Katy Perry Shows How The Problem With The Major Labels Is Economics, Not Piracy
from the there's-a-lot-of-inefficiency dept
A few weeks back, the folks at Planet Money tried to break down the economics of Katy Perry's massively successful album with its five hit singles. Specifically, they wanted to figure out how much money her label made from such a big success. What comes out is a step-by-step description of the massive inefficiencies of the major label recording system. There are things like paying producers $100,000 per song they produce on the album. Then there's all the payola... er "special promotions" to get the songs played on radio so much. In the end, Planet Money calculates that Perry's label, EMI, probably made somewhere around $8 million in profit from Perry's music sales in the US. That's not topline revenue, but bottomline profit. That's not bad per se, but for an album with five hit singles and which was clearly one of the most successful albums in 2011, you begin to see why the labels are struggling.But, of course, Perry, herself isn't struggling. As the full podcast by Planet Money notes, Perry has been able to avoid getting sucked into a "360" deal where the label gets to take some of all the revenue she earns. They just get the record sales. Perry, in the meantime, is estimated to have made $44 million in 2011 -- a large chunk of that coming from her tour, which alone grossed over $50 million.
What you begin to realize as you see more and more stories like this is, once again, the "problem" has nothing to do with the "music industry" failing... or even that musicians aren't able to make money any more. It's all about the bad economics of the record labels. They set themselves up to fail this way, focusing solely on that one slice of the pie, and not moving very quickly to adapt when the market shifts. Instead, they seem to have kept up the inefficiencies associated with making such a "hit" album, without figuring out a way to profit from the results. Of course, for artists like Perry, things are great. She's able to make a ton of money, most of which doesn't first have to filter through the label...
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Filed Under: deals, katy perry, record labels, revenue, touring
Companies: emi
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Wazzat?
It was neat to read about the absolutely dysfunctional relationship between the labels and radio.
On the 1 hand they "pay" them massive amounts to make their music popular, and on the other hand they have been trying to extract even more payments out of the stations... for promoting them...
At some point it would be nice if someone came along and disrupted this old style model with something new and useful. For all of his faults, Kim Dotcom had a ground breaking idea in how to connect with the fans and sell to them without worrying about having to make a Superstar happen. Now it most likely was just building on the other models out there being used, but with Mega backing it you got free publicity raining down on ya.
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Response to: That Anonymous Coward on Feb 20th, 2012 @ 5:58am
sand NZ police arrested him. Mrgabox would have heralded the true future of music.
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I thought you were meaning to say Katy Perry had made an insightful blog post regarding the economics of major labels.
Than I had to subconsciously kick myself for using "Katy Perry" and "insightful" in the same mind-sentence.
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She managed to avoid a deal with the label that many other artists take that screw them.
She was insightful enough to avoid that trap, or to hire a lawyer who made sure her interests came first.
Never confused the media image with the actual person...
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So true.
I can't stand to listen to her 'music', But to listen to her in interviews she comes across as smart and savvy. She's most definitely NOT a bimbo.
People really need to learn the difference between the person and the persona.
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Economics of copying
In the old days it was preferable to make many copies of one thing rather than a few copies each of many things. That had two major consequences:
1) There was no real competitve pressure on the cost of creating the original - since that was amortised across a large number of copies. Hence the $100,000 production fees.
2) Any expenditure on marketing could easily be justified if it resulted increased sales - because the cost would be spread across those sales.
The record industry need to realise that this has now all changed. Because the cost of copying is now the same - regardless of whether you make one copy or a billion there is now no part of the process that is exempt from market forces.
The number of titles available in future will now reflect the market (ie the tastes of the audience) rather than the technological imperatives of the production process.
In this environment high fixed costs cannot survive.
Note that none of this logic "requires piracy" to work. It would be true even with no piracy at all and yet those who embrace the logic of it will have much less of a problem with piracy than those who don't.
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Re: Economics of copying
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:)
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Re: :)
I'm talking about shows like EpicMealTime. Philip de Franco. LittleKuriboh. The abridging community. ThatGuyWithTheGlasses. Yahtzee. RedLetterMedia. As soon as I fire up my browser and see either an email or an indication on my Youtube channel that they've uploaded a new video, I HAVE to see it. And its free. Their shows are getting better all the time. Take Yahtzee for example. His earliest reviews weren't that great, but he gradually increased the quality, built up a following and published a book (I bought a copy...yes, me, the guy who has a Kindle and prefers to download all my books for free). These are people who just use a desktop computer at home (no need for high-end studio workstations. Therefore, they feel like, and rightly can be called, 'one of us'. I feel a connection to them. They're not some fake personality built up and edited and marketed by a corporation, its themselves being themselves, which feels completely real.
