From: wjh@cbnewsl.cb.att.com (william.j.hery)
Subject: Re: Cutouts and record company economics
Organization: AT&T
Distribution: usa
Date: Tue, 6 Oct 1992 19:03:26 GMT

gwl@wavetracer.com (Glenn Lea) writes:
>>>cbnewsl.cb.att.com!wjh (william.j.hery) said:
>
>  Bill> While I would also like to see every good jazz album in print for ever
>  Bill> (and at one time both Blue Note and OJC said they intended to keep
>  Bill> the reissues in print indefinitely), but hte economic facts of life
>  Bill> make it difficult...
>
>Thanks for the information, Bill.  I don't know if I buy it though,
>since it means I have to feel some sort of sympathy for the
>very-well-off record industry for having to pay taxes like everybody

CBS, RCA (BMG), etc. are very well off, but not because of the kind of jazz
records we were talkig about (low volume, non-commercial recordings).
Do you think India Navigation, Reservoir, G&M, Music and Arts, Mosaic are
very well off? Do you think that Capital, which owns Blue Note is going to
(or should) use the massive profits from the Beatles CD reissue to subsidize
jazz?

As for paying taxes, do you really think that corporations pay taxes on the
basis of how much money they really make? Do you really think the US tax laws
(corporate or personal) are really based on everyone paying their
fair share (or some such)? The US corporate tax code is
a complex set of rules that allow (some) companies to severely distort their
reported profits (legally) as part of not-always-obvious government economic
policy and special interests--that is how some major corporations can report
hundreds of millions of dollars to their stockholder (and make them very
happy with big dividend checks) while still paying very low (or no) taxes. This
isn't the forum to debate the politics/economics/morality of the tax code,
but the bottom line is that taxes CAN BE one of a companies major expenses,
and virtually every company in the US makes its business decisions on the
basis of the tax code. Its no different than you or making a decision between
renting (and getting no tax deductions) or buying a house/condo (and getting
tax deductions on interest and real estate taxes that effectively lower the
payment by 25%).

>else.  Manufacturing and inventory costs are part of doing business --
>any business.  I think this is more of an excuse than a valid reason.

And both inventory and manufacturing costs are very dependent on unit volume
produced and kept in inventory. Small numbers increase the unit costs
significantly. [And effectively paying taxes on whay you produce when you
produce it instead of when you sell it (and make the profit that is being
taxed) also makes a difference.] The question is how small is the number
before it costs you money.

>I don't understand why they can't do a modest production run, let it
>run out, and then do another smaller or larger production run based
>upon the rate at which the first one sold.  If it sold out, then it
>must have some audience, right?  I can understand cutting out if the

And maybe most of that audience bought it from the first run. Every hear of
market saturation? In the case of Blue Note reissues (or reissues in
general) there is both saturation for an individual title and saturation
for an artist's output (how many Blakey CDs will you buy? should they
reissue all 25 or so that he recorded for BN?), for the whole genre
(There might be 1000 great BN albums if they reissued them all. How many
would you buy if they were all out there now?)

>thing is returned unsold in droves.  Fine.  Nobody wants it.  But in

And then the returns get put in the cut-out bins, the companies still
make a profit on them (but the artists get no royalties), and the cuts
compete against (and potentially take sales away from) other jazz recordings
by the same or similar artists, screwing the artists out of royalties.

>the specific case of "UNITY", based on the number of references on rmb
>in the last year, the thing should be a relative best seller for jazz

And maybe we'e the only ones looking to buy it--not nearly enough to
keep it in print :-)

>:)  Jazz cutouts seem to be done almost viciously, as indicated by the
>recent posting about the imminent demise of the whole Novus Threadgill
>catalog.  (run to the stores, folks :))

Unfortunately, RCA (now BMG, owner of Novus) has had a dismal record
in jazz, not just cutting out poor sellers, but just deciding to get out
of the jazz business completely. Mingus TIAJUANA MOODS was recorded for them
in 1957, but they got out of jazz before it was released. They got back
into jazz in 1962, released the album, signed up Sonny Rollins, Coleman
Hawkins, "New Vibes Man In Town" Gary Burton, Paul Desmond (for his extra
Brubeck recordings), etc. Then a few years later, they dropped the whole
jazz line again, and the only way you could get some some really great
recordings (THE BRIDGE, OUR MAN IN JAZZ, SONNY MEETS HAWK) was as an
import from French RCA (which was much more civilized).

