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."

Comments

Oh fer cryin out loud

[winkydink]

It's all about making more money. Period. Anything else is gravy.

Re:Oh fer cryin out loud

[SatanicPuppy]

Yea, the argument makes some sense when applied to movies, but no sense when applied to songs, because its a serious time investment to watch a whole movie. But you could listen to two or three whole albums in the same amount of time, while doing other things.

So if someone hears a song they like, and they go online to buy it, are they going to see the lower price and immediately think, "Oh no, I like a cheap song, I must be weird." or are they going to think, "Na na na na AND IT'S ON SALE!!! WOOT!"

I may be crazy, but if I like something and it turns out to be cheap, so much the better.

Re:Oh fer cryin out loud

[kponto]

The music industry is not particularly profitable

Nonsense. It's hugely profitable and gets more profitable every year (Don't believe me? Google it)... it's just not profitable to artists.

Ask yourself this...why is it that cell phone ringtones make more money than digital music sales?

Because; A) There are vastly more cell phone users out there than people who listen to music on their computers; B) You can order a ringtone right from your phone without ever giving anyone a credit card number (which dissolves the sense that you're actually buying something and therefore removing a barrier to entry); C) Cell phones ringtones are a vanity, something that everyone around you hears whenever it goes off. People are obsessed with how they appear, especially true with teenagers, who are the number one market for ringtones. A cool ringtone makes them cool, and cool changes very quickly these days which requires new ringtones; and finally D) Until recently, ringtones were limited to MIDI files and the like, which take all of 30 seconds to create and then proceed to sell hundreds of thousand of copies. The overhead for production is miniscule which means that the profit margins are ludicrous.

Re:Oh fer cryin out loud

[Golias]

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

Re:Oh fer cryin out loud

[HardCase]

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.

Re:Oh fer cryin out loud

[VP]

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.

This is the key to the travesty that passes for "music business" these days. Why do people think it is OK for a publisher to "own" somebody's creative work? Aren't there better ways to do "music business"?

Re:Oh fer cryin out loud

[Ohreally_factor]

There's a Joni Mitchel quote that I'll have to paraphrase. "Back in the sixties, record execs were just as conniving and greedy as they are today. The difference is that they actually liked music back then."

Re:Apple's Tune

[Rodney.Quills.Dinkin]

artists are making more money off selling ringtones than useless 0.99 itunes songs.

Increase value, not price, for more profit

[dada21]

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.

Re:Increase value, not price, for more profit

[nathanh]

People will pay for safety, speed and quality. $1 is fair,

Since when is $1 fair? I think $1 is simply what the market will bear, slightly above what the media monsters are charging Apple, and the price point that maximises (or at least comes close to maximising) Apple's profits.

Let's go back to the idea of "fair". I recently bought a stack of new music. I paid $12 average per album and there are 15 songs per album. These are Australian prices and over here iTunes is $1.69 per song. Crunching the numbers and using the iTunes $1.69/$1 as the comparison ratio, I paid 47 USA cents per song for non-DRM non-lossy CDDA quality audio with a jewel case, album cover, paper inserts and delivered on a pressed disc. By the way, the $12 average per album included delivery to my doorstep (I bought them online) and the delivery time was overnight.

Yet you think it's "fair" to pay $1 for a lossy version of the same song, with no physical media, while you pay for the bandwidth required to download it, not to mention the monthly payments to your Internet provider? Give me a break! It's a ripoff. $1 is far from fair. It's significantly overpriced compared to the old model of music distribution. Considering the lower overheads of online delivery it should be significantly cheaper than 47 USA cents per song. I'm not going to pay double that for the "privilege" of hearing only some songs off an album and avoiding 1 sleep.

Re:Increase value, not price, for more profit

[raoul666]

Yet you think it's "fair" to pay $1 for a lossy version of the same song, with no physical media, while you pay for the bandwidth required to download it, not to mention the monthly payments to your Internet provider?

