Friday, June 26, 2009

Question of the Day - PRICE - June 26, 2009


Jun asks:

What are your thoughts on Apple's decision to change the price of a song from its original 99 cent deal?

Hartmann responds:

It is a long established tradition in the postmodern record business that the price of music is grossly inflated. In the era of high cost, multi-track, analog recording a tradition of paying about a dollar a track became firmly entrenched in the corporate business model. Fifteen dollar albums and CDs have always provided an extraordinary profit margin to the major record companies. The process allowed the funding of a very complex A&R mechanism that insured a flow of product into the system. The digital convergence has imposed a new formula on the recording industry.

In a reversal of the long established tradition, careers are no longer built from the top down. In the recent past record companies selected artists and music based on fads, trends and selection committee. This method of deciding what music would reach radio and the brick and mortar record stores, stifled competition. The end user was the last link in the chain and had little influence on the selection process. The Internet has enabled the music fan to search, select and distribute the songs he and his peer group decide are important. The fans are now in charge of the A&R machinery. They have turned their focus on the vast library of extant songs one tune at a time.

Since most music is "pirated" via free downloads the discovery of a great song is up to the people. The search is continuous and universal and every genre provides a fertile hunting ground. When a song is valued and appreciated it is instantly flashed around on line niche communities. The cost in this case is eliminated. Some music fans carry a moral aversion to stealing MP3 files and stand willing to pay the 99 cents on iTunes. This charge conforms to the old established price point.

However, the costs associated with digital recording and distribution are vastly smaller than those established in the postmodern record business. Most new artists employ Protools and Garageband software to produce their records cheaply, but this savings was not passed on to the consumers. Apple held a firm line with the record companies and stubbornly stuck to the 99 cents model. The record companies lobbied long and hard to break this formula.

The new change in pricing structure allows labels to charge more for "special" product. It also opens the door for "bargain" pricing for records that are new or less popular. The change in the ceiling also makes possible the lowering of price on the other end as well. This new system gives more latitude to labels and artists to influence their profit margins. There is a strong argument that reducing the price of per song music acquisition could bring many more buyers into the marketplace. This could lead to less piracy, higher gross receipts and more income for songwriters, publishers, producers and recording artists. That would be good for the business.

No comments: