Month: March 2008

There’s an interesting blurb in this month’s Rolling Stone talking about why CDs cost $15.99, and moreover why Wal-Mart wants that cost dropped to $10… Apparently, the price of a CD is figured as follows:

$0.17 Musicians’ unions

$0.80 Packaging/manufacturing

$0.82 Publishing royalties

$0.80 Retail profit

$0.90 Distribution

$1.60 Artists’ royalties

$1.70 Label profit

$2.40 Marketing/promotion

$2.91 Label overhead

$3.89 Retail overhead

Now, in all honest, it’s rather interesting just seeing how many pieces of pie are getting divided up here, and how the retailer only sees $0.80 in profit per CD sold, and the artist themselves see $1.60 per CD sold.

Apparently, according to the article, Wal-Mart has emerged as the nation’s biggest CD retailer and your record’s sales at Wal-Mart essentially determine whether you’ll make money or not (~138 million people shop at Wal-Mart each week). However, Wal-Mart (and Target and Best Buy…) take a loss on CDs to sell them closer to $10 in hopes of getting people into the electronics section, where they’ll buy something on the way back, or pick up a DVD, etc. while they’re back there.

Well, Wal-Mart is tired of taking that loss on each disc and is trying to convince the music industry to streamline their process a bit, otherwise Wal-Mart will cut back on space for CDs and instead offer shelves to DVDs and video games. This would, of course, be terrible for the music industry as a whole in that nearly all their CDs are sold (excluding the internet) in Wal-Mart, Target and Best Buy now, as an estimated 1200 record stores have closed in the last two years alone.

Anyway, I find this relatively interesting… I did a presentation for Speech class in undergrad on how stupid the music industry is, as a whole, and how they really need to adjust their model if they want to compete in the 21st century. That was nearly 6 years ago, and apparently little has changed. As the article states, the music industry is all about milking every last dime in profit from a given song (frequently crappy ones…), while companies like Wal-Mart want to make every purchase as cheap as possible to make their profits on volume. I kinda think iTunes, and other online retailers, are following closer to the Wal-Mart model, removing most of the overhead costs listed above in favor of making money on the volume sold of a given song (or album) to millions of people.

Personally, I’m shocked the CD has made it this long as a popular medium. Brooke and I only buy CDs anymore when it’s a certain group (like Dave Matthews, for example) – otherwise, we’ll buy it through iTunes and burn it ourselves, as we tend to care very little about how pretty the cover art to a given album is.