Digital Music Stock Market?

tommertron writes "Adam L. Penenberg has a column on Slate about about the pricing of digital music, specifically, iTunes' 99-cent-a-song model. Basically, he suggests that song prices be determined by market forces, just like stock and commodities markets. The more a song gets downloaded, the more it would cost. Song by big-name bands would cost more, and lesser-known acts would cost less (with a minimum of 25 cents.)" From the article: "Steve Jobs, who has been willing to take a few pennies per download so long as he sells bushels of iPods, calls tiered pricing 'greedy.' That view is shared by millions of consumers who believe the record companies have been gouging them for years. From the buyer's perspective, however, Apple's 99-cents-for-everything model isn't perfect. Isn't 99 cents too much to pay for music that appeals to just a few people?"

Comments

Oh, for God's sake

[Daniel Dvorkin]

"Isn't 99 cents too much to pay for music that appeals to just a few people?"

No, apparently it's not.

This is a striking example of how dumb the "popular=good" meme is. When I buy music, or anything else, I don't care what it's worth to other people; I care what it's worth to me, whether I'm one of a hundred, a thousand, a million, or a billion.

Aaargh. Why the hell are people trying to fix something that's not broken? (Well, okay, I know why the RIAA is trying; what's this guy's excuse?) Tiered pricing, supply-and-demand pricing (hey economist guy: the supply is unlimited!) or any other fancy pricing scheme that requires people to pay more than 99 cents per song doesn't work. 99 cents per song, OTOH, does work. That's what online music buyers have decided, en masse, they'll pay for legal music downloads. Charge more and piracy looks a lot more appealing that paying for it. That's the reality.

Not to mention that it just makes sense: buy one song, pay x, where x is some reasonable amount (say ... oh ... just for example ... 99 cents); buy two songs, pay 2x, etc. People want their music, they don't want to have to solve an accounting problem to figure out how much they'll pay for it. "Ten songs, ten bucks, plus I save a dime. Cool." That's how people want to buy music, and that's why iTunes has succeeded while every other pay-for-download system has pretty much crashed.

Stock market pricing is one of the stupidest ideas I've ever heard WRT the music industry ... and you know, given the long sad history of stupidity in the music industry, that's saying a lot.

Re:Oh, for God's sake

[PepeGSay]

supply-and-demand pricing (hey economist guy: the supply is unlimited!)

Thats the rub, the *music industry* as the prejorative term is usually referring to the distributors and "record companies". They exist as a means of distribution and marketing. Without the distribution portion, they are hurting. $13 for a CD... you gotta be kidding me.

They are trying to figure out where they fit in and create a purpose for themselves. Maybe they want to reinvent themselves as the stockmarket of music, what a dumb idea. The stock market idea is rooted in the idea that a company actually needs capital to continue growing. The really high quality bands cannot turn money into new songs, because it is a creative endeavor. However, the music industry *can* create more marketing generated pop bands with money... ugggh

Anything you see the record companies do in regards to online sales at this point, in my opinion, is a self preserving act. Word of mouth can do marketing, web sites can do marketing, but the record companies have been the ones who can put up the money to create the CDs that are released. With that gone, the record companies become largely anachronistic and will be eaten up by other more nimble companies that can provide the softer services. Until then we get beaten to death in our wallets by their death throws.

Re:Oh, for God's sake

[joel8x]

You know, you inadvertently bring up a really valid point. Why can't we sell our DRM'ed music?? If I buy a CD and decide I'm sick of it, I can sell it on eBay, or to the local used record shop. Shouldn't I be allowed to do this with my purchased online music. Can we as "netizens" rally together to make these online services offer a way to transfer ownership to another user? Think about it - I invalidate my own drm so I can no longer play the song, and give it to a willing buyer at whatever price I set and the service takes a small percentage of the sale (say 10%).

Downloads aren't subject to the same market forces

[jmp_nyc]

Commodity pricing is based on the idea that supplies are limited. Likewise with stocks, as there are a finite number of shares of any given company in circulation. Even if every person with a computer on planet Earth bought a copy of the same song, it would not be in short supply.

That's not to say that there isn't value in a variable pricing scheme, but it wouldn't really be commodity pricing, or a "digital music stock market."
-JMP

limits

[Rudisaurus]

If you're going to set a floor price, you'd better be prepared to set a ceiling price as well. Otherwise the model is both unfair and unstable because it's subject to unlimited inflation, which is just as unfair to consumers as unbounded deflation is to the artists and vendors. Either take both the upside and downside risk or ameliorate both.

Completely backwards

[ivan256]

The record industry should hire a few economists. This is a great idea, but they've got the pricing completely backwards. The more popular songs shold get cheaper and the less popular more expensive. Why? That's easy.

The stock market works the way it does because supply is fixed and demand is the only variable. With digital music, the supply is infinite, and the demand is variable. Theoretically, that should mean that the songs could be free, except that the creation of the media has fixed up-front costs. That means that after a fixed amount of revenue is generated by a song, all additional revenue is going to be 100% profit. In order to make the maximum amount of money off any particular song, you want to increase it's appeal as much as you can through price lowering, while at the same time making sure you charge enough to recoup your costs before you break even, and as much as you can without pushing away customers after you break even. If there is a lot of demand for a song, you're going to make a profit on it, but you could potentially make even more money by lowering the price, because the drop in price could attract more than enough customers to make up for the loss in revenue. For songs without a wide acceptance, it doesn't work that way. You probably don't have many people out there who like the song but have price holding them back from a purchase, and the people that are buying the song are probably the ones that really like it and would be willing to pay a bit extra to have access to music that would otherwise be unprofitable to publish.

The only way charging more for popular songs is a good idea is if your goal is to punish your customers for being mainstream music listners, or if you have a complete lack of understanding of supply and demand. If the goal is to actually make money, they've got this plan completely backwards.

Not a true market if I can't sell too

[Millard Fillmore]

Not only is there no scarcity in this model, as several comments have already made clear, but there is also no way for a consumer to enter the market as a seller. If it were a true, market driven exchange, I would be able to take the track I bought for 25 cents when I liked Indie Band X, and sell it on the exchange for $3.00 when it becomes popular. I could then compete with the recording studio, who might be offering the track at $3.25.

But this won't work, again because of the fact that there is NO REASON for the price to go up as demand increases.

So, to review, we have a market for a commodity that isn't scarce, with a single seller, artificially fixing prices based on volume alone. Where's the market force in this?