6 replies
  1. Mark Marshall says:

    I was JUST speaking with my co-brainstormer & dreamer about this not two days ago:

    A micropayment system specifically for music.

    The problem as I see it – a gym and music are two completely different animals. One only needs a single gym. But as a musical artist, I am more than a piece of gym equipment… and as a listener, I don’t want to be tied to a particular outlet for obtaining music. I partake of both iTunes and Amazon – though as of late, I’m tending towards the latter.

    And the more independent (and non) music that gets released, one artist is likely to become much more of a needle in the haystack, if we’re talking about a single service. Further, how does the revenue model in that “pay one price” service apply to an individual artist?

    No answers here, mind you – just questions.

    Great column. Thanks!

  2. Benjamin Lipman says:

    An interesting study. To me the “overestimation of future efficiency or future self-control” seemed to sum up quite nicely the heuristic at work.

    It is almost the counterpart to the Arkes & Blumers theater example (http://faculty.chicagogsb.edu/richard.thaler/research/MentalAccounting.pdf) of consumer application of sunk cost.

    You could very well be absolutely correct that at a given high monthly-all-you-can-eat price, a certain percentage of consumers will overestimate their consumption and end up paying more than if they purchased a la carte, but I’m not sure where that leaves the industry. The price elasticity in digital music is fairly profound. Sure, you capture a certain subset, but focusing on just that top part of the demand curve doesn’t address the problems at hand.

    Just as there are different gyms that cater to different price points (e.g. Reebok Sports Club versus Crunch here in NYC), the overestimation may be in place in terms of TYPE of membership but the variety of gyms and gym pricing still allows for capture along the demand curve.

    While cell phone plan comparisons may be more apt than gyms due to the digital good similarity, the cell phone companies (smartly) use punitive pricing mechanisms to push overestimation of consumption. Since the overage rates can be so high, many consumers opt to overestimate even though a fewer minute plan with occasional overages might very well be cheaper.

    The killer, of course, is that consumers have a real alternative with digital music that they don’t with gyms or cell phones (home gym? payphones?) and while that alternative comes with some technical complexity and risk (P2P is rife with virus), for many the cost/benefit is there.

    I think allofmp3.com’s massive popularity shows the potential for price elastic demand and that NiN’s and others’ offerings at multiple price points is where the industry is headed.

    But all-you-can-eat will be mired in the tangle of rights ownership until a compulsory system for digital downloads can be worked out, similar to radio or streaming. After all, it can only be all-you-can-eat-of-what we’ve got. No Beatles, no AC/DC, etc.

    That’s a hard sell. The gym study would be very different if the gyms couldn’t offer the most requested products like treadmills or weights…

  3. Michael Mathy says:

    Note also that in the report, even it is for gym, more people choose a monthly subscription instead of an annual because they want to be able to cancel.

    The question we can have also is if iTunes would have even more success if it has a monthly base subscription.

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