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March 10, 2004
Why the ala Carte Music Model is Doomed
Posted by Ernest Miller
It costs $499 to buy a new 40G iPod.
It costs $10,730 to fill it with songs purchased online at 99 cents each.
via DocBug
Anonymous blogger Cypherpunk argues that:
The thing is that this factoid is not as meaningful as it sounds. The iPod just holds music, and there's no significance in how its price compares to the price of the music you buy. I'm looking at my CD shelf unit, which probably cost about $40, and is holding maybe 200-250 CD's, probably about $4000 worth. Is there any cosmic significance in the fact that I could buy a shelf for only $40 that would cost 100 times that to fill with music? I don't think so. And the same is true for the iPod.
Here's the thing, though. Generally, people won't buy a shelf that can hold 1,000 albums unless they already own or expect to own 1,000 albums. Instead people by a shelf for 40, 100, or 250 albums, what they own or what they expect to own. Having so much storage changes people's expectations. If you have a lot of bookshelves you are going to fill them with something (might not be books). When you buy a 40G iPod, you are going to expect to use a substantial amount of that storage for music.
I also believe that the nature of MP3 players also increase expectations. When I could only listen to a CD in my car I knew that, physically, there was a limited number of CDs that I could bring or listen to. Even when I listened, I could only listen to a single CD at a time (and I am pretty lazy about switching them - I generally only did it at the start of a trip). Now, my expectation is that I will listen to an extensive playlist, not more than a hundred songs or so in reality, but my expectation is that the playlist is essentially unlimited. "Why shouldn't I have access to all music at my fingertips" my expectations tell me.
Apple is selling lots of 40G iPods to people who don't have 500, 800 or 1,000 albums. Apple and its MP3 player competitors are deliberately raising people's expectations about how much music they should own, and those expectations will continue to increase.
What this factoid points out is that at current ala carte prices these expectations are entirely unrealistic. Something's got to give. I don't think that it will be digital storage in which advances continue to outpace Moore's Law. I don't think it will be people's expectations. Thus, it is going to have to be the ala carte pricing point. However, I think the only realistic ala carte pricing point is going to be in the micropayments realm, which is unlikely to work. Thus, a subscription-based model will be the only likely, voluntary solution.
Comments (5)
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Ernest Miller pursues research and writing on cyberlaw, intellectual property, and First Amendment issues. Mr. Miller attended the U.S. Naval Academy before attending Yale Law School, where he was president and co-founder of the Law and Technology Society, and founded the technology law and policy news site LawMeme. He is a fellow of the Information Society Project at Yale Law School.
Ernest Miller's blog postings can also be found @
1. Chad on March 13, 2004 02:46 PM writes...
Why is it that you only view the iPod as a music storage device? I am not an expert on iPods, nor am I an Apple employee, but I would challenge you to think more broadly. An iPod is a hard drive. How big is your hard drive? Have you filled that up? How much would the software cost to fill up your hard drive? What do you currently store on your hard drive? You can store the same files, photos, music, etc. on your iPod.
Currently the iPod is extremely popular as a music storage device and iTunes gets rave reviews from Mac as well as PC users. What do you think will happen when Apple launches iMovies, iGaming or maybe even iPorn (ok - that is probably unlikely).
Our 400 disc CD changer is already obsolete with the purchase of our iPod. The playlists in the iPod were not wiped out when we moved like they were on the Sony CD changer either! Soon your iPod (with the addition of a few cables) could replace your CD changer and your DVD player. When they develop a docking station, it could replace your xBox.
I doubt that Apple will stop making advancements in the iPod and I doubt that we will stop buying them. How many people out there own a 40 gig hard drive? 60 gig? 80 gig? I never filled up the 20 gig hard drive that I purchased 6 years ago before I replaced it with my 80 gig PowerBook G4.
Start asking for iMovies and iGaming and Apple will invest more heavily in these advances! Consumer demand is a great motivator for corporations.
Don't underestimate Apple. Think of me when you hear of the launch of iMovies and iGaming!. And think of new uses for your iPod. Apple doesn't limit your use of it, why should you?
