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  1. #151
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    Quote Originally Posted by E-Stat
    Yet, you'll find higher prices for album downloads than CDs on Amazon. Does that make sense from a strictly cost-of-goods question? Clearly, such pricing is driven by the whim of the music companies who license the content, not by a linear markup method.

    I agree with you that the problem they have brought on themselves is making everything available as a single. Now they don't know how to handle the monster they created.
    rw
    That catch is the music industry - like many others - has never operated on a "linear markup" basis.

    I also seriously doubt their pricing is done on the basis of whims. I suspect their respective managements put a lot of thought into the pricing model options available to them. That doesn't mean their conclusions are going to be obvious to those of us on the outside any more than I have a good grasp why my local supermarket picks one item for a loss leader and inflates the markup of another.

    It is also not surprising that different record companies reach different conclusions as to what they think will work best for their particular situation. Again, the same thing happens when you compare local supermarket "A" to local supermarket "B".

    Overall, I personally can't complain too much about the music industry. I've got a lot of good music in my collection that brings me a lot of joy.

  2. #152
    Music Junkie E-Stat's Avatar
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    Quote Originally Posted by mlsstl
    That catch is the music industry - like many others - has never operated on a "linear markup" basis.
    Exactly. Pricing has nothing to do with the intrinsic costs of delivering digital media - which is my point.

    Quote Originally Posted by mlsstl
    I also seriously doubt their pricing is done on the basis of whims. I suspect their respective managements put a lot of thought into the pricing model options available to them.
    Sure. Some downloadable albums are cheaper than the physical media while others are more expensive. They are either overstocked on inventory - or don't want to produce what they don't have to.

    Quote Originally Posted by mlsstl
    I've got a lot of good music in my collection that brings me a lot of joy.
    As do I.

    rw

  3. #153
    M.P.S.E /AES/SMPTE member Sir Terrence the Terrible's Avatar
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    Exactly. Pricing has nothing to do with the intrinsic costs of delivering digital media - which is my point.
    That cost IS factored in to the cost of the download, the rest is a "what the market will bare" pricing. But considering that Apple makes no more than 2-3 cents per download in profit(I know this for sure), and licensing is only half the cost of the download(I also know this for sure) the delivery costs certainly are not insignificant, but vary over time according to my friend at Apple. So while that is your point, it is not as clear cut as you are trying to make it.
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  4. #154
    Music Junkie E-Stat's Avatar
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    Quote Originally Posted by Sir Terrence the Terrible
    That cost IS factored in to the cost of the download, the rest is a "what the market will bare" pricing.
    Downloading costs are insignificant as compared to the licensing cost - which is what determines what the market will bear (no nudity involved). Otherwise, there would be a consistent difference between the price of an album download and shipping media - which there is most certainly not. Sometimes they are the same. Sometimes the download is more expensive and sometimes the media is more expensive. So much for that argument! The network and server costs for downloads are the same regardless of who or what is downloaded. That would be like saying that UPS charges more to ship a package containing a Beyonce CD rather than one by Slim Whitman. I see you avoided answering my questions having obvious answers. No matter as we already know.

    Quote Originally Posted by Sir Terrence the Terrible
    and licensing is only half the cost of the download(I also know this for sure)
    Of course we believe you. Except for anyone in the computer industry.

    rw
    Last edited by E-Stat; 09-09-2010 at 03:09 PM.

  5. #155
    Shostakovich fan Feanor's Avatar
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    Quote Originally Posted by Sir Terrence the Terrible
    That cost IS factored in to the cost of the download, the rest is a "what the market will bare" pricing. But considering that Apple makes no more than 2-3 cents per download in profit(I know this for sure), and licensing is only half the cost of the download(I also know this for sure) the delivery costs certainly are not insignificant, but vary over time according to my friend at Apple. So while that is your point, it is not as clear cut as you are trying to make it.
    $.99 per song; licensing $.50; profit $.03. You're suggesting Apple infrastructure cost is $.46 per download? It's certainly not the variable cost and I very much doubt that it is high as that even including the amortized fixed costs. (If it is, the Apple board should fire Jobs and the whole IT department right now.)
    Last edited by Feanor; 09-09-2010 at 07:20 PM.

  6. #156
    Music Junkie E-Stat's Avatar
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    Quote Originally Posted by Feanor
    (If it is, the Apple board should fire Jobs and the whole IT department right now.)
    Maybe they're just f---ing clueless. Along with Samsung since they are wasting so much money providing downloadable firmware upgrades when they could be sending me CDs instead.

    rw

  7. #157
    M.P.S.E /AES/SMPTE member Sir Terrence the Terrible's Avatar
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    Quote Originally Posted by Feanor
    $.99 per song; licensing $.50; profit $.03. You're suggesting Apple infrastructure cost is $.46 per download? It's certainly not the variable cost and I very much doubt that it is high as that even including the amortized fixed costs. (If it is, the Apple board should fire Jobs and the whole IT department right now.)
    You can doubt all you want, you are certainly entitled to your opinion, but I trust the word from the horses mouth more than anyone around here...really.
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  8. #158
    M.P.S.E /AES/SMPTE member Sir Terrence the Terrible's Avatar
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    Quote Originally Posted by E-Stat
    Downloading costs are insignificant as compared to the licensing cost - which is what determines what the market will bear (no nudity involved). Otherwise, there would be a consistent difference between the price of an album download and shipping media - which there is most certainly not. Sometimes they are the same. Sometimes the download is more expensive and sometimes the media is more expensive. So much for that argument! The network and server costs for downloads are the same regardless of who or what is downloaded. That would be like saying that UPS charges more to ship a package containing a Beyonce CD rather than one by Slim Whitman. I see you avoided answering my questions having obvious answers. No matter as we already know.


