Friday, September 24, 2010

The Rise of the $4 Album:
A Success Story (So Far)

Charge Shot!!! has written at length about Amazon's marvelous MP3 store. Many people (myself included) are beginning to see Amazon as the preferred alternative to iTunes, especially as Apple veers off into stranger and stranger territory. The store's growth has been slow but steady - the New York Times reports that it now has 12 percent of the market, compared to iTunes' behemothic 70 percent. 

Amazon's low-priced specials have also managed to have a variety of effects on the musical marketplace. Last August, when the Arcade Fire's new album The Suburbs hit the stores, Amazon offered it as a digital download for $3.99 during the first week. Amazon had previously done this with Vampire Weekend's Contra earlier in the year. Both The Suburbs and Contra managed to hit number one on Billboard charts the week of their release, and the analysts are willing to bet that Amazon's price deductions played no small role in the albums' success. 

This seems like a win-win situation. Consumers are buying music at cheap prices. Bands are selling lots of albums. What could possibly be amiss? Follow me through the jump to find out. 

First, a brief economic primer. Amazon is selling albums at deeply discounted prices, but they're not necessarily profiting on this. The same New York Times article cited above also quotes anonymous record executives, who state that Amazon will pay a record label the standard wholesale price of $7 even while selling the albums at $3 or $4 bucks a pop. This loses Amazon money in the short term, but it serves to draw new consumers to their MP3 store in the long run and, more importantly, attract consumers over from iTunes. 

Selling major releases at a loss is not necessarily new to digital music. I wrote last year about how Amazon did the exact same thing with Stephen King's new novel. In the current chaos between the digital marketplace and brick-and-mortar stores, online retailers are desperate to earn your trust (and your wallet), and they're willing to sacrifice their profits in order to build their relations with consumers. 

But there's been some interesting developments. The low pricing scheme, while beneficial for consumers, carries a twofold risk. For one, it effectively means the death of any independent retailers  who don't have the resources to sell major releases at a loss just to build a base. Secondly, the deep discounts also mean that consumers are becoming used to digital purchases being unsustainably cheap. The Arcade Fire and Stephen King can afford to sell their wares at a deep discount. The rock bands and novelists just starting out, the ones without a lot of money already in the bank, cannot. 

In an interesting twist, the Village Voice is reporting that Sufjan Stevens' record label, Asthmatic Kitty, recently sent out an email to all those fans who purchased his last EP. The record label states that Steven's new album, The Age of Adz, will be available for cheap, but that's not necessarily the optimal way to purchase it. You can read the whole email here, but a pertinent section is reproduced below:

We have it on good authority that Amazon will be selling The Age of Adz for a very low price on release date...we have mixed feelings about discounted pricing. Like we said, we love getting good music into the hands of good people, and when a price is low, more people buy. A low price will introduce a lot of people to Sufjan's music and to this wonderful album. For that, we're grateful.

But we also feel like the work that our artists produce is worth more than a cost of a latte. We value the skill, love, and time they've put into making their records. And we feel that our work too, in promotion and distribution, is also valuable and worthwhile.

That's why we personally feel that physical products like EPs should sell for around $7 and full-length CDs for around $10-12 We think digital EPs should sell for around $5 and full-length digital albums for something like $8.

So you might wonder why we'd "allow" Amazon to sell it for lower than that.

There are several reasons why, but mostly? It's because we believe in you. We trust you and in your ability to make your own choice. 

The email goes on to list the number of choices available for the savvy consumer who wants to buy The Age of Adz, and ends with an exhortation to remember your Friendly Independent Retailer.

This message veers between genuinely friendly and pleadingly helpless. What's going on here? Why is Asthmatic Kitty Records allowing Amazon to sell The Age of Adz at a discount, and then turning around and asking fans not to buy it there? 

The bottom line is that they must be worrying, like all record companies, that there will soon come a time in which the album is seen primarily as a digital purchase, not a physical one (if that time has not already arrived). But like the furor over e-books, consumers expect digital tracks to cost less. 

Asthmatic Kitty obviously doesn't want to shun Amazon entirely. A lot of consumers on the fence about buying a Sufjan Stevens album might jump at the low price, and Stevens might very well find himself catapulted to the top of the charts because of a large number of fans taking advantage of terrific prices. After all, if the choice is between paying $3.99 for an album or torrenting the damn thing, the record company would prefer you pay half the cost rather than none. 

But, at the same time, Asthmatic Kitty worries that the consumers are going to get used to paying $3.99 for an album. After all, Amazon seems to be doing this quite often. What if, in November, a new album comes out at Asthmatic Kitty's standard eight dollar price? Consumers might already be accustomed to digital albums that cost half as much, thanks to Amazon's deals. Your standard consumer isn't going to suddenly start paying twice as much for an album, because your standard consumer might not realize that their four-dollar albums have been being sold by Amazon at a loss.  

Finally, there is also the worry that, in the future, Amazon will get tired of paying the record company the wholesale price for an album they're selling at a discount. If Amazon and iTunes want to start demanding lower wholesale prices, they represent 80% of the digital market, and record labels won't have much of a choice but to capitulate. Wars have been fought over less - last year, Amazon pulled all Macmillan books from their catalog after Macmillan objected to the discount Amazon was putting on their e-books. Both record labels and publishers are worried that these low discount prices are diluting the market, and consumers will not be willing to go back to paying prices that can actually sustain the industry. 

Is there a solution to all of this? Not really. It's difficult to pay more than you have to for a piece of art.  Times are tough. If I can buy The Suburbs for $3.99, why should I pay any more? 

So there's not really a good way to deal with this. I would like to end this article with an impassioned plea to support independent record labels and publishing companies and artists and The Arts in general. But that's far too idealistic, and I'd be lying if I claimed that I didn't almost always buy the cheapest version available.

So I'll end with a question, the same question that many an independent record label might be asking themselves now: In this digital age, where an infinite amount of music, movies, books and games are available at our fingertips, nearly all of it free if you know where to look, how much is art really worth?