Great look at the economics of file sharing. Pull quote:
In the RIAA-vs-MP3/Napster/Kazaa/Etc situation, the RIAA represents a small cartel of producers who are currently selling their goods (music CDs) at approximately ten times their marginal cost of production. They are doing this by producing only enough quantity of units to satisfy the demands of those consumers willing to pay $15 to $20 per CD. In a free market, larger quantities of CDs would be produced to satisfy the demand of all consumers willing to pay more than the marginal cost of production ($1.50 to $2.00).
Because the market is not free, a large number of consumers exist who would be willing to pay at least $2 but not as much as $15 for a music CD, but have no legitimate means of satisfying that demand. These consumers form a “black market.”
Black markets are created by a lack of freedom in the primary market. In a free market, goods are sold at the marginal cost of production. There will always be consumers willing to pay less than the marginal cost of production, but if a black marketeer were to attempt to sell to these consumers, he would lose money on every sale and quickly go out of business. However, in the music CD market, the RIAA member companies choose not to sell to a group of consumers willing to pay more than the marginal cost of production. This demand is therefore satisfied by the black market.
Related
- Now The RIAA Wants You To Believe That You Should Be Paying Much, Much More For CDs
- The RIAA Explanation For CD Price Gouging
- RIAA hacked, Again!
- Piracy on the streets of Peru
- Internet piracy lowers demand for black-market products, says Stanford professor
interesting read. i never really think about a “black market” when it comes to file sharing but its totally true. when you think about it CDs and DVDs are not really any different as purchasable goods than say a sports watch. but in reality it is totally different because of this black market factor. if they sold at the right level of margin there woudlnt be a black market problem.
Interesting but the “cost” of a music CD includes other cost variables (including grossly inflated profits). Paying the artist and promoting alone can cost a bit …
People really LIKE having the physical CD if they would price the damn things around $7 they could make great profits and eliminate alot of bootleg and p2p issues …. but they are just too damn greedy … Look at the money they are spending on politics ands influencing law enforcement and tell me ego doesn’t have something to do with this ….
Marginal Costs eh? Ok go buy a shit-load of pre-manufactured blank cd’s all your production cost are now covered. Now go out Find Produce Promote Publicize Train Book concert venues Engineer the Audio Provide for the living expenses off all involved in mentioned tasks and you have covered the basics. It is more than the damned cost of the plastic that houses all the work the physical cd itself is inconsequential in terms of production cost. This is a macro economic issue and one that has a lot of underlying cost involved.
I am tired of kids talking out their ass about what it cost to make something. The raw material for the car you drive is probably no more than 3-4 thousand dollars so therefor General Motors and Ford are part of the BIG transportation cartel!
Please learn to look below the surface.
You’d have a point if what you were saying was true however the artists themselves disagree with your math. Here’s a classic from 2000 where Courtney Love explains it.
http://www.jdray.com/Daviews/courtney.html
Damn. You can’t edit these things. I’d like to make clear my above comment is directed at Psilaxs not the writer of the original article.
@Unsueable Davey Brown
I really dont think Courtney Love knows anything about the economics of the music industry. In fact I don’t think she knows anything other then how to pull a trigger. But seriously record companies and artists are making insane amounts of money. The money some of them make in 10 years is more then most of us could make if we worked 10 lifetimes. Courtney was complaining in the article they sometimes they make as little as $45000 per album. OMG only $45000 boo hoo!
Anyway the point is that if the records were priced fairly people would go out to buy them because most people out there would rather have the actual disc and not have to worry about being sued. There is no complicated economics here only greed.
Yeah using courtney love as an economic example is a very bad one. Best thing she knows how to do is snort coke and smoke meth.
Oh well…if Coutney won’t do let’s try a few more.
[quote]The record label pays an advance to the artist for the cost of producing the album and the artist then records and delivers the album to the record label. The record company agrees to pay the artist a royalty on sales of the album based on a complex calculation involving numerous variables. However the royalty is not actually paid to the artist until after recoupment by the record label of all advances out of the artist’s royalty. These advances often include not only the cost of the recording but also the cost of video production tour support and independent promotion.[/quote]
http://www.outersound.com/osu/contracts/bankrupt.html
[quote]Plus most record label contracts are for seven albums – more than most artists make in their entire careers. The upshot of this is that the record label can potentially own all the artist’s work for as long as they are making music. Artists are often charged excessively for recording studio time marketing travel equipment etc so before their album even goes to press they may owe hundreds of thousands of dollars to the label. And they may receive as little as 20-30 cents per album while the record label gets closer to $10.[/quote]
http://www.systemcrasher.com/about.html
[quote]Do you not find it strange that a 2-hour DVD with commentary subtitles and extra scenes can be sold for less than $10 while few audio CDs are that low priced?
Janis:
I don’t find it strange I find it reprehensible[/quote]
http://interviews.slashdot.org/interviews/02/09/23/133228.shtml?tid=141
There was another kind of famous article on this. I can’t remember the name of it or the guy who wrote it. I think he was the manager of Nirvana or something like that. He broke everything down piece by piece showing exactly how much of the production and promotional costs of producing an album was payed for by the artist.
Does anyone know the article I’m talking about?
Screw it. I did some research. What I’m talking about is called “recoupment”. The artist pays for production costs and at least half the promotion. So that comes out of the disproportionately small artist end of the contract. The rest is all gravy for the big five.
The recording artists coalition has a whole section on it under “recoupment”.
http://www.recordingartistscoalition.com/industrypractices.php
You’ll notice they’re also accusing the recording industry of fudging the figures in the books so they are paying more in recoupment and receiving less in royalties.
that was the first time i read that blog by her. wether or not she is relyable she still is a music artist and wrote an extremely level-headed review of the industry she works in. whats the worst thing about the article is that if “crack head” courtney can see what needs to be done with music then where does that put the rest of the RIAA bigwigs? bottom line is somthing NEEDS to be done and the ones with the power to change things wont ever because they are too greedy.
Electronic distribution is cheap so cheap that purchased media is obsolete to inferior quality electronic compressed copies of music and videos. A FEW artists make millions. Most artists are struggling to make enough to eat and raise a family. Most art is not that good and has a limited shelf life. Few artists ever make money in album sales or make sucessful subsequent albums. The costs to produce professional media are very high. The majors have no they control distribution networks and need content. Artists are needed but only a few are needed versus the millions of kids and adults who want to be.
The majors have controled distribution networks and need content. Artists are needed but only a few are needed versus the millions of kids and adults who want to be. Those who have wealth are sure to only bet on the winners. Unless you are a producer of a specific type of media before the trend becomes a major market your not wanted or needed by the majors.
In reference to this article production and at least half the promotion is covered by the artist. Any loss is first the responsibility of the artist. Any gain goes immediately to the recording industry. By my math we’re talking about at least $10 on a $13 album.
The only thing not covered here is distribution. Wanna talk something like itunes. The last I heard the artist was not even part of that profit equation.
So yes the price of music is vastly and artificially inflated by the recording industry. As the writer said when that happens you create a black market.