Music’s Secret to Competing with Free: Raise the Price
Pundits are declaring that, due to so much free music on the web, Amazon’s 69-cent-a-tune program is the ultimate sign of retail music’s demise. But some basic laws of marketing are being ignored within these conclusions. The solution to competing with free might be counter-intuitive: raise its wholesale price. Insanity? Let’s see.
Moses Avalon
Sometimes it probably seems like I take a contrary position to my fellow music business experts just to stand out. But that’s not true. The truth is, I just read more data than many of them and, therefore, I’m more righter. (Great English, huh?) Such will be the case here as well. For a while many are saying that now is the time to cut back prices to “compete with free.” I say the opposite. What’s my secret?
History. Looking at history is always more revealing than pontificating about the future. But it does require a bit more research. History tells us what is likely to happen tomorrow, because even though technology may progress at the speed of a microchip, it still hits the road-bumps of bureaucracy and human nature; a constant often ignored by the “if you build it they will come,” techno-centric philosophers.
Case in point:
Gas, utilities and food, the three basic commodities of modern life, have all risen in price in the past 6 months. Surely increased supply due to record unemployment, recession and competition must drive the price down. How can gas prices be raised when the Toyota Prius, the Volt and the Smart Car exist as alternatives? How can food prices go up when there are so many farmer’s markets, Big Box stores and food co-ops as competition to the local Super Market? How can utility prices rise when they are regulated and we have solar and wind power? The answer is simple: in each case people will pay for convenience. These suppliers are not raising the prices of their products, so much as they are raising the price of easy access to their products.
Music is no different. For most it’s a necessity. That’s one reason you can get lots of music for free. But the quality of a free, bit-tormented MP3 file may come with computer herpes or worse. Not to mention the frustration of lousy transfers and sabotaged MP3 files masquerading as the real thing. Enter iTunes, the most expensive way to access music in history, second only to the ring-tone.
iTunes proves that people will pay a premium for convenient access to “clean” music tracks, just as Super Markets prove that people will pay more for food if it means the freshest selection is right down the street. This remains true even when people are broke.
AMAZON and BEST BUY
Best Buy began the trend of devaluing music at the retail level years ago when they sold CDs at cost just to get people in the door. Why? Because they make the majority of their money on other things. (BTW: Despite “experts'” fears that they were phasing out CDs as bait, I disagreed and, what-do-you-know, it has yet to happen. People still buy millions of CDs a year from Best Buy and Jewel-Box displays still occupy about 1/3 of the floor space at most big city Best Buy locations.)
Amazon is just taking a tip from their brick and mortar brother. Despite the fact that they will still have to pay the wholesale price of the digital track to the label, they are narrowing the margin they make just to get more eyeballs on other featured items.
However, there is a danger with this “music as loss leader” trend. It is not that the labels lose money today… They don’t. Both Amazon and Best Buy still pay the full wholesale price to the Distributors. The problem is that it lowers the bar for what people perceive as a reasonable price for a single or album. Which means labels, as well as the artists, writers and producers, could lose money tomorrow.
But, the solution is simple. Labels should raise their wholesale price so that Amazon and others have to mark it up further or forget about only losing a penny or two on each transaction. They may lose significantly more than the offset for the featured items.
SUICIDE
You think? I know many of you reading this also follow the musings of “futurists” and curmudgeon-y bloggers who believe people already pay too much for music. Well, we’ll see. This excerpt from last month’s Billboard quoting two of my respected colleagues kinda says it all about experts who feel that raising prices will be bad for music sales.
