Dear Mr./Ms. Music Executive,
First of all, let me compliment you on your pricing strategy so far. You have aced the test on how to price information products. Information products like music are tricky – the content is all in digital form, the fixed costs are high and marginal costs approach zero. How do you price such a thing?
Your current strategy seems to be working well. You have segmented the market according to the listeners’ ability to pay. To each segment you offer a different product (or sometimes the same product) at vastly different prices. I checked prices at different places for the same album – Don. Here’s what I found:
1. Cassettes for the “Aam Aadmi” – Rs. 58 at Indiaplaza.in
2. CDs for the yuppie Indian – Rs. 160 at Indiaplaza.in
3. CDs for NRIs – $ 14.99 at amazon.com which I thought was crazy since the local Indian grocery store in Fremont sells them for $6.
4. Songs for NRIs – $0.99 on iTunes per song. Price of the album is just a sum of all the songs on it, in this case $7.92.
Even if you exclude the Amazon pricing, the highest to lowest ratios are 5 to 7 times. That is an amazing range of prices for what is essentially the same product. You are getting volumes at the low end and milking the high end. Best of both worlds.
But I hope you’ll understand if I as an NRI have a problem being royally ripped off. Luckily, I travel back to India quite often and pick up all my music here at Rs. 160 an album. I wonder what other Indians who don’t get back too often do. Pass USB disks around, I suppose. Lost revenue for you, but hey, who cares, you’re making a buck a song on iTunes.
I understand why you have to sell your songs for $0.99 on iTunes. You don’t have a choice – that’s the only pricing that Apple will allow. It just happens to be totally out of whack with CD music prices in India. And that rankles.
Most people want to buy music legally, if it is made simple and inexpensive for them to get it. Say this to yourself three times every morning after your morning prayers. And then think about your pricing strategy. There is a vast, relatively untapped appetite for Bollywood music amongst NRIs. If you just got rid of your pre-conceived notions.
Your current strategy has another flaw. It offers no legal way for Indians in India to download music.
Digital music in India is going to happen. I can easily visualize millions of portable music players in the hands of a young population with disposable income. With millions of music players in the market, how can there be no place where one can legally download music? iTunes + iPod together don’t work for India – too expensive – so that’s not an option. The way to make it work in India is to do what mobile handset manufacturers did – make it cheap and go for volumes. Matter of fact, it is quite possible that Nokia and Motorola might dominate the mp3 player market as well, as they include them in their cell phones.
As broadband in India truly becomes “broad”, the convenience of downloading music becomes very real. Especially for those people who listen to their music largely on their portable players. They don’t have to go to a store to buy the whole album when they actually want just a couple of songs. They don’t have to then “rip” the music off of the CD and convert it into mp3. And they don’t have to deal with your brittle, cheap CD cases, which break within two days leaving unprotected CDs around getting scratched.
So here are my recommendations for your digital music strategy:
1. Go DRM-less. I wrote about the DRM lock-in issues in an earlier post. I would strongly advise you to go DRM less. You have nothing to lose – DRM-less files are already out there – on every CD that you sell. What are you afraid of?
2. Price it low and fairly. Stop your “sock-it-to-the-NRI” pricing schemes. Eros Music is trying out a new pricing strategy – $0.25 per song outside India and Rs. 19 in India. There are very few songs (only the albums that they own) and the website sucks, but I think they are onto something. I’m not sure what their thinking is behind the discounted dollar price, but the Indian price per song is bang on. At eight songs for an album that would be the fair value of the song. Their album price is the price of a cassette, which is also surprising. But if the dollar price was even $0.50 that would be fair and very attractive. I’d build up my entire collection of Mukesh songs at these prices. Except that Eros won’t have those songs, Saregama would.
3. Think about flexible pricing. Amie Street has an interesting model where the price of a song, DRM-free by the way, goes up as demand goes up. You could experiment with your own pricing schemes. For instance, release a new album only digitally for a week. Charge a higher price for it.
4. Don’t do this on your own. I am not going to go to different sites for Eros, Saregama and Sony music. And don’t form a consortium to build the site either. They never work. Just let the industry know that you (all of you) are open to considering DRM free music downloads. I’ll bet that in three months there will be a dozen existing and new companies who will respond to it and offer to build online music stores.
5. Form an association like the RIAA and prosecute anybody who illegally hosts your music. Ask the Indian government to help in prosecuting people who operate from countries where the IP laws aren’t as strictly enforced.
But the first thing you need to do is get over your fear of piracy. There are a few things you can do to slow it down. Do them. But don’t expect it to go away. Selling DRM free, digital downloads is not going to increase piracy. Once you get over this mental hump, the rest is easy. You’re smart, (you have to be to have come up with your current pricing strategy), you’ll figure it out.