01 July 2007

Perception of Value

The most revealing aspect of the row over Prince's release of his album in the Mail on Sunday is the choice of words by the co-chairman of the Entertainment Retailers' Association: "It would be yet another example of the damaging covermount culture which is destroying any perception of value around recorded music".


The "perception of value around recorded music" is the music industry's main asset - one it spent billions creating. New, fashionable recordings are sold at a very high markup. However, this does not mean that the industry is reaping huge profits, because the cost of making new recordings fashionable is very high.


That is not a criticism of the industry - there is no reason why they should not market their product in that way. However, it is does mean that, should new technology make their current strategy impossible, we should not conclude that no other strategy is possible. Without the "perception of value" and the high gross margins it produces, the heavy promotion of popular music would not be feasible, but its production and distribution would be.


The main thread of the Prince story - the dispute between the producer and the high-street retailers - is not interesting. In any industry which sells its products through shops, the retailer performs a double function of physical distribution and advertising. The extra benefit that the producer receives from the retailer's advertising is usually paid for in one way or another, and keeping "the channel" happy is a concern across industries. Disputes such as this between a producer and a retailer are commonplace.

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