Investors, "Beware" of Record Companies

NewYorkCountryLawyer writes "The Motley Fool investment Web site warns investors to beware of 'Sony, BMG, Warner Music Group, Vivendi Universal, and EMI.' In an article entitled 'We're All Thieves to the RIAA,' a Motley Fool columnist, referring to the RIAA's pronouncement in early December in Atlantic v. Howell, that the copies which Mr. Howell had ripped from his CDs to MP3s in a shared files folder on his computer were 'unauthorized,' writer Alyce Lomax said 'a good sign of a dying industry that investors might want to avoid is when it would rather litigate than innovate, signaling a potential destroyer of value.'"

Re:so, what would Fool say about our Friend

[sm62704]

These guys (disclaimer: I'm not one of them and in fact haven't owned any stock for over 20 years) always say that you should pick a stock with a dividends to price ratio if ten to one or better.

Microsoft, the last I heard, pays no dividends.

So I think MS is probably a "stock for fools". If you buy a stock with the expectation of its price rising, you're gambling, not investing. That's not to say that gambling that Mars won't explode in the next two weeks isn't a good bet; some gambles are worthwhile.

As to the record companies, DUH! You don't need an expert to tell you that a company whose sales have been falling for over five years is a turkey.

Re:The vicious last bites of a wounded animal

[altoz]

Oh, they'll be dead before that. Artists are leaving record companies in droves. They'll start producing their own music and hiring niche marketing agencies to create demand instead. Even now, the smart ones are already moving in the marketing/concert promoter direction.

Re:so, what would Fool say about our Friend

[fotbr]

I doubt he'd say much.

RIAA: track record of suing their own customers, based on "evidence" gathered via pretty shady means
MS: doesn't regularly sue their own customers (their competitors, sure, but not random joe off the street)

Failure of vista: Not the only money maker that MS has. Also not their only market.
Failure of music sales: only thing the riaa has.

Re:so, what would Fool say about our Friend

[Mr. Underbridge]

Microsoft, the last I heard, pays no dividends.

No longer true, I believe because they got sick of answering the questions you pose in your post. ;)

From http://www.microsoft.com/msft/FAQ/dividend.mspx [microsoft.com]: "Microsoft pays a quarterly dividend of $0.11 per share. Beginning in Fiscal Year 2005, Microsoft shifted from paying an annual dividend to a quarterly dividend."

So I think MS is probably a "stock for fools". If you buy a stock with the expectation of its price rising, you're gambling, not investing. That's not to say that gambling that Mars won't explode in the next two weeks isn't a good bet; some gambles are worthwhile.

As an aside, I think TMF has moved away from that sort of stance. Look at it this way - if I'm a long term invester (and it's better to be), then I don't need the dividend now. What would I do? Probably re-invest it. If I believe in the company enough to own their stock, I'd rather they didn't pay me the dividend, which I'd just re-invest, because (I think) if my investment isn't tax-protected that's actually better from a tax perspective. I don't want to be taxed on the dividends now while I'm working and presumably in a higher bracket, I'd rather be taxed on them later at the long-term cap gains rate.

Re:so, what would Fool say about our Friend

[Neuropol]

"Could these be first signs of another failing "industry"?"

I'd say yes, but I think it's been dying for a long time now. More than a decade perhaps. Since the advent of mp3.com (the original - R.I.P.) and the ability for independent musicians to completely circumvent the rigors of major-label-pole-smoking. In terms of recording, production, and distribution bands have quickly adapted to the medium by which they can deliver the latest to the masses literally years faster than most major labels can. In almost all cases, faster than what a label can provide due to legal mumbo-jumbo that bands are required to go through before any thing moves forward in terms of contracts, tour support, and record sales projections and demands. Unless your 'label-made' like 99% of top 40 artists - born in the offices of label heads and marketing strategists, the wait has been over for a while now. The stone chunks are being taken out of the proverbial great wall of music put up by labels that had essentially created their disgustingly comfortable niche. It's close to being fully dismantled. For the sake of good Music, the sooner the better.

Music industry is big business. Huge in fact. It's laid many a great band to ruin in it's wake. And any thing that can crop it off at the knees is okay in my book.

Re:The vicious last bites of a wounded animal

[Billosaur]

The parallels with SCO are amazing, especially given the sizes of the companies we are talking about. That they could fail to see the future coming at them and more importantly read the trends (i.e. Napster) and react to them in a positive, money-making fashion, is an indictment of the corporate system, where over-priced CEOs sit in their glass-lined offices looking like suit-wearing fish and providing just about as much value to their company. When you start treating your customers as criminals, you have slipped over the edge and down the slippery slope toward oblivion.

