In a traditional sense, one could measure value by its’ price elasticity. Essentially, what one is willing to pay for a song or group of songs.
In the old days (the 1970’s), I could buy a single (a 45 record) for a little over $1. If adjusted for inflation, that would mean today a single would cost around $6, (assuming constant demand and costs.) Well, I would make the argument that clearly there have been cost reductions in the past 30 years that would justify a lower cost product. Obviously the trend from vinyl to cd benefited both the consumer and manufacturer by providing a purer sounding product and reduced manufacturing costs to Labels (once economies of scale were achieved). And for awhile both benefited as margins remained fairly constant during the first 10 years or so of the cds’ existence.
However, thereafter major economies of scale were achieved by the Labels with great cost reductions just about across the board, yet there were no savings passed on to the consumer. During this period (approximately 1990-2000) both the major labels and major independent labels were making significant profits on successful projects. But keep in mind, that only one in ten projects are successful. The real cash cow for the majors were their distribution companies. They would charge approximately 20% for their services, and that of course would be added onto the price. Other things, like retailers charging for listening stations and shelf space would also add costs to the product without adding any additional value. So this is how we got to the $16.95 priced CD.
I think consumers were okay with this for awhile, (assuming the CD contained let’s say 3 hit songs out of the 14 or so). Yet as CD storage and transfer came available to everyone, people realized that blank CD’s don’t cost that much and people started to wonder why music cd’s were so much higher. Further, less quality projects would often be promoted to the consumer where there was only one really good song on the project. All these things combined to lead to what I like to call a consumer backlash. People felt like they were being ripped off (whether it’s true or not), it’s their perception.
So with the technology of the Internet this lead to file sharing and peer to peer networks. Even though I believe most people realized what they were doing was wrong (if not illegal), through perceived anonymity, people felt it was okay to download music in this manner since they were overpaying for so long. And who’s it going to hurt, just the big fat record labels.
Well, right idea, wrong reason. Getting back to the value concept. Clearly $16.95 for a CD with one good song on it, is too much. Even if there’s 20 songs on the CD, if the consumer only likes one, they feel like they’re paying $16.95 for one song.
So are .99 cent downloads the answer? Does that reflect the true value of music? Again, I would argue no, but for different reasons to be discussed in Part II next week.
As always, if you found this Blog helpful, informative or entertaining, help support Independent music and visit our websites: Act 2 Records and Mp3 Music Store
All the best,
RAH
