How Much to Charge?
By Jon HealeyDavid Robinson’s post asked four good questions, and it would be nice to address them separately. I thought I’d take on the first one, which was: “How can we decide the `right’ price to charge?” I’d like to come at this from the perspective of the rights holders, whose support would be critical. That means predicating the price on how much money you’d want to raise through such a licensing regime. I think it’s safe to assume that a broadly available all-you-can-download license wouldn’t do what the major record companies say it would do, namely, wipe out other music sales. There would continue to be people buying CDs simply because they like the format better — higher sound quality, more convenience, existing players, etc. There would also be a considerable amount of music not available through file-sharing networks, particularly older material, tracks from non-hitmakers and music from international artists. And bands could probably continue to sell new tracks through fan clubs to people who’d pay for the privilege of being the first to hear something.
On the other hand, I think it’s important to compensate the industry for more than just lost profits. Record companies will continue to have significant costs to produce and promote their artists’ work. In figuring out a price, I’d start by multiplying the labels’ annual revenues from physical and digital sales by the percentage of the population that has broadband. I’d reduce that number by 20 to 25 percent, reflecting the demand for music that’s not likely to be available on file-sharing networks. Then I’d reduce that number by a third or more, to factor in the portion of the broadband-using public that would continue to buy CDs (based on the current ratio of about 2 digital units sold for every physical one). That would tell you how much revenue to shoot for. How much that translates to per month depends on whether you take Jim Griffin’s approach of applying the charge to all of an ISP’s customers, or Fred’s approach of leaving it up to individual users to decide. If it’s the latter, the charge would have to be about 50% higher to account for free riders and folks who simply aren’t interested in music.
April 8th, 2008 at 9:02 am
The usual mechanism for arriving at a mutually agreeable price between vendor and customer is known as a market.
I recommend it as superior to taxation. Moreover a free market is superior to one that permits state instituted monopolies such as copyright or patent.
April 8th, 2008 at 1:29 pm
Hmm. I believe we’re talking here about *voluntary* collective licensing, not compulsory licensing, so the taxation comparison isn’t apt. Nevertheless, I think some level of governmental involvement would be required for collective licensing because the labels would run afoul of antitrust law otherwise. At least, that’s my impression.
In other collective licensing situations, buyers and sellers are free to negotiate prices. But such deals have been hard to reach lately — witness the webcasting situation. So you’d probably have to create an arbitration mechanism as a backstop.
April 8th, 2008 at 4:17 pm
“There would continue to be people buying CDs simply because they like the format better — higher sound quality, more convenience, existing players, etc.”
How do any of these advantages matter when under collective licensing, I could freely download lossless rips, and burn them to my own CDs?
April 8th, 2008 at 4:31 pm
Those two steps may be trivial to you and to many folks under 30, but they’re not to millions of others in this country. Even assuming that everyone found it simple and easy to download and burn, it can be tricky to find a complete CD, properly sequenced and ripped losslessly, on the garden variety file-sharing network. One might expect more thinks like Oink to emerge if there were blanket licenses, but in the meantime, good luck finding perfect CD equivalents on BitTorrent. Full albums? Sure. FLAC? Uhhh….. Finally, what about gifts? Nothing says “I’m cheap” quite like a CD-R.
April 8th, 2008 at 5:56 pm
It puzzles me to hear of voluntary collective licensing and free market competition in the same breath. “Voluntary” does not trump “collective”. The “collective” angle stands in opposition to free market competition. How can a collective allow member X to charge half the price of member Y? Second, one way collectives have passed antitrust muster is by allowing members to license independently outside of the collective. But an “all-you-can-eat” approach means it would be foolish to negotiate a separate deal if you already have all you can eat. Why pay for dessert if you are already buying the entire smorgasbord? It strikes me that the simplest, most competitive approach is one that allows all copyrights to compete with all other copyrights on a level and open playing field. That way, copyright owner A who has no money for promotion and needs to break through can compete on price, while copyright owner B may choose to charge more to pay for all the heavy promotion to make people want B’s work even at a higher price. That has never been tried yet.
April 8th, 2008 at 6:07 pm
Actually, JM, the “never been tried” approach you favor is being tried every day. Go to Best Buy or Circuit City — new releases by lesser-known artists regularly sell for less than those by well-known ones. Visit AmieStreet.com. Check out eMusic. Read up on the early days of Wippit. There’s lots of price competition among copyright holders, both in terms of the end product and the licenses.
We’re spinning off on a tangent here, and I hope we can start a separate thread to debate whether a collective license is the right answer to the current market problem, i.e., the vast, free consumption of music in violation of copyrights. That’s the right context to debate the points John Mitchell and Crosbie Fitch made. On *this* thread, it would be nice to get back to the question at hand, to wit, if you’re going the collective license route, what’s the right price for users?
April 8th, 2008 at 8:20 pm
We know what the maximum price can be — approximately $10/month. Why? Because that’s what subscription services like Rhapsody charge retail for “all you can eat” music. So that’s obviously a number the majors are willing to accept.
And I agree that markets are the best a price setting. We don’t start with “how much does the industry want”. We start with reality — today the industry gets zero for the vast majority of music shared online. We can do better than that.
That’s why voluntary collective licensing is superior to compulsory schemes — a market will set the optimal price. If collectives try to charge $50/month, no one will pay. That will leave them with high enforcement costs and low total revenues. Similarly, the price is probably higher than $1/month. There is a market price that balances voluntary adoption, enforcement costs, and defection.
