Currently listening to (on repeat)

"This Is Home" by Switchfoot


I had written Switchfoot off a couple years back (I thought they had changed their sound too much to pander to the pop music radio crowd) after their major label debut The Beautiful Letdown. Coincidentally, Ted was actually the one who introduced me to Switchfoot. Well, this new single from them has given me new hope.

The only unfortunate thing is that I cannot download it from the Prince Caspian soundtrack on iTunes without buying the whole album. While this does frustrate me, I do not echo the sentiments of the bazillion angry fans on iTunes that Apple needs to make it available for single download. Obviously, Apple would gladly do so if it could. Although I have no way of proving this, I'd guarantee that it is a stipulation in the contract with Walt Disney Records that Apple is not allowed to release the song for individual purchase (most likely in a misguided attempt to increase sales revenue). It is unfortunate, however, for two reasons: 1) it limits music-lovers choices; and 2) it reduces overall earnings to Apple and Disney.

The first point is straightforward. By limiting the songs available for download, consumers have less choice in the selections they make. This restriction angers and alienates the music fans. If you don't believe me, just check out the iTunes reviews on the Prince Caspian soundtrack page! Since downloaders cannot get the song without buying the whole album, it means that those that want it cannot get it without illegally downloading it from some P2P network. This only reinforces the bad behavior that the record labels claim will destroy the music industry.

The second point is a little trickier. This is clearly the most popular song of the soundtrack, and Apple and Walt Disney are missing out on a large number of sales by restricting its availability to album purchasers only. Clearly, there is a large segment of the population who would be willing to pay $0.99 to download the song, but are not willing to shell out $9.99 for the whole album just to get the one song that they want. Of course, some people are willing to pay the full price because the rest of the tracks add enough value to justify the purchase. But I'd bet that the majority of consumers cannot find an additional $9 in value on the album (or maybe slightly less; if an individual values the Switchfoot single at more than $0.99, say $4, this still leaves $6 of additional benefit that needs to be accounted for in the remaining tracks).

Understandably, Walt Disney is hoping to increase sales of the album and not just promote a single artist. All else equal, their current strategy will do this: those that would have bought the album regardless still do, and some of those that would prefer to buy only the Switchfoot track will be willing to buy the album because they find enough value from the other tracks to make the purchase worth it. Clearly, in this scenario, Disney's album sales have gone up. However, this marketing strategy may not be a profit-maximizing one because there is also a loss of sales to all those individuals who were willing to buy the single, but cannot under the current conditions. Therefore, Disney's strategy is only profit-maximizing if the gain in album revenue is greater than the revenue they forgo had they allowed single purchases of the song. (In economics-speak, the idea of giving up one thing for another is known as "opportunity cost.")

Given this fact, I find it surprising that Apple does not negotiate some way of releasing such tracks for a higher price than the usual "$0.99 per song" pricing structure. This form of price discrimination would maximize firm profits and also increase consumer surplus, although much lower relative to the gains in firm surplus. Still, those that are willing to pay something more than $0.99 would gain from the increased availability of the song to them. Does Apple not do so for fear of public reaction to such pricing strategies? Given the negative reaction to the unavailability of the song on iTunes, my guess is that this is most likely the answer. Unfortunately, consumers own misguided reactions may very well be the reason that they do not get what they want! People don't always understand the consequences of their actions...