Thoughts and discussion on the future of internet music services.
Thursday, May 04, 2006
Apple successfully thwarts progress!
Apple has renewed it's agreement that allows them to keep all downloads on their popular iTunes site at a fixed price of 99cents/79p.
"Apple has insisted that its pricing model is the best way to drive forward the nascent digital music download market because it's simple and easy for consumers to understand."
I guess Apple doesn't have much faith in the intelligence or decision making capacity of their customers.
It must be nice as a retailer to have such an easily manageable inventory with which to work. Since the product is digital, a single copy replicated in a disk array (or maybe replicated a few times in case of serious hardware failure) is all you need: no excess stock and a single, low cost for storage of all products. Plus, some of the inventory is timeless and though popularity may fluctuate, never truly goes out of season. But there is plenty of crappy pop music that just like most other products, has a life cycle. So my question is, where is the damn sale rack? Every retailer in the world drops prices to increase velocity, why won't iTunes? I guess they'd rather decrease the breadth of their offering than break their universal price policy. Only one thing will change that lopsided policy...Competition.
eBay's recently acquired communications arm, Skype has completed several deals that allow them to offer ring tone downloads to their users. Why such a landmark deal?
"The agreement between Skype and the music publishers is important, because it is the first time music-publishing companies that own copyrights to songs have given licensing permission worldwide. Previously, licences were granted only for a particular region or country."
Could this be an window into the future? Probably not in the short term, and probably not across the board for all formats, but I do think disrtibution rights for digital formats are primed for a singular solution rather than the current disjointed state of affairs.
This is a great post by Steve Krause discussing the nature vs. nurture of Pandora vs. Last.FM...two music recommendation sites I've touched on before.
Though it is merely a side note, my favorite comment is:
"...better algorithms are nice but better data is nicer."
I mentioned in the often-referenced Big Picture post that I was wary of pure folksonomy for this reason (discussed under the usability section). I certainly like the theory behind Last.FM's approach regarding software that collects data in addition to user-submitted tags (though it is a tad big-brother). My spin involved restricted options for meta data and open-ended tags for other areas. Ideally, software could search for typos and plurality issues, but be subject to a human editorial process.
Though I've already states that my personal preference is for clean data and algorithms based on genre (not popularity) a la Pandora, Krause's suggestion of somehow combining the two approaches reminded me of where I most often hear about new music...my friends. Not virtual "friends" that I'd allow to join my personal network on a social networking site, but people I know and trust. So why not allow users to limit the recommendation factors only to others that they place on their recommendation list. All other's opinions are eliminated, only the opinions of the flagged users are factored into the algorithm (of course, this can be turned off, allowing all social data to be considered).
Not directly related, but this is a great blog post as to Google's true nature as a market rather than a search engine. This is certainly arguable as Google's payment and integrated rating system becomes public knowledge. My favorite quote of this post:
"Buygoogle has been ranting that the Google Video Store, which so many have criticized for lacking content, organization and aesthetics, isn't really an iTunes competitor at all - it's actually the beginning of a marketplace for content. (When Google opens this up for individual content producers to get paid this will be obvious.)"
See the "pricing" section of my big picture post to see what I think Google might offer as options to sellers.
A formal inquiry into price-fixing was recently launched by the US Department of Justice. It would not surprise me if this is the case, though it is somewhat strange to think that a company representing artists (take note of that last word) would want to voluntarily suggest that all content produced by their artists is worth the same as content produced by other artists. At some point, everyone involved, including Apple, will have to come to terms with the fact that not all music is created equal.
Although it would be sad to find that these companies were engaging in such, it would also be exciting . I say this because it may help explain why pricing in the online music business is so static, aside from Apple's insistence on maintaining the 99cent/79p model and everyone else's propensity to follow suit. Although I definitely agree with Apple that an general price increase will drive music fans back toward piracy, I respect the label's right (and Apple's as well) to make more money for a product that is in high demand. I also would suggest that there are tracks on iTunes today that would sell significantly more copies if the price was lower, thereby increasing profitability for the label and Apple, and increasing visibility for the artist.
An article on alternative business models in the digital content industry. In addition to a quick overview of the stakeholders in the DRM world, the article explores the very provocative notion of a marketplace in which "paying is essentially voting." In this model, though their may be a minimum, there is no limit as to what level the user can "vote," and the amount of money taken in for that content raises it's rank relative to other content available in the market. This is rooted in the idea that the desire for fans of the content to see it's popularity rise will give them incentive to pay more, much like text message voting where there is a cost per vote, but multiple votes are allowed (and certainly received).
Though I am not, nor am I ever likely to be, a text voter, I can identify with this concept. Have you ever loved an album so much that you wished you could buy it again? I certainly have. I've gone as far as to buy (not burn) copies for friends and family, expanding not only the reach of the content, but the gross revenue as well.
This idea also interests me for two other reasons:
1) One of its tenants is directly opposed to my ideas regarding dynamic pricing. The supply/demand aspect is removed, meaning the minimum sale price does not change regardless of the number or average level of "votes." Though they are different approaches, there is a parallel in that both serve to present the content as desirable. The key difference is that the "voting" model does not exclude those who aren't willing or able to absorb the higher sale price, either for financial reasons or simply because they aren't influenced by the tastes of others. This would certainly promote the content's reach. Minimizing exclusivity (ie, keeping the minimum price low) does not affect price-sensitive consumers as the supply/demand approach would, and does still make the content appear desirable. The question is whether exclusivity (price increase over time as popularity increases) would have a powerful enough effect from a perception point of view to drive additional sales at a higher price to make up for the lost sales of the price-sensitive consumers. Though most marketers would probably say that such desirability is advantageous to drive margins, there are plenty of low-margin retailers out there who do just fine by relying on volume.
This leads nicely into the second reason this idea interests me:
2) Intent. Another idea of this model is that if money is extracted by the content owner, the rank declines. So the "votes" expire when the "ballots" are moved from the marketplace to the content owner's pocket. There is no doubt that larger music companies track cash-flow, short-term revenue, profitability and the like very closely. They most likely would not be comfortable allowing "votes" to accumulate for too long, knowing that money, from a strictly financial perspective, is more valuable in their bank account than in their marketplace account. The spreadsheet in which such a content owner would attempt to calculate how much to extract and when would certainly make Excel crash on an under-rammed system. But the unknown, unsigned artist, though probably already in debt, is more likely to be a slave to his or her creation and not the bottom line. Those artists would only extract what they need to survive, and if possible, extract nothing. To me, this aspect is the most intriguing.
In addition, the voting experience and excitement of watching your candidate win is certainly a marketable element of this model. I could see this working at a site like MySpace that already supports a sizable community with a wide variety of smaller artists. Despite the popularity of the model, I would expect larger content owners to resist participation, probably up until the point where some other spreadsheet convinces them that the opportunity is too large to ignore.
MP3Tunes.com is a service that I wish I'd know existed when I answered the BBC questions a few weeks ago. It allows you to store copies of all your mp3's on their hardware, sync to other devices, and is compatible with iTunes. $40 a year.