This is probably the best thing to happen to them

[cashman73]

Seriously, I'm no fan of the **AA. But if more investment companies warn folks not to buy their stock, and since these guys seem to be motivated primarily by the almighty dollar, maybe if they see their stock shrivel up into nothingness and their retirement blasted into oblivion,. . . maybe they'll finally, "get the memo," that their 19th century strategy isn't exactly working out in the 21st century. All we need is for one of the big fish to declare bankrupcy, the and rest will see that and stop their litigous ways and actual get back to giving consumers what they want,... And if they don't, then f*ck 'em!

Re:Shared Folder?

[westlake]

I wonder how they define a shared folder?

I'll take a wild guess and say that they define a shared folder as the shared files folder used by your P2P client.

Not like John Henry

[Anonymous Coward]

Bad comparison! John Henry was a champion for the dignity of human work. He illustrated the very real danger of big business treating individuals as disposable ever since the industrial revolution. John Henry as the RIAA? Ridiculous.

Re:Sounds familiar

[garcia]

Now where have I heard that before... Oh, that's right. SCO. And look where they're at...

Yeah, but they didn't have much to market and a very small group that they could actually market their products (invented or real) to. SCO had to invent the "Pay us for Linux or we'll sue later" shit in order to have something that some companies would actually be willing to pay them for.

Those involved with the RIAA still have a product that is mass marketable and that plenty of people will continue to purchase. Just because the Slashbotters (me included on this one) refuse to support RIAA music doesn't mean that anyone else really gives a shit. Yes, artists are starting to come around and going around the RIAA by distributing their music online, and it's working, but it's still not to the point where it's a 100% viable method to get your music out.

It will be at least 5 years and more like 15 to 20 before we really see the fuckers die off -- as unfortunate as that is.

Re:Sounds familiar

[garcia]

Oh and I forgot to add:

Because they own copyrights on already recorded music that people like and will continue to buy for the foreseeable future, they will continue to have viable income for at least another 125 years. So while they might start faltering in 20 they won't be dead until the copyrights run out. Problem is that they will never run out because we'll never get those douchebags in Washington to fix the mess they were paid to create.

Stock shares?

[SharpFang]

Actually, I wonder how their stock shares fare.

Many companies have been proclaimed dead or dying while their shares kept going up, and they keep going up still. Some portals were proclaimed to be dead because their percentage market share vaned comparing to Google, but they actually gain users as the net grows, and they actually grow and note profits each year.

So how's it for the record industry?

Still curious

[edwardpickman]

I know it's fun to burn the school down but then you're left wondering what will replace it? I know the current preference is a pay if you want/download for free if you don't business model but it isn't exactly sustainable. The problem is always people will eventually get tired of paying and stop since they don't have to pay. Look at what happened when the 55 mph speed limit was lifted. I was living in LA at the time. For the first month people drove 55 out of habit but after that they slowly increased speeds to the new 65 limit and within three months they were already back to speeding. If you made the speed limit 100 mph some people would still speed. If the groups released their albums for free but asked people to not post them for download and to please only download them from the official site there'd be a copy on a file sharing web site with in the first hour. They can try to make money off ads on their web sites but like I say the majority will probably download from file sharing sites. Eventually the professionals will give up on releasing albums and songs entirely and just go back to playing live. Odd that things might go full circle to the pre technology days. Technology created the music industry we know and it's likely to kill it in the end.

Re:Shared Folder?

[mea37]

And Atlantic V. Howell is the context of this story. See how neatly that works out?

It's also been the definition they used in other cases. I don't know whether they think the term explains itself, or whether they're deliberately using vague wording for some reason... or maybe they do define their meaning clearly somewhere and I haven't seen it.

In any case, I think in the long run it's in their own interest to be clear and to use a narrow definition that requires not only shared access but also indexing / notification of availability that facilitates unauthorized copying (in the "actually illegal because it's unauthorized" sense).

Re:The vicious last bites of a wounded animal

[timeOday]

That they could fail to see the future coming at them and more importantly read the trends (i.e. Napster) and react to them in a positive, money-making fashion, is an indictment of the corporate system

I'm not convinced there's any way to die gracefully when your business becomes outmoded (SCO, too). You make it sound like all they had to do was "adapt," but what does that mean? They had a sweet setup selling CDs in shopping malls with no competition, but once the Internet made all that unnecessary, I think a decrease in their profits was inevitable. Even if they'd decided to switch everything over to something like iTunes in 1999, the selective purchasing of individual tracks and competition from indies and filesharing would still have decreased their profits, perhaps even moreso than the path they did choose.