“Raising the price of some [iTunes] tracks to $1.29 led to many warnings of impending cataclysm. For example, industry pundit Bob Lefsetz called the price hike a “stupid move, with potential short term gains and long term consequences.” Ted Cohen of TAG Strategic predicted a doomsday scenario. “This will be a full PR nightmare,” he told the Los Angeles Times. “It is for the music industry what the AIG bonuses are for the insurance industry.” But consumers appear to have taken the price increases – mainly to the most popular tracks – in stride. That acceptance has continued through the early part of 2011. Track sales were up 8.6% in the first quarter…”
Had Ted and Bobby looked more carefully at the history of retail, they might not have found themselves being quoted so harshly. History tells us, raising your rates creates artificial demand. As prices for food, gas and other staples rise higher and higher for manipulated reasons, music will start to once again look like a bargain. It already is a bargain when compared to other forms of entertainment.
My recommendation is what history demands: labels should raise their wholesale prices (PPD) at their soonest opportunity and watch as unit sales continue their chart pattern, but margins increase. This means more money for artists, writers and yes bonuses for executives as well. Plus, if this turns out to be a bad move, labels can always offer incentives such as Free Goods (which they have been doing since the dawn of time) that artificially lower the price.
Think I’m wrong? I want to hear why. Post your theory below. But you can NOT use the “but people are stealing music because it’s too expensive” argument. Show me how, with economic theory (or history) that I’m wrong. The one with the best argument below wins lunch on me, I’ll publish your theory and make you famous.
30 responses to “Music’s Secret to Competing with Free: Raise the Price”
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Intetesting point you make here Mo, but I guess it might not be that easy. The loss leader character of music contenting products is just one side of the coin, the other is free access. Of course people pay premium for easy access and such but imo the real problem is what people FEEL listening to music is worth and NOT the product where it is sold on. I think sone might say: “well i dont need the CD and I dont want the Vinyl and neither tge ltd edt boxset. I just want to listen to the music and that aline just doesnt feel wortg more tgan 9.99. Besides i cant even sell it anymore after i d/l it from itunes…”
I hardly know where to start. Gas, utilities and food are the basic necessities, music is not. I hate to say it but people will choose mobility and eating over listening to music. If it were a fundamental index it’s prices would rise and fluctuate much as the others. Commodities don’t increase in price because people prefer convenience. They are more susceptible to speculation, production issues, use, supply etc. whether they are regulated or not. Gas prices don’t go up because there are more gas stations to provide ‘easy access’. Yikes.
We are in an economic crisis and people will go across town to Foods 4 Less to get whatever they need, even though the produce is not quite up to par, because they will save 30-40% over the Safeway down the street. an inflationary cycle is inevitable barring some miracle. We are in worse shape than Portugal who debt load is 90% of their GDP, we are at over 100%. The world will soon give up on the dollar as the global reserve currency and we will no longer be able to just print money as we need it.
As for loss leaders, at the BBs I go to, music alone is not more than 10% of space. Why? Because no retailer is going to devote 30% of it’s space to a product it loses money on. Look at the truncated inventory. There’s just enough there to attract as many mainstream music fans as possible.
Not counting the ‘necessities’ name me some products that aren’t discounted? Between online sites (comparative shopping), (Groupon), brick and mortar competition etc., you can get a deal on anything. One thing you won’t find any deals on, however, are Apple products. Why? Because itheyrepresents a level of utility, quality and style that people crave. They have plenty of buyers and only occasional discount themselves ($100 education discount etc. or new low price for the iPhone). They control their pricing. Music, by virtue of it’s scope and nature will never be Apple.
We are talking disposable income here and the higher the commodities go, music may look like a better deal, but no one is going to give up eating for entertainment, You raise prices on music and the consumer is not going to jump at his good fortune, he will merely redouble his efforts to get what he wants or decrease his usage altogetherr. It’s not like people don’t have iPods full of their favorite songs and could easily be happy on that desert island with what they have.
That’s all I have time for unfortunately.
Well, John without realizing it by using Apple as an example, you are actually making my argument, not yours. Music may not be a necessity to you, but it is to most.
Having an iPOD is a necessity to most people under 45 years of age, and a fashion accessory for many. However, the music they put on it is viewed differently. Many want just the top 10 songs that are popular and they listen to the music as a secondary manner (while doing something else). Apple has commoditized the music to a degree but kept the player high value add. If songs from the iStore go to $2 a song, they may sell 30% fewer songs, but that is offset by the increase in margin.
