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Why MP3 Won't Win
By Randy Barrett, [email protected] Week

I have very little pity for big record labels facing the MP3 and Napster onslaught. OK, I'll be more direct: Record companies are a cabal of greedy, thieving suits who have held artists and the listening public hostage for far too long.

Consider this: To manufacture 100,000 CDs costs about $93,000, or 93 cents each. Big artists regularly sell 1 million units or more, where the per-unit cost is significantly lower. How much did you pay for the last CD you purchased? About $15. The wholesale price is roughly $9, so the music store did pretty well with a $6 take. After paying trifling CD production costs, the label ends up with the rest - about $8.50.

What is the artist's cut, you might ask? Here's where the real thievery begins: nothing, at least for the first few albums recorded under a standard contract. The artist is required to pay back all production and promotional expenses to the record label, so his or her small cut of the CD sale is immediately swallowed up. Only after an artist becomes a superstar can better terms be won from record companies that almost always have the upper hand. Artists generally make their money from concert appearances and song royalties.

If all this sounds like the artist is getting screwed, you are correct. If it sounds like maybe that $15 CD is more than a little overpriced, you're right again. The record labels have enjoyed a steady windfall since the end of the LP record format, since CDs are so cheap to produce and the retail price has stayed artificially high.

Which explains why many relatively well-known artists aren't complaining about Napster. It's a great and long-awaited comeuppance for the Evil Empire.

At Internet speed, MP3 and Napster have quickly threatened the overlordship of the labels. It's true, Gen-Xer Billy can now find pirated cuts of the Dave Matthews Band on the Internet. And unlike the cassettes of old, the copies are perfect digital replicas. Theoretically, Billy never has to buy another Dave Matthews CD again, since it will all be on the Net somewhere.

But this misses a major point: Legality aside - and Napster most probably violates copyright laws - chasing around after MP3 files is a big pain in the butt. Billy may have time for it, but I don't. And I don't think the rest of America has, either.

While I hate to admit it, there is value in owning the whole CD, replete with liner notes, in a neat - if overpriced - package that can be played easily on one's stereo or Discman. I strongly doubt the new technologies will put much of a dent into record companies' revenue, which rose 8 percent to $14.6 billion from 1998 to 1999.

So I'm glad the big labels are scared, but I think MP3 and Napster will be a limited threat in the long run. After all, listening to music is about convenience. At that, a real CD wins hands down.

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