more on The Music Piracy Myth

[Dave Farber <dave () farber net>]

------ Forwarded Message
From: Mary Shaw <mary.shaw () cs cmu edu>
Date: Tue, 15 Apr 2003 08:54:09 -0400
To: Rich Kulawiec <rsk () gsp org>
Cc: Dave Farber <dave () farber net>
Subject: Re: [IP] more on The Music Piracy Myth

Rich and I may be disagreeing on the question being answered, or perhaps on
the criterion for an acceptable solution.

I was addressing the narrow question of whether a musician (presumably
unencumbered by an exclusive contract with a major music label) with music
to sell could get visibility online that "put the lion's share of the
profits from music into the pockets of musicians, not corporate executives,
and ones that take advantage of new technology rather than using it as a
scapegoat for idiotic corporate decisions".  I proposed a way to do this
with existing online technology and business models.

Rich seems to be asking in addition that the solution be free of association
with any business-sized entity; in particular he wants to "eliminate the
middleman".  He proposes to do this by creating new online technology and
business models.

I think the latter would be fine -- in fact, one of the great promises of
the Internet, one that is at greatest risk from entrenched interests, is the
possibility of radically new business models.  But while waiting for that to
happen, we shouldn't ignore current options that solve a large part of the
problem.

A couple of specific points:

1. Re exclusive contracts that lock artists into single marketing outlets.
Amazon.com, amazon marketplace, and most of the other online stores that I
know about don't.  You can sell there or anywhere else; you can stop selling
there at your whim.

2. Re "the lion's share of the profits":  Rich wants $15 of $18 to go to the
artist.  I think Rich is talking about the lion's share of the revenues. He
didn't say what the $3 was for, but I suspect it was for pressing CDs.
There are other completely legitimate costs associated with getting a
physical manifiestation of an artistic work into the hands of a consumer:
marketing, carrying cost of inventory (including damage and loss in
inventory), shipping (in the wholesale chain), fulfillment (getting it to
the customer and providing customer service), editorial guidance, studio
costs of getting the performance onto the master, probably others.

Rich seems to envision a system in which an online service provides
visibility and the artist does all the rest. In this case the artist ought
to get more of the money in exchange for taking responsibility for more of
the tasks.  (That, by the way, is the amazon marketplace model, where the
artist can pay 15% plus monthly fee for the visibility part only)

I don't know specifically about music, but I do know about books.  My
husband and I write and publish regional guidebooks. We wanted full control
of what goes into the books without compromising with a publisher, so we do
everything ourselves, from paying the printer to supplying local stores. We
discovered that if you want to be in a retail bookstore you must put an ISBN
on the book (and the title must show on the spine), so we became an official
publisher. We discovered that big bookstores can't deal with lots of small
publishers, so we figured out how to get into the wholesale system.  Here is
the actual cost structure:
        Retail price: $14.00
        Distribution of retail price to participants in a sale
                $5.60    Retail markup (40% of retail price); that is,
                                    the retail store pays $8.40 to the
distributor
                $2.10    Distributor's share (15% of retail price); that is,
                                    the distributor that supplies the
bookstores
                                    pays me (as publisher) $6.30
                $4.50    Printing cost -- what I pay the printer.
                                    This clearly goes down with larger print
runs
                                    Remember that it includes preparation
for
                                    printing (editorial and studio costs) as
well as
                                    actually putting ink on paper (cf
pressing CDs)
                $1.80    Remaining to pay author, photography and
                                    research costs, publisher, marketing,
                                   shipping, inventory loss, overhead, etc
Now, you may argue with some of these numbers, like the 40% retail markup.
There certainly is value there -- the physical retailer puts the goods in
the hands of the customer.  It seems high to me, but I know that retail
stores tend to run on thin margins. This ought to go down for online stores,
though not to zero, as it takes effort to run a web site.  Affinity programs
recognize this by giving the author (or anyone else) 15% for sales through
referrals.

The point isn't the specific numbers but that no one is getting rich here.
I get the whole $14 if I sell directly to a customer -- but I have to find
the customer, cash his check, put the book in the mail or carry it around in
my car, take the time to do this instead of writing or singing or whatever.
And my basement is full of boxes of books.  I get the $8.40 for books sold
through local bike shops, but I have to call the bike shops to remind them
to reorder and then take the books, 5-10 at a time, to the bike shops (and I
*know* that the bike shop owners aren't getting rich on the $5.60 markup).

My point is that the current electronic marketplace offers opportunities at
various points in this value chain. Any artist who has gone to the trouble
to produce CDs (and had the foresight to get ISBNs on them) can plug in at
various points in the chain.  This is available now.  If we get new markets
later, nothing prevents the artist from using both or switching entirely.

3. Re fully online sales: The game changes completely with a switch from
distributing physical CDs to distributing bits. Here most of the physical
handling costs evaporate, and the business model ought to change just as
radically.

4. Re Big Business:  Rich's message suggests that big businesses are
intrinsically bad. If that's what he means to say, we do disagree.  We do
agree that SOME big businesses are bad.  Over the years, though, I've been
abused both by big and by small businesses (I still hold a grudge against
"Quality" Dry Cleaners who years ago ruined a leather jacket and refused to
admit any responsibility) in roughly the same proportions.  I've been
well-treated in the same way.

Mary

----- Original Message -----
From: "Rich Kulawiec" <rsk () gsp org>
To: "Mary Shaw" <mary.shaw () cs cmu edu>
Cc: "Dave Farber" <dave () farber net>
Sent: Monday, April 14, 2003 11:27 AM
Subject: Re: [IP] more on The Music Piracy Myth


> On Mon, Apr 14, 2003 at 09:42:00AM -0400, Mary Shaw wrote:
> > The service is amazon.com's "Advantage" program.
>
> [ I hate disagreeing with Mary.  But I'm gonna do it anyway. ;-) ]
>
> Ah.  But amazon.com has a long and sordid history of (a) spamming
> (b) egregious abuse of customer privacy, plus for good measure
> (c) some dubious pricing practices (d) fabricating review/popularity
> info and (e) abusing the [extremely broken] software patent process.
>
> But let's put that all aside for a moment, and let's assume for the
> purpose of argument that amazon.com are wonderful corporate netizens.
> I *still* wouldn't go this direction, because I think the last thing
> that any such endeavor should do is tie itself to yet another Big
> Corporation which will -- when push comes to shove, and it always does
> -- invariably make decisions that benefit its bottom line and will
> not keep the best interests of either musicians or consumers in mind.
>
> No, this needs to be distributed and independent so that no one entity
> can control it.  The entire mess that we have today has resulted from
> control by a a handful of companies -- Alan Wexelblat refers to them
> as 'The Cartel' and I think he's got it right.  Merely replacing that
> with a workalike (another middleman) won't solve the underlying problem.
> It's just:
>
> Meet the new boss
> Same as the old boss
>
> The solution isn't to change middlemen: it's to do away with the
> structure that necessitates their existence.
>
> ---Rsk


------ End of Forwarded Message

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