From: alves@calvin.usc.edu (William Alves)
Newsgroups: rec.music.classical
Subject: Re: price of CDs (was Re: EMI price increase)
Date: 14 Oct 1992 12:01:20 -0700
Organization: University of Southern California, Los Angeles, CA
NNTP-Posting-Host: calvin.usc.edu

In article <1992Oct13.171647.10653@leland.Stanford.EDU> velde@gopher.Stanford.EDU (Francois Velde) writes:
>In article <1bd54gINNerh@calvin.usc.edu> alves@calvin.usc.edu (William Alves) writes:
>>Ah, then it IS a question of what the market will bear instead of the actual
>>cost of a CD (both manufacturing and producing). This is the point I am
>>making. The profit margins on CDs are far greater than the profit margins
>>on cassettes or LPs for that matter. It is not a case of performer wage
>>inflation.

>Good point, but let me  correct myself. I explained why I, as a consumer, 
>can pay more than for a cassette.  But to explain why companies can take 
>advantage of my willingness to pay, you need one of two explanations:
>either production costs *including* performers' wages justify the high
>price of CDs, or 2) the companies collude. Otherwise, if there was any 
>unjustified profits, a record company could lower its price and get all
>the customers. The first explanation goes back to my "rent" theory below.

I think the actual situation is much more complex than just those two
choices. As I said below, just lowering price doesn't necessarily "get
all the customers" because customers usually buy first for the artist
and secondarily for the price. Plus people have been buying CDs like
hotcakes for the past 8 years or so because they like the medium and 
they are building up collections. So it's not a matter of collusion per
se, but just that the record companies don't have a good reason to lower
prices. It would cut their profit margin, wouldn't necessarily steal
away customers from the competition, and people are willing to pay the
higher price.

>>Michael Jackson is unlikely to recieve an upfront $1 or $2 million. He
>>receives a royalty which I believe is on the order of 10 cents per song
>>per CD....

>Where does the figure come from? Are all performers paid a linear function of
>the number of CDs sold? Is that function the same for all performers?

I don't really know what deals Michael Jackson or Pavarotti or whoever has.
The figure of 10 cents per song per CD was what I remember off the top of
my head for a typical mechanical rights contract in pop music. The figure
of 2 or 3 dollars per CD going to artist payments was from the LA Times
article I mentioned earlier. I wish I still had it around to quote its
very interesting numbers. In pop music, I believe the composer, lyricist,
and primary performers like the band or vocalist (but not studio musicians)
generally get paid a per unit royalty. In classical music, the performers
are usually paid up front. But the artist and record company is free to
negotiate any type of contract that they want.

>I'm not trying to argue that there can't be collusion in the CD market,
>but I'm pointing out that it is not obviously true. If Pavarotti is rich, 
>it's not because the CD companies are price-gouging on Pavarotti CDs,
>it's because he has a special something that belongs to him only, and
>that many people are willing to pay to hear.

Another complicating factor is that record companies do not price CDs
individually proportional to their production costs. They adjust the
prices a little bit through their main, mid-line, and budget labels,
but the higher cost of producing a Pavarotti CD due to the higher artist
fee is spread over many cheaper-to-produce CDs such as solo piano al-
bums, small early music ensembles, an unknown string quartet, and so
on. Recording costs of an American orchestra can reach $10,000 per hour,
but even a famous pianist is unlikely to cost very much to record a solo
album. Yet when the CDs hit the shelves they all cost the same.

Someone else lamented the "glory days" of good-quality budget LPs. I think
that an important difference between many of the old Nonesuch budget LPs
and current "budget" or mid-line CDs is that a lot of good music used to
be released by small and relatively unknown (hence cheap) ensembles and
soloists on the budget LPs. Now it seems that the only criterion (when there
is one discernable at all) for moving something down to the budget or 
mid-line category is its age. While this is great for those who know that
many great recordings were made prior to 1983 and have "AAD" on the label,
the days of being able to try out a $3 disc you've never heard of simply
because it's so cheap and possibly discover a gem seem to be gone.

Personally, almost all the CDs I buy these days are used.

Bill