images[1] While e-music isn’t directly related to e-books, there are enough commonalities and similarities that it is often instructive to look at developments in one industry in light of the other.

Yesterday, Ars Technica had an interesting report looking at a controversial statement by the former head of Warner Music in the UK, Rob Dickins, Dickins made some serious waves when he suggested that new music albums should sell digitally for as little as £1 (about $1.59).

The idea is to move albums into the realm of impulse buys, making it easier for people to buy all the music they want rather than having to pick and choose. It would also reduce piracy considerably.

Naturally, record labels and music managers aren’t terribly thrilled by the idea.

The BBC, which covered Dickins’ appearance, interviewed another music manager who complained about downgrading the value of art. "Right now if you buy a bottle of water it’s £1," said Jonathan Shalit. "A piece of music is a valuable form of art. If you want the person to respect it and value it, it’s got to cost them not a huge sum of money but a significant sum of money."

This sounds so similar to the rationale behind agency pricing. “Amazon is devaluing our books,” the publishers said. “We should charge more for them to try to make people think they’re worth more.” It always seemed a little bit bass-ackward to me. Price should be derived from value, not the other way around!

It’s funny to me that the only major objection cited had to do with perception of value, rather than whether the price-demand curve would let them sell albums that cheaply and still turn a profit. While this would seem to be a considerably more legitimate concern for a business, the people whose responses Ars quotes seem to be more concerned about looking cheap.

Dickins elaborated elsewhere that his proposal was for digital albums only, and it would allow labels to develop physical media into special packages offering enough bonuses and extras that people would pay extra money for them.

6 COMMENTS

  1. Yeah, that is an interesting one. The suits see their own ‘worth’ in terms of cash.

    As far as musicians and bands go, though, their worth is in how good they are.

    The Ramones never made much money. Plenty of respect. Latest boy band that makes a few million will have zero respect not long afterwards.

    In fact, I’d be fairly sure that music arts whose obvious goals are cash first have far less respect from the music buying public in general.

    The water argument is certainly a stupid one to use. Water is obviously far more valuable than music.

  2. While I’m very much opposed to the agency model due to not only it’s monopolistic sides, but also because I think they’re charging too much compared to the “value”, I do think they’re right in not letting the price slip too much. Because if they do that, in a free market, you can get a race to the bottom if things go too far.

    As an example, let’s take anime DVDs, since I’m very familiar with the market there: at the start of the DVD boom and for a long time, season sets were typically around $200. After a while though, companies started offering season sets earlier and earlier after releasing singles, and dropping the price to boot. Season sets went down to $99 and now it’s something like $50 for some shows. The problem was compounded by licensing costs for shows increasing for while – in other words, companies were paying more and receiving less – which led to the demise of some companies like CPM and Geneon (it’s actually a lot more complicated, but I’m simplifying). The race to the bottom had killed the margins. The product got devalued, and the increased sales numbers due to lower prices didn’t properly compensate for the lower price. Once you get there it’s also very hard to raise prices back up again, since you won’t regain the sales you used to have – people have become used to the lower price point, will see you as expensive and will buy from the competition instead.

    Amazon *did* devalue the price of new books – there’s no question about that. We’ve become used to the lower price point for new releases and publishers saw sales for hard covers drop in favor ebooks. That’s also probably why the agency model only goes up to like 12-13 for a lot of releases, as anything above that they’re seeing significant loss in sales and of course no returns to buying hard covers.

    The other side of the coin is that now that they’re there, they may not even bother dropping the price of ebooks once the paperback comes out even though they’d make more money on a particular release, because protecting the price point becomes more important to the overall bottom line. The agency-5 become a de-facto cartel. By locking in the most popular authors (since they can provide the best deals), they also become a monopoly because no one else can supply those authors’ works.

  3. I am wondering if this Dickins guy is serious or just stoking the flames of the imaginary Piracy debate.
    The logic of his suggestion fails me so much that I think his statement’s purpose is solely to try to persuade people, yet again, that the Music Industry is losing gazillions from Piracy when this has already been exposed as utter nonsense many times over.
    Music is already selling extremely well at the pricepoint being charged on download sites like iTunes. Unfortunately hard copy CDs are still grossly over priced.
    I had to laugh at his suggestion of hard copy CDs which he claims could be sold at a much higher price with added value add ons. It is the fact that CDs have been sold for years at the high price with no added value whatsoever that has disenchanted so many music buyers.

  4. While I’m very much opposed to the agency model due to not only it’s monopolistic sides, but also because I think they’re charging too much compared to the “value”, I do think they’re right in not letting the price slip too much. Because if they do that, in a free market, you can get a race to the bottom if things go too far.

    As an example, let’s take anime DVDs, since I’m very familiar with the market there: at the start of the DVD boom and for a long time, season sets were typically around $200. After a while though, companies started offering season sets earlier and earlier after releasing singles, and dropping the price to boot. Season sets went down to $99 and now it’s something like $50 for some shows. The problem was compounded by licensing costs for shows increasing for while – in other words, companies were paying more and receiving less – which led to the demise of some companies like CPM and Geneon (it’s actually a lot more complicated, but I’m simplifying). The race to the bottom had killed the margins. The product got devalued, and the increased sales numbers due to lower prices didn’t properly compensate for the lower price. Once you get there it’s also very hard to raise prices back up again, since you won’t regain the sales you used to have – people have become used to the lower price point, will see you as expensive and will buy from the competition instead.

