From: alves@calvin.usc.edu (William Alves)
Newsgroups: rec.music.classical
Subject: Re: price of CDs (was Re: EMI price increase)
Date: 12 Oct 1992 17:26:56 -0700
Organization: University of Southern California, Los Angeles, CA
NNTP-Posting-Host: calvin.usc.edu

In article <1992Oct12.190135.5843@jhunix.hcf.jhu.edu> velde2@jhunix.hcf.jhu.edu (Velde Francois) writes:
>In article <1bcg9dINNa7a@calvin.usc.edu> alves@calvin.usc.edu (William Alves) writes:
>>>
>>>Think it through, please: the costs of pressing the silver disk itself
>>>are the tiniest part of the expense that the recording needs to earn
>>>back.

.>Why, then, are CDs about twice as expensive as cassettes, when the cost of
.>manufacturing is only about 10%-20% greater? 

>Because they are not the same object. I will pay more for the same music
>on a medium that lasts longer, does not deteriorate, produces better sound, etc.

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.

.>The Los Angeles Times ran a
.>story analyzing the manufacturing costs of each. The costs of the hiring
.>of the studio, payment of the musicians, royalties, etc. was much less per
.>disc than the cost of manufacturing. Of course, they were talking mainly
.>about pop CDs, but still, why the great difference in cost of the two
.>media? 

>Even counting Michael Jackson's wages? If manufacturing costs are $0.50 
>per CD and the other costs are "much less", with 10 million CDs sold you
>have $1 or 2 millions to pay Michael Jackson, his groupies, the producers, 
>etc?

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. Of course it is different with an orchestra; they are paid up
front and only the composer generally receives a royalty. But it still
works out to just 2 or 3 dollars per CD. Significantly less in some
cases (a solo classical guitarist, for example).

.>The answer, said several sources quoted in the story, is that the
.>record companies have been reluctant to start a price war with their com-
.>petition since the price of manufacturing CDs has dropped significantly
.>since the mid 80's. One source said that the record companies assumed that
.>inflation would catch up, but inflation slowed to a crawl and the record
.>companies are still raking it in. I agree with the first poster. It takes
.>a lot of nerve to raise the price of CDs even more.

>So record companies mistakenly fell into a collusion agreement? Sounds bizarre.
>Either two CDs produced by two different companies are close substitutes,
>and then there is no reason to believe the two companies would collude
>to keep prices up: 1) it is illegal: write to your neighborhood branch 
>of the Anti-Trust Office 

By the letter of the law I doubt that there is collusion. I don't think
the record executives are calling each other to discuss changes in pricing.

>2) each company has an incentive to lower prices
>and snatch all the customers.  Or they are not substitutes: then you are 
>paying not DG or whomever, but your are paying H. v. Karajan or Pavarotti
>for the unique talent which he finds himself the owner. That's a rent,
>the same way exceptional sports players earn rents on their unique talents.

This is closer to the problem. It's not like selling potatoes, is it?
Price is often not the first criterion in buying a recording. Instead,
each record company has a "monopoly" on the artists who have signed
exclusive contracts with them. That is the source of the inflated prices,
especially in pop music, I would think. The products are NOT necessarily
substitutes, as you put it, but the money I pay isn't going to Karajan
or whomever, it's mainly going to the record companies.

It should be noted that a few classical record companies HAVE offered CDs
at closer to cost. The LaserLight series, the VoxBox series, and a few
other budget lines are making a profit selling CDs in the $5 to $7 range.
Only a small part of that discount is the lower artist royalties or
amortized recording expenses.

Bill




Newsgroups: rec.music.classical