The cost of a CD should be exponentially higher, according to the RIAA

Posted on January 19, 2007

The Recording Industry Association of America hasn't been making too many friends these days. I guess I should say that the organization does have many friends inside the music industry, because that's who makes up the the RIAA.

I'm not here to argue whether it's right or wrong to download free music where it's available, or whether it's OK to listen to your friend's "Beach Boys Greatest Hits Album." I'm just here to point out what the RIAA wants you to believe about the cost of music and CDs.

If you visit the Key Stats/Facts page on the RIAA website, you'll notice a justification for pricing CDs. The biggest argument appears to be the fact that the Consumer Price Index rose nearly 60 percent between 1983 and 1996, even though the price of a CD actually went down. While this might be a true statement, this is virtually worthless in determining how much a CD should cost.

Let's examine this statement, directly from the website:If CD prices had risen at the same rate as consumer prices over this period, the average retail price of a CD in 1996 would have been $33.86 instead of $12.75.

I know that the CPI has risen, but these numbers don't seem to translate properly. So I visited the Bureau of Labor Statistics Data site, which contains a CPI Inflation Calculator. Unfortunately, I needed the initial value (of a CD in 1983), instead of the theoretical value in 1996. Since I didn't have that, I just guessed until I came up with $33.86 in 1996. I finally found that value: $21.50.

This means that the RIAA is claiming that the average cost of a CD in 1983 was $21.50. How many CDs have you purchased for more than $20?

True, the CD was new technology at the time, and it's quite possible that the price, in some places, was more than $20. Where the RIAA deviates from basic technology knowledge, however, is that more often than not, the cost of producing something like a CD almost always goes down over time.

What better example of electronics getting cheaper than taking a look at the history of the calculator. From the website listed above, Texas Instruments came out with a calculator in 1972 (TI-2500) that cost $119.95 (actually, the suggested retail price was $149.99). If we take a look at the CPI inflation calculator, using the calculator cost and a 13-year span, from 1972 to 1985 (the same time length the RIAA used), we see that the calculator should have cost about $308.77 in 1985.

Maybe this isn't fair, considering the time periods are different. So I'll try $119.95 in 1983, and the value in 1996 is $188.96.

How much do you think a calculator that could do only basic math functions (add, subtract, divide, multiply) was worth in 1996? By 1981, Texas Instruments had already developed a model that included more functionality for $19.99. Granted, the technology involving calculators and CDs are vastly different. My point is that when you are in the technology world, most of your products, with the same level of functionality, do not get more expensive.

The CPI is useful for looking at the prices of raw material, grocery items, etc. Sorry RIAA, but buying a CD isn't like buying a bushel of Korn.

Comments

Jim D.

I recently visited the RIAA website and read the page you quoted, before I saw your article.

I was infuriated by the tone of the article. The RIAA serves the recording industry, true. But the recording industry serves the public, therefore, I found their reasoning and slant to be inappropriate toward that audience. Can you imagine the NFL or McDonald's chiding it's customer base?

The music industry is non-essential - it's entertainment. People don't need CDs to get to work, feed their families, etc. What's more, technology has made it so that ANYONE can produce just about anything on their own, and even market it.

The failing lies in the recording industry not keeping up with the times - their business model is bloated and old, and they should have looked toward using new technology, rather than DRM and trying to stop it (impossible).

One other thought - the RIAA might argue that music has value beyond entertainment (and as a former music therapist, I'd agree). But, there hasn't been a cohesive cultural music movement documented by the commercial music industry since Nirvana. It's all garbage - and I couldn't tell you what's been on the billboard charts since, well, grunge. The music industry has become the fast-food of American culture - not relevant or healthy.

Thanks for your article.

Sat, 08/16/2008 - 11:44 Permalink
Reb

I actually paid $30 a CD when they first came out back in the 80s, it was a fairly common price. I also paid $999 for my first VCR. (I couldn't give away a VCR for free now and saw dozens in the thrift store for $3 a piece today.)

If cd's cost $33.86 today...Piracy would be even more popular than it is now.

Sat, 08/16/2008 - 11:44 Permalink
Tom R

Did you know anyone who had a CD player in 1983? I'll bet you the average price of CDs in 1983 *was* $25 of so -- and perhaps a few thousand people owned them.

Of course, the correct prices to compare are CD prices now with LP prices in 1983! This is more than fair -- it cost more in real dollars to press an LP at the time than it does to press a CD now. I don't remember ever paying $10 for an LP at any time.

Worse yet, the portion of this money that goes to the *artists*, the people you're actually paying to hear, has gone down -- if you divide the music companies' expenses into 14 categories, from promotion to production to etc, the largest category is executive salaries, the smallest is artists royalties (the second lowest is the cost of renting office space).

Even worse yet, the portion of net royalties paid to the top 5% and even more the top 1% of artists has dramatically increased, so the vast majority of artists are getting stiffed here too.

And wait, there's more: five in six artists only release a single title on a label contract -- since unit sales below 50,000 are considered (and accounted for) as failures, the artists actually *lose* money on making music -- that's right, the record company pays five out of six acts a net negative "wage"! The idea of "developing" artists (which was comparatively cheap) no longer exists -- it's all about "promoting" artists, just like pump and dump stock market schemes.

Thanks for listening. The numbers are all pretty accurate, vintage 2003 when I was closer to this whole thing... but from what I hear, it's only gotten worse since then.

Sat, 08/16/2008 - 11:44 Permalink
Richard G.

