Variables

“The country’s largest music retailer, Apple, is finally flipping the switch on what it calls ‘variable pricing’ and on what the music industry calls the last, best hope to turn around its rapidly declining fortunes.

That single, comforting price of 99 cents for all songs in the iTunes music store is being replaced today by three pricing tiers: 69 cents for the oldies-but-not-so-goodies, $1.29 for some hot new hits, and 99 cents for nearly everything else. Apple is setting the prices based on the wholesale prices set by the music labels.” - Brad Stone, New York Times, April 7, 2009

So the “last, best hope” for the Record Industry to turn around its “rapidly declining fortunes” is to raise the price on digitally compressed audio files?

Uh-huh.

Cause their rapidly declining fortunes have nothing to do with the clunky one-dimensionality of their product, the boneheadedness of their transition to digital, their failure to distinguish between product and promo, their focus on stores instead of encounters, their legal scare tactics and their stigma of greed?

Nope. The problem is that they weren’t charging enough for hot new product (and charging too much, apparently, for the chilly back catalog). Raise some prices, lower others and voila! – fortunes salvaged.

What the Record Industry doesn’t seem to want to acknowledge is that their digital stores are charities. People give to them. They don’t have to! Between free download searches, promos, streaming sites, bit-torrent, file-sharing and friends with music, you can pretty much find everything you’d ever want – for free. And while it’s true that digital sales have increased as more and more people switch-over from CDs, so, too, has Internet savviness and the ability to find the music you want for the price – or lack thereof – you’re after. Price is not the determining factor in the digital music market. If it were, no one would buy music because they were getting it for free or everyone would buy music because the price and the value of the product were in tune (like the old days!) Price is secondary now – a fork in the road at the end of an impulse. The way it becomes primary is if consumers start feeling ripped-off. Then they all veer left.

The backlash against “variable pricing” will be against the fact that the dollar barrier for digitally compressed audio files has been broken. It’s like there was a gentleman’s agreement that 99 cents was the market value of a digitally compressed song. 99 cents wasn’t what it was “worth”, really, since free and promotional options undermined any inherent value in the product – but it was the acceptable price of having an impulse dependably fulfilled. Old song or new, popular or unpopular – it didn’t matter. If you wanted it – and wanted to pay – it was 99 cents (at iTunes, anyway).

In a variably-priced market, there are two immediate consequences: the potential value of some music has been deflated while the market value of other music has been inflated. Reacting to the deflated music, the consumer sees that they’ve been paying too much. Reacting to the inflated music, the consumer feels like the price is too high. Both observations lead to the same conclusion: the product isn’t worth what I’m paying for it. If consumers had no other options, I’d still bet on the market. But with so many other options for consuming music, it’s hard not to see that breaking the dollar barrier on digital music – without a significant upgrade in the product – is gonna suck the Industry dry. It will be a whole new justification for not paying for music. A widget of disgust, if you will, that gets popularly embedded in consumer’s purchasing decisions. A meta-iTunes app. Nice one!

Of course the issue runs deeper. The fundamental problem, regardless of what the market price is on compressed digital audio files, is that compressed digital audio files are a de-valued, one-dimensional, product. You could give them away at this stage or charge hundreds of dollars a pop and it doesn’t change what they are, what they do or what they’re really worth to people. Without a fundamental change in the product, there is nothing to warrant a shift – higher or lower – in the price. By forcing a shift, the Record Industry is asking consumer’s to decide anew whether or not they think the product is worth their money. And if they decide it’s not, I would venture that the Industry’s “last, best hope” might be to do what they should have already done: re-define, re-design, update and re-introduce their product. With features people will pay for. With functions that are useful. With applicability to consumer’s technology-driven modern lives. Fuck 2.0. The Industry needs to start at 3.

The sad fact in all of this is that somebody’s doing the numbers. They’re looking at market shares and trend-line growth and seeing that the paying market is still growing, regardless of the purchase price. So they figure they might as well squeeze as much cash out of this run as they can. It’s black and white: black numbers on white paper. Well, maybe black and white and red… I just worry that the technicolor of innovation – the momentum – is against them and, sooner rather than later, they’re going to have to address the underlying issues and play one frantic game of catch-up.

It just sucks because $1.29 would have been a great price to start at for an upgraded product! Or if you prefer a projection: upgraded product with a higher price captures both the cross-over consumers that are driving current growth plus a new market for the upgraded product; higher price with no change in product will only get the cross-overs. (And “no-DRM” is not an upgrade – it’s just the removal of an obstacle. That and an admission that the value of the product can’t be controlled.) It will be fascinating to see how variable pricing is dealt with in the inevitable case of a true product upgrade. Think they’ll go straight for $1.99? $20 albums? Think price will be a factor then?

The Record Industry would do well to adopt the digital consumer mantra, and adopt it quick:

“There’s 40 different shades of black.                                                                                                         So many fortresses and ways to attack.                                                                                                     So why you complaining?”

- Pavement, “Elevate Me Later”

It’s a great song, too. A classic. And at 99 cents – a steal!

