Deconstructing Pop Culture

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Two Factors that Reduce Record Company Profitability

March 20th, 2008 by David Kronemyer · No Comments

I co-authored this article in 1987 with my colleague Greg Sidak when I was Vice President of Capitol Records based in Hollywood, California.  It is a successor to our earlier article on the Structure and Performance of the U.S. Record Industry.

In it, we analyze several economic constraints on the record business as it then was constituted, including excessive product fabrication and returns, and artist advances and royalties.  We discuss pricing strategies and trade practices that effect explicit or implicit reductions in price, such as: invoice discounts and invoice dating, cooperative advertising, free goods, and returns.  We also consider the impact of manufacturing and distribution costs, the product life cycle of the typical pop album, and its sales velocity.  

The record industry today is completely different than it was, then.  Among other aspects, we have the Internet, P2P file sharing, iTunes, MySpace and FaceBook.  There also is increased competition for consumer entertainment spending – not just from “old media” like film, but also from “new media” that didn’t even exist at the time, such as computer games.  In its analysis of industry trade practices, though, the article still is pertinent.  It still is cited, even though long out-of-print. Here’s a .pdf:

Two Factors that Reduce Record Company Profitability