Amazon Invests In Dynamic Pricing Model For MP3s

NittanyTuring writes "Amazon recently closed a Series A financing deal with Amiestreet.com, a startup selling DRM-free MP3s with a demand-based pricing model. All music starts out free, and prices increase for popular tracks. Jeff Blackburn, Senior Vice President for Business Development, Amazon.com: 'The idea of having customers directly influence the price of songs is an interesting and novel approach to selling digital music.' What does this mean for Amazon's own intentions to sell music?"

pissed off customers, thats what it means

[fotbr]

You know there will be much whining about people that bought $Song for $PriceA only to find that it fell to $PriceB.

And those that complain that $Friend bought $Song for $PriceA but now its up to $PriceC and its not fair that they have to pay more than $Friend for the exact same item

Won't higher prices = more piracy?

[Xtravar]

Won't higher prices mean more piracy? Or is that exactly what this system is avoiding?

By nobody buying a track (which *could* mean piracy) the track's price would come down and then people would buy it?

Wow, I think I answered my own question! This sounds pretty cool - less known music gets more exposure and more popular music gets set at a price people are willing to pay. Now, will they actually have a supply of music?

I think

[Anonymous Crowhead]

I think they named this: "Operation Screw The Little Guy".

Re:This could work really well

[jandrese]

The only problem with it is: will the Music industry buy into it? I mean iTunes has a decent selection, but it's far from complete. How many major record labels are going to be investing in a market where they'll be giving stuff away?

Re:pissed off customers, thats what it means

[Ohreally_factor]

more to the point, what is to stop me from "selling" my free versions when the band gets popular? What if I give them away?

Er, maybe a sense of morals or ethics?

Besides, instead of saying, "Yeah, I was into that band before the got uncool," you will be able to say, "Yeah, I was into that band before they got expensive." This is going to be a boon for frugal hipsters and poseurs.

Re:pissed off customers, thats what it means

[omeomi]

Er, maybe a sense of morals or ethics?

Not sure where morals or ethics are involved. If I buy something for one price (even if that price is $0), and the price rises, I don't see why I should be prevented from selling it at the higher price. Obviously, to be legal, I would have to delete any copies that I may have of the mp3 after I sell it.

Amazon music stock market

[Bluesman]

Who wants to start this? I'm selling options for indie band A at 35 cents a song.

Re:I'm not willing to support copyright....

[east coast]

For the most part all of this bitching and moaning has nothing to do about a fair price. Lets face it, people want music, they want it for free and they want to do it legally. But like the old axiom of "fast, good, cheap. Choose 2", these three elements can never come together in a situation where it is win-win for both the listener and the musician.

Most of the time when I see people on Slashdot talk about how things are "working out" with new music distribution models they normally forget to include the musician in the equation.

I don't care what anyone thinks about this. An artist shouldn't be forced to tour to pay the rent. Is it hard to accept making a lifetime's wage for a few years of work? Sure. But on the other hand it shouldn't be asking too much for the artist to cover the cost of overhead for putting out music, keep food on his plate and make a bit extra without having to live in the back of an Econoline van.

So most of the DRM/Copyright arguments has nothing to do with creativity or a society bolstered by its art. It mostly has to deal with people being greedy and not wanting to shell out for what they've taken.

Blame the RIAA all you want, but people deserve to make a buck when they've produced something that you're willing to listen to more then once or twice.

/rant

Re:pissed off customers, thats what it means

[Jherek Carnelian]

So eventually (at least in theory) the prices will hit some sort of equilibrium point. This could be a pretty interesting natural experiment.

If not for the monopoly provided by copyright law, that equilibrium point would be independent of the music, it would equate to the value of the service providing the music, essentially how easy is it to use the service to get the music versus using the p2p flavor of the month to get the same music.

No more supply/demand?

[bugnuts]

This has interesting economics, clearly designed to help Amazon, but might also help smaller artists. I think I like it, but not sure.

