From: mgresham@dscatl.UUCP (Mark Gresham)
Newsgroups: rec.music.classical
Subject: Re: CD prices
Date: 27 Dec 92 22:18:19 GMT
Reply-To: mgresham@dscatl.UUCP (Mark Gresham)
Organization: Digital Systems Co,  Atlanta, Ga

In article <1992Dec24.191243.9008@jhunix.hcf.jhu.edu> velde2@jhunix.hcf.jhu.edu (Francois Velde) writes:
>
>I just want to comment on Chris Brewster's comments about the prices 
>of CDs.  He posted a text by R. Goiffon, the president of Harmonia 
>Mundi USA trying to convince consumers to tolerate even higher prices 
>for classical CDs.
>
>*** warning *** warning *** warning ***
>
>The author is an economist. Proceed at your own risk.
>
>
>
>Goiffon writes:
>>>"For example a $60,000 recording released as a well-presented, well-
>>> documented CD retailing at $15 needs to sell almost 25,000 copies
>>> worldwide just to break even.  If the retail price were $21, as it 
>>> is in Europe, the break-even point would come down to 15,000, which 
>>> is still high.  (An average sales figure for a classical CD is 5,000 
>>> copies worldwide over the first two years; 15,000 is considered a "hit".)"

Definitely 15,000 would be a hit.  But what the gentleman from
Harmonia Mundi fails to mention is that places such as Musical
Heritage Society will print 1000 discs and never reprint as
a standard method of operation.  If indeed the $60,000-to-produce
CD "breaks even" at 25,000 copies at $15 each ($375,000 total retail
value) then there is something amiss.  Or several things.

First, his figures allow that $60,000 to represent just under 16% of
the retail value.  Yet a record company, if they are selling through
an independant distributor, is getting 40% of the retail value, the
distributor getting 10% to 20% of retail value depending the deals
cut with the retail outlets; if the company distributes directly to
the retailer, they are more likely getting 50% of the retail value
from the retailers.  That means 24% to 34% of the retail price comes
back to the record company beyond that 16% cited.  The 16%, IMHO,
represents the production costs without consideration of the record
company's *total* receipts for the CD, as if only the costs per disc were
the only recouped money accounted for with each disc sold.  The rest just
must 'disappear' into other columns somewhere.

Furthermore, the Harmonia Mundi example appears to assume that each
CD is expected to "bear its own weight" rather than be a part of a
larger group of CDs that are thrown into the same marketing gamble.
(One person I know dabbles in investment real estate, and expects only
if one out of ten of his projects is a winner, the whole group of ten
is considered a success.)  So what ratio of "losers and even-breakers"
to "winners" are considered a successful rate in the CD industry?

Then there is the question of that $60,000 investment.  Certainly a
record company that is spending its own money to purchase the services
of a large orchestra would be paying much more than that.  But how often
is that ever the case?  In many instances, certainly with choruses and
many chamber ensembles, the cost of producing the master tape is not
so often borne by the record company as it is borne by the performing
ensembles; particularly in the case of small recording companies or
certainly with an ensemble's own "in house" label.  (Which is a quite
comman case; more common than most people think.)  Most small companies
are now saying, "If you bear the cost up to the master tape, we'll print
and secure distribution."  And even that has become tough -- securing
any kind of good distribution.

Here's where the comparison with "pop" music comes in (since it was
brought up in the previous posting).  Yes, record stores order
scads and can sell them much more quickly; but the common practice
in the popula music field is that a large percentage of discs (as many
as 50%) are later returned to the manufacturer (and these returns are not
accounted for when a recording claims to go "gold" or "platinum").
Traditionally, "classical" discs have had a negigable return rate.
The other piece of this is that a "classical" disc CAN sit in the bin
for two years and still be a viable item -- a popular disc is unlikely
to have a viable shelf-life past six or eight weeks in the retail racks
(the average  disc, occasional examples defy this norm).

I agree that the mail-order route is the most viable route for the
6% (not 4%) of the market that makes up the "classical" recording
niche.  Mail-order houses can specialize.  Generally, a retail store
is unlikely to hire a classical music specialist with a thorough
knowledge of the whole gamut of classical recordings and genres.
(Some are more generous and considerate.)  But more and more one is
expected to know what they want to buy prior to rifling through the
bins (such as they are in many cases) which makes one at no less of
an advantage in mail-ordering.  (And faster, too, as to get the
re4cording you want that's not in the store, the retailer will wait
a considerable amount of time until...maybe...enough records are
to be ordered from that distributor to make a shipment worthwhile; so
you may wait six, nine months or more or you may *never* see your disc.
Your mail-order disc will arrive in a much more reasonable amount of time.)

>>I think it's pretty clear that
>>the middleman is the prime expense, and as such, this is where the costs
>>need to be reduced rather than simply increasing retail price to offset
>>inefficient distribution.

I think the inefficiency lies much with the retailer, too, in their
methods of ordering (and sometimes greatly delaying payment for) discs
from classical manufacturers.  The quantities they wait to order are
perhaps reasonable for pop records, but not for classical.

>high taxes).  It's a small market, spread around, and the difficulty is 
>finding the customer:

But there is also the difficulty of the ccustomer finding the product!

>Go to Tower records, look at the floor surface occupied
>by classical CDs, count the number of customers, compare with the rest 
>of the store. The inventories are huge, the turn-around is very low. 

Um, outside of Tower, the classical inventory is often small, and even
then cheezy.  Not a lot of selection, and what there is is usually
unintelligently selected.

>On the other hand, BMG disc club has no shelf space, knows where the 
>customer lives, doesn't have to keep indefinite inventories, etc.

Speaking as one who does sell classical recordings by mail, we DO
have shelf space, we DO keep indefinite inventories on hand (so we can
fill orders quickly and so that a particular order does not fall prey
to a supplier failing to ship to us promptly).

>Ye, it's the middleman, but you need the middleman, because you need 
>your record store: and the market is too thin to have competition 
>effectively inducing efficiency (remember, I am talking about classical).

The problem is the maker can't find the buyer and vice-versa.

>Otherwise, I agree with most of what Chris Brewster wrote, and I certainly
>find Goiffon's plea clumsy and unconvincing, to say the least.

I find the current prices of CDs reasonable in relation to their
genuine manufacturing costs, but I cannot personally
justify a $21 price tag for a single-disc CD recording at this time.

--Mark Gresham
dscatl!mgresham@gatech.edu