“New Model” stream-of-conscious

start with a name. call it a “DAP” – digital audio package. call it a “MAP” – multimedia audio package or multimedia artist package. call it something and then give it a feature that distinguishes this “new model” from the MP3/AAC/compressed digital audio model. a feature could be a photo or photos. a video or videos. a “making of” documentary. a lyric sheet. an application. an introduction from the artist. extensive album art. access to a club. update-able features: podcasts, videocasts, news, shows, link aggregates, rss feeds, twitter feeds. exclusive tracks. exclusive content. files for remixing. video files for video-creating. a personal fucking “thank you” note. whatever! the “new model” could have one or all of these features and still legitimately be a “new model”. it’s a question of which features are most valuable. perhaps there’s a template? something consistent but customizable – the way your page on a social network works. standardize the template and give it uses. let artists/labels login from the artist/label side and customize their product. let them change and update elements of content. let the artists make the new model ground zero for news, exclusives, authority, access. as they do so, they expose all the other outlets – the free outlets – for what they really are: secondary sources. the blogs and social networks would still be there, they’d still thrive. a whole culture would still exist around the free jukebox, the casual listener/secondary source audience. the only difference would be that the action would now initiate in a paid environment before it reverberated through the free environments. it would be a perk for the paying consumers – the core audience – to get information and content first. it would be part of what they pay for. if they don’t care, they can consume casually, freely, just as they do now. if they do care, they can pay for the record, the features, the new model. money straight to the artist. evolving content, features, access, perks to the paying fans. AND the whole brouhaha of outlets, networks, giveaways, streams, middlemen that’s regaling us right now. what is there to lose?

Groundwork summary

1. The Record Industry needs a “new model” for selling digital music because A) the current product is indistinguishable from the free promotional material, B) the current product is one-dimensional and out of touch with the technology of our time and C) the current product is being pillaged.

2. In lieu of a “new model”, the Record Industry should be doing everything it can to optimize the sales potential of its current product, the digitally compressed audio file. It should A) focus on a promotional-streaming model instead of a promotional-download model, since the download model is really just a product giveaway, B) push that promotional-streaming model into every point of encounter by way of a customized audio player and C) outfit that audio player with a “Buy it Now” button and/or efficient links to sales outlets, so that the point of encounter is connected to potential purchase.

3. Since recorded music costs money to produce professionally, it’s value has to be protected, whether legally or strategically. Otherwise it’s nothing but a cost with no return and the industry is unsustainable. Strategies for protecting the value of recorded music are A) an entirely new model for the product of digital music that renders the one-dimensional compressed digital audio file value-less, a secondary source B) modest improvements on the present model that distinguish the product from the promotional material, C) a focus on promotional-streaming with links to purchase instead of promotional product giveaways and D) non-threatening consumer education about copyrights and Artist rights.

Taken together, this is either the tip of the iceberg for thinking through the present quandary or the tip of the iceberg as it punctures the ship!

Another interesting question

is: Why are MP3s being given away promotionally?

I mean, if there’s no stopping the file-sharers, why not at least make it more difficult for them? That’s why there’s a difference between promoting a song that’s streaming and promoting a song that’s downloadable: if it’s streaming, the consumer is forced to take another step – whether a purchase or a search for a download – before it’s theirs; if it’s immediately downloadable,  you’re never gonna sell it!

So why present new music as a “free download”? Who dictates this? Music blogs? Fuck that! Music blogs operate within the confines of copyright – if they don’t remove content by request, they’re flaunting the law and risking their reputations. Music blogs only offer free content that is sanctioned as free content (in the hopes that the music will be promoted). Again: why can’t this very same content be streaming, as a matter of principle, instead of downloadable? 

Is it in the Record Industry’s interest to give away the ownership of their product promotionally? As in: here, take this – we hope you like it and that you’ll tell your friends and that you’ll all hurry back for more!  Fine. Why not just stream it? Encourage people to share stream-links instead of files. Will they tell fewer people if the free promotional track isn’t bobbing around in their iTunes library? Will they be less inclined – as though streaming were an affront – to pony-up for the songs they enjoy and identify with? Is this the mind-set of the online music consumer?

And if it is, does it matter? You’re already legally and practically conceding the inevitability of file-sharing. Why make it easy? Why fucking promote it? That file you’re giving away is indistinguishable from your priced product. It is your product! Let people hear it at will – like the Radio. But don’t let them own it without paying for it – or at least working for it!

Would streaming – instead of giving away – new music drive the masses away from promotional encounters and in to the jungle of “renegade ownership”? “Fuck the blogs, man – I can’t get music for free with the push of a button anymore. I guess I’m gonna have to go steal it.” Or would music consumers still appreciate the act of encountering new music and then make an empowered decision about how and where to download it? If the player in which the promo was streaming had quick-links to other information – a sales outlet, for instance – would people find themselves paying for more music they liked, simply out of efficiency? Or would they find themselves going more often to secondary sources, to save their precious 99 cents? Would a roll-back of promotional free downloads be accepted or rejected?

