[vorbis] Re: OGG portable (iRiver iHP-120)

[Alejandro G. Belluscio]

Hello Paul,

Wednesday, October 22, 2003, 4:20:18 PM, you wrote:

Paul> Kyle Rose wrote:

>>Ralph Giles <giles at xiph.org> writes:
>>
>>  
>>
>>>>How musch of that huge price tag is MP3 royalties? With an ogg encoder
>>>>instead of Mp3, I imagine the gaget could be alot cheaper ( and higher
>>>>quality!)
>>>>      
>>>>
>>>According to http://www.mp3licensing.com/royalty/ it's US$2.50-$5.00 per 
>>>unit. Or 6 to 12 thousandths of the $400 retail price.
>>>    
>>>
>>
>>Or, about 1%.
>>
>>Doesn't seem like much now, but I suspect these devices will get much
>>cheaper over time, so that 1% will eventually become 5% or 10%.  That
>>cuts a great deal into one's profit margin.
>>
>>Cheers,
>>Kyle
>>
Paul> Think about this.  If they are selling the product to stores for $250 
Paul> cost becomes greater.  It goes from ~1.25% to 2% of the cost.  There is 
Paul> something else though.  How much does it cost to produce?  If it costs 
Paul> them $180 for each unit (development, advertising, production, etc)  
Paul> Then $5 is 7.14.  And that is with conservative numbers.  It could cost 
Paul> much more to sell due to limited quantities.  Many companies only make 
Paul> 5% profits after all expenses are paid so that 2% really turns into 40% 
Paul> change in net profits.

Paul> Anyway, can you tell I'm taking 10 units of accounting right now?

Paul> Paul

You should take about microeconomics, too ;-) I guess most of the
manufacturers are paying similar licenses (which could go from $0 to
$bignum). The fact is that everybody _has_ to support mp3. So every
single competitor will have the same added cost. It's a non issue. the
only differencing factor would be:
a) If there's a marked difference so it creates a cartel of
manufacturers. Which I don't think is really happening. But it could
only be fought by the FTC (yep, sure they will :-/)
b) By the MPEGLA that has to determine the price elasticity of the mp3
device market. If they go too high on the royalties they are impeding
the growth of the market. If they go too low they won't reap all the
profit they could. But then again, it's a non issue for the
manufacturers.


-- 
Best regards,
 Alejandro Belluscio

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