Tuesday, March 6, 2007

Wisdom of Crowds meets the Global Marketplace meets ASCAP

In Techcrunch's article on the new music revolution a small company named AmieStreet is rising to the forefront. It's almost a classic way of pricing music that will make consumers who complain about the high price of music (at least when purchasing $17 CDs) happy as well as artists who might turn off new listeners through the fixed price concept of iTunes AND those pesky record labels that are trying to stifle all of our new technology (just kidding...sort of). I know I keep harping on the wisdom of crowds but the Internet truly gives us a way for everyone's unique tastes to be measured. So, what is this new model and how does it help everyone? What other applications might it have to other digital content?

Remember economics class where we had supply and demand charts and based on demand the supply would increase or decrease and depending on where the two lines intersected that would be the price? (Don't worry if you don't, here's a handy chart for you). AmieStreet aims to do the same thing. For music tracks that sell well (i.e. Grammy winners, Billboard's Top 100, Soundtracks to Films, Tributes, Compilations, etc), demand increases. This in turn drives the price up from 0 cents to a maximum of 98 cents (still cheaper than iTunes!). Consumers can share in this phenomena by recommending music to their friends and if the music that they recommend experiences a huge jump in sales, they reap some of the benefits. Counterintuitive right? Go to any Walmart or Best Buy and see that the Top 10 albums are always on sale and that the more obscure CDs are $20 and up. From the retailers perspective this makes sense. Get people in the door by subsidizing their music listening. But with niche markets, we're not subsidizing anything! 99 cents for a track goes right to the music. No high ticket items are subsidizing my music. Enough rant, how does this impact the stakeholders?

Consumer Benefits: They have a chance to make money on music that they feel could become mainstream through the recommendation engine. And good music begats good music and is no longer in the hands of DJs and other promotional dollars. And for niche music they don't have to pay full price. It's great for them. This solves the problem of the $20 Milli Vanilli CD (do they still sell these?) at Walmart and even the 99 cents for Corey Hart's I Wear My Sunglasses at Night.

Artist Benefits: Many artists simply want to get their music heard. Look at the depth of music available on MySpace. Staggering volumes of music. Yet, if an artist really has 10,000 friends, why don't those friends put their money where the music is? The Recommendation system allows these friends/fans to really increase an artist's visibility. So a small unknown artist with a huge fan base can really come to prominence through this engine. Further, many artists feel priced out of the system. This engine will allow artists to sell at all price points from giving it away to 98 cents.

Label Benefits: Well, number one, they are going to get paid. Number two, its a chance to offload some of the music that they would not be getting $20 for at Walmart. And Number three, its a chance for them to locate trends in overall listening and see what areas of their own company they can beef up. This last concept is similar to all of the online betting sites out there. When money is involved the better outcome is usually dictated by the market. Labels will be able to determine if they should put more resources into their Urban A&R versus their country A&R or if they should cut back on Pop resources etc.

So that brings us to our final question which is how this model can be ported over to new industries. Could this work for an American Idol? Sure you could still get it for free on Television (just like you can get music for free on the radio), but if you wanted to see it ondemand would you pay up to $1.98 (with $1.99 being the iTunes price?). What about a show like Sunday's CW Beauty and the Geek (last place with 1.25 million viewers)? Would it still be profitable? How about online media? Would you pay $1.98 to see Justin Laipply's Evolution of Dance (the most viewed clip on YouTube)? Books (although Amazon's used books create some sort of inelastic marketplace)? Goods and services? You'd pay less for a haircut from a less reputable and less in demand barber than a barber to the stars right? In today's world where the consumer is king, anything is possible.

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