SUMMARY: Before the Kindle, was the price of a book merely a function of its printing, production, and distribution costs? Or was the price a measure of its value to the consumer? If it was really the former, then one would expect prices to fall with the advent of a digital distribution network. But if it’s the latter, then why are prices of books, movies, music, and software falling?

I noticed something interesting about my own behavior this weekend using Netflix, and I can’t help but wonder if it applies to others.

Netflix recently came to Canada with a $7.99/month all-you-can-eat, streaming media service (movies & TV) that works with your computer, iPhone, iPad, Sony PS3, and Wii. Despite a dearth of recently released movie titles, I can see this service severely cutting into my own visits to the local Blockbuster. Not only can I pick from a huge library of titles and watch them on demand, but Netflix does a decent job of recommending shows that I’ll likely enjoy.

Before Netflix, my primary method of watching movies on demand was heading out to Blockbuster to rent a Blu-ray DVD for $6. And being somewhat ‘anti-Hollywood blockbuster’ meant that I’d often risk my $6 on a title that may or may not turn into 100 minutes of quality time. Here’s where it gets interesting… even if the movie started out poorly, I would often quickly consider the time and money I spent acquiring the potential dud and keep watching. “I’ll give it a chance,” I would say to myself, right or wrong. Why is that?

The answer has a lot to do with a human behavioural principle called “Commitment & Consistency”, coined by ASU professor of psychology and author, Robert Cialdini.

What Are “Commitment & Consistency”… And Why Do They Matter?
It can be summarized as “people’s strong desire to stand by commitments made by providing further justification and reasons for supporting them.” In other words, if I commit to driving down to Blockbuster and spending $6 on a DVD, I am subconsciously committed to riding it out… despite any feelings I have to the contrary (e.g., ejecting the DVD). Stopping the movie is not consistent with my earlier behavior (the trip to Blockbuster), and the higher the price, the higher my level of commitment to the product.

Of course, our tolerance to endure a crappy movie has limits. But how many times have you actually walked out of a movie theatre? (Where the price of admission is much higher than $6.)

Now, contrast that scenario with my weekend using Netflix. All I can watch for $7.99 – per month, and no driving! All of a sudden, I’m feeling a whole lot less committed to the movies on Netflix – because it’s a really inexpensive service and the movies are always there for me to see (love the resume feature!). In one weekend, I started 8 movies and watched 2 of them to the final credits. It’s just too easy to give up on a movie that doesn’t hold my attention, which I think could be a bad thing, because it feels like I’m placing less value on the very same movies I’d rent for $6 and sit through. There are plenty of films that I’ve been tempted to give up on during the first 30 minutes in the past, but the Commitment & Consistency principle has kept me from hitting the stop button – and in the end, I’ve actually been thankful.

So what media services besides Netflix promote the same kind of quick fix behavior and create a perception of lower value?

Well, there’s the Apple App Store. In the eighties and nineties, when I purchased a piece of software for $49, you can bet that I tried to make it work, despite its often painful shortcomings. But am I as likely to push through a less-than-perfect first use experience if I only spend $2.99 on an iPhone application? Or will I simply dismiss it and move onto the next available option? At the App Store’s average price point, there’s just very little risk of me feeling remorse and more chance that I’ll give up on what could be a very cool application. I end up assigning less value to the iPhone applications because of their lower price point and instant availability – just like on Netflix.

Devaluing Books by Cutting Their Prices for Digital Versions
What about the book industry? It’s really no different than for movies and software. On average, e-book prices are half that of printed books… and acquisition via the Kindle platform couldn’t be faster. If you haven’t scanned recent new additions to the Kindle store, you’ll find no shortage of titles at $2.99 and $4.99. It’s too easy to flip through book after book, without making a real investment (of time) in any of them, because the price is below our traditional threshold of commitment.

It reminds me of the child who gets too many presents for Christmas as a kid. If you haven’t witnessed it first hand, the spoiled child tends to open up one present, give it a quick glance, and then move quickly on to the next present in the pile. And it continues until all the presents are unwrapped… and the kids don’t make an investment in any of them. The sheer volume of presents and their easy access make them all appear less valuable to the child than surprised parents would hope. Here’s what I think:

I believe the same thing is happening with digital content. Lower media prices and immediate, instant-on availability is creating a lower consumer value perception of the work of content writers, producers, and software developers.

Before the Kindle, was the price of a book merely a function of its printing, production, and distribution costs? Or was the price a measure of its value to the consumer? If it was really the former, then one would expect prices to fall with the advent of a digital distribution network. But if it’s the latter, then why are prices of books, movies, music, and software falling?

I would suggest that these industries are effectively allowing digital media consumers to make the argument that without the traditional costs of goods sold, the content itself is worth very little. And exacerbating the problem is the fact that (in my opinion) content producers aren’t doing a great job selling the value of their work.

While falling prices may feel good to consumers right now, they will create pain in the future… because current pricing trends don’t necessarily support content creators in making a good living and delivering quality products (there are, of course, exceptions). Prices may continue to fall for awhile, but eventually market prices will stabilize and then the pendulum will swing back in the direction of the content creators. It’s just a matter of time.

~lance

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