How much of a gas surcharge should we add to the MP3s, CDs, audio and video ringtones, that we are selling?
You’re not wrong -so, I’m replying directly to you… In fact, I agree with you (imagine that) – and have been teaching my MI students this principal (along with others) for a while now. You have to learn “how to compete” with free.
Even those who prefer free stuff (like music) will buy items at a higher price – if those items have a perceived “added value.” Trent Reznor is a great example of this practice.
Additionally, limiting consumers’ choices does not necessarily limit the market. I work with a label that does not even offer digital tracks. All its products are physical, i.e. CDs, vinyl, and 45s. Of course, the genre (rockabilly) suits this approach, and fans of the label buy everything offered without complaining about the lack of digital downloads.
It not only takes a “look back,” as you have done, but also innovative, creative thinking, and the guts to take a risk.
Bernard Baur
I agree about an overdue wholesale hike. It’s about time we producers, independents and even majors make a few bold moves on our own creative behalf. It’s our own fault if we don’t believe in ourselves and our artists enough to stand up to these behemoths. We contribute to our own losses when we continue to let them dictate EVERYTHING. Start suggesting hikes to our peers on Twitter and Facebook. There needs to be a spirit of unity amongst us again. Fear is so overrated.
Your article proves that there is no free lunch. Not if I have to come up with a good arguement against you to get one!
You are abosolutely right. While music may not be technically a necessity, this is the United States of America. and despite our current whining about an economic downturn we are still the most affluent country in the world and most citizens have plenty of money to spend on al the music they want.
Convienience is a bigger motivator for most people than value or need. My mother used to make her own soap and patch my torn jeans. I would not think of working that hard when I can buy everything I want at Walmart and still afford to by the latest Dierks Bentley CD from iTunes.
Great article!
I think Moses is on to something. One thing I never understood is why iTunes and other digital retailers (and the contnet providers) never emulated the single-packagae that vinyl and CD singles gave us. I dont know when the last time I even bought a CD single – sometime in the 90s I guess, but I remember it costing between $3 and $4. Sounds steep for a song. And I knew I was paying for the song that was listed on the front. But what made it worth it was 1, 2, or even 3 additional tracks (we used to call these B-sides) that came with the single. So the next time the labels want to raise the prices, to let’s say $1.99 a track, why not throw in an extra song or two as “bonus tracks” to soften up the deal? Although artists and labels want to make money selling the music, their are so many assets that can be used to sweeten the deal (live tracks of old songs, demo versions, and even interviews of the artist). I know that some have done this, but why not make it the standard to selling singles rather than trying to convince the public to pay a premium price for one ala carte song?
Dear Moses,
I agree completely with your stance on pricing. I own a small independent label which sells directly from my website danpeek.com and through CDbaby and other online marketers.
Based on our sales from our website, price means absolutely nothing to the consumer. If they want your music, they pay for it, if they don’t you can’t give it away. Raising or lowering prices seems to have no effect whatsoever.
I will also repeat my earlier comment to your prior transmission about CD’s. True music lovers want the pristine sound that only a CD offers, not the compressed, 40 pounds of mud in a 20 pound sack that some of the downloads sound like.
Thanks for another insightful and positive musing on the current state of Music.
Dan Peek
I consider myself a CD advocate not so much because a FLAC file or mp3 file at 320kbs is going to slightly less pristine than the CD, but because I still like the “album” concept (pictures, lyrics, etc). True music lovers as you describe are unfortunately a rounding error today when it comes to the overall market.
Price is still a factor, at least in my eyes. If I have two CD’s I want, I am probably going to buy the one for $12.99 over the one for $16.99.
Hello Moses,
I’m with you pertaining paying us artists more for our product.Studio musician price are very high.When
wee artistes give our music for distribution we don’t
se any sale are money for month.if we do see any.
