Turtles all the way down

All the hype over Radiohead’s recent album pricing, along with announcements that Nine Inch Nails and even Madonna may be moving away from major labels has me thinking. Maybe it is possible to harmonize the fact that millions of people like myself want music cheap and on MP3 only. But millions of others still want physical media for some reason - fidelity, collecting, habit, etc.

Maybe Radiohead is really on to something by offering MP3s for virtually nothing then later selling a very expensive deluxe CD package. They have addressed both ends of the spectrum of what people will spend on music. Face it, no matter how good the music is, some people won’t pay even a cent for it, while others will happily fork out $20 or more for an album. The latter are supporting the artist, at least if the artist isn’t on a major label.

But what about people landing squarely in the middle of the market?

I’m seeing two more pricing models at play here: “cheap MP3″ and “pricey MP3.” The former is like eMusic - you can download a whole album for $1-$3. The latter is like iTunes, Amazon and a lot of independent artists going straight to their audiences - you can download an album for $7-$10. I tend for fall into the “cheap MP3″ category because there is so much great stuff on eMusic that I just don’t have a lot of time to focus on anything else.

Mashing this altogether, I see artists doing two forms of price differentiation. The first is based on budget vs. deluxe formats. The artist will release on MP3 a lower-fidelity and less expensive version of their album to capture the broadest possible audience. Then they will release a physical media version (heck, maybe even an LP) that will be targeted towards collectors who are willing to cough up extra for it. The second is a variation on the street performer model, where the artist chooses differential pricing of their release. In other words, the artist is a saying, “If you like what I do and want to hear more, pay me a couple of extra bucks.” You can download the MP3’s for $1-$3 but then tip the artist in the hope that he or she will continue to make music you like. Think of it as commissioning for the masses.

I find this tipping approach rather appealing. It allows me to pay what I think the music is worth rather than a fixed price. Twenty years ago, all CDs cost about $12-$15. If you liked a purchase, that was a bargain. If it sucked, your only recourse was to sell it at a loss. Maybe more widely in the future, you can go back to the artist 6-12 months after first downloading the album and tip them based on how much you’ve enjoyed it.

I’m convinced that music will continue to be free or almost free, and that musicians and labels will finally admit that this is the case. These are exciting times.