digital audio insider
Digital Audio Insider is David Harrell's blog about the economics of music and other digital content. I write from the perspective of a musican who has self-released four albums with the indie rock band the Layaways.
My personal website has links to my LinkedIn and Google+ pages and you can send e-mail to david [at] thelayaways [dot] com.
If you enjoy this site, please consider downloading a Layaways track or album from iTunes, Amazon MP3, Bandcamp, or eMusic. CDs are available from CD Baby and Amazon.
Brad Sucks Blog
Byte of the Apple
CNET Music News
Digital Music News
Future of Music Coalition Blog
Know the Music Biz
LA Times Technology Blog
Music Think Tank
The Music Void
New Music Strategies
Penny Distribution Blog
The Big Picture
The Long Tail
The Undercover Economist
Shake Your Fist
Unleash the Love
January 26, 2006The Digital Pricing Conundrum Part II: The 99 Cent Barrier and Popularity-Based Pricing
by David Harrell
If you're the type to read this blog, then you already know that the major labels are grousing in a major way about the 99 cent download price established by iTunes. While Apple has shown some flexibility on pricing, going both above and below the $9.99 mark for an entire album, Steve Jobs is thus far holding firm on the 99 cent price for individual downloads.
The labels' beef is that while all of those downloads over the past year were great for the bottom line, they also represent millions in lost potential revenue. Their basic argument has two components: First, by making every track from an album available as a single, "full album" sales are cannibalized. A portion of those 99-cent "single" sales would have been $9.99 full album sales, if that had been the only way to obtain the track in question. Second, if consumers are purchasing one or two individual tracks in lieu of a $9.99 album, then they're probably willing to a pay a bit more than 99 cents. After all, even at $1.99 per track, it's still a bargain if you really only want one song from an album.
As a music fan, I'm obviously not sympathetic to any effort to raise prices for downloads. And I don't necessarily buy the argument that a ton of single song downloads from an album means that, faced with no other choice, enough of those buyers would have bought the whole album to surpass the profits from the single sales.
Still, I'll concede one point to the major labels: Equal pricing for all individual tracks ignores the reality that different songs have varying levels of value to consumers. That value can fluctuate based both on the artist in question (a new track by 50 Cent is worth more in the marketplace than an old Foghat song) and within the context of an album or an artist's total recorded output. That is, many casual fans care more about the "hit" song on album than its less popular tracks.
Obviously, the second point is a new reality, created by the advent of digital downloads. Music fans had favorite album tracks in the past, but the concept of relative value was irrelevant -- unless a song was available as a single, your only legit option was to buy the whole album. That's not the case anymore.
Is there a way to fairly price downloads that accounts for varying perceived value and is also acceptable to music consumers? I suspect the labels' preferred method would be to simply jack up the album/song price for newer releases. Say $14.99 for the album and $1.49 for individual tracks for new releases, and keep the $9.99/99 cent model for older catalog material. This approach is certainly logical and analogous to current CD pricing, where the list price for new major label releases can be double that of older catalog albums.
But such a change would result in prices for album downloads that would equal or even exceed that of physical CDs. Is this a feasible strategy? Last week, in an excellent column in the Chicago Reader about the possible end of the 99-cent download, Douglas Wolk made the case that at least some consumers are willing to pay a premium for the convenience of downloading digital music:
If it costs a few dollars more to buy an Eminem album as a set of protected, nontransferable files with no artwork and no liner notes from iTunes than it does to go to a record store and buy a higher-fidelity physical copy that you can sell later if you don't like it, are you crazy to go for the iTunes version? Not if it's worth it to you to get it instantly, without the hassle of driving to the store or waiting for Amazon to deliver your package.(Here's the link to the story, with the warning that it's a large PDF file that takes a long time to load.) Convenience is clearly a factor in digital sales, even beyond the hassle of schlepping to a record store or waiting for an Amazon order. Back in 2003, 12:51, the first single from the second Strokes album made the top 10 chart at iTunes, despite the fact that a high-quality mp3 of the song was available (and can still be found) at the band's website. And I've downloaded tracks from eMusic that I already own on CD, just to save the bother of ripping a specific song to mp3.
For now, though, let's assume that any large-scale increases above the $9.99 album price would be unacceptable to the overall buying public. Without a change in the album price, is there a logical way to price individual songs?
Last week, in Part I in this series, one proposal floated for getting around the issues associated with varying song lengths was to simply price each track based on its portion of the overall album length. However,that idea is fundamentally flawed because no one equates song length with song quality, it's an issue that only comes up in the context of pricing downloads.
Consider "Revolution 9" from the Beatles' "White Album." At eight minutes and 13 seconds it's by far the longest song on the album. But if the Beatles' catalog ever makes it online, I doubt anyone would see the logic in charging more than twice the price of "Blackbird" for one of the least popular tracks on the album.
So how about using track popularity to establish market prices for each of the songs on an album? Back in December, Slate ran an article that proposed treating song downloads as a commodities and basing the price on the relative demand for each. At the time, I thought this was a rather asinine idea, given -- as pointed out by many readers of the story -- that by definition a commodity is something available only in a limited quantity.
