyundia will move you just as well as say an Acura, but the latter will last longer and offer a more comfortable ride.

Re:The breakdown (1)

poincare432 (1262200) | about 6 years ago | (#22862008)

Actually, Walmart is not a distributor for the CDs in its stores. It uses two companies, Handelman and I can't remember the name of the other one, but I think it's Anderson.

Re:The breakdown (3, Insightful)

ivan256 (17499) | about 6 years ago | (#22862048)

If the studios spent some of that "label overhead" for artist development instead of treating it as another "profit" column without labeling it as such, you could bring the average marketing costs *way* down. Think $0.10 instead of $2.40.... After all, if 90% of pop hits weren't from one-hit-wonders you wouldn't have to spend all that money introducing a new face every month.

Of course that requires a business plan with a greater than 3 month outlook, and if they did that they may realize suing their customers wasn't such a good idea either... Even less overhead!

Additionally, publishing royalties + label profit should be less-than or equal to artist's royalties. If copyright law needs to be adjusted to help this change along, so be it.

Re:The breakdown (0)

Anonymous Coward | about 6 years ago | (#22862168)

Umm... half the reason WalMart is considered evil because it drives down prices. Or are you just bothered that it employs people at wages they're willing to accept?

Welcome to the 21st century, Rip. (1)

Quadraginta (902985) | about 6 years ago | (#22862304)

Why do you imagine the cost to manufacture a plastic disk should be the bulk of the cost to get music from a recording studio to a convenient store in your neighborhood? You might as well complain that the price of a new car exceeds the roughly $1600 price of refining the steel in it from iron ore by a factor of 15 or more.

In the modern industrial economy, the cost of almost everything is dominated not by the cost of manufacturing the basic material from which it's made, but in the services that are absorbed in assembling the product, controlling its quality, and transporting it all over the globe in such a flexible and clever way that it's available pretty much anywhere, anytime, without having to have massive inventories sitting around just in case. That's just reality, and it applies to everything from food to autos to MP3 players to music CDs. The major costs in your loaf of bread are not the cost to grow the wheat, and the major costs of your MP3 player are not the plastic and aluminum and electronic parts it contains, and so forth.

I don't know why you think they should be. Are you thinking you live in the 18th century, where instead of tripping down to the grocery store at 11 PM on Sunday evening to pick up a loaf of bread, they'd harness the team and drive out to the miller's twice a month to buy a sack of flour, which they then had to turn into bread themselves? It's only in a barely industrialized economy that the price of goods typically has very little price of services in it.

My God... (0)

Anonymous Coward | about 6 years ago | (#22861728)

[A Wal-Mart spokesman said:] 'The record industry needs to refine their business models, because the consumer is the ultimate arbitrator. And the consumer feels music isn't properly priced.'

I am on the same side as Wal-Mart about something... I think a flock of winged pigs just went by outside.

Costs too much (3, Interesting)

CastrTroy (595695) | about 6 years ago | (#22861738)

I personally think an CD costs way too much. When a movie with multi-million dollar production costs can be sold for the same amount, that's one big indicator that they are charging too much. I currently buy my music pretty much only on eMusic, because it comes down to about $4 an album, which is what I consider fair. A CD (or download of) really should cost less than $5, in order to bring it into the point where it's an impulse buy, and people just buy them without even considering if they are getting a good deal or not.

Re:Costs too much (5, Insightful)

hanshotfirst (851936) | about 6 years ago | (#22861952)

While I agree with you, this reasoning may not hold up very well, since the movie more than paid for itself and DVD production at the box office - the DVD is gravy. (Assuming a movie worth getting the DVD for.)

The CD on the other hand doesn't have that - maybe there's a concert tour, but the tour usually makes money on merch and CD sales, so we're back to the CD being the main profit center again.

Re:Costs too much (2, Informative)

pjt33 (739471) | about 6 years ago | (#22862282)

If you think $15 is too much, spare a thought for we Europeans. Over here an album costs twice that, for no obvious reason.

CD (1)

midianus (727997) | about 6 years ago | (#22861740)

Of course it has to cost so much! How in the world would RIAA bosses have the money for cuban cigars if they didn't?

