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The Real Reason Behind iTMS Tiered Pricing
Raindance writes "Joel on Software has an interesting piece on why Big Content is making loud noises about moving from 'flat fee' to 'tiered' pricing models on the iTMS. According to Joel, it's not about pricing songs commensurate with their economic value; rather, it's about allowing the labels to manipulate public perception of value through pricing." From the article: "And now when a musician gets uppity, all the recording industry has to do is threaten to release their next single straight into the $0.99 category, which will kill it dead no matter how good it is. And suddenly the music industry has a lot more leverage over their artists in negotiations: the kind of leverage they are used to having. Their favorite kind of leverage. The "we won't promote your music if you don't let us put rootkits on your CDs" kind of leverage."
go to the RIAA Radar Home and put in any artist or album or UPC code and it will tell you if it's from a RIAA artist or not.
I used it a lot when Pepsi and Apple were giving away all those songs and I only redeemed the songs from Indy acts.
Check it out.
"Leo Fender was in a 'state of grace' when he designed the Stratocaster." -- Paul Reed Smith
In spite of all the catterwalling you've heard, the truth is that the majority of artists who fail to go platinum once or twice don't really make much money for either themselves or the label.
Once an artist on a three or five album deal starts enjoying a bit of mainstream success, that's when there's real money involved, and therefore it's also when there's something worth arguing over. Battles between hit artists and their labels are sometimes legendary.
Here's the usual path:
New artist establishes a scene in some local market as a live act, or is the cousin of a hot-shit producer, or the favorite new project of Madonna or Prince or Jimmy Jam & Terry Lewis, or whoever. Anyway, they get a deal to make a record.
The record, usually made up of their best ideas from years of being a struggling performer, becomes a hit, but not enough of a hit for the artist to pay back all the money the label fronted them. The artist is living well on their advances, but also badly in debt and constantly on tour to promote sales.
It is, however, enough of a hit for the label to sign the artist for a few more albums.
In order for the artist to keep their head above water (and in order for the label to cash in on the "new artist" hype) a second album is rushed out. If the artist is out of material and can't write new songs fast enough, half-thought-out songs are slapped togther, other writers are hired, or licenses are bought for a cover-song or two to pad out the album. Whatever it takes to get 35-40 minutes of music on a disk and get it out to the shopping malls.
More often than not, the album sucks and hardly anybody wants to buy it. This is often called "the sophomore jynx" among music critics. Artists who manage to work well enough under pressure to dodge this particular bullet often become the ones which the labels will latch on to and try to turn in to "the next Beatles."
Since there's a contract for a third album, and (for the bands who bombed on the second) no real rush to get another one out, the artist is able to take their time and make something which is guided more by their creative vision (or the creative vision of their producer, in the case of disposable pop acts), and generally a slightly better album is put out. If the critics like it, the artist just might get a chance to re-emerge as a hit machine.
At this point, the artists who had a hit on either their second or third album are likely to be in the black (unless they were ripped off by their management or ran out and bought their own soccer teams or something). This is when it gets interesting.
A label has a contract with that artist, one which is very profitable at this point. They want to keep that artist in their "stable", but doing so is likely to get a whole lot more expensive when the time comes to negotiate the next deal. There's two ways they can respond.
1. They can promote the shit out of the artist, make as much money as they can off the next album or two, and let the future take care of itself. Even if the artist bolts for another label, you can always exploit the material of theirs you own with yet another "greatest hits" collection or "retrospective" or "complete box set" every few years.
2. They can let the artist's popularity dwindle to next to nothing, making it cheaper to re-sign them, and then ramp the machine up again when you have a mutual committment for a few more years... or not. You can also make money off them as a "niche" act (as Crysalis did for years with Jethro Tull), by spending almost nothing to promote them while loyal fans buy their albums based on the artist's name alone.