We have to market our music our self,We should raise our price upward.They will be always game player
in this business of music.We thank you for your insight.
Scorcher.
Back in the 80s when I first went into marketing there were some immutable rules. You knew that if you pushed x lever you would get y response from the consumer. Sure, it wasn’t quite as easy as that, but you pretty much controlled consumer access to information, so you could position your product and have some confidence that unless it was a complete dog and word of mouth went out fast (phone, fax, in the pub – how fast as that?) you had some hope of selling the volumes you wanted. Here in the 21st century, with the internet some of those immutable rules still hold and some don’t. Trouble is we don’t know which and it changes almost every day. So closing your mind to ‘what to do next’ is the most dangerous thing you can do . You have to experiment, test, watch the results, review, regroup and try again. Knowing that with a super-fast moving consumer good like music, with many niche audiences, what will work today may not work tomorrow, and what will work for one artist may not work for another .. but then it may … And one thing we can guarantee: the consumer will NEVER behave as we expect them to.
Moses,
I agree completely with what you are saying and therefore I would like to pick your brain and tap into your wisdom for a similar model within the same sector. How does one compete with free within LIVE music events? I am organising gigs/events for independent singer/songwriters and bands in my City and I am competing with venues and artists putting on Live gigs for free.
Thanks,
Patrick
I remember when the record labels used to actually work for their share now it seems they just put it out there and if it sells it sells if it doesn’t then they take a bath. They have gotten soft and incredibly LAZY! The musicians need to start educating themselves more and try doing it the hard “er” way, BY THEMSELVES! Most live concerts are barely worth the parking fee.
There is a principle in business that states if you don’t value your product, no one else will either. This actually applies to many things both in and out of business, but in this discussion it applies to music. Simply raising the price may not be the answer, but price is important.
Music is not a commodity. Three tracks of Shania Twain can’t simply be substituted for three tracks of Carrie Underwood. They may both be female country singers, but they are not indistinguishable as say one gallon of gas is from another. People may like one artist and not another.
This means that price is generally not a determining factor in music selection. Lowering the price is not going to drive more customers to one artist over another. Raising the price is not going to drive people away. There are economic terms to explain this like elasticity of demand, but college was a long time ago and the exact meanings are bit fuzzy.
Price can play into perceived value, though. I don’t spend a lot of time listening to free music on the internet. The low threshold of entry has allowed pretty much anyone to record music and slap it up on a web site. This means there is a lot of crap out there being given away. I have no interest is spending hours listening to amateurish stuff trying to find that nugget of gold that may or may not be out there. Free doesn’t mean good. More times than not, it means the opposite.
A couple of years ago I was interested in understanding what my favorite artists had in common from the perspective of how they do business. How do they survive in the world of free music? It quickly became clear that artists who really had an impact on me didn’t give away their music. They may use it for promotion or to get a email address or to get feedback, but they didn’t just put it out into the world for free.
If you want to be successful, you have to what successful people do. Successful people don’t work for free.
Quality is desired.
Substance is valued.
Produce a good product — not neccessarily free of music industry posturing and hype (cf “tabloid behaviour”, “lots of skin”, “cynical trendy appearance”, “meat dress”, etc, Etc, ETC…) but independent OF it and indeed truly THERE — and people WANT to pay for it.
There will ALWAYS be differences in taste and idiocyncracies between two potential audience members — eg. “consumers”, “record buying public” — but produce actual relevant SUBSTANCE, and indeed get the word out ABOUT it — and value has been created. The desire to purchase — to be a reciprocally-substantive part of the exchange — is infixed.
The reason albums eclipsed singles in the Beatles era was because — well primarily because, because there was a corollary ancillary obvious economic benefit to selling an album for several times the price of a single — was because of the value added.
But diverge from that kind of accomplishment if it’s achieved — effectively treat part of the public as patsies to be mistreated, manipulated — and any legitimacy that is inherent or carefully and respectfully crafted is jettisoned.