    Of course we believe you. Except for anyone in the computer industry.

    rw
    Sorry, but your expert opnion is not supported by the information I was given, and since you don't know everyone in the computer industry, your last comment is irrelevant.
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  9. #159
    M.P.S.E /AES/SMPTE member Sir Terrence the Terrible's Avatar
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    Quote Originally Posted by E-Stat
    Maybe they're just f---ing clueless. Along with Samsung since they are wasting so much money providing downloadable firmware upgrades when they could be sending me CDs instead.

    rw
    Samsung firmware upgrades are not subject to liscensing agreement with the music companies, so your whole statement is apples and oranges.
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  10. #160
    Music Junkie E-Stat's Avatar
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    Quote Originally Posted by Sir Terrence the Terrible
    Samsung firmware upgrades are not subject to liscensing agreement with the music companies, so your whole statement is apples and oranges.
    Then you are arguing a different point than I. Perhaps I need to restate my point:

    Downloading digital content is less expensive than delivering physical media.

    You seem to be hung up on music industry conventions. I refer to the cost of data delivery, irrespective of content. Variations in pricing and profitability for downloading music is SOLELY due to licensing and marketing considerations - not upon the largely fixed costs of delivering content via a download vs. physical media.

    rw

  11. #161
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    Just a reminder that, despite the apparent precision of arithmetic, the loss or profit shown by an accounting department at the behest of management can be rather arbitrary, particularly in the entertainment industry.

    I think I've used this example previously in another thread, but in 1983 James Garner sued Universal Studios for $16 million over their accounting practices in connection with his TV show "The Rockford Files." They had not paid royalties, claiming the show had lost money. The trial brought some rather imaginative accounting practices to light. The suit was settled for an undisclosed amount in 1989.

    And don't forget the $600 toilet seats and $700 hammers that were courtesy of Pentagon accounting practices.

    Short of getting a good look at the books, I'd be cautious about any declaration of profit or loss on the subject.

  12. #162
    Music Junkie E-Stat's Avatar
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    Quote Originally Posted by mlsstl
    Short of getting a good look at the books, I'd be cautious about any declaration of profit or loss on the subject.
    The point that Feanor and I am making is independent of intellectual property pricing strategies and any number of things thrown into the G&A pile contributing to net profit.

    rw

  13. #163
    Forum Regular Woochifer's Avatar
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    Quote Originally Posted by E-Stat
    Downloading costs are insignificant as compared to the licensing cost - which is what determines what the market will bear (no nudity involved). Otherwise, there would be a consistent difference between the price of an album download and shipping media - which there is most certainly not. Sometimes they are the same. Sometimes the download is more expensive and sometimes the media is more expensive. So much for that argument! The network and server costs for downloads are the same regardless of who or what is downloaded. That would be like saying that UPS charges more to ship a package containing a Beyonce CD rather than one by Slim Whitman. I see you avoided answering my questions having obvious answers. No matter as we already know.


    Of course we believe you. Except for anyone in the computer industry.

    rw
    In other words, you don't any facts of your own to offer up.

    According to this estimate, Apple's operating costs for the iTunes store is somewhere around $1 billion/year. And the article further states that the consensus estimate on Apple's gross margins on music purchases is somewhere around 10%.

    http://www.asymco.com/2010/09/09/it-...to-run-itunes/
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  14. #164
    Shostakovich fan Feanor's Avatar
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    Quote Originally Posted by Woochifer
    In other words, you don't any facts of your own to offer up.

    According to this estimate, Apple's operating costs for the iTunes store is somewhere around $1 billion/year. And the article further states that the consensus estimate on Apple's gross margins on music purchases is somewhere around 10%.

    http://www.asymco.com/2010/09/09/it-...to-run-itunes/
    Wooch , the article tends to support E-Stats arguement (and mine) that download costs, that is, the cost per unit of download infrastructure is very low relative to physical CD distribution.

    For a start, consider the 10% gross margin cost for music. "Gross margin" means the difference between the cost of goods, in this case the price paid to the music industry, and the selling price, in this case $.99. This difference, then, is about 10 cents. (On the face of it, this directly contradicts Sir TtT's assertion that the licensing cost is only "half" the selling price, but let's carry on.)

    So the cost of physical download as well as all admin and marketing costs, plus the "2-3 cent profit" alleged by Sir TtT, has to come out of the 10 cents. Ergo the physical download cost is something much less than $.08. I will never believe that the cost of producing a distributing a phyiscal CD is less than 8 cents.

    Furthermore the article asserts that that Apple is making much more money an applications that it sells for only $.29, and that gross margin is 30% or about 8 cents. In this case the 8 cents has to cover marketing, admin, and profit as well as download infrastructure. The download cost has to be much less than 8 cents per unit, and the download cost for apps has to be close that of music files.
    Last edited by Feanor; 09-11-2010 at 06:56 AM.

  15. #165
    Music Junkie E-Stat's Avatar
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    Quote Originally Posted by Woochifer
    And the article further states that the consensus estimate on Apple's gross margins on music purchases is somewhere around 10%.
    Exactly my point. Using their guesses, the "cost of goods" is 90%! That is where their profit margin would be.

    Quote Originally Posted by Woochifer
    In other words, you don't any facts of your own to offer up.
    Neither does your source when it comes to the real question concerning cost of delivery.

    "I’m not an expert on the cost of operating data centers but $ 1billion a year seems like a lot. I would love to see an analysis of how this could be allocated."

    Seems like a lot? As opposed to what it would be required to ship 18 MILLION CDs per day? Why do you think that virtually every financial institution pushes electronic delivery of statements, etc? The answer should be obvious.

    rw

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