Friday, April 11, 2008
Retail Concepts the World Never Asked For
by Tom Bozzo
...added, I'm clearly slipping as I almost forgot that the story broke late last year.
Electronista: Microsoft exploring Apple-like retail shops?
Alleged sources near Microsoft say that the company hopes to boost its brand by launching a retail chain that presents an ideal Microsoft experience... [emphasis added]
...added, I'm clearly slipping as I almost forgot that the story broke late last year.
Labels: Modern Retailing
Friday, January 04, 2008
Minor Mysteries of the I-90/94 Corridor
by Tom Bozzo
Apart from pesky dangerous-product-retailing considerations, the pattern of demand — one big week followed by just enough business to keep the Brat and Punk divisions of police departments from Lake Windsor to Menominee occupied — would seem to make the optimal fireworks-selling arrangement a mall kiosk or transactions out of the back of a fly-by-night trailer. Granted, these businesses aren't located in high-cost areas of the state, but there is such a thing as opportunity cost; the adult novelties stores among others appear to be doing brisk businesses.
Why are there so many fireworks stores in the middle of nowhere? How do they stay in business (that is, their parking lots appear to be plowed despite the absence of customers)?
Apart from pesky dangerous-product-retailing considerations, the pattern of demand — one big week followed by just enough business to keep the Brat and Punk divisions of police departments from Lake Windsor to Menominee occupied — would seem to make the optimal fireworks-selling arrangement a mall kiosk or transactions out of the back of a fly-by-night trailer. Granted, these businesses aren't located in high-cost areas of the state, but there is such a thing as opportunity cost; the adult novelties stores among others appear to be doing brisk businesses.
Labels: Modern Retailing, Wisconsin
Tuesday, October 16, 2007
Blogging By Request (Radiohead and Music Downloading Edition)
by Tom Bozzo
Before claims of average selling prices began to leak out, some silly things were said regarding the exercise. Following word from a source that the band had sold 1.2 million downloads, gigwise.com did some math and worked out:
My correspondent describes a surprising number of music business insiders, who should know better, incorrectly regarding the download revenue as pure profit for the band. To borrow some regulatory terminology, part of it is a "contribution" to cover the costs of producing the album, arranging for industrial-strength web hosting [**], etc. Recording studios don't build themselves, and had Radiohead not occupied theirs for the production of In Rainbows, it could have been collecting recording fees ("exorbitant" or otherwise) from someone else. [***]
Radiohead also reserve the right to charge a 45p transaction fee, which is apparently imposed on lower-priced transactions. Compare Radio 6 DJ Tom Robinson, whose breakdown of the recipients of a 79p iTMS download's revenue, quoted by Macworld UK, suggests Apple and the credit card processors receive roughly 19p. Assuming the charge imposed by the band reflects the actual transaction cost, they've given up roughly £300,000 to inefficient transaction processing.
Now, the band seems to have done a lot better than that, with reports suggesting an average selling price as much as £4. I think I speak on behalf of the quantitative socioeconoblogiverse in saying that actual data on the price distribution would be really interesting. That's not bad, but iTunes terms — which reportedly hand 70% of the sales price to the label, a cut which would go to the band for an independent release — could have given the band £5.59 out of a £7.99 iTMS UK download (or $7 or €7 for US and Eurozone sales, respectively).
Tom Robinson (op. cit.) says "sod that" to the labels getting such a large cut of the legal-download proceeds. While an array of jokes implying record-company inefficiencies may be cued at will [****], it can be forgotten that record labels do useful things for musicians like advancing them money that's to be paid back from music sales proceeds. The terms of the deals may or may not be great, from the performer's perspective. But consider as an exercise what terms you'd require before lending the kids down the street who are Serious About Their Band (say) $50,000 to advance their career.
