Obligatory Michael Jackson post

3 minute read

Given the extent to which Michael Jackson the person was crushed beneath the weight of Michael Jackson the commercial phenomenon, it’s sadly appropriate that his death should allow Sony Music Entertainment and eMusic to conduct a natural experiment in maximizing profits through price discrimination. Jackson’s death has rekindled interest in his music, to the point where Michael Jackson albums now dominate the charts at the iTunes Store and Amazon. As far as I can tell all the Michael Jackson digital releases on the iTunes Store are being sold at full-price; the same is true for Michael Jackson releases in MP3 format at Amazon. Individual Michael Jackson tracks range from $0.99 to $1.29 on both services.

Quite coincidentally eMusic’s recent deal with Sony will shortly result in Michael Jackson’s back catalog being available on eMusic, at prices ranging from about $0.41 per track to $0.50 per track on the new eMusic plans. Since Michael Jackson died before his releases hit eMusic, Sony has a period of a few weeks during which it can sell Jackson’s releases in digital format at full price to buyers who are not price sensitive, after which more price-sensitive buyers are free to buy them through eMusic at significant discounts. For example, an eMusic buyer who doesn’t care about bonus tracks should be able to snag a copy of Thriller for $3.69-4.50 on the standard plans (9 tracks at $0.41-0.50 per track), representing a 50-63% discount relative to Amazon or the iTunes Store.

By having such a delay Sony can maximize profits by avoiding offering lower prices to buyers who are very price-insensitive and must have the albums as soon as possible after Michael Jackson’s death, while still being able to get sales from price-sensitive buyers who don’t mind waiting a bit. (See my earlier blog posts on the economics of the Sony-eMusic deal and optimizing eMusic vs. non-eMusic sales for more on price discrimination in the eMusic context.) It’s essentially the same strategy Sony is employing by holding current releases back from eMusic until two years have passed, only with a much shorter release window for the full price version.

By looking at iTunes and Amazon sales figures before and after Michael Jackson’s albums show up on eMusic, Sony should be able to get a pretty good idea of the extent to which sales through eMusic are cannibalizing sales through other digital music stores. If it turns out that offering Jackson’s releases through eMusic has little or no effect on iTunes or Amazon sales, that would be an argument for Sony reducing the two-year delay for offering other Sony releases to eMusic customers. If this indeed happens it would be an oddly providential side effect of Michael Jackson’s death.

One final thought: My comments above might seem cold and calculating, but they would not have been foreign to Michael Jackson himself, who famously counted his friendship with Paul McCartney as less important than the opportunity to acquire publishing rights to the Beatles catalog. The King of Pop understood that as far as the major labels are concerned the true value of music is simply the present value of that music’s future sales.

UPDATE: As it turns out, the Michael Jackson catalog on eMusic is being sold under the new album pricing plan, which is really just variable pricing under another name. In particular an eMusic customer would be charged 12 download credits for downloading the album Thriller despite it having only nine tracks. Thus the eMusic price for Thriller for US customers would be somewhere between $4.92 and $6.00 on the standard plans, or between a 40-51% discount off the standard Amazon or iTunes price. Still a substantial discount, but not quite as attractive—more like the Amazon 50 for $5 promotion except all the time.