Music really IS more than just the tune, just the beat. It addresses primal desires to BELONG.
And as naive as it may sound Here In The Heart of the Entertainment Industry Monster, people actually want to own a piece of what they percieve to be quality, and obtain it at a reasonable outlay of their dollars….
Moses
I would argue that an across the board price raise would lead to less demand. Not that less people would be interested in buying music, but that less people would be willing to buy it at the higher price.
You cite the example of some itunes tracks currently being priced higher than others, with no decrease in sales.
I would argue that these artists are able to charge more for their tracks because of branding.
To use your retail example, these tracks would be the premium brands in the store, like tide, kraft, etc. as compared to the store brands. They are able to charge more because of brand (i.e. artist) loyalty from consumers.
However, just because some brands/artists are able to charge more for their tracks doesn’t mean that all artists are able to charge more. This would be analogous to saying that because kraft macaroni and cheese costs more than safeway brand, safeway brand macaroni should raise its price. Kraft macaroni has a valuable brand which safeway brand does not, which leads to the increased pricing.
It is possible that currently everybody is charging too little for their songs. It’s possible that it would be more profitable for the labels to institute an across the board price increase. Since I’m not familiar with the supply and demand characteristics of the music market, I can’t comment.
However, if there is an across the board price increase, then there should still be differentiated pricing for premium artists. Maybe itunes can raise the price for all tracks to 1.29, and premium acts can charge 1.49.
Also, to your point that raising your rates creates artificial demand. This is only true comparatively within an industry, and only amongst the highest quality competitors. This is due to a cognitive bias where people equate price with value, assuming that a more expensive good must be more valuable.
However, an across the board, industry wide price increase does not incur this same effect, and economic theory would argue that it would lead to less demand. Perhaps, the higher margins would be worth sacrificing some demand, but that is not what you are arguing.
I don’t totally agree with your position on Best Buy’s trend of devaluing music at the retail level years ago when they sold CDs at cost just to get people in the door.
Best Buy did have new releases priced below cost or close to cost, but that was a small percentage of their inventory at the time. After a week, the price went up at least $2 to $3 dollars (arbout $14.99). I don’t think many customers went to Best Buy because a CD was $11.99 and bought a $1000 TV while they were there. yes, getting a customer to the store does drive future business, but Best Buy always has a low price (loss leader) on most product categories (tv’s, camera’s, PC’s). CD’s were no different. I will admit I would go to BB for a new release at $11.99 or less and end up buying another CD at $14.99.
I believe the reason you don’t see a wide selection of CD’s at retail stores is primarily because Apple, and to a degree Napster,changed the rules. Instant gratification of getting that song you like without having to buy the whole album. We had this in the 60’s, 70’s, and 80’s but it was a 45rpm record and you had to drive to your store to buy it. Back then, the 45 was about a $1 for two songs. The full album was about $7. Today, the single song is $1 but the full CD is $15. Maybe the price difference between song and full CD is the issue. Make the full CD a better value ($10) and the song a bit higer ($2).
Secret to competing with free: Lower the price. (obviously) It’s a race to the bottom, and once we all get there, along with the major label dweebs, we can finally move forward.
Bravo. This is absolutely true. If music prices do not go up when gas doubles in price, effectively music becomes cheaper. The inflation adjusted value of the record biz according to RIAA is the same as it was in 1967.
The right price for track downloads is one fifth the album price. $1.99 for tracks and $12.99 or $9.99 for albums. This move alone would add over $700 million to top line for labels and artists each year.
This applies even more to physical albums. Perhaps the hard to find coveted CDs should be much higher than downloads. They are archival and higher quality masters than downloads. If they were still $18.98 like they were 12 years ago, they would be less expensive due to inflation. They could be $20.00 now and vinyl could be $30. There should be a high end collectors market in music.
Real record stores can change the value perception of vinyl and CD just as petroleum companies have done with gas.
