Navio's IP Rights Model v. Apple's File Purchase Model; Demand-Based Pricing
After reading this article on Business 2.0, and in disagrement with this entry on Metroxing, I realized that Navio may be onto to something here. Basically what they have come up with is a model where instead of buying the music file (à la iTunes Music Store), you buy rights to the music in whatever format you want.
When you buy "a song" (a.k.a. the rights to that song), you would be put into a central database. Thereafter you would always be known as having rights to that song. So if formats are upgraded, digital rights managment (DRM) software changes, or if you just want the song in a different format for whatever reason, the source from where you request the song would query the database and if you've already got the rights you'd be able to get another copy of it. As an added benefit, you'd always have a back-up of your song in case your hard drive disappears on you one day; your rights to the song are recorded centrally.
Contrast this to the iTunes Music Store's current format. I would assume that if the iTunes Music Store upgrades its DRM software, you're not going to lose all previously bought files; that would be ludicrous. However, what happens when the next big file format comes out? Is Apple going to retroactively upgrade all the files you previous bought? Or are they going to force you to upgrade yourself, arguing that it's no different from the upgrade comsumers once had to pay for between cassette tapes and CDs? And too boot Apple doesn't allow you to download lost files again from their servers without paying. Pricing aside, I think that it's clear Navio's rights model is superior to Apple's purchase model in terms of consumer benefit.
What would really impress me is Navio's rights package included more than just digital music player format and ringtone format. When I buy a song, I'd like access to the song, the music video, the karaoke version, the sheet music, they lyrics, the album artwork, etc. When I buy a video, I'd like access to the video, the soundtrack, the soundtrack's music videos (or just the soundtrack as in the video), the script, commentary, etc. Perhaps I never download any of that, but my rights to the music would encompass all of that. And all of these would be wrapped up under one neat price (more on determining price below).
Unfortunately, this does not seem a likely outcome. With the iTunes Music Store making a separate buck off of videos, the likelihood of the rights under the rights model being so broad seems unlkely. (The same applies to sheet music to a lesser extent, I imagine.) This means likely that the acquisition of rights will be divided into song, video, sheet music, and any other profit centers that can be sold independently. It will surely be a long time - if ever - before consumers get a simple, single-package, all-in-one solution to media.
To change the topic a bit, pricing has been in the news a great deal lately. The themes are always the same: evil record labels want more money, valiant Apple wants to protect the consumers with $0.99 songs. I'm all for cheap prices, but there's also an argument to be made to let the market function.
All you have to do is apply your basic supply and demand curve. Let's say the newest, hottest song comes out. For a period, people will pay ridiculous prices for such songs. Let's say, for the period in which a song like this is on fire, the equilibrium price point for such a song is $1.99. It may be higher, but let's just use this as an example. Before long, the demand curve will start to contract, forcing the equilibirum price to fall. Pricing could be done automatically based on the percentile of the sales of that song. The following table is an example of on such scale:
The idea here is to stick largely with the $0.99 percent formula (only 10% - the most popular songs - go over it) while a full 50% of the songs receive some discount. At the same time, those songs ranging into the cheapest price ranges would be very small so as to account for costs. In practicality, this table would have to be cut at the point where the price is too small to cover costs, and I'm not sure what that number would be. The percentiles could be calculated on a weekly basis with the prices updated one per week. This would allow less popular songs to be sold more cheaply and thus sell more (thereby pushing them up the in pricing if they break a threshold) and extremely popular songs could stay higher while the market will handle it.
The tendence of such a system would be that all songs would end up at $0.99 or below. For a person like myself who would most likely just wait for a hot new song to come down in price, this system would work well for me, while boosting profits for those supplying the music (the artists, in an ideal world, but we all know how this works in reality).
