What Would You Pay for Digital Goods?

The advent of digital information goods, whether in ebook or PDF form, existing as a downloadable packet of bits wrapped up in an mp3 file or streamed as an avi movie, has changed our perception of value. Take that mp3…it represents an intangible entity often a free, but illicit download, often of low quality. How do you value such goods?

Well, Lady Gaga recently valued her new album at $0.99 in a promotional tie in with Amazon’s new cloud music service (of course Gaga doesn’t lose any revenues as Amazon covered the shortfall. The Kaiser Chiefs’ new album has 20 tracks available, you choose ten tracks to create your own version of the album and pay the equivalent of $12 for the album, you can also then sell your version and get a dollar or so referral fee for each sale. Before that other artists, such as Nine Inch Nails (NIN), Prince and Radiohead,  investigated various value models. NIN published their most recent releases, Ghosts I–IV and The Slip with a Creative Commons licenses, Prince gave his 2007 CD album Planet Earth away free in a newspaper promotion much to the irritation of the music industry, while Radiohead asked their fans to pay whatever they felt their self-released album In Rainbows was worth as a download and a deluxe package CD. Others have experimented with novel distribution and sales models.

However you look at it, digital is disrupting the old business models. Many consumers consume via torrents and file sharing networks. They are simply not interested in parting with cash for ephemeral digital goods, whether ebooks, audiobooks, music, movies or software, when they can get it for free. A whole industry has arisen from this issue attempting to claw back claimed profits since the demise of Napster. Many consumers see digital goods as being of zero value and who’s to blame them given the disposable nature of 99% of popular culture products. Regardless what the industries hope, the genie is, as they say, out of the bottle.

Jerald Hughes of the Department of Computer Information Systems at the University of Texas – Pan American, in Edinburg, Texas, wonders whether quality standards of the different digital distribution formats might rescue the industry in some sense. “Do higher quality versions command price premiums, and if so, how large?” he asks. Hughes has investigated whether pricing digital music products offered at multiple quality levels has the potential to redeem and/or rescue the music industry. He wonders whether segmenting consumer markets to address differing quality preferences both within and across product genres could be the way forward.


“In order for quality standards tiers for music digital information goods to provide support for differential pricing, there must not only be market segments consisting of consumers with differing preferences for high audio quality, but also differing consumer value perceptions as a result,” Hughes asserts. So, do people pay more for higher quality. In the case of SACD-using audiophiles, not only do they spend more on their digital goods in this format, they also have to buy specialist hardware to play the disks; this is true, Hughes found, across classical and rock genres.

In contrast, compressed music files that are easy to download seem to be good enough for the vast majority of people who have abandoned their normal CD players in preference for a portable media player. But, free streaming and downloads abound not least via internet Radio, Pandora, LastFM, Spotify and their ilk, so what’s an mp3 worth? Hughes adds that there is still a middle tier, “Consumers are also willing to pay quite a bit more for actual CDs than for mp3s, and that’s still a huge market, even in the presence of downloading,” he explains. “That finding in my study supports the notion that quality-based profits are still available in the music industry.”

“Since there are no inherent barriers to delivering very high-quality audio streams as pure information goods through internet access, firms may wish to consider the profit potential of future product standards which are unencumbered by the production costs and inconveniences of the SACD’s physical format,” says Hughes. And, therein lies the rub, outside the tiny niche of audiophiles there is a great mass of people who love the high-speed, mass-produced trashy pop culture stuff. Some of them seem willing to pay if it’s cheap enough but millions prefer to download for free. After all, there are people willing to spend the money on mahogany and caviar and others who prefer plastic freebies. What is an industry to do?

Jerald Hughes (2011). The price of quality in digital information goods: an empirical investigation Int. J. Services and Standards, 7 (1), 35-49

This article has been reproduced from Sciencetext technology website. Copyright David Bradley.

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About David Bradley Science Writer

David Bradley has worked in science communication for more than twenty years. After reading chemistry at university, he worked and travelled in the USA, did a stint in a QA/QC lab and then took on a role as a technical editor for the Royal Society of Chemistry. Then, following an extended trip to Australia, he returned and began contributing as a freelance to the likes of New Scientist and various trade magazines. He has been growing his portfolio and and has constructed the Sciencebase Science News and the Sciencetext technology website. He also runs the SciScoop Science Forum which is open to guest contributors on scientific topics.
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