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Author: albaby1 Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 919  
Subject: File sharing once more.... Date: 12/2/2002 1:46 PM
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Well, time to jump back into the moribund Napster board to revisit a hoary question of old: is file-sharing hurting the music business? In today's Fool on the Hill, Joshua Brown suggests it isn't:

So why would Sony -- or any record company, for that matter -- make a move like this? The record companies view file sharing as the major culprit in the drop in record sales over the last few years, and they believe stopping it is central to helping revenues rebound. Never mind that CDs are obnoxiously expensive (several major labels were convicted of CD price-fixing and fined over $150 million last year). And never mind that a consumer considers herself lucky if more than two tracks on a new CD are good. No, it must be because of the music pirates.

http://www.fool.com/News/Foth/2002/foth021202.htm

Of course, these arguments are a bit specious - they might be correct, but they don't explain why record sales would have dropped compared to previous years. Are CD's too expensive? Maybe - but they're no more expensive than they were in 1999 or 2000, and in fact have dropped somewhat in price since the price-fixing scandal of last year was settled. Are only 2 tracks on a CD any good? Perhaps - but why is that different from years past?

The reason that Sony - or any other record company - is willing to make this move is because they correctly view file-sharing as the greatest threat to their industry...well, perhaps ever.

This ain't the audio cassette revisited. With even a DSL connection, you can download several tracks simultaneously in under four minutes. You can have an entire 12-song album downloaded and burned in about 20 minutes - without ever having to know anyone who bought the original, much less physically be able to borrow it.

And that's just today - just wait until the pipes get wider. The biggest practical inhibitor to massive piracy is the reduction in sound quality resulting from compression. That compression is necessary because a standard CD track is about 40-50 megs, about 10x bigger than the MP3 equivalent. That's too big for easy transfer/storage today, but how long do you think it will be before the average pipe size is 4-6x what it is today? Five years? Ten years?

Advocates of reasonable, legitimate on-line music should hail the Sony initiative for what it is - an effort to find a way to have music files stay with the user who bought them, rather than bouncing around the net. Until that problem is solved, the music industry will not offer their own legal alternative to a less-than-perfect pirate network.

Albaby
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Author: TheAngryFerret Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 911 of 919
Subject: Re: File sharing once more.... Date: 12/2/2002 4:40 PM
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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?

TAF

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Author: albaby1 Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 912 of 919
Subject: Re: File sharing once more.... Date: 12/2/2002 5:44 PM
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Well, it's hard to measure a "value proposition," but I'll try to respond to your points:

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.

Difficult to evaluate, but very questionable. Music purists have been criticizing the Industry for decades now, and it's hard to fathom that the listeners of today have a much different relationship than our infatuation with the Hair Metal and Bubblegum bands of the 1980's. Splitting the difference, here's a link to the Top 40 chart for 1987:

http://top40-charts.com/features/YearEnd/yearend1987.php

The Bangles, Whitesnake, Robbie Nevil, Bruce Hornsby, Wang Chung, Lisa Lisa, Tiffany - there's always been plenty of ephemera mixed in with the longtime favorites.

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 value proposition isn't particularly worse than in, say, 1997, when there was very little reason to copy an audio CD track at all; or 1990 (when the average retail price of a CD was also around $15), when there was no way to copy a CD whatsoever. Given widespread proliferation of portable and auto CD players over the last 5-7 years, one could argue that even copy protected functionality is greater than it was during the late 1990's - does that mean that you're willing to pay more than back then?

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.

If the majority of the market used CD's the way you do, then perhaps the industry might price them that way. But I'm pretty sure that most people don't. Most folks buy CD's, and listen to the CD's. There are more than 100 million CD players in the United States (according to the internet, which we can always trust!), and folks use 'em.

Although it's easy to say that "CD's are a ripoff," it's hard to prove it. They've been a hugely successful product, and immensely popular. For any product, there is a demand curve, and folks at the tail end will only reluctantly buy - griping all the way that the seller is charging more than the product is really worth.

It is equally easy to say that record companies should start charging less for CD's because it's now so easy to steal the content, or because the measures necessary to protect the content from theft make the CD's less usable. I'm not the least bit surprised, though, that publishers don't take that viewpoint. A store with a high incidence of shoplifting isn't going to respond by lowering prices. Thus, when you ask:

Why does the industry refuse to respond and instead choose to keep its head in the ground?

...the answer is obvious - they look at filesharing as stealing their product, and are not going to lower their prices to compete with "free." Instead, they will try to ensure that their product is as protected as possible.

Albaby

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Author: albaby1 Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 913 of 919
Subject: Re: File sharing once more.... Date: 12/2/2002 6:28 PM
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As an aside...

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.

If you're paying $20 for a CD, or even $16, then you are getting ripped off - or you're in the fringes of the buying public.

Here's a link to Billboard's Top 200 albums:

http://www.billboard.com/billboard/charts/bb200.jsp

Most of them list at $17.98-$19.98, to be sure. But that's just list price. Street price is typically discounted. By way of example, the average list price of the Top 10 albums is $19.18. However, the average street price for those same ten albums at www.walmart.com is $12.91, or just over 30% off. (Note - for Ja Rule's Last Temptation, I used Amazon's price, since Walmart didn't carry it). I assume that the on-line WalMart price is moderately reflective of the price in the stores. The full table is at the end of this post, and that suggests that you should be able to get most CD's for around $14.

Average retail price at discount retailers had fallen to about $10 per disc back in 1995, prior to the implementation of the "minimum advertised pricing" scheme which the labels got tagged with. That was well below the list price. Look for that to return. You can now buy the two most popular albums in the country for less than $10 each at WalMart.

Albaby

Album walmart.com List Price

Up 9.84 19.98
Now 11 9.84 18.98
8 Mile 13.84 19.98
Last Temptation 13.49 18.98
Jay-Z 13.84 18.98
Matchbox 20 13.84 19.98
Audioslave 13.84 18.98
Under Construction 13.84 18.98
Let Go 13.44 17.98
Justified 13.28 18.98

Average 12.91 19.18



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Author: Ascalon Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 914 of 919
Subject: Re: File sharing once more.... Date: 12/7/2002 7:08 AM
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It is equally easy to say that record companies should start charging less for CD's because it's now so easy to steal the content, or because the measures necessary to protect the content from theft make the CD's less usable. I'm not the least bit surprised, though, that publishers don't take that viewpoint. A store with a high incidence of shoplifting isn't going to respond by lowering prices.

A couple of thoughts. First, it's always been possible to copy music. The only difference now is that copies are high-quality digital reproductions rather than analog tape. However, the improvement in quality is a slight red-herring. We were all happy once with vinyl and audio cassettes for our listening pleasure. Now we have more. The copying, however, has continued relentlessly.

Secondly, a store with a high incidence of shoplifting should take some responsibility for using a sales strategy which makes shoplifting easy. If you'd gone into a shop not so many decades ago, you wouldn't have been able to stroll around helping yourself to products from the shelves and filling up your basket. You would have asked the shopkeeper to fetch what you want from behind the counter, they would have brought it and you would have paid at the cash desk.

You don't leave your wallet on the front seat of your open top sports car while you go shopping. Similarly, if a shop wants to use an open-display strategy for moving consumer goods out of the door fast, then they have to take steps to guard against the minority criminal element.

As for file sharing, I still think it's incredible that so many old films have survived solely because pirate copies were made when they were first distributed. And in some cases, a film's popularity is solely due to *lack* of copy protection (eg. It's a Wonderful Life). Art versus commerce is a balancing act. Always has been, always will be.

Ascalon



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