Digital Content Pricing

Rajesh Jain writes:

... there are vast libraries of content sitting in vaults blocked by (among other things) delivery costs. It stands to reason that if an episode of "It's Like, You Know" costs 50 cents to deliver, it's got to sell for more than 50 cents, and, as great as the show was, few people are going to pay more than 50 cents to watch an episode. If, however, you can cut those delivery costs down to 5 or 10 cents, there's a whole new market to be had.

This actually brings out a good insight in the way pricing of Digital Content varies from that of physical goods.

Consider a commodity like rice or consumable like bread. The per unit price of the product increases with rising quality. So is the case with valuable commodities as well - say Gold - the higher the quality of Gold (in karats) the higher its cost. This pricing strategy arises because physical goods once consumed deplete. Once I consume a loaf of bread - no one else in the world can consume it again.

However with Content, no matter how many people consume - there is no depletion in the value. This is also the fundamental difference between Intellectual Property(IP) and Physical Property and affects the way content (which is basically a form of IP) gets priced.

Content is always priced uniformly. The DVD for a mediocre movie comes at the same price as that for a superhit, the CD or cassette for a superhit music album is sold at the same price as a less popular one. The profits for content are made by selling volumes and getting higher returns from the Royalty than by increasing the per unit pricing.

While this phenomenon has been known since a long time, it has gained focus recently due to the steep increase in the amount of Content sale that's happening - online books, ringtones, music, videos, newspapers and even paid blogs. Add to it commodities like this:

If you wanted to decorate your mini-homepage, you could choose from tens of thousands of digital items - homepage skins, background music, pixelated furniture, virtual appliances. But you had to pay for them with "dotori," or acorns, and you had to buy the acorns with real money.

The virtual goods were cheap - typically less than $1 apiece - and consumers had no problem paying for them. This year Cyworld expects to make $140 million in sales, with acorns accounting for 70 percent of that.

With the world becoming more and more virtual, a whole new field of consulting services catering towards Digital Content Pricing is emerging. Watch out for this space! (pun intended!)