Piracy in the Open Market
By Nestor Louis
Piracy in the Open Market
By Nestor Louis
I don't know how things are in the cities where you all live, but here in New York City I've been noticing a huge increase in the bootlegging of CDs. While the majority of CDs sold out there are either R&B or Rap, it’s not uncommon to see Ricky Martin's latest, along with Victor Manuelle and Marc Anthony records. I've even seen some Fania records! All of those pirated copies are just $5.00. "Well they're bootlegged CDs, the quality can't be that good...is it?" Well, I launched an investigation into the matter. I decided to get a couple to find out for myself. While the cover obviously spells "piracy", I was surprised to find that the sound quality was 100% digital. I couldn't believe it! Not bad for just $5.00 bucks. Now here's where morality comes into play. Buying pirated work is outright stealing. Period. Nevertheless, I would love to find out why legally licensed CDs are so outrageously expensive.
Correct me if I’m wrong, but for years I've been led to believe that putting out a quality tropical record costs somewhere in the neighborhood of $30,000 to $60,000 not counting promotion and distribution, which is most of the times paid for in advance by the label's annual budget. I'd like to know what jacks up the price of a CD that costs just $1.25 to manufacture to a suggested retail price of $13.99, and in most cases $17.99. Is it the extra letters in the credits? Is it the bonus photographs? Could it be the plastic wrapper? What is it? Heck, I've seen imports from Japan priced at just $9.99. Let’s take a look at the probable expenses of a record label in terms of who gets paid and who really makes the big money paid over and over in royalties for the sale of one CD.
The Artist: In the tropical market, if one is lucky and smart enough, the artist can land a 3 to 5 year contract that could pay in excess of $250,000.00 with some extras. However, many artists are signed for less and forfeit their royalties typically ranging from 25 cents to one dollar per unit sold. The idea behind this type of contract is that the artist can potentially earn more money on club gigs and appearances as a result of a hit record.
Musicians: They are paid once, and their payment is already budgeted in the production cost. In the tropical market the majority of the musicians do not even make scale.
Songwriters: Their payment plan depends mostly on who they are, their track record, how much their work is valued, and how the songwriter values his/her work. Few earn royalties, a lot more do not.
Arrangers: Much like musicians, they are paid once and their payment is already budgeted in the production cost. However, some, like songwriters, might participate in the royalty payments. It has a lot to do with the arrangers talent and business savvy.
Recording Studio, Sound Engineer, Producer, and Executive Producer: These individuals are paid once and cost is already budgeted into the production cost. However, the Producer and the Executive Producer can earn royalties for each cd sold, and might also find a way to earn royalties as songwriters too.
A&R, Photo Shoot, Pressing & Packaging, Wholesale & Retail Distribution: These and other non-recording tasks for the most part do not earn royalties. Their fees and salaries are paid on contractual and salaried basis.
Now lets do some math. If one thousand people buy a CD at $17.99 from the larger record stores in your neighborhood, that means the record store made $17,990. If the wholesaler sells 10,000 units at $8.00 he "earned" $80,000. Now, I’m not just talking NY, I’m talking about the Northeastern section of the United States and Puerto Rico. If the label ships 50,000 units (a gold record by Latin standards) at say $7.00 they potentially make $350,000. Mind you, you only produce a record once. The labels can re-issue a record as many times as they want, without having to pay royalties to many people. As a result, in the tropical market, it is a lot less expensive every time you re-issue a record. In film music every time Varese Saraband, MGM, Interscope and all those other film scoring companies want to re-issue a CD everyone in the chain gets paid again and again, and that includes the musicians! They call this re-use fees. And sometimes the re-use fees are so expensive that many times not all the music is pressed on the CD.
So, in theory it should be less expensive to re-issue a CD, or to manufacture more CDs after the initial investment is recouped, but it isn’t. Why? Well because of the shadiest part of this business, payola! The thing about payola today is that it is not so obvious. Today payola is not just paying off radio station personnel to play your record. It’s also the label greasing club owner’s to have an artist perform there. It’s the labels taking promotional stock and selling it at a discounted rate. It’s paying huge fees to the big retail chains to carry an artist’s release. Payola is the monster that took the music out of the music business.
Think about this, if every move you made as a business owner resulted in some type of shake down wouldn’t you want to make sure that your product sells? That’s why every artist out there sounds the same. Labels believe in producing a proven formula that works and sells records regardless of costs. The retail cost of a CD is so high simply because of all the greasing that goes on. It’s a classic mob shakedown!
As you can see payola has contributed to the high price tag of a CD. As a result it has led to the pirating of CDs. The major labels are hurt as a result, but not as much as one might think. After all they might be involved in it to some degree when you consider the sale of promotional copies. The smaller independent labels are hurt by piracy in a big way. The consumer, because of the high cost of the CD, is indifferent. Five dollars versus fifteen, are you kidding me? Hey, all I care about is that the sound quality is clean and complete. And so far so good. The bootlegger is doing ok, he’s selling a few CDs, all at a profit with very little overhead. The artists, on the other hand, are getting screwed royally because they are not getting paid on the sale of that pirated copy of their work. The same goes for the songwriters. Some artists don’t care because they already got paid for their work and are not collecting any royalties anyway. But the reality is that because piracy cuts record sales, it can also reduce the ability of an artist to effectively negotiate a more lucrative record contract the next time around.
So what should the labels and artists do to protect their interest and the record buyer’s pocket? Labels should not allow themselves to be shaken down. I understand this might be difficult because many of the perpetrators perhaps work from within, and the payment ladder is long. They need to explore alternate cost effective ways in which to market and promote their product. No need to pay radio stations folks! They already make money off paid advertising. Hey, why not buy ad spots on radio and tv stations? This way payola will be totally eliminated. Consider removing your top selling artists from major radio stations and retail chains. This would stop the price gouging. I’ve heard people say many times "he’s an awesome musician, but not a smart businessman," so here are some things that artists themselves can do. One is to monitor their sales. Not just by looking at their sales reports, but by looking at the expense reports as well. Who is getting paid? Why are they getting paid? This should keep the cost relatively in control by increasing competition. Have control over the amount of units manufactured and sold. Incorporate a checks and balance protocol that would match the amount of units requested, produced, and then sold. This would enable a more accurate process for the payment of royalties and reduce the possibility of piracy on the part of the record label.
Overall the labels and artists should be concerned with the pricing of their product because the average "Joe" on the street would much rather pay for a quality product at a reasonable price, than buy a pirated copy. In other words, most people would rather go to Macy’s and buy a fresh-out-of-the-box VCR at the right price, than a hot-freshly-stolen-by-a-crackhead VCR at a 50% discount. However, if that Macy’s VCR is outrageously priced, guess which one is going to be bought?
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