But a modified version of this idea might be worth exploring. Instead of the Slate approach, which would price a song based on its popularity among all songs in the marketplace, this method would base price on popularity within the context of an album.
Let's take a look at a specific example, Synchronicity, the final studio album by the Police, released in 1983. According to Last.fm, the online music community and listener-tracking site, 68,247 members have listened to the Police recently and tracks from Synchronicity have been spun 44,624 times. (No doubt a very small percentage of total listeners worldwide, but it's probably safe to assume that their collective listening habits mirror the total audience for the band.) As you might guess, the hit single "Every Breath You Take" is the most-listened to song on the album, accounting for 14,281 recent listens by Last.fm members. And "Mother," guitarist Andy Summer's sole songwriting contribution to the disc is the least popular with just 1,154 listens (sorry, Andy).
Multiply $9.99 by each song's percentage of total plays for all of the songs on the album and you get a price list that looks like this:
Synchronicity, the Police, Priced By Listening Habits
This isn't going to work. The first big problem is that the $3.20 price for "Every Breath You Take" would be unpalatable to consumers (and very likely to drive customers who would've paid 99 cents for the song straight to a file-sharing service). Also, it exceeds any price the major labels would consider for a single-song download. And for a band that was truly a one hit wonder, a single song might account for even a larger portion of the $9.99 album price. Then you have the potential problem of unpopular tracks being priced below the statutory mechanical royalty rate.
Clearly, a straight-line popularity pricing strategy isn't the answer. You might instead start with a minimum track price and adjust upward based on track popularity, or perhaps set a maximum price for the most popular track, say $1.99, and work your way down to price the remaining tracks.
Yet even with such modifications, there's another issue, a band might release a song on several albums -- on the original album, as part of a greatest hits collection, etc. While "Every Breath You Take" accounts for around 32% of the tracks plays of the Synchronicity album, in the context of the Police's greatest hits CD, it accounts for fewer spins. Popularity would have to be considered in the context of a band's entire catalog. The problem is, overall song popularity changes over time and very suddenly whenever a band releases a new album.
Finally, how could this method work for new releases? A record label might choose the "singles" from a new album before its release date, but there's no way to accurately predict which songs fans will, on average, listen to the most.
So I'm nixing song popularity as the basis for individual track pricing. Stay tuned for Part III of this series and a proposed pricing plan that would maintain the $9.99 album price, give the labels more money for the most popular tracks, yet still keep music fans happy.
link 4 comments e-mail Digg this post follow on Twitter follow on Google+
More Digital Audio Insider: Newer Posts Older Posts
Subscribe: RSS Feed
Add this blog to Del.icio.us, Digg, or Furl. Follow David Harrell on Google+.
The Digital Audio Insider Twitter feed:
Digital music jobs: Looking to hire? Looking for a job? Check out the digital audio insider job board.
A Long Tail Experiment
By the Numbers: Using Last.fm Statistics to Quantify Audience Devotion
Lala.com Owes Me Sixty Cents
An Interview with Jonathan Segel of Camper Van Beethoven
Price Elasticity of Demand for McCartney
Sony and eMusic: What I Missed
The Digital Pricing Conundrum series:
Part One Part Two Part Three Part Four
Out Now -- "Maybe Next Year" -- The New Holiday Album:
"This is a sweet treat, deliciously musical without being overbaked for mass media consumption." -- Hyperbolium
"Perfect listening to accompany whatever holiday preparations you may be making today." -- Bag of Songs
O Christmas Tree - free mp3 lyrics and song details
Away In A Manger - free mp3
Download from eMusic, iTunes, Amazon MP3, or Bandcamp. Listen to free streams at Last.fm.
"...about as melodic and hooky as indie pop can get." -- Absolute Powerpop
"Their laid-back, '60s era sounds are absolutely delightening." -- 3hive
"...melodic, garage-influenced shoegaze." -- RCRD LBL
Where The Conversation Ends - free mp3
January - free mp3
Keep It To Yourself - free mp3
Download from eMusic, iTunes, Amazon MP3, or CD Baby, stream it at Last.fm or Napster.
"The Layaways make fine indie pop. Hushed vocals interweave with understated buzzing guitars. The whole LP is a revelation from the start." -- Lost Music
"Catchy Guided by Voices-like rockers who lay it on sweetly and sincerely, just like Lionel Richie." -- WRUV Radio
Silence - free mp3 lyrics and song details
The Long Night - free mp3
Download from eMusic, Amazon MP3, or iTunes, stream it at Last.fm, Napster, or Rhapsody.
"These are songs that you want to take home with you, curl up with, hold them close -- and pray that they are still with you when you wake up." -- The Big Takeover
Let Me In - free mp3
Ocean Blue - free mp3
Download from eMusic, Amazon MP3, or iTunes, stream it at Last.fm, Napster, or Rhapsody.
More Layaways downloads:
the layaways website