Pricing In The Digital Age

Via Bob Lefsetz, I went to Seth’s blog this morning and read his post about pricing in the digital age. Seth argues that you need to drop prices agressively in the digital age in order to get scale. He suggests that Apple and the movie studios charge 50 cents for a rental instead of the $3 per rental that Blockbuster gets.

Seth’s right and I suggest you go read his post.

But to me a low price is only half the equation. Convenience is the other half. Bit torrent is still damn hard. You have to find the torrent, then download it, then open it in a download client. Then hope the file you download isn’t bogus, will play in VLC or Quicktime, and that it’s of decent viewing quality. It really shouldn’t be that hard to beat that experience.

I suggested on Saturday that texting in purchases is a very convenient way to buy stuff online and specifically suggested that iTunes offer it for their movie rental business. That’s another way to offer convenience.

How about lifting the 5 authorized computer rule? We have nine Macs in our house. Each family member has a laptop (that’s five) and we have a shared laptop in our kitchen. And we have Mac Minis in each of our three media cabinets. It would be nice if we could download a movie or TV show from iTunes onto any one of those machines and watch it on any other one. The five authorized computer rule makes that impossible and as a result we have many inconvenient moments with iTunes.

So take advantage of the economics of online distribution and make your products less expensive (for content it can be dramatically less expensive) but make it convenient too.

That’s the winning formula.

#VC & Technology

Comments (Archived):

  1. Ryan

    Completely agree about the authorized computer move – I bought the content and I bought the computers… let me use them! I would pay more though if it were easier to transfer content generally between the home and office.Per the pricing discussion – relevant article on Goodwill pricing their inventory in a web 2.0 manner:

  2. Bruce Warila

    In addition to Bit Torrent, there are lots of other ways to get music for free. As someone once said to me “if I can hear it, I can steal it.” A week doesn’t go by now where I don’t see or experience a new way to obtain music for free. It’s unfortunate, but for 50% of the human population the price of music is already $0.00. So, Seth’s pricing model doesn’t apply here; it’s actually backward for this 50%. As pirates get older they will pay for convenience – which is a price increase from $0.00. Can the price drop below $0.00? Yes. You will see (soon) companies paying money (in a roundabout way) to have downloaders take songs – and artists will benefit.

  3. Craig Plunkett

    If somebody combined your text to purchase idea with a storage appliance and distribution system for the home, where each viewing device could pull from the house’s data pool via the network ( the car has a wifi net/client and media server onboard) then you’d have something there. Maybe the car would be it. You could pull your downloads from the drive-thru at Starbucks/T-mobile-wi-fi/and VZ3G! And somebody’s gotta solve the format problem. My wife is going to Texas, and was very excited about renting a movie to watch on the flight. Bzzz. You can’t rent movies with a 5th gen 80GB iPod. The company that solves the convenience problem will be a big winner.

  4. Lee Wilson

    Jeeze Fred – only 9 Macs in your house? We’ve just got one for each of us (plus a couple of oldies in the garage) so we only have 6. You know – your typical household….Honestly – what you describe is not a common scenario so I don’t see Apple breaking a lot of sweat over it yet. But, in the long run you are right. The viewing/listening rights should accrue to the individual or family account not to the device.I also agree wholeheartedly with Seth on the model he describes. In my experience a new technology or service needs to offer an “order of magnitude improvement” over the old before it makes mass inroads. That improvement can be in price, time savings, productivity improvement, status, or some combination of all four. The one companies have the most control over is the price so it is a logical place to look first.

    1. fredwilson

      I realize not many homes have 9 macs. But I do think we’ll see more and morefamilies having a machine for each family member and at least one computerin their media room/family room.Five is the wrong number. There shouldn’t be a limit in my mind, but ifthere is one, it should be at least seven or eight.fred

      1. jeremy

        if there was no limit they could really go facebook on college students. i know a lot of people who would be willing to pitch in for 1 account and have a massive amount of media.

  5. anand

    Why not try something else — I hear Netflix is trying to one-up Apple by offering unlimited on-line movie rentals for a monthly fee. For tv shows, I just go to the network’s site and stream directly. No sense in paying Apple for that.

  6. scottfromshanghai

    SkyPlus in the UK (this is the PVR offering from BSkyB Satellite TV, UK’s equivalent of Tivo I guess) offers a service which allows you to SMS a shortcode and tell your box to record TV shows. I used to read my free newspaper on the bus to work and text my Skyplus box whilst I looked at the TV pages.

