Anyone who has taken a basic economics class knows that the value, or the price, of anything is directly derived from how scarce it is. Things that are abundant are cheap, while anything that is hard to find or make is going to be much more expensive. Now when you relate this knowledge to the music industry, things start to make sense. Digital music formats cost next to nothing to make, store, reproduce, or distribute, so there are many more copies of any particular song or album than there ever were of CDs. And because there are so many digital music files like MP3s floating around peoples’ computers and on the web, the economic value per file is very close to zero.
You could make the argument that, while there are so many copies of music available online (in other words, the supply has increased), the demand has increased as well. Because it’s now so easy to find music online, it makes sense that demand has risen. But the rise in demand is actually quite small compared to the increase in supply, because it costs nothing to make another copy of a digital file. The supply is essentially infinite, but there are only so many people who would ever be interested in certain music, no matter how popular it may be. You also have to consider that the demand per artist within a person’s own music collection has decreased. Most people today play much more music than they did decades ago, but there is still only a given period of time when someone can listen to music. Each artist gets less total play time per person, in general, so again the value has decreased. Any way you look at it, increasing supply far outpaces the increase of demand, resulting in music files with no real economic value.
Consider the monetary value of someone’s music collection. A decade or two ago, a music fan might have a 320-disc CD wallet filled with their favorite albums. At an average of 12 songs per album, they would have access to 3,840 songs in their collection. And for $16 per CD, it would have cost them $5,120 to purchase them all. We can also calculate that each song had a value of about $1.33. Now, if you assume that the total value someone is willing to pay for their music collection has remained the same since then, and you divided that into the 20,000 songs you can store on an 80 GB iPod, the value of each song drops to about 25 cents. Keeping our average of 12 songs per album, each album is now worth $3. But in reality, the average person is no longer willing to pay $5,120 for their music collection because the economic value of music has gone down because digital formats eliminate scarcity and create ubiquity. So if that same person now goes and buys an iPod classic for $249 knowing that they can fill it to the brim for free, the cost of the iPod has become the new value of their collection. That means that in today’s economy, a song is worth little more than a penny, and an entire album is worth about 15 cents.
We have established that the economic or monetary value of something goes to zero when the (potential) quantity goes to infinity. Therefore, with digital music, the fixed, base value is zero. However, there is another kind of value that we need to consider (some smart people already are) which can be added to the base value. It is the personal, emotional value, like what something means to someone or how much they love something. And while this value can’t be measured in economic terms of dollars and cents, it can be “converted” into a monetary value.
People are certainly willing to pay for economically-worthless material, we see it happening all the time (like whenever someone pays a thousand dollars on Ebay for some piece of garbage just because John Lennon wiped his ass with it or something). The problem we face is that, like different countries’ currencies, the exchange rates of these values from personal to economic differ from person to person. They have no fixed value, and can even change dramatically over time. And because it is impossible to measure such an exchange rate before every purchase, the very best way that we have of tapping into the converted value is to allow people to pay whatever they want for a music download.
Now musicians and labels know what they need to do with digital music downloads, all that remains is to trust people enough to let them hold up their end of the deal. It’s not going to be easy, especially at first, to let some people pay just a few cents or a dollar for an entire album, but you will have to accept that the reason they chose to pay so little is because that’s all it was worth to them. If someone’s emotional values towards a song are “converted” into just a few cents, who are you to argue? It’s just not possible to know exactly what music is worth to any particular person.
Along similar lines, we must also realize that there is essentially no emotional value in a song before it is purchased, or at least heard, with the exception of a few hardcore fans of a band who have at least a few dollars of expected value for the musician to begin with. You need to allow enough time for the emotional value to grow. What bands and labels need to do is to collect permission from their free digital music downloads and then send out an newsletter or an individual email to people a few days or a few weeks later. By this time, people will have listened to the music enough times to let it absorb a bit and form an opinion of it. Ask them if they liked the music and then suggest a donation ala pay-what-you-want style if they haven’t made one already. That would be the opportune time to let them make a donation, not right at the beginning when they are presented with an MP3 file that has no value to them yet.
I remember back in the early summer when I was interviewed for a job at the now defunct digital music company BurnLounge, they laughed at me when I responded to a question that donation-based MP3s are the future of music online. Then I learned that they were under investigation by the FTC and I laughed back. Since then, bands like Radiohead and musicians like Trent Reznor and Saul Williams have been brave enough to take the first steps in opening up this idea to the mainstream, and I applaud their efforts. Digital music must be free (well, you could charge 15 cents per album if you really wanted to), and individuals must be trusted to convert their emotional values into a monetary value and donate what they feel is appropriate for them. If you treat them right, they will treat you right.
What do you think? Come on and voice your opinion now!