How Much Of The Collapse Of Recorded Music Sales Revenue Was Due To The End Of Illegal Price Fixing?

Economics

from the just-saying.. dept

Fri, Feb 10th 2012 12:30pm — Mike Masnick

Harold Feld has made a very important point that has been totally ignored in the debate over the state of the recorded music business. In Cary Sherman's diatribe about how the evil tech industry is destroying the music industry, not only does he pretend that recorded music is representative of the wider music industry's situation (it's not... at all), but he seems to have carefully chosen the date of 1999 as his starting point for the supposed "collapse." Why? Because in 1999 the major record labels (i.e., exactly who the RIAA represents) were charged with illegal price fixing... a practice they then agreed to cease. And, of course, when you stop price fixing, generally speaking your revenue goes down:

This is important because in 1999, according to the Federal Trade Commission (FTC), the major labels were engaged in an illegal price fixing scheme. The major labels agreed to discontinue their price-fixing practices as part of settlement decree in May 2000. Not surprisingly, once the major labels stopped violating antitrust law, their artificially inflated profits declined and independent competitors saw a significant rise in profits.

This is a pretty important point. The "high point" for recorded music sales was completely artificial, not just because of a "legal" monopoly right, but because of illegal antitrust activities in the form of price fixing.

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Filed Under: antitrust, cary sherman, music industry, price fixing, recording industry
Companies: riaa

47 Comments

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Anonymous Coward, 10 Feb 2012 @ 12:39pm

but ... but ... but ... piracy! Your analysis ignores piracy!!
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- Anonymous Coward, 10 Feb 2012 @ 12:48pm
  
  Re:
  You forgot the children!! Won't someone PLEASE think of the children!!!!
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  - Hephaestus (profile), 10 Feb 2012 @ 2:18pm
    
    Re: Re:
    Oh and referencing the previous article ...
    
    ... would somebody please think of the cats.
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    - Hephaestus (profile), 10 Feb 2012 @ 2:19pm
      
      Re: Re: Re:
      sorry previous article
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      - The Devil's Coachman (profile), 12 Feb 2012 @ 9:40am
        
        Re: Re: Re: Re:
        And what about terrorists?
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- Anonymous Coward, 10 Feb 2012 @ 12:49pm
  
  Re:
  Silly AC,
  
  it is supposed to be
  
  but....but...but.. think of our children. You analysis ignores the effect of piracy on our children. How are we supposed to maintain our lavish life style? Also if it was not for piracy we never would have had antitrust allegations.
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- Dog On a Teflon Floor (profile), 10 Feb 2012 @ 12:58pm
  
  Re:
  Think of the pirate's children?
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- Donnicton, 10 Feb 2012 @ 1:33pm
  
  Re:
  Mommy, why does Mike hate our troops?
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  - silverscarcat (profile), 10 Feb 2012 @ 4:24pm
    
    Re: Re:
    Because, sweety, Mike's facts don't give our troops any support.
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Chris, 10 Feb 2012 @ 12:47pm

I find it odd that price fixing was stopped in 2005.

It seems that if I go to Itunes or Amazon, prices for music are pretty well fixed as specific points.
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- Anonymous Coward, 10 Feb 2012 @ 1:06pm
  
  Re:
  I generally find that Amazon undercuts iTunes in most things I compare prices on.
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  - jupiterkansas (profile), 10 Feb 2012 @ 1:15pm
    
    Re: Re:
    And eMusic usually undercuts Amazon.
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    - Anonymous Coward, 10 Feb 2012 @ 1:56pm
      
      Re: Re: Re:
      and youtube undercuts amazon
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      - Ilfar, 10 Feb 2012 @ 3:40pm
        
        Re: Re: Re: Re:
        ... and everyone sues Google...
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- PaulT (profile), 11 Feb 2012 @ 4:45am
  
  Re:
  As much as I'd like to confirm that, Amazon aren't allowed to sell digital music to me. If only there were a way the labels could make more money...
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Anonymous Coward, 10 Feb 2012 @ 12:48pm

Piracy is the real reason
Of course it's piracy, nothing else could possibly explain it!

