eBay Auctions and Possible Price Points of Downloadable Music

Upon learning of iTunes/Pepsi bottlecap auctions on eBay, Digonex began to accumulate auction data.

The information was collected in two groups providing two data points. Data was found for 200 auctions immediately following the SuperBowl promotion announcement and data was also collected for 62 auctions ending on March 17 and 18. Dr. Roger Davis and Jeff Eglen did statistical analysis which we think yielded compelling results. The following are a mixture of Dr. Davis’ and my initial comments (I collected the data.) The data is what it is. We will make the raw data available so interested parties might perform their own analysis or confirm ours. We have all the auctions listed so bidders can be identified, the times of the bid known, amount of each bid, etc., much more than we have reported. All information collected was readily available to the public. All we ask is that you tell us the intended purpose, credentials of reviewers, and agree to attribution.

The fact that the range of purchase prices was wide ($.23 to $1.36/bottlecap are the outlying values) suggests that variable pricing indeed may be the best way to capture the needs of consumers and meet the value proposition of the labels at the same time. Based upon 3800+ bottlecap purchases (one bottlecap code=one iTunes download) on eBay, 73-74 cents seems to be the right price for “hit” music, at least in these auctions. This, in all probablility, is not the right price point for less popular and catalogue music. In fact we are rather certain it isn’t. Those price points will be artist, genre, and personal taste driven. But if we estimate that the labels want 65%-70%, using figures generally reported by many news sources for digital music, then the wholesale price is going to be in the range of 48 or 49 cents for popular music, more for very popular hits near the time of release, and much less for the rest of the catalogue. We think this study could be an important indicator for pricing and a reflection of public valuation of music downloads.

You don’t need any charts to see what’s going on…it’s pretty obvious. (There are two accompanying graphs, however, that depict the data as measures of central tendency. The first chart is the number of auctions ending within each 10 cent range. The second chart shows the number of bottlecaps sold within each 10 cent range.) The big finding is that there is no significant difference between the average price of about 73 or 74 cents between the two groups. That’s interesting because (1) value did not appear to appreciably decrease over the time span and (2) people can turn the bottlecaps into whatever music they want…so the bottlecaps are really a form a money… And of course, people turn the bottlecaps into the music they want the most, that is, the songs that have the highest value to them. So…the conclusion is that digital music with a perceived high value is worth 73 or 74 cents. High demand hits at peak release time may be worth considerably more comparatively speaking for a short window of time.

Looking at the raw data, there are only a handful of auctions where the selling price was $1 or over…and that makes sense, since basically everything is at a flat rate of 99 cents on iTunes anyway. The people that pay over $1 are actually losing money…plus…they have the extra step of redeeming the bottlecaps, rather than just buying from iTunes directly.

Actually, the interpretation is a more complex than “Digital Music is worth 73 or 74 cents.” That’s what it’s worth to the select group of AUCTION WINNERS. We have to remember that for every auction winner there are many more auction losers. Exactly how many more, we don’t know, since we haven’t yet analyzed the data on number of unique bidders. Looking at the data, in the post-Superbowl group there were an average of 8.2 bids per auction. In the Recent group, there’s an average of about 6.4 bids per auction…it’s not uncommon for people to bid several times during an auction, particularly at the end.

So, if we assume that there are 3 unique bidders per auction—and this is a big assumption until we can back it up with real data (and we do have that data, just haven’t had time to reduce it – we do know there were 1792 bids on the 262 auctions or an average of 6.8 bids/auction)—we could hypothesize that, perhaps, for 1/3 of the population of digital music buyers/iPod owners (the winners), music is worth 73 or 74 cents a song. For 2/3 of digital music buyers/iPod owners, it’s worth something less than this. How much less would be hard to determine without analyzing the bid history for several hundred songs. After the data analysis is obtained on the number of unique bidders per auction we should be able to know how small the group is that’s willing to pay 73 or 74 cents.

In summary, the objective results suggest that digital music is probably overpriced currently in most markets, no matter how you cut it, relative to public perception of value and willingness to pay when they have a hand in determining price. This is a very important concept. Even among those that took time to bid and win the auction, it’s overpriced by about 99 – 73 or 74 cents = about 25 cents. Among the auction losers, music could be overpriced by much more.

It would be very interesting to know, though almost impossible to track, how many of the downloaded codes are redeemed. The percentage might be expected to be high since the auction winners evidently knew what they wanted and what they were willing to pay.

I may be contacted by email at jan at musicrebellion.com. The phone number at Digonex is 317-638-4154.

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