If I could download my trainers for free, I would buy the records!

Intellect runs regular sessions on new technology leading to industrial convergence. The sessions are called the Convergence Conversations (inspiring name!) and chaired by Ved Sen of Think Plank.

The session this week was about "What Price Music" - and with a wide mix of industry professionals ranging from DRM (Digital Rights Management)lawyers (What is DRM? Read about that here) to record labels/musicians, licencing authorities (such as PPL) to IT/new media people (who were trying to be devil's advocates - including myself, as I work for a p2p company, RawFlow!) - there was bound to be many opposing views! The one thing everybody in the room clearly had in common though, was the love of music.

At the heart of the problem was the challenge of "competing with free" - how do you compete against the free giveaway? What can actually help increase the value perception and hence the price of the product? This is the big question the industry must answer.

One participant raised the very relevant issue of price and value: There WAS value in the vinyl records, and partly also in CDs - thus, the record labels could charge a high price for the records! Heck, many times the actual music was not nessecarily that great - I remember that I used to buy records sometimes because the cover looked cool! Now, you can listen first and buy after, and it's really easy to do that on MySpace or in any of the online shops. But the issue of value and price has become an issue, as now, seperated from the physical product (artwork etc) - how do you reintroduce value? What is the value of an mp3 file? Why would you pay for it, when you can get the same product for free? Records labels try to argue that kids should stop downloading on p2p networks because it is a "crime", but I don't think kids really see that it is. Why should they pay to sustain a multiconglomerate company, when there are clearly other things they can spend their money on. As somebody pointed out with this quote from a kid outside HMV: "We have to spend money on shoes, phones, music... if I could download my trainers for free, I'd pay for the music!"

A part of the problem lies perhaps in marketing - how to raise awareness of the value of music? Or, perhaps, how can music be bundled with other products that clearly has a value as a physical item - or - as we're in the middle of the experience-based economy - an experience. One conversationalist said, and rightly so, that the one thing that has NOT dropped in price, is the value/price of live music events. Actually, that price has increased dramatically over the years - which is quite suprising, since there are more festivals and live music events now than ever before!

Gigs have previously been seen as a way to break acts or increase CD sales. However, this is changing: Whereas the price of records have plummeted, the value of live gigs has surged with ticket prices going up to as much as $700 for Barbra Streisand’s farewell tour in the US – and that’s before the “ticket touts” add their cut. Surprisingly, gigs and festivals still sell out. “Live touring dollars are starting to surpass record sales as the real money maker in the music industry. Recorded music is essentially free, but the magic of the live show is priceless!

There are other pricing models out there in existence - including those of Yahoo! Music, Napster, eMusic and others - largely focusing on subscription revenues against which you can download or play tracks as you go. eMusic has already become a great success in the States with their non-DRM music which you can play across all devices - like a normal CD! The problem is that only independent labels have signed up for it as of yet, allthough most of the conversationalists did not seem to think there was much point to DRM - as both Apple's and Microsoft's DRM have both been hacked.

Spiralfrog - a service where you can download music for free after watching an ad - is also set to launch, and Universal, Warner, EMI and Sony BMG have already signed up for using SpiralFrog to monetize their back catalouges.

One of the interesting thought-experiments you can conduct goes as follows: if you had access to ALL the music in the world, ever created, how would you decide what to listen to? Clearly, one lifetime would be far too little to even sample every piece of music! Therefore you would need somebody (or some tool) to evaluate and make recommendations to you. Again, the issue of aggregators then come into place (see previous post on aggregators. As Ved Sen comments in his ThinkTank blog: These could be based on your past preferences, defined parameters or by market opinion. Which ever it is, you might be willing to pay for this service, even if the music itself is free. This may well be one of the value sources for the music industry. And it's not just a thought experiment: With services such as Pandora and LastFM - users can already play unlimited music AND get more of the same recommended to them - and it's FREE!

One thing at least is clear: Internet technologies can enhance or undermine the profitability of industries. In the case of the recording industry, the effect has been severe. The impact of consumer use of internet technologies has lead to the complete redefinition of the foundations of this sector’s functioning. But rather than making technology work to its benefit, the record industry chose to sue its own customers (most famously, in September 2003, the Recording Industry Association of America, RIAA, settled a copyright infringement lawsuit against a 12-year-old New York girl for $2,000) thereby causing fatal damages to industry reputation. In fact, the record industry’s dealings with their own failing business models is a textbook example on how not to deal with disruptive technologies, and the unwillingness to change left space wide open for new industry entrants such as Itunes which allow for cherry picking tracks rather than buying the whole album which naturally reduces profit margins. A track is sold for less than $1 and still the public question whether that’s too expensive. Separated from the physical world, music has become commoditized. Whereas few would question whether the manufacturing of perfume makes it morally correct to charge $50 a bottle, the record industry face having to explain what kind of value they add to the production of a song when you take away the cost of physical manufacturing and distribution. It really is no wonder then that labels and bands are looking at new ways to increase or protect their profit margins.

The bottom line is that simply selling the songs will have a limited and potentially shrinking market in the long term. Prices will go down on tracks - but volume will also go up. Yet, the margin per track might be quite limited, and even then, piracy will not go away completely.

So what is the right price of music? I think the question is wrong - I'd say: How can music be bundled so that it becomes a proper value proposition to the consumer?