ONLINE MUSIC RETAILING IN INDIA

Pankaj Singh | IIM A

A. BACKGROUND: A CASE FOR ONLINE MUSIC RETAILING IN INDIA

When Apple passed Wal-Mart to become the biggest music retailer in the US, it gave a clear signal of the future supremacy of digital downloads. The fact that a digital-only retailer has ascended to the top of the sales charts was not unexpected, but it did demonstrated just how much the music landscape has changed since the beginning of the decade. The music industry in India is still largely untouched by this trend in the sense that online retailing for music has not yet started on a large scale in India. Music companies still market the music albums through the traditional ways of packaging in cassettes and CDs. There is no room for upcoming bright artistes who lack the funds required for launching an album. Online music retailing will give an option to such young and budding artistes to publish their albums as a significant investment is required to sell an album online. The primary cost of packaging the albums in CDs/Cassettes and their distribution and marketing effort can be done away with. Even the advertising costs involved on the internet are very low as compared to television and print media advertising. Also, it gives the option to artists to target a niche market which listens to a particular genre of music. For e.g. metallic rock music is preferred by a niche segment of people who would be eager to listen to new bands and internet gives them the option to search for new artiste based on recommendation by other listeners.

The most preferred platform for online music downloads is nimbit.com, which provides customized pages for artists and allows them to sell online. Along with their music, they also sell event tickets, merchandise etc. It basically offers direct-to-fan sales, marketing, and career management solutions for independent artists and music labels through Web-based services. .

This article focuses on exploring the pricing for online music retail in India. The work is based on secondary research for US market and primary research done in Mumbai, London, Ahmedabad, Delhi and Lucknow.

B. OBJECTIVE

The pricing strategy will alter significantly with the various possible objectives like:

· Maximizing number of copies sold, maximize the sales and profit and to get customers to buy online and decrease their resistance to the idea of online purchase of music

· The paper provides a range for pricing which will be subject to revision based on demand and the factors mentioned above.

C. INCREMENTAL VALUE OF SELLING MUSIC ONLINE

For the seller:

· Investment is significantly reduced as the cost of physical distribution is avoided.

· Far easier and cheaper to reach customers and target niche customers ("long tail" concept)

· Upcoming musicians can be saved from the monopolistic bargaining power of music companies and get far greater interaction with fan base and possibility of feedback. Also, the creative freedom is enhanced

· Market response and customer information allows for dynamic pricing

· Dynamic/ variable pricing allows for capture of consumer surplus

For the buyer:

· Ease of buying from home, ubiquitous availability, unbundling option, variety, niche feel, better sound quality, ease of use and transfer on various music hardware

D. SUBSCRIPTION BASED MODEL

Here the consumer can purchase music base on his subscription with a restricted listening or playing time. “Napster music store, offers a subscription-based approach to DRM alongside permanent purchases. Users of the subscription service can download and stream an unlimited amount of music trans-coded to Windows Media Audio while subscribed to the service. But when the subscription period lapses, all of the downloaded music is unplayable until the user renews his or her subscription” (Wikipedia, 2010).

E. GLOBAL LICENSE MODEL

An alternate option could be to have an option of statutory licensing. “A “global license” would be used to compensate the copyright holders: it would be paid by the Internet Service providers (ISP) based on the amount of music file traffic. They would then charge their customers a very low fee. The main problem with this scheme is that the technology is not available to identify the music downloaded, hence the copyright holders. (Jouranal for economic and business research, 2007)”

F. REFERENCE PRICE

People often compare a product’s price to a “reference price” that they maintain in their minds for the product or product category in question. A “reference price” is the price that people expect or deem to be reasonable for a certain type of product. Several factors affect reference prices:

· Past prices, Frame of reference. Creating the most advantageous (and believable) competitive frame of reference is essential to achieving a price premium.

· Framing of price: The way the price is presented – for instance, absolute number versus per quart, per pound, per hour of use, per application, for the result achieved, etc.; also four simple payments of $69.95 versus $279.80; for automobiles: total purchase price versus monthly loan payment versus monthly lease payment.