There's no such thing as supply and demand in this model. There's only demand, and the supply is endless. So why does an infinite supply with a finite demand not equate to free? Bandwidth? They certainly can get some advertisement into the pages of popular sound downloads.

This seems almost backwards ... you'd think it'd be cheaper to d/l a popular song and make up pagehits with ads, but perhaps this makes smaller artists get more exposure.

Comment removed

[account_deleted]

Comment removed based on user account deletion

Re:Novel idea

[sleeper0]

This seems like an incredibly bad idea to me, at least if it were to become the dominant pricing model - but I highly doubt it will.

I mostly listen to artists that don't sell a ton of records, where a big success could be shipping 20,000 or 50,000 units compared to radio acts that can ship millions. I don't know how their model would work in reality, but let's assume these tracks might be 25% the cost of a big radio single. The process values popularity over all other factors, doubly reinforcing it. Not only would the popular act earn more money because they were shipping more units, but also they would earn more per unit. Assuming there are fixed production costs that get paid down (lower % per unit for more popular sales) why should a less popular artist be penalized in so many ways?

A record that only sells 10,000 copies to devoted fans shouldn't translate into less income for the artist than 10,000 shipped units of a pop act. The small time artist most likely needs to money much more than the one shipping a ton of units anyway.

Re:Free-market piracy inflection point

[nbert]

I was just about to write something similar before I read your comment and though I had basically the same idea I started to wonder: Can a perfect price be determined if the product is available for free? Right now it works the other way around than how you described it: People buy music if they are not able to download it for free (because it's too rare to be on a torrent site for example). Since there's a price cap in this case it gets even more complicated.

On the other hand I quite like a pricing model in which people pay more for really popular songs. This would be an opportunity especially for open minded people interested in music. For example I often buy CD's and box sets from artists which where cool when my parents where young and it annoys me that they usually are in the higher price range just because the normal fan is older and has more money than the average student.

This wont work!

[JamesRose]

Okay, first, the old artists taht sell few songs at any given time, but still do constantly sell, no longer get any money. Plus, the industry doesn't make any more money than they do now, cos its capped.

Song costs $0.00 - I buy it
Song costs $0.20 - I buy it
Song costs $0.40 - I buy it
Song costs $0.60 - I buy it
Song costs $0.80 - I buy it
Song costs $1.00 - I bugger off to the itunes store

Well, I wouldn't, but many people would and you get my point. And this effectively means, this service could never reach the same average sales cost.

BRILLIANT!

[scribblej]

I'm already working on my script to download all new music the minute it hits the service -- before it becomes popular.

I can't wait for the madness that will hit once my script becomes popular in usage.

(Note, I'm not actually writing such a script, but someone will.)

Re:pissed off customers, thats what it means

[NittanyTuring]

One could set up an entire MP3 futures trading market! You could invest in MP3's, hoping that their popularity will grow...

This is part of the site already! http://amiestreet.com/recs/buzzing/today/ [amiestreet.com]

Re:What monopoly?

[RexRhino]

So if you have a legal copy of a current song, you can sell it to someone else.

If you have a legal copy of a current song, you can sell that specific copy... you can't sell as many copies as you want. The supply of legal copies is controlled by the copyright holder, therefore the copyright holder has a monopoly.

As an analogy, Ford has a monopoly on the Ford Mustang. Sure, you can buy a Ford Mustang, and then resell it used, but Ford has absolute control of the supply of new Ford Mustangs manufactured. The used market doesn't count, because you can only resell the supply that Ford originally produced.

The difference, of course, is that it would be cost prohibitive for someone to produce an exact copy of a Ford Mustang (an exact copy would cost far more than the original because you wouldn't have Ford's economies of scale) so that even in the absence of any legal protection on the Mustang, Ford would still likely have a monopoly. With music, just about every home computer can make an exact copy of a song, so the monopoly on music is an artificial one. The monopoly on music only exists because of copyright law.

Re:Novel idea

[Original Replica]

The more people who buy your song, the cheaper it should be.

