What Does A CD Cost?

According to a 2004 Rolling Stone article, here is the breakdown of the cost of CDs sold at Wal-Mart (which accounts for something like 20% of physical music sales in the U.S.):

$0.17 Musicians’ unions
$0.80 Packaging/manufacturing
$0.82 Publishing royalties
$0.80 Retail profit
$0.90 Distribution
$1.60 Artists’ royalties
$1.70 Label profit
$2.40 Marketing/promotion
$2.91 Label overhead
$3.89 Retail overhead

This sums precisely to $15.99, which is what Wal-Mart insists they must price a CD.

Which is funny, because I never pay more than $14.99 at Best Buy, and there’s no way Best Buy is more efficient than Wal-Mart. And I hate paying $15 at Best Buy when Amazon will send it to me for $12 or less, with free shipping.

The Internet should make it possible for anyone to get their music to a worldwide audience. It’s a big world, and according to Kevin Kelly, all you need is 1000 True Fans.

In theory, that’s one persion out of every 6 million. No matter how obscure or ecclectic your music is, if you get six million persons to listen to it, at least one of them will enjoy it – probably many more.

How does one get heard by six million people? I have no idea.

The inverse is a fascinating scenario, as well. How do you, as a listener, find the music of all the millions of musicians of the world? The internet, in theory, should make it possible to find music of – literally – all sorts. But the dilemma of the global marketplace is that the customer gets overwhelmed by the choices. Particularly difficult is finding the artist you’ve never heard of but with whom you have an affinity.

The consolidation of the music retail business has made finding new music more difficult. The neighborhood record store has mostly disappeared and the big box stores like Wal-Mart, Best Buy, and Target are interested in minimizing the “retail overhead” item in the above cost list, and the easiest way to do this is by limiting selection to titles which are guaranteed to sell.

The popular online music sources have lower overhead, and thus can afford to carry items which appeal to a smaller audience. But they have the disadvantage of non-organization. You can’t easily browse 100,000 albums organized into a small handful of categories. There is much to be said for physically browsing CDs (or LPs) in a bin, particularly when you do not already know the bands. Album covers can be remarkably informative.

Paging through and clicking on search results on Amazon or any other online music store is just not the same.

This problem is not confined to music, of course. The information overload affects just about every aspect of the Internet. Sure, you can find information on a topic you know about. But how do you find information on a topic you don’t know about but would find interesting?

It does not have to be this way. The internet should be a great tool for finding things. It’s a good way to find things you already know about. Learning about new things is a little more difficult. You have to go at it a little sideways, and find internet “friends” (or more precisely their blogs and social networking pages) who share similar tastes and find what they talk about and link to. We call this surfing the web, and it’s the cyberspace version of borrowing music from your friends.

The next internet killer app is (and has been for the last ten years, unfortunately) the Smart Agent. Smart Agents would do your web surfing for you and find things you might find interesting. You would give them some basic directions (“I like bluegrass music”), and you would give it feedback based on its results (“I don’t care for Bela Fleck, though”). Over time it would learn ways to find things in ways which might not be obvious to you.

Google Alerts are close, but they are too much like a TiVo wish list in that they are strictly keyword searches. There are a few internet applications which take advantage of the great Collective Intelligence – Pandora and Netflix manage to come up with uncanny suggestions for music and movies. They can suggest films and songs based on genres you don’t even know about.

I want a Smart Agent that finds news articles on topics I am interested in, movies on YouTube that I will find hilarious, musicians on MySpace whose music I will enjoy, and eBooks by authors I will love. And all of this needs to happen without specifying an exhaustive list of topics or genres I like.

But I digress. As it stands, the onus is on the artist to find his or her 1,000 True Fans.

The real question for a musician is, once you’ve found a True Fan, how do you get your music to him or her?

The tradition method, finding a big record label to publish your CD and distribute it to music stores, is failing. A label is supposed to provide money to record albums and promote an artist. The costs involved in making an album today are realistically quite minimal, so large advances are no longer strictly necessary. And for every artist which receives some promotion, there are hundreds who are signed but get no assistance at all.

So, who needs a label? Some big name acts may well benefit from the arrangement, but there are some interesting alternatives being explored.

Many of these have to do with trying to prevent piracy. Wilco, Flaming Lips, and REM have all streamed their albums online for free in the weeks before release. The White Stripes have gotten creative with their press copies, and The Raconteurs did away with them altogether for their most recent album. But all of these groups are still signed to major labels and will rely on $15.99 retail sales.

Radiohead tired a little experiment with their latest, In Rainbows, in their own online store with a pay-what-you-want scheme prior to the physical release. More than 60 percent didn’t pay anything, but those who did paid an average of about six dollars. The rumor is that there were 1.2 million downloads, so the band did okay.

The fatal flaw with the experiment was that you had to decide what the music was worth before listening to it, and there was no way to go back and adjust your payment after the fact. I paid the minimum amount (zero) as Radiohead is a little hit-and-miss for me, but I rather like the album and wouldn’t mind going back and donating $10.

If they offered a FLAC download, I would probably have gone back and puchased it again. It is no longer available on their web site, so now I need to purchase the physical CD to get a lossless version.

Trent Reznor took a slightly different approach with the latest Nine Inch Nails album, Ghosts I-IV. There are several options. The first nine tracks are available for free, or you can download the whole thing for $5. The physical editions range from $10 for a two-CD set to $300 for the Ultra-Deluxe Limited Edition.

The $75 Deluxe Edition includes a DVD of the multi-track files, and since Reznor has licensed the album under Creative Commons (Attribution-Noncommerical-Share Alike), anyone may may use the elements for remixes and other projects provided the result is licensed the same way. And if you pay for it, you get to download a lossless FLAC version if you want.

The Creative Commons license allows non-commerical redistribution, so the album is easily and legally available on the popular Bittorrent trackers, seeded in some cases by Reznor himself.

The guy who has the most interesting model, though, is Jonathan Coulton. A former programmer who gave up being a code monkey to become a full-time troubadour, Coulton has no label and sells his own music himself on his website, supported by a sizable cult following.

It helps he can write a catchy pop tune like nobody’s business and has an amazing pop culture sensibility. And he hangs out with cool people like John Hodgman, Leo Laporte, and Merlin Mann.

Coulton licenses his music under Creative Commons (Attribution-Noncommerical), which allows non-commercial redistribution and remixes and fan-made videos. There is even a spot on his website to upload your creations for other JoCo fans to see.

This connection to his fans (in addition to making great music, of course) is what allows JoCo to earn a living from his music. He makes $3,000-5,000 a month selling music at $1 a song (or $70 for everything) when you can stream it all for free and give it away. He polls his fans to see who wants him to come play in their town, and schedules his tours around where his fans are. It’s efficient and smart, but more importantly, it puts the focus on the fans and makes them active participants.

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