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Why GPS maps editors are doing better than music editors

24 November 2006 by Ch. Tronche | Filed under Economics.

If you sell rights on immaterial goods for a living, may be your customers aren’t the people using your products…
As everyone should know (but doesn’t yet), what consumers want for music is a flat price model: as much music I can listen digitally delivered for, say 5 € (8 $) a month, and no DRMs in the way to move my songs from my computer / TV / whatever to my player (MP3 or whatever).

This is a reasonable expectation because, if you deliver your contents through a user-built P2P network, shrink your marketing expenses to a reasonable level (admittedly a cultural revolution in the music business), and dump your costly DRMs (not to speak about your lobbying effort), your marginal cost is zero, and almost every cent you make goes to your net income.

What rights holders used to want is a pay-every-time-you-listen model. Some of them are a bit more realistic now (but still a long way from getting in touch with reality), and ask for a pay-for-every-song model. This is because they have the illusion they can get more money this way, while they’d know, if they had done their homework, that what hold their revenues back is the people’s total available budget for entertainment.

Difficult to have more opposite views. So who’s gonna win ?

Let me digress a bit. I recently read that Nokia’s gonna put a GPS in its N95 cell phone, complete with (free) maps. Nokia will buy the maps from Tele Atlas. Tele Atlas, whose rights over its maps are fundamentally copyrights, has elected not to sell the maps to the final customer. Rather they basically said to Nokia: “here are the maps, do what you want with them but you owe me big cash now and if you can’t make money out of this, that’s your problem”.

Now, why are some company willing to do it this way rather than directly to the final customer ? An obvious answer is: size. If you’re small, even with the help of the internet, there’s little chance you can sell to millions of customers, because internet alleviates the distribution problem, but makes the visibility problem worse. With internet, every vendor is a magazin lost in the thousands of titles of the bookshop. So if you don’t have much money, selling to a big intermediate is the way to go.

Back to our music problem, is there a chance the music provider will ever work out the flat price model everyone expects from them ? One possible answer is; yes, when they’ll be so small they have no other choice left. Or may be they’ll be smart enough to make the leap before.

Final consumers aren’t willing to pay much for music, as witnessed by the level of downloading from the internet and the plummeting sales. So they aren’t customers (for someone being a customer, she has to be 1) willing to get you product 2) having enough money, right ?). Some companies want unique media content. For example in France, mobile telco Orange got the exclusivity on the last Madonna album. A company willing to get stuff with the money to pay for it, now this is what I call a customer.

Media rights holders should understand their real customers are hardware makers. Electronic maps editors got it right (they had little choice). When will music editors understand ?

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