Slashdot Mirror
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
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.
Of course people are happy getting the same thing for less money. That's not the point of the article. It's that for those artists/songs you don't know, your perception of them is influenced by whether they're in the "star" club at $2.49 a song, or the bargain bin at $0.99. It may not be a huge influence on you individually, but in terms of the overall market, it's a huge club to hold over the head of an artist. It's about overall mindshare, not individual purchases.
Anyone who loves or hates any language, platform, or manufacturer, doesn't know what they're talking about.
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.
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"
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.
no no, you don't quite understand how it works. take your average teen. analyze their characteristics. what do you find? a self esteem largely dependent on what they perceive others to think of them, and usually they will be followers. their desire to be 'cool' leads them to almost want to be told what to listen to.
this leads me to my point: kids are going to be looking at songs to buy, think song x sounds pretty good. but wait... it's only $.99, when this other song y that's popular is $1.99. clearly there is a reason it's not priced as high, and this can lead to the assumption that song x is not as desirable as song y,and then their desire to be cool and fit in will kick in. now their view of the song is changed, negatively, purely for psychosocial reasons.
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.
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.
I think in the long run, this is how it will be. I think marketing will shift from the actual artists to download communities, where the word will be spread amongst its members about which artist is good/worth the money. But that's not how it's done now.
It only takes having a teenager in the house to realize that marketing is King. They buy what they see on TV. And their opinions are formed by what they see on TV, no matter how much they tell you they know everything (and, again, if you have a teenager in the house, you'll constantly hear how little you know and how much they know :-))
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.