Whose Rebellion, Whose Innovation?:
Dynamic Pricing and Music Conversion
Feb 4, 2004
DiaRIAA reviews two new digital music offerings.
RipDigital offers to convert your CD's for about a buck each. Where were they 5 years ago when me and 50 million of my friends were ripping and sharing on Napster? They could have had a booming business back then. Today most consumers have already ripped or downloaded their CD collections, relegating RipDigital to a niche service.
One of the dark secrets of the music business is the revenue fountain of youth. As new formats (8 track, vinyl, CD) become popular, consumers have blindly kept paying retail for the new format for the music they already own (oops, I mean licensed). But digital changes that. And now RipDigital puts a value on it - a buck. It sure beats (re)buying an album download that's $10.
So what's a record producer to do? ... DiaRIAA to the rescue. Imagine a combo audio/data CD or DVD that includes MP3 files. Consumers would be thrilled to have their music in both formats so they could use it where and how they wanted to, and they'd pay extra for it. For the record companies, the dual format provides added value. Finally they could justify the absurdly high price of $15 (or higher) CD's. That extra $5 covers a lot more profit than RipDigital's buck.
Music Rebellion features dynamic pricing that adjusts price by demand - the more popular a title, the more expensive. We're skeptical that this will succeed in the long term. Such general eCommerce sites did not survive the Internet crash.
Dynamic pricing works great in the lab as an economic model that increases vendor profit. But there are significant business gaps. Its innovation is limited to this sales technique. It's not a new business process that changes the ecosystem and relationships of artists, producer, distributor, and consumer.
Dynamic pricing disregards consumer behavior. People in general are not receptive to complex purchase schemes. This rebellion is strictly for the record producers.
The application of dynamic pricing will be limited. For large record companies, there is no need to cut prices from retail for popular media. Dynamic pricing becomes interesting at the low end where there's limited demand and thus lower prices, such as for new artists, older releases, and back catalogs . The lower prices are like a consumer discount to encourage purchase.
We don't see any significant opportunities for independents. They already have the flexibility to set their own pricing from free to full label retail. Music Rebellion is an additional sales channel but nothing new.
Dynamic pricing is not a rebellion for the consumer. Its variable price does not touch any of the other factors that consumers value, such as quality, availability, reliability, portability, convenience, etc. Without a big brand or significant differentiator consumers will simply comparison shop Music Rebellion with other online music sites to find the best price.
Still, we welcome Music Rebellion. A diversity of online music sites improves consumer choice and gives artists more options. Independents in particular need creative ways to get exposure and convert fans into cash.
Copyright 2004, Marc Freedman