The other half of the story

I recently stumbled across an article called “The iTunes Effect and the Future of Content“, which refers to a paper of the same title published by Harvard Business School Associate Professor Anita Elberse

An excellent and well-written paper. However, it leaves out a few variables that I feel should be considered:

  1. The declining value of music: Twenty years ago, long-distance phone service cost $1/min and people put “listening to Music” on their resumé/CV. Today, everybody and his dog has a cellphone and they expect free long-distance service as part of the package. In a similar way music has lost its value – for most of us, music has become a background soundtrack instead of a foreground activity.
  2. A smaller slice of the pie: Twenty years ago, home entertainment options consisted of records/CDs, Television, Videotapes, Computer Games and… that was about it. Now we also have cellphones, smartphones, PDAs, MP3 players, Cable TV, Pay-per-view, TiVo, Game Consoles of varying sizes and sizes… all competing for a shrinking pot (we have less disposable income now than we did fifteen years ago) of entertainment dollars.
  3. Price-fixing hurts profits:  Big Music seems to be in love with the $1/song price point. Actually, they would love to raise prices, but they are terrified of the loss of revenue if Apple refuses and walks away*. They are also terrified of lowering prices: it is axiomatic that the value of experience goods drops over time (which is why the Movie companies keep new releases away from Redbox and Netflix), but Big Music refuses to discount anything – the latest big hit on iTunes costs the same as, say, “Right Said Fred” by Bernard Cribbins (1962). Somebody (I believe that it was eMusic), halved their prices of downloadable music, and sales went up sixfold*. Since downloads are almost pure profit, this means that about three times as much money was made. However, the bold experiment had to be discontinued when Big Music refused to lower their “cut” (estimated to be 88c per song; Big Music isn’t telling) even though it meant making more money overall. Case in point: when Amazon recently put “Dark Side of the Moon” on sale for $2, I bought it, even though I am not a Pink Floyd fan. That’s $2 that Big music would not have made if they insisted on full sale price.
  4. Their Customers hate them: After throwing their weight around for the past fifteen years, the music business has succeeded only in creating some truly awful legislation and spawning a generation that hates them and will work actively to hasten their demise. Inconveniencing your customers, buggering up their computers in the name of “Protection”, treating them like criminals  – and in extreme high-profile cases, suing them – is not a good way to win friends and influence people. Even if Big Music repented of this behavior now, the damage would take at least a decade to reverse (and if ACTA is anything to go by, repentance is the last thing on their minds). Protestations of piracy notwithstanding, Allofmp3 has proved that people are willing to pay to download music… just not as much as big music insists that their product is worth in everybody else’s eyes. Value is defined by “what a willing buyer would pay a willing seller“, not by how much the rights-holder thinks it is worth.
  5. Industrial Inaction: The music industry’s unwillingness to come up with a standard format for marketing old music has resulted in the loss of millions – perhaps billions – of sales. Here are a few of the songs I have not been able to download a legitimate, DRM-free MP3 version from anywhere…
    Gerard Kenny – Living on Music
    Modern Romance – Cherry Pink and Apple Blossom White
    Chas & Dave – Rabbit
    The Main Event – Gonna do My Best
    Tight Fit – Fantasy Island
    and, of course, “Right Said Fred” by Bernard Cribbins..!
  6. Inability to abandon an out-of-date business model: The Music business was never about music. It was never about art: It was about selling plastic disks. Everything else – marketing, production and distribution – were built around this concept. This is why the music business switched easily from Vinyl to CD, but going from CD to digital was far more painful; ever since digital music and the Internet reared their ugly heads, Big Music has been kicking, screaming and throwing corporate hissy-fits. If they could wave a magic wand and make all forms of digital music disappear, they would. If they could make the Internet disappear they would do so in a heartbeat. But the world has changed, and they have not.
  7. DRM hurts sales. Nuff Said.

Elberse has done an excellent job nailing down the facts, but she had missed the emotions involved and the way that they affect purchasing decisions. Those factors affect the underlying numbers in a way that is impossible to quantify. It’s just a shame that the comments area at the bottom of the page is broken.

* Source: “The Perfect Thing” by David Levy

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