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SUMMARY
Aligning Payment & Value in the Virtual World
- Pricing a Listening Hour: 3 Approaches
- Comparative Financial Models
- Upside/Downside
- Record Label Perspective
- Detailed Assumptions
- Comparative Revenue Analysis
The payment model described in this report, which is not a rental model, is
based on collecting payment from consumers when they play their songs. This
new approach would mean that the cash flow of a record label would more
closely resemble that of a music publishing company.
Under the new model, consumers would be able to obtain digital song files for
free, but they would pay each time they listened. Those who listened a lot
would pay the most while occasional listeners would pay the least. Payments
would be collected by retailers who would sell music service accounts on a
pay-as-you-go or subscription basis.
The size of the user's personal music collection would be unimportant and
users could own as much music as they wanted. The new payment model is based
on an assumption that music would be provided without DRM while consumers and
third-party developers would be free to copy and share digital music without
restrictions.
Central to the new pricing model is an assumption about how much consumers
would be willing to pay to listen to their music for one hour. Therefore, the
report begins by using three different approaches to define a viable price
range for one hour of ‘listening time'.
Taking the perspective of a record label, the report then presents the results
of a financial modelling exercise that identifies the differences between the
new payment model and the traditional model, where consumers pay to acquire
music.
Revenue, cash flow and a range of other important metrics are included in two
separate financial models where all the key assumptions are clearly explained
and supported using primary data sources and consumer research.
TABLE OF CONTENTS
Background
Pricing Listening Time
- Approach 1: Commercial Radio
- Method
- Music Service Application
- Approach 2: Music Expenditure & Listening Behaviour
- Music Expenditure
- Listening Behaviour
- Results
- Approach 3: Subscription Affordability
Revenue Models
- Model (A): Pay to Acquire Music
- Explanation of Approach
- Summary
- Model (B): Pay When Listen to Music
- Hosted Acquisition (Type A)
- P2P Acquisition (Types B1 and B2)
- Piracy
- Listening Behaviour
- Retail Price per Listening Hour
- Summary
Comparative Results
- Assumptions
- Unmodelled Effects
- Upside
- Downside
- Publishing Royalties
- Cashflow
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