More on the Wrong Question
Saturday, 20 October 2007
Posted by austin in: Apple, Technology, trackback
In the comments of my previous question, John asked “what was the wrong question that he asked?” To which I replied:
The wrong question is the comparison between Vanilla Ice and Soulja Boy. Vanilla Ice was low rent back in the day — his second album was a live version of the first album, and his “superstardom” lasted about a year. Soulja Boy’s rap may be better than Vanilla Ice’s rap, but it’d be better to compare Coldplay or Oasis (people with more than one album to their name) to The Beatles or Pink Floyd when asking whether the singles price on iTunes is good, or whether they should be variably priced.
Radiohead may have hit on the right way to handle variable pricing, but that only works when you know you’re sending the majority of your money directly to the band. Most people don’t want to make the soul-suckers at the labels any richer than they need to be.
John replied last night with:
interesting — i read that differently. soulja boy is currently listed as one of the top 10 downloaded songs on itunes, which gave me the impression that his point was about demand. (right now, lots of people want that new hit single, and far fewer people want the old single that now sounds like crap.)
so i thought it wasn’t about which musician was “better” — i don’t especially like either of those songs, personally — but about which musician’s product was currently more “in demand.”
The record execs want you to think that it’s about demand, but it’s not. Demand pricing makes sense when there’s scarcity and you have a lock on the market. Newer music is anything but scarce. You can hardly go anywhere without hearing it as a ringtone, an advertising jingle, or just on the radio. I listen to a “classic rock” format station, yet they’re playing new music from Neil Young and Kim Mitchell, and they consider U2 (up until All That You Can’t Leave Behind, at least) classic rock. So music has the opposite problem of scarcity; there’s a glut.
The radio brings up another important point—as much as record execs would love to pretend otherwise, they’re not competing like you do in other markets. They’re competing against free. There’s plenty of songs out there that I like, but that I don’t like enough to even consider buying even at 99¢—not when I can hear them periodically on the radio. And if I wanted them, but they were more expensive than my lowest willing price, I can usually find them somewhere online. (I don’t; but I have used AllofMP3 before. I already pay the CRIA something every time I buy blank media, so I have the right to get songs that others share that way.)
There is one other theory the record execs could be using here, which is the concept that one values something one has to pay for. Therefore, one values something more that one has to pay more for. If this had been possible when Vanilla Ice was in his (short-lived) heyday, people may have been willing to pay $3.00 for “Ice Ice Baby”, but how many people would have regretted it later and deemed themselves fools? (The song has not aged well.) So the value of a song isn’t really derived from how hot it is, but its longevity. And even then, you’re still competing against a model that treats songs as essentially valueless (radio or satellite radio).
So, demand pricing doesn’t work well if there’s no scarcity (or artificial scarcity). We also know that subscription pricing for portable devices doesn’t work. (More accurately, it doesn’t work for portable devices where you control the content. Satellite radios are portable, but you don’t control the content.) Subscription pricing works when it gives you a menu of things to choose from (cable television, satellite radios) but the value is provided by the menu, not the individual pieces that make up the menu. (The subscription price is too low per person for the individual songs or television shows to be worth much at all. In aggregate, they can make money, but individually they’re fractional pennies value.)
What does work? That’s where we get back to the Radiohead experiment. They asked people how much they value their music. Some folks bought it for the absolute minimum; others paid much more. Most paid about the same price that they’d pay on iTunes. But you have to have an environment where that will work, and I don’t think that the Radiohead experiment is generally applicable for the entire catalogue of some bands’ music. (That is to say that I think that it’s a decent short-term strategy when the music is new, but I don’t think it’s sustainable for more than a few months.)
I don’t agree completely with Apple’s iTMS policy (you can have some songs album-only, but you can’t have an album-only album), as I’d love to see album-oriented rock make a return. (But I’d also love to see sound-bite politics go away.) I think, however, that the simplified pricing models make a lot more sense than pretending that something is more valuable because more people want it, when there’s no scarcity involved.
Souljaboy may be hot. Will he be next year? Or will he be dropped like Vanilla Ice?
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