With the advent of the iPod and iTunes, everyone is trying to get into the game of providing instant access to video and music. The one point I want to make is that these companies need to rethink their pricing. I was in a hotel a few weeks ago and was shocked at how much it cost to play a movie on demand. I thought, “Do they realize I have a Netflix DVD in my bag and a couple downloaded movies on my laptop?” Pricing strategy needs to be focused on more. Quantity in this game is the goal.
Let’s take the above example and illustrate my point. If the hotel charges $6 to download a movie, and we assume that 10% of guests take advantage of the service, and you have 1,000 guests, that’s $600 in revenue. Now, change the price to $1 per movie, which would drive more usage. Assume that 80% of guests play a movie on demand (many would start movies that they didn’t even intend to finish at $1). At this rate, you make $800 a 33% increase in revenue (break-even is 60% adoption of service per guest). As you can see, changing the price can have a dramatic effect. Now, this is all basic pricing strategy taught in every business school, but why am I seeing these overly priced services. I mean come on, I realize that Apple has sold over a billion songs via iTunes, but I wonder how many songs would have been purchased (rather then pirated) if the cost was $.25?