Re:The vicious last bites of a wounded animal

[PhotoGuy]

Oh, they'll be dead before that. Artists are leaving record companies in droves. They'll start producing their own music and hiring niche marketing agencies to create demand instead. Even now, the smart ones are already moving in the marketing/concert promoter direction.

While I agree with the sentiment, are artists really leaving in "droves?" Other than indie artists maybe never pursuing a label to start with, how many already-signed artists are leaving the labels? Can you list more than 10? More than 20? Even if you listed 1000, I'm sure it would be something like a tiny single digit percentage (or less) of the total artists on labels, hardly qualifying as droves.

I think it *will* happen, and hopefully at an exponentially increasing rate. But for now, they still have the stranglehold on the artists.

Re:Not like John Henry

[elrous0]

No, he was a damned fool. Stubbornly digging your heals in, refusing to change, and fighting innovation to the bitter death isn't dignified and heroic. It's pathetic and stupid. It's like the old man who's afraid of computers, and who, instead of conquering his fears and adapting to the changing world, simply refuses to use them and becomes a goddamned living relic.

If America were full of John Henry's, we'd have become a third-world backwater a long time ago.

CD/DVD is the consumer transmission medium

[totallygeek]

Really, at this point, I purchase compact discs for one purpose: to have a real product to carry from the store and then store on a shelf. I rip all my CD's so that I may listen to the music on the device of my choice; one that holds far more information than any single or group of discs. It is getting this way with movies too. I figure that I will start ripping my movies to large storage systems and build a video-on-demand device at home. Don't get me wrong though, I do not like downloading music nor movies. Perhaps I am a relic, but I want a real 'box' product. In addition, I have hated downloading music within iTunes only to be told that I cannot make a mix mp3 CD (for my truck, which reads mp3 discs) with some of the music I just paid for the right to use. I feel the same way about movies, and to take it a step further, I feel most of my drive space is something expendable. If I lose an mp3 from a rip, I simply rip again. If I lose a download, I am SOL.

Re:The vicious last bites of a wounded animal

[Shajenko42]

While I agree with the sentiment, are artists really leaving in "droves?" Other than indie artists maybe never pursuing a label to start with, how many already-signed artists are leaving the labels?

How many have the legal right to do so? Aren't most artists working for the big labels locked into Draconian contracts that restrict them to either selling their work to the labels, or not selling their work at all?

Re:Heh

[ajs]

The more I read things like this though, the more it seems the downfall of such companies could actually happen. I kinda like it, too. It rumbles in my belly...

No, the industry isn't going anywhere. There are some large companies that will likely be shaken up, broken up or re-build as a result of change, but the fundamentals of the music industry are sound. People do want to buy music, it's just that a) the prices have become obscene while the technology has commoditized the "song" b) it's well known that buying music doesn't support artists because of predatory contractual bondage that they must accept from the publishers c) good music (which I define as any music that requires creativity and originality to create) is frequently under-promoted or squelched entirely in favor of over-produced, formula-driven, focus-grouped noise that I'm increasingly convinced is authored by software.

I'd like to see the total devaluation of the "song" and instead a resurgence of routine live performances in public places (stores, plazas, etc.) This is the way it used to be. You never went into a large store (and even most small ones) or a good restaurant without seeing a live performer. I think that would really help the industry transition from this plastic-stamping model to a more service-oriented model where the product isn't a thing, but a performer.

Re:The vicious last bites of a wounded animal

[Mondoz]

"I'm not convinced there's any way to die gracefully when your business becomes outmoded..."

A long time ago, the tobacco companies saw that eventually, their product would be regulated, lawsuits would ensue, and their profit margins would eventually shrink.
They diversified into food products so heavily that they're making more money on food than they do on tobacco. (They keep most of their holdings in food so they can't be sued for it as well...)

The music companies could have diversified into so many other directions... If only they hadn't been so stubborn...

Re:Not like John Henry

[elrous0]

Damned fool for fighting to keep the jobs of himself and his coworkers?

No, he was a damned fool for not realizing that the era of hand-mining was coming to an end and looking for a new line of work. My great-grandfather was a coal miner back when it was booming. When it started to go out and the continuous miner came in, he went to work in a local textile plant--eventually rising to a pretty high level there before he retired. He made it possible for my grandfather to go to college. He didn't kill himself in a romantic stunt, he just adapted. That's the can-do spirit.

John Henry is a romantic bit of fiction, nothing more.

