Entertainment Conglomerates Still Don't Get It

Books, comics, TV, music
1

This is from a CBS Marketwatch story. Mel Karmazin is the head of Viacom.

“Karmazin still sees shortcomings for online music businesses to fix, citing the case of ITunes. Recently introduced by Apple Computer (AAPL: news, chart), the digital music service has already garnered more than 2 million downloads.”

“‘I noticed that they were offering songs from a Doors album for 99 cents,’ he said. ‘I wondered if the those who were downloading those songs were the people who were going to buy the CD for $15, or if they were going to go to Kazaa and get them for free. I’m worried that [ITunes] is getting the people that were going to buy the CD for $15.’”

I’m stunned that he still doesn’t see the obvious issue here. By going to ITunes instead of buying the CD, consumers are demonstrating they don’t think a CD is worth $15 for one or two tracks. Apparently Mel still wants to find some method to force a $15 price point, contrary to the market demand. Is he also missing how discounters (like Best Buy) are killing off music retailers (like Wherehouse) by selling CDs for $10 instead of $15? Did he forget about the CD price fixing settlement? Sooner or later he’s going to have to face reality about the price of music. Is ITunes out for Windows yet?

2

From Joel Stein’s column in Entertainment Weekly:

When I asked Motion Picture Association of America president Jack Valenti whether the director of the highest-grossing movie of all time was the ideal spokesperson against petty theft, he tap-danced. ‘‘I found the most convincing part to be the working stiffs,’’ said Valenti of the PSA, ‘‘the guys who have a modest home and kids who go to public schools. They make $75,000 to $100,000 a year. That’s not much to live on. I don’t have to tell you that,’’ he said, vastly overestimating the U.S. poverty level and what I get paid for this column. I vowed right then not only to pirate a movie but also to find a way to use the Internet to steal directly from Jack Valenti’s home.

What a complete assmonkey. Even factoring in costs of living (if, say, you willingly chose to live in San Francisco where the average home costs $400k+), $75k-$100k is a ton of money.

While I’m at it, can anyone explain to me why a single CD of music costs $15.99, when I can buy a DVD of a recent movie-- which employed hundreds of people and cost 50+ million dollars to create-- for the very same price?

I know movies generate money from theatrical releases, but bands also generate revenue from concerts and merchandise, too.

3

My understanding regarding DVDs is that some executive at Time Warner decided to price DVDs to own, rather than perpetuate the expensive-and-early-rental-tapes/late-and-cheap-tapes-to-own cycle of VHS. This also allowed them to make threatening moves at turning some of Blockbuster’s rental revenue into sales revenue for the studio, giving them a little bit of leverage back against the blue and yellow behemoth. But I digress. The other studios couldn’t let Warner underprice them because then everyone would be buying Warner movies instead of theirs and they’d miss out on the bonanza. This is the Econ 101 experiment where one cartel member sees an opportunity to break and the whole thing falls apart.

The other factor is that, usually, the studio owns the IP for the film, and so they’ve got their fingers in the merchandising and sales to cable and television networks and so on. Usually, the recording label just owns the recording, and since they’ve got their eggs all in that basket nobody has broken from the cartel yet (except for all of the artists slipping through the cracks, but again, I digress). The band usually runs their merchandising, which is how a band like Dave Matthews Band can take it in hand over fist. I think it’s Robbie Williams from the UK (misspelled? completely wrong? someone on the other side of the pond feel free to point out the ignorant American and correct me) who just signed a big contract where part of the reason it was so huge was that he was giving the label a slice of his merchandising revenue. Someone more familiar with the vagaries of the music business can probably fill in details and point out where I’m completely couldn’t-be-more-stupid wrong.

I’m not sure who puts the money up to finance the concert tour, but I have a general feeling the label fronts at least some of it because it’s to promote the album, their main source of revenue. I have the impression that the merchandising profits far exceed what a band/artist is likely to see from concert ticket sales, but my understanding of the business side of touring is less even than music merchandising, so I expect to be couldn’t-be-more-stupid wrong here.

4

For bands, it varies greatly, depending on the contract you’ve signed, but…

Let’s say you’re a group of fellows who have recorded some great sounding demo tunes onto a CD (which you sell at shows and send out to local public/college radio stations, maybe even get into some local mom & pop record stores) and a decent local following in a good-sized market. You play enough shows, you get noticed by a major label, and they sign you.

