Pricingonlinemusic

what is music?

what is music?from a business perspective, that is…

“emotional service”

how do you price

an emotional service?

cost-based pricing?

charging for a service in relation to

the cost of providing that service

large fixed costs of production,

small variable costs of reproduction...

Q

TC

cost-based pricing?

value-based pricing?

charging for a service in relation to

the value delivered to the customer

…people are different…

versioning

(quality discrimination)

providing different versions of a

service which sell at different prices

(E.g. Shapiro & Varian 1999)

how can versioning be

applied to online music?

how do you vary the value of

an emotional service?

Information wants to be free. Information also

wants to be expensive. Information wants to be

free because it has become so cheap to

distribute, copy, and recombine – too cheap to

meter. It wants to be expensive because it can be

immeasurably valuable to the recipient. That

tension will not go away. It leads to endless

wrenching debate about price, copyright,

“intellectual property”, the moral rightness of

casual distribution, because each round of new

devices makes the tension worse, not better.

Stewart Brand 1987: 202

How do you vary the value… (1)

• Technical Quality

• Packaging

• Limit supply

• Access to add-on services

(“extra material”)

How do you vary the value… (2)

Terms of use (example…)

• Time

– When can you use the service?

– How often can you use the service?

• Places & devices

– Where can you use the service?

– What kind of equipment is required to use the service?

• Sharing & redistribution

– Are you allowed to offer the service to others?

Versioning online music

More or less traditional

Feels-like-free

Dynamic pricing

Trends

Current issues

Traditional Models

Traditional models

Physical distribution

• Uniform pricing, €1-2 per song– (back catalogue often on sale)

• Time– Yours forever

(permanent license)

• Places & devices– Playable on devices from several

suppliers

• Sharing & redistribution– Unlimited copying

– Personal use only

Single-song download• Unbundled albums

• No subscription fee

• Uniform pricing, €1 per song

• Time

– Permanent licenses

• Places & devices– Only on Apple music players*

– Playable on max 5 computers*

• Sharing– Unlimited CD burns

– Personal use only

Traditional models

*There are also 2 million tracks offered w higher quality and without DRM

Memberships:

Specified download quota• Unbundled albums

• Monthly subscription fee

• Three plans starting at30 songs - €13 per month

• Time– Permanent licenses

• Places & devices– Playable on devices from

several suppliers

• Sharing & redistribution– Personal use only

– Unlimited CD burns

Traditional models

Memberships:

Flat rate – unlimited access• Monthly subscription fee

• Unbundled albums

• Two monthly plans $13-$15

• Single song downloads offered

• Time– Temporary licenses – The songs are

yours only while subscribing to service

• Places & devices– Playable on music players from

several suppliers

• Sharing & redistribution– Personal use only

– No CD burns

Traditional models

Feels-Like-Free models

How do you compete with free?

Ad based models (1)

• Services structured to maximize ad exposure

• Community features

• “Freemium”

• Time– Streaming, no downloads

– Personalized playlists, no on-demand

• Places & devices– No offline access

• Sharing & redistribution– Personal use only

Feels Like Free

Ad based models (2?)

• Registration, no fee

• Services structured to maximize advertising exposure

• Community features important

• Time– Downloads – Whenever

– Licenses have to be refreshed [or]

– Adverts grafted to the songs

• Places & devices– Offline access

– One computer only

• Sharing & redistribution– Personal use only

– No CD burns

Feels Like Free

Bundle with other

subscription-based services

Feels Like Free

• Flat rate - unlimited access

• Unbundled albums

• No traffic fees

• €2.50/week or subsidized by device manufacturers or mobile telephony operators

• Time– Temporary licenses – The songs are

yours only while subscribing to service

• Places & devices– Playable on a specified device only

• Sharing & redistribution– Personal use only

– No CD burns

Dynamic Pricing

Demand based pricing• Songs are free when first uploaded

and then increases to $98 per song depending on demand

• Audience participation is rewarded

• No subscription fee

• Time– Permanent licenses

• Places & devices– Playable on devices from several

suppliers

• Sharing & redistribution– Personal use only

– Unlimited CD burns

Dynamic Pricing

Tip jar models

• Customers pay what they want (within a range…)

• No subscription fee

• Time– Permanent licenses

• Places & devices– Playable on devices from

several suppliers

• Sharing & redistribution– Personal use only

– Unlimited CD burns

Dynamic Pricing

Dynamic Pricing

Dynamic Pricing

Versioning emotional services

Traditional (more or less)memberships

single-song download

all-you-can-eat-packages

Feels-like-freead-based

various bundling constructions

Dynamic pricingtip jar

demand based

Two Trends…

Timberlake’s FutureSex/LoveSounds was offered in

115 versions which sold a total of 19 million units.

Of these only 20 percent were in CD format.

Trends (1): Versioning craze…

Trends (1): Versioning craze…

Bundling flat-fee unlimited-access music services

with broadband & mobile telephony services

Trends (2): Feels-like-free…

thank you

Patrik Wikström

[email protected]

Media Management & Transformation Centre

Jönköping International Business School