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The Future of Music: 4 Keys

Michael Arrington and Free Music

It’s a semi-ridiculous premise to state that because the marginal cost of reproduction approaches $0.00, then songs should cost that much, too. Markets are more efficient if the price more closely reflects the VALUE to the purchaser, not the replication cost. But efficiency is almost beside the point.

The challenge of pricing songs trips up too many pundits, though, who commit logical fallacies on their way to an irrelevant conclusion.

Let me say it another way: people who think songs should be free are both WRONG and have about ZERO imagination.

Here’s how their feeble logic normally progresses:

a) it’s technically possible to rip and share songs semi-anonmously

b) the “zero cost” model is widespread

c) DRM is loosing favor, and besides it too can be cracked (see a, above)

d) the RIAA is misguided

e) Artists can make money selling tshirts, etc.

f) Record companies are greedy, and “don’t get it.”

g) I like free stuff

THEREFORE, songs can and will be free. As Michael Arrington says “it’s an inevitability“.

Not so fast, Princess.

Yes, change to the industry is coming, and here is where it gets interesting, not free:

Change does not necessarily equal Free

– Will there be change in the music industry? Absolutely. Madonna, NIN, Radiohead, Jamiroquai and more stars are already shaking up their relationships to record companies.

– Will the iTunes model (and $0.99/song) last? As surely as the single disaggregated the album, so too will finer-grained distribution erode iTunes. They’ll be toast.

– Will music be free? Some already is. You can listen to Indie stuff all day long for free. But that’s not what most people choose. Why, music tends to be social. We want to share it with our friends and have them experience what we also enjoy. And more people tend to enjoy professionally produced music. Sorry–you’re not as Indie as you like to think you are.

Does sharing always = free? Of course not. Have you ever paid for something you liked? And you’ll do it again, gladly. Going out to clubs or restaurant is also social and fun and costs more than it has to. Do we do that for free? Booze in bars costs more than at Safeway. Why don’t we just buy it there? Like indie music, some do. But a lot of people go out, pay more than the production cost of alcohol and have a really good time.

Get this: In the future, you’ll enjoy spending more money on music than you do today. You’ll be less price sensitive. You’ll enjoy your purchases more. The industry just has to focus on a few changes:

The 4 keys

From where I’m sitting, the future of music and media is all about

1) Newer, broader forms of distribution (not locked up like iTunes)

2) Flexible, variable pricing

3) Rewarding Fans when they act as distributors

4) Access vs. DRM

You can bet on it, because the reasons are very simple.

I don’t hear new music from iTunes. I hear it from my friends. If a friend turns me on to a song, I should be able to buy it “through” him, and have him be rewarded. If he sometimes gets stuff from me at a) the right price and b) low enough friction, then we have an economy. That’s good for everybody.

Each song has a different value to each listener. And the media market can drastically increase its revenues if it moves away from the fixed $0.88 or $0.99 per song price to vast RANGES of prices. With ranges from say $0.01 to $4.99, we can have new promotional and bundling opportunities. The iPhone cost $200 more the first few weeks of its life–why not a song?

Think about it this way: Why don’t we have a “collectables” market around digital assets?

A: We don’t have numbered editions yet. But, just as surely as there’s a market for every “worthless” physical good, authenticated, numbered digital assets will make collectibles happen in the digital world. You know that BBC show “Cash in your Attic?” In 10 years BBC will be broadcasting “Cash on your Hard Drive.”

People will be exclaiming “Awesome?! You have the certified THIRD access to the first blog post by the first woman president? That’s worth like $5000!” And they’ll be right, because even though it’s digital, there will only ever be ONE third access. It’s arguably more interestesting than an upside down airplane on a stamp.

Why is the first edition of Charles Dickens worth so much more than $4.99 for a modern copy? The content and utility is exactly the same?  Scarcity.

Why is one random mass-produced baseball hit by one guy one day, worth $750,000? The utility there is zero.  It’s a relic and relics are scarce.

Many people conflate the age of digital goods with post-scarcity, but they’re wrong. Digital goods will will be both available in abundance, and in scarcity.   Watch and see.

“Hey, Marking Genius: Answer this:”

How should the price of the first download of the new Jay-Z album differ from the 1Millionth? How much more valuable is the certified first copy?

Clever people will figure the pricing out. We’re just here to help with the technology.

Cheers!

The beverage tonight:

2005 Chateau Rauze Lafargue

Premieres Cote de Bordeaux

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