· Latitude of Price Acceptance: The range of product/service prices over which the customer buys the product.

· Value based pricing: Pricing based on the value derived by the customer

G. ISSUES RELATED TO SELLING ONLINE:

The biggest challenge to the entertainment industry today is piracy of creative work. Specifically pertaining to the online music industry, the availability of music as free downloads online hampers the revenue collection for music companies and online sellers. It’s commonly known as piracy, but it’s a too benign term that doesn’t even begin to adequately describe the toll that music theft takes on the many artists, songwriters, musicians, record label employees and others whose hard work and great talent make music possible. In response, RIAA has employed a multi-faceted approach to combat this piracy, combining education, innovation, and enforcement:

· With investigators deployed in cities across the USA, the RIAA is working closely with law enforcement to pull pirate products off the street and to demonstrate that the consequences for this illegal activity are real.

· Educate Fans, licensing

Poor legal framework in India: The cyber laws and legal framework in India is much weaker as compared to US and it will be much more difficult to prevent piracy in India.

Competition from brick and mortar stores and the benefit of owning tangible product

As the music business is not a commodity business, price discovery for each new song has to be done separately to maximize profits. The demand for a new song depends on a host of factors like musician's reputation, publicity, quality of songs, genre etc. Therefore, a set price for songs online is difficult.

H. KEY INSIGHTS FROM PRIMARY AND SECONDARY RESEARCH

The customers can be segmented into:

1. Music Lovers: These are the passionate music lovers who have very high emotional quotient associated with their music. They are the opinion leaders and are generally the first ones to listen and purchase music. They can be assumed to have low price elasticity. The customers belonging to this segment mostly belong to the age group 15-30 years.

2. Music enjoyers: These customers enjoy their music, but they are not involved in their music as the music lovers. Music enjoyers enjoy their music and keep themselves updated with latest music. However, their price elasticity is higher and they have lesser tendency towards impulse purchase as compared to music lovers.

3. Casual Listeners: They are not too fussy about music. They enjoy occasional music but their emotional association with music is low. Their price elasticity is high and they generally buy music less frequently.

I. PRICING OPTIONS / RECOMMENDATIONS

Though the customers can be segmented, and internet provides scope for differential pricing, it should not be done. This is because there is little element of service involved and the product is not differentiated as such. Thus, it will be very difficult to justify the differentiated prices and there will be customer resentment and alienation.

Based on the primary and secondary research, following methods can be used

§ Value based pricing through Bidding: Clips of songs will be available online prior to the launch of the songs. Users can listen to the clips and then fill a survey. The survey will be a direct price response survey which will also ask them to rate the song. Let the user bid for the songs for a limited period say one week. The release date of the songs will be announced beforehand. This will just be an expression of interest and the offer will not be binding on the user. The data from the interested customers can be used to estimate the reference price, latitude of price acceptance and willingness to pay for the customers, hence leading to price discovery.

§ Set-Price method: The price for each music file will be determined using:

§ Value based pricing

The incremental value to the buyer comes from the following:

· Availability and variety

· Option to buy unbundled songs separately

· Ease of download and usage on various forms of hardware (phone, i-pod, computer)

· Interaction with the musician

The estimate of the value of these advantages to the buyers can be used to price the songs and albums online. We will ask people to fill up a questionnaire where they will be asked their willingness to pay for songs of an upcoming artist, and come up with latitude of price acceptance/range for possible launch prices.

§ Based on competition from retail stores:

A typical album of a new artist is priced around Rs. 100 and has about 8-10 songs. Thus, the reference price per song in the minds of the customer can be assumed to be Rs. 9. Also, each song can be sold separately. This unbundling will give an advantage of applying differential pricing for each type of song, like title song will be priced higher. This will give us a price band say of 8-20 for title song and say Rs. 8-12 for other songs, depending on the popularity of the artist and the initial interest shown by the customers.