The feedback on the P2P downloading debate has been terrific; Let's add a few additional bullet points into our repertoire of arguments:

First, let's consider what actual P2P losses are to the industry.

They are much more difficult to calculate than the RIAA would have you believe. Why? First, downloaders pull songs they would never buy; I have Outkast's "Hey Ya" somewhere; I consider it a goofy novelty song, and the only reason I have it is that someone else sync'ed it to a Peanuts animation (everyone on stage dancing to Schroder's piano). It was an amusing but unauthorized use, which I downloaded, smiled at, and never saw again.

Oh ya: The CD that song came from -- OutKast’s 2003's release, Speakerboxxx/The Love Below -- sold 10-million plus copies.

Lost sales? Hardly.

Consider the biggest of all downloaders -- mostly-broke college students. They have a computer their parents bought them, and the campus gives them a big, fat pipe. They get access to music they would never have bought, resulting in future post-college sales. But the one-to-one lost sales argument is transparently false.

Next, let's consider what the damages to the industry are. Consider the issues of substitution: What would it cost to purchase an "unlimited amount" of digitally distributed music? The answer is found in the Napster-to Go model:

"The Napster to Go model . . . shows that the RIAAs claims of a lost sale for every download to be demonstrably false. If you can download an unlimited number of songs via napster and play them for as long as you continue to subscribe, then the maximum loss the RIAA suffers from a single downloader cannot exceed $15/month no matter how many songs a person downloads." -- via boingboing

Over the course of 10 years, that represents total gross losses of $1,800, of which Napster keeps between 15 and 20%. Net loss: $1,500 dollars.

But wait, there's more: The Rhapsody Music Subscription from Real Networks charges only $10 per month. That's $120 per year. Over a decade, the net loss downloaders present to the industry by not signing up for Rhapsody are: lost revenue of $1,200 (gross). In other words, the total net industry losses are ~$1,000 per decade. Hardly as apocalyptic as portrayed.


By approving the Napster/Rhapsody subscription models, the music industry has unwittingly created a viable legal defense, at least when it comes to damages portion of their litigation, for defendants in a RIAA P2P litigation. The claims of losses in the $100,000 or even $10,000 are silly -- as long as this $1,000 net loss per decade option exists.

Of course, that doesn't consider studies (such as the one from Harvard/UNC CHapel Hill) that shows P2P drives CD and concert ticket sales. I only buy music that I hear and like. Since that hardly happens via the radio anymore, P2P is my most common source of new music (that, and Apple adverts).

Further, the industry's disingenous claims that its the artists are getting ripped off by downloaders are rather misleading. (Putting aside the industry's own long and storied history of ripping off their artists for another day).

A recent NYT article reveals that most musicians make their bread and butter not by selling CDs, but by touring and performing:

"According to a new list of the 50 top-earning pop stars published in Rolling Stone, over the hill is the new golden pasture. Half the top 10 headliners are older than 50, and two are over 60. Only one act, Linkin Park, has members under 30.

The annual list, which entails some guesswork, reverses the common perception of pop music. Not only is it not the province of youth; it's also not the province of CD sales, hit songs and smutty videos.

While sexy young stars take their turn strutting on the Billboard charts or MTV - or on the cover of Rolling Stone - the real pop pantheon, it seems, is an older group, no longer producing new hits, but re-enacting songs that are older than many of today's pop idols."

This has serious financial repurcussions for the business model the industry is presently wed to. And the list of artists who are making the big bucks reveals industry mismanagement has led to mostly ignoring the key economic demographic driver of our century: The baby boomers.

Here's a little secret the RIAA would rather not have you know: Musicians make most of their money performing and touring -- not selling CDs or downloads. Rolling Stone has a detailed analysis of the top 50 acts . . . here's a top 10 list to whet your appetite:

2004 Music Money Makers
1. Prince $56.5 MILLION
2. Madonna $54.9 MILLION
3. Metallica $43.1 MILLION
4. Elton John $42.9 MILLION
5. Jimmy Buffett $36.5 MILLION
6. Rod Stewart $34.6 MILLION
7. Shania Twain $33.2 MILLION
8. Phil Collins $33.2 MILLION
9. Linkin Park $33.1 MILLION
10. Simon and Garfunkel $31.3 MILLION

Note that 9 of the top 10 grossing performers aren't the hot new thing -- they are the better known rock classics -- which the labels have mostly also been paying little attention to for so many years.



The industry can scapegoat P2P for all their woes, but a closer analysis of the math demonstrates the claim is illusory. (Mis)management is the primary sources of the industry problems.









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Sources:
Balding Rockers and Big Money
JOHN LELAND
NYT, Sunday, February 13, 2005
http://www.nytimes.com/2005/02/13/weekinreview/13lela.html

Napster-to-Go reviewed, math done
boingboing, Sunday, February 13, 2005
http://www.boingboing.net/2005/02/13/napstertogo_reviewed.html

Money Makers
Robert Lafranco
Rolling Stone, Posted Feb 10, 2005
http://www.rollingstone.com/news/story/_/id/6959138/prince?pageid=rs.Home&pageregion=single2

The Effect of File Sharing on Record Sales: An Empirical Analysis
Felix Oberholzer, Harvard Business School
Koleman Strumpf, UNC CHapel Hil
http://www.unc.edu/~cigar/papers/FileSharing_March2004.pdf

Americans own an iPod.

Wow.

Here's a bizarre observation:

I hardly find much in the way of new music on the radio. Haven't for years. And we've already analyzed how iPods have become the new radio.