Re:Not like John Henry

[cayenne8]

"Damned fool for fighting to keep the jobs of himself and his coworkers? I would argue that you are a damned fool if you lay over and no longer put food on the plate for your family. This isn't something where he had the choice to switch from a typewriter to a computer, but a case where a machine was going to entirely replace him and others. For modern perspective look at the fight between labor and automation in the auto industry."

I guess I miss your point.

I see nothing wrong with a machine taking over for jobs...especially such as those in the automobile industry. It makes it where cars can be made more efficiently and with more build quality/consistancy. (No more worrying about buying a car made on Mon or Fri).

Sure a person has to put food on the table, but, no one can ever consider their job is going to be around forever, especially today. You have to keep on the ball, and learning new things all the time. Chances are you will have to change jobs and careers more than a few times during your lifetime. That's just a fact of life.

failing to adapt

[zogger]

They have a 20 year old notion of how much a "unit" they need to make. This notion is ludicrous given the tech advances we have. They failed to keep dropping prices for their disks when they could. Instead of using the volume sales concept, they stubbornly stuck to making dollars profits on cents worth of plastic and paper. They just don't get it that price gouging doesn't work. The ultimate decision makers in that industry who decide pricing levels are *all millionaires*, they just can't relate to what stuff costs anymore for people who are not. And the legislators they "consult" with, similar. they live and work in an extremely expensive part of the US, DC, and none of them can be considered "working class" in the traditional sense. In short, the pair of them that try to set pricing and laws when it comes to IP and tech advances mean for tangibles cost just can't see the forest for the trees, they have no practical frame of reference. And even with "market studies", those can be flawed as well, and the ultimate proof of "market studies" is whether or not your widget you sell sells with full customer satisfaction or not, and in this case, they fail it, so even their marketing studies are therefore flawed by empirical evidence. We can all see it, right there in plain sight. If they weren't, we wouldn't be seeing these articles all the time or be discussing copies and copyright and so on. They just can't handle the innovation and ramifications of replicator technology so far, even though we are still in the tiny opening phases of such tech. That means as we get closer to cheap tangibles replication for the "masses" guy, star trek level tech, headed that way, they will continue to screw up, using their concept of enforced luddism by "law" as a business model. It is not only just plain ignorant and stupid, it is harmful to the over all economy and for society in general.

Re:The vicious last bites of a wounded animal

[marcosdumay]

"Contracts expire."

Yes, but copyrights don't. Only artists that retain their copyrights can walk away.

Too little, too late

[marcosdumay]

And by the same time, MS brings OOXML to the table.

If they want to become nice, they need to do that in a consistent way.

Yup. MS is the primary supplier of the tool...

[Anonymous Coward]

...which ordinary folk use to pirate copyrighted music and movies. By far, Windows is that tool which facilitates and enables the piracy since it was made to play, store and share digital multimedia files in its very core design and make it so simple that any average joe can do it.

MS has very deep pockets too, and up till now has been either a sacred cow that nobody dares stick a knife in, or a sleeping 900 pound gorilla that nobody dares wake up, or both. But the times are getting dangerous, and the **AA are getting desparate so who knows what will happen.

Re:The music industry is being killed by pirates

[Wakk013]

A publicity stunt in which they told everyone ahead of time how long it was going to be available in that way, and when they were going to close their doors to it. A stunt in which they grossed more in one day than they could all year going on tours and reselling merchandise.

Yeah it was a stunt alright. And now they understand full well how much money they could earn just by doing what's right for them.

As for piracy killing the market and business... No. Piracy only accounts for about 20-30% sales loss, and its always been present, in all shapes, forms, and is an age old issue all persons have had to deal with throughout history. Technology has accelerated it, but it didn't make it worse.

The problem is that the industry didn't keep up with technology. End of line. They failed to grow with the rest of the world, and now they either find a way to grow rapidly and regain the edge, or it fades away and is replaced with another group that will basically do their old jobs better and more refined.

Its the way of life.

Now stop posting as an anonymous coward, RIAA Rep :)

It ain't just slashdotters...

[bwcbwc]

If it was just Slashdotters that were no longer buying CDs, the RIAA wouldn't be so panicked. It's all the college students that can install a BitTorrent (or whatever) client and download music. It's all the people that buy music downloads from non-RIAA artists. It's even the legal download services that legally sell RIAA music, because the RIAA mindset still hasn't fully adopted that market strategy (hence DRM).

Re:Sounds familiar

[AmberBlackCat]

Don't forget, SCO was threatening rich corporations while the RIAA is threatening poor humans.