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Albaby, I respectfully disagree with your arguments. CDs are more expensive than they used to be, maybe not in price, but I think the value proposition is a heck of a lot worse.

1. The quality of the music is difficult to argue about, but I would criticize the industry for failing to develop talent that sticks around for several albums, instead opting for less risky one-hit wonders. Music consumers in 2002 develop far less personal relationships with their music versus 10, 20 years ago, and this will kill record sales over the long term.

2. The value proposition is worse because the CDs themselves are losing functionality. This is all relative to the time period you are talking about, but I can't justify buying a CD today that is copy-protected for the same price as one that wasn't copyprotected a year ago. The record company is taking away funtionality without cutting the price.

3. In my view, as someone who now almost exclusively listens to music on an ipod and on the computer, CDs are kind of useless, just devices for carrying files and should be priced as such. Just charge me for the music, I don't need the packaging and the CDs. I just want music files I can use as I see fit.

Bottomline, the record business is in a secular decline. I don't think filesharing per se is the reason why. File sharing has highlighted that CDs are a ripoff, but that's not the fault of filesharing. That's the record company's problem.

The record companies have had the view that their customers will be there no matter what to buy CDs, and now that seems to be changing. Business conditions change all the time. Successful businesses adapt to the changing environment. Unsuccessful businesses are late to recognize change, or when they do, they fail to fully grasp what's happening until its too late. I'd argue this is what the record industry faces. If they were smart, they would have embraced Napster as the new paradigm (which it was) instead of attacking it as a threat. But by refusing to acknowledge the problem and instead attacking file-sharing, record companies have seen their businesses fall apart by not adapting to change. Now that they have waiting so long to do anything substantive to address the filesharing threat, bigger bandwidth pipes are going to kill them. Where would everyone be today if Napster was bought out for a million bucks shortly after it started?

What can they do now? They need to understand that CDs are not the value proposition they once were. Maybe a 20% cut in CD prices would actually be revenue positive by generating more volume. I'd certainly be more apt to buy a $16 CD than a $20 CD, but it still seems like a rip off.

Bigger thing record companies need to do is offer a legitimate competitive service to the free filesharing programs. Previous efforts have failed/are failing, but they need to find a way to make it work or they will all shut down. For better or worse, downloadable music files are replacing CDs. Consumers have made this more than clear. Why does the industry refuse to respond and instead choose to keep its head in the ground?

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