The artist community needs more money flowing to it. Your idea is a great one. Study the value of music and manage value, not price.
@Tom
Thanks. We always seem to agree, yet we’ve never had lunch. Mish brucha.
I wouldn’t try to take up the original challenge of disproving your point using economic theory – since I think you are right and have said so in my own writing on a number of occasions – but I’ll try something different, namely showing how economic theory supports your hypothesis.
JJ Biener already brought up the matter of demand elasticity and this is the key issue that I find isn’t being addressed often enough: specifically, the price elasticity of demand for recorded music.
For those unfamiliar with the concept (and those who’ve forgotten how it works) – price elasticity of demand measures how demand changes relative to a change in price. Higher prices will mean less demand, but the proportions also matter. If demand is inelastic – that is: the decrease in demand (in percentage terms) is smaller than the percentage increase in price – the seller stands to earn more, despite selling less. This is exactly what we’ve seen with iTunes when the price hike was originally implemented and in the long run sales of digital tracks have continued to grow, despite higher average price.
Now the fact that demand for recorded music is price inelastic is not obvious. Conventional economic theory postulates that luxury goods – such as music – tend to be price elastic. One explanation for the discrepancy between theory and practice is that recordings are seen as much more of a necessity than we are ready to admit. It’s possible (and confirmed by a number of questionaire studies I’ve seen), but I’d like to propose a different one, nevertheless.
This is just a hypothesis, mind. I haven’t seen this mechanism described in any literature, but I also haven’t looked too vigorously, so it may be nothing new. My suggestion is that price elasticity of demand is partially dependent on the price itself, or rather price relative to disposeable income.
I see two mechanisms coming into play when something is seen as cheap (compared to how much money we have to spend and other products we can spend it on). One is psychological, namely that we will put less effort into deciding whether to buy – we simply choose between whether we want something or not. This is a spending choice between the item in question and other things. The second is economic: the cost of locating a “deal” on an already cheap item stands to be greater than what we can save. Here the choice is between different retailers of the same item (such as iTunes and Amazon).
At present, it does rather look like recorded music is beneath the treshold of both these mechanisms, at least for the majority of the buying public. This suggests that there is in fact room for price increases and that any loss in demand will be offset by additional revenue from higher-priced sales. Additionally, we don’t have to worry about unsold digital stock due to higher prices, since there isn’t any digital stock in the first place.
What about competition from free illegal sources? Suffice to say that these are burdened with perceived non-monetary costs (anything from concerns about computer security to a feeling that file-bartering is morally wrong). These non-monetary costs will drive up the perceived “price” of free downloads, possibly up to a point where they appear more “expensive” than legal paid downloads (or other legal alternatives). That’s how iTunes took off.
P.S.
On a different, but related, note: it does rather look like relative pricing between digital singles and albums is – shall we say – ill-advised. Given that a standard-price single download works out at one-tenth of an album, it shouldn’t be terribly surprising that signle sales are going through the roof while full-album sales are disappointing.
A more sensible option would be to have single songs priced around one-third of a full album. Thus, cherry-picking two to three songs would generate revenue comparable to a full-album sales and if a customer was interested in acquiring more than three songs, buying the whole album would be a better deal. Isn’t the first law of selling that bulk purchases should be considerably cheaper per unit?
Moses,
Have read your post several times and have put some thought into how we, as an industry, might help increase the overall sale of music.
Then it struck me. Why not model a similar industry who has had success as the record industry has stumbled. The Hollywood movie machine.
Here’s what I think we could learn from them.
First of all they recognize that all releases are not created equal and therefore are not priced equally. True classic movies on DVD have a pretty stable pricing structure and they’ve further tried to up the sale price by adding Blue Ray and Combo packs. These movies are the couterparts to a classic album like “Dark Side of the Moon” which continues to consistently sell units and can demand a premium price. Compare that to a movie like “Canadian Bacon” which can be bought for less than a 7 year old’s allowance (an analogous release in music is the Boondock Saints album by the Brood). But the music buyer, unlike the movie buyer, will pay the same amount of money for both of these albums.