Consumer expectations of pricing (3, Insightful)

davidwr (791652) | about 6 years ago | (#22861744)

If a very large retailer prices something at a loss for a very long time, consumers expect that will be the "market value" and will balk at paying more. They will assume, usually correctly, that if it can be sold for $10 over the long haul, it can be sold for a profit at that price or that anyone selling it at that price can continue to do so indefinately.

You see this with cars and "free with rebate but only once or twice a month" computer software, where consumers won't buy when incentives are removed.

When is the last time Joe Sophisticated Consumer paid full price or for that matter anything more than sales tax for Acme Antivirus?

'bout time, music really is a commodity item (4, Insightful)

johnny cashed (590023) | about 6 years ago | (#22861748)

Let us price it like one. Whoever thought that it would be Wal-Mart to break the industry.

Reap What You Sow. (3, Interesting)

powerlord (28156) | about 6 years ago | (#22861752)

Somehow its odd and appropriate to see the RIAA that has been hounding consumers find itself the "Big fish in the small pond."

On the other hand, what does it say for the future of ANY goods producer when WallMart wields that much muscle in your sales chart?

Costs should be lower and/or falling (5, Interesting)

weston (16146) | about 6 years ago | (#22861754)

OK. The article is old news, but it's a good topic for anyone interested in the industry's future to consider, and most of the points are still relevant.

Consider this:

Production costs should be down with the advances in tech and refinement of manufacturing.

Wal-Mart *is* a distributor, so distribution costs should be lower.

Promotion costs *could* be lower if more of the music industry understood new media rather than treating it as somewhere between anathema and tolerable evil.

So, real CD costs should be falling. They probably are *somewhat*, given inflation, but in context of the given advances, it really doesn't seem like enough.

The costs in the article are also interesting. Some of 'em look on, but others don't:

$0.17 Musicians' unions - Unions get royalties on CDs? That's interesting. I've never heard that before.
$0.80 Packaging/manufacturing - You can get smallish (2000-5000) runs for near this cost. A major label release really should be benefiting from an economy of scale here.
$0.82 Publishing royalties - if it's cover songs, sure. If this is original material written for a contract or under licensing from a signed artist, this cost shouldn't be this high.
$0.80 Retail profit - $.80 ain't anything a profit I'd begrudge the retail establishment.
$0.90 Distribution - See Wal-Mart *is* the distributor.
$1.60 Artists' royalties - Given the information available about industry accounting practices, is anyone else skeptical that the artists are getting this money?
$1.70 Label profit - I'm OK with this.
$2.40 Marketing/promotion - Since this is what a label is really supposed to do, I'm not surprised it's this big a portion, and maybe that's OK.
$2.91 Label overhead - What exactly is supposed to be here other than production costs and everything else on this list? I suspect this is really one of two big issues.
$3.89 Retail overhead - And this is the other one.

Those last two numbers pretty much tell the story of why disintermediation is going to continue to be a strong trend for the music industry. Slash them numbers and you're down *below* Wal-Mart's sale price and certainly competetive with prevailing online retailers. Fail to do it and you're not. Especially if you're acting like you're entitled to it in the meanwhile.

Re:Costs should be lower and/or falling (1)

fitten (521191) | about 6 years ago | (#22861864)

Yup, those are the two I focused on as well... drop those to zero and you cut the price by $6.80, which is 42% of the cost of the thing.

Re:Costs should be lower and/or falling (1)

gEvil (beta) (945888) | about 6 years ago | (#22861966)

$0.82 Publishing royalties - if it's cover songs, sure. If this is original material written for a contract or under licensing from a signed artist, this cost shouldn't be this high.

Just felt the need to comment on this one. If the band whose CD you're buying is also the band that wrote the song then this money also goes to them, assuming they kept the publishing rights.

Re:Costs should be lower and/or falling (1)

LordKaT (619540) | about 6 years ago | (#22862238)

I think you've got that a little mixed up.

If the band you're publishing OWNS THE RIGHTS to the song, then they would get that cut.

Most of the time, they don't own the rights to the songs.

Re:Costs should be lower and/or falling (1)

Volante3192 (953645) | about 6 years ago | (#22862162)

$0.90 Distribution - See Wal-Mart *is* the distributor.

