Tuesday, November 1, 2005

Jobs Spurs a Pricing Debate: The Case for Auction Content Pricing

It's interesting to note in passing how Newsday and other outlets are picking up again on Apple's Steve Jobs as he castigates music companies as "greedy" for wanting to up the prices for new songs on iTunes when his current agreement with music publishers goes into its second year. A popular position amongst the consumers, to be sure, but it's not clear that either Apple or the music producers have locked on to the right pricing strategy for online music. The music companies seem to be ignoring much of "The Long Tail" discussion, tilting revenues in favor of new catalog entries and tossing out the old stuff that can be contextualized so well in the online environment. Steve Jobs seems to forget that elasticity in pricing can be a reality when a hit's timeliness can create immediate demand (though he has a point that it may bring people back to illegal file sharing practices while they wait for prices to fall). But the real issue is really not so much pricing as it is the inability of the marketplace to determine its own pricing efficiently. iTunes licenses are "forever" licenses - for one individual. Apple and other vendors churn out an infinite number of these "forever" licenses, forgetting that most people won't find these licenses to be of use forever.

What if, instead of an infinite supply of "forever" personal licenses, there were a limited number of licenses that also included some level of license resale rights? All of a sudden rights-protected music would become a fungible commodity, whose value could be determined potentially in auction environments. The folks at Weed already have a component of this - the ability of individuals to share rights-protected music that others can buy after a few free uses - so the basic logistics of managing distributed content licensing are already in place. Alternatively there could be a finite number of licenses issued when a piece of content first hits the market and an auctioning of those licenses to allow the marketplace to determine the true value of "hot" content. In any event, the full potential of DRM-enabled content will only be realized when it can find its own level of value in the marketplace rather than be stuck with "forever" pricing that is perhaps too dear or too cheap for a given market's demand. Expect markets for auctioned content to begin appearing within the next two years, perhaps on the business side of publishing first but quite possibly in consumer media as well.
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