Thursday, February 08, 2007

A *Very Few* Thoughts on Steve Jobs, DRM, and Pricing

There's been the predictable amount of hoopla around Steve Jobs' comments about music and DRM. What seems to be have been missed (or at least drowned out by all the noise) is the simple fact that of course DRM is bad for Apple and Jobs (assuming that the alternative is DRM-free music.

My intent here isn't to use "of course" in place of an argument though. Consider the following:

Apple doesn't really care much about making money off the iTunes Music Store (iTMS). After all, they don't today. Various reports have suggested that 70 cents on the dollar or so go to the labels. iTMS is a vehicle to sell more iPods because, even if most iPod music comes from sources other than legal, digital purchases, iTMS and its ilk remain an important part of the mix (and will likely be more so over time).

All other things being equal, consumers clearly would prefer DRM-free music. It's more transportable; it's less hassle. Simple economics suggests therefore that its value is higher--meaning that either higher prices can be charged or that more will be purchased. Econ 101.

Therefore, reduce DRM, you increase digital music sales, and you increase the sales of digital music devices--of which Apple has the lion's share of the market. Looks pretty straightforward to me.

I also believe that, if anything comes of all these discussions (or perhaps I should say "when" as I've discussed previously), I seriously wonder if the whole pricing model will be revisited as well. Flat pricing makes no economic sense. It only exists for practical reasons such as setting a nice psychological upper limit in negotiations. Thus it's no surprise that we're starting to see more dynamic and innovative approaches to pricing; I have to believe those will win out with music as they have elsewhere.

(The current pricing of most digitally-downloaded TV shows and movies also makes little sense but that's a topic for another day.) 

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