Tower Records files for chapter 11 bankruptcy

I just posted the article Tower Records files for chapter 11 bankruptcy.

Records has filed for bankruptcy for the second time now in just three
years. This comes just a few weeks following reports of Tower Records facing
supply cut-offs from…

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Figures the “music industry” is still blaming falling sales on “piracy” when a recent study proved conclusively this isn’t true! What would be nice to know is how much Tower paid per unit on average, then how much its markup was. Even in 1990, it was published that to make the CD was only $1, so when places sell it for $14.99 (almost 1500% markup), that’s way over even the “standard” markup at department stores of 250%. I once remember picking up an “Flying in a Blue Dream” from Joe Satriani from “Tracks,” and they were selling it for a mere $5.99. Needless to say, if these places weren’t so greedy and only had a more “reasonable” markup, many more people would buy CDs in store so long as they weren’t more than $9.99 USD. But, once a place gets greedy, it seems there’s no turning back the clock. Fair pricing would seriously help a lot of places’ sales.

That kind of markup shouldn’t be true cuz a big portion goes to the music companies. Same for DVDs and movie tickets we pay.

Well, think about it: if we as consumers can get one good media blank for .33/ea on sale and a jewel case for .19/ea. on sale, that’s only .52 for both the media blank and case. Imagine the buying power of a big company and huge discounts a company will get on how many ever cases and media blanks it needs, then sticking them in a big duplicator. Even Steve Vai when he put out “Flexible” under his own record label said it only cost him $2.50/unit and he sold it for $7.50, or a 300% markup. Add to that what he reproduced was much smaller in scale compared to a big corporation. Reason why the markup is so big (the only reason that fits) is because there’s so many people with their fingers in the pie that the markup is that much, so everyone gets roughly the same % off the sales. Take a slightly non-related discovery of markup practices for bloated profit margins: a Spanish newspaper from Madrid in 1999 or 2000 discovered ’s cost (paying the Chinese) was about $4.50/pair. Even if you assume a good shoe sale at Shoe Carnival for some very basic " Air" brand, (with glued soles and no sewing) that’s $55.00, or 1200%+ markup. Sad to say that the markup is quite real…!!!

The idea of “markup” seems to be a nebulous affair, as even most journalists make the same error. If cost is $1 and the sale price is $14.99, markup is 1399%, not 1499% (markup is the increase, not the total cost). The same goes for the $2.50-vs-$7.50 example: the markup here is 200% not 300%. And does the cost (at least in the latter case) include the cost of distribution to the buyer? I certainly agree that the record labels’ profits are off the charts (heh), but using faulty math to further that argument ultimately undermines it.

Years ago trade price of discs to SMALL retailers in the UK used to be typically £7-9.00, I assume this hasn’t changed much? However you can get quantity and promotional discounts of course, and the “big guys”, i.e. HMV will get far greater additional discounts. Also within the popular music side of the game it’s common for sales reps to heavily discount material out to promote an artist, particularly when they’re new. I must emphasise though that the trade price (ex. VAT) is to small shops only, i.e. where there’s only one or two of them. Smaller record companies had deals with the big guys to distribute material, since it would not be cost effective for them to go it alone, again I presume this situation still exists today.

In almost every mass retail business, per-unit costs pale in comparison to overhead of all shapes and sizes. Facilities costs (leases and maintenance) alone can be prohibitive for marquee stores in major urban areas. Add in both national and local advertising, as well as a huge administrative and logistical tail, and your ridiculously greedy markups dwindle very quickly. And don’t forget that Uncle Sam takes 35%. Whether your math is correct or not is irrelevant when you’re not considering all the variables in the equation.

