Is a fair price what you think is fair, or what someone else is willing to pay?
Permit me a mild rant…
What Is A Fair Price?
I recently started going through some of my old CD‘s to rip onto my computer. There was a lot of good stuff and plenty of “what was I thinking” stuff. It struck me that I had purchased many of these CD’s — in that pre-iTunes world — for only one song. Sound familiar?
As I went through the CD’s I counted (off-hand) 20 CD’s I had purchased for just one song. At an average cost of $15 that comes to $300 for what today would cost me $20 (to only get the songs I wanted).
On the face of it, I paid a 1400% premium for the “value” of the one song I really wanted to purchase. Did I think it was fair? No. But I was willing to pay it because I had no alternative.
20 x $15 = $300 vs. 20 x $1 = $20
Broken Economics
Looking back, how can I look at the music industry in any way other than the tremendous profits they reaped because of our willingness to overpay? The fundamental nature of the product itself — a song — hasn’t changed, but there has been a disruption in the delivery model that’s changed the economics of the music industry. Innovation in the industry narrowed the gap between what I thought was fair and what I was willing to pay.
What other industries are ripe for disruption because of “broken economics?”
Related articles
- Neil Young’s plan to make digital music sound 20 times better (digitaltrends.com)
In my opinion, you are viewing price from the wrong perspective. Imagine if I viewed your value and mine through the same lens.
What is the value you experienced from listening to the songs? I’m guessing that over the years you experienced enjoyment that was worth (to you) significantly more than the pennies or less that you paid to be able to listen to your favorite songs dozens if not hundreds of times each, on-demand.
That the economics of the method of delivery changed means absolutely nothing. That’s a cop out excuse for those of us who simply wish to justify paying as little as possible for some of the things that bring us the greatest value and enjoyment (such as film, music and apps). Downloads, they argue, don’t have the manufacturing and distribution costs of CDs and the “savings” should be passed along to the consumer.
We won’t think twice about dropping $0.40 or $4.00 on a cup of coffee that we may enjoy for a few minutes and then it’s gone…a mostly useless product that warms us briefly or provides a brief kick and with virtually no nutritional value. A product that ends up literally flushed down the toilet. We’ll pay $1.00 for a pack of gum and twice as much for brand name bottled purified water.
Yet now we complain about paying more than a few dollars for a song sung by our favorite talented artists, or a book written by someone who might have put many months of effort into writing it.
Forget using the economics of the method of distribution as an excuse. It’s pitiful and weak. Ask yourself what value you hope to get, or what value you actually did get (and possibly continue to get) from listening to the songs, watching the movies and reading the books. That’s what you are paying for.
Apparently some people believe the value of one’s work diminishes greatly once it is written or recorded. Perhaps your clients should ask you to write your thoughts down on paper, or record them to song and rather than pay hundreds or thousands, offer to pay a couple of dollars. I’m guessing that very well might offend you. Why then look at the work of a singer, songwriter, author or actor any differently?
We pay not for the medium but for the value of the content.
Joseph,
Thanks for your thoughts. My point was not about the creators of the content but the distributors. The gap in “value” I saw was not in the enjoyment of the song but in the perception that I had to buy 10 songs when all I really wanted was one. The disruption comes in giving me what I want at a price I am willing to pay. Would I pay more than $1 for a song? Perhaps. Would I be willing to pay $0.10 every time I listened to a song? The industry hasn’t even given me that choice. Is that the artists fault?
My clients do ask me to write my thoughts down on a piece of paper for which the pay me only once. They are free to apply that information as often and for as long as they choose. The long-term impact can be many multiples of what they paid. They can also share it with colleagues, friends and associates, for which I won’t be compensated. I would venture to say my clients are paying for a custom experience. They see value not just in my knowledge and creativity, but how it applies to them.
In the end, though, the market decides. I have the option of paying $20 for 20 songs I can listen to as often as I like, or I can pay $50 or more to hear those same songs in concert just once. Which is the greater value? The economics of the entertainment industry are changing based on a broader experience.
I see a trend that it’s not the medium or the content for which we will pay, but it’s application and impact.
-Alan
Hi Alan,
I definitely do not believe the artists are at fault. They have been and continue to be the victims of distributors. First the record labels and publishers and now the download sources (e.g. Apple, Walmart, Amazon, etc). However, the latter group is responsible for severely devaluing artists’ work in the eye of consumers by setting prices at a ridiculously new low. A move that I believe will have a long term negative overall impact on artists. Dollar songs and apps, and even non-fiction ebooks falling toward $10 — of which most of the revenue still flows to the distributors — were never necessary. In my opinion, such pricing is at least partially the result of volume-driven mega corporations. They’ve managed to groom consumers to expect high value at dirt cheap prices.
Regarding the example that I used earlier, perhaps I should have provided one that was more appropriate. If you or I wrote a portion of our expertise and research in the form of a book, how might we respond to consumers who feel $30 is “too much” to pay for the same sort of knowledge we might ordinarily charge many thousands to share with our clients today? Even if the information isn’t tailored as our custom research might be, it’s still of significantly greater value than the cover price of the typical book. Now with emergence of ebooks, rather than focus on value consumers focus on price and the cost of distribution. If it’s electronically delivered they expect to buy the book/song/movie/app for a handful of dollars or less. [And if it doesn't meet their expectations they'll still complain as if they spent $100 on it.]
If I may, here is a link from a similar discussion that unfolded on Dan Ariely’s blog (author of Predictably Irrational). There you can find several more of my comments along with dozens made by others in a discussion about ebook pricing:
http://danariely.com/2011/04/10/the-rationality-of-one-star/
While we may not agree on the specifics, we certainly appear to agree somewhat on the result. It’s about the value of the content to the buyer.
