What do the FT, Radiohead and campaigners against ticket scalpers have in common?

A couple of interesting pricing stories broke overnight. The first comes from the website of London Financial Times, which preempting a similar move by Rupert Murdoch at the website of the Wall Street Journal, announced that it was making much more of its content available free of charge. You can read coverage from the Sydney Morning Herald here, and from The Independent here.

Another big story, reported by the ABC here, and the BBC here, was the decision by the band Radiohead to let fans determine how much they want to pay for their next album – even nothing if they so wish. There are a number of restaurants around the world that offer this sort of pricing model, including one here in Melbourne in the beach side suburb of St Kilda. I can’t remember who told me this, but I do recall hearing that the owner of this restaurant in St Kilda operates a number of eating houses, and guess which one is the most profitable? The one where diners pick the price they pay.

The final story is this one from The Age which talks about how music fans are fighting back against ticket scalpers.

Pop Economics

I’m a little bit behind in my reading at the moment, so I apologise if this posting sparks an interest in an edition of a publication that is no longer available in print on the newsstands.

I’m very interested in the role of pricing and disruptive technologies, such as Skypes’ impact on traditional telco’s pricing models, or digital photography’s impact on ‘analogue’ photography. Pop Economics, written by Robert Sandall and published in the August 2006 edition of Prospect Magazine is one of the best articles I’ve read on the economics of the music industry.

The articles opens with the story of a band that stops selling their $10 CD’s at concerts because it was cannibalising sales of its $20 t-shirts. I’ve previously spoken about rock ‘n’ roll t-shirt pricing here.

Why did Prince give everyone attending his shows at London’s O2 arena in August, and readers of The Mail on Sunday, a free copy of his Planet Earth CD? The reason is perhaps best summed up by the guitarist from Anthrax, who say “their album are the menu, the concert is the meal”.

In effect, recorded music is becoming a loss leader….but how did the industry get there? Well, apparently it’s partly got itself to blame. Free-to-air radio commenced in the 1930’s. 12” LP’s were the dominant music format until the mid 1960’s when the 7” single took over. Then along came CD’s in the 1980’s, hoping to persuade everyone to replace their vinyl records collections. The “Home Taping is Killing Music” campaign reached its peak in the 1980’s and by 1994 the CD had become more popular than cassette tapes, which had sparked that campaign. But, as the article discusses, record companies were selling CDs and giving away their master tapes. And of course, we then get into Napster and iTunes, which brings us up-to-date.

So while the pressure on recorded music pricing has been all downwards, it’s the opposite in live music: the trend has all be upwards, and I’ve also commented about this in other blog postings, as does Pop Economics: in the 1980’s the price differential between a Madonna CD and a ticket to one of her concerts was negligible. A ticket to see her at Wembley last summer was more than twice the price of her entire back catalogue.

The last paragraph of the article is one that I’d like to quote in full, because not only does it apply to pop economics, it also applies to many Web 2.0 sites, which I’ve also written about in the past. It reads:

In his book e-Topia, William Mitchell relates the increasing value of shared
experience to the isolated nature of electronic or online virtual worlds. “in
conducting our daily transactions, we will find ourselves constantly considering
the benefits of the different grades of presence that are now available to us,
and weighting these against the costs” he writes. Being in the same place at the
same time as a live performance, music fans appear to have decided, is the
rarest and most precious presence of all.

Segmenting the Market for Digital Products

Market segmentation is a critical component of any pricing strategy. When it comes to digital products, market segmentation often goes by the moniker of “versioning”. To give just two examples, digital product may be versioned by dimensions such as timeliness (delayed data is cheaper than recent data) or speed (versions of software that run at faster speeds are more expensive than those that run at a slower speed).

This story on a free wi-fi network along a 22km stretch of the Thames River in London is an example of versioning at work. The service is free at download speeds of up to 256kbps to users who agree to watch a 15-30sec advertisement every 15mins or so (that’s versioning by annoyance), while anyone who wants to pay for the service will not only avoid the commitment to watch an advertisement, they’ll also get faster download speeds.

By the way, further information on versioning can be found in “Information Rules: A Strategic Guide to the Network Economy”, by Carl Shapiro and Hal Varian can be found here.