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?"

Fast Refresh

[Shambly]

I for one plan on using my first post skill by downloading as many songs for free legaly as possible. But seriously after they reach over 0.99$ who is going to ever buy that song from them again?

This could work really well

[uncreativeslashnick]

Have you ever found yourself telling someone, "yeah, I liked that song before everyone else thought it was cool." I can see this model encouraging people to explore and download and try new stuff so that later on, when the price goes up, they can brag about how they downloaded it first, for free, before it was selling for $5 a pop.

It also might open the door for more quality indies to actually make money. People might be turned off by high prices of what the RIAA cartel marketing is pushing, and go for the cheaper indie stuff. Then again, I am probably being too optimistic, as most teenagers will pay any price for "cool"

Re:pissed off customers, thats what it means

[Joe Snipe]

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?

SWEET!

[vigmeister]

T-Pain will sell for tens of dollars while I can get Manu Katche for cheap!

Finally! All that non-conformance pays off!!

Cheers!

Re:Fast Refresh

[morgan_greywolf]

You bring up a valid point. This could be an interesting market experiment. How much are people really willing to pay? Unfortunately, due to the MAFIAA's history of price-fixing, we couldn't truly know before. But now we can.

Might this help the long tail?

[Otis2222222]

I'd like to see a model like this. Ever since I installed a satellite radio receiver in my car, my musical horizons have broadened significantly. A lot of the artists I hear on some of the more obscure channels aren't indexed on iTunes or even available on illegal services like Limewire. This mostly applies to older music that is out of print, or never made it to CD.

It would be nice if there was a service like this that had just about anything ever recorded digitized and made available for download. Let the market sort out what's popular and what isn't, but give us access to EVERYTHING.

In this day and age, there is no reason why virtually every album ever recorded isn't available to buy a digital copy of.

Re:pissed off customers, thats what it means

[yali]

As demand drives prices up, the incentive to illegally copy MP3s will increase; but large-scale infringement would lower demand. So eventually (at least in theory) the prices will hit some sort of equilibrium point. This could be a pretty interesting natural experiment.

Free-market piracy inflection point

[EmbeddedJanitor]

If the volumes stay low then the price stays low and the motivation for piracy should also stay low.

As the volumes increase, the price increases and the piracy might increase.

What is interesting is that this model possibly finds the "perfect price". So much for economic theory.

In reality, a pirate will not buy some low-cost stuff and pirate high-cost stuff according to some built-in threshold. Once they have free piracy access to music they will use that for everything they can.

No way the Big Four go for this

[Arathon]

There just isn't. Because this can't possibly mean more money for them, if prices cap at 0.98. And if they didn't cap there, no one would buy the more expensive tracks from them anyway. But unless these "trail-blazing" people either forfeit all profit for themselves in order to transfer it to the recording companies, or come up with some other, novel way of incentivizing this process (theoretically, at least using a simple model, averaging 50 cents a download) which will halve their profits compared to what they get from iTunes, there is NO WAY the Big Four will go for this.

On the other hand, maybe the simple model isn't true, and maybe popular = most everything that the average buyer buys, in which case it won't look any different to the average buyer, so except for the DRM-free part (another deal-breaker for the Big Four), why should the average buyer care?

My $0.98 with of MP3.. .err.. comment

[cyberjock1980]

I think this is a great idea in the fact that it's a new idea. But, I'd prefer the business model be reversed.

If "Mr. Super-Cool" sells 1000 tracks a day at 0.98 then the artist makes some good money, but what about "Mr. Not-So-Cool"? His track sells for free, or very little, and the artist gets nothing, mostly because he's not popular. What if it was revered, AND you provided a library that was practically every song known to man? I'd gladly pay 98 cents for a song that I just can't find anywhere, legally or illegally. With a reversed model, maybe that poor Not-So-Cool guy could make a living even though he's not on one of the 'big' recording labels.