Reportedly part of Radiohead's desire to avoid iTunes is not so much money issues as control over the sales model; they don't want people diminishing their album-oriented art by picking up tracks a la carte from iTMS or other services. In traditional music retailing, insisting people buy the CD album for a single track would (and does) drive people to free-as-in-beer alternatives. The name-your-price model can address this problem, since someone who would otherwise be willing to buy a 79p/99cent track can get the track (along with the rest of the album) for that price. The customer might even be willing to state a positive cash value for the rest of the album.
Whether a £4 average is sustainable for further sales is a good question (see again, sales data would be really interesting [*****]). I'd expect that super-fans willing to pay at least a standard download charge for In Rainbows are overrepresented relative to the idly curious and passers-by who will take a legal bargain over an extra-legal download among the early adopters. After the initial wave of people willing to pre-order the download given the band's terms, it's hard to see where they'd find a reservoir of high-net-revenue customers. [******]
In the end, I can see things moving to a world in which recorded music is given away to serve as a gateway drug for things like attendance at live appearances which will retain scarcity as data bandwidth and storage costs continue to vanish. Former Creation Records boss Alan McGee says that much with regards to the Charlatans' name-your-price exercise (again from Macworld):
[*] Their ex-label.
[**] The band has taken some guff over a site outage caused by inadequate traffic planning.
[***] Lots of people have trouble with the concept of "owners' equivalent rent," see (e.g.) here. Correct imputation of the value of non-market services is important for preventing economics statistics like GDP from mischaracterizing substitution of market for non-market services as representing economic growth.
[****] Such as the one about the mathematician's dog, the engineer's dog, and the record company A&R guy's dog, which is not suitable for a family blog.
[*****] I'd also suggest, in the spirit of undermining elites who don't need special help, that if Radiohead were willing to share data with Steve Levitt, they should publish it for the use of any interested researcher.
[******] On the gross revenue front, some might be willing to pay for a physical CD, though not the £40 super-deluxe box set; that's a higher transaction cost format.
A friend wrote a couple days ago to suggest I chime in on the much-blogged new album, In Rainbows, from Radiohead. The band's experiment (as they put it) is effectively sacking the middlemen of the recording business, not only the major labels but also Apple and the other online music distributors. In addition to releasing the album themselves, they're offering it mainly as a download of DRM-free MP3 audio files at whatever price (of at least 1p) the purchaser chooses to pay.
Before claims of average selling prices began to leak out, some silly things were said regarding the exercise. Following word from a source that the band had sold 1.2 million downloads, gigwise.com did some math and worked out:
Even if every person who downloaded the album paid just 10 pence, the band will still rake in a massive £120,000.Massive, eh? That's about four times the average annual household income for the UK, and the previous Radiohead studio album was released in 2003. Likewise, ABC News' Silicon Insider column suggested:
[E]ven assuming the worst-case scenario, that all of those millions of Radiohead fans decide to take In Rainbows for free, it's still hard to imagine how the band loses. After all, it produced the album without a contract, using its own studio outside Oxford, so it hasn't had to pay exorbitant recording fees.There may be some debate as to whether economists understand opportunity costs, but ABC's columnist certainly doesn't. If the band had 120 grand, let alone nothing, to show for the experiment, there would be champagne corks popping at Parlophone Records [*] in anticipation of re-signing the band on favorable terms.
My correspondent describes a surprising number of music business insiders, who should know better, incorrectly regarding the download revenue as pure profit for the band. To borrow some regulatory terminology, part of it is a "contribution" to cover the costs of producing the album, arranging for industrial-strength web hosting [**], etc. Recording studios don't build themselves, and had Radiohead not occupied theirs for the production of In Rainbows, it could have been collecting recording fees ("exorbitant" or otherwise) from someone else. [***]
Radiohead also reserve the right to charge a 45p transaction fee, which is apparently imposed on lower-priced transactions. Compare Radio 6 DJ Tom Robinson, whose breakdown of the recipients of a 79p iTMS download's revenue, quoted by Macworld UK, suggests Apple and the credit card processors receive roughly 19p. Assuming the charge imposed by the band reflects the actual transaction cost, they've given up roughly £300,000 to inefficient transaction processing.
