The Math Gets Even Worse for the RIAA

Wednesday, May 11, 2005 | 06:23 AM

Thanks to an announcement by Yahoo!, our Tuesday Tunesfest spills over into Wednesday:

Back in February, we looked at what the actual losses were to the Recording Industry in "The False Mathematics of the RIAA."

It turned out that the claims were greatly exaggerated. Using the concept of substitution, a consumer could replace the free P2P music sourcing by paying Napster $180 per year, or Rhapsody (Real Networks) only $120 per year.

Now Yahoo steps into the fray, and lowers the cost of annual "all-you-can-eat" music consumption to $60 per year. Over the course of a decade, that amounts to $1,800 $1,200 $600.

Kinda makes it hard to argue that losses per P2P user are in the 10s of thousands of dollars annually when $600 per 10 years is what it costs for a comparable substitute.

Today's WSJ has the details:

"In an aggressive attempt to broaden the online-music business, Yahoo Inc. today plans to roll out a new low-priced service that allows listeners to rent songs rather than buy them outright.

The biggest seller of music downloads is Apple Computer Inc.'s iTunes, which jumpstarted the legal downloading business in 2003. Since then Apple has sold 400 million songs and its overall music business has propelled the company's earnings and stock price. Apple doesn't offer subscriptions, instead charging users by the song or album, and then letting them keep the music. An Apple spokeswoman declined to comment on Yahoo's new service, but during the past the company has been critical of the subscription model.

Yahoo's $6.99-a-month service has the potential to change the music-buying calculus for consumers. "It's a hugely aggressive move, a shot in the arm to the subscription notion," says David Card, an analyst at Jupiter Research. The online-music business is fast-growing, but still accounts for only about 2% or less of total music sales, according to analyst estimates."

At a certain point, Apple may consider rolling out a similar annual fee structre. They make little on the sale of individual tunes (although a few cents on a billion+ downloads annually can be significant). 

To them, the razor is the sale of iPods, and by locking in consumers to their proprietary format they maintain demand for both their ITMS downloads and ripped CDs. Their foot print is large enough that whatever they do, there's a hardcore audience of loyal pod owners ready to follow almost anywhere Steve Jobs leads . . .

>

 


Who Is Offering What

A look at some of the biggest players

COMPANY On-demand Subscription* Per-song Prices Size of Library
Yahoo $60/year 99 cents; 79 cents for subscribers over 1 million
Apple No 99 cents  over 1.5 million
RealNetworks $179/year 99 cents; 89 cents for subscribers over 1 million
Napster $179/year 99 cents over 1 million



>

Source:
Yahoo's Big Play In Online Music
Internet Giant Aims to Shake Up Nascent Industry With Subscription Rates Well Below Rivals'
Kevin J. Delaney
The Wall Street Journal, May 11, 2005; Page D1
http://online.wsj.com/article/0,,SB111575587704729540,00.html

Yahoo to launch new flagship music service
John Borland
C/Net, Tue May 10 12:34:00 PDT 2005
http://news.com.com/Yahoo+to+launch+new+flagship+music+service/2100-1027_3-5701661.html

Wednesday, May 11, 2005 | 06:23 AM | Permalink | Comments (7) | TrackBack (7)
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Listed below are links to weblogs that reference The Math Gets Even Worse for the RIAA:

» Poor RIAA from BusinessPundit
Barry Ritholtz keeps us his tradition of pounding the RIAA with logic.Kinda makes it hard to argue that losses per P2P user are in the 10s of thousands of dollars annually when $600 per 10 years is what it costs... [Read More]

Tracked on May 12, 2005 7:07:19 AM

» Poor RIAA from BusinessPundit
Barry Ritholtz keeps up his tradition of pounding the RIAA with logic.Kinda makes it hard to argue that losses per P2P user are in the 10s of thousands of dollars annually when $600 per 10 years is what it costs... [Read More]

Tracked on May 12, 2005 7:10:18 AM

» RIAA damages $5 per month? from eLegal Canton
The RIAA has sued over 10,000 people in the US for music downloading. They claim thousands of dollars in damages, and apparently typically settle for a payment of around $3,000 to end the suits. With legitimate paid music downloading sites... [Read More]

Tracked on May 18, 2005 7:41:26 AM

» Cuban makes the "5 buck" argument from bennellibrothers.com
Although I obviously dont think it would work, the debate over IP and copyright in this digital world is an interesting one. I love when people try to stick it to the RIAA since i think they have done a good job of ripping off both the artists and the ... [Read More]

Tracked on May 18, 2005 5:41:04 PM

» The market price is set for MP3s from The Entroporium
The Big Picture and Mark Cuban argue that Yahoo's new music service has effectively set the market price for unlimited downloading at $5 per month. Hey, that's a great deal! The Big Picture: The Math Gets Even Worse for the... [Read More]

Tracked on May 19, 2005 12:39:38 AM

» Get back, RIAA! You don't know me like that. from Manufactured Environments
If you follow online music, then I'm sure you've heard about Yahoo's entry into the music subscription fray with Yahoo! Music Unlimited. It's a deal where you pay $5 a month and get unlimited access to music online and for... [Read More]

Tracked on May 19, 2005 10:08:32 PM

» Good writings about the music biz from Oren Sreebny's Weblog
There's a terrific article by James Surowiecki in last week's New Yorker (May 16 issue) titled Hello Cleveland, where he describes the ways in which musicians are making more money from playing live than they are from selling recorded music. Well worth... [Read More]

Tracked on May 20, 2005 8:58:38 PM

Comments

Barry,

Your exclusion begs the question: does MSN music even register in the digital music sales radar? Of course everything pales in comparison with iTMS.

How long before Google gets into the act. Maybe a purchase in the offing?

Posted by: Rajesh | May 11, 2005 11:07:36 AM

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