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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."
It's all about making more money. Period. Anything else is gravy.
"I'd rather be a lightning rod than a seismometer." -Ken Kesey
artists are making more money off selling ringtones than useless 0.99 itunes songs.
Rodney Quills Dinkins | Communications Specialist | GNAA Corporate HQ
The article author has some decent insight but I think someone her is very wrong. If it's the author has the wrong idea, end of story. If the author is right then the labels are in trouble.
The value of music is quickly heading to the zero-cost-minimum. In the "old" days, you had 3 costs to overcome: headhunting, recording and marketing.
Headhunting was finding marketable artists to fit into whatever pop sound the labels had planned.
Recording was expensive in million dollar studios with mega-engineers.
Marketing was partially advertising, partially payola and partially touring costs.
Headhunting today is made easier with PureVolume and even MySpace (they even just released their own soundtrack this week). Recording is cheap. Marketing?
Old radio is dead. Stations can't get listeners (and advertisers) playing one music style. Everyone is changing to a mix of new and old pop along with indie. 40,000 fan concerts have become 20x 2,000 fan shows on the same weekend. Even megastars from 2 years ago are failing to draw a crowd (Gavin Rossdale of Bush drew only 40 people in Milwaukee two weeks ago).
The labels have to quickly grasp the reality of the free market. People will pay for safety, speed and quality. $1 is fair, $2 is pushing it. I'd think $2 per popular song single is fine but offering 4+ songs from an album for $4+ makes more sense.
At a certain price, a fan will see the value of safety and quality (versus thepiratebay) diminish quickly. My household spends $10,000 per year for music, but lately it is mostly shows. Our church mostly dumped our band and now invites various Christian rock bands to play (many of them are actually amazing). The market is completely crazy, and as Faith + 1 fans know, religious rock has always been a money maker, and even those bands are MP3-driven.
Demand is balanced by supply, quality and price. Download supplies are infinite. How do you remove supply from the equation? Increase quality. Increase features. Give buyers discounts to shows. Give buyers dibs on concert tickets. Give Buyers dibs on real band interviews.
Don't raise the price.
The old school practices of bullying artists, acting like a they're the only game in town, and thinking they rule the universe is over. The more they try to do things like this, the more we'll run to P2P, and everybody loses (except me who gets my music for free).
This is my opinion. To make sure you don't steal it, it's covered by the DMCA.
The end of this "Big Brother" attitude from controlled media is written upon the wall (but not in the papers). The digitally connected masses will soon remove the mass from media. Here's why:
1. The balance of power has already shifted to the masses in a sort of first mover advantage. The backlash coming from the entertainment industry is reflexive. It happens *after* networked mobs creatively, unexpectedly, disruptively take technology into their own hands. The tension between the entertainment industry and the online world simply represents that shift of power and control away from mass media.
2. What will the entertainment industry be when consumers en masse, produce their own "as good or better than" diversions? Blogs spontaneously exploded news into millions of niches, leaching the mass from news media. Cheap high tech multimedia production tools wielded by thousands of grass roots reporters are absolutely capable of producing high quality fare.
The mass entertainment and news industry will soon compete with high quality virtually free grass roots alternatives from the digitally connected masses, and take its rightful place as another niche. What "mass" will be left to market to?
3. Litigation takes a lot of time. Since technological advances also accelerate events, inflexible, knee jerk systems will eventually be overwhelmed with the speed of disruption. There will soon not be enough time to react before the next volley. Future shock paralyses the most inflexible systems first. So, ultimately, in a digitally networked world, control is distributed to the masses. But the question keeps returning:
Is Big Brother a Possible Future?Will some central organization, representing narrow interests be able to control what citizens share electronically? I don't think so. The imminent emergence of open source personal self-replicating fabricators will spit out an ever growing complexity of items, all of which will be embedded with personalized computational intelligence. So, no consistent control over hardware standards will be possible. Chips will not answer to a centralized institution.