Now, the band seems to have done a lot better than that, with reports suggesting an average selling price as much as £4. I think I speak on behalf of the quantitative socioeconoblogiverse in saying that actual data on the price distribution would be really interesting. That's not bad, but iTunes terms — which reportedly hand 70% of the sales price to the label, a cut which would go to the band for an independent release — could have given the band £5.59 out of a £7.99 iTMS UK download (or $7 or €7 for US and Eurozone sales, respectively).
Tom Robinson (op. cit.) says "sod that" to the labels getting such a large cut of the legal-download proceeds. While an array of jokes implying record-company inefficiencies may be cued at will [****], it can be forgotten that record labels do useful things for musicians like advancing them money that's to be paid back from music sales proceeds. The terms of the deals may or may not be great, from the performer's perspective. But consider as an exercise what terms you'd require before lending the kids down the street who are Serious About Their Band (say) $50,000 to advance their career.
Reportedly part of Radiohead's desire to avoid iTunes is not so much money issues as control over the sales model; they don't want people diminishing their album-oriented art by picking up tracks a la carte from iTMS or other services. In traditional music retailing, insisting people buy the CD album for a single track would (and does) drive people to free-as-in-beer alternatives. The name-your-price model can address this problem, since someone who would otherwise be willing to buy a 79p/99cent track can get the track (along with the rest of the album) for that price. The customer might even be willing to state a positive cash value for the rest of the album.
Whether a £4 average is sustainable for further sales is a good question (see again, sales data would be really interesting [*****]). I'd expect that super-fans willing to pay at least a standard download charge for In Rainbows are overrepresented relative to the idly curious and passers-by who will take a legal bargain over an extra-legal download among the early adopters. After the initial wave of people willing to pre-order the download given the band's terms, it's hard to see where they'd find a reservoir of high-net-revenue customers. [******]
In the end, I can see things moving to a world in which recorded music is given away to serve as a gateway drug for things like attendance at live appearances which will retain scarcity as data bandwidth and storage costs continue to vanish. Former Creation Records boss Alan McGee says that much with regards to the Charlatans' name-your-price exercise (again from Macworld):
[The Charlatans] will get paid by more people coming to gigs, buying merchandise, publishing and synch fees. I believe it’s the future business model.Quite probably so. But there is still money in music sales.
[*] Their ex-label.
[**] The band has taken some guff over a site outage caused by inadequate traffic planning.
[***] Lots of people have trouble with the concept of "owners' equivalent rent," see (e.g.) here. Correct imputation of the value of non-market services is important for preventing economics statistics like GDP from mischaracterizing substitution of market for non-market services as representing economic growth.
[****] Such as the one about the mathematician's dog, the engineer's dog, and the record company A&R guy's dog, which is not suitable for a family blog.
[*****] I'd also suggest, in the spirit of undermining elites who don't need special help, that if Radiohead were willing to share data with Steve Levitt, they should publish it for the use of any interested researcher.
[******] On the gross revenue front, some might be willing to pay for a physical CD, though not the £40 super-deluxe box set; that's a higher transaction cost format.
Labels: I Just Love Corporations, Modern Retailing, Music, technology
Sunday, July 08, 2007
Astroturf: More Effective Than Spam!
by Tom Bozzo
Around here, our local TV broadcasters lately have been funded in large part (or so it seems) by ads sponsored by a group called "TV4US," which claims to want to give Wisconsin a "real choice to [sic*] cable TV." In this case, "US" is the sorta-new AT&T, which is keen to see pending legislation that would allow it to enter the cable TV business enacted. For a full rundown on the controversies surrounding the legislation, go see our blog pal Barry Orton at WaxingAmerica.
