Music: The New Stock Market . . .

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When Apple created iTunes, they signed a fairly short-term contract with the record companies to provide songs at a set price.

Those contracts will be expiring shortly, and when they do, so will one-price-fits-all. The record companies want variable pricing, and since they have the goods, Apple will have to give way.

Father, forgive them, for they know not what they do.

The music industry simply sees this as a way to make more money from the most popular songs.

What they are really doing is opening up Pandora’s Box.

As REM once said, “It’s the end of the world as we know it.”

Should you feel fine?

In the long run, yes, but that could be a long while.

What variable pricing will do is introduce price competition into what has been a pretty-much price-fixed business. This has the habit of eventually lowering price while pretty much destroying the old regime. Ask AT&T.

In the meantime, though, to get from here to there, we will go through various phases of instability. The instability will be permanent, but it will go through different phases.

In the short run, prices will go up. We’ll see singles selling for $5, $6, even $8 for a while. At least until no one buys them.

What will happen is that those who will not pay such prices will discover that for little more, they can subscribe to a service that will give them access to whole catalogs. Now that these services are becoming portable music-friendly, there is little reason for any serious music lover to own music.

Music companies will likely withhold hot singles from the catalogs, but all that will do is stifle the current download market and create a new class of music listeners who’ll wait until the music companies let them go, much like people don’t go to the movies but wait for the DVD.

For those who still want to own music, well, songs don’t stay hot forever. You can’t charge $8 for yesterday’s hit forever. People will wait for price cuts.

Variable pricing will create a new class of bargain-hunters. If new heavy metal band A costs $8 and a similiar-sounding heavy metal oldie costs a quarter, that’s going to shift some money around. What if the same band releases an album in which the “single” costs $5, and another cut costs fifty cents? If singles make more money, will we even have albums anymore?

Of course, those opposed to the notion of paying at all will steal even more, and if you thought Sony rootkits were outrageous, hah!

I could write a small book on the “what ifs,” this could play out a million different ways. What is important to understand is that this is the start of a tumultuous, revolutionary time for the music (and trailing a bit) movie industry, one that will likely take years and years to play out.

By 2015-2020 (if it takes even that long), the music industry will eventually look more like today’s phone industry, if not today’s stock market. The cartels will try to keep control, and may be able to do so for a while, maybe quite a while, but in the long run, they won’t; they can’t.

Ed

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