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Let's face it, copyright expansionism is really just a way of obfuscating big media's attempt to take control of the internet. They fear a free market where people are able to create, share and disseminate knowledge without the big media looming over their shoulders regulating everything. The music industry is afraid of the independent musician so much so that they're attempting to create an excusive society with their .music nonsense wherein only the artists they recognize as "professional musicians" are represented as such, i.e. those under their umbrella. Not long ago, ASCAP came out with a smear campaign against Creative Commons, EFF and other public-friendly copyright organizations. Licenses such as CC allow artists to freely distribute work for non-commercial use while still providing many of the same protections as a standard copyright, such as royalties for commercial use, but that wasn't good enough for ASCAP. No, they had to set up a strawman and knock it down to make their point. Typical corporate bullying. Too bad that the internet is not their corporate playground to go around dictating what everybody is allowed to do. Let 'em have their stupid TV and radio.
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How long before those people start saying no? How many already have?
The funniest part is, the industry is going to get its wish pretty soon: their content is going to get pirated way less. But their going to be horrified when they realize that it's not because people started paying, but because they have found far superior alternatives. As Jay says, it's poetic.
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Re: Re: Re: :)
Whose reach was both near and far,
But those days too were numbered,
For they were encumbered,
All their doors were ajar,
So they blamed it on a nerd.
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Already Happening
Where do you get tech news, NY Times or The Verge? Sure some big tech news sites are owned by media conglomerates but that is mostly from acquisition and there are plenty of blogs that aren't selling out.
If you look at broadcast/TV/live news coverage of the tech sector which is better, CNN and G4 or TWiT.tv and Revision3?
It is only a matter of time until some one gets as successful as TWiT.tv doing comedy or drama or regular news. That is when the existing media companies will start to really feel it, when solid, high production value but extremely cheap to produce content stops being something that they can pass off as "interesting only to nerds."
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They made a platform to sell stuff quickly and easily.
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They did/do have DRM, but it isn't this massive imposition on their customers thats assumes they are all thieving bastards.
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Exactly!
A "new business model" that the major labels are kicking themselves for not developing!
They could've had "the racket" Jobs created, but they were too short-sighted and stupid to come up with it!
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Hulu - Dying.
NetFlix - poisoned.
Napster - joke.
Everytime the labels get a chance to demand something from a platform they destroy it.
Apple is big enough to hold them off, and they remain successful. (Not that apple doesn't have their own issues but those seem to pale in comparison.)
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Well, they still aren't allowed to sell MP3s to every country where they have a store, let alone other countries in the world, so there's that... At least Apple are able to sell to a large proportion of the potential customers in the world.
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We want a 500 day delay before you can rent things.
We want more money for streaming rights, because we deserve more.
This lead them to try and splinter the company into 2 divisions, and well that went well.
The demands they are making on Netflix are slowly working on killing it off. Netflix has been shown to lower piracy rates, but they want it out of business because they are being greedy.
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Re: Re: Re: Re: Re:
Netflix has never been the place to go get the newest of the new. It's been the place to wallow in the best of the old. Their strength was having the biggest library of DVDs-by-mail, and streaming just complements that with the ability to check out 10-15 minutes of movies and decide what's worth watching.
I could care less how long things take to get to Netflix. There's always something else to watch in the meantime. Maybe that hurts Hollywood trying to push their latest crap on us, but Netflix has been the one thing that's kept me from turning pirate.
If this is poison, give me more.
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I have no clue as to what Apple's profit margin is on this, but I will say that servers, hard drives, electricity, bandwidth and personnel are not exactly free.
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But, yeah, "not doing much". If it were really so easy to create that platform, the RIAA would be taking that 30 cents for themselves in a heartbeat.
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They would if they stopped spending it on hookers and blow.
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Do you really think Apple became one of the most successful companies ever, and restructured the media consumption habits of the whole world, by doing nothing much?
The iTunes store (which in itself involves hefty servers, ongoing development, considerable administration and a large promotions budget) is only one slice of the pie, and would be nothing by itself. Its success - and the success of the labels and musicians that use it - is owed to the sprawling media ecosystem Apple created.
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Re: The best part of all of this is the fact that Apple makes 30 cents for not doing much. Quite the racket that Steve Jobs created.
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Apple made it inexpensive and easy to listen and live music...which everyone benefits from. I didn't see the record labels helping you.
Thank Apple and Steve Jobs for enhancing your life and keeping money in your pocket. And let's ask why the record cos were so stupid not to have the vision to do it on their own. Whatever happens to them is their own fault for bein asleep at the wheel
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FYI, the Pirate Bay works fine on both Windows and Linux on plain old "PC" hardware, and has been doing so for a long while.