As self-replicating fabricators rapidly spread to thousands and then millions of people, they will mutate and evolve; enlisted to upgrade and propagate their own next generation. Mobjects from the collective creative energy of Smart Mobs. This spells the end of the consumer/ producer divide. What will mass marketing be without a mass market?
Thoughts on the Emergence of Computing Intelligence
That is the worst theory I have ever heard... Give the majority of humankind a little more credit. If something good costs less, we will still buy it, and be very happy about the whole transaction.
I agree with other posts... it's just about getting more for the flavor of the month.
So what if the single is sold for $0.99? That doesn't change my opinion of it. If I hear it and like it, I'm going to get it. Releasing it for less gives me MORE value. This is just retarded. Consumers almost always go for the best bang for their buck. The reality is that very few new releases and popular songs will debut at $0.99. The RIAA is out to make as much money as possible. This article is reaching for a conspiracy that just isn't there.
Anyone reading this working in Apple? Here's a very strong suggestion: What I would like to see is every song on iTunes that comes from a distributor under the RIAA umbrella marked on the site as "RIAA Affiliated" or some such. I know that iTunes has music from people that are outside of this whole mess and would wish to only buy from them. In fact, I have stopped buying music from iTunes for the moment because I cannot garentee that my money does not go back to this Evil Cartel(tm).
Apple want more money out of me? I need to know the money is going to the artists. Apple just needs to let the cartel
price itself out of existance by creating their own label and let the long end of the tail do it's magic.
Bel, the mostly sane.. "Of course I can't see anything! I'm standing on the shoulders of idiots." -- Me
...and with the explosive growth in blogs and other peer communication, standard advertising and payola soon won't enough to control popularity. The music labels are dinosaurs that really don't need to exist any more. Musicians are gaining the ability to sell their albums worldwide, online, independently, and if a critical mass of popular artists ever do so, it's game over. This is simple survival tactics.
I think you're missing the point. The music labels figure that a song will be popular because it is more expensive, and that less expensive songs will be less popular. The labels know what songs they want to have sell well. I think they are in for a big wakeup call.
Technoli
People (at least some of them) want to think that they're getting something of worth. If something costs less, then it it must be inferior somehow.
Open-source software is changing this way of thinking somewhat, but the sentiment is still there.
The article's theory seems wrong. If something is going to cost me more money, I'm going to be more critical when deciding to buy it. If a new single on ITMS costs $1.49, I'll be a bit more critical and make sure I really want it. At $0.99, I might buy it without much thought. Sure, I made up the $1.49 price, but with any higher price, people will tend to be a bit more critical.
And lets look back at CD prices. New releases of CDs usually cost $14 because they're on sale. When the sale ends, the price is back to $18 or more. I don't see the public perception of value increasing any. I don't think to myself "It's $4 more now, so it must be good."
...there is little chance that you'll see many songs drop below $.99. The number of songs that you are likely to -want- that go below a buck is going to be even smaller. This is not about their desire to create a "discount bin" full of old, crappy music. It's about their desire to price new/hot singles -higher- than $.99.
The "low price as punishment" model only works if the companies expect customers to buy their music TUNES UNHEARD. I have *never* purchased music, online or otherwise, that I didn't hear from somewhere first*. By that time, I've already decided whether I'm ready to pay cash for it, and you know what? If I find the CD or whatever cheaper than what I'm willing to pay for it, that's what I call a BARGAIN.
I don't decide on quality of music by price. I decide on price by quality of music. Once again, the content controllers have their heads in the clouds.
* I do buy imported, so-called "ethnic" music, tunes unheard, but that's because I will probably never hear the music anywhere else in any other way. I'm talking CDs like the various Rough Guides, or CDs by people with names I can't pronounce but have apparently hit it big in their country of origin. In that case, I budget myself $10 and pick the first thing on the rack that falls under that price. I've been very happy with some of my picks, and the risk is practically nil.
Secondly: this is not a fluid market that is being discussed. It is a price-fixing cartel arrangement for the purposes of preserving the small number of vested interests in the marketplace and protecting those interests from natural market forces. The fact that they are wanting to have different price points set by the cartel does not make it fluid or market-driven.