Well, I do think a buck is fair, personally. Sure, if you buy an album with 15 songs it'll be cheaper, but it's a rare album that has 15 songs worth listening to. So for the ease of use and choice of what songs I get, I will pay a buck a song. As for lossy, I honestly can't tell the difference. I'd love to see you try in a double blind test. Also, counting the monthly payments for internet access is a mistake - that's a sunk cost - you're gonna pay that whether or not you download music, unless you're a very atypical /.er. And what exactly are you paying for bandwidth that makes the cost of downloading 10 megs expensive? I doubt very much it's more than a penny.

Doesn't the music industry get it yet?

[8127972]

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).

Another Doomed Big Brother Ploy

[Ted Holmes]

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?

Veblen effect?

[tepples]

The whole argument here seems to be that major label singles are a Veblen good. Wikipedia has information on Veblen goods.

big content

[TheClam]

Damn those Big Content bastards and their lust for power and money.

Good call on the phrase 'Big Content.' Who coined that one?

What I would like to see..

[beldraen]

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.

I totally believe this

[sgant]

The snakes have found a way to keep the rats in a coral, or so they think.

They still don't understand that the new age of music and songs and publishing is upon us. You don't need fancy million dollar studios to make music. You don't need radio airplay if you're good enough. You don't even need a marketing blitz if you're good enough.

This article is further proof that the music industry is at heart greedy and evil. They treat their artists like slaves and keep them bound to them with the "company store" tactics. Artists, break away. You don't need them.

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.

Re:I totally believe this

[mattsucks]

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.

Re:I totally believe this

[cens0r]

You should try to support Clap Your Hands Say Yeah then. They recorded their record themselves, they put it out themselves, and they distributed the first 50,000 copies themselves. They still haven't signed with a label in the United States (although they recently allowed one to handle their distribution) and most interviews with the band make it seem like they don't need one. If a band like that we're to sell half a million records and start getting radio air play (besides KEXP.org) it would be a huge wakeup call to a lot of people.

Marketing is the only power they have...

[shrubya]

...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.

Answer to your prayers

[sgant]

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.

Re:So if it costs less... people will not buy it?!

[jjohnson]

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.

Re:Or consider the economics

[ZackSchil]

I much prefer the current setup, by which the 99 price point is kept and every person who downloads Achy Breaky Heart has their IP logged so they can be tracked down and murdered for the betterment of humanity.

Re:Leverage?

[Chirs]

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.

Its toobad Apple can't cut the middle man...

[haplo21112]

...they just might eventually.

At this point they are not allowed to become a record label themselves because of the deal that they had to cut with "Apple" records (aka the publishing company front of that wildly popular band from to UK)...at some point I see Apple Computer cutting some reasonable deal with "Apple" records...apple going to the artist directly to get the music out there.

Re:Rhyme and Punishment

[JeffSh]

Yeah, that's what I gathered too. Their point of view doesn't make any sense to me, though. If I hear music I like, i get more excited and more likely to buy it if it's cheaper. like a $8.99 CD is way more appealing to me than a $13 CD for instance.

With services like Pandora becoming available, it becomes way easier to be inroduced to acts and artists you don't know, but still really would like. The control of delivery and marketing is slowly eroding, and this should bring the peaks and valleys closer together. i.e. acts considered "less" popular will get more exposure, and acts considered "more" popular will get less, if only because people learn about music different now that radio is being eroded.

atleast, that is the future i would like to see. who knows what's going to happen. Pandora is a great start. I hope it does not lose momentum or run into RIAA roadblocks.

Re:Apple's Tune

[SatanicPuppy]

All that theory seems to be based on buying things solely because they're expensive. I mean, he would have us believe that the cool kids would immediately go down the 2.50 new releases, buying each one and scorning the cheap songs. I don't see it working like that.

If I like a song and I see the album, and the album is cheap, I'll take a chance on buying it because I may like more stuff on the album. But if I like a song, and the album costs a fortune, no way will I buy it for just the one song.

And online, I never buy songs that I haven't heard before. Why would anyone do that? It's the proverbial pig in a poke...Don't buy something when you're ignorant of what you're buying, for the proverb impared. So if you already know, then the only reason they can be pushing the higher price is because they think they'll be able to sell enough units to make more profit than they would have made at a lower price.

