Classical Music: Economics meets the Long Tail

Amazon_classical

We have in the past, looked at the Long Tail of music and digital media. I have been particularly interested in the impact of pricing on the Long Tail. (see this as a specific example: Are CD Prices Getting More Dynamic?).

The Long Tail, by its very nature, tends towards less sales (lower volume units) of a greater number of SKUs (more individual names) than typical fat head (mass market) products.

The question I have been chasing in the digital area, given the low cost of reproduction (MP3s, but CDs and DVDs as well) has been the impact of pricing on LT sales. Consider the question phrased this way: Shouldn’t an online store, with theoretically infinite shelves, and extremely low cost of marginal product manufacturing, offer a wide variety of products at very competitive prices?

We got an early look at that question via a NYT article on the burgeoning sales of Classical Music — a Long Tail phenomena if ever there was one — at Amazon.com.

Here’s an excerpt:

"CLASSICAL music fans, the refugees of the retail world, can be forgiven for feeling unwanted.

Specialty chains like Tower Records and other independent music
stores have been chased into oblivion by big-box retailers, which offer
classical fans little other than Andrea Bocelli’s latest pop release or
“Baby Einstein’s Lullaby Classics.”

According to Paco Underhill, chief executive of Envirosell, a New
York-based retail consultancy, Tower’s closing has been “absolutely
devastating for the classical music community. And the transition to
online isn’t as natural as it might be for products with a younger
customer base.”

So what store wants customers who can differentiate  among Beethoven’s symphonies (other than the Fifth)? Perhaps not surprisingly, Amazon
does. The Internet’s catch-all merchant last week opened a classical
music discount store — a move, analysts said, that could benefit the
company handsomely, since classical fans actually buy, rather than
steal, their music.

“Somebody’s got to serve this market, and this could be a great
opportunity for Amazon,” said Russ Crupnick, an analyst with NPD Group,
a research and consulting firm. (emphasis added).

Its more than just the age of the aficionados; Amazon is very astute at determining that those who like A and B might also like C. The concept of a trusted neutral observer making good recommendations is very desirable to this particular demographic and area of music. 

But what really caught my eye was the specific mention of the discounting Amazon is doing with these Long Tail products: 

"Amazon’s new classical music Blowout store complements its core
classical music offering, which has been in place since 1998 and
features about 100,000 titles. With 2,000 deeply discounted CDs and a
small but growing number of audio tutorials, the Blowout store is meant
to be an introductory service of sorts for those who wish to build
classical music collections but are not willing to spend large sums on
a genre they know little about
.

“It’s an enticing way to try out something you might not otherwise
want to take the risk to discover,” said Thomas May, Amazon’s senior
music editor.

Mr. May said Amazon’s classical music sales last year grew by more
than 22 percent, making it one of the fastest-growing music genres on
the site (Amazon does not break out separate revenue figures). The
Blowout store will seek to feed that trend by offering most titles at
30 percent of regular prices." 

It will be intriguing to see how this develops. There is a magic number that will maximize revenues and profits; Amazon.com should tweak the prices to identify what that price point is.

I know Amazon is not looking to give the store away, but they should be carefully watching what sells and what doesn’t relative to price. As we noted back in January of this year, the top 5 Amazon music sellers (all genres) were all under $10.

>


Source:
Amazon Seeks to Fill Classical Recording Niche
BOB TEDESCHI
NYTimes, March 19, 2007
http://www.nytimes.com/2007/03/19/technology/19ecom.html

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What's been said:

Discussions found on the web:
  1. j d ess commented on Mar 19

    is this going to lead to a regular “Sunday Morning Classical” bigpicture post?

  2. oldprof commented on Mar 20

    Thanks, Barry. I am checking my wish list versus these offerings.

  3. Steven Walcott commented on Mar 20

    how do i know the price is $5? a few years ago i was going to my gym on 14th street in nyc. there was a young black gent selling cds on the street. self-produced hip hop music, and he was selling his discs for $5 a pop.

    i started to talk to him, and i thought he was crazy. however, he said he clocked $150/day on most days. i thought that was pretty good for selling on the street. no marketing, no one knew who the hell he was, but 5 bucks was the clearing price that allowed him to sell to brand new customers.

    if you think this is uninformed anecdotal gibberish, i will bet you 5 bucks that you will see 5 dollar discs by new bands in the next 2-3 years.

  4. DavidB commented on Mar 20

    As the boomers ‘grow up’ I predict more of them will pick up on the classical trend. It may even become a fad among the smarter young folks as they see the intelligence and musical challenge that classical music offers. And those young artists looking for inspiration may want to dip into that pool as well since so much music was born out of that genre.

    If Frank Zappa can go classical then anybody can! (;

  5. day4night commented on Mar 20

    Thanks Barry, the Amazon Blowout Classical section is awesome!

    Like many here I imagine, I have a really hard time understanding $15 cds and $1 mp3’s. Seems to me that a typical 3 or 4 min mp3 should sell for about a quarter. I can’t really understand how that would not result in overall four times (or more) the music sales.

    My thinking is that if a song’s a buck, you can still say no. If it’s a quarter, your impulse wins. Then it’s like Doritos, before you know it you’ve gorged yourself on them…

  6. mike fladliien commented on Mar 21

    i’ve been writing a book to be self-published on cd pricing…my anecdotal research suggests a cd price of $3.50…as a class project, we made a cd of local artists and constructed a demand curve…we project that we can sell 211 cds at $6 and will have to lower the price to sell more…flad

  7. Zeal and Activity commented on Mar 26

    Economics ofMusic

    A quick post to collect a recent flurry of writing on the economics of music:

    Alex Ross: Dead or Alive. Are classical music sales up or down? No one knows. [T]he whole point is that there are no hits in classical music.
    Norman Lebrech…

Read this next.

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