Wednesday, October 06, 2004

The More You Tighten Your Grip, the More Users Will Slip Through Your Fingers 

The other day, J. Bradford Delong, an economist a Berkeley articulated a really good reason to privatize social security. Actually, he wrote about several good reasons, but since this is actually an iPod post, I'm only interested in one:

At present, your Social Security benefits are yours only by grace of Congress: Congress could cut them if it wished. But if your privatized Social Security account were *yours*, then it would be yours not by grace of Congress but by right of property: courts would stand ready to defend it against any casual attempt to cut or confiscate it.

(Arnold Kling discusses the issue in more detail here, if you're interested).

The other day, I was thinking what a strange thing it is that I still have yet to buy any music from Apple's iTunes Music Store. I'm a big fan of Apple's, I am in favor of intellectual property rights for digital music files, and I think self-protection mechanisms are probably the best solution. I'm all about their pricing. So if I'm such an ideal customer for them, why can't I bring myself to do it?

One big reason is very similar to what Brad Delong brings up. When you download a song from iTunes Music Store, you don't really have a very firm guarantee about what you're buying. They do spell out what the software allows you to do, but they can change that retroactively. In fact, they have done that. If you purchased a song with the first version of the store, you were able to burn a given file to CD ten times. Subsequent versions have brought that number down to seven. That's hardly a dealbreaker, since I don't even plan to do it once.

Still, it makes me uneasy. If I pay for an album, what exactly am I buying? Purchasing a song from iTunes Music Store (and let me make clear that I realize that this is not entirely up to Apple; most of these criticisms should be read as being directed against the RIAA where appropriate) is actually the purchase of a usage license. You don't have any rights except what they give you, and you certainly can't consider your file a piece of your own property. In the license agreement they reserve the right to change your rights retroactively at any time, so I don't really feel comfortable with the purchase.

Does commercial song licensing happen this way? If you're a movie producer, and you want to license the latest hit song for your blockbuster, do they give you the rights, take your money, and then warn you that if they want, they can instantaneously change the terms of your usage agreement? You would feel comfortable with that? I doubt it. Yet that's exactly what they expect you to do when you download music from them, only one dollar at a time.

Then on top of that, they tell you that you are not in fact buying a license to use the music, you're buying a license to use that one particular file they send you. If your hard drive crashes, well, you're just gonna have to buy a new license so you can download it again! In other words, they're not about giving you the increased convenience that digital files give everyone else, they want you to inconvenience yourself by manually backing up your gigantic music collection to dozens of CDs, or pay to download everything again (having people buy things over and over again is a big theme with the record industry). I can understand that they have bandwidth costs, but losing a hard disk is not the uncommon event that a house fire that destroys your CD collection is. It happens all the time, and I'm not sure most people really understand how to back up their files.

I know the record industry is barely comfortable with the fact that everyone in the world can run around willy-nilly without a 1984 big-brother screen in their living room, automatically charging people when they hear a song. It's a tough life. But I think that if they would make some changes to their policies, they could get a lot more people onboard.

The way iTunes organizes your music is fantastic, and for me, CDs have basically become a distribution system for my mp3 files. When a CD comes out, I'm faced with a choice between paying $9.99 for the it at iTunes Music Store, and going to the record store a few blocks away and getting it for around $12.99 or $13.99. I'm still choosing the record store, and the reason why is directly related to their licensing terms.

With the CD, I do pay more. But I also get a lot more for my money. If I drop my laptop and the disk breaks, I can just rerip the CD without spending any more money (than the replacement laptop is already going to cost me). I can play the CD on as many computers or devices as I like, including my car, without the hassle of burning CDs or other contortions. And, I can lend the CD to my friends, if I think they might like it; who wants to be unable to lend their friends a CD? (It's stating the obvious to say that the 30-second song clips on iTunes are practically useless compared to getting a couple of good listens to the full CD). In short, the CD is worth more because it conveys usage rights that are a strict superset of the rights given to me by the license agreement. And they cannot revoke those rights after the purchase of the CD. Is it any wonder that people pay the few extra dollars to buy a CD and not have to worry about the inconvenience and uncertainty?

Of course, there is a difference in price, and it is significant. But apparently it's not a big enough difference to make up for all the problems, because I'm still getting the CDs. I suspect there's also an effect where people pool their purchases, buying CDs and letting their friends rip mp3s of them, so that in effect they are experiencing a lower price for the CDs that they don't absolutely need to have. This makes the price difference with the digital file seem less appealing if you have a group of friends with similar music tastes.

Still, I do want digital distribution, especially given how unused my CDs become once I've ripped them, and I think it would be more attractive if they made some changes. First of all, they should respect the terms of the license in effect when you buy the song, and waive their right to change the terms of the purchase after the fact. This will prevent the bait-and-switch problem that arises from the fact that the files are not your property.

Then they should let users listen to the entire CD at a very low quality level, instead of giving them 30-second song clips. The Flaming Lips have a very crappy version of Yoshimi Battles the Pink Robots on their website. It lets you listen to the entire album streamed in Flash, and it sounds like garbage. Still, I listened to the entire album several times all the way through, and then had to get the CD to stop the stutters and hissing and the fact that I had to be on the web and playing my music through Flash. I'm pretty sure I would have bought the album anyways, but I don't think someone unfamiliar with their music would have heard what is good about the album from a group of 30 second clips.

Amazon does something very similar to this, letting users search inside the entire book and get specific pages out. However, they put tight limits on how much of the book you can see, so that you don't just read the book online. This might lose them a few sales due to people who were just looking for a specific piece of data, but those weren't exactly likely buyers anyways. They probably get additional buyers who satisfy themselves that the book contains a lot of what they're interested in (which they can't ascertain from just the first few pages), and feel comfortable buying it.

The mechanism could work similarly on iTunes Music Store. Interested, registered users logged into their accounts could stream the entire album (counted as 50% or more) in very low quality, say, 5 to 10 times in a 2-year period. After that, sorry, you've gotten a good idea of what's in there. Streaming the album in this way isn't a good substitute for having bought the album because it sounds crappy, it limits the number of times you can hear it, and it doesn't let you send the album to your iPod or through AirTunes to your stereo.

Loosening up on the usage restrictions like this also makes it possible for users to share CDs they think their friends might like. Instead of lending the CD, a user can simply say "Go to iTunes and stream this CD, I think you'll like it." Since people probably have a better idea of what their friends like, I would be surprised if this didn't result in a net positive for sales.

Finally, iTunes Music Store should give users some recourse if their hard disk crashes, other than buying the whole shebang over again. It doesn't necessarily have to be free, but they do have your purchase history, and they should offer you a steep discount to download the files you've bought again in case you need to. It could be a sliding scale, like 50% off for a collection of less than 100 songs, and 70% off for a collection of 100 to 500, and 90% off of bigger collections. That should deter people from casually downloading songs over and over again ("Hmmm, why do you want to do that?"), without leaving them totally screwed if they lose their music collection or have to switch to a new computer.

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