I might be missing something here, but I thought that was getting it from the manufacturer to the retailer. Unless Wally World picks it up from the press factory, I don't think they're the distributor.

That's my thought at least...

the enemy of my enemy (0)

Anonymous Coward | about 6 years ago | (#22861770)

is still pretty slimy if they're walmart, but someone's gotta take on the record companies, and walmart's got the power to do it.

surprise, surprise (5, Insightful)

Red Flayer (890720) | about 6 years ago | (#22861774)

'Wal-Mart has no long-term care for an individual artist or marketing plan, unlike the specialty stores, which were a real business partner. At Wal-Mart, we're a commodity and have to fight for shelf space like Colgate fights for shelf space.'
Why are people constantly surprised by the fact that at some point, they need to pay the piper?

When you do business with Walmart, you should know that you're going to be asked to reduce your price. When you stop supporting mom-and-pop shops by not giving them the volume discounts you give to Walmart, to the point where Walmart has a potentially sufocating grip on your retail pipeline, then you're in trouble.

This is what happens when you dance with the devil... you find out he's clumsy and steps on your feet, and has bad breath to boot.

There's an op-ed piece written by the founder of Snapper that sheds a lot of light on why/how a manufacturer should choose not to do business with Walmart. Too busy to dreg up a link, but well worth the read, for anyone who cares enough to do a google search.

Breakdown - if your too lazy to scroll (I am) (0, Redundant)

Gat0r30y (957941) | about 6 years ago | (#22861786)

$0.17 Musicians' unions
$0.80 Packaging/manufacturing
$0.82 Publishing royalties
$0.80 Retail profit
$0.90 Distribution
$1.60 Artists' royalties
$1.70 Label profit
$2.40 Marketing/promotion
$2.91 Label overhead
$3.89 Retail overhead

With the breakdown like that, is sure seems like a better idea to pull a radiohead/trent reznor and just drop the album your bad self online. Instead of $1.60/cd they get to keep it all!

Re:Breakdown - if your too lazy to scroll (I am) (1)

tepples (727027) | about 6 years ago | (#22862256)

Instead of $1.60/cd they get to keep it all!
Not really. You still have to pay "$0.82 Publishing royalties" to your songwriters. Unless you've already had Parlophone or Interscope help build an audience for your music, you still have to pay for promotion. And now you have to pay for the bandwidth (a FLAC album can be 300 MB), server storage, shopping cart software support, and payment processing. Even once you have that taken care of, you still have to have some way to send a copy of your music to somebody who doesn't already subscribe to high-speed Internet access.

Memo to Record Labels (5, Insightful)

inode_buddha (576844) | about 6 years ago | (#22861790)

Memo to record labels: What's wrong with having to fight for shelf space like everyone else? Competition? Has it occurred that maybe Wal-Mart would like to sell even more?

Boo-fucking-hoo (2, Insightful)

Gay for Linux (942545) | about 6 years ago | (#22861804)

Am I supposed to feel sorry for the music labels? The article wanks them off and swallows every last drop.

Tough shit if they have to do business with a smart retailer- if people wanted to pay $16 for CDs at Tower Records and Music Land, those places would still be in business.

RIAA, wake up to the internet already. There's a reason iTunes sells songs and Amazon sells lots of books- they can have a huge catalog without the need for retail space, you don't have to pay that $3.89 retail overhead charge to stock independent artists that only five people want to hear.

This is the way all brick and mortar is going- stores are a convenience. They keep the latest and biggest in stock and you can pick up and buy something there immediately. Otherwise, you go to the net and buy it for cheaper. The problem is their model, not Walmart.

Must a CD cost $15.99? (1)

freedomlinux (1072142) | about 6 years ago | (#22861830)

No. This number is created arbitrarily by the label, based its marketing costs and its desire for profit.
Remove labels from the equation and watch the prices fall to levels set by the will of the consumer.
Take a look at Radiohead 'In Rainbows' and tell me how well that sold by allowing consumers to set their own price.

Despite the 2004 Publish Date (1)

mpapet (761907) | about 6 years ago | (#22861838)

1. Where is walmart going to go for whatever content the media distribution cartel is pushing this week? Oh that's right! To the media cartel!

