I generated a bit of controversy when I went against Christopher Sprigman of Public Knowledge and declared that 99 cent downloads were fair, practical and in no way needed to be eschewed for a tiered pricing system.
Reader hextor argues, "'Supply and demand law doesn't apply to digital download', Now that is a big statement. Where are you getting that? Your argument about making the purchase simple is very good, and it involves the cost of making a transaction. However, to go from there and make such an statement is way over the facts.'
Here's what I meant, and this is exactly what people talk about when saying that the old world price structure doesn't apply to digital downloads.
When I make a CD, it costs $1.50-$2.50 per CD (if I produce CDs in the tens of thousands of units.). If I make that same CD in long tail numbers (say, 1000-4000 CDs) it will cost me closer to $4.00 per CD. The more CDs I make, the cheaper they get, but if I overbuy and have more CDs than the market will purchase, I'll eat all that extra cost.
It's easy to sell millions of CDs, and so very difficult to sell one thousand.
If I'm selling a song on iTunes, it costs me no more to sell the 1001st song than it does the 1000th. Same goes for the 10,001st, 100,001st and millionth +1 copy. That's what I mean when I say that supply and demand doesn't apply. I didn't have to build a larger distribution network for my millionth sale than I did my 100th, and if I only sold 101 copies, I didn't lose money by building a larger distribution network than I already had. I never had to lose in the act of guessing how large an audience I could build. And furthermore, the cost of doing that a second time is no greater than the cost of the first time, nor is it burdened with the debts of my first try.
You see, this is where the major labels have made their fortune for generations. Whether you sell 100,000 or 1 million copies, they have a distribution network large enough to absorb the loss if you fail to meet expectations. Now that losses don't have to be absorbed, the cost of failure is infinitely lower, thus open to a much wider playing field.
We live in an exciting time for music. We'll see over the next 5 years exactly what long tail markets survive. We've seen hints of them as fringe artists have popped up and down through the charts over the years, but I wager that we'll still see surprises as we learn what works down the narrow end of the tail and beyond.
1. I am definately with you on that one. Any other pricing ideas such as increasing the price for more popular songs on itunes is simply ridiculous. I wish the price's were the same internationally though. Say if i wanted to buy a Jay-z song on itunes, in america it would be around £0.52 while in the uk its £0.79. If i wanted to buy his album, on itunes US it would be around £5.24 while on itunes uk it is £7.90. Unless am missing something her. I mean digital music distribution isn't the same as physical distribution as you mention, hence why i think prices should be international.
Posted at 12:29PM on Sep 4th 2006 by Ad