Quality, price, marginal cost and the open door

Quality, price, marginal cost and the open door

No one expects a Bugatti or Tesla to cost the same as a used Celica. After all, if you want a car that is silent, fast and sexy, you will (and should) pay more for it.

No one expects that dinner at Alinea should cost the same as dinner at McDonald’s. After all, even though the calories are the same, the quality, attention to detail and costs are not.

But for books and movies, there’s no correlation at all.

A lousy movie costs precisely the same to see in the theatre as Memento did. Even after we find out if the movie is better, the price doesn’t change–a DVD of Toy Story is the same as the new release of the Smurfs.

Worse still, a used paperback copy of Snow Crash gives you precisely the same level of intellectual quality as the original hardcover did, at one-tenth the price.

Obviously, this is because the intellectual property rights, the ideas, those are of a quality worth pursuing, while the letters on the page or the pixels on the screen cost precisely the same to deliver as for something lousy.

And the open door? Since the cost of quality is all up front, a digital copy is just fine… better in fact, because it’s convenient and easy to share. Can’t do that with a Tesla.

The producer realizes that he has a product with a marginal cost of zero. Even a nickel or dime is better than nothing, and when those of lesser quality start to lower their prices to gain market share, there’s pressure to keep up. (I remember when a VHS movie cost $90).

The paradox here is that the stuff upfront, the risk and the guts and the hard work to make a great bit of content, is actually going up, while the price we’re willing to pay for a digital copy is plummeting, and will continue to plummet. We don’t hesitate to pay $25 for a hardcover (yet) but there are almost no iPad apps that cost that much for similar content. Yet the original cost for the app is probably greater than it is for the book.

I think we’ll always be willing to pay extra for the benefits we get from getting something first, getting it curated or getting it customized. But for most of what gets purchased in pop culture, none of those three are at work.

Prepare for a continuous erosion of what you pay for digital content, at the same time we’ll see a sticky and upward trend for what you might be charged for the collectible stuff and the scarce or custom. I think producers are going to fight mightily for a second (higher) tier of pricing for amazing work, but while this might work for the frontlist new stuff, I have a hard time seeing it sustained for the backlist titles.

How much do you expect to pay for a perfect (but used) digital copy of Prince’s Greatest Hits? How about a penny?