2. Could Walmart find a more profitable use for the CD shelves real estate? Not likely. The media cartel pays them well-enough. Don't forget the cartel members pick the artists they promote, so the cartel members not only provide over-priced media, but pre-packaged "CD of the Week" kind of promotion that Walmart would never want to get into.

$15 not enough, more!! (1, Insightful)

pembo13 (770295) | about 6 years ago | (#22861862)

Or the artists won't be able to have gold cutlery in their private jets (/me remembers south park episode)

Difference between CD and DVD (3, Interesting)

Malfourmed (633699) | about 6 years ago | (#22861876)

In my opinion the key difference between music distribution and movie/TV distribution is that the latter has access to multiple revenue streams.

You make a movie and you show it at the theatres and get money. You sell the cable/free-to-air TV rights and get money. By the time you release it on DVD you've (hopefully) made back most of your production costs or are even showing a profit already.

You make a record on the other hand and when it's played on the radio (the equivalent of free-to-air TV distribution) you don't get any money; in fact it costs you (in marketing or other incentives) to get airplay. You have to make back all your production costs via CD sales. Granted, it doesn't cost as much to cut a CD as to make a (Hollywood) movie, but then there are only limited ways to get your money back, necessitating a higher unit-charge.

If labels would be able to charge radio stations to play their music (something highly unlikely to happen, by the way) I believe CD prices would likely fall.

Re:Difference between CD and DVD (2, Informative)

rrkap (634128) | about 6 years ago | (#22862206)

If only there were another way for musicians to make money.... hmmm.... I've got it! They could try to get a bunch of people to pay to see them perform. That's just crazy enough to work!

By the way, radio stations pay significant fees to broadcast music to music publishers (ever hear of BMI or ASCAP?) There's plenty of money to be made in music with $5-$8 albums (hmm, that's about what Amazon charges to download an album in MP3 format).

The real reason they make $90B in profit (2, Informative)

SpuriousLogic (1183411) | about 6 years ago | (#22861892)

This is how they can sell CDs for $9.72 and make $90B in profit - by saving $400K in medical insurance costs http://www.cnn.com/2008/US/03/25/walmart.insurance.battle/index.html [cnn.com]

Re:The real reason they make $90B in profit (2, Interesting)

GungaDan (195739) | about 6 years ago | (#22862184)

Bullshit. Malwart was entitled to recover the costs they had paid because the trucking company ended up paying it. So... do you think the hospital should have been paid twice? Why should malwart not get back the money it paid that it turned out not to have been liable to pay?

They're wrong about lots of things, but they're right about this. No double-dipping. Simple enough. Pay 'em back.

Whiners (0, Flamebait)

jay2003 (668095) | about 6 years ago | (#22861896)

The record labels are just a bunch of whiners. They grew accustom to fat margins stemming from power over the distribution channel. Their pricing doesn't work for Walmart's value proposition but like always they blame their customers, in the case the next one in the value chain, the retailer. Blaming the customer is their favorite tactic. They blame the end customer for piracy.

The record labels will die before they realize their business model longer works. Nobody wants pay $15.99 and no amount of wishing by record company execs will make that different.

Artists should make the most money, not the label (3, Insightful)

Rinisari (521266) | about 6 years ago | (#22861904)

The artists should be making the most profit. If it's not like that, then the system is broken. The producer of an item should always make more money than any other person involved in the process.

Re:Artists should make the most money, not the lab (1)

topham (32406) | about 6 years ago | (#22861956)


Maybe you think that; but that is virtually never the case.

Re:Artists should make the most money, not the lab (2, Insightful)

Shados (741919) | about 6 years ago | (#22862012)

It should, though we have to agree: writing and singing a song isn't much compared to all of the processing that has to be involved to print thousands of CDs, handle all of the stuff with the retailers (thats one of the worse parts), all the marketing, etc. Its 1 person's work vs hundreds, who will also most likely spend douzans of time more man hours on it than the artist.

That being said, they are still pushing it a lot, as artists don't even get that.

Also a note of interest, in other fields, such as the gaming industry, the developers/artists get a lot more. But there's also WAAAAAAAY more people involved in making a videogame, than there is making a song. (Same deal with movies). So there is something to keep in mind here.

