“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!
