Joel on Software – Price as Signal

Forbes: “EMI Group boss Alain Levy said at press conference today that he believed Jobs would introduce multiple price points for iTunes music within the next year.”

The story they’re trying to tell you is that “older, less popular songs could be discounted, and in-demand singles could go for more than a dollar.”

Let’s think this through, because I think the recording industry is lying about why they want different prices.

Joel goes on to talk about movie theatres and pricing and why they don’t do this type of thing at the theatre.

Joel goes on to say;

And indeed this is what the recording industry is telling you that they want to do on iTunes. But they don’t do it in movie theaters. Why not?

The answer is that pricing sends a signal. People have come to believe that “you get what you pay for.” If you lowered the price of a movie, people would immediately infer from the low price that it’s a crappy movie and they wouldn’t go see it. If you had different prices for movies, the $4 movies would have a lot less customers than they get anyway. The entertainment industry has to maintain a straight face and tell you that Gigli or Battlefield Earth are every bit as valuable as Wedding Crashers or Star Wars or nobody will go see them.

Now, the reason the music recording industry wants different prices has nothing to do with making a premium on the best songs. What they really want is a system they can manipulate to send signals about what songs are worth, and thus what songs you should buy. I assure you that when really bad songs come out, as long as they’re new and the recording industry wants to promote those songs, they’ll charge the full $2.49 or whatever it is to send a fake signal that the songs are better than they really are. It’s the same reason we’ve had to put up with crappy radio for the last few decades: the music industry promotes what they want to promote, whether it’s good or bad, and the main reason they want to promote something is because that’s a bargaining chip they can use in their negotiations with artists.

Now that’s something that makes you think, huh?

I think Joel is on to something here.

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