/end "kids, do no try this at home" tag
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I don't use iTunes and anything that can be labeled as "iShit" but I do use Amazon.com's MP3 Music Store.
When I go there and get a song I get a DRM-free, high-quality, 256-bit (average) variable bit-rate MP3 file that I've seen spikes to full 320-bit. This isn't some badly encoded MP3 which believe you me, I've heard some badly encoded MP3s that was encoded by someone who obviously doesn't know his way around LAME.
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I have, however, worked with numerous companies who, like Apple, are always on the lookout for fresh, new ideas that hold future promise. What is important here is the term "ideas", because an idea is certainly not the same thing as an implementation of an idea, and it is the means by which an idea is implemented that begins to define what comprises an invention.
It is said that one of several ideas embraced by Mr. Jobs was the idea of a GUI he is attributed as having observed at Xerox's PARC facility. To say he "stole" an idea freely shown to him would not in my view be accurate. Rather, I would say he saw something of interest, the GUI, and then took that idea back to Apple to work on it and figure out a way to make it work with Apple's upcoming products, which at the time were the Apple IIGS and the real game changer, the Macintosh. Through such work Apple quite clearly came up with a number of inventions, and the rest is GUI history.
Merely as an aside, I have always been taken aback by the many persons who insist on somehow equating Apple with Microsoft. Apple is, and always has been, a hardware company, whereas Microsoft has, but for dabbling with some hardware accessories, been a software company. Apple's work with software has in my view always been related to using it as a marketing tool for the sale of its hardware. Even now, its software products are priced well below equivalent products by others, in my mind confirming that its software is basically a "foot in the door" to entice people into purchasing its hardware.
Given its hardware bent, it does seem quite reasonable to assume that services such as iTunes are once again a means by which it can promote its sale of hardware. Based upon unit sales, stock price, market share, etc. its spproach seems to be working quite nicely.
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Musicians make music. Producers make product, which is how the Labels view their wares. Once the promotions department is finished with it, it's a tightly controlled packaging of the artist's intention, using the closed feedback loop of chart numbers as an infinitely recursive mass focus group.
They still think in terms of physical objects: their entire philosophy, and their entire workflow is based around solid lumps of plastic and the vending thereof.
They don't know how to change, because all they know is 'product'. 'Product' isn't what's selling.
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I still have one of the first consumer MP3 players, tucked away in a drawer, a Diamond RIO PMP300. I bought it in late 1998, used, at a local computer flea market. The first Ipods didn't appear until 2001. The music industry tried VERY hard to eliminate the RIO and fortunately they failed. Apple did make a lot of changes and improvements by building on the RIO's 'prior art'. Many companies did, and now there are a lot of very good MP3 players that are every bit as good as the IPOD, but for half the price.
Apple didn't invent easy online distribution either. they built upon the success of Napster. Also AllofMP3 was a better and even more popular service than Itunes. They had a better pricing structure, more choices of songs and artists, choice of sound quality and no DRM. AllofMP3 also PAID THE PROPER ROYALTIES to the extorti ... ahem .. collection society in their country and was a completely legal service. They were shuttered anyway.
Apple is a company that has been built almost entirely on the 'prior art' and ideas of others, and uses it's success to try to ensure that others are not able to do the same.
It was 'easy to listen and live music' well before Apple came into the market, and the competition has always been less expensive.
I do agree though that whatever happens to the record companies is their own fault for not seeing the money that was there for the taking. They are idiots.
" that is unless you're still illegally downloading them and screwing the artists and record companies. "
It has been proven that downloading doesn't affect sales one teensy little bit. Downloading has never hurt artists or labels, they know it.
No one has screwed the artists more than the labels have, and they know it. I think you do too.
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Who said they did?
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I would say this underscores what's WRONG with the system, not how great Apple is. Artificial scarcity is a bad thing. You know as well as I this pushes those who would buy to finding alternate means of acquiring what they want. There is no such thing as artificial scarcity on the internet, and there isn't any way of forcing it to exist. Your own statement suggests that Apple STILL can't reach the whole world. If it did, THAT might bring back paying customers.
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Whether or not the reason for iTunes' wider reach is better management on Apple's part, it shouldn't take a genius to see how lack of choice will negatively affect legal purchasing decisions. After all, no pirate has ever been told their chosen download is unavailable in their current location.
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Of course. You think they'd let the MPAA come out with a list of the only 3 profitable movies ever and do nothing of the sort themselves? How do you expect them to cry for new "laws" and "agreements" if no one is eating their pie?
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Like an adwords
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More Masnick math?
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F- always show your math on the page.
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Nope, the math must be wrong.
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Even at your lowest estimate (which appears to be a complete guess you dragged out of your ass anyway), the tour would still be netting more than the album. That doesn't change anything raised in the article.
