How much profit is there is Hi-Res?

[sdolezalek]

The newly released hi-res versions of Mark Knofler's Tracker album got me to thinking about the price differentials between an $11.99 CD (including shipping) on Amazon, a $9.99 Amazon MP3 download and the Flac or AIFF version from either HDTracks or ProStudioMasters at $26.99.

 

I'm very eager to promote the proliferation of his-res material, so I'm certainly willing to spend more. But at a 3-to-1 differential between downloads two thoughts come to mind: (i) would I rather have three so/so sounding albums than one great sounding one? and (ii) are the Hi-Res sites making a lot more money per album from their customers (but at much lower volumes) than Amazon?

 

Actually, the more interesting question is really, what would it take to bring the price of Hi-Res down to say $12-15.00 per download? Is it just volume, or is there some otherhidden cost of Hi-Res that I'm missing?

 

Thoughts?

[mjt5282]

I would imagine the volume is really low as most people don't own stereo equipment that can make it worthwhile or don't even buy albums anymore and just stream. HDtracks is catering to like the 5% of the 1% that I see anyway. Some artists seem to realize now that selling CD's is not going to get them their pool and mansion anymore, and that streaming is the future of their business (except in Japan where people apparently still buy lots of CDs).

[esldude]

I don't know, but I would hazard a guess the music companies owning the rights to the music set the price. If they were really interested in growing the hires market rather than raping a small niche of those willing to pay more, they would offer hires downloads for the same price as CD. Once the market was built a bit, they would be in a position to raise at least a little bit the price they charge. Their expenses for one versus the other are bound to be fairly trivial.

 

But it worked at the release of CD. Originally nearly double the price of an LP. Marketed as an improvement, and in many ways it certainly was. Soon enough it obsoleted the LP as a mainstream deliver medium. Seems by now they might catch on that it won't happen with hires. Need a different approach to really grow a market. I don't think they believe there is one to be grown. So for the small number who will pay more, they are going to charge it. Heck if something is recorded in hires in the first place there is one less step vs making a CD. Plus with a download no physical disc gets made.

[TubeLover]

Agreed. The inflated price of Hi-Rez is almost certainly going to ensure any chance at significant sales success is impossible. The three to one price upcharge over a cd is only workable, in terms of meaningful sales, if there is nearly that much of an audible improvement. And we know there isn't. Drop the price to $15.00, as suggested, and I am all in on purchasing anything I want, going forward. However, at $25.00 or more I will be extremely selective, and only consider recordings I view as required essentials. It doesn't take a genius to work this out, by now they should know better. They are literally throwing away a potential golden egg opportunity when they most need one.

 

JC

[sdolezalek]

I guess that gets at the heart of my question: How much more does the music company charge an HDTracks for a hi-res version than for a 16/44 version and do we pay the same markup on both, or do both the music company and HDTracks each upcharge us compared to what they would for 16/44?

 

Note: I'm not complaining about any vendor here, I'm just trying to understand the thinking (and who is doing that thinking) around building hi-res as a growth market.

[audiventory]

The newly released hi-res versions of Mark Knofler's Tracker album got me to thinking about the price differentials between an $11.99 CD (including shipping) on Amazon, a $9.99 Amazon MP3 download and the Flac or AIFF version from either HDTracks or ProStudioMasters at $26.99.

 

I'm very eager to promote the proliferation of his-res material, so I'm certainly willing to spend more. But at a 3-to-1 differential between downloads two thoughts come to mind: (i) would I rather have three so/so sounding albums than one great sounding one? and (ii) are the Hi-Res sites making a lot more money per album from their customers (but at much lower volumes) than Amazon?

 

Actually, the more interesting question is really, what would it take to bring the price of Hi-Res down to say $12-15.00 per download? Is it just volume, or is there some otherhidden cost of Hi-Res that I'm missing?

 

Thoughts?

