The FT reports that 95% of digital music downloads are illegal. The RIAA has tried many things, including taking college kids to court. Nothing works.
To my mind, piracy of music:
1. Is inversely related to the chances of getting caught, which is very low.
2. Is inversely related to the punishment if caught, which is mild.
3. Is inversely related to the disapproval from friends and family who might know that you are using illegal music. This is almost non-existent.
All of these factors might indicate that piracy can’t be vanquished. But there is something that the music labels could do to start beating it back – reduce the cost of digital music dramatically.
Today the price of a song averages around $1. The marginal cost of delivering the next song is close to zero. So if you were to somehow know what the price to downloads curve might look like, all you would do is to set a price where the product of price and downloads was maximum. But of course, you don’t. Which is why the price of a song is stuck at $1.
I don’t know if any research has been done on this or not. But it seems to me that $1 is just too high a price for a song. At that price, a high school or college student faces the choice of transferring music from his friend for free or paying $40 to get a few albums of a new band that he got interested in. There’s no contest.
You might say that by this logic you can never win against free. You can, if you make it really easy to access and download cheap music from legal sites. If iTunes had song downloads for 10 cents you would convert a large majority of “pirates” to legal downloads.
Obviously, executives in the music industry have a pretty tough choice. First, they may not be able to convince all parties – Apple, artistes – to agree to a dramatically lower price. Doing it for one song doesn’t really work – it won’t change habits. They need to go the Full Monty. That’s a tough sell. Even if they managed to get that far, it is likely that revenue would plummet in the short term before it started rising again. On the other hand, it takes one bad quarter to get you fired.
The leap of faith is that reducing the price per song to a tenth of what it is today can take the share of legal downloads from 5% to 50%. Isn’t it time someone took that chance? After all, things can’t get much worse can they?