Just like how cell towers increase birth rates - statistics never lie...

http://www.guardian.co.uk/science/blog/2010/dec/17/mobile-phone-masts-birth-rate
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- PRMan, 10 Feb 2012 @ 3:59pm
  
  Re: Piracy is the real reason
  "Just like how cell towers increase birth rates - statistics never lie..."
  
  Yeah, but too bad they're all mutants...
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Cowardly Anonymous, 10 Feb 2012 @ 12:49pm

"illegal antitrust activities"

I think you mean "illegal trust activities" instead, as price fixing is clearly not helping to fight against mega-corporations.
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- Oliver Keyes, 10 Feb 2012 @ 3:44pm
  
  Re:
  "antitrust" is an area of law that deals with attempts by companies to break the free market - such as, say, cartels that fix prices. So illegal antitrust is right - activities that violate antitrust laws.
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Gwiz (profile), 10 Feb 2012 @ 12:50pm

This is very interesting.

The Pre-Nabster Era was really the Illegal Price Fixing Era.
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- Jeremy Lyman (profile), 13 Feb 2012 @ 6:18am
  
  Re:
  Yeah, I completely forgot about that whole thing. I guess that $20 check I got in the mail did its job. And I'm usually VERY good at holding a grudge.
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Robert (profile), 10 Feb 2012 @ 12:54pm

Shadow boxing
The whole rant about piracy is partly to distract politicians and the public from their past price fixing behaviours. We wouldn't want the public knowing the labels, claiming foul against file sharing folks, were ripping off the consumer beyond just 2-hit-plus-filler releases, would we?

Then again, given how quickly RIAA jumps at chances to treat the consumers as criminals, threaten people (proven guilty or not) via extortion, so the labels can continue to shit on both the artist and consumer... I highly doubt the members of these "trade" organizations (The Former Four Families -- EMI going under UMG's wing now) care if this gets out.
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Anonymous Coward, 10 Feb 2012 @ 12:55pm

Then what we really want to see is not sales in $$ but sales in volume.
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- Anonymous Coward, 13 Feb 2012 @ 4:24am
  
  Re:
  Right, if price fixing is stopped, you'd expect prices to go down, which would increase volume (but decrease revenue). My understanding is the number of physical units went way down.
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- Anonymous Coward, 13 Feb 2012 @ 4:24am
  
  Re:
  Right, if price fixing is stopped, you'd expect prices to go down, which would increase volume (but decrease revenue). My understanding is the number of physical units went way down.
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DanZee (profile), 10 Feb 2012 @ 1:21pm

Illegal?
What? The record companies were doing something ILLEGAL? They accuse everybody else of doing illegal things!
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- silverscarcat (profile), 10 Feb 2012 @ 4:25pm
  
  Re: Illegal?
  Perish the thought! I mean, that would make them *gasp* hypocrites that people hate!
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- Jeremy Lyman (profile), 13 Feb 2012 @ 6:21am
  
  Re: Illegal?
  Hey, it's only illegal if you can't pay legislators to do what you want. Whoops.
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Anonymous Coward, 10 Feb 2012 @ 1:24pm

I would say that since the retail price of music hasn't dropped 50% or more, I would say that this theory doesn't really hold much water at all.

If anything, the prices have gone up, especially those of indie artists who see no problem asking for $15-$25 for a single CD.

Sorry, nice try at a slam, but a total failure.
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- Anonymous Coward, 10 Feb 2012 @ 1:34pm
  
  Re:
  was the anti-trust case even about the retail price?
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- Anonymous Coward, 10 Feb 2012 @ 1:38pm
  
  Re:
  Funny, I recall paying $4 or so for a single on cassette, a single MP3 costs $0.99-$1.24 each. That's a pretty big drop in price.
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- Killercool (profile), 10 Feb 2012 @ 1:41pm
  
  Re:
  Oh, yes, you're completely right. There are absolutely no other factors involved, such a a recession, the rise of the truly indy artist (not one who is with an indy label), the change of formats (from predominately disc to predominately digital), a massive reduction in need to buy a new format version of a song when the format changes (why buy when you can convert yourself?)...
  