Re:Artists should make the most money, not the lab (0)

Anonymous Coward | about 6 years ago | (#22862258)

But the artist doesn't produce the CD...

Previous breakdown (4, Informative)

duranaki (776224) | about 6 years ago | (#22861916)

I'd be curious to compare this against the breakdown when the CD was introduced. I vaguely remember something like, "Sure, it's $16 now, but if everyone gets on board the economy of scale will reduce the price closer to the record prices you are used to paying! (~$8)". I think these misc. overhead costs are probably just fudge factors to avoid listing them under profit, like how movie production companies make up data to keep their net profits artificially low.

Get off my lawn! (0)

Anonymous Coward | about 6 years ago | (#22861922)

I remember back when CDs first came on the scene and the record industry was talking about how much cheaper they would get as production ramped up. Back then the average CD was about $11-12 where I bought my music. It has only gone up ever since. By the mid 90s, after getting burned WAY too many times on the "one good track and eleven awful tracks" scam, I was doing all my music buying at used CD shops, and barely bought anything new. Once Napster came along there was a great deal of payback for all those bad tracks.

Nowadays, I only buy the CDs of artists I like enough to see in concert, and even then I wait until they're down to $10 or so on Amazon. Everything else gets illegally downloaded, with zero feelings of guilt.

News for .. ? (2, Insightful)

BendingSpoons (997813) | about 6 years ago | (#22861936)

I hate to be the curmudgeon that wonders why this made Slashdot, but really: what makes the relationship between the recording industry and a retailer "news for nerds"? Does every story that implicates the greed of the RIAA become newsworthy, even if it has nothing to do with technology? Even if it's four years old?

Sincerely,

That Guy

Get a better job. (1, Informative)

IcyWolfy (514669) | about 6 years ago | (#22861990)

But prices for CDs are still cheaper than other countries.

Japan: 3100yen ($31) http://www.amazon.co.jp/CANT-BUY-MY-LOVE-%E9%80%9A%E5%B8%B8%E7%9B%A4/dp/B000MZHT7U/ref=sr_1_2?ie=UTF8&s=music&qid=1206475131&sr=1-2 [amazon.co.jp]

Germany: 13.95 EUR
http://www.amazon.de/Spirit-Leona-Lewis/dp/B000ZNW6VS/ref=sr_1_1?ie=UTF8&s=music&qid=1206475335&sr=8-1 [amazon.de]

UK: 8.99 BRP

It's just the way it is. Get a better job if you can't afford it.

Maybe thats why... (0)

Anonymous Coward | about 6 years ago | (#22862030)

15.99 and they complain that people are illegally downloading their music.

Also, who in their right mind buys CDs from WalMart. Maybe if you don't like naughty swear words...Then I guess its ok

Oddly enough... (1)

Vampyre_Dark (630787) | about 6 years ago | (#22862066)

I've been loading up on CDs at Walmart. 8-10 each for the same thing the music store 100 feet away is selling for 18-26$.

The RIAA has no idea who they are dealing with (1)

Weaselmancer (533834) | about 6 years ago | (#22862072)

Wal Mart is an awful lot like the RIAA - they're horrific price gougers.

Read this. [fastcompany.com]

When Wal Mart tells you to lower their prices, that means lower them or get outta my store.

This pricing stance isn't unique to music (1)

Elenthalion (854567) | about 6 years ago | (#22862078)

Walmart's new pricing stance on music isn't new or unique to the music industry. They do this to all their suppliers and its part of the reason so much manufacturing of American goods has been sent overseas. They squeeze and squeeze and squeeze until their supplier can't supply anymore.