What seems to hang in the balance is the idea of what is monetizable. For the Industry Visionaries who think that  an accessible, streaming library of music is the Industry’s route to digital riches, the idea of streaming-as-promotion-for-sales is one big giveaway. They are holding out for the meta-charge, the monetizing of the very act of hearing music online. For the Capitalists who see consumers as vessels for an array of unique desires – and not just hundreds of millions of tickled ears – streaming is a tool for exposing unique products, and if exposure is efficiently linked to sales outlets, the hope is that more people will pay to own the songs they want. The key for the Capitalists, then, is protecting the value of the product itself. So long as that product is the compressed audio file, they’re being endlessly undermined by free promotional downloads. 

Best case scenario, business-wise, for the practice of promotional streams instead of downloads: consumers accept widespread streaming and, because the presentation of the stream is dynamic – and links efficiently to a sales outlet – there is no love lost and more money spent. 

Worst case: consumers reject widespread streaming on the basis of having grown entitled to promotional downloads and work over-time, expend extra effort, to still get their music for free – while at the same time building a new entitlement to free, ever-present promotional streaming. Now you can’t ever meta-charge them and you’ve given away the bank.

In which case: time for a new model!

Industry Shambles

Points of Encounter

In the constant coin-toss over whether to purchase or pwn compressed digital audio files, there is nothing more significant than the “point of encounter”. And if that point at which you encounter a music file is on a Webstore or in the vicinity of a “Buy it Now” button, chances are good that if you like it,  you’re gonna buy it. The price of a track is negligible – it is NOT what drives consumption. What does drive consumption is the efficiency of being able to get what you want, when you want it. So if your point of encounter with a song you like is in a paying environment, you will pay to enjoy the satisfaction of quickly fulfilling that impulse. Likewise, if that point of encounter is in a non-paying environment – on a blog, for instance – you will not pay, because the most efficient path to satisfaction is downloading without paying. (And since there is no distinction between the promotional product and the priced product, no one will EVER go and purchase music they’ve already downloaded for free, because there is no incentive.)

If point of encounter is so important, what are the strategies at play for hooking consumers and for optimizing sales?

 For Music blogs and Social Networks, the strategy for hooking consumers is to provide free content. In their drive to establish authority and maximize advertising revenues, Music blogs and Social Networks have created a promotional playground that is in direct competition with digital stores. They know that sometimes consumers go shopping, and when they go shopping they go to iTunes or Amazon or wherever. But most of the time they’re winding through a personal maze of interests and impulses, links and embeds of free entertainment that serve as points of reference for their day-to-day lives. So long as Music blogs and Social Networks can keep providing free, updated content, they will remain the primary points of encounter. No sweat.

So the Record Industry, for “promotional” purposes,  has conceded: the songs most likely to be desired are the songs most often encountered for free. What,  then,  is the Industry’s strategy for maximizing the sales potential of their digital product? Which points of encounter are the strategic focus for them? 

Stores. Fucking stores. And with iTunes and Amazon, you can hardly even try things on since the fitting rooms have a 30 second timer (while you can stream the shit out of songs everywhere else!). The Record Industry strategy seems to be: if people want music, they will shop for it at one of our stores. The consumer reality is: if we want music, we can download for free at music sites, find endless points of encounter via search engines, listen for free at streaming sites and on Social Networks, go fishing in the stocked pond of File Sharing or go shopping. And probably in that order.

The store impulse is driven by – saved by, really –  an appetite for elaboration. Promoted hits hook us and we wonder if the band has other songs we’d like. Not knowing what songs to search for, we need an encounter with what’s available and there are two typical options: streaming for free on a streaming site or streaming-for-30-seconds for free at a Webstore. Knowing that if we stream a song and like it, we’re going to need to take another step to own it (paid for or not), we may go straight to a Webstore, since at least then if we like it, we can own it with the push of a button. Since the most important feature of any point of encounter for a consumer is the efficiency of getting what they want, the most valuable feature of a Webstore is the extensiveness of readily available content.

The trick, then, is getting the consumer there, since you risk satiating their appetite promotionally and/or  losing them to streams and searches. One way of getting them there would be to offer something unique but, as we’ve already addressed, that ain’t happenin. Another way would be to encroach upon their consciousness. How? You can advertise. You could set up your store’s own taste-making editorial staff and link in to the music news and culture network (though I wonder if you’d be believable since you’d be essentially critiquing your own products.)  You could promote store links for the music you add each week and furnish bands, publicists and blogs with them, though that’s also kind of the responsibility of bands, publicists and blogs. You could infiltrate their social networks. Check. Thanks, Dad! How then? How can you be strategically ever-present in the consciousness of the online music consumer?

Stream your entire library, eat the bandwidth, and make an embed-able player customizable for singles, albums and artists available to every user. Make it the point of reference in every point of encounter.

Oh, wait – there is something kinda like this being done! Lala.com, baby! Only thing missing?

A “Buy it Now” button on the player!!!

Industry Shambles