Either choice is a risk. A lot of labels go with option #2, and that's when you get the really, truly entertaining hair-pulling, eye-poking, bitch-fests of rage from the likes of Prince or Metallica. The artist became a multi-millionaire by working with the label, but now they see vast sums of potential money their label seems to be ignoring, all while keep
Information wants to be anthropomorphized.
The UK has a variable price movie theatre, run by the same Easy Group with the low cost airline :
http://www.easycinema.com/Enquiry/Enquiry.aspx
Instead of ticket prices being set by the theatre's perception of quality, the price is directly set by demand. Thus a very popular film at a very unpopular time will still have cheap seats available. As the cheap seats are booked up, the price rises.
Shame about the colour scheme - the inside of the cinema is the same bright corporate orange and white.
And no one remembers that back in 1959, you could go to the store and buy a single, remember 45's, had two(2) sides, and it only cost 99 cents (plus tax), I think we are getting ripped off at 99 cents today.
A bargain today! Based on the Producer Price Index, that single would cost $4.33 today - or $2.165 per song.
The most famous example of this effect is in the pricing of store brand products at supermarket chains. Often the products are made by the same manufacturer as the brand-name products, and even when they are not, they are very often of equivalent quality. If the price of the store brand is above the price of the brand-name product, equal in price, or below but too close to the price of the brand-name product, it won't sell well. People will just buy the branded product they know, since the price difference is negligible (or negative!).
However, the store brand product price can't be too far below that of the famous brand product, or it will be perceived as being inferior and people will buy the product whose quality they know and trust. There is a "sweet spot" in the pricing of store brand products where sales of the store brand (and therefore the store's margin for that subcategory, because the store's margin on the store brand is usually larger than its margin on the name brand product) are maximized, because the price difference between the known name brand product and the equivalent store brand product is large enough to attract the customer, but not so large that it makes the customer suspect the product is not equivalent at all.
The problem of how to price store brand products is one of many solved by "retail revenue management" and price optimization software packages offered by companies like KhiMetrics.
Another great example is the story of the father of one of my roommates from grad school. My roommate's father was a tailor. He sold shirts from manufacturers with famous names in his shop, but he also made shirts. He started out by doing "cost-plus" pricing. He took his material and labor costs, added on a margin, and that was the price he put on his shirts. The price came out well under half the price of the famous brand name shirts, despite the fact that they were of at least equal, and probably greater, quality. They hardly sold at all. Then he tried an experiment (and I don't know where he got the idea). He set the prices of his shirts so they would be 15-25% lower than the prices of the shirts from the well-known manufacturers. The shirts sold so well he couldn't keep up with the demand. He couldn't keep them on the shelves. People were excited about getting good shirts for 20% less than the price they were used to paying, because that was enough of a discount to be interesting, but not so much that it would make them suspect the shirts were crappy.
Now I'm not so sure this will work with music files, because there's a key difference: Store brand spaghetti sauce made by the same manufacturer as the national brand really is an adequate replacement for the national brand. My ex-roommate's father's shirts really were an adequate replacement for the shirts with the well-known brand names.
Songs are much more individual than shirts or spaghetti sauce in a jar or a box of spaghetti, so it seems to me that one song may not be an adequate replacement for another. I would not expect exactly the same rules to apply. I guess the term that applies here is that songs are not quite commodity items. Heck, even among artists I like enough to have their music in my home, if I feel like listening to a specific artist, I don't think others even from the same genre would necessarily be acceptable replacements.
"It is nice to know that the computer understands the problem. But I would like to understand it too." --Eugene Wigner
No it doesn't, not any more. If you want to actually take any of that music with you, it'll cost you $12 a month. If you want to burn a CD, it'll cost you an extra 79 cents per song. And when they inevitably jack up the fees (and they will; $5 a month is a loss leader) and you switch to another subscription service, you'll have to recatalog and redownload all your music; what a hassle! You can have it.
You've got your whole life to write your first album, and 12 months to write the second one. Back when I was a working musician, the common wisdom was "don't even look for a contract unless you have 3 albums' worth of solid material."
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