"Imagine a new hot-dog selling venture. Let’s also say there’s only one supplier to purchase hot dogs from. Instead of simply charging a fixed price for hot dogs, that supplier demands the HIGHER of the following: $1 per hot dog sold OR $2 for every customer served OR 50 percent of all revenues for anything sold in the store.In addition, the supplier requires a two-year minimum order of 300 hot dogs per day, payable all in advance. If fewer hot dogs are sold, there is no refund. If more than 300 hot dogs are sold each day, payments to the supplier are generated by calculating $2 per customer or 50 percent of total revenues, so an additional payment is due to the supplier. After the first two years, the supplier can unilaterally adjust any of the pricing terms and the shop can never switch suppliers." - Tudor Bosman from Bookmarklet

Record labels are evil. - Tudor Bosman

They and book publishers need to die. - Piaw Na

Isn't this analysis also why Netflix's streaming biz will never be profitable? - Andrew C (✓)

Andrew: The article was written by Michael Robertson, who is presumably familiar with record labels' business models. "A 15-year veteran of the digital music business, Michael Robertson is the founder and former CEO of MP3.com and is currently CEO of personal cloud music service MP3tunes as well as the radio recording service DAR.fm." It may be that the movie industry is better behaved? - Tudor Bosman

If Hollywood accounting wasn't infamous for screwing people out of their contractually obligated money, I might be able to buy the "better behaved" theory. ( http://en.wikipedia.org/wiki... ) The movie business will put the screws to Netflix, Amazon streaming, etc. Besides, they're largely the same companies as the record labels (Sony, Warner, Universal) now, right? - Andrew C (✓)

Yes, but they're run as different business entities. Also, people tend to listen to music repeatedly, whereas people only watch movies once or twice (maybe once in theaters, once on TV / DVD). There is also an existing business model to pay one small fee to watch a movie once -- DVD rentals are $1/day, give or take, so there's an upper bound on how much the movie industry can extract from streaming. - Tudor Bosman

OK, but the latter only suggests an upper bound on how much consumers will pay, not an upper bound on what share of that will go to the studios rather than the streaming distributors. - Andrew C (✓)

Gas stations and first-run movie theaters operate on a similar model. The way gas stations become profitable is to have little mini-marts, which is why no gas station sells just gas. The way movie theaters become profitable is to sell concessions, which is why food is so expensive at movie theaters. - Gabe