Paying the price

Published: Monday, September 28, 1998

Monday, September 28, 1998

Paying the price

MUSIC: Whether consumers are willing to shell out $15 for a CD

or resort to pirating albums with a CD burner,

the ones who profit most are the manufacturers and retail stores

By Michelle Zubiate

Daily Bruin Staff

Here's the common scenario: All excited about the new album release by your favorite artist, you rush to the record store to buy a colorful CD for an exorbitant amount of money. You remain perfectly satisfied - until you see it for a cheaper price in every window and catalog in Los Angeles. Like every other music-lover in America, you're frustrated.

What exactly are you paying for?

The recording industry remains one of America's biggest and most competitive industries. The manufacturing and sale of compact discs has increased dramatically over the years and continues to climb in sales and price value. According to the Recording Industry Association of America (RIAA), 1998's mid-year report shows that CD shipping to the U.S. markets has risen 12 percent from 331 million copies to 370.6 million since last year. The dollar value of these sales has also risen 15.7 percent from $4.2 billion to $4.9 billion.

The CD has become an important part of American music and, although cassette tapes are still much valued, they are being used less and less each year. Cassette sales suffered an 8.4 percent decline since last year.

Unfortunately, the consumer wants to know more than many people in the recording industry are willing to give. The good news? Narrow the equation down to the sum of its parts, and you have shed light on all but a few misplaced dollars.

Although with much research and patience, you can find an album for a reasonable price, the average retail CD costs $15 when weighed with the hefty prices of new releases, rare editions and double CDs.

"CDs are so expensive," Colleen Ray, a UCLA student and music consumer, says. "Most times I have to wait until they go on sale to buy them or I wait until I can find some other CDs to sell back in order to buy new ones."

The high cost of CDs on store shelves, however, can be explained by examining the various expenses that get it there. For example, the markup by record stores such as Lower and Blockbuster can be estimated at about 25 percent; roughly $4 of the price.

"There is a lot of pressure being put on the actual record labels right now," Aaron Wiseman of Tower Records in Westwood remarks. "Record companies (such as Tower) are pressuring them to lower their costs so that we can lower ours."

This issue leads the consumer to wonder who is responsible for the high CD costs.

Many would say the artists themselves. In actuality, according to many reference books on the music industry, only about 10 to 20 percent (depending on the star status of the artist) of the retail price of the CD goes to the actual music talent. Names such as Michael Jackson or U2 will drive royalties up.

"Unfortunately, a lot of money does need to be offered to the artist," Wiseman says. "If not, then there would not be any incentive for them to pursue music and there would not be any CDs at all to buy."

So far our original price of $15 is down to $8 if we take away $4 from the retail markup and $3 given to the artist through royalties.

Manufacturing costs also figure into retail prices. Depending on the manufacturer, the status of the band and number of CDs to be distributed, the packaging itself can cost anywhere from 50 cents to $1.50.

"The CD replication and manufacturing itself is quite inexpensive," says Claudia Hernandez, a sales representative for Alshire Manufacturers. "Small bands can come to us, order about 1,000 CDs, and get them for only about $1.50 a CD. What that includes is the replication of the CD, the design of the booklet, the print on the CD itself and the jewel case it all comes in."

But as Hernandez also mentions, the larger the band and the order, the lower the cost per CD. When an artist like Madonna comes along with an order for millions of CDs, the figures reduce to cents per album.

Advertising, marketing and studio costs represent just a few of the factors that go into the cost of a compact disc. Combined with royalties, production and retail markups, some of a CD's $15 price still remains unaccounted for.

New devices such as recordable CDs and Sony minidiscs allow us to duplicate music from our friends' CDs without paying our weight in publishing rights, advertising and all the other miscellaneous factors that go into the gray unexplained piece of the pie.

"CD-Rs are great," Charles Ku, UCLA's Campus Events commissioner, says. "I will definitely use them in the future. I can't wait until they're cheap."

According to Loi Bui, a representative of Sony electronics, right now the new CD burners cost about $300 for the system and, depending on the quality, $1 or $2 for the blank CD. The system, still a little steep in price, is slowly but surely catching on as a popular way to get quality sound out of a recording.

Manufacturers, those who it directly affects, don't worry much about the technology's impact.

"For now, we're safe," remarks one representative from United Audio/Visual Group. "They are so expensive as it is now to buy the CDs and all the equipment necessary to work it, it won't hurt us at all for a while. Who it will affect are the artists themselves because they are the ones who will be losing out on the royalties when people can get their music without the label's consent and without the label throwing in all those hidden costs."

Many labels refuse to disclose the actual costs. Adding more suspicion to the air, many people who work for the industry talk of sneaky deals and virtual "kickbacks" between labels and retail establishments.

"Calling it 'cooperative advertising,' labels and distributors work together," one source in the music industry says. "Distributors tell the record store to leave their price at $15 no matter how much it actually cost them to buy it and then the distributor will compensate their troubles by paying for the advertising of the album and then some."

People in the risky business of entertainment, however, don't try to be fair. Like many other Americans, they remain in search of big money and many rewards.

"We are willing to pay the price," one representative for the United Audio/Visual Group says. "It all comes down to supply and demand. They take a big risk in their product so they desire big profits. We know that when we buy the record. It's never stopped us before, and it never will in the future. That's how we remain true capitalists."

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