Digital goods pricing model
Selling intangible digital goods – eg music/film/TV show downloads/online streaming or ebooks – is not quite the same as selling tangible physical goods – eg music CDs, film DVDs, TV show boxsets or hardcover/paperback books.
The sale price of a tangible physical good – a paperback copy of Harper Lee’s To Kill a Mockingbird, for example – is made up of the following components:
a) The material resources ie the papers, glue, threads, etc that are put together into a copy of a book.
b) The exhaustible resources ie use of labour, machines and land in making, storing, delivering that copy of a book, etc
c) The intelligence/expression ie the idea of the story, the inspiration of the design for the book, etc.
When a consumer buys a physical good, a portion of the price transfers the ownership of the material resources that make up the good. Another portion of the price covers the costs of exhaustible resources used in making the good. The third portion of the price accounts the intelligence/expression component of the good.
An intangible digital good does not have the first component. So when someone buys an ebook version of To Kill a Mockingbird, he pays for the use of labour, machines and land in making, storing and delivering the book as well as the ideas and inspiration for the book story and design. Hence, the perfect pricing model for selling digital goods is licensing.
The main issue book/music/film/TV publishers/producers have with digital goods is that consumers who paid for the goods can easily share them with other consumers. They may not realise that it is also very easy for consumers to share physical goods.
John who has paid for an ebook version of To Kill a Mockingbird can share the book with Jane by lending her his ebook reader loaded with the title or by letting her to copy the ebook file into her own reader. Similarly, if John paid for paperback copy of the book, he can share the book by lending Jane his copy or by letting her make a copy of the book using a photocopier. The technology today is advanced enough for consumers to easily share digital and physical goods.
If publishers/producers want to make Jane pay for reading book, they should just make it easy and cheap enough for her to pay for it instead of borrowing or copying from John. It does not matter if it is in ebook or in paperback.
