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Blogs Guest Blogs “How much is music worth?” by Zac Locke | “How much is music worth?” by Zac Locke |
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| Written by Foresight | |
| Wednesday, 20 February 2008 | |
  The physical CD will stick around for the next decade or so, with $10 becoming the normal retail price in order to compete with online services. But eventually, like vinyl, 8-tracks and cassettes before it, the CD will lose importance. All new cars will come with an MP3-player dock, satellite radio, and even hard-drives to store your music. Stereos, an endangered species already, will become hard drives with speakers, as all music goes digital. But people will still want to own songs. Subscription models will be slightly popular amongst certain demographics, but for many, the music they listen to forms part of their identity. Also, it is much more convenient to choose among the songs you know you own, rather than a catalogue of every song ever recorded. Even if they own only the bits of data, consumers still want to own music. Thus, online retail will become increasingly important as the CD goes the way of the pay phone. Maximizing Profit As selling music online becomes the way of selling music of the future, labels, publishers and e-tailers like iTunes must find the ideal price point for their product. I define the ideal price point as the price where profit is maximized while making it easier for consumers to buy a song rather than download it for free. Bulk sales should be the goal because there is little additional cost associated with selling more songs online, as manufacturing, packaging, shipping, placement fees, returns, and inventory storage are not issues with digital files. So what about 99˘ per song? iTunes has sold millions of songs at this price, so it is working, right? Wrong. All digital music sales still only account for about 10% of music sales, and surprisingly its growth rate has tapered off lately. A couple years ago, the online music store Rhapsody offered songs for 49˘, half of what iTunes charges. If 99˘ was the right price for a song, one would expect sales to double at half the price. However, in the Rhapsody experiment, sales went up six-fold. Thus, where Rhapsody, for example, could have sold 1 million songs for $1 million, just by slashing the price they would have sold 6 million songs for $3 million. Since it does not cost anything (significantly) extra to let 5 million more downloads happen since there is no physical packaging, that extra $2 million is pure profit for the online retailer, who shares it with the labels and publishers (about 70% goes to the label, and 10% to the publisher). Let’s push it even further. What if online retailers halved the price again, making it a mere George Washington quarter per song? Would sales go up even more? I think they would go up six-fold again. In other words, I think 36 times more music would be sold at these prices than is currently sold under the buck-a-song model. So, doing the math again, 25˘ times 36 million songs = $9 million. This represents an extra $8 million in profit for the online retailers, labels and publishers (and consequently, the artists) to split. Consumption Patterns People want to consume music. Music is unique in that it can be consumed all day long, while partaking in other activities. In your car, at work, while cooking dinner, doing homework – think about what percentage of the day you are listening to music. Therefore, there is almost a limitless demand for music. And if the price is cheap enough, say a quarter, consumers will try new bands, or get the other 4 albums from a band they already like. I know this is true because I’ve done it. Recently, the Russian MP3 site, allofmp3.com, was shut down by US authority. However, instead of just fighting to shut the site down, the record industry should have learned from it. The Russians charged from 15˘-35˘ per song, depending on quality. At those prices, I did not even try to download songs illegally for free (although allofmp3.com’s legality is still questionable). In fact, I would get some songs or albums just on a whim, even if I had not heard the artist before. As memory on portable MP3 players increases, consumers need to fill them. At cheap, DRM-free prices, without the risk of computer viruses, faulty songs, and RIAA lawsuits, they will. For a buck a song, it is still worth a consumer’s time to try to find the song for free, and even go through the trouble of ripping a CD. The lower the price, the more likely younger music consumers will buy music as they start earning money. Remember, most of today’s college and high school students can’t even remember having bought a CD Labels and publishers should agree to a lower price with online retailers. Obviously, iTunes’ buck-a-song is not the answer. And neither is selling CDs. The lower the price of music, the more likely consumers will not bother trying to find it for free or from their friends, and will buy it themselves. Technology has significantly lowered the price of music. Instead of fighting it, the music industry needs to accept it and give music to consumers at a price – yes, close to free – that will increase demand and propensity to pay for it. About the author: Zac Locke was initiated into the music industry back in ’97 with the independent hip-hop label, Noo Trybe. After a year of listening to 20 wack demos per day in its A&R department, he joined Virgin Records where he worked in urban, international, and college marketing. He then moved into television, producing promos and marketing videos for A&E and The History Channel, where he was nominated for an Emmy®. During law school he clerked for a Hollywood music attorney and in the Entertainment Department of a top LA law firm. He is the Editor-in-Chief of the UCLA Entertainment Law Review, and will earn his J.D. in 2008. Comments
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 written by Owen Roberts , March 03, 2008
Nice article man. I have a couple questions about download sales. Is there anyone beside Rhapsody trying to sell songs for less than the standard iTunes $.99? How has the Snocap model worked so far?
When I launched my new website with the release of my album I wanted to make downloads available right from the site without a middleman. I tried using Payloadz because they let me set my own price and the split was decent. But the buying/downloading process was a hassle: it took up to three days after the purchase for the song to be delivered to the buyer. Obviously, iTunes has become the industry standard, but is there any hope for selling directly from an artist's website? Owen Roberts
Zac - Great article. I completely agree about your premise re downloading from the Russian sites. The semblance of legality at $2.50 per album was all I needed to become a loyal user. Like you, I did not even attempt the Kazaa-esque sites, even if they were free, post the USSR music invasion.
For my Dj downloading I go to "Hear Music" (of Starbucks fame) or www.beatport.com ($1.50 - $2.50 per track). Re the higher price, for me it is worth the $ because: (1) Beatport specializes in dance music so it cuts down on my looking time; (2) they also have "hard to finds'; and (3) (VERY important to me and the reason I have NEVER purchased from iTunes) the tracks come as 320 kbps - the 120 kbps standard on iTunes works for Joe and Jane Doe downloader, but sounds like crap if you put it out over a good soundsystem. Copyright 2007. All Rights Reserved.       |
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Also, you have to temper the desire for cheaper music with the concept that at some point the people that make the music will stop since they cannot make enough money to justify the expenses. More notably, the companies that invest in new recording artists (and developed ones as well) will stop making that investment. That investment is what can allow an artist to be able to take time out to create music and tour, etc.
As for the Russian sites, every time one gets closed a couple of others pop up.
Finally, and I am not intending to pitch for them, but there is an intersting site call lala that offers the ability to digitally store music you already own and/or buy in addition to sampling subscription style. This way you can listen to the music you own from any web connection. It may or may not work (others have tried the digital locker before), but it is intriguing.
Best, and thanks for the bio reference!