The ticket point is irrelevant.
TWW
"Encyclopedia" is to "Wikipedia" what "Library" is to "Some people at a bus stop"
Perhaps its due to the fact you can maximize profits by having your price vs demand combination maximized...
No, it's because downloaded music can have the price set by the backend and it can respond automatically to trends. Why the hell wouldn't they start jacking the price on a single that for whatever reason got popular overnight (i.e. Kayne West after his public display of moronacy).
If they have everything set to a 99 cent pricepoint they can't gouge their buyers like they can if they have a "flexible" pricepoint.
You were right about it having to do with economics though.
You forgot to mention that Econ 101 only covers open free markets.
What we have here is a government endorsed media empire opperating a controlled market.
I know, and I did catch that. From a personal perspective, I know that paying a higher price doesn't get you a better product. But, you and I, and probably most Slashdot readers aren't really the 'mainstream' public that listen to the industrie's prop artists.
Their target I believe is young highschool-age/college-aged John Q Public, who buys $6.00 ringtones, and buys whatever cause he wants it, and just must have [Insert Band Here]'s latest album, or song he heard on the radio, to put on his ROKR or iPod. In other words, people who don't really think too much about what they are buying and from where.
'/dev/wit' is not available.
Look at what really happens. If it's a sure bet, yes, they will jack up the price because supply and demand says plently of people will want new records by favorite (known) artists.
But sometimes you want to hype an artist that might not do so well, but who you think might catch on with a little boost. This is why many records and DVDs are discounted only for the week they debut. It creates a concentrated rush in demand where more people buy the item on a whim (since it is cheap) and others that think they might want it avoid delaying purchase since the sale price is temporary. The result if all goes well is that you debut on the charts - and this means that laggards will want to buy the media even if the price is raised up to the "premium" media price. Once market demand dies down, you will see the item drop in price again (ala the "Nice Price" promotions). This is all stuff that exists in brick retail outlets and the labels simply want to apply these tried and true techniques online.
So people won't buy a song they like because it's under priced? The reason movie ticket prices are the same is mainly because it COSTS the same to stick on a reel of film regardless of the name of the movie. Fewer people would see Lord of the Rings if ticket prices were $3 each? Really?
This is either a revolution in economic theory or a complete load of crap. It's sure trendy to hate people making money but this is way off the mark.
What if Digg added local news and a Slashdot inspired comment karma system? ---
http://houndwire.com
I think this is what most people miss about music - especially new music. The consumers of new "cool" music don't really care if it is priced at $0.99 or $4.99, they are consuming it to be cool. People spend hundred of dollars on jeans, just because they are cool, they'll spend a few extra bucks to buy the next big song.
Whatever. It's just a crackpot theory.
You're either a troll or a mouthpiece for the RIAA. Joel's reputation precedes himself in these parts for cogent insights on the topics he writes about.
In other words, you're flat out wrong. Also, hardly anybody on slashdot (yourself excluded) enjoys "renting" DRMed music.
Take the cheese to sickbay, the doctor should see it as soon as possible - B'Elanna Torres, "Learning Curve"
Yeah but that chick is hot and sex sells...why do you think music sucks so badly these days? It used to be about music now it is mostly about image.
It is hard to sell millions of copies of a young girl with the voice of an angel and the face of a dog's rear end.
iPods are generally pretty competitive price-wise. Sure, you might be able to find a 30GB player somewhere else for less than $299, but there are many that cost more as well. I bought an iPod because it's a great music player that does exactly what I need it to and doesn't get in the way, and it integrates seamlessly with iTunes, which is a great music player/database in its own right. The fact that lots of people think iPods are cool is only a bonus.
It's hard to be religious when certain people are never incinerated by bolts of lightning.
The record industry (and analogously the publishing industry) has always had non-commodity profit margins because of vertical integration:
production --> promotion & marketing --> distribution.
Their dominance of these three was largely built on the high startup costs of all these industries. This meant the larger recording companies could basically corral artists into accepting disadvantageous terms in production in order to get access to the other two parts of the business. In both production and distribution, software and the Internet have caused those startup costs to plummet, and real competition threatens to break out.
