The Mu

David Prowse, who played Darth Vader (as the body not the voice), has a deal with Lucasfilm to share in the profits of The Return of the Jedi.  The 15th-highest grossing film of all time has apparently not yet turned a profit.  Thus, David Prowse has not yet received any of the cut he quite reasonably thought he might be getting by now.

Now, there are above-line (gross) and below-line (net) royalties.  The A-list stars will get deals that take their cut from the revenues (gross profit) and those cuts will actually be considered an expense by the studio.  In fact, everything under the sun is charged against the revenue so that very few movies ever show a net profit.

I find this rather alarming, but apparently it is common in both the movie and music recording industries.

Sony says to retailers: “You’re allowed to make $1 on the sale of each PlayStation 3.”  Consequently, there is no variation in console pricing between big box stores and little independent retailers; Sony has tight control over the market.  (As of this writing in Canada it is $299.99 for the 120GB Slim model and $349.99 for the 250GB one.) Around here, occasionally we’ll get some flea market guy selling a brand-new 120GB PS3 for $250 and not charging any tax.  This is something beyond Sony’s control and it smells a bit like a “five-finger discount” to me.  From the little research I have done, it seems the other big console manufacturers (Nintendo and Microsoft) orchestrate a similar situation.

Once the “ecosystem” is in place, the retailers theoretically make their money on after-market accessories and the sale of the games themselves.  Since piracy has not affected the console market as much as the PC software market, this kind of profit-shifting still makes sense.  For my family, we shop at a local small-chain retailer (Microplay in Newmarket) because they offer very strong customer service.  I cross my fingers that they are making enough money to stay in business.

Like the movie business, where theaters make their money from concession sales more than box office, I see a day when console gaming retailers make their money from something completely ancillary to the actual gaming activity.  Of course, that will be the day when brick and mortar retailing in this space is completely unnecessary and the value-add will be something in the digital domain.

I previously wrote about the need to change the business model for the recording industry.  This is a slightly different take on the same subject.

Yesterday was the 30th anniversary of the first public demonstration of the Compact Disc.  The technology has been good to us.  It was a great way to store and carry digital data, starting with music but expanding to software and photos over time.

Record companies (often called “labels” in the industry lingo) eventually stopped producing vinyl records and switched to CD production.  In those thirty years there was a pretty rapid rise and fall of the CD.  Lately there has been an attempt to recast the vinyl record as a more “pure” sound.  Of course, the sound you get out of any particular system has different characteristics which is why some people think mp3 is the best and some say a much more lossless format is better.  In any case, the reproduction quality of the format is not all that makes it rise or fall, as we saw with Beta versus VHS.  Often business reasons are behind the success or failure.

In the case of CDs, digital distribution is simply easier, and is quickly becoming faster too.  The cost to digitally distribute content is very close to zero.  The labels want to hang on to their middleman status.  They want to be able to control distribution.  That’s what they’ve been all about since their inception.

The artist often gets about 9 percent of a CD sale.  The label gets 46 percent and the retailer about 45 percent.  Now, these are unconfirmed numbers but most accounts I have read float around this same breakdown — and the point is to show how small a percentage goes to the artist.  Cutting out the middlemen and having a far lower priced product (approaching zero) would mean the artist gets a cut of all proceeds.  For those thinking that a cut of zero is still zero, think of freely available digital content like business cards you hand out: the more people who know and like your free content, the more will be willing to pay for scarce goods or services you can charge for.  And in the future it will be the artist who can best offer these scarce items: concerts, time with the artist, commissioned songs, and physical items (like limited edition album art).  All offered without the middlemen.

Interestingly, some artists are trying to sue their record companies to prove that digital distribution is more akin to a licensing arrangement (like they’d get if their music appeared in a movie) than a distribution mechanism.  So far the courts decree that they are one and the same. but I predict that something will change drastically over the next few years.  (I personally feel that digital distribution is best compared to radio airplay, where the distributor gets money from advertising and then pays royalty… although I argue that in the Internet age that royalty can be paid directly to the artist.) The downward pressure on the price people can charge for digital distribution (aka “piracy”) makes some kind of radical change inevitable.

When the landscape changes, people really should adapt.  I have no idea how much legislation was requested by buggy whip manufacturers to keep their industry alive once the automobile was introduced. But an analagous situation seems to exist where the music industry is concerned.

Record companies (represented most notably by the Recording Industry Association of America) are lobbying for legislation to prop up their outmoded business model.  One target for them is Apple.

With the iPod and iTunes providing a powerhouse one-two punch for music lovers to discover and buy little known artists, the record companies are losing their grip on an industry they consider their own.  iTunes now offers music without the evil of DRM — and in many cases they have dropped prices below a dollar a song.  The inflation-adjusted cost is relatively lower than listening to a song on a jukebox (a perfectly acceptable way of consuming music forty years ago).

The latest attempts by the RIAA to stifle music lovers’ consumption of music is a proposed music tax (also previously proposed by the Songwriters Association of Canada) that would be placed on broadband providers (hitting you whether you download music or not).  Prior to that the industry was trying to get ISPs to enforce copyright for them by shutting down users who were using P2P applications — based on flimsy evidence of whether the users were actually using P2P to share copyrighted material or not.

Of course, if this is allowed, the movie and television industries will have a precedent from which to demand their own legislation.

I think the saddest part of all this is that the artists get burned either way (the record labels exploited them in the past and they’re not going to see much money from content distribution in the future).  Live performances and value-added merchandise or services seem to be the way artists will make a living, with distribution channels merely providing a form of advertising for their “product”.