Or as an alternative, have it set up so the more tracks you buy, the cheaper they get? Buy x tracks a month and get y% off. Why not let the customers "buy in bulk" and save? Isn't that what our economy is all about? Buy a gallon of Mayo and save some $$$ instead of buying 10 smaller bottles?

Re:pissed off customers, thats what it means

[starfishsystems]

So eventually (at least in theory) the prices will hit some sort of equilibrium point.

Or they might be so dynamically unstable that the system would thrash itself a couple of times and then end up jammed in the opposite state from that intended.

The only control input is the price per copy, which as formulated has a destabilizing effect on market share. Charge more when there are more copies being purchased? That's not your usual supply and demand economics, certainly not with nonrival goods where there is no scarcity of supply.

Conversely, it allows a real momentum to develop around the network effects of illegal copying. As you point out, that's not only driven directly by popularity (not a control input) but also amplified by the pricing model itself, which premises that there is a scarcity of supply. The problem is that illegal copies disprove the premise by providing a very competitive supply of product. And once the effect gets going to the point where illegal copies are commonplace, they become an extremely difficult brand to dislodge. Moreover, there's really no control input to stop the process. What, lower prices? Bit late for that, mate.

It's just not a good business strategy to drive your customers into the arms of the competition. So I don't get it. I hate the notion of DRM, but this isn't a viable alternative. You have to make it cheap and obvious in order for the masses to go there and sustain a network effect.

Which is a shame for me, personally, because my musical tastes are rarefied and I'm going to be paying extra to get at that super cool material that nobody has heard of. But the higher prices make it worthwhile for distribution to take place, or a little bit of piracy for that matter. Maybe that would take away some of the pain.

Yeah, not the best model

[Poromenos1]

Prices rise with demand because usually supply is limited. Last time I checked, we can create bits from thin air, so we have an infinite amount of copies we can sell. So there's really no reason for prices to rise with demand. If anything, they should drop because you need a price ten times lower for a song ten times as popular to earn what you used to.

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

[bennomatic]

Why shouldn't an artist be forced to tour to pay the rent? I'm not saying that they should, but the RIAA model where artists drop their souls in a slot machine and hope to win the jackpot does not seem like an intrinsically good system.

In most other careers, one expects to work most days of each week, most weeks of each year. I realize that touring is hard (I've done it), but why should musicians get off easy? It would be one thing if all of the successful recording artists were actually publishing great music that made the world a better place to live. But the Britneys and the Metallicas of the world have gotten rich off of simplistic musical drivel which caters to the lowest common denominator, well promoted by greedy bastards.

Personally, I think that the people who do the hard work should get paid. Heck, I'd even say that I think that popular music copyrights should expire after five years. Then I'd be able to get a Rhino Records recording of every Metallica album ever made for the cost of the materials, packaging and shipping. Or download it for free. They've made their millions. If they're not going to write a new album or perform for me, why should I have to pay them for something that:
- Took them a couple of days to create.
- Was created 10 years ago.
- Has already made them a million dollars

I personally don't torrent music that's under copyright; I pay for what I listen to, even if it's old, because that's the law. But as far as promoting interest in one's music, I'd prefer to see bands touring and working for a living than just having big corporations hype them and push them endlessly via payola on the radio.

Dang it, now I'm starting to lose focus. Ah, well, I hope you get my point. Vote for Oog!

Re:Novel idea

[OoSpaceoO]

Well this throws off the whole supply and demand model. How does that model change when there is limitless supply? I kind of like the idea of charging for the amount of data transferred, like most Russian MP3 sites do. It seems to make the most sense. Otherwise, shouldn't MP3's cost less the more people demand them? If everyone has the latest Red Hot Chili Peppers album you can just wait to burn it from one of your friends, but maybe you'd be willing to pay $2 to get it right now online. That would probably lower the amount of music piracy since you are more likely to pay $0.10 cents for a song just for the immediate gratification.

Re:Novel idea

[innerweb]

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.

