Overpriced or not, the business model worked perfectly until there was a way to circumvent it. One votes with consumer dollars; apparently the demand for music was/is inelastic.
Sorry to be disagreeable, but noone knows if it's inelastic. In the last week Universal announced they were dropping their CD prices to $12. They are the first and only label to so do it and this is a small change and only one record company. When has anybody sold a major release for $3? or $5? Let me give another example of how an industry model can be completely wrong. For years studios sold syndicated shows only through channel rights. Then someone got the bright idea to sell the old shows on DVD's and they sold like wild fire. Duh! Every person in America could have told you that's what they wanted but the executives were too scared. Capitalism is great and I wouldn't want to be under any other system, but it doesn't always work instantly...
It was inelastic, prior to free downloads. It will become inelastic again if and when free downloads end. The only reason the record companies are reducing prices is because of the "competition."
Well, I still don't see it that way, but I'm not saying you couldn't be right. The problem is that, imo, a 20% reduction in the price of a CD won't make much difference but a 80% reduction will make a HUGE difference. And none of the execs have the guts right now to try it. I don't see how the elasiticity has ever been tested in any reasonable way but maybe I'm missing your point...
And, by the way, IB, Scottrade, etc. are excellent examples of just such a phenomenon. Just a few years ago, most in this industry would have said, "1$ commissions for Joe Trader? That'll never fly. There's no profit in that. Joe Trader only thinks he wants rock bottom commissions executed on a lightning fast digital platform." Thank goodness for the innovators that actually give the consumer what he wants and will pay for.
the point is, maybe the girl didn't realize that it was wrong to download mp3s, at 12 years old, maybe her mom didn't teach her or whatever... and to take $2000 from a poor family for a 12 year old girl's mistake is overkill. if she had shoplifted a cd from a local store at 12 years old, would they have fined her $2000 ? No, probably an "I'm sorry it wont' happen again" and being grounded for a month or whatever, maybe a trip to juvenile hall overnight or something, would be more appropriate punishment... and re file-sharing, the argument could be made that the industry isn't losing quite as much as they're crying about, eg just because somebody downloads 1000 songs doesnt mean they'd have gone and bought the 100 CDs that they came from originally and are now not paying for them.. in the new digital model, I like the $1/song fee approach, that seems reasonable ... it would be best if that's a lifetime right that the consumer has, to obtain that specific song they've paid for.. eg if my pc crashes and I've bought it, I should be able to re-download it next year since I already paid for it etc.. example, I've probably bought 4 copies of bob marley's 'legends' cassette/cd and 3 copies of pink floyd's 'dark side of the moon' and countless copies of old jazz re-recordings, eg brubeck, sinatra, ones I've bought repeatedly ... eg if an ex girlfriend moves out and takes my music, I had to go buy it again, type of thing... (lol) .. it would be nice to be able to buy the right(s) to the songs so your personal "paid for" collection is something you can always re-download, once you've paid for it... ideas?
I like the idea: it would relatively simple to do if you had a membership that you maintained somehow or another. Then they can easily identify you as a member that bought X and Y. Problem is though: what's to keep you from giving it out to friends, so somewhere they'd have to put a cap on it and I don't think they're going to allow "5 free downloads in 10 years." This actually is the whole "legitimate" use of copying, i.e. you download a copy, rip it and put it on backup CD's. Another solution they could do is simple: you pay for 200 downloads/month. Then if you lose a CD, they'll argue you just pull down the 8 you lost in your next month's 200. By the way, there are a few legit pay sites starting to crop up.
Here's an article about legit sites: The 'Real' battle is in legal music Commentary: On the Net, bargains win over choices By Bambi Francisco, CBS.MarketWatch.com Last Update: 12:01 AM ET Aug. 5, 2003 SAN FRANCISCO (CBS.MW) - Once, long ago, the future of western civilization was put in doubt by widespread distribution of consumer videotape recorders. Movies would be taped off TV and shared among friends for free or sold on the cheap. Hollywood would lose all incentive to produce quality entertainment and soon art and culture would be lost to the world. Guess what? It didn't happen that way. Instead a huge industry developed around the VCR, including rental stores, blank tapes, special re-issues of black & white classics and on and on. In like vein today, the music industry is imperiled by sites that allow us to share songs for free, like Kazaa, Morpheus, Soulseek, Limewire, and Grokster. The free sites will probably always exist. But, not to the exclusion of legitimate Internet sites. In fact, this year, it's estimated that $1 billion will be spent online for online music subscriptions and downloads, according to Jupiter Research. Apple's (AAPL: news, chart, profile) launch of ITunes in April, and the Recording Industry's increasingly aggressive plans to go after those who illegally share music, underscore the shifting battle lines in the music industry. It's becoming clear that the key battle in the online music world is not so much about legal versus illegal music sites, but among the growing population of legitimate music services. The real choices Just last month, Buy.com launched Buymusic.com in which consumers can buy some songs for 79 cents vs. ITunes' price of 99 cents. Buy.com's songs start at 79 cents, but can also go up to well over $1 per song. And RealNetworks (RNWK: news, chart, profile), which is set to close its $36 million acquisition of Listen.com on Tuesday, says it's building an online music store to be launched just in time for Christmas. Real will be the latest company offering consumers a way to buy music on the Web one