January 29, 2006

In Search of Price Dispersion in the Music Download Market

Apple iTunes set the standard of 99 cents per song for downloaded music files. While others have matched their price or offered slightly different prices (Wal-mart at 88 cents) the digital music market has shown remarkable price consistency. However, the recording labels are pressing for price dispersion which would allow them to charge more for popular songs and less for new releases to create initial demand.
Ideally, they would like to see low prices initially for a given song and then raise price to match popularity. So far, Apple has resisted price dispersion to maintain simplicity for the user. And thanks to their market dominance they have been able to hold the line at 99 cents. How long this will continue is anyone's guess. However, we can expect continued pressure from both labels and other music download services to force Apple deviate from that price. At this time it doesn't appear that anyone can force Apple to do anything in this market.

Who wins and who loses at 99 cents? Obviously one winner is Apple who continues to sell music files at minimal profit levels in order to continue to sell their hot iPods products. Undiscovered artists lose as the 99 cents level may be too much for many people to try out unknown music from unknown artists. Finally, since dispersion would likely result in higher prices for high demand songs and lower prices for older, less "in" songs, the less popular songs are essentially subsidizing the sale of current hits. Therefore, winners are the fans of popular music and losers are old folks who might wish to buy classic rock cuts from the 70's. This is just another example of how potential users of the Internet from the older generation are not being adequately served online and therefore have less reason to go online.

Posted by at 2:08 PM

January 23, 2006

An online video gold rush?

In Fall 2005 Apple released their video iPod to rave reviews and immediately began selling videos on their Apple iTunes web site for $1.99 per file. These files include music videos and individual episodes of popular television shows such as LOST, Desperate Housewives, Alfred Hitchcock presents, etc. Previously consumers were forced to buy TV shows packaged in bundles as determined by the networks (five episodes on a DVD, or Star Trek Next Generation - Season 2, etc). The ability to buy unbundled individual episodes at $1.99 presented a tremendous value added service to consumers. However, this was quickly taken a step further when iTunes and the networks realized they could unbundle further and began selling individual segments of easily decoupled shows such as Saturday Night Live and Conan O'Brien. Videos that are easily decoupled into independent segments such as talk shows, comedy shows, and music programs offer strong incentives for the provision of individual segments of the shows. The value added to consumers is evident to other market players prompting Google to enter the "video gold rush" as described in the Jan 6th CNN.com story "Google announces video expansion". Stay tuned for the next episode (or portion thereof) of this video distribution evolution.

Posted by at 9:16 AM