CDs vs. DVDs

Interesting piece in the Denver Post about how the pricing strategies of CDs and DVDs differ and what that says about the music and movie bizs' response to the threat of piracy, downloading, etc.

A snippet:

Not until 20 years after the introduction of the CD in the United States did a record label announce across-the-board price cuts that acknowledged consumer anger at paying $19 for one decent Justin Timberlake song. Universal will now drop prices on many CDs to below $10, a breaking point many buyers seem to accept.

In contrast, the movie studios saw the threat from pay-per-view cable and satellite in 1997, when DVDs first arrived here, and slashed prices immediately. DVDs started between $19 and $24; today hundreds of great titles are available in the $10 range. With "Pirates of the Caribbean" still taking in great business in theaters, a two-disc DVD version will arrive before Christmas for $18.

Whole thing here.

[Link via Frankin Harris]

Comments

[Jason Ligon]

About friggin' time. The price point for CDs has been off since the technology was invented.

Every time I watch The Fellowship of the Ring, I look at the CDs in the media cabinet just above the DVDs and cringe.

[Jim Walsh]

I bought "Patton" at Wal-Mart last week for under ten bucks. Hot Damn!

[Russ D]

The compensation structure of the movie business is totally different from the music business. Whoever "owns" the movie gets the revenue, the actors, writers, etc. get paid to do the job and that's it; with music it's more royalty based, the artists, songwriters, etc. get paid on a per unit sale basis. This is an oversimplification obviously, it's not that cut-and-dried and there are exceptions, but that makes a huge difference in the resultant prices.

If you look closely, most movies that were not box office hits will generally cost more on DVD than their "box office smash" cousins. That's because the money paid by the owner of the hits has been recouped from box-office receipts; if the film didn't do great business, they have to try to recoup more at the retail level. Home sales of hit movies are practically pure profit.

With music, it's the opposite. The hits (or hit artists) are often priced higher than the marginal sellers (not counting catalog titles). That's because there's a lot more people to be paid even on old recordings. For movies that use a lot of source music, that takes up a big chunk of the budget, but per unit royalties are only paid on the soundtrack sales (which is why they don't stay in print as long).

[Brad S]

Russ D - but even in the case of the box office smash, there is an optimal revenue point. It doesn't behoove a studio to reduce the price of a DVD just because the movie already made good money at the box office. To do so would be to leave money on the table.

I agree with the premise of the original article. Movie studios have had the correct response to technology, music studios have gone the wrong way.

Although it is worth pointing out that people buy and use music for different reasons than they buy and use movies. In the case of movies, many viewers would rather watch the movie once and then be done with it. In the case of music, part of the appeal is to be able to listen to a favorite song over and over and over again. So, to a movie studio, the threat from pay-per-view cable and satellite is much more considerable than it is for music. I mean, how much appeal does pay-per-view music really have? In the case of music, there is more appeal to own than in the case of movies.

[EgoLadenDilettanteGuy]

WHAA? A decent Justin Timberlake song oughta be worth a LOT more than 19 bucks! That's a RARE commodity.

[Jason Ligon]

Ego,

Heh.

Unfortunately for Mr. Timberlake, demand must also figure in the pricing.

[Warren]

The music industry as we know it is doomed. And no army of lawyers, no matter how large, can save it. Death to the RIAA!

Now, what new beast will rise from the ashes?

[Russ D]

Brad, there is an optimal revenue point, which means there is an optimal price point. I assume the film owners know that and price accordingly, they may not be leaving much money on the table at all.

It's hard to argue movie studio vs. record label (music studio) because some of the major record labels also own movie studios. They're not run by the same people, but so what.

However, I don't think the consumer should really give a darn about how each industry compensates its creators. The consumers are picking one way over another, and they shouldn't be blamed.

As it's been stated before, if a business model is becoming outdated, adapt or die. But you have to admit changing compensation structures, especially one that's been around for decades, will not happen without a lot of complaints.

[Jeff Clothier]

The sad part of this is the way in which relative dinosaurs of the pop music business like Metallica, Don Henley and Ted Nugent have shilled for RIAA before Congress and in the press to the detriment of struggling musicians who use the "Net to get their music heard. These artists (and I use the term loosely) made their bones at the end of the vinyl era, and just want to ride the gravy train as far as it will go.

