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Can the music industry learn from the cellphone industry? September 8, 2007

Posted by jeremyliew in business models, economics.

Techdirt, referencing Bob Lefsetz, draws an interesting parallel between the music and cellphone business models.

He [Lefsetz] also highlights how the idiotic focus on getting more per song, just as everything else about music and technology gets cheaper, is hurting the record labels much more than it helps them. He compares the situation to how expensive it was to use mobile phones a dozen years ago. People were scared to use mobile phones because the charges were ridiculously high. You only used it in special circumstances. Today, however, the rates are much, much lower and that’s massively grown the market for mobile services. Do you think the mobile operators would prefer to go back to $1/minute charges? Yet, why does the recording industry insist on $1/song charges when the infrastructure can support an entirely different model. Instead, make the music cheap and easily accessible.

As a general rule, in a competitive market, prices drop towards marginal cost. But if demand is elastic, then industry revenues and profits can still benefit from this.

Lefsetz makes the point with far more capital letters, exclamation points and indignation in his original post.


1. Michael St. Hilaire - September 9, 2007

Until the music industry allows sites to charge 25cents or so for a DRM free, high bitrate music file, they will continue to lose out to p2p networks and foriegn music sites.

Hardly anyone buys CDs anymore, and frankly i’d be glad to see them completely disappear. So theres no reason to say that CD Price/12 (number of songs on an average CD) is what music should cost!

The p2p sites and russian sites have weaknesses, they aren’t integrated with your ipod, they aren’t easy to use, they aren’t 100% trustworthy, etc, etc. They can be beaten, but not at $1+ a song!

At 25cents a song, I don’t really even care about trying to get my friends to come over and give me all their music. I don’t care about having someone burn a CD for me. I can just download a copy myself with a lot less hassle.

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