Citizen Kanye

December 1, 2010
Posted by Jay Livingston

I wish I knew more about the economics of the music business.

At first glance, it looks like Kanye West’s decision to sell his new album for $3.99* at Amazon is putting pride ahead of profit. Zach Baron at the Village Voice says that Kanye did it only because of the swift sales success of another album, “Speak Now,” by, oh, what was her name? You know, that one at the VMA.

There’s money, and there’s competitive, striving megalomania. (I can’t believe I am the first person to come up with the pun in the subject line of this post. But if someone else did put it out there, Google’s algorithm places it far down on the list.) In some areas, striving and ego go together like a horse and carriage. At the financial houses (Goldman Sachs, et. al.), they say that those multi-million dollar bonuses are not about the money and what it buys. The dollars are just a way of keeping score. You want a $20 million bonus because the guy at the next desk got $18 million.

But apparently, in the music business, at least for the top stars, what you keep score with is not dollars but sales, regardless of the economics.
the rush toward ever lower pricing . . . pushes the consumer cost of an album ever closer to that terrifying price point: free. Nobody in the industry wants that, let alone a guy poised to sell something in the neighborhood of a million records over the next week.
It’s like the old joke about the businessman who has cut his price so low that he’s losing $2 on every item he sells. When asked how he can do that, he says, “We’ll make it up in volume.”

I guess Kanye’s beautiful, dark, twisted response would be, “We’ll make it up in ego.”


* Now, after the first week surge, the download price has gone up to $4.99.

HT: Tyler Cowen for the link to the Voice.


Anonymous said...

there are basically two relevant facts about the music industry:
1) it is heavily subject to the Matthew Effect so there are real advantages to getting to #1

2) piracy has transformed the industry
2a) an extremely low price point in a downloadable format should make the album more competitive with piracy. likewise the low price point can be understood as a publicity stunt which will further drive sales, much like the tip jar experiments of Radiohead, etc.
2b) these days album sales are a loss-leader for other revenue streams (mostly concerts). this is the exact opposite of the late-1960s through mid-1990s situation when an artist would go on tour to "support the record"

Jay Livingston said...

A low download price reducing piracy fits with the idea that if you lower the price of something (in this case, honesty), more people will do it, and conversely, raise the price of honesty, and you get less of it.

Is there any way to estimate the number of illegal downloads? It would be interesting to compare illegal downloads before and after the Kanye price went up $1. Or to look at numbers of legal and illegal downloads for other albums or songs.

maxliving said...

I don't know how accurate torrent trackers are, but The Pirate Bay lists Kanye's new album as having 7256 seeders, and Taylor Swifts as having 1373. I suspect a lot of this difference can be explained by the fact that Swift's is a month older (none of Kanye's other albums break 500 seeders).