  I'm sorry, what were you saying?
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- Keroberos (profile), 10 Feb 2012 @ 1:42pm
  
  Re:
  Of course, in typical shill fashion, you are only using a single data point and claiming it doesn't match the facts. There were a whole bunch of things happening at the time which must be taken into account when looking into the drop in recorded music sales.
  
  First: How much of the previous sales were due to people repurchasing music they already had on other formats?
  
  Second: How much of the losses were due to the growth of other entertainment options (the rise of video games, home theater, and computers)?
  
  Third: How much of the loses were due to the fact that the economy had just crapped it's pants during the dot-com bubble burst and people were buying less of everything?
  
  So claiming that the sales losses were only due to price dropping is completely inaccurate and was never claimed in the article.
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  - Anonymous Coward, 10 Feb 2012 @ 1:56pm
    
    Re: Re:
    Combine first, second, and third... and you have all the proof you need that price collusion has little or nothing to do with a shift int he bottom line.
    
    Oh, and, you forgot "widespread piracy" on your list. FTFY.
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    - Keroberos (profile), 10 Feb 2012 @ 2:51pm
      
      Re: Re: Re:
      Oh, and, you forgot "widespread piracy" on your list.No I didn't. I've just never seen any credible evidence that links "widespread piracy" to lost sales (and I've seen more evidence that says the exact opposite).
      
      Going from personal experience, people that I've known who were massive pirates would never have bought most of the things they were pirating anyway (and most of the things they did buy were pirated first).
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    - silverscarcat (profile), 10 Feb 2012 @ 4:44pm
      
      Re: Re: Re:
      Here's a little something for you, AC...
      
      If I pirate something, and I like it, I buy it later when I can find it.
      
      I don't buy very much entertainment these days, but when I was buying stuff up, I liked to get a sample first...
      
      Oh, and of course, there's the whole issue of getting stuff that's no longer licensed and cannot be found anywhere...
      
      Or was never brought over to my country in the first place.
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    - PaulT (profile), 11 Feb 2012 @ 4:58am
      
      Re: Re: Re:
      "Combine first, second, and third... and you have all the proof you need that price collusion has little or nothing to do with a shift int he bottom line."
      
      Yet another unfounded assumption. Don't you guys get tired of those?
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- Anonymous Coward, 10 Feb 2012 @ 1:47pm
  
  Re:
  He was not talking about the prices fixed or the prices fluctuations but the effect that the lack of collusion capabilities have on individual players.
  
  Did you ever go to school?
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- Anonymous Coward, 10 Feb 2012 @ 3:29pm
  
  Re:
  "If anything, the prices have gone up, especially those of indie artists who see no problem asking for $15-$25 for a single CD."
  
  Naturally, since the per-unit cost for indies with far fewer orders was far greater than the big companies, who were still reaping major profits off their mass-produced cds.
  A major's cd would cost 15-35 cents to produce, and sell for $14.99-18.99.
  An indie's cd would cost, depending on the run, $2.50-$4.00 and sell for $15.99-$18.99.
  
  Yet, the major's mp3 would still cost $14.99-$18.99, while the indie's mp3 would cost $9.99-$14.99.
  the mp3 for both would have the SAME overhead/production cost, but the major's would still cost more!
  Why?
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  - Anonymous Coward, 10 Feb 2012 @ 5:59pm
    
    Re: Re:
    Negative there sky pilot, the costs per unit for the shiny plastic disc and the case to put it in net net net is way less than a dollar a piece in any quantity at all (like a couple of hundred pieces) so the cost of the product isn't the issue.
    
    Are you suggesting that (gasp!) they are actually figuring their up front costs into the price per unit? Don't say this too loud, Mike will come down and scold you for not understanding marginal pricing!
    
    If you are paying $2.50 - $4 for CDs, you deserve to fail.
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    - Anonymous Coward, 11 Feb 2012 @ 7:23am
      
      Re: Re: Re:
      As a note for this, I randomly selected a company off the internet that does reproduction of CDs... 500 pieces, with full color, in jewel cases was $795 delivered to my door, or $1.59 a piece. I didn't work hard to find it, didn't look for a local source, nothing. Just picked a single company that does shorter runs and went with it.
      
