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How much should music cost?

May 5, 2008 |  6:52 pm

Three interesting developments today on the issue of music pricing and price elasticity, a subject close to my heart. While one label starts flirting with the idea of lower prices to stimulate demand, another backs away from it. And meanwhile, Trent Reznor gives away more songs.

Digonex_logo On the plus side, Warner Music Group announced a pilot with Digonex Technologies Inc., a company that enables sellers to adjust the price of goods dynamically in response to demand. Indianapolis-based Digonex automatically adjusts prices up or down in an attempt to maximize returns. Unlike, which bumps up prices as items grow in popularity, Digonex also tries to boost demand for goods by cutting prices as sales fade. Details of the WMG were scarce, other than that the trial would be for a limited period of time and involve just a portion of Warner's downloadable catalog. No word on which artists, songs, or online retailers would be involved, or the prices charged. One possible model is the deal Digonex announced last October with the ever-adventuresome Nettwerk Music Group and PassAlong Networks, which called for the price of singles to be adjusted weekly between three tiers -- 33, 66 or 99 cents (albums would go for $3.30, $6.60 and $9.90). Digonex used to operate, a site that sold music for as low as 5 cents per track, but that was just a proof of concept, spokesman Chris Pohl said in an e-mail. "We closed  it down because we didn’t want to be competing with our customers for music sales," Pohl wrote.

Emusic_logo By contrast, ABKCO is moving the other direction, pulling its collection of vintage (and prized) Rolling Stones albums from eMusic after only one month. David Harrell at Digital Audio Insider has a nice analysis, which notes that eMusic's payments lately have been a little less than what the labels collect per song from iTunes. (Harrell had previously noted that eMusic subscribers responded avidly to the old Stones titles, putting 17 into the eMusic Top 40 after one week.)  EMusic CEO David Pakman has long argued that major labels and artists should use his company to sell items that have been molding in their vaults, because collecting something for those recordings is better than collecting nothing. Evidently, the strong response to the Stones' releases persuaded someone that eMusic was undercutting higher margin outlets, such as iTunes. More likely, though, the lower price was unlocking demand from marginal buyers. As Harrell put it, any sales lost at higher-priced sites "would probably be more than offset by downloads by eMusic subscribers who previously had no interest in paying for Stones downloads."

Nine_inch_nails_the_slip Finally, Nine Inch Nails offered its latest album, The Slip, online as a free download in advance of its release on vinyl and CD in July. This is a bit of a twist on its last, four-disc outing, Ghosts I-IV; only one quarter of that set was available as a free download, and the freebie was clearly a teaser to encourage people to buy the rest of the package (for $5 to $300, depending on the format and the packaging). This time, folks who care only about the digital files can get the whole shebang in lossless digital formats for free. There may be an upsell opportunity here, but I think the main strategy is simply to grow the audience for NIN. To NIN, giving away a portion of its output and helping fans remix and share its tracks are ways of harnessing Web marketing and economics for long-term gain. And in an environment where consumers have ever-expanding choice, trying to capture new fans with free, first-quality product makes a lot of sense. Besides, the band's not hurting for cash: according to Billboard, it collected $1.6 million from sales and orders of Ghosts I-IV in the first week alone.

Photo of the album cover for The Slip is courtesy of the Nine Inch Nails' website.

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