Sunday, July 11, 2010

Why RIAA Lawsuits Do Not Benefit The Musician: The Average Musician Earns $23.40 Profit For Every $1,000 Of Music Sold

Hat tip to Linescratchers for providing the inspiration for this post. Linescratchers caters to LDS musicians who don't write LDS music.

The Recording Industry Association of America (RIAA) has been under fire for quite some time now for what many believe to be predatory and overzealous copyright enforcement tactics. Even an alternative Presidential candidate, the Nationalist Party of America's Billy Roper, has taken an interest in the issue, proposing wholesale copyright reform in his platform. While some of the RIAA's targets have been legitimate, a number of their targets have been individual housewives or college students like this Utah State University student in 2007 who may have downloaded a few single tunes on their PCs through file-sharing software, not thinking that it was a serious issue or that it could inflict noticeable damage upon revenue. Several University of Utah students were also targeted in 2008. The concept of private property which works well in quantifying tangible real property does not work so well in the arena of intellectual property, which is much more difficult to quantify. We can thank Utah Senator Orrin Hatch for the infamous Digital Millennial Copyright Act (DMCA) -- and hope that Utahns will remember that fact in 2012 should Hatch decide to run for the umpteenth time.

In a typical sequence, the RIAA initially files lawsuits against "John Doe" defendants, based on their Internet addresses. Recording industry lawyers then work through the courts to learn the name of the defendant. The RIAA then sends a demand letter to the person, offering early settlement "for a substantially reduced dollar amount"; the alternative is lengthy and costly litigation. However, for a college student or any other ordinary person, these "settlements" can still be rather steep, averaging $3,000 to $4,000.

But it has long been suspected that this targeting by the RIAA is not designed to benefit musicians, but primarily the record labels and distributors. And an article published July 6th, 2010 by The Root entitled "The Music Industry's Funny Money" bears this out. It reveals that the average musician makes only $23.40 in profit out of every $1,000 in music sold from a particular CD. That's slightly over 2.3 percent.

The accompanying graph shows the breakdown. Out of every dollar you pay for music, 63 percent goes to the record label, 24 percent goes to the distributor, and only 13 percent to the band. That 13 percent is gross profit, NOT net profit. Out of that 13 percent, the band must pay for managers, lawyers, producers, and other expenses. Another legal trick used by record labels to short musicians is to sell a retailer 100,000 records for the price of 85,000; the artist is then paid only for the 85,000 CDs, not the actual 100,000 sold to the retailer.

Out of a suggested list retail price (SLRP) of $16.98 for a given CD, the standard wholesale price is around $10. Approximately 25 percent of the SLRP immediately goes back to the record company for a "packaging charge"; namely, the cost of the CD's plastic case. The article does not make clear whether that 25 percent comes out of the wholesale portion or also out of the retail portion. So by the time all the middlemen take their cuts, there's only slim pickings left for the folks who actually made the music.

Stung by mounting public criticism, including boycott threats, and threatened by possible litigation from the Electronic Frontier Foundation (EFF), RIAA has since ratcheted down its campaign against individual consumers, instead focusing more upon on getting copyright thieves barred from the Internet. But now a new revenue-mining campaign is in the works -- and radio stations are being targeted. The problem is that although radio stations pay royalties for the music they play, only songwriters or publishers get the royalties; the artists don't get a dime. But instead of targeting the songwriters and publishers, the artists are targeting the radio stations, who would end up paying more in total royalties. Congress is threatening to intervene.

A "Fair Use" policy in which a person would be allowed to download one copy of a song for personal use so long as it's not duplicated or sold for profit would help reduce the incentive for piracy. Greed is killing the recording industry.


Syphax said...

Perhaps a parallel situation would be ASCAP wringing out local businesses who have musical performers. If those performers play a single copyrighted song, it's the small business that pays. I understand wishing to maintain the copyright of the writer, but what's happening is that little coffee shops don't have the thousands of dollars to pay acoustic guitar players to play in a corner. I don't know if this has changed recently or not.

Deseret Dawg said...

This is true. Small coffee shops and Internet radio stations will be particularly hard hit.