Friday, November 18, 2005

Joel on iTunes

Joel on Software: "Econ 101 says that they should raise the price on these ultra-popular movies. As long as the movie is sold out, why not jack up the price and make more money?"

I thought of another reason that the record industries argument doesn't make sense. With movie theatres, there are a limited number of seats. To maximize profit for a particular movie, you will want to get the theatre as full as possible with people willing to pay as high a price as possible.

Unfortunately the iTunes music store doesn't work that way, neither does any of the web actually. So long as Apple is able to cover their bandwidth bills, there is no addition cost if one song sells more than another. Say 100 people buy song A, and 10 people buy song B. Obviously we should charge more for song A right, because only 100 people can buy..... wait a minute, that's not true. There aren't 100 copies of song A, there is the potential for unlimited copies of song A. There is no such thing as scarcity.

This cuts back to the core of the argument I've been making on this blog. The old model seemed to work because the intellectual property tax was tied to something physical. So nobody needed to know about the difference. But when you are talking about something that is almost infinitely cheap to distribute, all of a sudden people intuitively understand that copying a CD from a friend doesn't decrease the amount of music available in the world. They intuitively know that the physical model doesn't quite work anymore. The problem is, we don't have something to replace it....

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