This topic was the subject a recent Lefsetz
letter:
"There was a curious note on the front page
of the "L.A. Times" Business section at the
end of last week. They were dropping stock
tables from the paper.
It never made sense to me as a kid. All
those pages wasted with information that
held no interest for me.
And then, as I grew older and knew more
about stocks, it occurred to me that the
information was OLD!
But now it appears it's not only old, nobody
even looks at these pages anymore, because
those owning shares are checking the prices
on the Web, the listings in the newspaper
are IRRELEVANT!
Oh, let's look at the other side of the
coin. Not EVERYBODY has an Internet
connection. This is the way it's been done
FOREVER! Why CHANGE?
Well, first of all, to save money. Yes, you
can use fewer pages and those that remain
you can fill with information more
interesting to more readers and/or ads.
Does all this sound familiar? Does all this
remind you of the record business?
Already this year we've experienced two
bombshells. The dropping of film cameras by
Nikon and now this elimination of stock
tables from newspapers (not only the L.A.
"Times", but the "New York Times" and
"Chicago Tribune"). It seems that the
digital/Internet revolution that was
supposed to come in 2000, yet never quite
arrived and was laughed at by old wave
businessmen, has finally come to roost. And
it's wreaking havoc.
Oh, in the old days it was about being too
early. But now with 68% broadband
penetration, the time is nigh. Music is
going to move to the Web almost overnight.
You're going to see a DRAMATIC difference
within twelve months. One day CD sales are
just gonna tank, and the record industry is
just not ready for it. (Hell, it could take
up to two years, don't hassle me on the
exact time frame, but be SURE, it's gonna be
sooner rather than later, not five years,
but IMMINENTLY!)
Look at it from the consumer's side. He's
now inured to music on his computer. It's
all over the Web. More and more people will
have iTunes on their machines. More and
more people will purchase iPods to carry
said music with them everywhere. Suddenly,
the VAST MAJORITY of the public will see no
need for the CD.
Oh, I know you love the artwork. And that
the versions on the CD SOUND better. But
film has advantages over digital imagery,
and it's disappearing. Who says that music
must be sold with packaging? Where is it
written that there must be a cover photo?
Bands centuries back didn't have liner
notes. Not that people won't want
information, hell, they're getting a
PLETHORA of it on bands' Websites. You
COULD print it out if you wanted to, but why?
That doesn't mean you can't have high
quality files on your computer. Hell,
iTunes rips in lossless format if you so
desire. But it appears that most people are
satisfied with 128 AACs. At least for
ripping. As for purchase...
Well, it's less about quality than the
price. The price just isn't low enough.
However you want to deliver the tracks, via
individual purchase, subscription or P2P,
people feel that the price is too high.
You've got to be able to get more for less.
Or else people will get tunes elsewhere.
Maybe even via the black market on Russian
sites, where they're about a dime a cut.
It's no use arguing. This isn't about
philosophy. This isn't about purveyors
establishing a price. This is about what
the market will bear. The key is to make
music so cheap and so easy to acquire it
doesn't PAY to steal. Or, in the
alternative, to monetize the stealing, at a
LOW PRICE!
The Web has changed the playing field. Even
Rupert Murdoch admits it. (
http://www.theregister.co.uk/2006/03/14/murdoch_newspapers/) Why the record companies
believe they're immune is beyond me.
They can whack off manufacturing costs
immediately. And most distribution expenses
too. They can SAVE money. There are
ADVANTAGES to the new model. Look how a hit
single can sell on iTunes. Just imagine, if
price of acquisition were lower maybe TWENTY
MILLION PEOPLE WOULD PAY FOR AND OWN THE
TRACK!
Granted, not for a buck.
But, if price is cheap enough, maybe twenty
million people will own THOUSANDS of tracks.
The camera and newspaper companies woke up
to reality. And gave up holding on to the
past and entered the future. Every year CD
sales go down. Do the labels think they can
retard this trend? Do they think the
miniscule sale of copy protected tracks for
a buck will replace lost revenue? A new
business model is needed. The labels can
either jump ahead of the consumer and corral
him into something in the future or keep
running behind him, railing that he's not
buying the music in the format they want to
sell it to him for at the price they desire."