 

Better way buy records in master resolution. You can backup it. And further fit its resolution to native resolution any your DAC - home or mobile.

 

Native resolution DAC allows avoid on fly changing resolution. For some cases it can give sound quality advantages.

[esldude]

Rather related post just today.

 

The Value Proposition | Real HD-Audio

 

More about such special releases will be forthcoming in the next few days.

[Audio_ELF]

I don't know, but I would hazard a guess the music companies owning the rights to the music set the price.

I think you hit the nail on the head here...

 

What I would be interested in knowing is if any of this extra cost is passed to the artist; or is it all going into the pockets of the distributors and music companies?

[firedog]

I think we can be pretty sure it isn't going to the artist. The "rules" pretty much let the labels, etc dictate terms of royalties to the artists for the "new" non/physical digital media.

[Musicophile]

I think we can be pretty sure it isn't going to the artist. The "rules" pretty much let the labels, etc dictate terms of royalties to the artists for the "new" non/physical digital media.

Well, if the artists get a % of sales instead of a fixed amount per album or track, they'd obviously make more. I'd also love to know more about this, as one of the key reasons I continue to buy albums in the days of streaming, is to ensure that the artists gets his share.

[firedog]

Well, that's a good reason to buy instead of doing streaming. Artists get from about $.30 to $1 for a $10 CD sale, depending on contract conditions.

Buying downloads on iTunes and Napster give about $.09 a song to the artist.

Streaming - a fraction of that.

I'm willing to bet the amounts for hi-res are more or less in line as for other downloads, maybe bumped up a bit.

[sdolezalek]

Artists get from about $.30 to $1 for a $10 CD sale, depending on contract conditions.

Buying downloads on iTunes and Napster give about $.09 a song to the artist.

Streaming - a fraction of that.

I'm willing to bet the amounts for hi-res are more or less in line as for other downloads, maybe bumped up a bit.

 

So, if the above were true, then either there must be some huge hidden cost of producing hi-res downloads, or someone in the chain is pocketing nearly $20 per download in margin. I say margin rather than profit because at very low volumes overhead can kill any margins made at the unit sales level.

 

Given the recent proliferation of hi-res downloading capabilities among sites that previously only offered CD or SACD purchases or 16/44 downloads, I would think that many of those sites have discovered that the extra profit per download easily outweighs the extra cost of offering the hi-res choice.

[Tony Lauck]

There are three issues that affect the pricing.

 

First is the one time cost of producing a different format. This is a minimal effort in a new release, as it just involves releasing the master, with some labor to verify and package the files, create a SKU on the web site, and upload and inventory a few gigabytes of storage on the server. However, for older recordings that were originally made in analog a complete remastering process is involved and this can have huge costs because of the expensive equipment and talent involved.

 

Second is the cost to distribute a copy. For downloads this amounts to server bandwidth costs, which are under $0.10 per Gigabyte, depending on the provider, possibly half these prices depending on the grade of service. This means that the marginal cost to distribute a hi-res copy is under $0.25, something that is probably less than the credit card fees charged merchants. Distribution costs should not account for more than a minor price premium between formats, except possibly on multi-channel hi-res products.

 

Third are business related issues. The different formats can serve as the basis of price discrimination which may result in additional revenue and, in some cases, make possible issuing recordings that could not otherwise be profitably made. In addition, record labels may have an established inventory of physical products and established business relationships with their distribution chain, and this can influence pricing. For example, high res downloads, especially DSD downloads, are perceived as competing with SACD disks.

 

The trend seems clear. As more releases come from original hi-res masters, the main one time costs for special mastering will disappear. With technological progress continuing to follow Moore's law, distribution costs will continue to decline (unless new government regulation stops this progress, which is certainly possible). Finally, the market will evolve as people make their buying decisions.

