Music companies investigated for anti-trust for ignoring the long tail
New York attorney general Eliot Spitzer is investigating whether four major recording companies are violating anti-trust laws with their demands for variable pricing of downloadable music.. Two of the labels -- Sony BMG and Warner -- have been particularly vocal in their criticism of Apple's fixed 99 cents per song, demanding that hit songs should sell for more and older tunes for less.
From a twenty-first century marketing point of view, this is really a bad pricing strategy. What these labels think they are doing is increasing overall revenue by charging more for hit music, which is the music they've worked hardest at to sign, promote, and distribute. They are assuming that these are going to be their high-value products. Too bad they aren't looking at the Internet demand data from folks like Amazon, Rhapsody, and Ecast.
Any self-respecting Internet blogger knows about The Long Tail (more in the long tail blog too), the fact that in a sufficiently large inventory-less market like the Internet, there is huge demand for niche products, be they obscure boy bands or blogs about garden gnomes. If you can sum up all the demand for these niche products, the demand far exceeds the demand for hits.
So what does this have to do with music pricing? Record labels are looking for high prices for hits and low prices for older music. But the demand for long-tail titles -- everything from old Sheena Easton titles to Tibetan monk chants -- vastly outnumbers that for hits. Worse, the record labels have already sunk their investments into those older titles, while new bands and songs require more marketing investments to keep them touring, recording, and appearing. The result: the labels are fighting to actually make less money in toto by fighting 99 cent universal price.
The funniest thing is that this isn't an obscure trend. It's been written up in everything from Business Week's Best of 2005 Ideas to The Economist. Yet the music labels keep fighting for their last century pricing preconceptions. Is it any wonder the music labels are going down the tubes?
From a twenty-first century marketing point of view, this is really a bad pricing strategy. What these labels think they are doing is increasing overall revenue by charging more for hit music, which is the music they've worked hardest at to sign, promote, and distribute. They are assuming that these are going to be their high-value products. Too bad they aren't looking at the Internet demand data from folks like Amazon, Rhapsody, and Ecast.
Any self-respecting Internet blogger knows about The Long Tail (more in the long tail blog too), the fact that in a sufficiently large inventory-less market like the Internet, there is huge demand for niche products, be they obscure boy bands or blogs about garden gnomes. If you can sum up all the demand for these niche products, the demand far exceeds the demand for hits.
So what does this have to do with music pricing? Record labels are looking for high prices for hits and low prices for older music. But the demand for long-tail titles -- everything from old Sheena Easton titles to Tibetan monk chants -- vastly outnumbers that for hits. Worse, the record labels have already sunk their investments into those older titles, while new bands and songs require more marketing investments to keep them touring, recording, and appearing. The result: the labels are fighting to actually make less money in toto by fighting 99 cent universal price.
The funniest thing is that this isn't an obscure trend. It's been written up in everything from Business Week's Best of 2005 Ideas to The Economist. Yet the music labels keep fighting for their last century pricing preconceptions. Is it any wonder the music labels are going down the tubes?
Technorati Tags: Warner, Sony BMG, iTunes, Apple, The Long Tail, Business, Marketing
posted by Carl Howe at
10:11 AM
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