Typically, you get a small sum of upfront money. Great, right! Absolutely…except you’re probably in a little debt from recording those first songs…or in debt because the guitarist blew his amp and had to have it fixed/repaired… or, you’ve done well managing expenses up 'til now, so you and your 3 bandmates (let’s say you’re a 4-piece) split 10 grand. Cool. The label also advances you 50-100k to record your debut CD. Depending on the contract, they’ve stipulated when you’re recording it, possibly whom your production/engineering team is, and maybe even where the recording is happening. Guess what? You’re going to use that entire “advance” paying for studio time, paying the producer, mixers, and engineers. Here’s the fun part, though–that “advance” is exactly that: it’s a sort of “loan” from the record company. You make not a penny from the sale of your newly-recorded CD until the label recoups it’s advance in profit. Since your contract already specifies that you’re only making 15-50 cents per unit sold, I leave it to you, the gentle reader, to figure out at what point a band actually gets paid for the CD you bought today.

The way most bands make their money, as suggested above, is touring/merchandising. The Tour is rarely financed by the label, although they will usually put up enough cash to put the band in cheap motels every night. They’ll also make sure they get it booked properly in most cases. If you’re the band, you usually provide transport and food money. Hopefully you’re playing some decent-sized rooms on good terms and making $200-400 per night–but those are high-end estimates. Usually, once the van(s) have been fueled, repaired, etc., guitar strings, drum sticks, etc. purchased, and two decent meals bought, the band members are taking in about 25-50 bucks per show. That’s where the merch table comes in. You can do a two-color run of t-shirts for about $4.00 each for about 250. If you can sell all of them, you’ve financed the gas/mileage on the van, which is nice.

Now then. Remember that “advance” you got for the first record? Let’s say sales didn’t pay that back in entirety (remember, that “advance” is paid out of the artist’s share of the pie, so the label is making money on every sale, but they still are gouging the creator of that music for more filthy lucre). Depending on your contract, you either 1. owe the label money, pay up! …or, 2. get that debt forgiven, but are contractually obligated for a second record on your tab, …or 3. get dropped for being in breach of contract, have your CD go out of print once it’s initial pressing is sold or remaindered, and that’s that. Thanks for playing. (You may be lucky enough to get a song from your CD into a commercial or movie soundtrack, or even some radio exposure…great! Hope you had the songwriting credit on that lucky song, otherwise, you get bupkes. One of the reasons bands break up, fall apart, or split due to “musical differences” is the squabbling over who gets the songwriting credit, since publishing royalties are one of the few ways to get paid for the creative process of making music. Billy Corgan didn’t leave Smashing Pumpkins and Natalie Merchant didn’t walk away from 10k Maniacs because those outfits were too constraining on their unique musical vision; they left because they were splitting publishing and royalties with other band members and wanted the whole enchilada to themselves.)

This sickening little model is why bands like the Liilys or Apples In Stereo or Jay Farrar of Son Volt are so willing to sell their music for commercials. It’s one of the few times they’ll get paid for their creative process. It’s a sad but true–if there’s a little band out there making music that moves you and you want to pay them back for the joy they’ve put in your life, the best thing you can do is go see them live, buy some merchandise, and tell your friends to do the same. Personally, I got sick of seeing talented, sweet-intentioned musicians getting crushed by the industry machine, and it’s why I and many of our friends got the hell out while we still had souls.

5

Still, it’s hard to justify pirating a DVD movie when you can generally buy it for under twenty bucks. That’s the way it should be.

Music CDs, on the other hand, seem ridiculously overpriced. Particularly since it’s common knowledge that bands (unless they have huge, blockbuster sales) get nearly zero revenue from CD sales.

6

Sure, but there’s also a huge difference in quality between a movie downloaded from Kazaa that plays at 320x200 and a DVD or theatrical viewing – most viewers would rather experience one of the latter types;while, for most listeners, a downloaded MP3 is “as good” as a purchased CD.

But I agree with the bottom line - the music industry really doesn’t get it, and its greed is just giving it the screwing it deserves. Downloaded MP3’s aren’t only a free/cheaper, comparable product – they’re actually a better product, for most people, since they can just select the songs they want and they are easily transferable.

7

So their theory is: Instead of people buying the movies they want… he’ll buy the one’s that are cheaper? I’m sort of scared if they’re right about this. I’ve never price-compared studio offerings. If a movie is too expensive, I won’t buy it… but I’m also not going to look for some cheaper movie to replace it.

