How Downloading Helps The Entertainment Business
The Recording Industry of Association of America (RIAA) has spent the past few years embroiled in countless legal battles with illegal file sharing networks and users. When not in court, the RIAA focuses on damaging the reputation of file sharing through PR. In some ways, it's easy to see why the RIAA are reluctant to change. In the old model, they're king.However, countless studies and cases successfully prove that downloaded music, legal or illegal, can result in profits for the recording industry.
The music industry has grown these past few years despite low CD sales. Profits are simply being split differently. The RIAA's failure to adapt might be doing it more harm than good.
Traditionally, the money you pay when buying a CD is distributed amongst the following parties (in order of percentage received): the record label, retailer, distributor, artist, manufacturing, songwriters, and producers. Artists rarely get a lot of income from CD sales. Selling an impressive 300,000 CDs can earn a band as little as $40,000 (often on average to be split amongst 3+ members) after touring, video production, management, publicity, and other costs are taken out of their cut. Record labels, on the other hand, stand to make much more. When you download a song from iTunes, your money is distributed in a similar way. It's estimated that 60-70 per cent goes to the record labels (more for majors, less for independents). The remaining money is spent on transaction and network fees and operating costs, leaving Apple with a predicted 10 per cent profit.
A 2004 study by the Harvard Business School found that downloading had no impact on CD sales. It found that downloading was functioning in the same way as the traditional radio promotion method. Users would download a song or two to sample an artist or album, then, assuming they liked what they heard, purchase a CD.
As the article predicted, widespread adoption of broadband internet is drastically changing the game since poor internet connections were one of the reasons why users selectively downloaded. Most cell phones now have better internet connections than home computers did in 2003, but file sharing continues to provide the entertainment industry with new ways for promoting an artist or release. The rise of business-to-business opportunities, such as marketing and licensing, in the industry can generate more profit for all parties involved than a CD sale.
When people say the music industry is growing as CD sales decline, it also means the consumer is spending more money on other music-related goods and services. Now, instead of buying an album after sampling a few songs, consumers are more likely to buy a t-shirt or see a show. Instead of a consumer's budget being distributed primarily through the routing set up by CD and download sales, it's going through these traditionally neglected routes. This trend means more money for the artist and/or any record label that's learned to include PR and management as part of their contract packages.
Modern business models for the entertainment business make cutting out the middleman (i.e. record labels) extremely easy and the RIAA isn't helping to make this middleman any more palatable with its constant lawsuits and demands. Since the RIAA will never succeed in bringing the entertainment business back to its pre-Napster state, it might as well conform. The general opinion, after all, is that the RIAA is playing the bully so it can maintain profits and control. What good is this negative typecast if they can reap riches without it?