When you buy "a song" (a.k.a. the rights to that song), you would be put into a central database. Thereafter you would always be known as having rights to that song. So if formats are upgraded, digital rights managment (DRM) software changes, or if you just want the song in a different format for whatever reason, the source from where you request the song would query the database and if you've already got the rights you'd be able to get another copy of it. As an added benefit, you'd always have a back-up of your song in case your hard drive disappears on you one day; your rights to the song are recorded centrally.
Contrast this to the iTunes Music Store's current format. I would assume that if the iTunes Music Store upgrades its DRM software, you're not going to lose all previously bought files; that would be ludicrous. However, what happens when the next big file format comes out? Is Apple going to retroactively upgrade all the files you previous bought? Or are they going to force you to upgrade yourself, arguing that it's no different from the upgrade comsumers once had to pay for between cassette tapes and CDs? And too boot Apple doesn't allow you to download lost files again from their servers without paying. Pricing aside, I think that it's clear Navio's rights model is superior to Apple's purchase model in terms of consumer benefit.
What would really impress me is Navio's rights package included more than just digital music player format and ringtone format. When I buy a song, I'd like access to the song, the music video, the karaoke version, the sheet music, they lyrics, the album artwork, etc. When I buy a video, I'd like access to the video, the soundtrack, the soundtrack's music videos (or just the soundtrack as in the video), the script, commentary, etc. Perhaps I never download any of that, but my rights to the music would encompass all of that. And all of these would be wrapped up under one neat price (more on determining price below).
Unfortunately, this does not seem a likely outcome. With the iTunes Music Store making a separate buck off of videos, the likelihood of the rights under the rights model being so broad seems unlkely. (The same applies to sheet music to a lesser extent, I imagine.) This means likely that the acquisition of rights will be divided into song, video, sheet music, and any other profit centers that can be sold independently. It will surely be a long time - if ever - before consumers get a simple, single-package, all-in-one solution to media.
To change the topic a bit, pricing has been in the news a great deal lately. The themes are always the same: evil record labels want more money, valiant Apple wants to protect the consumers with $0.99 songs. I'm all for cheap prices, but there's also an argument to be made to let the market function.
All you have to do is apply your basic supply and demand curve. Let's say the newest, hottest song comes out. For a period, people will pay ridiculous prices for such songs. Let's say, for the period in which a song like this is on fire, the equilibrium price point for such a song is $1.99. It may be higher, but let's just use this as an example. Before long, the demand curve will start to contract, forcing the equilibirum price to fall. Pricing could be done automatically based on the percentile of the sales of that song. The following table is an example of on such scale:
| Perentile | Price |
| 99.5 | $1.99 |
| 99.0 | $1.89 |
| 98.5 | $1.79 |
| 98.0 | $1.69 |
| 97.0 | $1.59 |
| 96.0 | $1.49 |
| 95.0 | $1.39 |
| 94.0 | $1.29 |
| 92.0 | $1.19 |
| 90.0 | $1.09 |
| 50.0 | $0.99 |
| 40.0 | $0.89 |
| 30.0 | $0.79 |
| 25.0 | $0.69 |
| 20.0 | $0.59 |
| 15.0 | $0.49 |
| 05.0 | $0.39 |
| 02.5 | $0.29 |
| 01.0 | $0.19 |
| 00.5 | $0.09 |
The idea here is to stick largely with the $0.99 percent formula (only 10% - the most popular songs - go over it) while a full 50% of the songs receive some discount. At the same time, those songs ranging into the cheapest price ranges would be very small so as to account for costs. In practicality, this table would have to be cut at the point where the price is too small to cover costs, and I'm not sure what that number would be. The percentiles could be calculated on a weekly basis with the prices updated one per week. This would allow less popular songs to be sold more cheaply and thus sell more (thereby pushing them up the in pricing if they break a threshold) and extremely popular songs could stay higher while the market will handle it.
The tendence of such a system would be that all songs would end up at $0.99 or below. For a person like myself who would most likely just wait for a hot new song to come down in price, this system would work well for me, while boosting profits for those supplying the music (the artists, in an ideal world, but we all know how this works in reality).
posted by Vincent at 10:25 AM
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