Sony BMG Dives Into Controversial MP3 Sales Model
May 16, 2008
By Ed Christman, N.Y.
In selling MP3s directly to U.S. retailers, Sony BMG Music Entertainment is testing a controversial business model. Since it switched away from digital rights management to the open MP3 format earlier this year, Sony BMG is providing its content to Amazon through what is know as an "agency" or "commission" model, sources say and Sony executives privately confirm. In this model, Sony BMG is actually the seller and sets all retail prices on its content while Amazon acts as Sony BMG's agent and gets a commission on the sale.
If the agency model is implemented industrywide, variable pricing would be achieved since the vendor is setting the price, distribution and digital executives say. The majors harbor deep frustrations over pricing in the digital world, particularly with iTunes calling practically all the value shots and resisting most attempts to get variable pricing. In addition, under this model, price wars, which can potentially put digital retailers out of business—just as price wars have forced countless physical retailers to close shop—would be averted. It could also allow each label to more effectively...
Click here for the full story including what today's agency model likely involves for Sony BMG, what Sony BMG's profit margins are likely equitable to, what the major is likely to do if it cannot convince other retailers to accept the model, and more.
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