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Rick Rubin: Right idea, Wrong Price?

Subs can save us

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The record producer and co-founder of Def Jam has only been "co-head" of Sony's Columbia Records since May, but he's already setting about destroying the old business so a new one can be built in its place.

It remains to be seen how effective he will be, but for now Rubin is prepared to say what seasoned executives think, but can't say out loud. And he spelled out the future of the record label in a lengthy profile in this week's New York Times.

"Columbia is stuck in the dark ages," he said. "I have great confidence that we will have the best record company in the industry, but the reality is, in today's world, we might have the best dinosaur. Until a new model is agreed upon and rolling, we can be the best at the existing paradigm, but until the paradigm shifts, it's going to be a declining business. This model is done."

Rubin advocates a subscription model instead. Not one with a capped number of discrete downloads, but one where music "will come anywhere you'd like ... a virtual library accessible from your car, from your cellphone, from your computer, from your television. Anywhere."

Once that's accepted, the music business will be much bigger than it is today, he believes.

This isn't a new concept. Economists have argued for years that digital distribution changes the economics of selling a discrete product.

In testimony to Congress, Jim Griffin argued that,

"The delivery of music is approaching zero marginal cost - the cost of enabling each listen after the first. For some, this is a terrifying prospect, as their income may have depended upon charging a price much higher than marginal cost, say $18 for a disc that costs no more than a dollar to reproduce."

"At its most rational, consumer behavior suggests they believe media should be priced at or near marginal cost of delivery, which is closer to zero than 99 cents. This is the price to which they have grown accustomed in radio, television, newspapers, magazines, and so on... uncontrolled media generally move at or near marginal cost."

"People feel it in their belly," he reiterated here.

Or as MCPS-PRS economist Will Page has suggested [PDF], the price of recorded music is tending to zero.

Music is becoming a "pure public good" - one person's consumption doesn't harm another's, non-rivalrous and non-excludable. Public parks are an example of a public good that still needs to be paid for - or there'd be no park - but we wouldn't pay for each visit. Therefore they're supported out of a pool of money, and/or by sponsorship.

So far the music business has tried to make music rivalrous and excludable, with DRM, which recreates the inconvenience of physical product in a digital environment. It's failed to grow the bottom line, however.

More music is being consumed than ever before, but it's available in abundance, at no cost, from unlicensed sources: so revenues have continued to decline. Which is where Rubin comes in.

The price of access?

Rubin is quoted as citing two figures: $19.95 a month, and "five or six dollars a month". The first is almost certainly wildly optimistic, given that Americans have never paid much more than $5 a month per household for music. In 2005, per capita spending on all music and audio goods was a fraction over $2 per month. (Compared to $77 per month on military spending).

To the industry's dismay, much of this is going on the machines to play music in new formats, rather than the music itself.

"The subscription model is the only way to save the music business. If music is easily available at a price of five or six dollars a month, then nobody will steal it," says Rubin.

So Rubin's second figure is much more realistic. This gives a ray of hope for musicians, performers and producers, who've been browbeaten for years by the anti-copyright technology lobby, which is only too happy to tell them that sound recordings have no value, and that musicians should revert to a pre-capitalist arrangement where they must perform to be compensated: where they must, literally, sing for their supper.

The right to remuneration hasn't gone away, but the business has simply not had the foresight or confidence to make it a business.

In the bigger picture, the amount is so trivial it neither need be compulsory nor onerous. As Griffin explained, here, three years ago -

"Newspapers and magazines sell for less than the marginal cost of delivery. Google feels free to everyone, but we know we're paying more for Google upfront by visiting each advertiser's website."

The major labels have always set their stall against this kind of licensing because, they argue, it robs them of their right to set a price for music.

That would be a legitimate argument in other times. But when they're facing a price of zero, how can they argue that the interests of their artists and shareholders by ignoring the option?

The trick the industry has, along with networks and other digital service providers, is making that $2 "feel like free". ®

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