Here’s the “ultimate” question – What reason can any consumer have to justify paying the same amount of money for a flop album as they would a classic best-selling-album? We should instinctively know the answer to that questions as consumers ourselves – Nothing can justify a high price on an unpopular album.
While the music industry has looked for a “one-size-fits-all” solution to music sales the movie industry has not only found the answer but has perfected the process to a science. A simple elegant solution – You pay a different price based upon the actual value of the product. Classic movies always sell at pretty consistent “going-retail-rate”, slightly less than that of new releases. In contrast, older, less popular and trend based movies sell at a discount rate which is tiered according to their popularity. Also, the pricing structure changes (usually lowers) as new releases age and their popularity wanes.
We tend to operate exactly in reverse, little known albums are regularly listed on Amazon by sellers at outrageous prices because they’re scarce or imported. Although the artist or label doesn’t make any more money on this product (because he seller bought the product at normal wholesale price) the consumer views its pricing as “the record industry taking advantage of them again”.
Why can’t the record industry study Hollywood’s process and apply that model to CDs and downloads? By establishing a tiered pricing structure and making less popular albums readily available in a tangible form (a CD for instance) a consistent pricing pattern would emerge. People would buy more music and as a result more retail floor space would be dedicated to selling CDs. I believe people would pay a premium price for a new release or classic album but they would also buy a lot of other albums which never became classics or didn’t sell a lot of units to begin with.
I know you’re looking for hard evidence and facts and figures – but I had to rely on observation for this one. Go to any mass merchandiser or big box store and look at what is leaving their electronics department. I did on several occasions, and found people consistently browsing the bargain movie bins, the new releases and value priced movies and picking them up to buy.
This sales model works for the Hollywood movie studios, why can’t it work for us in the record industry?
Something to think about.
One-size-fits-all pricing does rather look like a fairly recent development and I’m not sure to what extent it is a music industry invention.
I’m old enough to remember the budget bin and even today when I go into a record store I see various price levels depending on the age and status of a given album. The price can vary anywhere from £3 to £15, so we’re talking about serious price discrimination.
Moreover, to the best of my knowledge – correct me if I’m wrong – standard label contracts include provisions for different royalty rates on less-than-full-price sales, which indicates that the recording industry does make allowance for budget sales in their business planning.
Now, the main venue that uses one price to rule them all is the iTunes store (although that too has changed over the years). My guess is that the standard $0.99 and $9.99 price points were chosen for psychological reasons, rather than pure business rationale, and since they don’t stock what they sell, they don’t have to worry about shifting inventory.
The situation on Amazon that you describe is something that we can do little about. Once someone has bought a CD, they’re free to try to sell it at whatever price they want. The fact that we’re dealing with obscure titles means that they aren’t readily in supply, thus the seller can potentially demand a much higher price, provided they can locate a buyer willing to pay so much. It’s the market at work, I’m afraid.
“Music is no different. For most it’s a necessity.”
This assumption is being made by someone too close to the industry in question, and it’s the big flaw in your argument.
I NEED to get to work and drive my kids to soccer practice, therefore I’ll pay what I have to for gas. But you can bet your bottom dollar I’m going to find the cheapest gas station in town to fill up.
I NEED to eat, so I’ll pay what I have to for food. But again, I’m going to shop around and clip coupons. Moses, they’ve created a TV show about ‘extreme coupon clippers’ after all!
Music is free. For the baby boomers, it’s still free on the radio and frankly for most, that’ll have to do for now. For the kids, it’s free on torrent sites, free on blogs, free on internet radio, free by swapping flash drives.
And, for both, CERTAINLY not a necessity. You’re too close to the subject. And it’s way too late to create ‘artificial demand’.