    1. fredwilson

      SweetThe rest of the world is so far ahead of the us on stuff like thisFred

  7. Joey_H

    I don’t think I agree with Seth’s points about drastically cutting the cost of online rentals to achieve scale for a few reasons. First, If the iTunes store offers the same utility as a blockbuster or a VOD rental from a cable provider, then why not charge the same price that the consumer has been historically willing to pay?Second, by reducing the price to 50cents/rental wouldn’t you essentially eliminate perceived cross-content value? For example if music is supposed to cost a dollar and movies are supposed to cost $10 (unless you rent them for $3), by reducing the rental price of movies would you basically discount the whole content experience to a point where people would expect to pay less for music (which has already happened)?

    1. fredwilson

      That’s already happened

  8. Don Jones

    I believe that pricing “trains” the consumer of the product or service to perceive a certain value, and companies should think very carefully how they want to be perceived. I’ve charged for my venture capital database since the first day. In fact, I’ve raised the price as the value of the database and experience associated with it have risen.The “training” I refer to is the Big 3 automakers in Detroit training consumers to buy cars only when there is a big sale on, or when there is 0% financing. They shoot themselevs in the foot every time the do this.

    1. fredwilson

      We don’t buy any data from a venture capital database. If it were free we might use it and contribute data to itFred

  9. jackson

    I have yet to watch a movie on a computer.

  10. Greg Harris

    There is nothing more frustrating then the 5 computer rule. We have 6 computers 1 iPhone and an iPod touch.Also we are looking into your text for iTunes idea. There have been a number of times I wanted something but didn’t want to wait around for download. Even with tv iPhone downloading from the iTunes store over EDGE is slow tourture. (almost as much as typing this on my iPhone )Love the blogGreg

  11. Ben

    I am surprised nobody has mentioned Amazon here. Their MP3 and Unbox download services offer the convenience you are looking for. It even integrates beautifully with iTunes with none of the draconian restrictions. I have stopped using iTunes shop now, since I can buy music for the same price and with less strings from Amazon. The Unbox video service is reasonably priced and allows me to download to my PC, or will even send the video to my Tivo seamlessly. The whole shebang gets billed to your Amazon credit card, so you don’t even know you are spending money. Yay !

    1. fredwilson

      I use amazon mp3 and emusic exclusively for digital musicI will never buy music from ITunes. They may be trying to get away from drm but they embraced it and messed me up a few too many timesSo my loyalty is to the ones who have been drm free from the startMy kids however don’t seem to feel the same way about iTunes as I doFred

      1. Ben

        While we are on the subject of amazon – I just found an album called Exit Music (A Tribute to Radiohead). You have to hear the James Brown Orchestra-esque version of Just by Mark Ronson…

  12. Daniel

    So I have to disagree with you guys here – content is not a “cost plus” business… It is not a commodity product, one is paying for entertainment; there is already an established market price for entertainment – by lowering prices the overall filmed content revenue goes down (ignoring who gets what ). People are only going to consumer so much content – if tomorrow you reduced the price of seeing a movie at a theater to $1.70 or a DVD to $3.00 you are not going to get a 6X increase in consumption

  13. Notta Sharon

    Great article. It reveals just how cutting edge you and the other technorati visionistas are in your daily swing across the pendulum of ‘Next Best Thing’ thinking. Question: how will the production of quality content out-pace the demand to make all-you-can-eat subscription and price-slashing distribution business models work? Put another way, how will sub $1 purchases of digital content enable the production houses to keep producing?…or are we relying on major sponsorship dollars to keep the culture of arts (both film and music) alive? Are we ignoring the fact that people buy ‘bodies of work’ at an alarmingly reducing rate?…that we are enabling (in fact, rewarding) the ‘free samples/no strings’ approach towards content distribution? I’d like to be a champion for business models that don’t ponzy their way into calculable oblivion (i’d REALLY like to). I can’t outright disagree with everything that Seth writes in that post (or that you write in yours Fred), but for two people that speak so passionately about the power of creating a strong relationship between ‘brand’ and ‘consumer’, let’s just be clear…are we talking about the strength of the relationship between iTunes and the consumer?…or between the art, the music, the film, the content, that a consumer can pull through iTunes? I think an honest and frank analysis of the answers to those questions will reveal a bleakness of outlook in the strength of cultural staying power that fuels the Lefsetz blog so regularly.

  14. Dave Murrow

    Just a quick point to mention that while Bit torrenting might’ve been a bit of a hassle a few years ago, it’s insanely easy today. I’m surprised more people aren’t taking advantage of the opportunity.And to Jackson, I say – watching movies on my laptop is one of man’s small pleasures. 🙂

  15. RacerRick

    9 macs in one household may very well be a world record.

    1. fredwilson

      I bet it isn’tBut it sure makes my job of sys admin a bit roughWe haven’t upgraded to the new osx yet for example

  16. Liz

    Amen. Welcome to 2008!

  17. Jesse Thomas

    Your house sounds fun!