Of course digital music not scarce, I don’t think I said it was. MP3s are totally ubiquitous. And I guess I should mention that this is mainly about music files, not the music itself that is contained within the files.

If a band works on an album for a certain period of time and spends some sum of money on it, sure, there is a production cost and they certainly deserve to get paid for it. The means of establishing a price for music this way is (or can be) perfectly valid. But unfortunately for the musicians, they’re not the ones who can determine what that music is worth to listeners. (Just like in your analogy with the pharma industry, people don’t buy pills because someone spent loads of time and money developing them, they buy pills because they don’t want to die.) Back in the day, if the price of an album was less than what someone thought it was worth, they bought it. If the price was more, they didn’t. That general rule still works the same way today, but the internet has changed the proportions of how the value of music is constructed, so I just think we have to take another look at it.

The main point of this whole thing is to look at what value is made of, regardless of what the product is, and break it down into pieces so we can get a better idea of what something is worth. There are 2 components to value, a fixed value and a non-fixed, variable value. You add both of these together to determine the total value to the consumer/listener. Depending on what the product is, it may be composed of all fixed and no variable, the opposite, or some of both.

The pure economic value is the fixed value which is determined by scarcity. An MP3 is just a file (we’re not looking at what song or band it is yet, it’s just an file format so far) and is worth next to nothing. The variable value is what I referred to as the “personal” value in the post and it doesn’t really have a specific dollar value. It’s what you are willing to pay over and above the pure economic value based on what you think or how you feel. This is where the music contained within the MP3 file comes into the picture. It just so happens to be that music, as is any artform, is highly subjective and so its value is largely variable.

If people are willing to pay 99 cents for an iTunes download, it’s because that person’s individual, variable value is worth 98 cents or more, because the MP3 itself (the fixed, pure economic value) is only worth about a penny. They are willing to pay that much because they like the music, not because they actually think an MP3 is worth 99 cents. Because the value of music is now, thanks to the internet, almost entirely built from a value that varies from person to person, it just doesn’t make sense to charge a fixed rate for the music anymore. (I guess the post’s title is a little bit of an attention grabber. Only the “digital” part is actually worthless. The “music” part does have value. What that value is just depends on who you ask.)

The factor of time invested to record an album is not something most people think about when they are buying music. Most people, even when they do think about it, don’t actually know what it takes to produce an album. What bands really need to do is include a list of all the expenses and time and everything else that it took to produce that album or that song. Unlike the pharma industry, the costs of making a product in the music industry are not widely known, so educating people in that regard could make some people reconsider what value they give that piece of music. But, going back to the variable value thing, time cannot be directly translated into money. Just because a band says their time is worth some amount, that doesn’t mean a fan thinks it has the same value. So again, even by adding time, the value of music is still almost entirely variable as far as the listener is concerned.

So that’s my take on how people determine the value of music, or any product, really. Whether or not bands and labels should charge for digital music according to what people are willing to pay is, of course, still up for debate. I kind of like your idea about the fixed period contract and then opening it up as a non-exclusive deal. I think that’s taking baby steps, though, when I am in favor of a total 180 change from what the industry looks like right now. I’m still working on writing that idea down, though…

While I agree with your idea that digital music is “cheap,” it definitely isn’t “scarce.” You’re saying that music operates in a perfectly competitive market and that one type of music (say Paris Hilton’s album) is as good as another (say Metallica’s And Justice for All). Not entirely true, but in a sense, yeah. An mp3 is an mp3. But you could compare it to two farmers with a lot of advertising money saying that the other’s produce is consumed by dorks and is also 40% animal semen. They can make more 0s and 1s instantly and while there’s a cost to serve the mp3s, it’s small in comparison to the cost it takes to sell that same song on a CD.

But here’s the rub: it costs them a lot of money to get music from a producer’s brain into an mp3. It also costs a lot of money to turn a no-talent hack into the Britney Spears we know today. That cost gets passed along to us, the consumer. And since people constantly vote with their dollar that pop music is worth listening to - we’ve got a problem.

I think of the music industry as a close relative to the pharmaceutical companies. It costs them a lot of money for R&D and advertising. Gobs of money go into every pill. It wouldn’t be economically fair for them to get no money for their product. But it’s not fair to society for them to charge insane fees for something that everyone should have access to. So we let them gouge us for the patent period until the medication goes generic. Prices drop like a rock after the stuff goes generic.

So here’s my idea: Band goes to the record label. Record label signs a 16-month deal with the band. The record label gets a major part of the profit to recoup their losses in that 16-month period. It keeps the incentive there for the record label to find new artists. But it removes the need for popular artists to stay with major record labels unless they want to.

As a side point: The reason you’ll never see music for “cheap” is because record labels, like movie studios and all other major media producers, still want to make money off of a flop. They figure if they hose enough crap at us, some of it has to stick. Right now, people are downloading shitty music for free. How dare they. That pressures the record company to work harder to find something that sells. As long as there’s a cartel like the RIAA, your idea won’t happen for sure. (Mine neither.)

After the 16-month deal, the record label still retains publishing rights. Just not EXCLUSIVE publishing rights. If an indie label that distributes music online wants to pay them more per mp3 than the record label does, the band can make an additional deal with the 3rd party. Obviously, the record label could lower prices, but it won’t. For the same reason big pharms don’t. They will put commercials on TV saying that downloading mp3s from little indie guy gives you herpes. And little indie guy can’t respond except by providing a better service at lower prices. (Which is entirely possible.) That way the idiots that want to use iTunes get “gouged” while I download an album for 25 cents off a site like eMusic. (Note: LIKE eMusic. They’re still more expensive than 25 cents an album.)

Donation-based mp3s could work for bands like Radiohead, but only if they use reputable companies to handle the donations (NOT PAYPAL). And I’d much rather go to ONE company than to 600 band websites to donate and download. There’s a reason record companies exist - just not the actual reason most of the current record companies exist.