>  Bill> ...it is also expensive to have a number of small
>  Bill> production runs rather than one larger one, so either way they lose.
>
>According to the most recent Mosaic catalog, this is how they do
>business.  They don't do a big production run and maintain a full
>inventory of each of their releases, but rather do small ones when
>needed.  Until very recently, they were literally a 2-man operation;
>and were somehow able to thrive anyway. 

Three major differences: first, they are only mail order, so a small
inventory can is all in one location. For Blue Note to have a small
inventory, it really means a small inventory at a several warehouses, and at
a lot of record stores (parly paid for by the record stores, but not
indefinitely for records that do not sell). So there are actully hundreds
of VERY small inventories, much more expensive than Mosaic's one small
inventory in one place.

Second, they charge a fixed price which is comparable to the full retail
price of major label CDs, and significantly higher than the wholesale
prices that other companies get. Given that Blue Notes have a $12 list
and are often on sale for $9-$10, I would guess that the wholesale price
(i. e., what Blue Note collects) is about $7-$8, about half of what Mosaic
charges per disc. By eliminating the middleman profits, retail store
overhead, and lowering inventory costs, they essentially make a lot more
money per unit to make low volume items profitable (or at least close
to profitable). I think this was understood by Cuscuna and Laurie, and
they did their own mail order because they understood that was probably the
only way to break even on low volume (but important) items.

Even more important, Mosaic is not owned by a large corporation (is it
just owned by Cuscuna and Laurie???), but by lovers of jazz. They are
probably willing to lose a bit on some recordings they consider
important as long as it is balanced by something else. Major labels
sometimes pay lipservice to the idea of the mega profits from some jazz
artists partially subsidizing other artists, but somehow it never seems
to work that well. Columbia should have been able to do great things by
using a bit of the Marsali profits for the short lived Portrait label
(David Murray, Ornette Coleman each had a record there), but the
accountants probalby stopped that.

>How is that OJC can keep its catalog in print if Blue Note can't or
>won't?  Blue Note's back catalog isn't as big as the OJC catalog.  And
>OJC even keeps the _LPs_ in print!!!!  OJC is, loosly defined, an
>"indie" label.  Blue Note is part of a Big Conglomerate (Capitol).
>Could that be part of the answer?

Of course. OJC is part of Fantasy, which started as a Bay area jazz
specialty label and grew from there. Even though they have had there
hits (expecially Credence Clearwater Revival!), I suspect that they
have their hearts in the music more than Capital, so they will allow
some of the reissue to run closer to the margin than Blue Note.

>  B> [BTW, OJC actually selects some reissues that they don't expect to sell
>  B> well enough to keep in print and package them with an indicaiton that
>  B> they will not stay in print, so they give you fair warning.]
>
>Agreed.  But they also label them "Limited Edition" and use this as an
>excuse to charge a couple of bucks more for them.  :-(

Or knowing that they sales will be very low, the only way they can
cover their costs? I don't know.
In all this discussion, I am not trying to justify the record 
companies actions, just point out that the business side is not
as simple (or profitable) as it may seem. Record companies have
done some really lousy things to musicians and music lovers out
of greed, but as too many musicians have found out, when you are
on the other side of fence (i. e., own a record company), sometimes
its economic necessity.

On the bad news side, I have heard from a few people in record shops that
Blue Note has not been restocking some of the lower selling items for
a few months. I don't know if this is a prelude to cutting them or 
just Blue Note waiting to produce more and gt them into the pipeline.

Which brings up a question on the original point: is UNITY actually being
cut out (i. e., BN isn't going to produce it any more) or is it just
out of stock until they get around to producing more?


Bill Hery
AT&T Bell Labs
201-386-2362
hery@att.COM
Newsgroups: rec.music.bluenote