I just read your article about the RIAA's crying over CD prices. I'm not one to defend the RIAA on anything - especially their absurd argument about CD prices. CD prices were, however, MUCH higher when they were introduced. This isn't surprising - it was entirely new technology, and the initial production costs were very high. The initial CDs typically cost about $24.95! Seriously. I bought a few when they first came out, and it was a significant investment. That said, this happens with all media. Even blank, recordable discs were astronomical when they were first available; now they cost just a few cents apiece. It would probably be interesting to consider the cost trends of vinyl and cassette "albums" over their respective lives. Or an even more telling trend - the consumer-driven drop in initial release price of DVDs. Once listed at $34.95, DVD titles are now introduced at street prices of around $15. And now we're seeing high introductory prices again with high definition disc formats. This is basic economics! When is someone with the necessary clout going to finally debunk the RIAA's desperate arguments and claims about the recording industry? I am so sick of their whining ...

Sat, 08/16/2008 - 11:44 Permalink
Bob W

Nice article.

You could have used Hard drives for your example.

15 years ago a 40mb hard drive cost $250.00 which works out to $6.25 per megabite.

That would make my 500GB hard drive cost over 3 million dollars. But I paid under $200.00.

The price of storage has dropped and a CD is a storage medium.

Sat, 08/16/2008 - 11:45 Permalink
Clinton C

Regarding your article:

As a consumer, I can readily agree with the opinion that the RIAA is way off-base with their stances and resulting methods. However, to read how you can actually empirically prove one of their claims to be absolutely wrong was especially rewarding. Thanks for that.

I have done some research on the history of the music industry, with a specific focus on formats and methods of distribution. I have found that the music industry is one of the few technology industries which holds on to out-dated formats and methods of distribution as long as they possibly can. This tendency of anti-progression is a regression in the reality of technology industries. This is why, according to their calculations, CDs should cost more at retail. They don't grow and change like, say, Texas Instruments.

Your approach to disproving this "fuzzy math" is great. I would simply like to add that they really do need to make $34 on a CD to uphold their current business model. The solution is not in the cost, but in the processes which lead to the cost. If the business model changes, they could run profit at $10/CD or lower. Unfortunately, the industry would rather alienate their customers rather than their old business model. The formats need to change ( e.g., digital, no physical) and/or the methods of distribution need to be corrected (e.g., getting rid of the "brick and mortar" exclusive thinking.)

I just wanted to encourage you to keep up the good work.

Thanks again!

Sat, 08/16/2008 - 11:45 Permalink
Dylan R.

Loved the article.

Unfortunately I can confirm that CDs were $20 (well, $19.99) back in '83-'84. Bit painful for the early adopters.

But I didn't understand what you meant about how the cost of producing a CD should go down over time. Are you referring to the material costs? You're probably right (I'm told that it costs a little over a buck to press a finished CD nowadays and it was probably much higher then) but as you know (working in media) most of the costs of sale are everything BUT the material costs. Namely, the salaries of everybody who touches the CD in some way, whether they're recording it, engineering it, shipping it,marketing it,
running an ad for it (ie. rates for the media used to advertise the CDs have gone up in 20 years -- something you know firsthand).

Even the salaries of the minimum-wage guys who work in the record stores have gone up a lot in 20 years. The record stores have to pay their employees, and they pay them by selling stuff... as the minimum wage goes up, they need to make more money selling stuff. I'm showing my age here, but
my memory is that in 1983, the minimum wage was less than $4! And unfortunately when the minimum wage is raised by congress, the record stores (and other businesses) have to pay it... that's the law. They often do this by raising prices, which is why republicans tend to be against minimum wage hikes. They use a "we all pay for it" argument.

I agree with you 100% that if all the costs and salaries associated with moving a CD (or any product) -- shipping, advertising, the various people (both skilled and unskilled) who had some hand in creating or selling the CD -- had been "frozen in time" and cost the same here in 2007 as they did in 2003, then your point is absolutely spot-on.

Sat, 08/16/2008 - 11:45 Permalink
John C.

Enjoyed your article on CD prices ... one thing I'd like to add is that I personally remember when CDs first came out, and they were a couple of bucks more than vinyl/cassettes, and the record industry said at the time that CD prices would eventually go down ... and they didn't! Damned liars!! Anyway ...

I'm also writing because I have a topic that I believe will interest your readers: the increasing popularity of private peer-to-peer networks. This will also inform them of the free solutions that are available to share and transfer very large files between friends in a private, ENCRYPTED environment (in other words, zero risk of ISPs, or, worse, the RIAA contacting them).

Private peer-to-peer networking is becoming more and more common, and this is something your readers would probably be interested in, as it represents a secure way for them to share files with friends. Although some people enjoy using applications such as eMule and Kazaa to get free (often illegal!) content, private peer-to-peer applications allow users to share files (and entire folders on their harddrives) with close friends and family. A user's friend(s) can therefore browse through various folders (pictures, music, home movies, etc...) and download files (and even entire folders) to his or her own computer.

Our company makes and distributes free GigaTribe software (www.gigatribe.com) and is a market leader in Europe; our user base in the US and the rest of the world is growing very quickly. Why? The data is encrypted and only the people exchanging files know what's being exchanged. Plus, because users are downloading content from friends, there's no risk of getting polluted or misnamed files.

It's also a clever and efficient way to transfer very large files (even entire folders) from one computer to another without burning/mailing CDs/DVDs. This software is filling a HUGE void! We are getting a consistent stream of emails from people that are grateful for what it can do (some users use it to access folders and files on their computers from other locations).

If you would like to know more about our rapidly growing company or our increasingly popular software, I'd be glad to help! If you prefer to reach me by phone, keep in mind that I'm on French standard time!

Sat, 08/16/2008 - 11:46 Permalink