• It allows new artists to be exposed without the risk to the consumer of buying music they hate. No risk means more consumers will try it.
• No DRM means I use the music where and when I want.
• The market will be used to determine the price of the music. That may be the sweetest part of this deal.

At the risk of being redundant (on slashdot?), CDs are a dead medium. They are very expensive compared to digital downloads. They force bundling of musics that are not desired by the majority of people. They are fragile (heat, nicks, etc), though better than tape. They require an immense infrastructure (compared to digital files) to distribute. They make as much sense anymore as tape or vinyl did a few years into the age of CDs.

Those in the industry that learn how to grapple with this will survive and thrive. Those who do not, like so many other players in other industries before them, will die.

InnerWeb

Expand the title

[Trogre]

Let's expand that headline title a bit shall we?

"Patent troll firm Invests in Dynamic Pricing Model for obsolete patent-encumbered audio format."

Re:pissed off customers, thats what it means

[Ohreally_factor]

Let's put aside copyright and the legal aspects. Do you believe that people have a reasonable expectation of being rewarded for work? Do you believe that they should be rewarded for work? For instance, say a farmer plants a field of carrots. All other things being equal (i.e., he's not renting the land, etc.), don't you think he is entitled to all the carrots that he has grown? Doesn't he deserve the fruits of his labor?

If you don't believe this, if you believe that you have the fundamental right to deprive someone of the fruits of their labor, then it really is not going to be much use discussing ethics with you.

Re:pissed off customers, thats what it means

[pyite]

Umm... No. Not unless that is in your contract.

Maybe. This is a legal grey area.

Federal district courts in California and Texas have issued decisions applying the doctrine of first sale for bundled computer software in Softman v. Adobe (2001) and Novell, Inc. v. CPU Distrib., Inc. (2000) even if the software contains an EULA prohibiting resale. In the Softman case, after purchasing bundled software (A box containing many programs that are also available individually) from Adobe Systems, Softman unbundled it and then resold the component programs. The court ruled that Softman could resell the bundled software, no matter what the EULA stipulates, because Softman had never assented to the EULA. Specifically, the ruling decreed that software purchases be treated as sales transactions, rather than explicit license agreements. In other words, the court ruling argued that California consumers should have the same rights they would enjoy under existing copyright legislation when buying a CD or a book.
In a more recent case involving software EULA's and first-sale rights Davidson & Associates v. Internet Gateway Inc (2004)[1], the US District Court for the Eastern District of Missouri issued a ruling which appears to contradict the position of the district courts in California and Texas. The first sale reasoning of the Softman court was challenged, with the court ruling "The first sale doctrine is only triggered by an actual sale. Accordingly, a copyright owner does not forfeit his right of distribution by entering into a licensing agreement." In addition, the court found the plaintiff's EULA, which prohibited resale, was binding on the defendants because "The defendants .. expressly consented to the terms of the EULA and Terms of Use by clicking 'I Agree' and 'Agree.'" This runs counter to Softman v. Adobe. The difference in these rulings has yet to be resolved by a higher court. Reference: http://en.wikipedia.org/wiki/First-sale_doctrine#C omputer_software [wikipedia.org]

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

[bennomatic]

I'm glad you're so happy with the status quo.

For the record, as I stated before, I don't steal music. I do pay for what I listen to. However, as you may or may not know, most of that money does not go to the bands.

Many people do like what they buy. Others are being herded like sheep; those with the greatest resources for marketing can take the money that might go to better art. It may not be a zero sum game, but it is indeed a game.

I'm not telling anyone what to like or not like. I just think it's silly to say that people who write music shouldn't have to tour. Being an artist--of any type--does not exempt you from having to continually earn your keep. It's great that a few people do hit the jackpot, but I'm just saying that it could be a better world for more people if something were changed to reduce the concentration of wealth in the hands of major music corporations and a few of their marquee bands.

I've enjoyed our debate and admit that in some ways, I'm taking reactionary positions, but again, saying that someone shouldn't have to work for a living is just silly.