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Further, the Forbes numbers don't show gross or net, no indications. It doesn't at all give any indication of the sources of income for Katy Perry. However, it does specifically mention that Taylor Swift made money off of album sales (and it was the first item on their list).
It should also be noted that Katy Perry is actually a song writer, credited on nearly every song on her albums. No doubt the strong radio play and other uses of the material under license are a big deal.
She also made 4 million dollars as the face of Proactive.
"Perry's album Teenage Dream, released in August, boasted four chart-topping singles making it one of only nine albums to accomplish that feat in the Billboard Hot 100's 52-year history. No stranger to business, Perry shills for Proactiv, Adidas and Ubisoft, and has her own perfume line, Purr."
I think that Mike just isn't being honest here. Yes, both numbers are correct, but the 44 million seems to be mostly a direct result of the albums, and the promotion and exposure that have come with them. Shouldn't we consider HOW it happened, rather than just tossing a number up there?
"Even at your lowest estimate (which appears to be a complete guess you dragged out of your ass anyway), the tour would still be netting more than the album. "
Incorrent. The album sales (5.5 million) combines with the radio plays and other licensed uses, and generates significant income for Perry. The tour, well, Gross versus net, and then net to artist... It's not clear, and Mike certainly isn't bringing anything to the table to explain it.
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Rather, it's the careful promotion of her name, brand and personality, orchestrated between her management company, publicist, and yes, RECORD LABEL. All of the things that have brought her a lot of money in the last year are on the basis of that. The concert tour is the result of these things, not the cause.
As I noted, a 50 million gross doesn't indicate very much as to what the artist really made. That gross number is actual take at the door, not net of anything. There is no indication of Ms Perry's personal stake in the tour, it's income, etc. Without some indication, there is no reason to pair these two numbers up in a manner that links them. It would be way more relevant to post up a list of sponsorships and spokesperson gigs, as they made much more.
What would Mike do it this way? He is trying to push the notion that live concerts are "where it's at" for making money. He doesn't like to deal with cause and effect (ie, the album, the record label investment, the promotion etc as the cause, the tour as the effect). He would rather cherry pick something, put two non-related numbers together, and try to drive a story.
Why mention a net number to her in one breath, and a gross number to a touring company in the next, unless you are trying to imply that they net is the effective of the gross.
With 5.5 millions records sold and untold numbers of radio play and licensing, it is much more likely that Ms Perry netted more off of her recorded music than her tour, on a personal level.
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That is exactly the point I took from the article. So I think your criticism is off base.
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Thank you for proving Mike's point.
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She is selling the scarcities CREATED by the albums... you know, exposure, promotion, etc. What she is selling is what has been created through her label albums.
Sorry to disappoint you, but you need to learn cause and effect.
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She doesn't sell exposure. She doesn't sell promotion. She benefits from those in order to sell other things. And if your point is that her album sales help her both directly and indirectly, well nobody is disagreeing with you.
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Where are your figures, or am I just means to accept the figures you dragged out of your ass without question? You really don't convince anyone by just whining that Mike is wrong, while neither address the central points of the articles, nor citing your own figures.
Seriously, start applying your own irrational hatred to the opposition you support, you might understand the real discussion.
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More AC reading fail. No one except YOU said the 50 mil netted 40 mil. Talk about not reading what you are trying to tear apart.
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360 deals
That being said, big label ain't the only way anymore.
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Re: 360 deals
The labels have nifty ways to get more and more money from the artists pockets, having them involved in other deals you might have going seems like a bad thing.
Unless the labels are going to be more transparent in how they operate, it will never be a good deal.
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Re: 360 deals
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Here's a quick mind teaser:
Name other economic sectors who have not had to streamline their operations or cut costs to remain viable though these tough economic times?
Think about it. Everyone else is struggling. From state and local governments cutting police, firefighters & teachers to large multinational corporations like GM or Chrysler laying off thousands people and borrowing billions of dollars to survive.
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Presidential Candidates.
Koch Brothers.
Do I win a cookie?
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The first two have had to streamline who they let in, and the first to go were Joe Public.
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Masnick Math
See all those blue underlined words in the article? On the internet we call those "links." click on them and they take you to the "sources," where Mike got his numbers.
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Ah, the music industry, a never-ending source of painful entertainment. And they also produce music.
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Re: Payola
I'll set up a massively popular BT swarm. Than the record labels can pay *ME* to falsify the download counts making their songs appear more popular.
We'll call it Torola : The New Beginning.
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Huh
In fact, I don't see how you proved your point at all.
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Overpaid
Black March should become a lifetime thing. Boycott the labels, and support the artists directly. Buy independent music, buy from labels that oppose ACTA and TPP.
Screw the rich bastids!
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Producer make music, not labels
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