That's just common sense.

Re:Paranoia Strikes Deep...

[nagora]

Your argument fails on two counts: firstly the idea that the companies want their product to be perceived as high-value by keeping the price up is one that they have actually stated in public, it is not some paranoid fantasy. The same goes for DVDs: recently the movie industry voiced its concern about DVD's being given away with Sunday papers saying that they wished DVDs to "remain aspirational".

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

Re:Or consider the economics

[42Penguins]

Who are these idiots who actually PAY for achey breaky heart?

I have a bridge to the future to sell them...

Re:Paranoia Strikes Deep...

[Anonymous Coward]

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.

Oh-a-oh

[Swamii]

Video killed the radio star. Internet killed the video star. RIAA killed the internet star. Boat's in the water. Cage's in the water. Shark's in the water. You're in the cage? Shark's in the cage. Farewell and adieu to you fair spanish ladies...

Re:So if it costs less... people will not buy it?!

[ephex]

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.

Re:I couldn't agree more.

[utnow]

It's just the concept that higher priced 'stuff' tends to get more press and/or public envy. A song that is generating ALOT of money (higher pricepoint) will be promoted more (on the likes of MTV) than a .99 song that isn't bringing in as much. Simple economics.

A while back a friend of mine was telling me about a particular purse that she was trying to sell in her store... $10.00 for a rather plain purse... they stayed on the shelves for months. Finally she instructed one of her employees to mark them down to $7.00. Apparently there was a misscommunication and the purses were marked UP to $70.00. They flew off the shelves. She sold em all within 2 weeks. Price playes a HUGE part in public perception of value.

Re:Joel is an Ass

[jcr]

As a side-note, Yahoo is superior to ITMS in every way other than not working with IPods.

Hydrogen is superior to gasoline in every way other than working in cars that people already have.

-jcr

Re:Apple's Tune

[damiam]

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.

The record labels are basically fscked

[electroniceric]

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.

Re:Joel is an Ass

[Darth Maul]

I just love exploring music and building unlimited playlists on my DJ.

Until you stop paying Yahoo!, that is...

Re:Apple's Tune

[BushCheney08]

Correction: somebody is making more off ringtones than itunes songs. I highly doubt it's the artist...

Do I have this right?

[Phat_Tony]

I want to make sure I understand his accusations, because I feel like I might be missing something. He's saying that I'm going to not buy music that's cheap, and only buy music that's expensive, because people are only willing to buy expensive things, (because they must be better)?

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.

Heartbreaking...

[kzinti]

Whatever happened to artists of integrity, artists like Tom Petty who want their record prices kept low so their fans can afford them?

Re:Joel is an Ass

[ThousandStars]

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.

Re:I couldn't agree more.

[IANAAC]

if they still get mention on the "people who downloaded $foo also listened to..." lists, there is still a healthy chance of survival despite lack of exposure.

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 :-))

Don't Bank on it...

[mpapet]

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.

Re:Apple's Tune

[porcupine8]

I mean, he would have us believe that the cool kids would immediately go down the 2.50 new releases, buying each one and scorning the cheap songs. I don't see it working like that.

You're posting on slashdot, and you think you have any insight into what the cool kids would do?

Better yet, you assume that they would do whatever it is you do?

*giggle*

Beyond Econ 101

[rgoldste]

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.

Re:I couldn't agree more.

[Mark_in_Brazil]

Apparently there was a misscommunication and the purses were marked UP to $70.00. They flew off the shelves. She sold em all within 2 weeks. Price playes a HUGE part in public perception of value.

It depends. But it's true that if there's an established price range for a given subcategory of products and your product is priced well below it, the product will be perceived as inferior even if it's an adequate replacement for other products in the subcategory.
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.

Re:Joel is an Ass

[pammon]

As a side-note, Yahoo is superior to ITMS in every way other than not working with IPods. $5 a month gets you everything.

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.

As the old saying goes...

[87C751]

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."