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CD extras: Value-added  may not be so valuable

Underexamined factors to music industry’s latest marketing tool
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More musical artists and their labels are adding digital video disks to CD releases, as a way to frustrate users of file-swapping services and give paying customers added value that file swappers can’t touch. But CD-DVD bundling makes assumptions about the public’s inclination to spend more for products many consumers think are overpriced now. And it’s a strategy subject to a variation of the same piracy that’s already given the recording industry years of sleepless nights.

Steely Dan and Bjork, Morcheeba and Neil Young, Live and Annie Lennox, Metallica and Dave Gahan: they’re all including DVDs — video disks containing anything from music videos to concert performances, fan-club links to mini-documentaries — in their latest releases. Even the surviving members of Led Zeppelin — a band that broke up more than 20 years ago — have found new life, and a new potential fan base, by repackaging concert footage for DVD format in a new multidisc package.

For these savvy stars, and for a recording industry more aggressively pursuing litigation against those who share music files, it’s part of a strategy to beat back KaZaa, Grokster and the other peer-to-peer networks.

Not foolproof
As part of a package, these DVDs open a window onto less-explored creative aspects of musicians, providing loyal fans a fresh and often enlightening look at their favorite stars.

The fact that more bands and their labels have climbed aboard this increasingly crowded bandwagon isn’t new. But despite the rush to embrace the “extras” approach, there are underexamined aspects to what at first seems like a foolproof strategy:

  • Adding bonus DVDs to CD releases necessarily drives up the cost of CDs many consumers have long thought were already too expensive — so the added DVDs aren’t properly a “bonus” anyway. CD releases sell for anywhere from $13 to $17, while some CDs released with DVD extras sell for $20, and sometimes more. That’s more or less consistent with the Recording Industry Association of America’s statistics on the escalating cost of CDs — from an average per-unit price of $12.05 in 1990 to a cost of $15 each in 2002.
  • The higher prices for CDs suggest industry willingness to charge a known audience whatever the market will bear — and also assumes a loyal fan base is willing to pay extra to hear its favorite band play anything from a symphony to the musical scales. For loyal fans, that’s no problem, but for newcomers, paying the extra money for a “bonus” from a band they may or may not even like may be problematic.
  • The CD-DVD pricing strategy suggests a disconnect between audience and economics. By asking listeners to pay more money, the recording industry financially targets older, more affluent listeners — even when the music on the releases is often aimed at a younger, less affluent audience.
  • The bundling strategy takes for granted that consumers have or will buy hardware and conversion technology to make their DVD players compatible for playing disks using RealPlayer, QuickTime or other computer formats — or that people will want to sit at their computers to listen to music.
  • Since stores generally don’t provide music buyers a way to preview video CDs before purchase, the way many offer in-store listening stations, paying for something “sight unseen” may be troubling to consumers over the long term.
  • Consumers don’t always have the option of buying the CD without the accompanying DVD, a situation that could send them back to file-swapping services to get just the CD’s music, the artists’ best intentions notwithstanding. And the distinctions between one version of a CD and another aren’t always immediately apparent. Differences are sometimes no more than a subtle variation in cover art.
  • The DVD-with-CD approach doesn’t always work with limited edition disks: Once those limited editions are gone, music buyers might feel compelled to burn a copy from a friend’s CD or download the music anyway — the incentive of the DVD no longer an option.
  • And the bundling strategy presumes the enduring goodwill of the consumer. In light of the industry’s apparent willingness to antagonize the very customers it relies upon — in June the RIAA vowed to sue computer users who share copyrighted music online, seeking damages of up to $150,000 per song — that’s probably a wrong-headed assumption. Why should consumers feel compelled to buy into the industry’s latest survival strategy when it practically views them as criminals?

‘It's done wonders’
Metropolis DVD, a New York City-based design and development company, reckons with these factors even as it lines up more clients for the CD-DVD packages it produces. The company has produced multidisc releases for a range of talents, including Pink, Janet Jackson, P.O.D. and the Donnas.

“When we first did it, with Janet Jackson [on 2001’s “All for You”], we talked about the idea of giving consumers more value for the CD purchase,” said David Anthony, president of the company. “Enhanced CDs have traditionally been a way to add value but you have to put them in your computer, and then you’re out of entertainment mode. With bonus DVDs there’s more of a living-room entertainment experience, as opposed to an at-the-computer experience.”

For some acts, Anthony said, CD-DVD bundling has been a boon. “It’s done wonders,” he said.

Case in point: “Satellite,” the 2001 release by P.O.D., the rap-metal-hip-hop quartet from San Diego. “Their sales tripled when the bonus DVD was added,” Anthony said of the band’s 2002 limited-edition DVD, which included live performances. “Everyone walked away surprised that it was so successful.”

‘A way of rewarding fans’
Recorded-music store owners and managers back the bundling approach.

“It’s a way of rewarding fans,” said Bob Major, owner of Easy Street Records in Seattle. “I don’t see it as bells and whistles, but more of a chance for artists to get out their message.”

Major said that, contrary to many popular feelings about CD prices, he’s not hearing complaints about pricing. “It’s been popular,” he said. “I haven’t heard of anyone complaining about prices.”