Again, thanks for your thoughts, Joseph.
An interesting point about training the consumers expectations on price and value. Layers of middlemen and exploitation clearly led to some broken economics, the solution to which — low cost digital media — may be worse than the original ill. How long before the broken economics of hard goods distributors (Apple, Walmart, etc), with their exploitation of foreign wage discrepancies, comes crumbling down?
And thanks for the link. I will certainly take a look.
-Alan
Economic value and fair price are not remotely related, and it’s a bogus argument to suggest that because I enjoyed a song 20 times, I should pay for it 20 times. If I were to do that, instead of buying CDs (I still prefer buying CDs to iTunes, and prefer vinyl even more — funny, it was cheaper and better back when), I’d consume a lot less music.
The economic value of water is a good example. Without water, we’d die. Its value is priceless and inestimable. In a situation of scarcity of supply, you’d be willing to pay almost anything to get it. That would mean the poorest would simply die for lack of it. Does that make what I’m willing to pay (because I’ve got lots of money) a fair price? Is what the market can bear the fair price? Or because it’s an essential good, is the fair price what the poorest among us can afford?
Like it or not, the market decides what fair prices are in the absence of cartels, monopolies and other industry distortions such as government interference. Music, while highly desirable, isn’t necessary. So, what I’m willing to pay is directly influenced by how much disposable income I have after necessities are paid for, and other choices to spend that money. As an artist, you either agree to accept what I’m willing to pay, or I don’t buy it.
The music industry jacked up the rent on music with the format cutover from vinyl to CDs. They were able to extract more from fewer people for a while, but almost immediately began complaining that fewer copies were being sold, therefore there must be piracy. Actually, it was the other way around. The price was too high, therefore there was piracy, and consumption has declined dramatically (until the advent of iTunes) because the industry was charging above a price that the consumer could afford and considered fair, especially in the case where they only wanted a single song (which I’d argue represents about half the population — some of us still prefer the whole album, even when there are one or two cuts we don’t like). Although they still complain about declining sales, the reality is that half the population only wanted 10% of what they were being forced to buy. But, they weren’t listening to the stuff they didn’t like. So, now prices are fairer, and consumption is going up (actual use of what is paid for).
The fact is, it doesn’t matter how much effort the book author put into writing something, or how great a musician is (hard to quantify a qualitative judgment). The supplier can set whatever price they like, but the supply and demand equation is what it is. If you set a price too high, you will lessen consumption and increase theft. The consumer always decides what a fair price is when consumption and revenues are maximized (which is almost always a lower price than the supplier would charge in an ideal world from their perspective). If you set it too low, you’ll sell more, but make less. The labels and artists actually were much more profitable selling vinyl albums for 5 to 7 dollars 30 years ago than trying to rape their customers for more than $20 for a CD that costs a fraction of the price to create and market.
There are people who value anything they can get their hands on from Bruce Springsteen so highly that they’ll pay $50 for a crappy sounding bootleg from a concert. Does that make it a fair price for all of us, or suggest that for a good quality CD a fair price is $100? It’s an absurd argument. At that price, the music industry wouldn’t exist, because very few of us would buy anything.
The internet actually allows us to approach a much fairer model for pricing. One where the artist sells directly (or through an iTunes store — close to direct), and they decide how much they want their music to cost and they decide if they’d prefer to sell more at a lower price. But in general, most of us felt ripped off paying more than $20 for a CD, no matter how much of it we listened to. Current pricing is still too high, but a lot closer to fair. (If a CD was priced at less than $10, and had settled to that price by the mid 90s when it should have, there’s a good chance that most music would still be sold that way, regardless of how it was distributed. I value a permanent higher resolution version much more than the crappy sound you can download from iTunes.)
Thanks, Paul. I agree we as consumers determine value based on the price we’re willing to pay. The availability of competitive or alternative products plays a significant role here. 20 years ago, if I wanted to hear my favorite song, my options were limited: wait for it to come of the radio, buy a ticket to a concert or buy a CD.
Today, those options have significantly increased. So the value I placed on a CD 20 years ago is not the same value I place today. Your point about quality is important. How many people realize the quality of the music they download on iTunes is not the same as what they get on a CD? At the same time, how many people care?
-Alan
RE: “…At the same time, how many people care?”
Good point. I don’t think most people care, if they are buying the music that is played on devices that support mp3′s, like players or the computer. Even with high quality headphones, I can’t tell the difference between a high quality mp3 played on an ipod and a cd (played on the computer or portable CD player). It depends on the equipment, too.
I have recently tried using apple Lossless files on my ipod, to compare to the mp3, but I am not certain it is really noticeable. It seems very subtle, that the lossless files do sound a little better in certain areas, the quiet areas, there is more “space”. But only when using my best headphones at home when it’s quiet, and I care about it. I doubt I could tell the difeference in a blind “listen” test, comparing the two types, though. It makes me feel better, though having my Jazz, Classical and Pink Floyd albums and specific faves as lossless files, for when I do use my best headphones.
I think these days, with mp3/computer/cd-copying technology, we accumulate “files” and files of music, that we can more easily acquire a large music collection in small hard-drives, even cd-quality if we want….How much of it is actually *listened* to and enjoyed? I have to stop myself from getting more music, and just listen to albums I have. ( And I’ve also gotten rid of music that I hadn’t listened to in years) It used to be a longer wait period between albums when you had less options, that’s for sure.
Publishing is the biggest answer to your question, not that traditional publishers get it. Government is also up there to some extent.
I agree, Phil. I would extend it to the mass marketing of content in general. Government and, for that matter, education would also be on my list as well.