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.

Pricing & Web 2.0

There are a number of industries that are currently facing what I call “disruptive business models”. Some examples include:

• Traditional recorded music formats, such as CD’s, which were first challenged by peer-to-peer file sharing networks like Napster (Mk I), and now by the likes of iTunes;
• “Analogue” (paper and chemical –based) photography, which is under attack from digital photography;
• Print newspapers, and particularly their advertising revenue base, which is under attack from not only the internet (news and classified sites), but also from free commuter newspapers such as The London Paper, City AM, Metro (all in London), and MX, here in Melbourne;
• Traditional telephony is under attack from the likes of VoIP service providers such as Skype, and;
• Finally there is the 200 year old Encyclopaedia Britannica that is facing stiff competition from Wikipedia.
  
  It is now becoming fairly clear in my mind that the Web 2.0 movement is also becoming another “disruptive business model”, and like the ones mentioned above, potentially damaging to the pricing and revenue management practices of the industries or businesses they are disrupting.
  
  Let’s say you run a petrol station in Dublin. You service is far superior to that of any of your competitors: you clean drivers’ windscreens, you check their oil and water, your forecourt is immaculately landscaped, and you charge 5 euro cents more than the competition as a result. Along comes a site like http://www.pumps.ie/ where users can not only see how much you’re charging, they can see your pricing history and that of your competitors. All of a sudden, that premium you’ve been able to command is under pressure.
  
  In my posting of 8th December 2006 titled “2006: The Pricing Year in Review” , I commented about a website called Farecast.com which predicts whether airfares will rise, fall or remain stable over a given (US) city-pair. Farecast will tell you things like (a) whether to buy an airfare now or later, (b) when in the future it will be cheaper to travel or (c) if you’ve got $150 to spare, where you could go to with that amount of money. I challenge any reader of this blog to find an airline website that provides all that functionality.
  
  For many years, the travelling public’s perception of revenue/yield management is that it’s a black box that the airlines use (that other black box, the flight data recorder, is actually orange), and only they know how it works. Farecast is putting these revenue management capabilities into the hands of consumers. Not only that, it is also putting its money where its mouth is. Farecast’s forecasts are 74.5% accurate, and for $9.95 consumers can buy insurance against prices decreases that are valid for a week. The owners have also indicated an intention to not only expand coverage of the site beyond the USA, but also to expand into a host of other industries such as car rentals, hotels and the like.
  
  As EyeforTravel reported on 17th July 2007, the MSN travel Channel will now offer Farecast prediction and planning tools to its users . Could this be the start of the democratisation of revenue management?