song at a time. It won't be the last, however. Microsoft's (MSFT: news, chart, profile) MSN told CBS.MarketWatch.com last week that it's considering an online music store. See Net Stocks. Roxio (ROXI: news, chart, profile) said recently that it intends to start a service under the Napster brand name that will sell as many as 500,000 tracks (or songs) by this Christmas, or give consumers a large music selection for a monthly subscription fee, according to Phil Leigh, of Raymond James. Leigh also wrote in his all-about-digital music newsletters that Amazon.com (AMZN: news, chart, profile), Viacom's (VIA: news, chart, profile) MTV, and Wal-Mart (WMT: news, chart, profile) are considering online music stores. Talk about an intimidating line up. So, what's Real's advantage in the battle among the growing number of legitimate online music players? Don't expect low-ball prices, like a promotional offering of 50-cent music downloads, out of Real, unless the download is of an independent music artist. Instead RealNetworks plans to compete on service and options. There are three elements to an online music offering: radio, subscription service to unlimited music, and a store where people can buy songs a la carte, said Sean Ryan, formerly CEO of Listen, and, as of Tuesday morning, vice president of music services at RealNetworks. Currently, Real offers the first two services and will have all three by yearend. It's important to realize that having a successful offering isn't just about having a store and the most tracks (because there are a growing number of independent artists and songs from live concerts added to the mix of tracks online music sites offer), Ryan explained. Nor can a service win just on prices, he suggested. A successful online music service has to give consumers choices, according to Ryan. Real has a large subscription product with more than 1 million subscribers. Its RealOne services, which include RealOne SuperPass (the video/audio package service) and RealOne Rhapsody (music subscription and download service). In fact, Real has more than 100 million registered users to all the services it offers and more than 300 million players downloaded. "We have the ability to leverage more than 100 million registered users," said Dan Sheeran, senior vice president of marketing. "It's a different situation in terms of our ability to market music to our customers." It's a good launching pad to offer an all-in-one music service and Real has numbers to back up its argument that consumers not only like to buy music, but they like to listen to an unlimited amount of music for a monthly access charge. In the past 16 weeks, Rhapsody streamed more than 40 million songs on-demand to U.S. consumers, with consistent growth in overall usage from month-to-month. In April, Real streamed just over 7.5 million songs to subscribers. That number rose to 12.4 million in July. By comparison, the number of songs being sold on Apple is slowing down. At the end of April, Apple sold 200,000 songs a day while Rhapsody streamed 170,000. As of July 24, Apple sold 52,000 songs per day, according to Slyck.com. By comparison, Rhapsody streamed 412,000. Additionally, as the broadband pricing wars rages on, RealNetworks' services may get more marketing muscle if cable and DSL providers seek to differentiate their offerings in order to sign up more subscribers. See DSL vs. Cable: It's prime time for Net content. In fact, it's already happening. "The primary thing we can give them [broadband providers] is an ability to increase loyalty with increasing competition and with threats of price wars," said Sheeran. Real's Listen already has distribution deals with Time Warner Cable's RoadRunner, a division of AOL Time Warner (AOL: news, chart, profile). As part of that arrangement, RoadRunner offers its customers free radio service as part of its Internet access. The Rhapsody radio service would typically go for $4.95 per month. Both Sheeran and Ryan expect similar offerings in the future. Summing up Will Real's all-about-choices strategy work? It has a captive audience of music lovers on the Internet. The high-speed price wars also seem to be working in its favor. But as price-cutting gets cutthroat, some cable and DSL providers may go directly to the sources of content in order to bypass the aggregator and pass that savings on to a customer. This is not a strategy to take lightly. On the Net, practically every consumer is cost-conscious because they can be. If Amazon.com is any guide, having options and fun features are only pieces of the Internet retailing equation. The Web has conditioned us to seize bargains, get excited about bargains, and even boast about bargains. Offering discounts -- like free shipping -- helps drive user loyalty, particularly on the Internet. If Real wants to build upon it huge audience base, and not lose them, it may have to consider competing on price and not just on more options. And, lower prices and, potentially more marketing to promote a product, will inevitably hurt margins.
the major music labels do not want ANYTHING to change and are extremely resistant to change, and will only be dragged into it kicking and screaming. most new breaking types of music are championed by individuals; clive davis was able to succeed by breaking much of the resistance. anyhow...about 15-20 years ago, there was a product which allowed a person to walk into a record store, punch in 10 or 15 songs, and walk out with a mix tape; cost was roughly 99c/song (i don't think it was a per song price, however). the caveat? the major labels banded together and refused to license ANY of the recent stuff for this product, even though the majors would get their cut. so it was full of oldies (and some indie music), and faded out quickly. the majors promised *years* ago that MSRP would drop to $10-12, "after the CD technology is fully accepted by the public". did you see that price drop? not hardly. anyhow...the majors are still screwing up with what they should be doing. i wrote an article a couple years ago (before napster went down) criticizing them, and many of the points in it are still valid. see: http://www.consumableonline.com/2000/08.01/napster.html
Bad marketing and overpricing the product matrix doesn't legitimize outright theft by (primarily) downloading tunes off of P2P sites.