Total manufacturing/distribution costs for a CD are around $2.20 with a wholesale price of $6.50.
The labels still get the $6.50 more or less for a digital album (although that's falling) but they no longer have to worry about manufacturing a portion of their products (CDs are still 80% of the market.. digital is 20%) so at best they knocked off 20% of their manufacturing costs thus far.
So now for an equal numbers of units shipped the total cost is $1.76 per unit.
The labels also have to pay mechanical royalties to the artists.
So prior to the internet: $6.50 x 250,000 units minus royalties would net them around $700,000 gross profit.
But they would have paid $250,000 as an advance to the artists.
Net profit would be something like $450,000 on the initial $250,000 investment plus ongoing manufacturing and marketing costs.
If they hit it big, they get rich, but a dud might be a money loser or at best barely profitable.
The digital sales would boost their net profit by $110,000 for the same number of units sold, all else being equal. They would get a 2.24x return on their investment.
Keep in mind 250,000 units is now pretty good for a successful artist now.. the biggest album last year only sold 2.8 million copies.
Artists don't get the shaft anymore than any other business person does.
Labels are just VC.. they risk investing a small amount of money in a very large number of artists (a few hundred thousand) on a hunch that it might pay off. Most don't work out, but the ones that do make up for the rest.
80% of sales come from 50,000 albums pulled from the entire history of recorded music.. not very good odds.
The real problem is that nobody is buying music anymore. Period. Unit sales are dropping off a cliff.
The labels still get the $6.50 more or less for a digital album (although that's falling) but they no longer have to worry about manufacturing a portion of their products (CDs are still 80% of the market.. digital is 20%) so at best they knocked off 20% of their manufacturing costs thus far.
So now for an equal numbers of units shipped the total cost is $1.76 per unit.
The labels also have to pay mechanical royalties to the artists.
So prior to the internet: $6.50 x 250,000 units minus royalties would net them around $700,000 gross profit.
But they would have paid $250,000 as an advance to the artists.
Net profit would be something like $450,000 on the initial $250,000 investment plus ongoing manufacturing and marketing costs.
If they hit it big, they get rich, but a dud might be a money loser or at best barely profitable.
The digital sales would boost their net profit by $110,000 for the same number of units sold, all else being equal. They would get a 2.24x return on their investment.
Keep in mind 250,000 units is now pretty good for a successful artist now.. the biggest album last year only sold 2.8 million copies.
Artists don't get the shaft anymore than any other business person does.
Labels are just VC.. they risk investing a small amount of money in a very large number of artists (a few hundred thousand) on a hunch that it might pay off. Most don't work out, but the ones that do make up for the rest.
80% of sales come from 50,000 albums pulled from the entire history of recorded music.. not very good odds.
The real problem is that nobody is buying music anymore. Period. Unit sales are dropping off a cliff.