MP3 and the CD Industry


Editorials

Pretending and Dots

September 11, 2001

Gore vs Bush

MP3 and CD Industry

Microsoft Innovation?

Editorial by John Kostura
11/08/2000

This is another editorial I was determined not to write . . . but once again something changed my mind. In this case it was the Sixty Minutes II show of October 24, 2000. This show featured a profile of the Dixie Chicks.

So Where's the Money

The Dixie Chicks are sitting at the top of their music genre and what do we find?

"If you want to see the future of country music, look no further than the women who call themselves the Dixie Chicks.

This Texas-bred trio is winning over a new generation of country music fans. In just three years, it has sold 17 million CDs, collected four Grammy awards, and just this month, won the prestigious entertainer of the year trophy at the Country Music Association awards. It has also generated a quarter of a billion dollars in business."

You would easily assume that this astronomical trio would easily be multimillionares from their success! Well I would. But the reality of the CD industry is that they are not!

"The hard truth of the music business is that selling a million records, or even 17 million, doesn't make you a millionaire. Distributors, record stores, lawyers, accountants, agents, managers - and, of course, the record company - all get a percentage."

Unfortunately this is not the exception but the rule for the CD industry. Roger McGuinn, formerly with The Byrds, testified before the Senate Committee on the Judiciary on July 11, 2000. Here is part of his testimony.

"My first position as a royalty artist came in 1964 when I signed a recording contract with Columbia Records as the leader of the folk-rock band the Byrds. During my tenure with the Byrds I recorded over fifteen albums. In most cases a modest advance against royalties was all the money I received for my participation in these recording projects.

In 1973 my work with the Byrds ended. I embarked on a solo recording career on Columbia Records, and recorded five albums. The only money Iíve received for these albums was the modest advance paid prior to each recording.

In 1977 I recorded three albums for Capitol Records in the group McGuinn Clark and Hillman. Even though the song "Donít You Write Her Off" was a top 40 hit, the only money I received from Capitol Records was in the form of a modest advance.

In 1989 I recorded a solo CD, "Back from Rio", for Arista Records. This CD sold approximately 500,000 copies worldwide, and aside from a modest advance, I have received no royalties from that project."

The Guilt of Using Napster

The CD industry would have us all believe that by using Napster to download music we are in fact stealing from the artists. Well I guess they would be the experts on stealing from the artists . . . so we should certainly believe them!

I would agree with the CD industry if the artists were actually making their money from the royalties on their CD's. The simple facts and sworn testimony do not agree with that concept. I am sure that some artists do receive some royalty payments but that is not where the money is for them.

The Dixie Chicks are expected to make approximately $40 million from their current tour. They are going to make this money because of the success of their CD's. Remember their CD's generated over $250 million for the CD industry. So all together they will generate nearly $300 million and receive approximately 13% of that gross amount by touring NOT by royalty payments. What is even more disturbing is that they emphasized several times during the interview that they got the very best recording contract possible, implying others are not as fortunate!

My Use of Napster

I was curious about Napster and signed up for the service. I was immediately connected to over 12,000 other users with a catalog of over one million files. I downloaded some of the songs that I have on my now obsolete vinyl (33 rpm) LP's. It was cool and interesting but out of conscience I let it go and never used it again.

We rented a VHS tape "Elmopalooza!" a Sesame Street tape for my two year old. On the tape where several performers but I was especially struck by one of them Shawn Colvin. I had never heard of her. There is not a radio station in Oklahoma City that would play any of her music.

I searched around the Internet looking for some of Shawn Colvin's songs to get an idea of what her music is all about. With not much luck searching . . . I turned to Napster. Sure enough I was able to download enough of her music to determine that she is an absolutely great performer.

After listening to the MP3 versions of Shawn Colvin's songs I developed my favorite list. The next step was to go and buy a couple of her CD's. Without the ability to listen to her music I would not have bought her CD's.

The Genie is Out of the Bottle

This is not the first time nor will it be the last time that an advancement in technology threatened an established industry. Once the Genie is out of the bottle there is simply no way to get it back in the bottle or make it go away.

It is time for the CD industry take a look around. The same thing happened with the advent of the video industry. The movie makers cried fowl and tried to prevent the renting of home videos. The home video recorder made it possible to archive movies free from television and to copy rentals. What did the movie makers do to overcome this problem? Simple they dropped the price of a video version of a movie from $80 down to $12.

If the CD industry wants to curb the use of MP3 downloads all they have to do is drop the price of a CD.

The cost of making a typical CD is much less than half a dollar so why are they priced at $15? Greed. Just plain greed. If the artist receives any royalties at all it is probably less than 25 cents per CD leaving the rest of the profit for the non-music CD industry. It is time the CD industry grew up and took a lesson from the movie industry.

Self Publishing

It is now possible for a musician to self publish their music. All the electronic equipment necessary has dropped dramatically in price and increased tremendously in quality. The talent for making professional recordings is abundant and is usually available locally.

MP3.com offers any artist the ability to sell their CD on their site. MP3.com's royalty to the artist is 50% of the gross sales. MP3.com handles all the cost of running their service, duplicating the CD, packaging and shipping. What do they charge the artist? Nothing. They take 50% of the sales in a mutual partnership.

Here is another quote from Roger McGuinn Senate testimony.

"In 1998 an employee of MP3.com heard the folk recordings that Iíd made available at http://www.mcguinn.com and invited me to place them on MP3.com http://www.mp3.com. They offered an unheard of, non-exclusive recording contract with a royalty rate of 50% of the gross sales. I was delighted by this youthful and uncommonly fair approach to the recording industry. MP3.com not only allowed me to place these songs on their server, but also offered to make CDs of these songs for sale. They absorbed all the packaging and distribution costs. Not only is MP3.com an on-line record distributor, it is also becoming the new radio of the 21st century!

So far I have made thousands of dollars from the sale of these folk recordings on MP3.com, and I feel privileged to be able to use MP3s and the Internet as a vehicle for my artistic expression. MP3.com has offered me more artistic freedom than any of my previous relationships with mainstream recording companies. I think this avenue of digital music delivery is of great value to young artists, because itís so difficult for bands to acquire a recording contract. When young bands ask me how to get their music heard, I always recommend MP3.com http://www.mp3.com."

The Future of the Music Industry

Unless the CD industry adapts quickly I do not see them being able to control the music industry as they currently do. Consumers will not be willing to pay their high prices just to feed corporate greed.

What is needed is for talented individuals to work with artists in producing their music. Small recording studios will need to form strategic alliances with the musicians and work together to bring their music to the rest of us.

A second alliance is needed for distribution and marketing. The Internet is the perfect place for both endeavors. A web site that has both streaming audio and video costs less than $50 per month. Or the artist can simply use MP3.com for both marketing and distribution.

On more thing. How brain dead are the car stereo manufacturers? You would think that my now the car stereo market would be flooded with MP3 players! Or are they being held back from using MP3 technology?

John Kostura
E-Mail: jk@2near.com


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