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?"

Novel idea

A novel new business idea - the recording industry HATES that.

Re:Novel idea

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:Novel idea

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

Re:Novel idea

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."

Finally

I for one welcome our DRM free overlords.

pissed off customers, thats what it means

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

Re:pissed off customers, thats what it means

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?

Re:pissed off customers, thats what it means

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

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.

Re:pissed off customers, thats what it means

more to the point, what is to stop me from "selling" my free versions when the band gets popular?

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

Re:pissed off customers, thats what it means

Wow. So you are telling me I could short Fergie? Quick! Buy 100 PUTs on "Big Girls Don't Cry!"

Re:pissed off customers, thats what it means

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.

Won't higher prices = more piracy?

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?

Free-market piracy inflection point

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.

Fast Refresh

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

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"

SWEET!

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:SWEET!

Finally! All that non-conformance pays off!!
--
Psychic spies from China cryin to pass deregulation
Little girls from Sweden dream of free speech legislation

Says the guy with a Red Hot Chili Peppers lyric as his sig...

Umm read the article....

For those who didn't, prices start a $0.00 and cap out at $0.98.

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

...but I'm willing to support the creation of music. Therefor in my opinion the model should work the opposite way. Popular songs should be cheaper to download.

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

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

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.

Backwards economics...

Early adopters are usually the ones who subsidize the latecomers. This is entirely backwards, as the latecomers are subsidizing the early adopters.

Will all the cool kids be saying, "I listened to , back when they were only 5cents a track"? It would be worse than people obsessed with their low Slashdot UID!

I think

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

Love it

The stuff I like will cost 0.01 while the popular spooge hits the cap. I love you, free market. :)

Re:Love it

I wonder if they will pay me to download Yoko Ono tracks?

Awesome

Much better than iTunes' $0.99 per song, $9.99 per album approach. Now, if only I had money.

This could actually be nice for some people

Those who prefer to listen to non-mainstream artists would get cheaper music, while those who prefer to listen to mainstream artists would pay more for it. It almost sounds like a tax on lack of musical taste to subsidize music geeks!

Might this help the long tail?

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.

Brilliant

The screw-you pricing of the airline industry and the crappy product of the corporate music industry.

Can't fail.

And you wonder why?

Now, for everyone who wonders why cookie cutter pop songs sell....

While it's somewhat neat this is only going to make the unimaginative pop artist richer and the indie artist poorer. When this model goes live and pop goes for $$$$ don't sit there and ask why big labels only seem to produce pop. At least with the old static model the indie artist could still make a buck off a few sales instead of having to have half the iPod owning population buy their song to finally make the rent.

Or in a much shorter form: If you're a small artist with a small fanbase you're best off to avoid Amazon. Regardless of talent.

Amazon music stock market

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

Interesting and novel?

The idea of having customers directly influence the price of songs is an interesting and novel approach to selling digital music.

Yeah, having supply and demand affect the price of your wares must be really frickin' strange.

brilliant

So your whole business model is really based on the concept that your product has no intrinsic value. The act of selling music is the only thing that carries value, not the talent and effort that went into producing it?

Bible and/or Scientology

Dang it...I need to record some audio books of the bible or the dead sea scrolls...heck even Scientology....

I'll make a ton as the same 'customers' buy it again and again...

I better include a sony rootkit just to make sure....

No way the Big Four go for this

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?

Lots of good music on Amie Street

This is really good news. There are some good songs to be had on Amie Street for not much money. So far, I've bought 91 songs and have only spent $6.29. That's about 7 cents per song. With no DRM at all. Beat that, iTunes! ;-)

Oh, and if you happen to be interested in what I'm listening to, here's my playlist: http://www.jasons-toolbox.com/what-im-listening-to .php [jasons-toolbox.com]

The other way around?

Wouldn't it make more sense to actually start at the highest threshold, and then move down the price based on how popular it is? Essentially creating a chain reaction of making songs that seem not so popular very popular to try?

And as incentive for those who bought the first ones, since they were the guys that discovered and pushed the price down in the first place (and made it more popular), give them credits for their next purchases?

Wouldn't that be a natural filter for crappy music and boost good music?

In Other News

In other news, the store announced that they would introduce music in order of popularity.

I was into them before it was cool

This is great for people who like to brag that they were listening to a band before they were popular. Now you can say, "Oh yeah, I was listening to them when their tracks were free. The fact that you paid $0.98 for them shows how much of a poser you are."

Popularity Tax

Cool, a Popularity Tax! So the masses would pay more for those craptastic pop songs and American Idol drek. Whereas, us Metalheads, Punks, and fans of other less popular genres will be getting sweet low prices. Sounds like a most excellent idea, Ted! [guitar-riff]

[Note: I was tempted to call this a "Stupidity Tax", but that just seemed overly cruel to the followers of Pop - they have their own problems.]

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

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?

No more supply/demand?

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.

The critical question.

TFA doesn't say whether these are in fact MP3 files, and the critical question is: will these songs play on an iPod? If not, this business is doomed before it starts.

-jcr

This wont work!

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!

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.)

Jane Siberry's been doing this for YEARS

check it out - really lovely music and you get to determine the price you will pay. She's been doing this for about 2 or three years now.

SHEEBA.CA [sheeba.ca]

Frankly, I give her more than the average price. You should too - she's NOT rich, and could use the money... but if you're poor, then pay what you can.

RS

Pandora Tie-in

Now, if they can pen a deal with Pandora so you can find music you like that would be spectacular. You could stream all kinds of music at random (based on preference) for free, but with a nifty "buy it" button.