If I’ve got $100 in my pocket and I need gas and a sandwich for my lunch break, I’m not paying $20 or $30 for a CD.
A few objections of mine to Moses’ article:
1.
Lowering prices was mostly meant to fight piracy. If you get prices up again, the piracy business will surely thank you for it, and you’ll reinforce the idea into customers that “labels just want to rip you off”. Wouldn’t this operation simply translate as a leap into the mid-Nineties?
2.
What makes you believe that an increased price would necessarily translate into more money for the artists and the writers? You spent books explaining that contract and business practice are key to artist earnings, much more than price. Wouldn’t labels simply try to cash all extra revenues in, leaving the artists / writers pretty much as broke as they were before?
@Rio
Nice questions, thanks. Here’s my responses:
On point 1:
“If you get prices up again, the piracy business will surely thank you for it, and you’ll reinforce the idea into customers that “labels just want to rip you off”. Wouldn’t this operation simply translate as a leap into the mid-Nineties?”
Well, there will always be a piracy business, even if music were free. However there is no piracy industry so, no I do not think they will thank anyone. What they are doing right now is cursing lawmakers for passing tougher laws regarding piracy. Soon it will be a major felony and people will go to jail for 20+ years and that will end a great deal of it. Just as the DOJ and the FCC have shut down sites that pander to White Supremacists and Pedophiles who think that soliciting racism and rape is “free speech,” so too will follow the sites that promote or pander to illegal P2P users.There will be fewer and fewer of them in the future. Of that I am sure.
Regardless there will always be piracy. Why? Because piracy really has nothing to do with pricing. There will always be piracy because people get a thrill out of buying on the black market. Most people who buy furs, cars and even babies, can afford to get them legitimately. Likewise, most people (not all) who steal music can afford to buy it. And they can probably afford to buy it at slightly higher costs than 60-99 cents a track. We know this to be a virtual fact because in order to benefit from stealing music you have to buy a lot of hard wear to play and share the tracks on. If you can afford, pot, Ex, iThings, computers, you can afford to buy the cheapest form of entertainment ever industrialized– music.
Point 2. “What makes you believe that an increased price would necessarily translate into more money for the artists and the writers? You spent books explaining that contract and business practice are key to artist earnings, much more than price. Wouldn’t labels simply try to cash all extra revenues in, leaving the artists / writers pretty much as broke as they were before?”
Well, aside from the obvious– that a higher price means a higher royalty, labels rip off artists at both the contract level (how a royalty is calculated) and the reporting level (how many units the artist sold).
In order to go after them an artists needs to justify the cost of an audit and litigation. This is done with an estimate of the damage of the label’s “inaccurate reporting.”
If you’re basing your estimated damages on PPD (published price to dealsers) of 50 cents a track then your estimate will be lower than if you’re basing it on a PPD of $1.50 a track. It’s simple math. the higher you raise the wholesale price of music (remember my article above is about raising the wholesale price–not the retail price–in order to reduce stores using music as a loss-leader) the more it incectivizes artists to chase their money and the more it incentives labels to “get it right” so artists don’t chase them for money.
I hope this helped clarify my position.
In 1965 a single record consisted of 2 “sides” (or songs) and cost $1.00 USD retail. That is a retail cost of fifty cents per song at the 1965 rate. In 2010 that same fifty cents, adjusted for inflation was equivalent to $3.42. The actual retail cost of music has steadily decreased through the years yet consumers in general feel the record industry is engaging in price gouging by setting the retail price at $1.00 USD (or less) per side in today’s market. This disconnect between reality and perception must be addressed by the record industry, realistic pricing must be imposed to support the industry. Commercial endeavours cannot exist without income at the very least matching costs. Free is not an option.
In some cases lowering the price brings more attention. For example, whenever Itunes makes a deal that a certain song will be 99 cents for a short amount of time, many people rush to get that song while it is still cheap. Maybe if Itunes kept their prices at their current 1.29 per song, and had more deals like this, everyone could be happy.