RIAA's Statistics Don't Add Up to Piracy

[PC-GUY]

By George Ziemann
December 11, 2002

The RIAA (Recording Industry Association of America) has a real funny way of looking at things. Not funny - "ha ha", Funny - "odd."

Before you read the rest of this story, I heartily encourage the reader to click on the RIAA link above. Make your own judgement before you hear a thing I have to say. Take your time. Be sure to look at their Market Data because I'm going to be quoting it.


The sky is falling! The music industry is doomed! Woe is everyone. The pirates have stolen all the gold. What will we ever do? How can we possibly recover? You've poured water on us and we're melting!

Let's quote a few of the RIAA's statements. The first quote comes from the report on 2001 year-end shipments. The title -- "Recent study Illustrates Internet Piracy's Impact on Music Market"

WASHINGTON-The Recording Industry Association of America (RIAA) announced today that the number of units shipped domestically from record companies to retail outlets and special markets (music clubs and mail order) fell 10.3 percent in 2001.

Specifically, total U.S. shipments dropped from 1.08 billion units shipped in 2000 to 968.58 million in 2001-a 10.3 percent decrease. The dollar value of all music product shipments decreased from $14.3 billion in 2000 to $13.7 billion in 2001-a 4.1 percent decrease, according to figures released today by the RIAA.

"This past year was a difficult year in the recording industry, and there is no simple explanation for the decrease in sales. The economy was slow and 9/11 interrupted the fourth quarter plans, but, a large factor contributing to the decrease in overall shipments last year is online piracy and CD-burning," said Hilary Rosen, President and CEO of the RIAA. "When 23 percent of surveyed music consumers say they are not buying more music because they are downloading or copying their music for free, we cannot ignore the impact on the marketplace."

Time out. Total number of units fell 10.3 percent. Total sales dropped 4.1 percent. Sorry, Hilary, there is a simple explanation -- The economy sucks, you guys raised prices anyway while promising to copy-protect everything and make it harder to listen to. The consumer took a step back.

And here is another contributing factor, from their article, "The Value of a CD".

Of course, the most important component of a CD is the artist's effort in developing that music. Artists spend a large portion of their creative energy on writing song lyrics and composing music or working with producers and A&R executives to find great songs from great writers. This task can take weeks, months, or even years. The creative ability of these artists to produce the music we love, combined with the time and energy they spend throughout that process is in itself priceless. But while the creative process is priceless, it must be compensated. Artists receive royalties on each recording, which vary according to their contract, and the songwriter gets royalties too. In addition, the label incurs additional costs in finding and signing new artists.

Once an artist or group has songs composed, they must then go into the studio and begin recording. The costs of recording this work, including recording studio fees, studio musicians, sound engineers, producers and others, all must be recovered by the cost of the CD.

While this is true, all of those costs will be fully recovered from the record company out of the big 8 cents per song the artist gets paid But that's another argument for another day. Here's the interesting part.

Another factor commonly overlooked in assessing CD prices is to assume that all CDs are equally profitable. In fact, the vast majority is never profitable. Each year, of the approximately 27,000 new releases that hit the market, the major labels release about 7,000 new CD titles and after production, recording, promotion and distribution costs, most never sell enough to recover these costs, let alone make a profit. In the end, less than 10% are profitable, and in effect, it's these recordings that finance all the rest.

I was very happy to see them provide this information, because after compiling the RIAA's market data, I had noticed that the "new releases" data which had been present in all of the information from 1992 to 1999 had somehow been overlooked when the RIAA put together the 2000 and 2001 summaries.


For the rest of the story.