David RD Gratton

Variable Pricing for Songs or Price Fixing?

September 1, 2005

It seems all I do is comment on Chris Anderson posts. His latest post postulates that Major Labels may have it right on variable pricing for songs rather than the 1 price fits all.

The labels would like to sell most new music for more--$1.49/track?-- while older or more obscure tracks could go for less. [..] Apple may think it's protecting us from record label avarice with $0.99, which may be true in the short term. But long term, one-size-fits-all pricing is just constraining the economics of the industry and holding back the market. If Apple introduced variable pricing, it's not hard to see how the average price might actually fall in a year or two, thanks to the number of titles in the discounted niche/backcatalog categories vastly outnumbering the more expensive hits.

It is entirely reasonable to think that hit music will have much higher demand than the older or more obscure tracks, as such they should command a higher price. However. I have a different take on this. The rules of supply and demand simply do not work in the New Music Economy. There is no scarcity of supply. If more people want a song there is no corresponding scarcity in its availability. This is a fundamental tenant of rising price due to strong demand. The only way to ensure higher prices for hit music is for the Major Labels to collude in price fixing. Illegal in both Canada and the United States.

Without collusion Sony can release a track for $1.49, but EMI will counter with its latest hit at $1.29 to grab the limited disposable income from the consumer assuming pricing has an effect on the purchasing decisions. In fact SONY, EMI, et al. have demonstrated they are keenly interested in getting their music out while it's hot, they may even discount their music for newest hits for a limited time. Don't believe me? There is precedence for this. Check out the Best Sellers at Amazon or your local book store. They all have 30%+ discounts. What's not on sale? Middle tier books.

Ahh... but you might say that music preference is not price sensitive. A consumer will not forgo a song they like at $1.49 for one they only marginally like at $0.99. If that's the case then we are back at collusion. All music that we have yet to hear - be it the song released today, or 10 years ago, is new music to the consumer.

So what is the right price for music? Goood Question. My gut tells me it's less than a buck. Prices will collapse to the point that Musicians (on the edges) are paid enough to continue making a living selling music, and that distribution services are profitable at the margins.


Variable Pricing for Songs or Price Fixing?

Why not let the artist decide how much to sell for?