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CD prices: Who actually gets your money anyway?

According to the Recording Industry Association of America, when CDs first hit stores in 1983, the average suggested list price was $21.50. After dropping significantly over the next few years, prices remained "relatively flat in nominal terms (the actual dollar amount at the time)," but kept steadily dropping in "real dollars (adjusted for the changing purchasing power of money due to the effects of inflation)."

CD prices
CD prices
All Images Courtesy of Original Owners
CD prices
Courtesy of TOO

More recently multiple online sources vary but the indicated average CD price is somewhere between $13.40 and $13.99. For the purpose of argument and keeping the math simpler, let’s round up to the next full dollar amount and say the average CD price is $14.00. So now that we have a price, the question is: Who gets the $14.00 you spend on a CD anyway?

The wholesaler gets approximately 3.11 per CD sold. The retailer’s share is approximately 4.66. The record label gets the lion’s share at about 6.23. Out of said share comes the artist’s royalties which works out to about 1.40.

That 1.40 that goes towards artist royalties is generally about 10 percent of the retail price. The entire amount actually goes to the record label and they pay recoupable expenses such as band advances and recording expenses. Until all of these expenses are repaid—generally at around the 500,000 unit level—it is said that record labels under-report royalties by about 30 percent.

Here are some other interesting figures:

2.80 goes towards overhead such as computers, legal fees, office space, personnel, phones and so forth. This cost was once assumed to take up to 20 percent of gross revenues. However, this percentage can drop quickly with unit sales. Reportedly most record labels bill these costs with a ‘built-in profit margin.

1.56 is actually for the marketing of the disc. While the cost of label overheads actually drops as more albums are sold, the marketing costs are generally constant even if sales are high.

1.56 covers manufacturing, printing and distribution. The truth is, since most major labels currently have their own printing and distribution subsidiaries, there’s actually a built-in profit in these costs too.

0.47 goes towards publishing royalties. Sources indicate that major labels pay approximately $0.0755 per song for the publishing rights. Mind you, the average per CD cost is sometimes held down by special deals with groups that write their own material.

So there you have it rock ‘n’ rollers, the low down on why you pay what you pay for a CD. Almost makes it a bit clearer why things are the way they are with free downloads, paying for individual song downloads and the general lack of concern for all those major labels, huh? At any rate, guess that’s what ya get for your money.

My name is Phoenix and . . . that’s the bottom line.