Yesterday, while
out Black Friday shopping, my brother-in-law informed me that Adele’s new album
dropped! I had heard her single, “Hello,” which had been released a few weeks
ago and loved it. So, today, I logged on to iTunes Radio to stream Adele’s new
album, 25. But, it wouldn’t show up!
I thought this was odd because I’ve never encountered this problem before. Adele’s
hit single “Hello,” is the only song
off the new album I was able to stream. So, I went ahead and purchased the
album in order to listen to it. As a side note, it was well worth the cost.
A quick search
on the internet revealed that Adele and Sony, Adele’s record company, opted not
to allow streaming services such as iTunes Radio and Spotify access to her new
album initially to drive her album sales up. A few explanations are found here:
Why
Adele Isn't Streaming Her New Album on Spotify or Apple
All-you-can-stream
providers pay less to the artist, and Adele and Sony must’ve figured the demand
for Adele’s new music was quite inelastic. They were right; consumers who
couldn’t listen to the music on a streaming service have elected to purchase the
album instead. This resulted in Adele selling 2.8 million album copies within
the first five days of the album’s release – a record for the first week! You
can check out the details here: Adele's
'25' Sets One-Week Sales Records in U.S. and Canada
All I can say
is, nice move Adele.
7 comments:
Vickie: 94/100 (I can make no sense of this phrase "my brother-in-law informed me that Adele’s new album dropped". Did you mean to insert the word "sales" in there somewhere?).
This is actually a form of price discrimination (although I think there's elements of both second and third degree in this case). There have been suggestions to change the nomenclature on those a bit (I used to use the text by Png and Lehmann, and one thing students didn't like about it was that they used an unconventional definition of the different forms of price discrimination).
This is second degree, in that the sellers don't know the preferences of each consumer, so they put out a choice and let consumers select into the group that best fits them (impatient so they buy the CD, or patient so they wait for streaming). There's also a sense in that the concept of selling an album when most people just want a single or two, is a form of volume discounting.
However, it could also be viewed as third degree discrimination in that the immediate purchasers of CDs will be charged a different price than those who stream.
Of course, CDs more generally also gets at pricing issues related to bundling. And then buying a CD is a form of two part tariff: you pay the high (monetary) fixed cost initially, but you also pay much lower variables costs each time you play the CD (they're less convenient, they can be scratched, players need maintenance, storage costs of CDs are not trivial in places with high real estate prices, there's risk of theft, and so on).
Dr. Tufte, in response to your comment in the first paragraph, "dropped" is slang for "was released" in the music industry. Although I'm not in that industry myself, I wanted to add some personality to the blog post to make it interesting.
Vickie, I also think this was a great move by Adele. The amount of sales her CD has made proves this point as well. My wife also could not wait, so she went ahead and purchased the CD. I think we live in a world where we struggle to wait for products that we want. The lack of patience that many consumers have makes the demand for this CD inelastic. Adele took advantage of this lack of patience by making them purchase the CD. Regardless of the price consumers were willing to but her new CD. 3.38 million copies of new CD were sold in a week. Proving once again the demand for her CD is very inelastic.
Vickie: +6 to 100/100
You learn something new every day. Sorry about that Vickie :(
Jordan Johnson: 50/50
So ... most of my main comment were about different aspects of pricing policy that apply generally to all music retailers.
But why is the specific case of Adele the one we've noticed?
Obviously, it's because the scale of the success is much larger. And all of that is driven by the inelastic demand.
This also tells us that the reason we don't see this happening with other artists is that their demand is not as inelastic. I wonder why that is?
Fortunately for Adele, she has built a fan base large is enough support this “old style” of distribution. And why wouldn’t she take advantage of it? On average, a “major-label act” like Adele makes $2.00 per CD sold, as opposed to $0.25 per download or $0.005 per song streamed.
Most artist are forced to look at the distribution of their music as an advertising expense, rather than a revenue generator. In the current economy, with downloads and streaming so prevalent with consumers, bands must go on tour in order to generate real revenue. By touring they are able to tap into other sources of income through the sale of merchandise and licensing for TV and film.
Source: http://nymag.com/arts/popmusic/features/grizzly-bear-2012-10/index1.html
David: 44/50 ("large is enough support this" makes little sense, and "artist" should be plural).
I have two thoughts on what David wrote.
1)
I think your assertion that Adele has built a "big enough" fan base is problematic. I wish you'd explored the ManEc of that. Let's run with this a little more.
If Adele is big enough to pull this off, does this mean that other artists are not that big? Maybe so, but it means that most of what we see in the music industry is then marketing rather than talent. Many might agree with that ;-)
Or is it that Adele's fans have different elasticities than other artists' fans? Perhaps she appeals to an age group more likely to buy CDs? That wouldn't surprise me, but then I'd think there must be other artists that could follow this path. Where are they?
Or is it that the quality of the input justifies the format? Streaming is lossy (yes, that's the word audiophiles invented for it), and perhaps the fidelity of Adele+CD is more demand inelastic than that of, say, Rihanna+CD. That also dovetails with my first argument: Rihanna is more heavily weighted towards sexual imagery than talent (unlike Adele), and perhaps that lingering imagery is what people want when they hear a song. If that's the case, you don't really need the CD to trigger that response.
Lastly, and I don't take this seriously for this particular case, perhaps there's an easter egg in the Adele CD. That would certainly influence demand. But I think we would have heard of it by now.
2)
David is right that these days most artists view the physical format of their music as an expense rather the product.
I'm aware of the arguments that are popular in the press about the changing nature of the business model for bands, and how some have mastered it better than others (Nickelback, of all things, is known for being particularly good at this).
But, I wonder about this observation. Bands were always selling a bundled product. What's changed is the proportions of revenue and profits from each part of the bundle. But for other bundled products, we haven't made such a big stink about that (for example, there isn't much discussion that cable companies make a lot less on A&E or AMC than they used to, because those networks are able to hold out for better deals).
In the end though, this is similar to an earlier post this semester about the movie business. The entertainment industry is not as forthcoming with the detailed data that we'd need to sort all this out.
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