Apple is the most prominent of many to figure this out, and they may just have enough clout to take a nice bite out of the recording companies' distribution business. This could well hasten the de-integration of the business and commoditize the whole lot. That's why the record companies are going bonkers over p2p and iTunes - if these succeed, they have only marketing and promotion to sell, and while they definitely have credible experience at that, they're by no means the only fish in that pond. If I were a marketing company with any experince in the entertainment industry I'd be calling Apple (and Google and Microsoft) now, lining up to get in on the new opportunities when record companies' vertical integration comes apart. Of course they may try to do like telcos (who have exaggerated profit margins for exactly the same reason) and try to get the (so-called free market) Congress to intervene to preserve their dated business model.
Remember you can pirate music for free!
So it's not about pricing music so the most people buy, its about framing your store so that everyone uses it.
Face it, people aren't paying for the music, they are paying for the convenience of having it all organized.
As soon as the store become crappy, or the pirates get a really nice looking front end, people will be driven back to piracy.
You maximize profits by keeping it all simple, not some old-school "raise prices till they stop coming" scheme.
I just love exploring music and building unlimited playlists on my DJ.
Until you stop paying Yahoo!, that is...
--- witty signature
Correction: somebody is making more off ringtones than itunes songs. I highly doubt it's the artist...
Be a real patriot: Question authority. Think for yourself. Formulate your own conclusions.
Like, for instance, the way gas stations at intersections always compete to have the highest price, going so far as to advertise it out on the corner of the intersection in huge numbers, because everyone knows that people are only willing to buy the highest priced gas they can find, because it must be better. None of that cheap gas for Americans! That's why everyone's been so happy about gas prices going up. Thank god they're finally selling us the good gas, it must be so much better than that old gas that they'd sell for a paltry sub $2.00 a gallon!
To stick with his example- I like REM. So when the next REM album comes out, I'll drop by ITMS to pick it up, but I'll see that it's only $6 for the album! (Apparently because REM wouldn't buckle to some kind of blackmail, the studio decided that as punishment for REM, the studio would throw out millions of dollars in potential profits, because we all know that big business is all about voluntarily forgoing profits. That'll show REM!) Anyway, the theory is that I'll get to ITMS, and be all ready to buy that album, but when I see the price, I won't think "Wow! An REM album for only $6! That's great! Thank you, studios, for such a bargain!" Instead I'll think the only rational thing- "Gee, I thought my taste in music was that I like REM, and I thought I liked the first 30-seconds of these songs I heard on the ITMS, and liked the whole songs when I heard them on the radio, but I guess I must have been wrong, because I'm not the type to like cheap music. I wonder if Prada would sell me some music for like, $5,000 an album? I'd really like that."
Yes, it's common knowledge that capitalism breeds price competition, but I feel so silly- before reading this article, I had it all reversed! I thought that people shopped around to find the lowest prices. How silly of me! In fact, for my whole life, I've been doing it all wrong! It's good to know that I should be shopping around to try to find highest prices, to trick myself into perceiving the value of the item to be greater.
Can anyone tell me how to set my sig on Slashdot?
What we need now is a MAJOR artist to break away and go it his or her or their own. Someone like Neil Young, or Dylan or the Stones or U2. A major musical act. They have the money to break away, and they can show that it CAN be done. Cut out the middle man, that's all these record companies are. They're unneeded in today's world.
A major established artist breaking away from the labels and successfully going it alone would be interesting, and would definitely cause the labels some stress. They would be forced to be more flexible with their existing artists to "keep they happy". However, the RIAA would remain.
A totally unknown artist BECOMING hugely successful, solely through the available tools in this "new age of music and songs and publishing" would be a backbreaker for the RIAA labels. Just one artist that is good enough to use self-recording, self-promotion, touring and merchandising, digital sales via iTunes and others to become a star on the level of U2, the Stones, etc.
Why would any artist after that point sign with any RIAA label? That's what it will take to get rid of the RIAA.