I believe RIAA is threatened by downloading not because of copyright issues, but because it threatens their ability to program and predict the musical tastes of young people through commercial radio. Metallica, the Nuge, etc., as well as more current commerical hacks like Limp Bizkit were artificial creations of RIAA in the first place and are considered poseurs by many true aficionados of their respective genres.

Most real music is going on outside the RIAA star system these days. They resent it, and will go to ridiculous lengths to prevent it. In the end, RIAA's stranglehold will fade just as the studio star system faded in Hollywood.

[Anonymous]

Another thing I wondered,

Stuidos make a ton on movie rentals (including pay-per-view). That model started with tapes, priced so high that people rented them because they could barely afford them.

When Blockbuster was bought by Viacom, it seemed like the prices of tapes went down, after the film went through its $89.95 phase. Even that seems to be gone now, the DVD is priced reasonably, I think in part because some people would rather buy than rent so why let Viacom (a competing studo) get the initial phase revenue.

Just speculatin'

[Jayson Gilligan]

I'm frankly shocked there was something interesting in the Denver Post.

[Mo]

The funny thing about Metallica shilling for the RIAA is that if mp3 technology and Napster was available in the early days of Metallica, they would've been behind it. Not that they've run out of ideas, Load and Re-Load, they need to grasp to their final straws. Metallica is ex-hippie that doesn't want their kids trying pot because it will ruin their lives.

Though on the plus side, Metallica did follow one movie trend, the sequel. And, like most sequels, Unforgiven II sucked.

[MSDude]

I want my movies and music on flash memory keys that plug into my car stereo, walkman, laptop, cell phone, PDA, hot tub, microwave, lay-z-boy recliner, and my friggen bathroom sink! If micorsoft must take over the RIAA to make this happen, then hell, I buy from MSGeffen, MSPolygram, MSWarner Bros, whatever!

THE RIAA needs to go to Iraq and rebuild their music infrastructure!

[Sam I Was]

Of course they don't give a rip. As Volokh succinctly puts it: "Once you conclude that the seller has no legitimate property right in some kind of property (whether television programs or clothing), you can then pooh-pooh its claims by saying 'there's always some other business model.' But what's doing the work in that argument is your initial rejection of the seller's property right claim -- not your argument about other business models."

It is this initial rejection of rights that has continued to astonish me regarding Reason's position on this issue.

If you want to argue about "business models" or CD/DVD price points, go to the Velvet Rope or Billboard or Forbes. When did Reason start worrying about other industries' business models? Only when free music (and its post facto justifications) came into the picture.

[Kevin Carson]

Sam I Was,

Your astonishment astonishes me, given the intellectual history of the libertarian movement. Challenges on prinicple to the "property" status of copyrights and patents are almost as old as copyrights and patents themselves (which, believe it or not, were not inscribed on Mt. Sinai by Jehovah). While the issue is certainly debatable, the "property" status of copyright is by no means self-evident--especially given the fact that it is a creature entirely of positive law in just the last few centuries, whereas tangible property is older than the State.

As for the "business model" thing, it's only fair that the cost of defending a class of property rights that are especially difficult and expensive to enforce, should be paid by those protected. Like all other forms of law enforcement, the enforcement of copyrights, if done at all, should be done on a voluntary cost basis.

The business model argument points out that, because of new technology, the difficulty and cost of enforcement has greatly increased. This is true even when "society" pays for enforcement. If the recording industry had to pay for the full cost of enforcement, the transaction costs might well be too high to be worth it--assuming enforcement was even possible in most cases.

New downloading technology is quite relevant to the feasibility of enforcing copyright, and to the obligation of the recording industry to either pay the full costs of enforcement itself or to find a better way of collecting payment for services.

[Sam I Was]

No, this is the new Reason magazine. When you need to continue infringing somebody else's rights by stealing, you just come up with another rationalization.

[Anonymous]

The recording industry made its money through the relative expense of recording. Highy quality recording is no longer expensive.

Naturally, then, where as the recording industry was once protected by economics and engineering, it can now only be secured through enforcement of a moral code.

The RIAA knows that they must win the hearts and minds of the public to enforce that code. Want a 'drug war' from the music industry? I hope the RIAA recognizes the ramifications.

Personally, my favorite music comes from small bands that operate on an Internet-stoked patronage system. Fans recognize that their artists require funding and honor the need to purchase their albums.

