My Ideal Music Distribution Model Part I: Background Info

There has been a lot of talk over the last few years about how the music industry as we know it is dying. Awesome. I'm glad. People also like to speculate on where things are headed. Some think iTunes is the future, others think that music will soon be free and become simply a marketing tool for merch/performances. I honestly don't have a clue how the whole drama is going to play out, but in the next series of posts, I am going to describe my ideal music distribution and pricing model.

My basic assumption here is that people are willing to pay for music. Recorded music does have a value and people recognize this. The problem with most of the current and traditional models for monetizing music is that people are unable to afford the amount of music they would like to own. In a nutshell, the value per song of recorded music has dropped significantly, but I don't believe that the aggregate value of music to an individual has dropped at all. It might even have increased.

To put it another way, before P2P file sharing, the medium and distribution of music limited the amount of music a single person was able to access and own. Labels could easily control the price of music because it was a physical good just like any other. There was a certain limit to the amount of music you could put on one disc. With the advent of the Internet and digital music, people all of a sudden were no longer restrained by the physical product. Music libraries increased exponentially. With this new ability, it no longer made sense to limit yourself to the 10-15 songs you could get on one CD for $15. Instead you could have thousands of songs at your fingertips. The problem was that these thousands of songs didn't have a price on them, they were free.

I tried to find some statistics on the average size of a music collection over time, but my brief searching turned up no results. Just to speculate though:

Year	# Songs	Cost ($1/song)
2000	600 (~40-50 albums)	$600
2009	8000 (~40GB)	$8000

As you are probably aware, 40GB is a modest amount for a music collection these days (I assumed 5MB/Song). Let's assume this is one person. From 2000-2009, that person would have had to spend ~$68/month ($816/yr) on music at the old prices. Few people I know are willing to do this. If it took that person 4 years to get the original 600 songs, that would only be $12.50/month. My assumption is that people on average probably find enough value from music to allocate that much of their budget for music.

So this brings us back to the original problem. The quantity of and access to music has changed drastically, but the pricing models really haven't allowed people to pay for the value they see from it.

Most current solutions to music in the digital age fall far short of understanding and correcting this problem. I'll just canvas a few of them below.

1. Apple iTunes. Apple was sort of the first big player to step up and try to monetize digital downloads. They have until recently charged around $0.98 per song, but have now moved to a variable pricing scheme where songs can cost $0.69, $0.99, or $1.29 based on popularity. Some people are not too happy with this, for reasons I don't really agree with. I just think it's still too expensive to be a proper solution and some of their music still has DRM on it, which is just absurd. They have sold 6 billion songs through iTunes as of January 2009. Here is the best part, though. The artist cut on each song is probably around 10% if they are on a major label. Does that seem messed up to anyone else?


2. Amazon.com. I'm not really sure when amazon started selling mp3s, and I'm too lazy to look it up right now, but it doesn't really matter. Amazon's prices vary some, but typically songs are priced at $0.99 each from what I've seen. Still too expensive, but at least there is no DRM.


3. Microsoft Zune Marketplace. Microsoft offers mp3 purchases at around $0.98/song through their zune marketplace, but they also offer a Zune Pass for $14.99/month. The Zune Pass allows you to listen to (mostly) unlimited music from the Zune Marketplace as long as you keep your subscription going. You also get 10 free downloads per month. The huge downside here is that it's basically just paying for on-demand radio... You don't get to keep the songs after you cancel your subscription and you are limited to 6 devices total even while your subscription is going. Napster does something similar. (watch out for the annoying lady if you click that).


4. Amie Street. Amie Street is a really cool site that does actual variable pricing based on demand. Songs start free or cheap and can rise to $0.98/song based on popularity. This is a cool little model, and probably close to the best thing out there right now, especially since artists get 70% of the proceeds from each song.


5. Magnatune. Magnatune is a Berkely based little site that lets you choose what you pay to download an album/song. 50% of whatever you decide goes directly to the artist. They also refuse to work with major labels (I don't blame them). 50% seems a little low to me, but the choose what you pay scheme is interesting. I'm curious to see how that works out.
   

Some of these services seem to be on the right track, but others miss the point completely. In the next post on this topic I will lay out how I think this whole thing should work and then possibly follow up with the feasibility of implementing it. I would love to hear what other people think as well as I go through this process so please comment if you have an opinion.