Sunday, July 27, 2008

Variable Pricing

As a person living in a regional area – we have two department stores and from last count only two independent music retailers – it can be difficult to get tracks for my radio program, especially as I am only looking for political music. Even if I can locate the track I am after, more often than not, I have to purchase a whole CD to get one or two tracks.

I am an eMusic subscriber and this helps a lot as I am able to search for tracks and download them individually but sometimes I have to resort to iTunes to get some of my music. Like many users I question iTunes fixed pricing policy – why should I pay the same price for a 2 minute track as a 7 minute track? Perhaps this is something that concerns me more as I am looking to gather 2 hours of music per week but from a basic economics perspective it seems as though the pricing structure should be based on the length of the track.

In Australia an iTunes track cost $1.69. The average length of a standard ‘radio play’ song is around 3 minutes – working on this basis, I propose that the pricing structure should be altered based on length, something along the lines of:

2 minute song $1.00
3 minute song $1.50
4 minute song $2.00
5 minutes or longer $2.50

There has been some discussion of the need to move to a variable pricing structure but as yet this has been resisted. The model which has been trialled by Warner uses real time data to determine popularity, with the price of tracks changing either lower to promote more sales or lowering over a period of time due to the age of the song.

Interestingly it appears that most resistance to this idea has come from Apple, possibly due to the logistics of tracking and maintaining variable prices across such a large catalogue which of course varies from one jurisdiction to the next. As an alternative, pricing based on time would produce better value for consumers without creating an ongoing issue for online retailers who would only need to set the price once.

Further Reading
THR.Com, Warner music Group to try dynamic pricing (5 May 2008) <> at 7 May 2008

Digital Music News, Warner Music Group Pilots True Variable Pricing (6 May 2008) <> at 7 May 2008

WashingtonPost, New Music Model: Free Before Fee (15 September 2007) <> at 24 September 2007

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