By George Ziemann
In 1997, the RIAA began to break out
the total of units (all formats combined) that were shipped to
retailers, leaving us to wonder what the hell happened to the
rest of them. After asking this question publicly, James K. Willcox
over at Sound
and Vision Magazine determined that the balance is attributed
to "promotional and specialty" outlets, such as record
clubs. I'm sure this total probably includes promotional copies
sent to radio stations, given away by djs and other promotional
adventures, at least when they were allowed to do that.
All data in millions
Source:RIAA |
1997 |
1998 |
1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
| Total Units Shipped |
1063.4 |
1123.9 |
1160.6 |
1079.2 |
968.5 |
859.7 |
798.4 |
814 |
748.8 |
| Shipped to Retail |
817.5 |
850 |
869.7 |
788.6 |
733.1 |
675.7 |
658.2 |
687 |
634.8 |
| Promos |
245.9 |
273.9 |
290.9 |
290.6 |
235.4 |
184 |
140.2 |
127 |
114 |
Of course, we all know that sales and
overall shipments have declined, so it stands to reason that
the number of promotional units would drop, too. So to see if
there really has been any kind of change in the promotional shipments,
you have to look at what percentage of the total shipments they
comprise.
Conclusion One
-- Either the record clubs are seriously sucking wind, or
the industry has drastically cut back on promotional goods.
Which is it? It's really hard to tell
from simply the number of "units" shipped, as these
could be anything. More telling is how much these promotional
copies are worth. To be more accurate, it would be more telling
if it were possible to determine. The RIAA's 2005 statistics
include the notation: "Retail value is value of shipments
at recommended or estimated list price." The word "estimated"
is new for 2005, as is the definition's limitation to the retail
shipments.
Those promotional copies are valued by
a completely different standard. While this may not mean much
to the average music fan, if you're an artist whose income relies
on the RIAA's math or a DOJ investigator cross-checking against
tax records or something, this may be meaningful because the
value of this merchandise varies greatly depending on how you
arrive at it.
If you take the RIAA's total value of
physical shipments and subtract the reported value of the retail
shipments, this should leave the value of the promotional shipments.
Easy enough.
Promotional Shipments Value -- Method A Data
| Source: RIAA - Data in millions,
US$ |
1997 |
1998 |
1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
| Total Value |
12,236.8 |
13,711.2 |
14,584.7 |
14,323.7 |
13,740.9 |
12,614.2 |
11,854.4 |
12,154.7 |
11,195.0 |
| Retail Value |
10,785.8 |
12,165.4 |
13,048.0 |
12,705.0 |
12,388.8 |
11,549.0 |
11,063.4 |
11,423.0 |
10,477.5 |
| Promo Value |
1,451.0 |
1,545.8 |
1,536.7 |
1,618.7 |
1,352.1 |
1,065.2 |
791.0 |
731.7 |
717.5 |
By using Method A, it would appear that
the industry has cut its promotional expense (in terms of physical
goods) to less than half of what it was before Napster and file-sharing
were an issue. Compared to 2000, they have reduced this expense
by $900 million. The problem with this is that the average price
(value) of each promotional copy hovers in the $6 range, while
the same thing is valued at $16-17 if it goes to a retail outlet.
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The second method for arriving at the
value of these promotional goods involves taking the number of
copies times the average retail price. Yeah, I know, it's just
a recommended/estimated price, but still...
Promotional Shipments Value -- Method B Data
| |
1997 |
1998 |
1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
| Promotional Units (Millions) |
245.9 |
273.9 |
290.9 |
290.6 |
235.4 |
184 |
140.2 |
127 |
114 |
| Avg Retail Price |
13.19 |
14.31 |
15.00 |
16.11 |
16.90 |
17.09 |
16.81 |
16.63 |
16.51 |
| Value of Promos (Millions US$) |
3244.3 |
3920.1 |
4364.3 |
4681.8 |
3978.1 |
3144.9 |
2356.6 |
2111.7 |
1881.6 |
Method A showed a 56 percent reduction
in this expense between 2000 and 2005 with a difference of $900
million. With Method B, the percentage of promotional reduction
is slightly higher (60 percent), but the dollar amount grows
to $2.8 billion.
Parting Thoughts...
- The RIAA currently claims that the Internet
file-sharing activity costs them $400 million a year in lost
sales. No matter how you add it up, though, it looks like they're
actually saving twice that, if not the entire $2.8 billion
boatload o' bucks.
- That's what it looks like, but that
may not be what's actually happening. It is possible that the
number of promotional copies simply reflects how far the artist
rosters have been cut back.
- A more useful "value" would
have been the average wholesale price actually charged each year.
That's how much the record labels charge the retailer. That's
the starting point for determining artist royalties. That's a
real number, based on invoices. Instead we get an "estimated,
suggested" price. No matter which above method you use to
determine the value of these promotional copies, it's based on
bullshit data from the RIAA. The truth is somewhere in between.
...and a Few Questions
- Promotional copies are advertising.
Advertising is a legitimate expense in any business. Artists
are charged a chunk of their royalties to pay for promotional
goods. Most industries would be bragging their asses off about
saving between $1-3 billion in promotion. Should be a boon for
the stockholders.
- What do they tell the stockholders?
What do they tell the IRS? What do they tell the artists?
Originally Posted May 8,
2006
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