Crazy Ideas: Lower The Price Of Music And Sell More!

from the give-this-guy-a-Nobel-prize dept

Not quite sure why this deserves the level of awed reverence it seems to get in the article, but the Globe and Mail is going on and on about some “academic” (and well-known music producer) pointing out that music download stores would sell a lot more if the music was cheaper — and puts the price of $0.05 as a target. Apparently, the reporter thinks that price elasticity is a brand new concept. Nowhere, though, does anyone do the actual math. All they say is that by reducing the cost of the music, they’ll sell more. Apparently, the reporter never stops to ask how much more and whether or not that makes up for the difference in price. Also, there’s already a pretty good example of this sort of pricing scheme, via, but apparently no one thought to look at how they’re doing. What the reporter also didn’t stop to point out is the fact that the music industry is still demanding approximately $0.65 for every song and given how they’ve been reacting lately, they’ll only be looking to increase that. The article also implies that Apple is thinking about this plan by “listening” to the guy. It doesn’t take much to listen — but there’s no way Apple is about to drop the price of their songs by 95%. A reduction in price does make plenty of sense, (actually, they should reduce the price to zero, recognize that the music is a promotional good, and get on with their lives… but that’s not happening any time soon) but it’s not quite as revolutionary an economic concept as the Globe and Mail would have you believe. In fact, for Apple, who still views iTunes as a loss leader for selling more iPods, it makes even more sense. However, someone discovering price elasticity isn’t exactly a big deal.

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Comments on “Crazy Ideas: Lower The Price Of Music And Sell More!”

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Beck says:

Service Charges

I don’t think the music has to be distributed free of cost. I recognize that there are costs involved to distribute the music, and I am willing to pay my share of hosting, bandwidth, and infrastructure costs to get the music to me, along with a reasonable license fee.

There is definitely a value to being able to easily find the music and to download clean, high quality files.

As illustrates, those costs are far less than $.99 per song, even with a licensing fee figured in.

As far as price elasticity, my own experience is that I have spent more dollars buying songs from at 10 cents apiece than I have spent buying songs from iTunes at 99 cents each. I wonder what others have found in their own personal experience?

Don says:

close...but not really there

The problem is that you are looking at supposed costs and not real costs. Contracts with musicians are based on the concept that record companies pay for pressing, shipping, and manufacture of physical albums/CDs As a result, musicians get a pittance and the record companies–who have almost no costs–make most of the profit from downloads (most of which are sub-CD quality).

Contracts with musicians need to be re-written with musicians getting one set of royalties for CD/Tape/Vinyl sales and another for downloads. My guess is that musicians should get 3-5 times per downloaded album compared to what they get for physical sales. Record companies should get a fair profit, but not the unconscionable percentage of profit they’re curently making from downloads.

When this is resolved, by contract, costs for downloads will finally be fair. But right now, because there are only a few major companies that conrol the record industry, that is less than likely to happen.

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