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In Reply to: "CD Prices: Should record companies charge less?" posted by clarkjohnsen on May 10, 2002 at 07:20:36:
Dear Clark and others;It always cracks me up that diesel fuel, which has to be pumped out of rocks underneath the desert, transported across the seas, refined, transported again, and dispensed to order by expensive equipment, sells for 25% of what generic fizzy water sells for.
So stop buying CDs, and spend all your money on fizzy water, it must have greater value.
The intelligent questions that I would like to see asked but I never see asked so I guess that I will have to pose them myself, include:
1. Is it not unreasonable for consumers to expect to pay about the same price for a Steely Dan CDs the startup costs of which will be spread over 5 million units; a Norah Jones pop CD the startup costs of which will be spread over 200,000 units, and a Peteris Vasks chamber music CD the startup costs of which will if everyone is lucky be spread over 4,000 units?
2. Is it not unreasonable for consumers to expect to pay the same amount of money for an opera CD that cost over $300,000 to record; an orchestral CD that cost $100,000 to record, and a solo piano CD that cost $30,000 to record?
3. Is it not unreasonable for consumers to have to pay nearly the same amount of money for: a CD remastering of Ella Fitzgerald material that started making money in 1956; a Beatles CD the master tapes for which started making money in 1963; and a new high-quality pop production that cost $2 million all-in?
For far too long, the selling prices for recordings have been dictated by the retailers' convenience, not the needs of the public or the people who make the records.
What we are seeing now is a breakdown, but on the wrong side of the equation: the major labels are no longer willing to take the profits from pop and crossover (Bing Crosby, Mario Lanza) and use them to subsidize classical music as a halo.
People do not go to a bookstore and expect that a coffee-table book on architecture with 200 color pages will cost the same as a bodice-ripper romance paperback printed on recycled newsprint.
One re-orientation that might help keep high-quality recordings coming out is more flexibility in pricing on both sides--manufacturer and consumer--based not on technical format but on content investment.
And if anyone is asking why I can't price my releases down to Naxos levels: 1) My information is that Naxos has not made money for its owners commensurate with sunk costs, but every test of raising prices slashes volume, mutatis mutandis. I have heard that they are in a sense always for sale, no takers, owing to the corner they have painted themselves into. 2) I use the highest-quality recording, mastering, and pressing and print goods and jewel cases. I have more sunk in one CD's print goods than they do in the whole package. 3) Naxos pays one fee to its artists and with few exceptions records in Eastern Europe, and does not pay royalties based on sales.
A person in this thread asked if record companies are listening. Everyone I know, including nice folks at Sony and BMG, are listening and working and thinking. It is not a grand conspiracy against consumers. The industry is undergoing creative destruction and we are trying to keep our noses above water.
Follow Ups:
As I have written elsewhere, "price policy" is a whole department at major companies and they pay big bucks to people who can unravel the mysteries and maximize profits.The example of Bose radios has been given. Then we have grocery stores, which typically earn about 0.5% on the gross.
clark
I'm surprised that you let yourself get sucked into the trap of talking about cost-based pricing. It is an argument you will not win; because most people do not understand the allocation issues that you allude to, not to mention others you don't bring up.Only regulated public utilities do nominally cost-based pricing.
Everybody else does market-based pricing, which explains the "fizzy water" phenomenon you discuss. Theory predicts that market-based pricing will eventually equal cost-based pricing, when all costs (including the cost of capital) are fully accounted for. But we all know about theory.
So the big boys are testing the market--finding out what people are willing to pay for this or that. I have no problem with that, as long as they don't blame the bad news that comes back (declining sales volume) exclusively on other factors, like file-sharing.
Regarding Naxos, their "budget classical" formula, as you describe it, doesn't strike me as anything different than what I've seen for the last 35 years or so from labels like Vox, Nonesuch and so on.
I know that there are market pressures even in handmade violins and canoes, but on the other hand a lot of people just want to make a decent living and enjoy their work, while others want to gouge.We know certain high-end amp and speaker manufacturers who deliver honest value for money, and others whose marketing plan is to get people talking about how expensive it is. No need to name names there!
As a hypothetical discussion, I was trying to explain to people who do seem to have some blockages that one hour's music on CD X might cost 10X to produce as the hour on CD Y, and when you compound that with the fact that CD X will sell one-tenth as many copies, to speak of "A CD should cost $12!!!" is foolish. Unless you want 24 people at 6 multinationals deciding what all the new music will be.
And, most high-end manufacturers I have discussed this with really do base on cost and not market. Bose I am sure market-prices their $35 radio. People will pay $395, they charge $395. But most high end guys just 5X their costs and try to get a good night's sleep.
Cheerio,
John
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