There are rumours that Apple will announce tomorrow something new and big, having to do with iPods and music in some way. One specific rumour is that they will move towards a subscription model for music pricing: pay a monthly or yearly fee and consume all you want.
I have been saying this for years now. The (social) marginal cost of one more person listening to a song, especially in the digital age, is zero. For economic efficiency, and for maximum revenue extraction, the optimal price for the marginal song is zero. An "entry fee" pricing model accomplishes this. Price the marginal song at zero, get consumers to buy the efficient amount of music (to where their marginal value is zero) and then extract all the value created in one fell swoop with an entry fee.
Apple has to overcome a couple hurdles to implement this. One is that up to now, their marginal cost has not been zero, as they pay royalties on a per song basis, and they are quite high. Second is the property rights issue. Getting an infinite number of songs for one entry fee in one month and then cancelling the service cannot be an option.
No comments:
Post a Comment