Last week, Pandora CEO Tim Westergren, appearing on a forum called PandoMonthly, said a strange thing while defending against criticisms streaming services received in 2013 from name-brand artists. He said the following: “The industry has for a long time been propped up by a product where you’re paying $20 for something you really wanted to pay $1 for. Maybe you could argue that the bad guy was the one who made it possible? That’s a little bit of an unfair label I think.”
It’s one of those statements that, on the surface, sounds reasonable but not so much after a moment’s thought. What I hear him saying is that at some point in the pre-internet past, let’s pick circa 1988, we consumers felt ripped off by music prices and we can now thank technologists like him for driving the market to reflect prices more demonstrative of honest value. It should be stated that it is very difficult to assess consumer appreciation for products whose value is unavoidably skewed by the gravitational pull of a black market (a.k.a. piracy), but let’s assume Westergren is comparing apples to apples (i.e. paying customers to other paying customers) and not referring to those who value music at zero dollars.
I will also assume that the 20:1 ratio to which Westergren refers is not a mathematical error — we rarely paid $20 for a whole album and never paid that much for a single track — but that he’s echoing a 1990s-era complaint that fans felt “forced” to buy a whole album of songs they didn’t like in order to get one or two tracks they wanted. To the extent that this complaint is valid, it is one about the music itself and not the consumer’s instinctual sense of the correct price point for a song. Although iTunes has more or less established the face-value for a track at between $1 and $1.29, how much has the consumer’s perceived value of the music he buys really changed since pre-internet days?
In real-dollar terms, factoring only for inflation, a single that would have cost $1.50 in 1988 should cost about $3 today. While we can certainly give some credit to the low cost of digital distribution for pricing the average single at 1/3 of what inflation says it should be, there are other factors in the market that affect what people are willing to pay for discretionary items. Globalization, for better or worse, is why we pay less for a toaster at WalMart than we probably should; and raw marketing is why we pay more for a latte at Starbucks than we probably should. But what makes a latte that lasts fifteen minutes worth more than twice the price of a song the consumer gets to theoretically keep forever? If anyone knows the answer to that, there’s an economics prize in his/her future, but suffice to say that the consumer’s sense of value can be tough to assess, with or without certain technology’s influence.
I believe it’s also relevant to look at wages and the perceived value of income in a pre and post internet market. If ten bucks was easier to come by in 1988 than it is today, which is the case for many 20-somethings, and the cost of living is higher, then the price for a discretionary purchase like music is logically a more significant psychological barrier than it was 20 years ago. And again, technology has almost nothing to do with it. Digital downloads and streaming music services afford us the opportunity to preview new work before buying it, an opportunity to buy on a whim, or the option of buying one song in lieu of a whole album; but this legal, digital distribution alone cannot claim to have dramatically affected the value we paying customers place on the music we want. Moreover, if in fact, money is more dear to certain consumers, one could argue that the social value of music for the paying customer is greater than it was in more flush times; and the fact that the paying customer opts not pirate when he could get away with it also suggests that his purchase reflects a very strong personal value being placed on the music.
Whatever role legal, digital distribution has played in the prices we now pay for music, it’s a strange, time-traveling leap for Westergren to insist that that today’s prices are the prices we all had in mind 20 years ago. The face value we’re paying today is actually about the same as it was in 1988, so prices are only lower if we factor for inflation; and I’m reasonably confident Westergren wasn’t doing this math in his head when he made his somewhat cryptic statement.
We are taught that when technology makes processes more efficient or products more widely available that prices must go down. And while this is true to an extent, the principle is not easily applied to products like entertainment media, particularly because their production requires skilled labor that cannot be replaced or replicated by technology. Also, we see a market in which production costs have almost nothing to do with purchase price. A ticket for a $100 million-dollar movie is the same price as a ticket for a $1 million-dollar movie; and this phenomenon is generally true for music, where the consumer can expect to pay between a buck and a buck fifty for a popular song no matter what it cost the artist to produce it. Despite this relative uniformity in pricing, dramatic differences in sales from one creator to another make it clear that music is not a generic commodity with uniform value. Regardless, technologists tend to homogenize all media with the term content and then propose the economic principle that more volume must lower prices as though music were like mineral deposits or crude oil.
In essence, I would argue that, among paying consumers, the value we place on music today is not that different, and may even be greater, than it was more than twenty years ago. Additionally, it is ironic that as Tim Westergren attempts to claim credit for the price points, he overvalues Pandora’s role in the market. His streaming service is pretty cool, and Spotify is a little cooler in my opinion, but both can be replaced in the blink of an eye by a competitor, and consumers won’t really care. Seriously, if we lost sleep every time a tech company went down . . . So, before making such unconsidered statements about the value of music, Westergren should remember that it’s the musicians who have the fans, not Pandora.