Five bucks a month might get you everything now, but if you cancel you lose it all. I probably spend less than $5 per month on average on music, and get to keep all of it forever. Furthermore, although Yahoo may charge $5 a month now, when they eventually raise the price you'll either put up with it or quit.
Apply this simple idea and you divide up economies pretty quickly.
Oil wells: producers. Oil distribution: Mafiosi
Coca farmers: producers. Drug dealers and legislators who create a shortage and push up prices: Mafiosi.
Musicians: producers. Recording industry, and the legislators who give them what they want: Mafiosi.
Physicians: Producers. Insurance companies and malpractice lawyers - you get it
The interesting thing about mafias is that they are all the same and work in the same way, and that though many of them commit illegal acts, they are rarely prosecuted (and as noted above benefit financially from the laws that make their activities illegal, by pushing up prices.) I'm sure a record exec could move smoothly from handing out brown envelopes to "opinion formers" in the interest of persuading the gullible to buy the latest Mrs. Ritchie, to handing out brown envelopes to bent policement to ignore the foot soldiers on the street corners.
The moral? The job of government is to create fair competition laws that oppose monopolies and trusts, and jail people who break them. Not, as seems to be the case at the moment, to be part of the problem and to pass laws at the behest of de facto cartels like industry trade associations.
Pining for the fjords
The rationale is flawed from the start. Joel has insightful things to say, but I think he's out of his core expertise here.
-$0.99 was a great, simple marketing pitch. It made selling the idea of losing control over the music you purchase for personal consumption easy to accept.
-Recording industry pretty much soaks up every last dime in record sales. An artist manages to sue a recording label every other year or so because of the cut they *thought* they were getting has complicated renumeration schemes that reduce their per-album royalty to almost zero.
-The recording labels are mad they aren't controlling the price or distribution of the music as they have in the past with CD's. THAT is what they want. They've lost control and they want it back.
-Screw the artist. They can always find another one to replace the troublesome one. How many times has the artist who legitimately threatens their control actually stay in the industry?
-My favorite band from my younger days Fugazi maintained control over the pricing of CD's and shows. (CD's had the price ($10)pre-printed on the back, shows about $10 in L.A.! Totally frozen out of commercial radio, even public radio to *some* degree. They did it, but they didn't "change" the industry and I don't think the recording industry is going to come tumbling down real soon either. They will totally control the majority of digital content because they can.
http://www.maxineudall.com/2010/02/should-economists-be-sued-for-malpractice.html
Why do people think themselves well-qualified to pontificate on economic matters with a freshman course in the subject? Econ 101 is only marginally more applicable to the real world than voodoo, with all its assumptions that don't hold true in reality and oversimplifications of complex relationships between actors. Note to future posters madquerading as economists: economic phenomena are not so simple as to be accurately modeled by a basic supply/demand curve; you need systems of partial differential equations to accurately model most phenomena.
That said, even assuming Econ 101 is adequate in this case, you're still wrong. Sure, an auction/fluid pricing system would maximize the seller's profits for that particular event. But a truly rational agent seeking to maximize profit isn't concerned merely about that event, but also looks to the long term (to infinity as a theoretical goal). Under this theory, it could well be profit-maximizing to rake in fewer profits today, even lose money, for bigger gains tomorrow. For example, it could be a good idea to sell tickets to a concert at a low flat rate to encourage a quick sell-out, generating lots of buzz that could enable an encore show.
We know that record labels think in this long-term manner at least sometimes because they invest tons of money on new bands, losing on the first album on the gamble that they'll make money later on. Similarly, the article's hypothesis could be correct if the lables think that artist rebellion is a significant threat to long-term profitability, and this kind of value manipulation can bring the artists back in line. That's a pretty reasonable conjecture.
Support independent music. It's much better than the crap you hear on the radio anyway...
Give the money to the artists of good music, not to the suits that follow formulas to sell to 12 year olds.
Seriously, for the love of *whatever*, stop enabling them!!!
"The greatest obstacle to discovery is not ignorance - it is the illusion of knowledge." - Daniel Boorstin