The price of music

How much is music worth in an age when just about any song can be grabbed for free?

Steven Levy tries to answer from the pages of Newsweek.


How Much Is Music Worth?

Is 99 cents a song the magic number? No way. When a music service tested cutting prices in half, sales went up sixfold.
Oct 29, 2007

On Oct. 10, the beloved British rock band Radiohead made some history. The group had produced a new CD—but didn't release it. At least not in CD form. Those who wanted to hear the feverishly anticipated studio album "In Rainbows" could grab the work only by downloading it from the band's Web site.

Here's the twist: there was no set price. Going to Radiohead's site, one was confronted with a blank field when it came to payment: you could enter a figure from zero up to hundreds of dollars (everyone had to pay about 90 cents) and receive in return a code that would let you download the songs in unprotected form, listenable on iPods, Zunes or PCs. It was almost like the band had taken to heart the title of its breakthrough work—"OK Computer."

How much is music worth in an age when just about any song can be grabbed for free? The results from Radiohead fans don't really answer the question (and the band has yet to release official figures). But by all accounts, the experiment makes one thing clear that should have been already as obvious as a rimshot: real people don't agree with the record labels.

Online pricing until recently was fairly standard, thanks to the dominant seller, Apple. When Steve Jobs negotiated with the record labels prior to the iTunes Music Store's 2003 ribbon-cutting, he demanded a flat price—99 cents a song and (by and large) $10 for a whole CD. (In the endangered brick-and-mortar record stores, the tariff is about $14 to $17 for a disc, and no cherry-picking.) The labels went along. But now they are unhappy that Jobs makes more money selling iPods than they do selling songs, and they want the freedom to charge more.

Yet is 99 cents the magic number? No way. A couple of years ago, the music service Rhapsody funded a test: for a few weeks it subsidized a price cut of songs to 49 cents, and cut album prices from 10 bucks to five. Sales went up sixfold. Unlike with shipping physical products, selling the next downloaded song costs almost zero—from the standpoint of the seller, there isn't much more involved in shipping 60,000 copies of a song than there is in shipping 10,000. It doesn't take a math major to figure out that when costs of the next copy are near zero, cutting prices and selling many more units is going to make you more money.

It seems weird for the labels to have these spats when their real problem isn't Apple, but the billions of songs traded online free. The labels' method of dealing with those services is to sue consumers who use them. In one of those cases, a court has set a price for music: a $222,000 penalty for a Minnesota mom who shared 24 songs, which comes to somewhat over $9,000 a tune. Nonetheless, no one thinks that music file-sharing is going away.

That leads us to Radiohead. A surprising 1.2 million visitors reportedly downloaded "In Rainbows" in the first few days. The consensus of those doing surveys of customers is that many are paying $5 to $15. A few have dropped a bundle. But perhaps a third have chosen to pay nothing. (The band's co-manager would say only, "More have paid for it than not.") Think about it. The musicians are implicitly saying, "We work hard to craft these tunes. We're in this together, mate. Here's your chance to do the right thing." Yet hundreds of thousands have looked their heroes in the eye, snatched the goods and left the collection plate empty. And according to online music tracker Big Champagne, more than 500,000 copies of the Radiohead songs have been downloaded from the pirate networks—free of charge.

Music is at the center of the emotional lives of millions, the source of incalculable pleasure. Yet clearly many people have concluded that one needn't pay for it. If you've discussed the subject with anyone under 30 lately, this isn't surprising. The generation raised on the Internet doesn't think in terms of saving up for a CD, but grabbing what it wants when it wants it. As the Rhapsody example shows, if you make the cost close to nominal, and offer a high-quality experience, people will probably be happy to pay a small sum, like chipping a couple of coins in a toll booth to keep moving.

This isn't great news for the record labels, some of which are now grudgingly embracing plans like advertiser-supported all-you-can-get music streaming. Things will be miserable for them until they concoct new ways to sell tunes, and those won't be as lucrative as the old ways. That's why a number of artists are abandoning traditional labels to sign with companies that have other agendas than selling music. Paul McCartney now records for Starbucks. Madonna—nothing if not a barometer for where the business is going—has inked a 10-year recording contract with concert giant LiveNation. Not far down the road, enabled by advances in digital storage, is an even scarier prospect for those who want the monetary value of music maintained: "Sometime in the next decade, we'll see a $100 device that fits in your pocket and holds all the music ever recorded by humanity," writes Princeton professor Ed Felton on his blog. "Copyright owners would be hard-pressed to fight such a system." So in a sense, it's irrelevant to argue what music is worth. Technology wants to make it close to free.