From: bill@bilver.uucp (Bill Vermillion)
Newsgroups: rec.audio
Subject: Re: CD pricing
Date: 15 Sep 92 14:02:31 GMT
Organization: W. J. Vermillion - Winter Park, FL

In article <-17462460@nemesis> root@nemesis.UUCP writes:
>
>[0]Does anyone know why the cost of Compact Discs are still so high?

>[0]     Back in 1987 when I first bought my CD player, the cost of a CD was $15

>The "long-box", and any printed-inserts can add (lets be generous)
>$0.75, so that's $0.95 + $0.75  = $1.70 for the product.  Plus lets say there
>is a $1.50 royalty per disc (on the high side), and you have $3.20.  A store
>typically pays between $8.20 and $9.20 US per POPULAR, MAJOR LABEL disc
>wholesale.  The rest of the markup is at the store.  Let's also assume
>transportation and warehousing adds $0.50 per disc (incredibly high).

Frank - your $1.50 royalty per disk may be on the lowside.   Even
before the CD's came out major artists - eg Paul Simon comes to mind,
were getting over $1 per LP for their share.  That did not include
mechanical royalites to the publisher.  Those are typically based on a
percentage of sales OR on a per/selection basis.  That was one of the
reasons LPs in the US went from 12 selection to 10 selection about 20
years ago.  It made the company more money.

And let's add in one more item.  Production costs.  That includes
studio time, producers, musicians, advertising - including the feebies
for the media.

I have been out of the studio for a long time, and things have gone up,
but on the last Molly Hatchet album (tracks cut in Orlando, mixed at
Record Plant in LA) production costs were budgeted at $250,000.

On a 'gold' record that ad $1.00 per disk to the cost. 

Now before you say that should be $0.25 let me clarify one thing. 

A gold record was based on a million singles sales.  They classified
albums as being gold when they sold the DOLLAR equivalent of a million
singles - therefore a 'gold' album only has to sell 250,000 copies to
be a 'million' seller.   (How's that for creative book-keeping?)

You would still be under $5/disk in most instances.  Manufacturing
costs typically have nothing to do with pricing.

>So that's a $12.29 US profit per $3.70 disc, if sold at $15.99.

Just a note on the math here - or profit distribution.  Once the record
store pays the $9.20 (using your high figure here) you subtract the
$3.70 and that gives $5.50 profit per disk to the record company.

That leaves $5.79 (give or take) for the record store.   So does that
mean the record stores are are making 1/2 and the companies the other
1/2.

Yes they are overpriced.

>If you don't think this is possible, look at a Laserlight disc in a store,
>which typically cost $3.99-5.99 US.  It is possible to sell discs cheaply,
>IF you don't go for 200% profit margins.

uhclem - if you have such discount houses as Costco, Sam's Wholesale
Clubs, or their equivalent, you would see just how cheap the Laserlight
disks are.   The typically 10 CD package sells in those store for a few
cents under $27.  That's $2.70/disk.

But all of their product will be royalty free as far a publising goes,
and probably just a one time fee for release rights.  They are
definately bargains.

>I think the big labels decided that we were willing to pay this price and are
>simply holding street prices high as pressing prices fell to almost nothing.
>Looks like price gouging to me.  Where's the FTC when you need them?

I think the FTC is in Washington - and THAT is the problem :-)/2

>Also, the recording industry looks at these profit levels, and guess what
>stupid conclusion they come up with?  WE NEED A TAPE TAX TOO!  :-(

I wonder if they got the idea from the S&L's  (no smiley here).


-- 
Bill Vermillion - bill@bilver.oau.org  bill.vermillion@oau.org
                - bill@bilver.uucp 
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