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The Math Gets Even Worse for the RIAA
Posted By Barry Ritholtz On May 11, 2005 @ 6:23 am In Finance,Music | Comments Disabled
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 . . .
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|
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
Yahoo to launch new flagship music service 
C/Net, Tue May 10 12:34:00 PDT 2005
Article printed from The Big Picture: http://www.ritholtz.com/blog
URL to article: http://www.ritholtz.com/blog/2005/05/the-math-gets-even-worse-for-the-riaa/
URLs in this post:
 Tuesday Tunesfest: http://bigpicture.typepad.com/comments/music/index.html
 The False Mathematics of the RIAA: http://bigpicture.typepad.com/comments/2005/02/the_false_mathe.html
 WSJ: http://online.wsj.com/article/0,,SB111575587704729540,00.html
 Yahoo to launch new flagship music service: http://news.com.com/Yahoo+to+launch+new+flagship+music+service/2100-1027_3-5701661.html
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