“I came in to buy Fellowship of the Ring, but it was too pricey. So I got Willow instead!”

8

Sure, but there’s also a huge difference in quality between a movie downloaded from Kazaa that plays at 320x200 and a DVD or theatrical viewing – most viewers would rather experience one of the latter types;while, for most listeners, a downloaded MP3 is “as good” as a purchased CD.

There’s a network issue, too. Movies are more than a magnitude of order larger. It will be a good, long while before the network catches up. Downloading an entire compressed album at good quality (160kb/sec) is, say, 60-70 megabytes. Compare with 1.2gb (2 cd set) for a quality MPEG-4 re-encoded movie. And that doesn’t include the extras or the dolby digital/dts soundtrack, either.

The movie industry is probably more worried about cheap single-layer 4.7gb DVD-R copies than network downloads at this point.

9

Rental VHS tapes cost about eighty bucks. So, to use your analogy, I came to buy LOTR, but it was too expensive, so I bought Willow, Legend, The Last Starfighter, and This Is Spinal Tap instead.

–milo
(Who recently did a requirements analysis for a Home Entertainment Planning and Marketing System, and who was up way too late working on the Starshatter Beta to be coherent this morning)

10

True. But the analogy was just at the end of the post. You’re saying that they’re right? Most people who go into a Best Buy or Suncoast with the intention of buying Movie A, will buy a different movie if A is too expensive? I’d just, y’know, leave. Maybe I’m the oddball here, but then my movie collection is very selective.

11

I think the pricing issue was more like a matter of orders of magnitude rather than comparison shopping. If Warner had been the only one to institute consumer level pricing, then their movies would have been the only ones costing $20 instead of $200.

12

Jeez, I thought all bands made at least $1 per CD. That’s ridiculous.

I know you used to work in the industry, so your opinion is an informed one:

Is there any worthwhile reason to still buy CDs retail instead of just downloading them (and maybe mailing the artist $1)?

13

Absolutely, if you like an artist, buy their CD. Even though they don’t make squat off it unless they’re already a superstar, you’re still helping to pay off the advance the label gave them to record it.

The very best thing you can do? Buy their CD. Go see them live (depending on the venue, they probably get a percentage of the door). Buy a t-shirt, poster, whatever. Maybe they had a previous CD out before they got signed, and they’re selling copies on their merch table. Buy one.

And then come into forums and tell us about the cool band that you’re into. There’s always gonna be some jaded prick who’ll give you the “whatever, been there, done that” treatment…but there are plenty of us other curious folks; I find out about 75% of the new bands I try from word-of-mouth from folks on forums and email listserves who I don’t know from adam. 99% of the time, if someone’s pimping an artist, a quick google search will turn up some sound clips. If someone turns you onto something you really dig, keep the word-of-mouth going. That still sells more records than anything else; ask the Dave Matthews Band or Ben Folds Five about the power of Word of Mouth.

14

True. But the analogy was just at the end of the post. You’re saying that they’re right? Most people who go into a Best Buy or Suncoast with the intention of buying Movie A, will buy a different movie if A is too expensive? I’d just, y’know, leave. Maybe I’m the oddball here, but then my movie collection is very selective.[/quote]

Maybe if you’re just going in looking for a particular movie. If you’re anything like me, though, you have a long list of music and movies you’d like to own someday. If I go to the store to get LOTR, maybe I’d buy it regardless of the price. In fact, I’ll buy the more-expensive Special Edition version. However, I’ll also scout around for some of the other titles that are on my list, but not at a must-buy level. If Memento is $15 I might buy it. If it’s $30 I most likely I’ll check out what the Mr. Show DVD is selling for.

AAA titles have a good chance of selling regardless of the price. It’s the “lesser” flicks that need to be priced competitively in order to sell.

15

And then come into forums and tell us about the cool band that you’re into.

Blatant plug here…

My sister’s in a 2-man band from Atlanta - they tour quite a bit now - it’s her second full-time job. She plays Cello, he plays guitar - and it’s a very strange sort of country-esque music. Check them out http://norivercity.com/ (if I can get the link to work) They’ve got some MP3’s on there - and they’re working on a CD to sell at gigs. And they do have T-shirts :)

16

What triggercut said is half right about touring: He forgot the flip-side to the model. I won’t even touch what he said about labels, because he’s right, minus a few exceptions, which we all know exist when anything is said about anything.

