Retail Missteps: Take 2

Have you heard of eMusic? It’s an alternative (at least to iTunes and Amazon) online music service. You pay a monthly subscription and get X number of credits good for X number of downloads. But many ‘albums’ are capped at 12 credits so if you’re an astute shopper you can get far more songs than the number of credits you spend.

The above description actually describes the second iteration of the business model. That came about when they acquired rights to the CBS catalog a year or so ago. Prior to that e-music was the home, mostly, of indies and labels with long paid up back catalogs like the Fantasy/Stax/Concord complex. So if, like me, you have a love for older jazz, blues, R&B and the like it worked just fine. You could replace all those old scratchy LPs relatively inexpensively. Oh, and you got more credits for your monthly fee so you could really maximize your haul. (I can be very competitive about shopping.)

Enter the big label and the price had to go up which they did by devaluing credits. When the treasury does this it’s called seigniorage. In business it’s called adjusting your pricing model. Whatever. At the time there was a hue and cry (several thousand posts on the website) about the temerity of doing so.

It struck me as a ridiculous thing to be upset about. Capitalists maximize profits. That’s supposed to lead to the greater good. Individually the outcome might be negative but in the aggregate the benefits should be enormous. So I stuck around because now you could replace, say, a Led Zeppelin album for 10 credits and still spend the remaining 20 to get a ton of tracks.

Enter the UMG catalog and business model Mark 3. This week eMusic announced the coming inclusion of the Universal catalog. And another change in the pricing structure. So whereas I used to get 30 tracks a month, I now get $14 in credit for a $12 subscription but I pay by the drink. So the maximum songs I can get per month is 28 (49 cents is the lowest price point) and unused pennies expire at month’s end. That’s a neat trick to raise the prices just a little bit more.

I’m locked in because of a gift subscription until at least February but I will probably decamp after that. Among other reasons I don’t think having to do exchange rate or base 2 math in my head is particularly customer friendly. Far easier to pay Apple or Amazon 69 cents a song and have the nominal and real values be equal.

But what really caught my eye was the stupid point of comparison, iTunes. In a faulty comparison (comparing track prices on an album basis to individual song prices on iTunes) the eMusic site says this: “eMusic members will be able to enjoy savings of 20% – 50% compared to iTunes a la carte prices.”

OK. Here’s an implicit promise to be Wal-Mart and always undercut Apple. Does eMusic have deeper pockets than Apple or Amazon? This is just asinine positioning from my perspective because it’s unsustainable. The Wal-Mart model works because their systems allow them to move more volume which gets them better deals from manufacturers.

By comparison to soap, groceries and clothing an mp3 is ephemeral. Get a couple of big servers and store an entire 100-year catalog. So the inventory cost is near $0 and the marginal gross profit is limited only by the price charged.

Yes, that’s overly simple because the record company and the artist need to be paid but it’s essentially true. So if Apple or Amazon want to engage in a race to the bottom the casualty will be eMusic because they will have to match the cuts to maintain the differential or not cut and lose customers.

But I think they’ll lose customers anyway. Too many shenanigans that are not good for the customer. At least for now the radio is still free and it’s hard to mess with that pricing model.

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