theunderstatement by MICHAEL DEGUSTA

A brief addition to my earlier charts.

Some people have correctly observed that in the digital era the recording industry’s marginal production & distribution costs have gone down. This in turn might account for at least some of the revenue drop, potentially without affecting industry profits. While I don’t have good historical data on costs at the moment, we can look at the pricing of albums & singles historically.

Here are the inflation-adjusted prices:

After 20 years of relative stability, there’s essentially a 35% drop from the pre-digital album price to the digital album price.  In fact, in 2011 dollars, the cheapest the average album price ever got down to before digital was just under $16, far above today’s magic $10 price point. This would strongly indicate that the majority of the cost savings of digital, if not all of them and more, have been passed on to the consumer. This of course doesn’t mean that the recording industry did so by design or out of the goodness of their hearts. I would speculate that Napster and Apple might have had more of a role in the savings transfer than the recording industry’s desires.

A note on the singles price: obviously the sales of digital singles immediately dwarfed the prior market for singles, hence the almost immediate convergence of the overall single price with the digital single price. It’s also worth noting that prior to digital singles, most “singles” in fact contained more than one song – a “B Side” in the vinyl & cassette era and then typically 2 to 4 extra tracks/versions in the CD era. Not that these additional songs necessarily added much value in the consumer’s eyes, but it is a difference.

Sticker Prices

In this case, I also think it’s informative to look at the nominal prices of albums and singles over time, not adjusted for inflation:

After decades of relatively natural inflation, the Apple standard price of $9.99 has been locked in for digital thus far. You have to go back to 1990 for the average album price to have been that low.

It’s also interesting to note that the advent of competition from $10 digital albums seems to have had no effect at all on CD pricing – perhaps they’re essentially two different markets at this point: people either buy one or the other but don’t actually compare between the two.

Singles saw an uptick in 2009 after Apple’s loosening of their strict $0.99 pricing policy, but are otherwise equally stable. 

All in all, it’s hard not to conclude that the pricing fat is gone and it’s not coming back.

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