The Price Must Drop

I’m finally slogging through "The Long Tail". Oh, I bought it when it came out, but I could never get past the introduction, maybe because I felt I already knew what Chris Anderson was going to say, but also because it lacked a certain readability, it was not inviting, it didn’t draw me in the way "The Tipping Point" did. But in the early afternoon in the jury room, having finished every newspaper for the day, I finally cracked it. And I won’t say I got hooked, but the information contained therein keeps you going.

Two elements just jumped off the page. One, that in a long tail world, the blockbusters sell less. First week sales for the top records have declined precipitously. And although we can attribute some of the drop to piracy, that’s not the entire case. You see not enough people are paying attention to the limited/tight exposure outlets of the past, people have found their own ways to discover music, they don’t have to buy the blockbusters. Used to be everybody tuned in MTV and the same terrestrial radio stations. But now that people have choice, they’ve stopped paying attention. Not to everything. Just to what is being pushed down their throats in the mainstream. Oh, there are still people plopped down in the middle, but the disastrous Live Earth TV ratings illustrate that most people don’t want to consume more media than they desire in a static location at a time appointed by others. They’d rather spend their time doing exactly what they want to, where they want to.

And one thing they do want to do is listen to music. Everywhere. But what music?’

That brings me to the second dramatic point in "The Long Tail".

Although sales of the blockbusters are declining, more people are consuming more music than at any time in history. The only difference is most people are not paying for it. Meanwhile, the music industry insists on an old pricing model. Which is doing them a disservice.

Mr. Anderson tells the well-worn story of Warren Lieberfarb creating the DVD market. By lowering prices. Actually, he leaves Warren out, only knowledgeable readers will see him on the page. But Chris tells exactly what happened in the home video revolution.

"This huge expansion in selection was accompanied by a major shift in movie access pricing. Where before the standard was one person, one ticket, now there was one small price for as many people as you could cram into your house. This transition was loathed and resisted long before it was grudgingly accepted and finally embraced by Hollywood interests. (Recall the early attempts to sell movies at retail for $70 to $80 – a price that was calculated on the amount of money a typical family would pay at the box office to see their favorite movie two to three times.)

Sound familiar? The labels are charging prices for their product online at a similar rate as offline! Hell, EMI is charging more! Now it’s $1.29 a track. Oh, you can get the equivalent CD price if you buy the whole album, but who wants the whole album anymore? As time goes on, the notion of purchasing ten tracks, by one act, released on the same day, all at the same time, will seem nuts. Akin to buying a year’s worth of milk at one time. The milk will spoil, and what are the odds that those ten tracks are all good? You’ve got to earn the consumer’s trust. And the consumer only has so much listening time. He wants to buy something else. But if everything costs more than CD price, what are the odds that this consumer will turn to the black market and steal? This is why the iTunes Store is a failure. And it is. It offers convenience, selection and security. But if you think a buck a track is a good deal, you must work at a record company. iPods, which the iTunes Store feeds, hold thousands of tracks. And owners want to fill them up. You’re not going to spend thousands of dollars filling them. And one hundred million iPods have been sold, so the labels are not satisfying the demand, not even close.

And, as time goes by, iPod penetration goes up. What if we could sell each and every iPod owner music. Think of that. 100 million regular buyers of music. Today, a tiny fraction of the public buys music. Just like most people had not seen many movies prior to home video. Now, people have seen every movie by a certain director, ones that could only be found in revival houses in major cities once a year previously. And DVDs are so cheap, it doesn’t pay to rent. Unless you’ve got Netflix, which is the model the music business needs to employ. For one low monthly fee, you can get everything. And if you read "The Long Tail", or just read all the Reed Hastings stories in the press, the blockbuster hits at Netflix account for a small fraction of the rentals. In other words, more people are watching more movies, and are happy with this arrangement. Meanwhile, with the increased consumption, because of the low price and availability, producers make more money!

