The economics of music

(this is a nugget. A more complete argument to be expected within a couple of months)

Below, a summary of various estimates of the cost of a CD. Several sources from Fisher (Promises to Keep). I’ve added three more (Rolling Stone, CNN and Bemuso) maybe partially redundant. We must also be careful because these estimates were made at different points in time (Strauss is probably the oldest, it is also the one with the highest estimate for production costs).

Costs estimates do converge and allow us to grasp the nature of what is at stake in the music industry. Two comments for now:

1) Most sources agree that the proportion paid to the artist is overstated because it does not take into consideration the fact that labels charge artists for production, promotional and touring expenses. There seems to be an agreement that artists do not see net money for titles selling less than 250 000 copies.

2) two comments on Fisher’s observations.

2.1) Although he observes that labels charge artists, he allocates 20+% to the creators. This figure is crucially important because the discourse on the future of the music industry is focused on the economic rent to the artist as opposed to other participants in the industry. If the conclusion were that artists make negligible money in the current system of music distribution, the (limited) support that public opinion gives to a tight copyright regime could be affected.

2.2) Like many observers, Fisher then proceeds in trying to identify what would be the "real" cost of an album, given the dramatic change in production and distribution technologies. I was struck by the fact that he dismissed retailers entirely.

I would suggest that the cost breakdown should be read as an indication of the vested interests rather than as an appropriate indication of the out-of-pocket costs incurred by various participants.

For instance, Wal-Mart is launching a video download service, because this is going to be a significant alternative to its traditional DVD retailing operations. If it succeeds in securing an important market share, Wal-Mart might become a key outlet and argue (quite convincingly) that digital content is interchangeable and that the true value lies in access to market.

average Fisher Rolling Stone McKinsey Strauss Sanderson cnn bemuso
Retail 32.71% 38.89% 29.33% 28.57% 35.00% 30.00% 36.69% 30.48%
Distribution 14.99% 8.33% 5.63% 10.00% 9.00% 22.00% 19.67% 30.32%
Marketing 29.89% 23.78% 43.84% 38.21% 27.00% 30.00% 21.14% 25.22%
Manufacturing 7.55% 7.89% 5.00% 7.14% 13.00% 5.00% 10.78% 4.04%
Creators 14.86% 21.11% 16.20% 16.07% 16.00% 13.00% 11.72% 9.94%
Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%


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