    Amazon *did* devalue the price of new books – there’s no question about that. We’ve become used to the lower price point for new releases and publishers saw sales for hard covers drop in favor ebooks. That’s also
    probably why the agency model only goes up to like 12-13 for a lot of releases, as anything above that they’re seeing significant loss in salesand of course no returns to buying hard covers.

    The other side of the coin is that now that they’re there, they may not even bother dropping the price of ebooks once the paperback comes out even though they’d make more money on a particular release, because protecting the price
    point becomes more important to the overall bottom line. The agency-5 become a de-facto cartel. By locking in the most popular authors (since they can provide the best deals), they also become a monopoly because no one else can
    supply those authors’ works.

  5. I am sorry Frode but this whole concept of ‘value’ is a lot of nonsense, with respect 🙂

    Books are a product like any other. Writers may see them as romantic, artistic products of their magical imagination and that is their right. But in the market place and to readers, they are a product.

    Every product has a price. Every product has a value. However there is no relationship whatsoever between them because what is valuable to one person is rubbish to another.

    When a price is being set by the seller (Writer, Agent, Publisher, Distributor) the starting point is the cost and required margin to cover the operating of the business.
    After that, what matters is the impact of the price on sales and profit.

    If the basic cost to my business of Product X is$5 and it has to sell for $7.50 to cover all operating costs of the business – then $7.50 is the starting, breakeven price point. We may be able to put it on the market for $15 and make a nice profit. Great. However the question then is what impact an increase to $20 will have ? or what impact a reduction to $9.95 will have ? Which will generate the highest profit ? $20 will support our business. $20 will keep us happy. But will $9.95 increase the profit ? by 1% ? by 25% ? by 125% ? or will it even reduce the profit ?

    In the book market Amazon has expanded the sales of books by making them affordable to a wider range of people and selling many many more than had been previously sold. Writers have earned more, Publishers and Agents too. They have also expanded the backlist by enabling readers to access books they can never find in their local bookstores. What on earth meaning is there is saying the ‘devalued’ books ?

    If a writer wants to retain his emotional connection with the ‘value’ of his book then he needs to self publish and change $40. He can get the emotional support of seeing his baby on the shelf with the highest price in the bookstore. No one is forcing him to do otherwise. I would be intrigued. I would also be a bit surprised because I have almost never met or heard a writer who didn’t whine about not being paid enough for his toil. But you can’t have it both ways.

    The story of the Anime DVD is an excellent one. It demonstrated that competition reduces prices and benefits the customer. Bloated prices were being charged by conning the customer and competition ended that.

    In the eBook market the selling price is directly connected with the paper book price because the customer knows the secrets the Publisher doesn’t want them to know. They know it costs less than a paper book. They know that maintaining false pricing is screwing them and is essentially an insult to their common sense.

    So there is a decision to be made by the eRetailers and Publishing business. Keep a high price and enjoy the glow of ‘value’ – but lose a hell of a lot of sales to people who won’t pay a high price and who will simply go to torrent sites. or … Lower the price to a reasonable and affordable price – and attract impulse buying and buying by ordinary working class people as well as ordinary decent people who always prefer to buy legit products. The only question the sellers and Publishing business need to make is which model will produce the highest profit because that is what all of the parties involved on the selling and producing side want.

    I am convinced the latter will produce the highest profit and highest earnings for writers. It will enable them to write more and better work and keep all sides of the situation happy.

    Meanwhile the writer who enjoys the glow of seeing his book sitting on that shelf at $40, collecting dust, can go home to his one bed flat and enjoy his feeling of being valued. Good luck to him.

  6. It’s a good story because it tells of both the benefits and problems of competition driving prices down. What I didn’t mention in the example above was what followed the bankruptcies:

    – the titles owned by the companies in question went into licensing limbo
    – some of the licenses have been picked up by other companies, a lot of them haven’t
    – fewer shows get licensed and brought over
    – those that do get licensed get a worse treatment: cheaper translators who do worse jobs, dubs are omitted for a majority of releases because the costs are no longer sustainable
    – less money flows back to animation creators, meaning lower budget shows and shows that are more aimed at a domestic Japanese market than an international one
    – due to the lowered quality of both content and releases, shows sell less copies, people pirate or stream more (despite the lowered prices of media)

    You basically have this entire chain reaction of a market going into withdrawal. It was bad for the companies, creators and consumers .

    When you have a finite market size, expanding supply and lowering prices, sooner or later you’re going to hit a point where profit margins are so small that you either cut costs or lose. In book publishing that means less/worse editing, lowered rates to authors etc. They also have a paper logistics system to prop up, which is going to get more and more expensive as volumes go down. So yes, I can understand perfectly why they want to keep prices high for as long as possible.

    Mind you, I also think they’re greedy and taking advantage of the situation for some rather short term gains by charging too much – I think they went for the wrong price point if they wanted both consumer and ebook seller approval, and it’s going to bite them in the ass as other publishers flood the market with new and backlist titles at lower prices, not only eating up their market share, but also dropping to prices even further than they perhaps otherwise would have.

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