That's what music downloads and CDs need to be for the record industry -- loss leaders.
Now some could sarcastically say that CDs and legal downloads are already loss leaders for the labels -- and I'd laugh along with them.
But there's a difference.
Record labels are going to go down with declining sales in Compact Discs while downloads will never make up the loss of revenue. Thus, the present conundrum. So, in response to their dilemma, the labels are doing what ever red-blooded American business would do -- cutback.
On staff.
On music discovery.
On innovation.
During my tenure at USC I came face to face with young consumers -- the ones who admit to stealing music online -- and they repeatedly cited a willingness if not desire to buy a hard copy of the music that they love but not at inflated prices.
You can't blame the labels for not wanting to bastardize their CD sales -- CDs are still responsible for billions in revenue. But it is hundreds of millions less each year and has been declining since 2000.
There will be a point where even the labels will see that it is time to deal with the realities of today's consumer market.
Why do I say 5 cents per download?
Because if the prices are a nominal charge -- say what a text message would cost -- the labels will at least get something. That's five more cents than nothing. Imagine the cellular phone business if they had to protect billions in revenue. They would have never approached the pricing of text messaging from the other direction.
Instead, early plans called for five or tens cents per text message -- and consumers soon became addicted to texting at those prices. At that point, the cell phone companies offered competitive monthly plans -- say $20 -- for unlimited texting. Every young person takes the texting package when they sign up for a cell phone plan.
Many of my regular readers know where I'm going with this.
The big four labels are obsessed with getting every consumer to pay $19.99 a month to rent music. Fat chance. Early forays in this area have flopped.
From the other direction, charge only a nickel (or a dime, if you must) for every download and it no longer makes sense to steal the music. Of course, just as in text messaging, this will likely feed the Millennials addiction for music discovery and before long a $20 a month unlimited music downloading plan would be -- attractive if not compelling.
The labels are thinking of the problem predominantly from their own point of view. While I can sympathize, it's a weak position. On the other hand, make downloads too inexpensive to have to steal music and you've got a ready made market for an unlimited monthly fee (similar to text messaging) that actually means something to the young consumer.
Let's go back to CDs for a moment.
My anecdotal experience with Millennials indicates that they, indeed, have no problem with CDs or for that matter owning a tangible product in a digital age.
What they have a problem with is -- the price.
And if the labels argue that CD prices are getting even lower at Wal-Mart and Best Buy these days, I'd counter with -- great for Wal-Mart (they can always get consumers to buy something else while they are in the store) but not so good for the labels because until the price is $5, it's not a loss leader for them.
Of course, the labels don't think like this.
They need to -- and they need to take some chances and come up with innovative strategies that work for the consumer. Sorry about your problems, but Millennials don't care if all the record labels shut their doors. They don't need you.
But there's more...
Once the labels get consumers to buy CDs of the singers and bands they really like at a reasonable price, they can sell them up to other things. I know the labels think they've been down this road before, but they really haven't. A number of years ago when they came up with super CDs, DVDs and enhanced boxed sets for considerably more money, the strategy didn't bear fruit.
I don't want the iPod accessory unless I buy the car first.
I don't want dessert unless I've had dinner at my favorite restaurant.
I don't want a hot dog at the inflated price of $5 unless I bought the ticket to the sports event that will also overcharge me for a soda.
The labels should know all of this. That's what concert promoters do -- bilk consumers out of high priced concert tickets and then rob them blind while they're enjoying their favorite bands.
I predict even the concert business is going to have a come-to-Jesus moment over these outrageous ticket prices (think Ticketmaster's add on charges, too).
So, dismiss it if you must -- but you'll just have to get used to a declining record business.
Many of my readers have developed a great respect for generational media -- and as Morley Winograd, one of my USC faculty associates, accurately predicted the outcome of the presidential election vis-a-vis Millennials, you can predict the outcome for the record business without too much strain.
Plainly put -- give young consumers what they want and you will have a growth business again.
And they want very cheap downloads and reasonably priced products -- oh, and labels that stake their future on music discovery not compilation CDs.
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