      With a "marginal cost" of $1.59 a unit, Indie acts should be able to make a profit at $2 a disk.
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ECA (profile), 10 Feb 2012 @ 3:08pm

Another point to add.
STORES have contracts.
All the major re-sellers have EXCLUSIVE contracts..
And there are a few caveats in it..

1. I will only sell THAT corps music/albums..
2. return/NOT returnable. I can buy from the corp CHEAPER if we have a non-return to them..Store does the returns and just destroys the music/album.
3. you can BUY a location in the store. registers, endcaps are the HIGH sales points.

There is tons more in the contracts. But I think it all breaks down to restriction of trade for the OTHERS record distributors.
Theaters BEGAN, as independent owners. and its an ODD history, and a movie was made about it. BOMBED/SOLD OUT/UNDERCUT by the Major distributors, MANY went under or just QUIT.
This has been going on for YEARS.. BOTH music/movies industry OWN the distribution system in the USA.
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Anonymous Coward, 11 Feb 2012 @ 7:08am

In addition to price fixing, they major labels were also involved in Payola schemes which were much easier when they mostly had to deal with a small number of large corporations like Clear Channel who owned the vast majority of the radio stations. Kind of hard for independents to get any sort of exposure when most of the radio stations are taking money under the table to only play the major labels music.

The rise of the internet (not to mention several prosecutions for Payola, like the one by Spitzer in 2005) put a serious kink in that plan. Suddenly the independents had avenues to finally get widespread exposure for their music.
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Anonymous Coward, 11 Feb 2012 @ 1:24pm

The law won't stop 'em
Illegal price fixing ... ?

http://www.hypebot.com/hypebot/2011/11/billboard-magazine-declares-that-discounted-music-does nt-count.html
Billboard Declares Discounted Music Doesn't Count
unit sales for albums priced below $3.49 will no longer be eligible for the Billboard charts and won't be counted in Nielsen SoundScan sales data during their first four weeks of release. The new rules may be in response to Amazon's Lady Gaga 99 cent sale, but also serve to discourage artists and labels from using price as a marketing tool.
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- DinosaurHunter (profile), 12 Feb 2012 @ 6:50am
  
  Re: The law won't stop 'em
  Is that legal?!
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FearlessMonstrosity, 12 Feb 2012 @ 11:35am

Meh.
It couldn't possibly be that people aren't going to pay for a whole album they can't afford when they can buy the one or two good songs on it for considerably less could it?
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rhobere, 12 Feb 2012 @ 6:11pm

also Meh.
I know plenty of people that pirate plenty of stuff and they either a) wouldn't be able to afford to buy it without sacrificing two of their children and at least one of the goldfish or b) would gladly listen to NPR if they couldn't get the music for free. These are people with hundreds and hundreds of gigs of stuff they got for free, but none of it could be considered potential profit for any company. If software companies want to complain about companies using pirated software and if film industry wants to go after people that leak screener copies before the movies come out, I have no objection.

But illegal downloading doesn't put a dent in CD sales or digital music sales nearly as much as the absolutely horrific sound quality of the mp3's sold online. At least when record companies were screwing us in the 90's they weren't compressing the music to 5% of the frequencies. At a dollar a piece on itunes, which is approximately the same price as a CD, you can have the same songs with significantly reduced audio quality and no hard copy. I would buy internet music if it was lossless. Until then, I'll just keep listening to NPR.

I'd also be skeptical of the idea that the industry is still struggling with an anti-trust lawsuit they dealt with thirteen years ago. They have got to be the least efficient industry in the world if they haven't figured out a way to make a profit legally in that amount of time. They're victims of the fact that there are so many legal ways to get an entertainment fix for free. Between hulu, youtube, spotify, pandora, social networks, blogs, podcasts, and TED.com most people that have other responsibilities (read: not 13 year old girls) can keep themselves entertained without having to keep a music collection.

I don't know. Maybe we should embrace the idea that people have hobbies instead of vibrating air and flashing squares that make them think they don't need hobbies.
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