Permalink to Comment2. Ernest Miller on March 13, 2004 03:41 PM writes...
The iPod could be a big harddrive, but it isn't designed to be nor, probably, should it. You can't watch movies on an iPod or play real games. It could be designed that way later, but I'm not sure how important portable video will ever be.
Permalink to Comment3. Foolish Jordan on March 14, 2004 04:44 PM writes...
I think you have the economics backwards here - you seem to be implying that Apple, by selling giant iPods, is going to cause the price of songs to go down because of increased demand for songs. You would actually think the price of songs would go UP given the extra demand.
What seems more likely to me is that people buy giant iPods on the expectation that the supply of music is going to increase, thus that it will be cheap to fill up your iPod. In my case, I have hundreds of CDs which I can rip into MP3s for free (since I already own them).
Permalink to Comment4. Ernest Miller on March 15, 2004 03:09 AM writes...
The price of songs should only go up if there were a diminishing number of songs. Being intangible, there can be as many copies of songs as you want at no additional price (essentially). Price is determined by the seller who decides what price will maximize return.
With more and more iPods out there, for a variety of reasons, I think the subscription model will maximize return for more artists.
Permalink to Comment5. Phil Estine on April 21, 2004 12:39 AM writes...
Chad,
What an absolute naive and ignorant manner in which to analyse the problem of downloading and digital file distribution, ipods and such like. Just because the fact that you havn't filled your 20gb hard disk doesn't mean that others havn't. Have you thought that as much that the ipod has capacity, that capacity does not neccessarily mean you have to fill it. Average out 5mb per song, thats roughly 200 per gb of memory, I am sure there are many people outside your small mindset that do have the ability and broad enough taste in music to fill this device. Just as a car can go 180k/h, does that mean it is obsolete because everyone doesn't travel at that speed? NO! The revolution in the music industry as posed by the developments of technology allows the user to search out and find the exact music they would like to hear, whether that be illegal or legal, the costs charged by firms in the rocrding insutry have forced listeners to transfer the cost of their search upon themselves, technology has allowed the layman to pick out what they want, previously the user had a choice between single or album. Albums mainly being fifteen dongs or nothing at all. Firms act on the behalf of listeners to find music, in this they take risk, however in taking advantage of their situation and asymmetrical information, they have begun to charge 'agency fees' and alienate the listener. Thus, the user transfers these costs upon themselves and searches for this music themselves. In line with demand analysis, why the hell would users pay for ipods if they served no purpose, the capacity available serves as insurance in the event that they may fill the device, other than not being able to store their favuourite music.
Indeed, if your view of an obsolete 40gb ipod exists then why do we notice them flying off shelves at significant speeds. As so far as the idea of devices which serve the user as iGames etc, the distribution and market implication of these industries is far form that of music. A $32bn a yr industry has suffered as a result of technological innovation, some may even say that the business model need changing, but comparing the utility and entertainment value of totally different commodities is poor thinking.
In additon how can a cd changer be rendered obsolete by similar technology, so users who purchase MP3's or procure these in illegal methods do not burn these to act as compilations onto CD. The digital file is a variant of music format, it is digital and is a compressed CDa file, technology has lowered the reservation price of music buyers, but to say the iPOd is not needed but yet admit that buyers will still have them is ludicrous.
Have you ever considered that the Ipod is one of the most well desgined, ergonomic and sleakest pieces of technology. A hard drive serves only as a storage device, an ipod plays music and the user derives extra pleasures in using the Ipod in particluar as to the appeal, whether this be look, reflected glory in owning one or not. There are or are there not similar devices to the ipod, but surely under your flat sweeping statement they would be equally popular as hard drives.
In final comment to your statement how may you compare a hard drive of your pc to that of an ipod, a tailor made music device and stroage medium? When I look to use software i certainly don't enjoy having as much software to use as possible as some may from owning lots of music to listen to, and quite the opposite of trying to acquire software to fill up my computer, it is quite the opposite case. I am quite happy when I have relevent software installed and yet I have most of my disk space left?
Comparissons- stupid-commnmets naive, overall I doubt many people would be thinking of you in the chance of Igames being made, because it won't be for the reasons of which you have written.
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