(Not that record-store owners would be inclined to announce complaints about CD prices anyway. Some of the real complaints were addressed, and largely resolved, in September, when the five biggest distributors of music CDs — EMI Music, Warners, Universal, BMG and Sony Music — settled a price-fixing antitrust case brought by 41 state attorneys general and others for a settlement of $143 million. In June a federal judge approved the settlement, which is expected to mean that up to 3.5 million consumers would receive $13 each.)

A plus for labels
For the record labels, bundling seems to be a positive. “So far the strategy’s been good,” said Courtney Holt, head of new media and strategic marketing at Interscope, Geffen and A&M Records. “Right now, we’re in the position of trying to create as much value as possible. We’ve been able to come up with projects where DVDs helped drive initial sales.”

Holt mentioned the latest releases from Eminen and 50 Cent as two albums with limited-edition extras that were “a way of rewarding the fans for coming in early — a little bit of additional value they’re getting for what they’re spending for the record.”

Some of what they’re getting is the latest digital-video technology available. Anthony, perhaps understandably, expressed an unshakeable confidence in what he sees as the relative inviolability of the DVD.

“I don’t think we’ll see the casual pirating of DVD content the way we did with CD content,” he said. “I don’t think you’re going to see people being able to lift stuff off a DVD. With a DVD there are ways to hack it if you’re a dedicated pirate, absolutely, but it’s not an easy process.”

Holt, agreeing that “DVDs are a little harder to copy,” expressed a fervent hope of the industry: “that the consumer will see the value [of CDs with DVDs included] and will want to buy.”

A genie free of the bottle
Still, published reports suggest that DVD piracy isn’t as hard as it once was — and that efforts to stop theft of DVD data may be a fruitless attempt to stuff another genie of information technology back in the bottle.

In November 1999 — a year after Congress passed the Digital Millennium Copyright Act, the federal law intended to protect digital works from unauthorized duplication — Wired News reported that “DVD movie encryption has been broken.”

The Web site reported on the growing popularity of DeCSS, a computer utility that defeats the copyright protection system known as Contents Scramble System, a mainstay of the entertainment industry used to protect DVDs.

Wired News said DeCSS “will read a DVD movie disc and save the file on a hard disk, minus the encryption. All that’s required is a DVD-ROM drive ... and a lot of disc space.” That space on laptops and desktops has increased dramatically since then.

Picking locks, making enemies
And in June of this year, The Washington Post reported how two online DVD decryption tools make picking the locks of DVDs easier than ever.

The Post reported that one such tool, VideoLAN Client, “allows DVD playback, independent of region-coding restrictions ... It can even stream a DVD over the Internet, if sufficient bandwidth is available.” And the Post reported that another tool, DVD Decrypter, “makes copying DVDs to disk as easy as, if not easier than, copying songs off a CD. Load a DVD, fire up this program and just click the big DVD-to-hard-disk icon to have it do its thing.”

If that practice gains momentum, it could be a huge disincentive for record companies — faced with the prospect of accidentally creating another avenue for illegal downloading.

And recent threats from the recording industry aside, legal scholars and law professors have largely rejected DVD-protection arguments mounted by the entertainment industry.

“Once the secret is out, the secret is out,” Jennifer Granick, director of Stanford University’s Center on Law and Technology, told the San Jose Mercury News earlier this year.

Learning the hard way
"The business of expanding the criminal law so that making unauthorized personal copies of copyrighted works becomes a criminal violation is overreacting six ways from Tuesday,” said Jessica Litman, copyright law professor at Wayne State University, to CNet News.

For Anthony, it all suggests the recording industry is learning the hard way. “The record companies by and large are seeing a decline in sales of CDs, and struggling to understand why their sales are off. The public is voting with their dollars, and the entertainment companies have to look at that and ask if the [business] model they have is still viable. It’s something the record companies have reacted to by cutting their staffs. Now, it’s even more important to create a value proposition. You have to give value to the consumer, to make a compelling bonus DVD that brings the artist closer to the customer.

“Eventually people are going to expect [extras],” Anthony said. “If they spend $20, they want the value. I don’t think it’s enough to put out a CD alone anymore.”

‘Never say never’

Anthony finds that, for all the problems CD-extra releases may create, artists and the industry may be just scratching the surface in terms of DVD’s potential as a creative tool.

“Bands and labels and managements are starting to realize they can use this vehicle to nurture the relationship with the listener,” Anthony said. “You’ll see bands take a much bigger interest in DVD as part of their creative outlet. The artists themselves are saying, ‘I want to be a part of this process,’ instead of taking something put together for them. This medium is so new, the obvious stuff has been done,” he said. “Now the artists are gonna take over.”

And despite his fervent DVD evangelism, Anthony wouldn’t slam the door shut on the potential for its corruption as technology evolves.

“Right now it’s prohibitive to send a DVD image over the Internet, but that’s not to say there won’t be a time when you can,” he said.

“It was once unfathomable to think of a file with 10 gigabytes of information. If there’s one constant we can be sure of, it’s that technology is going to improve. ...

“Never say never.”