Introduction
From a consumer’s perspective the price of a product is one of the key buying factors. This is also true for music downloads. However, it seems that another important one might be what a consumer can do with the song once acquired. In that respect, an empirical study was conducted taking into account the 19 best known and widely used music providers. The authors evaluated their business models with a focus on the price per download and the user rights granted to the download. In order to gather empirical data, the authors took the Top 20 World Charts and gathered various data for each song at each music provider’s site. In total, there were more than 3400 data points collected and analysed in this study (19 music providers x 20 songs x 9 data points per song).

Huge Price Differences
To illustrate the different prices demanded by the different music providers, Table 1 outlines for each of the 20 songs the minimum and maximum price demanded by the various music providers. This study does not take into account the download price in the case of a subscription or the download price in the case of pre-payment.

Title min max
Amazing 0.99 3.57
Behind Blue Eyes 0.79 2.67
F**k It (I Don't Want You Back)  0.79 2.99
Hey Mama 0.79 2.67
Hey Yal 0.99 2.99
I'm Still In Love With You 0.79 2.67
It's My Life 0.79 2.67
Just A Little While 0.99 2.67
Left Outside Alone 0.99 3.57
My Immortal n/a n/a
Not In Love 0.99 2.67
Red Blooded Woman 0.99 2.67
Shu Up 0.99 2.67
Slow Jamz 0.99 0.99
Superstar 0.99 2.67
The Way You Move 0.99 2.99
This Love 0.79 1.04
Toxic 0.79 2.99
Turn Me On 0.99 2.63
Yeah! 2.38 2.99

Tablel 1: Price differences of the Top 20 of the World Charts between 19 online music provider (US-Dollars)

In the first column of Table 1 is the name of the song, where column two shows the minimum and column three the maximum price demanded by one of the music providers. Taking the example of the song “Red Blooded Woman” by Kylie Minogue: The song was available from 75% of all music providers analysed. It can be observed that the price ranges from USD 0.99 cents at iTunes and MusicMatch to USD 2.67 at Freeserve and HMV. The price difference between the cheapest and the most expensive is almost three times as high (i.e., 260%). There are even some music providers which did not offer this song as a download at the time the study was conducted. Examples of this are the music providers Bymusic, Liquid, MSN, Skynet, and Virgin.

Impact of Rights on Download Price
One of the main arguments the music industry uses is that download prices depend on the rights granted to the consumer. User rights are most of the time controlled and executed by so called Digital Rights Management Systems (DRMS) which not only control the access to digital music, but also its usage. In order to achieve their goals, they employ a variety of technologies such as password, encryption, watermarking and digital fingerprint. DRMS not only define which rights are granted to a consumer for a specific digital content, but also the limitation to these rights. In that respect, we collected the artist’s name, the title of song, the label, the download price as well as the rights granted to the song and its limitations.

Through multiple regression analysis, the authors developed a model which explains 88% of the download price (R-Square 0.885) and shows that the rights granted to the consumer, such as the right to burn the song onto a CD or the right to move the song to a portable player, have an impact on the download price. On average, a music download from a US music provider costs 70 cents, giving the user the right of unlimited playing. A music download costs 15 cents more if the unlimited right to burn the song onto a CD is given to the consumer. Furthermore, the right to move the song an unlimited number of times to a portable player is valued at 24 cents on average per download.

However, the study also shows that there are other factors which explain the downloading price such as the market segment served in terms of geographical location. European music providers are on average USD 1.60 per song more expensive than their American counterparts. Furthermore, the study shows that the music label also plays a significant role in determining the download price. For example, songs from BMG and Sony are 12 cents, respectively 40 cents on average more expensive than those from Universal. Finally, the study shows that on average iTunes is one of the music providers restricting the consumer the least in terms of copying, moving and burning songs.

Conclusion
The aim of this article was to look at the business models of the various music providers with a special emphasis on the prices and the user rights of music downloads. The provided results are based on an extensive data set, taking into account 19 of the biggest and best known music providers, 20 Top world charts, 9 data points for each song resulting in total of more than 3400 data points. Our results have shown that the price range demanded is huge between the various music providers where some are between three and nearly four time more expensive than their competitors. Through multiple regression analysis the authors developed a model which explains 88% of the download price. They have shown that the download price is not only impacted by user rights, but said price is also influenced by other factors such as the market segment served or the label of the song.

Bottom line
Consumers have various methods and channels through which to access digital music. They can either illegally download music from peer-to-peer networks or legally access music through legal music providers. This article has shown that there might be possible explanations why consumers seem to prefer iTunes music store over other legal music websites. iTunes not only demands the lowest price per download on average but also least restricts the consumer. Thus price and user rights seem to be key buying factors for consumers. Or would you subscribe or re-visit a music provider’s website which demands a higher price than its competitors and restricts you more in the usage than other music providers? However, further analyses are required in order to better understand consumer purchasing behaviour for digital content such as music.

Sources
  • Fetscherin, M.; Vlietstra, C. (2005): Digital music: Key factors determining the download price. In: E-Business Review, Volume V (forthcoming)
  • Media Traffic, Marienberg, Germany http://www.mediatraffic.de/

About the author: Marc Fetscherin is a Visiting scholar at the University of California (UC) at Berkeley. His stay is funded by the Swiss National Fund (SNF). He has been analysing a variety of DRM related topics ranging from consumer piracy behaviour to information economics papers. Currently, he is working on his dissertation with the focus on “Digital Rights Management: Consumer Acceptance of Digital Content” and will do his post doc next year at Harvard University. Contact: fetsch@sims.berkeley.edu.
Cristina Vlietstra is a master student at the Institute of Information Systems at the University of Bern, Switzerland. She has written a seminar work about the above mentioned topic.

Status: first posted 26/10/04; included in INDICARE Monitor Vol. 1, No 5, 29 October 2004; licensed under Creative Commons
URL: http://www.indicare.org/tiki-read_article.php?articleId=50