"In other words, the studios were horrified when they realized that a family of five (no, not four – remember, this was the eighties) that paid $20 to see ‘ET: The Extraterrestrial’ in the theater would never drop $20 on ‘ET’ rentals. What they missed was twofold: Most obviously, the aggregate amount of time and money that a given family would direct towards movies was primed to explode when the family could access any movie they wanted, rather than whatever was being marketed that month; less obviously they neglected to consider that the total amount of money ‘ET’ could draw might similarly explode as the film started reaching the unknown millions who would not pay $20 to see ‘ET’ but might pay, say, $2.95."

Eureka! That’s it!

People are just not going to pay CD prices for online music. That’s just too expensive. But everybody with an iPod wants to fill it. And the excitement of availability and portability has people excited about music, wanting to consume more. But, they don’t want to pay CD prices and this horrifies labels.

But if all these people with iPods could purchase a lot of music at a cheap price, they’d dig in!

Sure, there’s the issue of alternative acquisition. But you won’t record an HBO show for a friend anymore, certainly not more than once, because it’s so cheap to get one’s own subscription. And who wants to waste all that time and effort.

You can watch all those TV shows they sell on DVD on cable television, for not more than free, but people want the convenience of having them all available in their home, to watch whenever they want to.

As for P2P… Well, that’s a good paradigm except for the fact that people aren’t paying. Whether it be a license at the ISP level or a legal P2P service, for less than ten bucks a month…the labels should go there immediately, because this delivers exactly what the public wants.

How about rental? Rhapsody, Napster and Yahoo?

Good model, but presently people don’t want it. They want ownership, we live in an ownership world. You can fight this, or accept it. Hell, until there’s a reasonable rental device, as easily used and as sexy and cool as the iPod, rental is a total nonstarter. Why hasn’t anybody come up with a device this good in five years? Well, how come latecomer Apple makes the coolest and best mobile phone?

Or maybe lower the price dramatically. All of Styx for $2.95. It doesn’t pay to steal.

It’s not about locking up the music so much as freeing it. Making a purchase choice no big deal. And knowing that people want a lot of music, a lot of different music, and filling the need at a price they’re willing to pay.

They’re obviously not willing to pay CD prices. The four major label groups can try to ram this down the consumer’s throat, but this is never going to work. Nor is their evisceration plan for presently free distribution. That free distribution is giving the public what it wants. More music at a cheap price. Don’t focus on the "free" part, focus on the desire to own and the breadth of titles being acquired. That need has to be filled. That’s the game, not trying to stop this behavior.

The price will come down. Dramatically. The only question is when.

It happened in computers. Dell sold cheap boxes and blew the business up. Computers were once exotic, now they’re a commodity. Same deal with cell phones.

Oh, but there’s the pesky issue of copyrights with music. I hear you, but all the labels are doing is making music free, forcing new players to give it away for nothing to drive live business.

Will the labels wake up and drop the price dramatically, getting more people to pay for more music, or will they keep heading towards the wall, will change only come when they’re forced?

The new model is plain as day. More music for more people at a lower price. And, fascinatingly, this delivers more money to producers. But those who grew up in the CD world just can’t fathom the change, just can’t understand it. You run a single up the radio chart, you buy space at Best Buy, you get people to pay ten plus bucks for a disc of ten songs. Worked for a while, but now radio listenership keeps declining, Wal-Mart carries fewer CDs, soon it and Best Buy won’t carry any CDs, and the iPod is killing the CD itself. Time to move into the future, a land of riches.

One thing’s for sure, although these old cats will get paid for music in their companies’ catalogues, they will not rule music in the future. Because not only is production and distribution available to everyone, they just don’t get it. It’s been eight years since the advent of Napster and they still don’t get it. CD sales are cratering around the world and they want to raise the price of product as more people are clamoring for more music at a lower price. Gross mismanagement to this degree has never played out in public before.

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  1. […] turday, 14 of July , 2007 at 9:54 am Bob Lefsetz said this in his recent post The Price Must Drop How about rental?  Rhapsody, Napster and […]

  2. Pingback by Free « col’s blog | 2009/07/01 at 13:01:20

    […] about. And by everyone I mean Malcolm Gladwell and Seth Godin and pretty soon I’m sure, Bob Lefsetz. These guys are a few of my chosen filters. At least when it comes to the topic of marketing. I […]

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