Archive for December, 2000

One of the many things I somehow still remember from my 11th grade AP History class is the following anecdote:

Shortly after the Bolsheviks overthrew Czar Nicholas ll, one of Joseph Stalin’s closest confidantes asked the tyrant “Joseph, what must we do now?” After a few moments, Stalin told him to “round up all of the local governors and have them shot.”

The stunned aide responded, “But Joseph, the lawyers would not allow that to happen.” A
pensive Stalin had but one reply. “Shoot them first.”

What, if anything, does this have to do with the music world you might ask? Well, it is my most sincere wish that if any future Che Guevaras were reading this piece they’d remember one
thing.

Throw in some record label execs on that firing line too!

Why such venomous words directed at the suits that run the labels? Because too many of
those cats would steal the candy from a blind baby on Easter Sunday if they thought it’d make ’em a
l buck or two.

The worst of these guys make the Gestapo, the KGB, and the mob look like a bunch of punks.

How else could an all around nice guy/legend like Clive Davis get the boot when
Arista was enjoying tremendous financial success?

Because as they always do, the suits wanted more. Davis’s successor, L.A. Reid, has but one
claim to fame. While with LaFace Records he structured deals that rendered artists like TLC and Toni Braxton bankrupt after having sold over 15 million albums between them.

No lightweight himself, Sean ”Puffy” Combs has labeled Reid “the o.g. paper gangsta.”

For those who doubt me, take a close look at a little known policy of theirs called Minimum
Advertised Pricing (MAP). The Federal Trade Commission (FTC) sure as hell has.

A complaint filed by the FTC last month first brought this issue to my attention. The motion, levied against the industry’s major labels (BMG, Sony, UMG, and Time Warner) accuses the labels
of overcharging consumers by some $500 million thru MAP.

This is, in a nutshell, how MAP works. A record label like Sony would help out a retailer like
Tower Records with its advertising costs. Some times the label pays the retailers entire annual
advertising budget, while in other instances they’d simply attach the stores logo to any ads they’d
place for an artist’s CD.

ln return, the label requires the retailer to sell its artists’ CDs at a minimum price, usually
$16.98 to $17.98. Translation: You don’t get that new Wyclef disc you want without dropping a
twenty spot.

Advocates of the policy claim that MAP lets small music stores compete with the mega-
retailers like Circuit City or Wal-Mart, whose profits don’t rely solely upon CD sales. Such super-stores can slash CD prices “to draw people in, then sell them lawn mowers,” says Mike Dreese, CEO of Newbury Comics lnc, a New England based music chain.

Other people aren’t quite buying that argument. James Langenfeld, a consultant with the FTC
offers this up. “When CDs first became popular the labels assured us that as the technology improved the prices would decline.

“Well, that longstanding myth didn’t happen. lf anything the prices have gone up. The argu-
ment that to increase sales they have to spend more money therefore they have to raise prices is
ridicuIous.”

And it’s hard to argue with the man. A brief tour of the Internet quickly showed us that MAPing is a policy used in a number of markets, but none of them are for items in a CDs price range.

MAP in one way or another affects all Real Estate, Medical Equipment, Automobiles, Telephone Fiber Optic Systems, Brokers Consortiums, Yachts, Cessna Airplanes, and avionic systems used in Stealth Bombers.

But come on! That stuff costs tens (if not hundreds) of thousands of dollars. l couldn’t find
one single item costing less than $20, other than CDs, that is touched by MAP.

Not one.

That’s because there aren’t any.

All merchandise has a “minimum price” to make a profit, but it’d take a whole lot of lookin’ to find one that has the profit margins of CDs and still uses MAP.

Interestingly enough, in the midst of all of this searching I did find a fascinating piece on the
subject. Written by Kristian Kent of the Penn State University Digital Collegian in October of ’97, the commentary chronicled the beginning of the FTC investigation.

It concluded that the general consensus amongst labels and retailers alike was that “the
labels had been getting away with it for a while, but that would all end soon.” Kent did warn music
lovers that “the labels will fight this to the bitter end” in order to bilk us out of as much loot as pos-
sible.

Three years and a half billion dollars later we see just how much foresight my man had.
Courtney Love of Hole gave a scathing critique of record labels during an AOL chat on anoth-
er industry sore spot, Napster.

ln her diatribe she tagged label execs as ”liars and thieves” for a variety of issues. One of said issues was MAP. Love pointed out that whether an album moves for $14 or $18, the artist gets the same royalty percentage. But if the unit moves at “bargain bin” price or thru a music club, the artist gets only a fraction of the normal royalty rate.

MAP benefits one group and one group only, the labels themselves.

The good news is that MAP may be enjoying its last days. This past spring Time Warner‘s music division, in an attempt to get in the FTC’s good graces prior to its approval of Time‘s merger with both AOL & EMI, signed an agreement to cease and desist its MAP policy.

The competition factor should force other labels to follow suit. This means that by the end of the year your CD purchases could be a couple of bucks cheaper.

So the next time you hear some suit whining about how MP3 technology is cutting into profits or how they can’t cut album prices and turn a profit, remember where said complaints are coming from.

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