 

I avoid paying huge premiums for recordings that may not justify these premiums. However, if I know the music is good and the recording issued on a label which has consistently good sonics, then I may occasionally spring for the high priced stuff. There is competition in the market today. There are sites that seem to have high prices which actually may not if one catches sales.

 

[i've been managing a web site for seven years that sells downloads, so I am familiar with the cost structures involved in setting up and running music download sites.]

[Jud]

There are three issues that affect the pricing.

 

First is the one time cost of producing a different format. This is a minimal effort in a new release, as it just involves releasing the master, with some labor to verify and package the files, create a SKU on the web site, and upload and inventory a few gigabytes of storage on the server. However, for older recordings that were originally made in analog a complete remastering process is involved and this can have huge costs because of the expensive equipment and talent involved.

 

Second is the cost to distribute a copy. For downloads this amounts to server bandwidth costs, which are under $0.10 per Gigabyte, depending on the provider, possibly half these prices depending on the grade of service. This means that the marginal cost to distribute a hi-res copy is under $0.25, something that is probably less than the credit card fees charged merchants. Distribution costs should not account for more than a minor price premium between formats, except possibly on multi-channel hi-res products.

 

Third are business related issues. The different formats can serve as the basis of price discrimination which may result in additional revenue and, in some cases, make possible issuing recordings that could not otherwise be profitably made. In addition, record labels may have an established inventory of physical products and established business relationships with their distribution chain, and this can influence pricing. For example, high res downloads, especially DSD downloads, are perceived as competing with SACD disks.

 

The trend seems clear. As more releases come from original hi-res masters, the main one time costs for special mastering will disappear. With technological progress continuing to follow Moore's law, distribution costs will continue to decline (unless new government regulation stops this progress, which is certainly possible). Finally, the market will evolve as people make their buying decisions.

 

I avoid paying huge premiums for recordings that may not justify these premiums. However, if I know the music is good and the recording issued on a label which has consistently good sonics, then I may occasionally spring for the high priced stuff. There is competition in the market today. There are sites that seem to have high prices which actually may not if one catches sales.

 

[i've been managing a web site for seven years that sells downloads, so I am familiar with the cost structures involved in setting up and running music download sites.]

 

My supposition would be that the price would be set (for major labels) with reference to the remastering scenario, since that (old favorites) is where much of the market is. This ensures the labels won't lose money in that segment, and if it overprices new items, who cares (at the label)?

 

For the smaller labels, the need to defray fixed costs will dominate (they won't have economies of scale), and their prices will therefore be higher.

[sdolezalek]

Thanks Tony! As you said re DSD competing with SACD, my original thinking was that hi-res would be priced at a small discount from SACD pricing (to account for no physical disc manufacturing or distribution). I guess there are enough of us willing to pay more, so that currently the major labels think they can actually charge more for hi-res than SACD. I expect that competition will eventually drive that down.

 

Jud: Re the smaller labels, I agree their fixed costs will dominate, but no more so than releasing any other format; and I think we are currently paying more for hi-res than what the smaller labels were charging for CDs.

 

My own view is that a $15 price-point may be where the sweet spot for much greater adoption of hi-res might actually settle. I can't see not spending the extra $3-5 per album for best quality. That being said, there are lots of limited SACD collections that are still being priced at much higher price-points. Maybe the same "rules" of economics that allow the audio hardware industry to sell $100k amps, speakers, DACs also justify selling $25 software to play on that $100k equipment. ;-))

[Odissyus]

A little bit of judicious shopping yields some interesting results:

 

Title: Bizet: Symphony in C major; Jeux d'Enfants; Variations chromatiques

Label: Reference Recordings

 

Prices:

Amazon MP3: $9

Amazon Used HDCD: $10.46+Shipping= $14.45

 

HD Tracks 44/16 download: $12 (Wonder if this download contains the HDCD info?)

