8 Comments Add your own

• 1. Chris  |  April 20th, 2006 at 5:01 pm

  

  I hate when the make the only good song on the CD only available if you buy the whole album. It dosent happen to often but every once in a while I refuse to buy them.

• 2. Melinda Omdahl  |  April 20th, 2006 at 9:09 pm

  

  Chris – that just happened to me with the “Inside Man” soundtrack. I wanted the Bollywood-ish song and, surprise-surprise, it’s the only song on the album that requires you to purchase the whole thing. So- my point… they may not charge more than .99 cents for a popular song ‚Äî they just won’t sell it to you unless you buy the album for 9.99! Now that is crazy.

• 3. Melinda Omdahl  |  April 20th, 2006 at 9:10 pm

  

  By the way… I refused to buy the song. .99 is OK for me, but $9.99? I’ll go buy a book.

• 4. Melinda Omdahl  |  April 20th, 2006 at 9:15 pm

  

  Dang it- I can’t stop commenting to this…
  So to that one high-level music industry executive who said, “Where in life does the retailer set the price of the content????
  I say… Ever heard of Walmart?

• 5. Nick  |  April 21st, 2006 at 8:55 am

  

  You don’t need the “supply and demand” argument to charge a premium for something. According to economic theory, you charge as much as you can get away with before customers aren’t willing to pay the price any more.

  In fact, even then you can continue to charge more as long as the increased price offsets the loss in profits from the few people who won’t pay the new price.

  This happens in markets all the time. That’s why genuine Gucci bags are worth several hundred dollars, while knock offs can be sold for a $20. They look the same, they perform the same purpose… why are they a different price?

  Popular songs ought to be more expensive because their popularity implies that they have a better product than the other songs which aren’t popular. People are generally willing to pay more money for a popular product, which encourages manufacturers (i.e. musicians) to make better products in the future.

• 6. Administrator  |  April 21st, 2006 at 9:41 am

  

  As usual, a great argument, Nick.

  But a couple of responses:

  1.) I’m aware that producers can ask whatever price they want. My point was that the purchaser always ultimately determines the value of the transaction (except in a monopolistic situation). If the greedy bastards at the record companies try to soak the consumer they’ll just drive people back to file sharing.

  .99 cents a track seemed to be the magic price point for wooing most people back into the legal purchase of music.

  And (unlike digital music) Gucci’s pricing is still a result of the law of supply and demand. How much do you think people would pay for a Gucci bag if the supply was literally infinite? (Knockoffs don’t count as part of the limited supply of Gucci bags because they are NOT actual Gucci bags.) Now imagine that friends could give each other exact duplicates of their Gucci bag while keeping the original for themselves? How many people would pay Gucci prices if they could have a real Gucci for free by clicking a button?

  2.) If the industry really thinks more popular songs should cost more then why didn’t they raise the prices of more popular CDs in the past? In fact, they often did the opposite. They put them on sale to encourage even more purchases.

  3.) Your contention that higher prices will lead to artists producing “better” music is unlikely. The paradigm you cite works in manufacturing objects like cars because you can determine the discrete elements that appealed to people about a particular product (air bags, horsepower, convertible top) and reproduce or attempt to improve on them to capture greater market share.

  Art doesn’t work that way. It is much more subject to personal taste, mood, and other intangibles. In fact, the more “popular” a particular piece of art is the more likely people are to become bored with it and seek something new and different.

  4.) Also, in every other product MORE popular always translates to lower cost. Look at electronics. When plasma TVs first came out they cost $20,000. Now you can get them for $3,000. (Price and popularity almost always share an inverse relationship.)

  Ultimately, I truly believe that the digital revolution will eventually enable artists of all sorts to sell directly to consumers and eliminate the parasitical middlemen who have always taken the lion’s share of the profits from the artist’s creation.

• 7. Nick  |  April 21st, 2006 at 11:00 am

  

  First of all, I wrote more extensively about this here. But to counter your arguments more directly.

  For #1, there is no evidence that $0.99 is the ultimate price point. That is the number that Apple chose, but the music producers seem to think there is a more maximal price they want to experiment with. So if they can get enough people to pay $1.25 and make more money, why not let them try?

  #2 is a good point. But once again, it doesn’t say anything about what the ultimate optimal price may be. 99 cents simply might not be the magic number.

  I worded #3 improperly. I wasn’t trying to suggest that U2 will make a better song next time around if you pay them more money. But if you pay U2 and a crappy garage band the same amount of money, it tends to flood the market with more garage bands, and gives less incentive to good bands to come forward.

  #4 is misleading. When you talk about electronics, you’re dealing with something whose production cost is affected by mass production. The more of a microchip you can make, the cheaper it is to make it per unit. You can take advantage of scale. Producing music doesn’t work like that. The fixed cost to produce a song is the same no matter how many of that song are eventually sold. Producing an album is what is referred to as “sunk cost”. Although the production costs might change given the total number of bands in the market, it’s not affected by the total number of tracks sold.

• 8. Administrator  |  April 21st, 2006 at 12:24 pm

  

  Hey Nick,

  I’m not against the free market.

  Or capitalism.

  I’m fine with a producer trying to get whatever the market will bear.

  My point is that in this case iTunes is the customer.

  And they’re telling the record companies they won’t pay more.

  If they don’t like the price points that Apple wants to buy and sell at the music industry is certainly entitled to sell all their music through Napster or some other online store.

  And while the record companies are free to try to make more while giving us less (as Aaron pointed out), I’m free to point out that we consumers should tell them to stick it.

  Apple is refusing to pay more. And, as I stated, I’m on their side.

  (As an aside, I’m not sure how Apple arrived at the .99 cent price point, but I would be willing to bet it was after a great deal of research and focus group testing.)

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