Price Of Wax: Vinyl's Sales Resurgence Continues, but How Do Costs, Profits Stack Up?

Vinyl’s resurgence is no secret. Sales are up 33% through July 15 after an 18% gain in 2012, according to Nielsen SoundScan. But less well-known are the high costs and the challenges in manufacturing and distributing vinyl records.

?There’s a long list of great things about vinyl. The vinyl record has brought back the enjoyment of collecting physical copies of music in a time when most music is either downloaded or streamed. The success of Record Store Day can be attributed in part to vinyl’s analog characteristics: RSD special titles are limited, and the product and packaging can be memorable. Vinyl has helped sustain independent retail. In fact, some stores carry nothing but that format.

?The resurgence is apparent in some recent sales numbers. Daft Punk’s "Random Access Memories" moved 33,000 LPs, or 5% of its album copies, in its first eight weeks. Vampire Weekend’s "Modern Vampires of the City" sold 21,000 LPs, or 7% of its copies, in nine weeks.

?But getting vinyl into stores is a labor of love. Lacquer plates can break and delay a reorder. Once a job is moved off a press, another title takes its place in the rotation. The manufacturing of a big release has been known to interfere with production of other titles. Vinyl is a one-way product, which means retailers order conservatively because unsold inventory cannot be returned, and labels often order conservatively, too. Stock outages are common.

?The consumer may not see these challenges, but ends up paying for vinyl’s relatively high manufacturing cost. The cost of producing a standard vinyl LP is approximately $3.50, about triple the cost of a CD in a Digipak. A 180-gram double-LP, without any fancy booklets or inserts, will cost about $8.20. (These are typical numbers for an independent label.)

?In this example, a label gets about the same profit margin—$7, or close to it—from the single LP, double-LP, CD and digital album. A typical standard LP released by an indie label will have a retail price of $16.98 and a wholesale cost of $10.50, leaving a gross margin of $7 for the label and $6.48 for the retailer. An average 180-gram double-LP could sell for $22.98 and have a wholesale cost of $15, leaving gross margins of $6.80 and $7.98 for the label and retailer, respectively. ?

In contrast, the digital album is virtually all profit margin. A label will get $6.99 from a digital album that costs $9.99 (excluding distribution fees, which are lower for digital than physical items). ?

Digital formats also accrue other benefits. There are no manufacturing delays or shipping costs. Vinyl is heavy, and shipping “is ridiculous at the moment,” according to one retailer.