HD Tracks 176/24 download: $25

 

Reference Recordings HRx 176/24 CD-R: $45+shipping= $50

 

I emailed HD Tracks and they said that their 176/24 download is the same as the Reference Recordings CD-R. Reference Recordings says that their HRx CD-Rs "contain exact, digit-for-digit copies of the original Reference Recordings 176.4 / 24-bit digital masters".

 

Regards,

Odysseus

 

[esldude]

Well if you look at the trends in the mainstream larger markets, digital downloads are already falling off precipitously. The result of streaming services nearly doubling streamed content in the last two years. Maybe that is what Meridian was looking at in their development of the MQA. Feeling that downloaded hires would follow suit if they could provide a viable hires streaming format. I feel as has been the case all along with hires, provenance is the killer. If someone gets their heads out of their behinds to fix that and provide streaming hires, they could rule the market whether that market is large or small. With cost of such I still think someone wishing to really promote the growth of hires would offer it at identical pricing. With no reason not to purchase higher resolution it could grow however large it will. If that doesn't do the trick it simply will remain a tiny niche market.

[Jud]

Remember that the entire digital download market is essentially due to Steve Jobs dragging the major labels kicking and screaming into an economically viable and popular model they'd fought against for years. Nearly as soon as the ink was dry on that agreement, the labels swore they'd never again be duped into pricing music low enough to create another popular and successful market. And so it has been.

[sdolezalek]

Nearly as soon as the ink was dry on that agreement, the labels swore they'd never again be duped into pricing music low enough to create another popular and successful market. And so it has been.

 

I guess they inscribed it on stone tablets, so they wouldn't forget...

 

Actually the point about streaming vs. downloads suggests that the labels should really up the bit depth and bit rate on their downloads so that what they offer in download format is always just better enough than what is being streamed. If you are streaming MP3, you can sell 16/44 in CD and downloads, but if you are streaming 16/44, then maybe you have to actually sell 24/192?

[Jud]

If you are streaming MP3, you can sell 16/44 in CD and downloads, but if you are streaming 16/44, then maybe you have to actually sell 24/192?

 

A cogent argument, counsel, but is the client inclined to listen?

[elcorso]

I think it is difficult for the consumer how much is profit and how it is allocated among producers, record labels, dealers, artists, etc.

 

There are also many different market conditions according to the type of buyer.

 

What I am sure of is how the price is set: The maximum you want or can pay.

 

It's as simple as with any good: The law of supply and demand.

 

Roch

[sdolezalek]

A cogent argument, counsel, but is the client inclined to listen?

 

That's the problem! They are listening to their lawyers and accountants, not to their musical hearts...how do we get back to the days when music was paid for by the rich and played by and enjoyed freely by the poor. Oh, wait, I guess that is what the record labels are doing, just without the "noblesse oblige" part.

[steveashe]

We used to be tens of thousands or maybe hundreds of thousands of audiophiles. We lived in a world of tangible music. Was cool and wonderful and groovy. Today there are tens of millions or hundreds of millions of "kids" downloading and more recently streaming music they know and enjoy. These many millions are growing up and will have significant disposable income in 3 - 5 (?) years. One reasonable outlet for some of this disposable income will be commoditized hi resolution music streaming through excellent portable gear. Format "tangibility" is no longer a factor. Hi res streaming won't be called hi res any longer in a couple of years but will be marketed as an essential "musical experience" or something like that. Artists will continue to receive small fractions of what they are (or were) used to but volumes will increase and even commoditized hi res will continue to be more expensive than low res in whatever form because it has the potential to touch the soul. We're only at the beginning of the bell curve. I think Jay Z has it right.

 

I look forward to trying other services like Deezer and Quobuz (and others) when available in the U.S.

 

Steve Ashe

[Audio_ELF]

A few years old (from article dated August 2013) but for CDs...

If CDs cost £8 where does the money go? - BBC News

[alfe]

SoundStage! Hi-Fi | SoundStageHiFi.com - Understanding Digital Music -- Hi-Rez or Not?