Napster Helps RIAA Again; RIAA Still Ungrateful (Updated)

One year ago, we ran a story about the effects of Napster on the RIAA's 1999 profits, which Michael gave the great title: "Pirates Steal Negative $1,400,000,000 from Music Industry." It's a year later, the new numbers are out, and the RIAA is lying through their pointy little teeth about them. The AP wire story's second paragraph says "Sales of music compact discs fell by 39% last year," which they would have quickly seen was a blatant lie if they'd bothered to look at the numbers. Fortunately, Slashdot is here to bust up the spin. Keep reading, if you aren't afraid of numbers.

(Update one hour later by J : The story was on the AP wire, e.g. here, so it's not the BBC's fault. It was unfair of me to single out the Beeb when they just happened to be the source the submittor submitted this morning.)

The RIAA's figures were released last week, but the AP story was delayed until Monday, when the story would get the most exposure.

CD sales plummeted last year in the U.S. and record industry officials say the figures prove that Napster, the Internet music-sharing service, has harmed their business.

Sales of music compact discs fell by 39% last year according to the Recording Industry Association of America (RIAA).

"Napster hurt record sales," said RIAA president Hilary Rosen.

This article reads like it might have been ghost-written by someone from the record industry. It isn't until paragraph ten that journalistic integrity kicks in enough for the AP to quietly mention what they're actually talking about:

Some experts say [sic] the drop of CD singles as being part of an industry-wide slump, due to economic factors and a weak year musically. (Emphasis mine.)

That's right, CD singles. Unit sales for the singles were down 39%, revenue down 36% (they raised prices, of course).

And CD singles account for how much of the RIAA's profits?

Not quite one percent.

Yes, that's right: they lost 36% of 1% of their profits.

And the news media is reporting it as a 39% loss.

The facts are that their "CD sales" are up this year, even over last year's stunning performance. The RIAA increased the average price of a full-length CD from $13.65 to $14.02, and still managed to sell 3,600,000 more of them.

Total profit increase on this, the core of their business, was 3.1%, or just shy of an extra $400,000,000.

But full-length CDs only account for 92% of the RIAA's revenue. They did have weak performance in the other 8%. CD singles, as already noted, dropped revenue by 36%. But the real casualty percentage-wise was cassingles, which lost over 90% of its revenue from last year.

Gee, why could that be? Maybe because nobody wants them?

In fact, the RIAA's only real money-losing format of any significance was cassettes, which, along with music videos, were the only format actually cut in price. Cassette revenue dropped $436 million.

Wait a minute, what am I saying? "Money-losing"? They aren't losing money on cassettes -- they're just not raking it in this year as fast as last year. And gee, why might that be? Again, because nobody wants them?

And it's not like the RIAA is struggling to get by on slim profits. The big picture is that, in the last nine years, they have tripled their annual income.

But they are desperate to spin this as a loss. The actual fact is that their total revenue is down 1.8% from 1999. Last year, they made $14,584,500,000. This year, they made $14,323,000,000.

But how could they blame Napster if they told the truth? What would they say? "Napster is killing us! Our income is down almost two whole percent! We are only pulling in $14,323,000,000 this year!"

That probably wouldn't fly.

Especially because in the three categories which Napster has precisely zero effect on -- cassettes, vinyl, and music videos -- their combined year-to-year loss was $579.5 million.

That's right. In the digital formats which Napster can trade, they are making more money: $318,500,000 more revenue. In the analog and video formats where Napster is irrelevant, they are making less money: $579,500,000 less revenue.

That's the real story here.

But don't trust the press to report this one fairly. Don't trust the RIAA's press release. Go read the RIAA's numbers yourself.

(Hell, don't even trust those numbers -- they don't add up. I was silly enough to type them into a spreadsheet, and someone over there has some problems doing simple arithmetic. Their 1998 total revenue includes the DVDs twice.)

The RIAA is desperately trying to spin this so that they won't look like greedy bastards for turning down Napster's offer of a billion dollars over the next five years.

If they just took that generous offer, then -- in a year that the AP wire suggests might be an "industry-wide slump, due to economic factors and a weak year musically," and in a year for which Bertlesmann admits "we didn't put that much good stuff out" -- their revenue would only be down $111,000,000 from last year. And that would have been $750,000,000 more than they made in 1998.

But that isn't enough for them.

Why would anyone think the RIAA is greedy? They just want what's coming to them.

(Update one hour later by J : Mea culpa. Three paragraphs up, I originally calculated the numbers as if the billion dollars was all applied in one year; that isn't so. The billion would have been applied equally over the next five years. Actually it probably wouldn't have been applied to year-2000 revenue at all, so it's more of a rhetorical point than anything. Thanks to dachshund for pointing out that it wasn't a lump-sum payment.)

(Update four hours later by J : The AP wire seems to have updated its story, now stating explicitly that it's CD singles, not "CDs," which dropped 39%. I see factually correct versions now at CNN, Salon, Yahoo, and wire.ap.org (search on Napster). The BBC version is still incorrect. In my opinion, the new versions are still misleading. Focusing on a large percentage drop within a subcategory which is a tiny percentage of the whole is a classic example of how to lie with statistics. But compare this to the RIAA's press release, claiming that CD singles had "flat growth in '98 and '99," though 1998 revenue actually dropped 22% -- that's just plain lying.)