I don’t work in e-commerce. Well, not exactly. For all intents and purposes, I work in promotion. And I guess in some ways that means I sell stuff, so in a sense, yes, I work in e-commerce. Anyway, there’s this thing that’s been bugging me for a long long time, and now that I’m working at a record label, it bugs me even more – mostly because I still don’t have the slightest inkling of an answer.

How in the hell are music prices determined?

Let’s look at a little case study here: the new album by Bill Frisell, Disfarmer (I won’t review it here, but this album is pretty sweet). The album came out just a couple weeks ago, and was released in both CD and a few digital formats (read on).

Now first, let me point out something before we go on: this is not a mainstream album. It’s jazz, it’s a little on the avant garde side, and frankly will never hope to compete with the Jonas Brothers. Because of this, one would expect that the album may be priced differently than your typical Walmart 10 dollar albums. Actually, I’m sort of surprised that Walmart carries it at all, but that’s really another article altogether. I digress.

Anyhow, let’s take a look at all the different ways you can buy the album, and then I’ll discuss how absolutely bizarre these pricings are.

Straight from the label
Disfarmer was released on Nonesuch Records, a part of Warner Bros. Records, and is available directly through the Nonesuch store. I should point out that the Nonesuch store is really an incredibly resource for anyone interested in modern jazz or classical recordings from the last 50 years or so. Nonesuch has always been one of my favorite labels, and I’m really excited to be working alongside them.

The Nonesuch store sells Disfarmer in the following formats:
$14 – 320kbps MP3
$16 – 320kbps MP3 + CD

Amazon.com
The album is available in both CD and MP3 from the respective parts of the Amazon site, at the following prices:
$11.99 – 256kbps MP3
$12.99 – CD

iTunes Music Store
Available in the proprietary Apple AAC format, DRM free
$13.99 – 256kbps AAC

Brick and Mortar Stores on CD
The album is available on CD in a variety of stores. Here are some of the prices I’ve found:
Walmart – $14.88
Best Buy – $13.99
Target – $12.99

Why the pricing differences? Well, for starters, price fixing is not legal. List price for the CD is $18.98, but in order to remain competitive, these gigantic retailers buy huge volumes, for a lower unit price. Giant retailers also have the ability to retain a stock of these discs for quite some time at very low marginal cost.

But that doesn’t explain the oddities in digital pricing. I can buy a 320kbps MP3 version – the “highest quality” MP3s available, in quotes because it is almost the data contains redundant or extraneous information, and for the average listener is indistinguishable from V0 or even 256kbps formats – directly from the label that released the album for 14 dollars, the highest price for a digital format among the three retailers offering. iTunes’ price is only one cent lower, comes in a lower bitrate, and is encoded using Apple’s proprietary AAC format (although it is DRM free). Meanwhile Amazon offers the lowest price, just 12 bucks, in 256kbps MP3 format.

We seem to be forgetting one very very important detail here: if you buy the CD, you can make your own digital files, in any format/bitrate you want. The pricing here would suggest that the album is being pushed in its physical format before the digital format. After all, I can get the album for just a couple bucks more, and even download the digital files instantly so I can listen while I’m waiting for the CD to arrive in the mail.

I’m all for choice, and I believe that retailers should be allowed to sell products as they wish, so long as they aren’t doing anything unfair or unethical. But something seems extremely counterintuitive here. Logic would suggest that if I buy the music directly from the label that created it, the overhead on that purchase would be less, and the artist would get paid more (in reality, it’s a lot more complicated than that, but let’s assume this to be true). Why, then, is the label’s price the highest of any retailer, in both physical and digital formats? Most likely it is due to volume of sales. Yep, the sheer number of transactions made by third parties (aka middlemen) makes the price lower, and therefore the vast majority of sales result in lower payouts to the label and artists (at least this is what logic tells us).

This complicates what I believe to be the cardinal rule dictating the sale of music today:

Fans want to support the artists they love, but will almost always opt for convenience and competitive pricing.

In many cases, of course, the convenience/price factor leads fans to pirate the music. But those who choose to legally purchase the music have only a couple of choices: they can pay more to support the artist, or opt for the convenience of online music stores and their lower prices.

There’s something very important at play here: the public fundamentally distrusts the middleman, whoever that may be. Given an option, I’d bet most fans would buy the CD at a show rather than buy it from Walmart. And I’d bet fans want to buy digital direct from the artist, and not iTunes.

I think there are about a hundred and one other factors that go into this pricing, but I, like most music fans, remain absolutely baffled by it. And as a savvy consumer, I always want to explore my options before I buy anything. Personally, I’ll still take this on a case-by-case basis, depending on price, availability, and a few other factors (I’ve recently been on a vinyl kick, and love the vinyl+MP3 options on many new releases).

How do you feel about this? Would you rather buy the physical copy and make your own digital versions? Do you opt for the lower priced MP3 options? Would you prefer to order directly from the label rather than Amazon or iTunes? Leave your thoughts in the comments.