Some venues take all the profit from the merch tables and a small percentage of profit from the ticket sales and then leave everything else made by the tour to the band. I’m speaking of established bands, obviously, while I think that what triggercut was trying to get across in his post was what happens to newer bands. Also, some established bands have the entire tour financed by the label and simply split the profits at the end of the tour.

There’s a reason why Rolling Stones and Aerosmith can charge $150-300 a head. People will pay it. They get most of that ticket money, not the venues. Established bands play by a whole different ballgame than newer bands, which, again, I think that triggercut was trying to apply those rules to.

And Corgan didn’t leave the Smashing Pumpkins only because of money. Sharon Osborne is a fucking cunt who should be shot in the face. Not to mention that while most, most of the people at Virgin are nice, they’re also still record executives who didn’t see that Billy could leave, form his own band, and have total creative control over it because another label would hope it would sell as well as SP.

But, yes, I second what triggercut said. Go see your band live, buy merch, tell your friends, etc. While they’re still making a name for themselves, that is the best, and probably the only, way for them to get anywhere.

Oh, and because someone asked, here’s why cd’s cost so much. Again.

Label sells cd to dist. for $8-10, unless discounting to a large-volume buyer.
Dist. sells cd to chain for $11-13, unless discounting to a large-volume buyer.
Chain sells cd for $14-20, unless you’re walking into Best Buy.

CD Warehouse and Disc-Go-Round (Disco Round, get it?) are able to make money as a franchise by having multiple distributors, buying/selling of promos, buying/selling used merch, etc. Indy record shops, such as Amoeba, are able to stay afloat with the large vinyl selections, and the yuppies who think it’s great to buy cd’s downtown like it is to buy Gap clothes downtown.

It’s all bullshit, but what can you do? I’ve been trying to talk Capitol into un-fucking themselves for a long time, through various outlets, and they finally fired that cock-sucking SOB of a CEO a couple of months ago, along with anyone else that most of the knowledgable staff deemed too greedy/corrupt/stupid to run something that is made for pleasure. Music is music, it should be run by people who like music, for people who like music, not as an industry to make money.

And another thing: To add onto what triggercut said, most bands will start selling copies of their new cd on the merch table during tours for about half of what you’ll find it in the stores. Smart bands will do this, I should say. Anyone who thinks twice about taking an advance from the label, says, ‘No thanks, I’ll record it myself, take the credits for myself, and let you publish it with no risk,’ is a smart band. Hell, Alan Parsons got paid the usual weekly wage (around 85pounds) while recording Dark Side Of The Moon. Care to guess how much it costs to find an intern, a backwoods studio, a nice-priced studio with an experienced engineer/producer costs? Next to nothing compared to who the label will make you work with. And besides, after the second time out, if you don’t know how-to produce yourself, you’re not worth producing.

Anyways, end rant. Buy the cd’s off the merch table, goto tours, buy t-shirts, blah blah blah. Kill the industry for all I care. Something better will come in it’s place, anyways. Trust me, the fact that the industry is getting ass-fucked is for the best; EMI is scrambling to find new talent, good talent, to sign. Any other label with half a brain is doing the same, looking for new blood that’s got what it takes.

Same thing happened to the book and movie industries at one point or another, and it was bound to happen to the music industry.

17

And by the way, I did want to add one thing. I had a frickin’ migraine last night and had the thought processing power of a camel jockey trying to figure out a Nintendo, so:

New-comer’s on certain labels do get a buck. Capitol/EMI/Virgin is one of them. Like I said before, it varies from label to label, so triggercut’s experience might be with WEA/T-W, but mine is completely with EMI and most all of the indy labels. I just didn’t think to add this, heh.

18

I can definitely state from personal experience that WEA and Sony both screw most new bands over pretty badly (or they used to, at least)–unless they think there’s some chance of being outbid. This caused some really freakish things back in the mid-90’s. WEA and Sony were so worried about getting into a bidding war over an “alternative” band that, rather than pursue an act with the opportunity of moving some significant product, they’d sign a band from way out in left field and see what happened…the idea being “everyone wants to sign Lucy’s Fur Coat or Our Lady Peace or whatever, so we won’t even try, and come in and lowball some nice kids like Paw or Hum and ruin their careers for 'em”.

19

God bless Sony/WEA.

I knew there was a reason I liked you, triggercut, even if I wanted to tear your face off at first. :)