Here's how it works:

  1. Walmart wants to sell a widget
  2. Manufacturer ACME wins deal with Walmart, selling it for price $X
  3. Walmart proceeds to order obscene quantities of this product, forcing the business to scale up to meet demand
  4. For a little while, things are going great and money pours in at ACME. ACME becomes dependent upon Walmart's revenue stream.
  5. Walmart then decides that they want a lower price and give ACME and ultimatum: "Sell us your widgets for $15% less or we'll go somewhere else."
  6. Since this is the first time it happens, ACME probably says "Okay."
  7. Then Walmart does it again the next year
  8. And again the next year
  9. And again the year after that
  10. Pretty soon Walmart is demanding such a low price for the product that ACME is actually losing money on the deal
  11. Then along comes the Asian manufacturer who's spent the last several years developing a knock-off on Acme's widget that they are able to sell for a much lower price and still make money
  12. Walmart drops ACME in favor of the Asian manufacturer, forcing ACME to close down because they've been sucked dry by Walmarts forced discounts
  13. Voila... manufacturing was just sent overseas

Re:This pricing stance isn't unique to music (1)

Gay for Linux (942545) | about 6 years ago | (#22862216)

For some midtail companies like you describe, it's a problem. However, it doesn't work that way with all brands.

Major brands, like Coke and P&G, make Walmart bend to their wishes. Sales of Coke at Walmart are a drop in the bucket for Coke, but if Walmart were to carry only Pepsi, they'd lose customers who came in there expecting to buy their Coke. The result? Both Coke and Pepsi don't drop their prices.

Take a company like Proctor and Gamble as well. A large percentage of P&G sales go to Walmart, yet they don't account for much of Walmart's sales. At the same time, Walmart can't price gouge P&G, because people expect to be able to find P&G products there.

Define "Profit" (1)

sunderland56 (621843) | about 6 years ago | (#22862230)

I call bullshit on the numbers.

$0.80 Retail profit
$3.89 Retail overhead

So Wal-Mart makes $4.69 on each CD. That's their gross profit. Sure, they have expenses like light, heat, employees... but they have that for everything. They bought a CD for $11.30 and make $4.69 on it - that's a 41.5% markup, which is not bad at all.

Plus, why is Wal-Mart selling CDs for MORE than MSRP? Take the Killers CD "Sam's Town"...

MSRP (according to Amazon) = $13.98
Amazon.com price = $ 9.97
Wal-Mart price = $14.88

The Amazon.com price makes the article's numbers look questionable as well - if the CD costs Wal-Mart $11.30, how can Amazon.com sell it for $9.97? I'm sure that Wal-Mart has just as much buying power as Amazon, if not more.

Old news, but still relevant. (3, Interesting)

cant_get_a_good_nick (172131) | about 6 years ago | (#22862262)

In the rare cases you can find tapes, they're cheaper than CDs. WHen CDs came out, i remember hearing the labels say something along the lines of "they're expensive now, but once we mass distribute, they'll be cheaper than tapes". It sill hasn't happened.
I'm not sure why a tape which has at a minimum:

  • 2 case sides, two 2 part spindles, a tape leader, the tape substrate, the electromagnetical coating that actually records the data, 2 rollers, the metal thing to push against the read head and the sponge to not scratch the tape, and 2 clear windows, possbly 5 screws if the case doesn't snap together, possibly 2 inserts if the case is clear

is easier and cheaper to manufacture than a CD, especially know that CDs get more economies of scale than tapes. The fact that AOL switched from floppies to CDs probably also shows that CD manufacture is cheaper (though i'm sure it wasn't the only motivation in the switch.)

As far as the CD being an arbitrary price point, i remember when Public Enemy came out with "There's a Poison Going On". Their album was $8 for a download, $10 for an autographed CD. Once their label imploded (they were true pioneers in internet distribution, though a bit too early and the infrastructure wasn't ready for them yet) the same, non-autographed CD was sold in Virgin for 17.95. I'm not sure why virgin deserved the 7.95 (or more, depending on the value you put on the autograph) price delta.

As an aside, people don't recognize that Public Enemy was one of the first bands to really use the internet. They have several blogs and websites, released Bring The Noise 2000 on the internet for free (before the label made them take it down), released the single Swindler's Lust for free, and for Revolverlution, pre-released some tracks and asked for the remixes to be sent back to them, and included a pretty good remix (plus the original of course) of "Give the Peeps what they Need" on the Revolverlution disk.

What a choice... (1)

Kylere (846597) | about 6 years ago | (#22862296)

RIAA v. Walmart? Can't they BOTH LOSE somehow, both of them have business models that represent screwing over the producers and eventually the consumers.
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