A typical music fan who buys a CD might use that CD at home, take that CD in the car, make a tape of that CD, â€“ or using it as part of a compilation, play that CD with friends and for friends, and keep that CD for many years. Thatâ€™s probably why most consumers, when asked, describe CDs as a good value. At the same time, when asked directly whether CDs cost too much, some consumers will say yes! Why the contradiction? Because some consumers don’t understand why the sales tag on a CD is so much higher than the cost of producing the actual physical disc, a cost, which in fact, has decreased over the years.
While the RIAA does not collect information on the specific costs that make up the price of a CD, there are many factors that go into the overall cost of a CD – and the plastic it’s pressed on, is among the least significant. CD manufacturing costs may be lower, but it takes more money than ever before to put out a new recording.
Of course, the most important component of a CD is the artistâ€™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.
Then come marketing and promotion costs – perhaps the most expensive part of the music business today. They include increasingly expensive video clips, public relations, tour support, marketing campaigns, and promotion to get the songs played on the radio. For example, when you hear a song played on the radio – that didnâ€™t just happen! Labels make investments in artists by paying for both the production and the promotion of the album, and promotion is very expensive. New technology such as the Internet offers new ways for artists to reach music fans, but it still requires that some entity, whether it is a traditional label or another kind of company, market and promote that artist so that fans are aware of new releases.
For every album released in a given year, a marketing strategy was developed to make that album stand out among the other releases that hit the market that year. Art must be designed for the CD box, and promotional materials (posters, store displays and music videos) developed and produced. For many artists, a costly concert tour is essential to promote their recordings.
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.
Clearly there are many costs associated with producing a CD, and despite these costs the price of recorded music to consumers has fallen dramatically since CDs were first introduced in 1983. Between 1983 and 1996, the average price of a CD fell by more than 40%. Over this same period of time, consumer prices (measured by the Consumer Price Index, or CPI) rose nearly 60%. If CD prices had risen at the same rate as consumer prices over this period, the average retail price of a CD in 1996 would have been $33.86 instead of $12.75. While the price of CDs has fallen, the amount of music provided on a typical CD has increased substantially, along with higher quality in terms of fidelity, durability, ease of use, and range of choices, including multi-media material, such as music videos, interviews and discographies. Content of this type often requires considerable production expense and adds a whole new dimension that goes beyond conventional audio.
In contrast, CD prices are low compared to other forms of entertainment and one of the few entertainment units to decrease in price, even though production, marketing and distribution costs have increased. In a USA Today article entitled, “Spending a Fortune for Fun: The cost of entertainment is rising along with our willingness to pay it ,” the reporter observes, “though some factions of the industry see price resistance – CD prices are relatively low and home videos rentals are still a bargain – consumers don’t seem to balk at the rising price of fun in this strong, family-friendly economy.” The prices of other forms of entertainment have risen, on average, more rapidly than has music or consumer prices, with most admission prices for other forms of entertainment having increased more than 90% between 1983 and 1996.
By all measures, when you consider how long people have the music and how often they can go back and get “re-entertained” CDs truly are an incredible value for the money.