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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.

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May 14, 2007

Digital Downloads: Cheaper Every Day?
by David Harrell

For more than 70 years, Coke maintained a nickel price for a single-serving bottle. Tim Hartford explains this concept of "nominal price rigidity" in Slate and notes that on an inflation-adjusted basis, customers paid about a dollar per serving of Coke in 1886. While the nominal price remained constant until 1959, consumers were actually paying less in real terms each year, as the value of a nickel declined considerably during that time.

That example (and some data on inflation and CD prices in the 1980s from Mark Coleman's book Playback) makes me wonder if we'll see the same thing for digital downloads. While long-term contracts with bottlers (and vending machines that only accepted nickels) contributed to Coke's price rigidity, you don't have the same restrictions for selling digital music files.

However, what you do have is Steve Jobs and his insistence on maintaining a 99-cent price for individual song downloads. And even though inflation has been relatively muted in the four years since the launch of the iTunes store in April 2003, it compounds out to nearly 12% -- around 2.86% each year.

Which means that in today's dollar, you paid about $1.11 for an iTunes track when the store first launched. Or, you can turn it around and say that you're now paying just 88 cents a track in 2003 dollars.

Assuming that consumers don't drift to the new $1.29 price for higher quality (and DRM free) single song downloads -- and an ongoing positive inflation rate -- that single-song price gets a little cheaper every day.

tags: digital music iTunes Apple AAPL nominal price rigidity

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THE LAYAWAYS

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:

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