Yes, I’m saying that the market price is set against piracy. There is nothing new about this — that’s what drove videocassette prices down from $90 to $10 during the 80s. That’s a market with reality in it, in contrast to CRB proceedings.
April 8th, 2008 at 9:35 pm
I believe Jon Healey misses my point. What is missing is price competition at all levels: among the majors, including the indies, among intermediate layer technology suppliers, and downstream at the retail level. If one retailer has an exclusive, no other retailer can compete, let alone on price. Sure, the lesser-known artist is unlikely to be in any position to negotiate an exclusive deal with a major retailer. But copyrighted works should be valued independently, even they belong to a single entity. If Back in the 60s, the Register of Copyrights warned of the dangers when one entity amasses and is able to leverage a stable of copyrighted works. One of the problems I see is that those who control vast catalogs of songs — whether a major, a PRO or a new collective — will tend to place the only value on the all or nothing approach.
This brings me back to this discussion, as you request, the point is that the collective approach blurs the lines of independent value. It’s like back in the day when a theater had to show “Getting Gertie’s Garter” if it wanted the rights to show “Gone With The Wind.” The lesser-valued works borrow from the strength of the stronger, while the stronger are used to leverage the weaker. The theater ticket ends up costing the same no matter what you watch. Even more so with collectives. Why value the valuable any more when it costs as much as the stuff you will never want to hear? Why try out stuff you think you don’t want to hear when it costs as much as your all-time favorites?
This thread asks how much to charge. I wrote a song that’s so bad I’d have to pay you to listen to it. How would a collective accommodate that? Would the collective pay people to listen to it? I think not — for the same reason it can’t charge me any extra for that one CD I never take out of my car’s changer. With such a vast wealth of music, a single price will be the wrong price for most of it.
April 9th, 2008 at 12:07 pm
While I agree with John that a per-piece market is the best way to price individual items of indeterminate value, I fail to see how that’s possible where unrestricted Internet file sharing is concerned. And that’s the reality we’re working to accommodate.
Sure, we can all think of better solutions in a utopian world. But we have an Internet that works the way it works (and has delivered fantastic innovation because of it). So taking the Internet, and P2P, and cheap digital storage, and the failure of DRM, how do you propose a per-piece market, John?
April 9th, 2008 at 12:44 pm
Re: “Would a collective pay people to listen to it?” Umm, no. The royalty pool would be divvied up according to actual use. This is one of the challenges of a collective approach, and I hope we’ll take this up in a separate thread. You need a SoundScan of sorts, something that notes which tracks get downloaded and which don’t. But assuming one can come up with an acceptable way to do that, John Mitchell’s gangster rap will succeed or fail based on John’s ability to attract downloaders.
Remember, all the collective license does is make a pool of content available in exchange for a big fee. Ideally, how that fee gets distributed among the license holders would still be determined by the market. And by the way, under the collective approach the winners and losers would probably be similar to today’s, given the major labels’ promotional power. Look at Big Champagne’s stats, they’re not much different from Billboard’s.
May 8th, 2008 at 8:06 pm
I think that it’s interesting that none of the music industry takes into account that it doesn’t appreciate the consumers. Most people have gone through the format changes and none are really good enough..because there is always an industry sucker punch. I think legal music in all formats (in UK) are and always have been priced too high. It has always worked on a “must get” or demand basis. Whereas before old records devalue , downloading only devalues on the quality of the recording and the version of the recording you get.
Like most new technoligies we get a small sip at a time that means the consumer has to continually re buy or buy the newer ,more expensive technology.
i think one reason people do illegal downloads is because the consummer has lost faith in paying a rip off price. eg most cds could be sold at a quater of the price and most of the packaging is throw away able.
to me if i were an independant artist i would aim lower with prices that are cheaper than the hit parade -make it worth while for the consumer and be an extra to download for people who do not know you as an artist.
i would have thought a standard % would or should be taken as artist standard cut. Anything negotited with the industry is a bonus-good luck to them. i would have thought the viability of the recording cost could be calculated as could the cost of distribution to consumers. not a tax just an industry standard. keeping things simple - or accountability made easy -makes sense .
copyright is also doubtful in many cases as their are only so many chords for examople on the guitar etc and is it the sound or the the official chord sequence(music) because most musicians do not actually make the same sound twice or play it precisely throughout their career and a song/piece of music has a life of its own , ie develop the length of a career-new instruments/inventions -ever changing. Many written pieces are vertually the same with different words arrangements . it seems to me and i do not download that the info given on a song doesnt tell you what take/mix or version -many cheap cds are like this…can most people hearing stand up to spotting differences. After about ten years of giging i found the sense of my hearing waranted me to buy cheaper and cheaper hifis because i couldnt hear the quality of a good one. i think the music industry is also guilty of bad health and safety and marketing at the way music is listened to ie the 60’s onwards consumers probably have been injured by sound and vibration no other industry would be allowed to get away with.
major labels are just the usual sindication ie no one else gets a look in-the UK is very much like this..you only have to look at the awful media and what teenagers are consuming. morals dont come into it..everything is a con or in bad taste that sells the honest artists dont get a look in. the market deal is rarely fair ..most have never heard of value for money.
£8 for a chart record mass produced at maybe £2 to make wheres value for money ?? downloading -there’s no cost of manufacture -not really most artists put outt anthologies-tracks made on a £200 machine , most singer songwriters have a guitar plus vocal album wheres the manufacturers cost, or on a track made 40 years ago.
i think the old adage of seeing a band at a local venue has more value than buying a download .the artist gets paid at the end of the night -ive no gaurantee the artist gets any of the download money -no faith i’m afraid
colin