Quote:
Originally Posted by Deepwaters
Edit: Doing the math...
Doesn't add up. If 95% of downloaded music was pirated, that should have resulted in a MUCH larger drop in revenue.
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Ben
pointed out the fallacy in that inference. As price falls (e.g. to "zero" with pirated wares), elasticity in demand is manifested.
Quote:
Originally Posted by Deepwaters
the difference in price from CD to download would need to be... i.e. downloads cost only 12% of CDs
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That's not so. Here is the correct calculation.
"Legitimate digital sources accounted for [only]
27 percent of recording industry REVENUE." (NOT UNITS)
Assumptions:
CD-equivalent units purchased per year (N) constant
CD prices (P) constant
Define:
D as the number of non-CD units now sold per year
d as the fraction of non-CD units sold now = D/N
r is the ratio of the non-CD to CD price for a unit
Original revenue R(0) = NP
Current revenue R(t) = (N-D)P+D(rP)
Stipulating R(t) = (1-0.55=0.45)R(0) meaning
[1] (N-D)P+DrP = 0.45NP
and stipulating
[2] DrP = 0.27((N-D)P+DrP)
Divide [1] & [2] by P
[3] (N-D)+Dr = 0.45N
[4] Dr = 0.27((N-D)+Dr)
Divide [3] & [4] by N
[5] (1-d)+dr = 0.45
[6] dr = 0.27((1-d)+dr)
Solving [5] for d in terms of r
[7] 0.55 + d(r-1) = 0
[8] d = 0.55/(1-r)
Note d<=1 so therefore r<=0.45
Note r>=0 so therefore d>=0.55
Simplifying [6]
[9] 0.73dr = 0.27(1-d)
Substitute d from [8] into [9]
[10] (0.73x0.55)r/(1-r) = 0.27(1-0.55/(1-r))
Multiply [10] by (1-r)
[11] (0.73x0.55)r = 0.27(1-r) - (0.27x0.55)
And solve for r
[12] (0.73x0.55+0.27)r = 0.27(1-0.55)
[13] r = (0.27x0.45)/(0.73x0.55+0.27)
= 0.18[0938198064035740878629932985853]
Use [8] to obtain d
[14] d = 0.6715
To account for the stipulations and assumptions, in round numbers,
About 2 of 3 sales have to be non-CD
And a non-CD price must be 1/5 of the CD equivalent
But aren't ACTUAL non-CD prices always MUCH closer to CD prices?
(See below for some documentation of this.)
(One interesting possibility is this: Did buyers who liked only one song
on a CD always buy the whole CD anyway? If so, then by selling
pro
rata by the song via non-CD means, sales can fall a lot even in the
absence of any displacement by piracy.)
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For fun I dug out and looked at numbers directly from the RIAA here:
http://76.74.24.142/1D212C0E-408B-F7...F5871C369D.pdf
as cited at
http://www.billboard.biz/bbbiz/conte...75f2b49bfe450c
See the file for subtleties. Note also some slight
differences from some previously reported numbers.
(in millions) year 2008
Digital
Download Album
(Units Shipped) 56.9
(Dollar Value) 568.9
=> Average price $10.00
(sales of singles are about double in size)
Physical
Compact Disk
(Units Shipped) 384.7
(Dollar Value) 5,471.3
=> Average price $14.22
Non-CD album prices are 70% of CD prices
(NOT 18% as in the simple model calculation above)
Physical (CD-like) units (in millions) by year
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
847.0 938.9 942.5 881.9 803.3 746.0 767.0 705.4 619.7 511.1 384.7
CD units in 2008, relative to 1999, are down to 41%
(NOT 33% as in the simple model calculation above)
% of Shipments (value, not units - RF)
2005 2006 2007 2008
Physical 91% 84% 77% 68%
Digital 9% 16% 23% 32%
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Deep, in fact I do very much appreciate your point
about the potential input savings in non-CD distribution.
But consumer prices are not very different, as noted above.
That was NOT the case for encyclopedias, as I discussed
several years ago here:
Libraries in transition from paper to electronics
And since you are an e-book guy, Deep, you might enjoy
the new page I just assembled here:
A very incomplete history (500-2010) of intellectual property law, the codex and the e-book
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Aside: Note when I asked...
Would you pay to watch an Alizée video on YouTube?
I got some answers like these:
"kinda pointless... these days movies, music, etc leak
even before they are finished..."
"They say that time is money. Considering the time I've
spent watching Alizée videos, I would say I've already
paid quite a bit."
Do you think these answers would make the RIAA feel better? <G>
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Of course, now there is another challenge facing people who want
to earn income creating new art which is entertaining, but not
especially of our times.
With digital storage and communication now so dirt cheap, ALL of culture
from all eras is coming online for instant gratification - some of it free,
some ad-supported and some fee-based. The
Wall Street Journal
has an interesting perspective piece here:
http://online.wsj.com/article/SB126136236068199631.html
It notes that
now that anyone with a laptop has near-instant access
to a near-infinite array of art objects, it's becoming harder for anyone to
sculpt the tastes of millions of people into anything remotely resembling a
lemming-like consensus.
Thus one will compete for the attention of people with damn near
everything that has EVER been created - including almost limitless
amounts of virtually free stuff out of copyright!