But consider this factoid:

One of the highest profile sources of new music, is, ironically, iPod commercials:  U2's Vertigo, Jerk it Out by The Caesars, Jason Nevins remixed version of N.E.R.D.'s song Rock Star, and Channel Surfing by Feature Cast, The Vine's Ride, Ozomatli's Saturday Night, John Murphy's Spit, and Benny Golson, Music to Think By. I first heard all of these via an Apple advert (even with TiVo).  

Then there's the homebrewed Apple ads, featuring Tiny Machine by the Darling Buds, as well as What's Your Favorite Color by Living Colour. Othe Apple ads: I really like both Take California by the Propellerheads,and Walkie Talkie Man by Stereogram -- both of which I first heard via an iPod commercial. I have friends who say the same thing for Black Eyed Peas' Hey Mama -- pod commercial. Since I'm a brit rock fan, I knew of Jet's Are You Gonna Be My Girl
-- but I suspect that many people first heard that via iTunes adverts (Let me know in the comments if I missed any).

Indeed, I'll bet many more people first heard all these songs on a television commercial, and not on the radio. What does that say about the broadcast industry? Not anything good, that's for sure.

Apple hasn't left out classic rockers:  Jimi Hendrix (Purple Haze), Steppenwolf (Born to be Wild), Bob Dylan, (Forever Young), Barry White (You turned my whole world around) and the Rolling Stones (She's a Rainbow). I wonder how many young 'uns discoverd this music via Apple commercials?


Kinda ironic (don't cha think)?

A few recent posts that I've been meaning to direct your attention to:

• DVD Sales Boom, 2004 a Record Year

• Video Game Industry Sales Reach Record Pace in 2004

and just for laughs:

• RIAA sues deceased non-PC owner

I recently got pulled into an impromptu debate on The Street.com on P2P, downloading and the music industry.

It was originally published on their subscription only site, RealMoney.com, but I thought it might be of interest to a wider audience.

So with permission, I am reproducing it at The Big Picture

Enjoy!

Something I left out of yesterday's video discussion:

"Universal's new move is the second time in 16 months that Mr. Morris has shaken up the sluggish recording industry by upsetting established practices. In 2003, Universal said it would slash its suggested retail prices by almost one-third in a bid to breathe new life into CD sales. The price cut drew catcalls from many small retailers that felt their margins being squeezed, but company executives said the pricing plan had been a success, noting that Universal's album sales jumped about 7 percent last year, beating the industry's overall increase of about 1.6 percent."

Let's review: a product widely considered to be over-priced, primarily due to industry price-fixing, sees a significant increase in sales when pricing moves towards a more competive schema.

Indeed, Universal is the label with the most aggressive pricing policy, and they see a sales increase nearly 400% greater than the rest of the industry.

Can anyone on the West Coast figure out how much 2 + 2 is?

Here's an interesting new development from mega-label Universal, via today's NYT:

"Universal Music Group of Vivendi Universal says it will no longer provide music videos free, or at a nominal cost, to Internet and cable television services that are building a potentially giant business by playing videos on demand. Universal does not want to repeat what it considers the music industry's ill-fated decision in the 1980's to provide free videos to MTV."

Ill fated? MTV was (once) an enormous source of promotion and publicity for a huge slate of really mediocre talent. It drove lots and lots of sales. From a business perspective, videos for certain pop stars were huge. However, I suspect many music lovers would say good riddance to a slate of MTV friendly but barely musically competant acts.

I wonder if this applies to channels like FUSE and MTV2 (I doubt it from the article). Here are the details:

"Universal Music notified an array of Internet and cable companies that they must negotiate licensing deals for use of Universal's music videos or remove them from their on-demand services. The record company - which accounts for more than one-third of the new music sold in the United States - also said it would no longer advertise on Internet sites or cable outlets that do not strike such licensing agreements."
(emphasis added).

Given their size and dominance of the music industry’s Oligopoly --
and their tying advert sales into -- does Universals new policy raise any anti-trust
questions?  Universal sold 42 of every 100 CDs in the US in 2004.

Of course, if there's a potential Monopoly/Anti-Trust issue, you know that Microsoft cannot be too far behind:

"The music company quietly struck its first deal under the new terms in December with the  Microsoft Corporation, which plays videos on its MSN service. The software maker agreed to pay Universal the bigger of either a fee per video viewed or a percentage of advertising revenue. All four major record corporations have been aiming to cut off a slice of the on-demand business, and while a handful of labels have claimed to strike deals to earn per-view fees or ad revenue from individual services, no label has struck such an aggressive stance before."

Heh . . . What a surprise, Mister Softee is involved in this
deal. But the big question is why the sudden interest in video fees? Consider this:

"Owing in part to the low fees and its own cheap programming costs, MTV became a juggernaut that generates some of the biggest profit margins in the media world - it earned cash flow of roughly $620 million on sales of $1.09 billion last year, a margin of about 57 percent, according to estimates from Kagan Research in Monterey, Calif."

Ahhh, they want a slice of that fat pie MTV has been keeping to itself. Makes sense, espeically considering that the label business model, failing to adapt to on line digital, is under assault. Because  of that, there is increasing pressure to find new revenue streams (i.e., ringtone sales) .


Of course, there’s the punch line to this entire article:

"As for the licensing income the record labels do receive from MTV, it is generally not shared with the labels' artists. But Universal said it planned to pay a share of the fees it gets from on-demand services to artists and to music publishers."

Oh, yes, the artists . . . Almost forgot about them. Who wants to make book that regardless of how this plays out, artists will get nothing -- or next to nothing -- of this video revenue? 


Source:
Universal's Second Chance to Make Video Pay
Jeff Leeds
NYT, February 1, 2005
http://www.nytimes.com/2005/02/01/business/media/01music.html