The Recording Industry's Dirty Little Secret --Digital Media Thoughts

Jeremy Charette

In recent weeks, shots have been fired across the battlefield of profit by Steve Jobs and various recording industry executives. Using words rather than bullets, Jobs has accused the recording industry of being greedy, and they have fired back that profits from online music sales have been too low, and prices need to go up. Here's the dirty little secret no one is talking about publicly: recording studios make more money from online music sales than they do from CD sales.

Let's look at the numbers. Recording costs, production, artist fees, etc. average approximately $2-3 per album. The cost of pressing a compact disc, the case, liner material, and other associated manufacturing costs run approximately $2 per disc. Wholesale prices run from 50-80% of manufacturer's suggested retail prices, so a wholesale price of $8 per CD would be fairly typical. Subtract the manufacturing, production, and shipping costs, and gross profit to the recording studio is only $3-4 per album.

iTunes, on the other hand, pays recording studios between 60-70% of gross revenues (60 to 70 cents per 99 cent song). For each $9.99 album, that's a gross profit of $6-7.

There are other advantages to online music sales. The recording studios incur no manufacturing, distribution, or delivery costs. The downloaded music files are copy protected, so consumers can't make unlimited copies of the songs they purchase and hand them out to friends (or resell them for a profit). The recording studios make about twice as much profit through online sales as they do through conventional CD sales, and the content delivery system is instantaneous and (virtually) free.

So who's kidding who? The recording studios claim they aren't making enough money off of online music sales. The facts say otherwise. I've never seen an industry work so hard to justify greed.

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