An example:
http://www.smh.com.au/articles/2003/09/12/1063341773271.html

The slant in the above article is clear. I ask the reader to consider the direct stories within the article, rather than the anti-industry bias.

Are mass-recording corporations willing to discuss the increasing role of patronage?

[amr]

So if I excuse my theft of music using the "bad business model" rationalization (just one of many), do I have to stop stealing movies?

[FastNBulbous]

Hey, all you rationalizers, read Eugene Volokh's musings on those who justify copyright infringement by criticizing business models, and then come back here and admit that you really don't give a rip if anyone gets paid for creating or not.

[Eric Pobirs]

The big change in sellthrough pricing for videos came long before Viacom bought Blockbuster, in fact before Blockbuster became a mega-brand.

The idea of sellthrough didn't make sense to the studios. It wasn't greed so much as narrow vision due to seeing video rentals as an extension of the theatrical and broadcast businesses they already had. The prices of movies on VHS and Beta were based on a market size derved fromt he known number of rental outlets and the fairly small number of sellthrough buyers. Thus $80 units made sense for what was only considered a small addition to the bottom line.

Somebody at Paramount notice the rapid sales of VHS decks and the way major box office hits owed much of their success to young audiences paying for multiple viewings. If this held true for the home video release a reasonable retail price sell a lot more tapes. So the great experiment was done. Raiders of the Lost Ark was released directly to retail, bypassing the 'rental window', for $24.95. The guys at the other studios said this was insane. You'd have to move 4 times as many units just to achieve the same revenue. (This included some additional costs for supporting the retail channels as well as the price difference.) Well, Raiders very quickly became the bestselling VHS on the market, producing revenue greater than competitors entire slate for the season.

The industry didn't change overnight but after that it became obvious that there was a big market for retail sellthrough of video recordings and the studios saw massive growth thanks to rethinking their business.

[cj]

Well, I can't buy a DVD for less that $19.95 ($5 more than a VCR cassette), unless its a piece-of-sh*t movie that I never wanted to watch to begin with.

What the h*ll market do you live in?

[Eric Pobirs]

What market are you in? Here in Southern California I regularly see DVDs of highly successful and/or critically acclaimed movies for $10 or less at national chains like Best Buy. These include numerous discs I paid near $20 for when they were new releases and many that I felt fortunate to find for only about $15 on promo sales. The Matrix is a good example. A huge seller but it's regularly advertised for sub-$10 prices. Warner decided they'd saturated the sellthrough market at the higher price and the title remains a profitable 'evergreen' at the lesser price while serving to ensure that those few who've yet to see it can inexpensively get caught up and be inclined to the sequels.

I've now lost track of the number of times I've seen a DVD advertised for several dollars less than I paid several months earlier yet hadn't gotten around to really watching the content. That's one way to learn patience.

The same applies to video games. In the last several years I've never paid more than $20 for a game (with a very few exceptions for obscure rarities such as Enix's Valkyrie Profile or when promotional extras made it worthwhile such as the the recent remixes of earlier titles bundled for Gamcube Zelda pre-orders.) yet there has almost never been a wait longer than a year from the time of the $50 release until I could get the game for the low price. The volume of desirable games is vastly greater than I can ever hope to find the time for so I'm in no great hurry for the latest thing.

[Roger Sweeny]

Perhaps this is obvious but it is simple and quick to download and burn that single good Justin Timberlake song. Not so with an entire movie DVD. What happens when it is as easy to pirate "Pirates of the Caribbean" as it is to pirate a single song? Will people still think $15 is a reasonable price for a movie DVD?

(For all the people who speak economics, will the change in opportunity costs change people's willingness to pay?)

[hans]

will not foks just dowenload and delet movies just like teen are doing whit dance music and boybands today when the speed and space get big enhug ? will we not see a other type of bands (just like hit bands did not take off before the 80s) hatr are more adepteds too mp3 fils (intrtesting etory to tell, small bar concerts more feedback and fan iste like chwamba have done )asiua can alsob be a good place fore music/movie servers since they are poor budhism/confuism think that you should get glory be use your song/movie/book not mony and since usa try to estop pirate selling ther (imigane p2p network made and have min network servers in the golden triangel and gurilla areas of indonesia and philipins..)

[Ruth Katie]

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