"E pluribus tunum: Uniform prices for online music are no way to maximise profit"

Andrew Savikas
November 2, 2009 | Permalink | Comments (0) | Listen

This research suggest maximum value in a digital media market like iTunes (for both producer and consumer) comes from a combination of subscription/membership fee and per-item purchase:

"Charging an "entry fee" for use of the service and then a small, fixed per-song cost for downloads turned out to benefit both the seller and the buyer. The most revenue, according to the 2009 survey data, would be generated by charging the students $21.19 for entry and 37 cents a song. This could raise the producer surplus by 30% compared with uniform pricing. Consumer surplus would also rise in this instance, because some people would buy songs they would have not have done at a higher uniform price. Spotify, a rival to iTunes, has a model somewhat like this for its premium service, where it charges a monthly fee for songs without limit."

http://www.economist.com/businessfinance/economicsfocus/displaystory.cfm?story_id=14699573

Posted via email from Andrew's posterous