It's more or less supply and demand, but with MP3s the supply basically unlimited and almost free beyond the first copy, so cost can only fluctuate based on the demand. As demand rises so does the price. In durable goods you get a price reduction with a popular product because mass production will raise the supply and lower the manufacturing cost per unit. The amount and cost of supply and distribution can be a major factor in the consumer price of physical objects like furniture or automobiles. Supply is sort of a non-factor with digital media and so there are no production advantages to large number of units sold..

Re:I'm not willing to support copyright....

[Dhalka226]

But the Britneys and the Metallicas of the world have gotten rich off of simplistic musical drivel which caters to the lowest common denominator

By which you mean that your musical tastes are superior to that of the vast majority of other people.

I don't like any Brittney Spears music, I like a handful of Metallica tunes. Nonetheless I am willing to admit that if they have a million people who want to listen to their albums and Obscure Artist G has five--regardless of whether I like his music or I feel he is the modern equivalent of Mozart--they should be making more money for it. Demand isn't a perfect metric for everything, but it seems wholly appropriate here, particularly when it is each individual's decision whether or not to give a particular artist their money.

If they're not going to write a new album or perform for me, why should I have to pay them

Because they have produced a good that you want. While I'm not going to go so far as the RIAA does and call it stealing, I don't see how people justify taking something without compensating the creator with specious arguments like "somebody else already paid them 10 years ago."

If it isn't worth the price according to whatever criteria you choose to apply, don't buy it. If it is, buy it. Not only does that compensate artists whose music you like, it will work to drive down music prices or eliminate poor artists if enough people agree with you.

Re:Novel idea

[jlarocco]

I may be way off base on this, but if I remember correctly, this is starting to sound like free market economics (supply and demand). As demand increases, so does price. In this case, supply for each individual song for practical purposes is infinite, so they will have to use an *adjusting* system to manage price. It solves several problems if done correctly.

Yeah. A bit off base. First of all, demand by itself does *NOT* determine price. There's a huge demand for water, and yet it's not very expensive. In an ideal free market price is determined by the equilibrium between supply and demand.

Having said that, now I'm going to explain why normal supply and demand applies very, very poorly to the music industry:

• The supply of any particular song is infinite once that song is created. The marginal cost of one more copy is $0. It's an economy of scale gone mad.
• Personal preference plays a *huge* roll in people's decisions. Several orders of magnitude more than in other industries. To illustrate: I'd pay $5 a song for some genres long before I paid $0.01 for any "gangster" rap song. Contrast that to buying most other items, like toothpaste, or a bookshelf.
• There's only one supplier for any particular song. If I really like the Eagles' "Hotel California", my choices are "buy it" or "don't buy it". In a "normal" industry, I'd also have the choice "Buy this other one that's practically the same thing but cheaper."

Re:Novel idea

[Maelwryth]

"Yeah. A bit off base. First of all, demand by itself does *NOT* determine price. There's a huge demand for water, and yet it's not very expensive."

I get the feeling you constantly wonder why people think the west is rich. There is a huge demand for water all over the world. The problem is that people need fresh water to live and as such our governments took the water as a public resource. This is changing.

If you really want to know the true value of water, go without it for a couple of days and then see how much you will give to get some. I would estimate that on the third day you would give all you own to have a liter. You have to remember that you are in the top two percent of the world population by accident of birth, and thus very removed from the reality of simply trying to stay alive.

Re:pissed off customers, thats what it means

[jedidiah]

Sure you have the right to deprive others of the fruits of their labor. You are free to act in the market in ways that will devalue the labors of others. You're trying to flip the free market around into some sort of socialist command economy mechanism where the government is constantly meddling to enforce your notion of social justice.

Pirates "spoil the market". They don't deprive anyone of anything.

This is the distinction between real stealing and "IP stealing".

There are plenty of alternative methods to "spoil the market" for both corporeal and non-corporeal goods. If you start whining about "deprivation of fruits of labor" BS then you instantly run afoul any time you do anything that might devalue the "fruits of someone's labor".