TV4US recently circulated a list of names of supporters of the legislation, which notoriously included the names of vocal opponents, including Paul Soglin (**) and Ed Garvey. A second round of bad press Friday concerned people who had signed up with TV4US in favor of cable TV competition who were advertised as supportive of the legislation. These included:
(*) This sounds weird to me, as if it's using "cable TV" as a verb. I guess this must have been judged less wonky-sounding than "choice of cable TV provider."
(**) We figure Barry would have kicked Paul's butt across town if he got anywhere near a TV4US petition. Maybe he can work on him with respect to this totally misguided post on the prospective Regional Transit Authority referendum.
Now there's a title that would make no sense to Mr. or Ms. 1977. What does artificial grass have to do with a processed meat product? I don't suppose any blog reader would need a gloss on the new (indeed, now primary) meaning of "spam," but if you aren't aware, "astroturf" in this context means a corporate PR or political interest group action masquerading as a grass-roots effort.
Around here, our local TV broadcasters lately have been funded in large part (or so it seems) by ads sponsored by a group called "TV4US," which claims to want to give Wisconsin a "real choice to [sic*] cable TV." In this case, "US" is the sorta-new AT&T, which is keen to see pending legislation that would allow it to enter the cable TV business enacted. For a full rundown on the controversies surrounding the legislation, go see our blog pal Barry Orton at WaxingAmerica.
TV4US recently circulated a list of names of supporters of the legislation, which notoriously included the names of vocal opponents, including Paul Soglin (**) and Ed Garvey. A second round of bad press Friday concerned people who had signed up with TV4US in favor of cable TV competition who were advertised as supportive of the legislation. These included:
[Former Madison city council member Alicia] Ashman... Beverly Crosson, a state administrative law judge, and Jay Heck, executive director of Common Cause in Wisconsin.Yes, you saw that correctly, the local director of Common Frackin' "Holding Power Accountable" Cause signed a petition from a group that's "the very definition of Astroturf" (yes, that quote is from a Common Cause webpage). Just goes to show that an advocacy ad which is "plainly... not the functional equivalent of express advocacy" can be a feature, not a bug.
"That's not honest grassroots lobbying," [Heck] said.No kidding. The common thread among the irate TV4US respondees was that well, of course they want competition and lower cable rates. Who wouldn't? Naturally, preferences over policy solutions vary, leading one interviewee offers good (if not obvious) advice:
"Before signing up for something that seems so black and white and clear it's probably good to ask some questions before giving your name and address."Quite. We'll never hear a "Tell Senators Kohl and Feingold that everyone loves apple pie" ad the same way again.
(*) This sounds weird to me, as if it's using "cable TV" as a verb. I guess this must have been judged less wonky-sounding than "choice of cable TV provider."
(**) We figure Barry would have kicked Paul's butt across town if he got anywhere near a TV4US petition. Maybe he can work on him with respect to this totally misguided post on the prospective Regional Transit Authority referendum.
Labels: Modern Retailing, SCOTUS, Utter Stupidity
Friday, May 04, 2007
Artificial Intelligences: Still Not So Intelligent (for now)
by Tom Bozzo
I've been reasonably impressed that Amazon's recommendations that arise from its social network analysis engines (as opposed to its money-grubbing engines) usually are things that I wouldn't reject out of hand, even if the expected marginal utility often doesn't rise to the opportunity cost. But throw two distinct preference sets at Amazon's systems and they get a bit confused:
(click to embiggen)
We do own two of the five titles.
At least Mr. Murdoch can rest assured that he's still smarter than a computer — some of them, anyhow.
I've been reasonably impressed that Amazon's recommendations that arise from its social network analysis engines (as opposed to its money-grubbing engines) usually are things that I wouldn't reject out of hand, even if the expected marginal utility often doesn't rise to the opportunity cost. But throw two distinct preference sets at Amazon's systems and they get a bit confused:
(click to embiggen)
We do own two of the five titles.
Labels: AI, Modern Retailing
