The RIAA wants to keep secret the prices it charges a distributor (for e.g. iTunes) per song.

To understand why this is smarmy, to fully appreciate the magnitude of the gall, some background is required…

(After I finished writing this entry, I realized how huge it was, so I’ve inserted a jump).

In a CD-based sale, a distributor has to buy CDs from the record company first (duh). The record company (e.g. Universal, Sony) gets to set two prices: the suggested list retail price, which is exactly what it sounds like, and the wholesale distributor price, which is the price the distributor pays to obtain the CDs.

This wholesale price is typically 50-55% off the suggested retail price [1], or to put it another way, it is 45-50% of the suggested retail price.

Since the suggested retail price is ~US$17 per CD, the distributor pays the record company ~US$10 per CD. At an average of 14 tracks per CD (number pulled from nowhere), the record company would make ~US$0.71 per song.

Okay, that’s CDs.

In an online sale, a distributor also has to obtain the music from the record company. The record company gets to set this price too, and it is this amount that the RIAA does not want let out. Some e-retailers have let slip that the price varies from US$0.65 – US$0.85 per song, and general consensus seems to be that they charge about US$0.70 per song, but the RIAA itself has kept mum about the overall scheme.

So let’s assume that a record company makes US$0.70 per song. Why is this bad?

FIRST, your *.mp3 (or *.aac or *.wma) file is undoubtedly of lower quality than the equivalent song on CD. Now this may not matter to some people, and in any case encoding algorithms have gotten smarter, resulting in better sound. But it is still not perfect. So basically, they charge the same price for an inferior product.

SECOND, your downloaded file is almost undoubtedly crippled with a draconian DRM scheme. DRM is terribly inconvenient to the customer, and makes your music purchase a transient, fleeting experience as you upgrade from player to player and computer to computer. In addition, DRM is legally unsound, because simply breaking the DRM is a crime, regardless of the legal use you intend to put the material.

Now there are some CDs that come with DRM schemes too, but thankfully my musical tastes don’t run in those circles, and I have yet to encounter a CD I’ve bought that has DRM (yay game music OSTs!). Also, based on my HMV browse, it seems to me that most CDs with music worth listening to do not actually come infected with DRM (information to the contrary is welcome). So basically, record companies charge the same price for an inferior, crippled product.

THIRD, record companies make a greater profit off online sales than CD sales. Though the wholesale price per song is the same, the record company incurs much less manufacturing and distribution costs. At the same time, an online retailer reaches a much greater audience. And that audience is much more likely to buy many songs all over for US$0.99 each than they are to buy a couple of CDs. So basically, record companies make more money from charging the same price for an inferior, crippled product.

FOURTH, record companies perpetually maintain that in doing this, they do no wrong; that it is in fact all of you who are hurting their meteoric rise in profits. On the one hand, this makes sense. When you are a defendant to a lawsuit you typically deny all liability; and piracy is indeed siphoning a significant amount of money away from record labels, retailers and artistes.

But price fixing is clearly wrong! So wrong, that the FTC has twice brought major action on it; once around 2000 for price-fixing of CDs (technically it was a minimum advertising price scheme), and another churning its way through since 2005 for price-fixing of online music. Note this is just price-fixing, and I’ve not counted the numerous other anti-competitive lawsuits the RIAA and its members have been involved in.

Further, studies have shown that piracy has not hurt the record industry. Results bear the conclusion out: they are in fact making more money than ever before. Their complaint is not that they lost money, but that they could have earned more. Last time I checked, the world doesn’t owe anyone a profit.

So basically, record companies deny being naughty and sit around whining like spoilt brats while making more money from charging the same price for an inferior, crippled product.

FIFTH, record companies have long abused their dominant position to shaft customers, especially in the courts. Now this is not much of a problem in Singapore, because the last few people caught were into some serious pirating, not once-in-a-while minor stuff.

But in the US, we have a rather hilariously horrifying track record. The RIAA has sued, in no particular order, a dead grandmother, a 12-year-old girl, a computer newbie and even a woman without a computer. In one case, they claimed a letter from AOL nailed a defendant; turns out the letter just said the defendant had an account with AOL. In another, they sued a father who subsequently died; they offered the family 60 days’ mourning time before they sued the kids against the estate.

So basically, record companies are big bullies who deny being naughty and sit around whining like spoilt brats while making more money from charging the same price for an inferior, crippled product.

SIXTH, record companies have been trying to make even more money from their online music sales, not by making more music available, but by introducing a tiered pricing scheme that would make you spend more on popular songs while ostensibly reducing the price on “older” songs.

Yeah, right.

Steve Jobs told ‘em, “No, don’t be greedy.” At which point Warner music CEO Edgar Bronfman whined that it wasn’t fair, Apple made all that money off the iPod and they’re not sharing, I’m telling mommy Microsoft… who – you guessed it! – gives Universal Music Group a cut every time a Microsoft Zune is sold.

So basically, record companies are greedy big bullies who deny being naughty and sit around whining like spoilt brats while making more money from charging the same price for an inferior, crippled product.

I will stop now before the above sentence becomes an unspeakable mouthful, and to come back to the main point.

After all of the above, the RIAA is now petulantly denying revealing its wholesale pricing scheme, saying it is a trade secret. A trade secret! Come now, we all know what it costs, all we want is details.

RIAA, if you were a child, I’d cane you with a nice, long bamboo cane and make you apologize to everyone.