E-Books and I-Tunes

Posted: September 9, 2011 in Current Events, Entertainment, Personal Whining, Statistics and Lies

When I bought my i-phone and my e-reader I thought that I would get access to music and books that are significantly cheaper than their hard copy counterparts.  I have found in the past while, as more people are buying in to this form of media distribution, that the prices seem to be creeping up.  As I did with the magazines, it’s time to take a look at the cost breakdowns of these other distributors.

According to my research, the cost breakdown for a CD that you buy in a retail outlet involves about 30% going to the retailer, 8% going to the performer/writer, about 29% going to the label and another 14% going to distributors (not including another 10% that gets spent on free give aways).  The actual recording and production cost is about 6%.  Figure that an average new release CD in a store is about $15, and then do the math.  I-Tunes is still selling new CDs for around $12, and have just concluded a deal with labels to pay artists %5 of the selling price.

OK, so let’s look at this.  I-Tunes is the distributor and the retail outlet.  They don’t have to worry about transporting the product or maintaining retail stores or employees.  They don’t have to actually press a hard copy of a CD with plastic cases and artwork.  (The artist still needs to do their work, but the actual paper product doesn’t get printed.  The cost difference between i-Tunes and a retail store seem to be about $3 – $4, -the cost that is usually laid on by the retail outlet.  But what about the other costs such as the actual physical object and the distribution costs such as transportation and storage?  They seem to have been absorbed into the profit margin.  I-Tunes needs to maintain a commercial web site, but since it is centralized, I’m sure that volume really counterbalances any real distribution costs.  That 20%, then, gets added on to their profit margin, while it could be used to reduce the cost of the music.  Or at least part of it could be; I don’t want to deny i-Tunes an increase in profits for their innovation.  The fact is, the prices for music should be going down, not up.  As long as buyers see that kind of a pattern they’re likely to keep pirating their music.

Does the same thing go for e-books?  This week a new hardcover was released that I would like to buy.  The cost in the retail store is about $30.  The cost from Amazon is about $20, which corresponds nicely to the 30% retail markup.  The cost from Kobo is $14, which is a 30% discount over the Amazon price.  Since you are not actually getting a hard copy, saving the printing and transportation costs, this seems like a pretty good deal.  The final price of the e-book is just under 50% of the cost in the retail store.  That’s the way it should be. Hopefully the e-book business will continue to provide their customers with a fair deal.  Right now, I can’t complain.  with any luck the print media will learn from the mistakes propagated by the greed of the music industry.

Using the same formula, the cost of a $15 CD on i-Tunes should be about $7.00.  The cost of the new Wilco album on i-Tunes is $10.99, with older Wilco albums going for $9.99.  Oh, and if you are worried about supporting the artist, consider that 5% of $10 is a lot less than 8% of $15.  The artist actually gets less money selling through i-Tunes than they would make from CD sales.  Why?  Because i-Tunes knows that buying the CD is not the first choice alternative for downloading the mp3.  They know that they are holding the artists by a certain sensitive part of their collective anatomy.


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