Chained Melodies

chainbest.jpgThe record industry is reportedly steamed that iPod users only buy, on average, 22 songs per device via iTunes. How could it possibly be that people aren’t rushing to fill up their iTunes library? Who wouldn’t entrust their music to a fragile digital demimonde so shackled by DRM that its best physical analogue would be CD’s chained to a bike rack? (The Zune makes the extraordinary concession of permitting one to “squirt” songs wirelessly for–get this–three days or three plays.)

After a couple of songs of mine disappeared during a computer switch, I swore the whole iTunes-purchase thing off. I get CD’s now, buying far less than I would if I could just get durable copies of songs I like. DRM is designed to minimize piracy, not to maximize sales, a “cut off your nose to spite your face” strategy long ago skewered by McKinsey & Co.

But what I find even more strange about the whole situation is the rigidity of pricing. Forget about the obvious equity issues–the almost spiteful flouting of the the principle of nonrivalry in consumption involved in denying content to those with no chance of paying. The industry and its partners appear to be shunning even profit-improving discounts. As Chris Sprigman noted in The 99 Cent Question, 5 J. Telecom. & High Tech. L. 87:

In 2003, the Rhapsody download service . . . [briefly] offered tracks at 99¢, 79¢, and 49¢. The prices do not appear to have been differentiated according to quality. . . . Rhapsody sold three times as many of the 49¢ tracks as the 99¢ tracks. Given that the marginal cost of selling each track is virtually zero, the 49¢ price yielded greater revenue. . . . Had Rhapsody sorted the tracks by quality (measured by demand at the previous uniform 99¢ price), it could have enjoyed additional sales for the lower-quality tracks (sales that would be profitable if the price Rhapsody pays to the major record labels for licenses to particular tracks were also varied to track demand), and maintained its margins for the higher-quality ones. But for some reason the music industry hasn’t absorbed this lesson.

Indeed. The difficult thing for everybody to realize is that there may well be no “right price” for digital music. Rather, the most efficient solution would have to involve a broadbased tax on either (or both) devices and ISPs. (As The Register puts it, “Free legal downloads for $6 a month. DRM free. [Terry Fisher] explains how.”) Verizon gets it. The RIAA gets it when it comes to compositions and lyrics. Why can’t they get it when it comes to recordings?

Photo Credit: Darwin Bell/Flickr.

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