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

[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

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?

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.

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: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: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*

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.