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

from the just-saying.. dept

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.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
    identicon
    Anonymous Coward, Feb 10th, 2012 @ 12:39pm

    but ... but ... but ... piracy! Your analysis ignores piracy!!

     

    reply to this | link to this | view in thread ]

  2.  
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    Chris, Feb 10th, 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.

     

    reply to this | link to this | view in thread ]

  3.  
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    Anonymous Coward, Feb 10th, 2012 @ 12:48pm

    Re:

    You forgot the children!! Won't someone PLEASE think of the children!!!!

     

    reply to this | link to this | view in thread ]

  4.  
    identicon
    Anonymous Coward, Feb 10th, 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

     

    reply to this | link to this | view in thread ]

  5.  
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    Cowardly Anonymous, Feb 10th, 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.

     

    reply to this | link to this | view in thread ]

  6.  
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    Anonymous Coward, Feb 10th, 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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  7.  
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    Gwiz (profile), Feb 10th, 2012 @ 12:50pm

    This is very interesting.

    The Pre-Nabster Era was really the Illegal Price Fixing Era.

     

    reply to this | link to this | view in thread ]

  8.  
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    Robert (profile), Feb 10th, 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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  9.  
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    Anonymous Coward, Feb 10th, 2012 @ 12:55pm

    Then what we really want to see is not sales in $$ but sales in volume.

     

    reply to this | link to this | view in thread ]

  10.  
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    Dog On a Teflon Floor (profile), Feb 10th, 2012 @ 12:58pm

    Re:

    Think of the pirate's children?

     

    reply to this | link to this | view in thread ]

  11.  
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    Anonymous Coward, Feb 10th, 2012 @ 1:06pm

    Re:

    I generally find that Amazon undercuts iTunes in most things I compare prices on.

     

    reply to this | link to this | view in thread ]

  12.  
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    jupiterkansas (profile), Feb 10th, 2012 @ 1:15pm

    Re: Re:

    And eMusic usually undercuts Amazon.

     

    reply to this | link to this | view in thread ]

  13.  
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    DanZee (profile), Feb 10th, 2012 @ 1:21pm

    Illegal?

    What? The record companies were doing something ILLEGAL? They accuse everybody else of doing illegal things!

     

    reply to this | link to this | view in thread ]

  14.  
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    Anonymous Coward, Feb 10th, 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.

     

    reply to this | link to this | view in thread ]

  15.  
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    Donnicton, Feb 10th, 2012 @ 1:33pm

    Re:

    Mommy, why does Mike hate our troops?

     

    reply to this | link to this | view in thread ]

  16.  
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    Anonymous Coward, Feb 10th, 2012 @ 1:34pm

    Re:

    was the anti-trust case even about the retail price?

     

    reply to this | link to this | view in thread ]

  17.  
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    Anonymous Coward, Feb 10th, 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.

     

    reply to this | link to this | view in thread ]

  18.  
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    Killercool (profile), Feb 10th, 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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  19.  
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    Keroberos (profile), Feb 10th, 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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  20.  
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    Anonymous Coward, Feb 10th, 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?

     

    reply to this | link to this | view in thread ]

  21.  
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    Anonymous Coward, Feb 10th, 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.

     

    reply to this | link to this | view in thread ]

  22.  
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    Anonymous Coward, Feb 10th, 2012 @ 1:56pm

    Re: Re: Re:

    and youtube undercuts amazon

     

    reply to this | link to this | view in thread ]

  23.  
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    Hephaestus (profile), Feb 10th, 2012 @ 2:18pm

    Re: Re:

    Oh and referencing the previous article ...

    ... would somebody please think of the cats.

     

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  24.  
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    Hephaestus (profile), Feb 10th, 2012 @ 2:19pm

    Re: Re: Re:

     

    reply to this | link to this | view in thread ]

  25.  
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    Keroberos (profile), Feb 10th, 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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  26.  
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    ECA (profile), Feb 10th, 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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  27.  
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    Anonymous Coward, Feb 10th, 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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  28.  
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    Ilfar, Feb 10th, 2012 @ 3:40pm

    Re: Re: Re: Re:

    ... and everyone sues Google...

     

    reply to this | link to this | view in thread ]

  29.  
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    Oliver Keyes, Feb 10th, 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.

     

    reply to this | link to this | view in thread ]

  30.  
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    PRMan, Feb 10th, 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...

     

    reply to this | link to this | view in thread ]

  31.  
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    silverscarcat (profile), Feb 10th, 2012 @ 4:24pm

    Re: Re:

    Because, sweety, Mike's facts don't give our troops any support.

     

    reply to this | link to this | view in thread ]

  32.  
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    silverscarcat (profile), Feb 10th, 2012 @ 4:25pm

    Re: Illegal?

    Perish the thought! I mean, that would make them *gasp* hypocrites that people hate!

     

    reply to this | link to this | view in thread ]

  33.  
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    silverscarcat (profile), Feb 10th, 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.

     

    reply to this | link to this | view in thread ]

  34.  
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    Anonymous Coward, Feb 10th, 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.

     

    reply to this | link to this | view in thread ]

  35.  
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    PaulT (profile), Feb 11th, 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...

     

    reply to this | link to this | view in thread ]

  36.  
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    PaulT (profile), Feb 11th, 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?

     

    reply to this | link to this | view in thread ]

  37.  
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    Anonymous Coward, Feb 11th, 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.

     

    reply to this | link to this | view in thread ]

  38.  
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    Anonymous Coward, Feb 11th, 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.

     

    reply to this | link to this | view in thread ]

  39.  
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    Anonymous Coward, Feb 11th, 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.

     

    reply to this | link to this | view in thread ]

  40.  
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    DinosaurHunter (profile), Feb 12th, 2012 @ 6:50am

    Re: The law won't stop 'em

    Is that legal?!

     

    reply to this | link to this | view in thread ]

  41.  
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    The Devil's Coachman (profile), Feb 12th, 2012 @ 9:40am

    Re: Re: Re: Re:

    And what about terrorists?

     

    reply to this | link to this | view in thread ]

  42.  
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    FearlessMonstrosity, Feb 12th, 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?

     

    reply to this | link to this | view in thread ]

  43.  
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    rhobere, Feb 12th, 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.

     

    reply to this | link to this | view in thread ]

  44.  
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    Anonymous Coward, Feb 13th, 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.

     

    reply to this | link to this | view in thread ]

  45.  
    identicon
    Anonymous Coward, Feb 13th, 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.

     

    reply to this | link to this | view in thread ]

  46.  
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    Jeremy Lyman (profile), Feb 13th, 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.

     

    reply to this | link to this | view in thread ]

  47.  
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    Jeremy Lyman (profile), Feb 13th, 2012 @ 6:21am

    Re: Illegal?

    Hey, it's only illegal if you can't pay legislators to do what you want. Whoops.

     

    reply to this | link to this | view in thread ]


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