Rumor Mill Ramps Up Production by George Ziemann -- March 20, 2008 The music industry has watched sales of its core product evaporate in the 21st century. They spent the last 8 years blaming everyone else and have yet to consider a realistic solution. This year, we already have a full crop of ideas that are, if nothing else, unreliable. The Not-My-Damn-Plan Plan That peer-to-peer monetization plan I talked about last week? Based on that observation, I arrived at the conclusion that the attributed architect of such a thing was not to be trusted and said so elsewhere. He was pissed because I impugned his trustworthy reputation. I said, "Is this your idea or not? If it is, my recommendation stands." Says it wasn't his idea at all, didn't resemble his idea, and explained point by point how he, in fact, completely disagreed with everything that the linked article had claimed was his idea. The Apple Plan An equally questionable report surfaced yesterday, alleging that Apple was offering the major labels $20 an iPod to just let their customers have all the music they want and leave them alone. Reportedly the labels still think subscriptions are the way to go and that it is possible to put an expiration date on an mp3. Apple refused to comment on the story. It came from someone in the music biz who preferred to remain anonymous, despite the fact that no one in the music industry prefers to remain anonymous, except maybe the accountants. Assuming for the purposes of discussion that this hypothetical situation did take place and the report is miraculously accurate... From a business perspective, the money Apple makes selling songs is simply not worth the aggravation of dealing with the record labels. They are clearly incapable of thinking different. They are a pain in the ass. Half of Europe is ready to sue or in the process of suing Apple because they made the songs sold in the iTunes Music Store attach themselves to a device -- exactly what the record labels demanded in order to grant licensing. Life would be easier for Apple if it simply stopped selling music. The reported offer seems to include that benefit. If the record labels think $20 is not enough, it is only because they are too arrogant to realize that an equally viable and more profitable business solution is to close the store and give the record labels $0 per iPod sold, with the side benefit of knowing that for every dollar Apple would "lose" in missed sales, the record labels lose $2.33. The Starbucks Revelation Jeff Leeds has an article in the New York Times decrying Starbucks for letting RIAA crap sneak onto their shelves, which he politely calls mainstream. I found it to be amusing for the most part. The rumor has to do with current wholesale pricing and appears on the second page: "Outside the company, Mr. Lombard has not been shy about throwing Starbucks' weight around. For a time, the company offered music labels on favorable terms - it did not, for example, return unsold CDs as most music shops do - and in exchange the labels offered their CDs at discounted prices. "But last year, Starbucks began pushing for another discount on its purchase of new releases, lowering its price to $8 from $8.25, even while seeking the right to return up to 20 percent of its orders, according to people briefed on the company's negotiations. Those terms can equate to $2 or $3 a CD less than the price paid by other retailers, these people said." From this we learn that the prevailing wholesale price for CDs is $10-$11. In 2003, Robert Hilburn wrote a story in the Los Angeles Times describing a dispute between the band Incubus and Sony, their record label. In it, Hilburn describes how a 30 percent royalty on a product that sells for $12 at wholesale adds up to $1.85 because, first of all, you start at $10 and work down from there. He doesn't even begin to try to explain how 7 million times $1.85 adds up to less than $4 million. The point is that, through all of the downsizing, roster reductions, and other catchphrases used to politely describe firing as anything other than what it is, dumping a large percentage of your employees on the street, retailers are paying about the same as they did five years ago. If the record companies have saved any money, if they are operating more efficiently, if the price of the raw materials and pressing process itself have fallen, it is not reflected in the wholesale price. If retail prices have dropped, it's because the retailers are absorbing the difference. The industry has responded to falling sales by making no concessions to anyone but themselves. At least that's what "these people" said.