Digital Audio Insider -- the economics of music and other digital content

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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.

My personal website has links to my LinkedIn and Google+ pages and you can send e-mail to david [at] thelayaways [dot] com.

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July 15, 2008

Amazon.com's Amazing MP3 Album Prices
by David Harrell

Except for a couple songs, I don't even LIKE the Doors, but I almost bought this album this morning. At $3.99 for 20 songs, it was almost too good to pass up, even though I could simply buy the two songs I actually like for 99 cents each. (The album's now back to its regular price of $8.99.)

Amazon.com's daily and weekly mp3 album specials are clearly resulting in a lot of impulse purchases. The top album chart is usually dominated by the previous weekend's $5 specials and most all of the daily special albums make it to the top of the chart. Big-name artists (Madonna, the Police, etc.) almost always make it to the number one spot, and even relatively unknown artists like Liam Finn seem to hit the top five when given the bargain price. (Though the relative chart popularity of the specially-priced albums might just be evidence that total album download sales at Amazon are modest enough that it doesn't take too many purchases in a 24-hour period to make the top album chart...)

But the big question is -- what's the underlying math for Amazon for these sales, and what are its long-term plans for digital album pricing?

It's possible that the weekly $5.00 specials are label-sanctioned sale prices, but it seems almost certain that the daily specials, especially the $1.99 albums, are functioning as loss leaders, where Amazon builds a customer base for the download store by taking a loss on each transaction. Barring a change in the mechanical royalties law from a set per-song amount to a percentage amount, there's something of a built-in floor for album prices. Another possibility is that labels consider these sales as "promotional" sales -- like record club purchases -- and don't have to pay standard royalties for them.

While this is pure conjecture on my part, my guess is that Amazon is compiling some incredibly detailed data on how its customers respond to these specials. And, if Amazon can provide documented evidence for the existence of a price elasticity of demand for music, it will make the case for permanent album price cuts to the $5 range. That would require an increase in overall demand that more than offsets the lower profits on per-unit sales.

One thing to keep in mind, however, is that any pricing experiments by Amazon are taking place in the context of standard prices for the bulk of its digital catalog. The current impulse buys are driven somewhat because the prices are both ephemeral (24 hours or one weekend only) and relative bargains. If there's no pressure to buy today, and most albums are priced in the $5 range, there's little incentive to make an immediate purchase, and the perceived bargain disappears as well.

Anyway, if anyone has any behind-the-scene details about how Amazon is paying labels for these bargain album sales and/or its long-term digital pricing plans, I'd love to hear from you -- either for attribution or as an "off the record" source!

related: Amazon's Blue Light MP3 Special, Is Amazon MP3 Thinking Elastic?, Price Elasticity of Demand for McCartney

tags: digital music Amazon.com mp3 AMZN mp3 prices price elasticity of demand

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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:

the layaways website