How Much is a Song or Album Actually Worth?

How much is a song actually worth in a new marketplace in which production and distribution costs, like the manufacturing and shipping of compact discs, are no longer an issue?

Over the last decade, much has changed for digital music consumers -- including the growing array of mobile devices that can play music, and the rise of new rivals to Apple's iTunes store such as Amazon MP3 Store, Google Music, Spotify and many more. But one thing has been remarkably steady -- the price of a song, long held at .99 cents for the majority of individual tracks (with some hits costing as much as $1.29)

I have a hard time justifying the cost for MP3 albums above $5.99 (at 256 bit rate) and would pay $7.99 on some deluxe albums as I think that is a fair price for what your getting since you cut out all the middle men and costs. This is one reason I buy from Amazon 95% of the time as well as still buy a CD at times because the cost is actually cheaper to buy then the MP3 download…go figure (same issue with eBook downloads but that’s another blog/rant)

Why is that? The music labels seem to be charging much higher [fees] than they should for a lesser quality end product (MP3’s) with no replication costs, storage costs (except server/bandwidth costs), shipping and middle men retailers.

The issue of pricing has long been a thorny subject within the music industry. Music labels became so accustomed to large profits in the late 20th century because of barriers to entry -- including control of distribution and the high costs of manufacturing records, cassettes and compact discs this gave the industry the ability to extract more revenues from recorded music.

Excerpt from Freakonomics blog by Peter Rojas, founder of Engadget “The fact of the matter is that the majors thrived in an era of inefficiency, when there was value in physically producing and distributing music. There isn’t any value in that any more (or at least, it’s very quickly declining), and there’s no good way for labels to compete given that the cost structure of the business was designed around physical releases. Major labels need blockbusters, because the costs inherent with producing, distributing, and marketing each physical release means it’s easier to make money from one mega-hit that sells 10 million records than 100 small hits that each sell 100,000 records. In a digital world, you could make money from those 100 small hits almost as easily as you could from that one mega-hit.”

In the 80s it was cheaper to manufacture a CD than a cassette, which in turn was suppose to offer a superior product for a cheaper price but the record companies saw it as a premium product and charged more. In the 90’s CD prices rose even as the cost of producing CDs plummeted. Thus began digital piracy of ripping CDs and uploading/downloading music on file sharing sites like Napster and Limewire. Consumers were tired of not getting what they want so they found alternative routes to get their music.

This digital revolution combined with a ridiculously cheap distribution channel (the Internet) has really mucked it up for the major labels. As much as the record companies fight change they finally caved in a bit to allow iTunes to offer legal music for consumers to choose the songs they want (eliminating buying full albums yet limit the quality (at launch 128bitrate and DRM restricted).
Now that modern technology allows ordinary bands to record, mix, cut and put their own tracks on iTunes and Amazon alongside music industry giants. Digital downloads should have made it possible to slash prices for recorded music, but the majors have done their best to keep prices at around a dollar a track or same price as a physical CD for an album (for less quality) counting on the convenience of consumers downloading from almost anywhere than going to a store.

Back to the piracy issue of downloading or sharing illegal copies of music with peers. Unfortunately there will always be a percentage of people that just don’t want to pay for anything and will steal music without care. I believe that if record companies priced music appropriately (based on quality and distribution) consumers would buy more rather than once in a while or steal it. Outside of the great subscription services out there such as Spotify, I really think Amazon’s Music Store is going down the right path and a great way for music lovers to consume music (that they want to own).

I am a high music-loving consumer and believe that consumers would buy more at a lower price. I would download impulsively without much of thought (except when the credit card bill came) at .69 cents per song or $5 for an album. I fully believe if the Music Industry reduced prices for digital music they would see increased revenue and curb piracy. Thoughts?