I appreciate the clarification on the markup, as I’ll remember that. Of course, if I would have said “increase from original cost,” I’d have been off the hook. No worries, either way.:slight_smile: Regardless of overhead (which is a consideration, I just didn’t mention it) and other factors, having to see $20 US in some cases (going to places like Camelot music several years ago) for a CD when the cost is $1 is still ridiculous. This is even truer when now places sell the songs or album for about the same price they should have all along in B&M stores ($9.99), but now they don’t provide cover art, case, not even CD, yet an individual song is still .99 or more. The associated costs for use of paper, printing, shrink wrap, CD media, CD duplication and labeling have all been eliminated. Why does the price mysteriously “come down” to what it should have been? Coincidence? I seriously doubt it. I used to oppose use of the saying “where there’s smoke, there’s fire,” but I’ve found in recent years this saying applies to nearly everything. Besides, even assuming all the “overhead” and other factors, it is not reasonable to charge ~ $20 for a $1 CD. Assuming companies would be willing to do so and be honest about it, why not tell the public how much of the pie goes to who and how much that adds to the $1 cost? Of course we’ll never hear that from any corporation, but the facts are still the facts: just as Steve Vai personally testified that “he made a ton of money” on his CD sold for $7.50 (that cost $2.50)–and especially since it did not sell hardly any in comparison to his Passion and Warfare album–the implications still remain that CD prices are wayyyy too high in relation to what they should be, mainly because of greed. Advertising? If the album is any good, it sells itself, therefore no paid advertising. Usually new releases of albums are willingly covered by shows in the U.S. like “Extra” or “E.T.” or other outlets, so in cases like those, no paid advertising required. The point is that the advertising isn’t necessary for every album, therefore if the company decides to promote the artist, that is not the consumer’s decision, and therefore, the consumer should not be stuck with the cost! That’s the label’s cost of doing business. Of course in “the real world,” others are “stuck” with such “costs” whether they incurred them or not, but that does not justify them nor make the practice right. Doug Gwyn said, “truth is not determined by majority vote,” and this certainly applies to general business practices like we discuss here. I’m all for people getting a reasonable profit (which is defined as ~10% after all factors are accounted for), but not when it’s “profit” at the expense of reasonable pricing. I’ll leave it at that.

Well, they have to make some profit too, don’t they? That’s the idea of capitalism. Besides, they gotta hire people (artists, marketing, managers, etc), and facilities (rent, land, equipment, electricity, etc). They can’t make money if one expects them to sell at below costs.

You misunderstand the basic concept of overhead (BTW, putting quotes around the term overhead as if it’s a nebulous concept does your arguement no favors). When you cite the $1 cost of the CD, that is simply the marginal cost of 1 disc’s worth of labor and materials. Polycarbonate for the disc, paper for the liner, etc. If you want to accurately assign costs to each individual unit, then while the CDs coming off the presses at this very moment costs $1, the very first copy of that CD conservatively costs somewhere in the seven to low eight figure range. The salaries of everyone associated with the project- from the artistic talent, to the sound engineers at the recording studio, to the billable hours of the lawyers who drew up the contract with the recording artist- must all be accounted for somewhere. Wash, rinse, and repeat for non-salary costs. Even assuming a record goes platinum, your marginal cost is likely only a single digit percentage of per-unit overhead. The crazy thing is that in the short-term, costs are entirely irrelevant to pricing. A company sets prices based on supply and demand. Once they have CDs sitting in the warehouses, both marginal costs and inital overhead are sunk costs- money spent and no longer of concern. It doesn’t matter if it cost Company A $50 to make widget Z. If the market won’t support them charging more than $50, they will have to either sell it at the market price or let the widgets sit in a warehouse and take a loss on the entire $50. The long-term question becomes whether or not to get out of the business of making widget Z entirely if their costs do not allow them to make a profit at the market price. Or retroactively, whether they should have entered the marketplace to begin with. The music industry is a peculiar case since they really have no choice in this matter. GE can decide to invest money in either their light bulb or their jet turbine businesses, but Capitol Records cannot decide that they can’t make a healthy profit in the music business and reinvent themselves as a brake pad manufacturer. They would be finished as a corporate entity. The bottom line is that the price of that CD on the shelf (and even the price of a track at iTunes) is not determined in any way by the price a manufacturing plant in Taiwan quotes to RCA Records. The fact that that CD exists in the first place is testament in a roundabout way only to the fact that per-unit costs (including overhead) do not exceed the price the market will support. That conclusion doesn’t have any sexy buzz words like corporate greed in it. but it is the only responsible conclusion that can be inferred from the facts (and assumptions) we have been discussing.