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.

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January 19, 2006

The Digital Pricing Conundrum Part 1: Song Length and the Number of Tracks
by David Harrell
In the late 1990s, I worked a regular Saturday shift at a Chicago record store. The pay was negligible, but I received an employee discount and had a first crack at all of the used CDs that came in. Plus, in those dark days before mp3 blogs and Internet radio, it was the best way to sample new music.

There was a staff of three on Saturdays and we'd "rotate picks" to choose the discs for in-store play. My two co-workers often opted for rap and hip-hip and I usually spun indie rock. I paid a price for that stylistic choice: Most of my CD selections had about 45 minutes of music while my co-workers' picks, with longer songs and more of them, often lasted 70+ minutes. My nominal 1/3 control of the store's stereo was sabotaged by the average track length and number of tracks of our respective CD picks.

Today, track length and the number of tracks on an album are both resulting in some major pricing discrepancies within (and between) online music stores. Let's start with iTunes, which uses a default album price of $9.99. A single slice of that pie costs 99 cents. The trouble is -- if albums are pies -- they come in different sizes and the number of slices varies with each one. As the following examples will show, it can create some real chaos. (This model, with some variations in base track/album prices, pretty much holds for the bulk of the online stores. Apple does deviate from the $9.99 album price on occasion, but not the 99 cent track price.)

Then there's the eMusic subscription model, where you pay for a set number of downloads each month. I've got the 40 for $9.99 plan, which works out to 25 cents per track, assuming you use all of your downloads. The issue here is that all downloads count equally against your monthly allotment, be they 30- second mini-songs or 20-minute opuses.

A great example of digital pricing confusion is this recent pick of mine from eMusic: McLemore Avenue by Booker T. and The M.G.'s. The 1970 release covers most of the Beatles' Abbey Road and the album artwork even features the M.G.'s crossing the street outside the Stax recording studio, just like the famed Abbey Road photo. On eMusic, it's a major bargain, as most of the songs segue into each other, so it counts as only four downloads against your monthly subscription, for a net cost of around $1. Over at iTunes, that same album costs $9.99, but how can you then charge 99 cents for the four tracks? You can't, so iTunes lets you buy the two shorter ones for 99 cents each and makes the other two "album only." And things get really goofy over at the MSN store, where the longest track on this album is priced at $1.39 and the other three at 99 cents. You can download all four tracks for a grand total of $4.36 but MSN also gives the option of downloading the entire album for $8.91!

On average, there's an iTunes/eMusic pricing multiple of approximately four: 99 versus 25 cents per track. But for this specific album it's 10, as the average track price in iTunes is nearly $2.50. The eMusic model, though, is absolutely brutal when it comes to albums with lots of short songs. Download Human Amusements At Hourly Rates by Guided By Voices and you'll burn through 32 of your monthly downloads. That's around eight bucks worth of a $9.99 subscription, so in this case the iTunes/eMusic multiple is down to 1.25.

While the Booker T. album makes a great anecdotal example, it's not just a case of a few odd albums causing pricing anomalies. Entire genres of music are affected. Many classic jazz albums feature just a few, relatively long tracks, making them incredible bargains on eMusic. Saxophone Colossus by Sonny Rollins is a mere five tracks, Relaxin' With The Miles Davis Quintet has only six tracks, and so on. (MSN somehow failed to catch this quirk: As with the Booker T. album, you can purchase all of the tracks from these discs for much less than the "buy album" price.)

From a consumer's standpoint, should a Guided By Voices disc cost eight times as much at eMusic as does a Booker T. and the M.G.'s album? And for the artist and record company, should a musician be penalized (or rewarded) for artistic decisions made about song length and the number of tracks on a disc?

If there was an easy answer, I'm thinking it would've been figured out by now. The simplest solution I can imagine is setting a standard price for an album download, then dividing that amount by the number of tracks on the disc to price individual song downloads. Another option would be to charge for music by the minute, using $9.99 for a 45-minute album as a starting point to establish a 22.2 cent charge per minute of digital music. (This model is somewhat in line with how mechanical royalties are paid for both physical CD sales and digital downloads. These royalties go to songwriters and publishers and are separate from artist royalties, which are usually set as a percentage of the wholesale price of a format. As of 1/1/2006, mechanical royalties have increased to 9.1 cents per song for songs of five minute or less, anything longer than that is paid at 1.75 cents per minute.)

But both of these solutions go against the "one price" that Steve Jobs is currently holding the line on at iTunes. And both would create a ton of accounting headaches for the digital stores, basically resulting in an infinite number of royalty rates. Plus, while I doubt most musicians would give it too much thought, it does create economic incentives for artists and record companies that could affect creative decisions. Making the fadeout on a potential hit single a bit longer could mean thousands more in digital royalties for an established artist. On the other hand, an unknown artist might feel pressured to keep songs short, to create a "bargain" price for a track.

You could argue that despite all of these weird pricing elements, consumers are still coming out ahead with digital music sales in that they now have the option now of buying single tracks instead of entire records. Whatever the track price, it's still a major bargain if you only want one or two songs from an album. Which is no doubt one factor behind the major labels' push to lift the 99 cent price ceiling, something that will be covered in part II of this series.

(Correction -- the bit about Apple's occasional deviation from the $9.99 price was added on 1/20.)

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