Comments on: Micropayments, microprobability

By: Thomas Dent

Thomas Dent — Thu, 18 Sep 2003 11:15:52 +0000

This may be a bit iconoclastic, but I don’t understand why recorded music is such a good thing after all, or at least why we should automatically accept that it is. Classical music has been suffering from recordings for decades. The more recordings, the fewer practicing musicians and the less musical tradition and culture there is. (I’m not claiming this correlation as a proof of causation though.) Recordings also promote standardised interpretations, the false ideal of the ‘perfect’ interpretation, and the idea that it is acceptable to listen repeatedly to the same piece played exactly the same way. Live performing artists even get inhibited by having to ‘live up to’ their own recordings. I say this as someone who owns hundreds of excellent classical music recordings. Unfortunately, many of the best of them are from the 60’s and earlier. It is somewhat depressing that in the vast majority of places live classical music is entirely overshadowed by recordings.

By: Robert Nagle

Robert Nagle — Wed, 17 Sep 2003 18:10:41 +0000

This is a fascinating piece. I wrote about similar issues on sharethemusicday.com . If it is cheaper to run the system as “free” than as “for sale”, then that seems to be a reason for supporting a voluntary system of compensation. Actually all this bickering about pricing ignores one fact: the overwhelming majority of music out there in the world is available for free on IUMA, Amazon.com and mp3.com. Young artists at the moment don’t have any realistic hope of getting a deal with a major label (if any label at all). The only ones selling songs are those backed by big marketing machines. One unique aspect to music as content is that its value cannot be assessed until after the music is heard once or twice. That is another reason why a voluntary system works best—the transaction is made after the song is downloaded on the PC (usually).

By: ethel g

ethel g — Wed, 17 Sep 2003 17:26:13 +0000

Isn’t Public Lending Right (*) an actual, existing, micropayments system? While it’s based on a central fund personally I don’t think that should necessarily disqualify it. The interesting bit about PLR is that it doesn’t claim to be exact, but (I believe) authors and lenders are broadly happy with the results. Similarly but more rigorously, one of the RSA (crypto) chaps has proposed a probabilistic micropayment system which I think does address the transaction costs issues: precisely because you’ve got lots of micropayments, you can use the law of large numbers to get good enough estimates of amounts due. (*) For non-UK readers, PLR is a system whereby authors of books in public libraries receive money. I think monies received are dependent in some (monotonic, increasing) way on the number of times a book is loaned.

By: Jack

Jack — Wed, 17 Sep 2003 15:54:10 +0000

and the mean transaction involves more than one track

By: dsquared

dsquared — Wed, 17 Sep 2003 15:37:16 +0000

By: Jack

Jack — Wed, 17 Sep 2003 14:03:50 +0000

Even supposing that Apple haven’t negotiated a better deal than 25 cents a pop, it’s still better than the music industry’s normal physical distribution costs which have to bear inventory, packaging, transport and the huge cut given to retailers. They’ll still be able to make money even with an average of say ten per cent going to the banks. Telephone companies know that the fixed costs identified for micropayments can be reduced if they do not have to be everyone to everyone. So: even single song iTunes sales are larger than ‘true’ micropayments, the money doesn’t go directly from customer to artist but from customer to Apple via an existing financial relationship (.Mac subscription often) to small number of music company acocunts and then via a prexisting channel to the artists where Apple will provide excellent statistics compared to physical invoicing. record companies do not have to extend credit to Apple. Music companies may actually be under most pressure from the record stores, they take the biggest bite out of the price of a CD and are the biggest sales channel. CDs have to compete with DVDs and video games. If they can’t provide revenue they’ll lose shelf space and sales. If record companies find new channels, like iTunes, that work, they will be less frightened and if those channels are more efficient than record shops they will not be under the same pressure to maintain the current per track price. Then the price elasticity arguments may start to tell. They will also no longer need to focus on a limiting the product range to make inventory management easy. I’m sure even now Apple could charge less than 99 cents and still make money and, just as happened with tapes and video recorders, record companies will relax when they are making money from the new world. Current hostility is surely partly due to pressure from their existing channels since many of the arguments would benefit the record companies as much as consumers. Maybe Apple will be Dell to the music industry’s Compaq and IBM.

By: Andrew Edwards

Andrew Edwards — Wed, 17 Sep 2003 12:48:45 +0000

The ITunes point is a fair one. Why not bundle together a large number of songs into a single transaction. I.e. I pay you $20.30 for 40 songs I’ve selected off a list. That’s a single transaction, and the margins can clearly cover the transaction costs, and it’s only $0.50 a song. Or you can charge a bandwidth fee. An mp3 is around 3.5MB, so charge a fixed amount (Say $20) per hundred MB I download through Kazaa. Use a Neilsen-style homescan sample of 5000 people to determine what’s being downloaded, and distribute the funds to artists accordingly. Thoughts?

By: Kieran Healy

Kieran Healy — Wed, 17 Sep 2003 12:37:10 +0000

these are actual credit card payments (not micropayments in any techie sense) and thus Apple is wearing the 25c minimum fee. OK, I see more clearly what you mean by “micropayments” now. You’re right that when I buy from iTunes I often buy more than one song, but the fine-grainedness is one of the things that makes it so attractive: this song and this one but not that one, etc. I don’t know whether 90% of Apple’s sales come from 1% of its songs or something. Possibly. At the same time, if Apple can make a profit on an online store that sells 99c songs and allows me to buy them one at a time—- well, music just got a hell of a lot cheaper and easier to buy from my point of view. So even though penny-a-song can never work, it’s still a lot closer to the micropayment vision than hiking in to HMV and dropping $18 on a CD. (not much though, because I use a proper person’s computer and thus couldn’t have a proper look at it) Should I read “proper person’s computer” to mean “Wintel Box”? I fear so. I pass over the flamewar invitation in silence, because I know better than to get into arse-kicking contests with porcupines. Besides, I need to go buy a song or two—- I’ll tell you what they are and you can hike off down to HMV, buy the CDs, and play them on Windows XP, assuming it’s not on the blink again.

By: dsquared

dsquared — Wed, 17 Sep 2003 09:34:57 +0000

Right, a bit of digging later (not much though, because I use a proper person’s computer and thus couldn’t have a proper look at it) reveals that these are actual credit card payments (not micropayments in any techie sense) and thus Apple is wearing the 25c minimum fee. I think that they are either a) relying on bundling the transactions on a daily basis and taking advantage of peoples’ tendency to buy a load of tracks at once (you only have to buy three 99c songs in one go for it to turn into a macropayment) or b) losing money and charging it to the iPod marketing budget. At 500,000 downloads a week, assuming that Applie is wearing the entire 25c (unlikely as they are also trialling a few very aggressive DRM measures for the record labels), that’s a cost of $6.5m, which doesn’t strike me as necessarily way out of line; it would buy you 16 30-second slots during “Will and Grace” or maybe an ad a week in a less expensive show. (Christ this document is interesting.) My guess is more a) than b); offering the 99c single-song option makes the whole service more palatable to people who end up making macropayments. I’m not sure the idea scales to yer class micropayment environment, and it also depends on Apple having access to 200,000 songs that everyone wants, rather than 200,000,000 songs that someone wants.

By: dsquared

dsquared — Wed, 17 Sep 2003 09:07:25 +0000

Hmmmm maybe I’ve got the wrong end of the stick. I’ll have a look and find out what the wrinkle is.

By: Kieran Healy

Kieran Healy — Wed, 17 Sep 2003 07:37:07 +0000

Tunes: that’s not a micropayments system. You make one, quite large payment and then consume the goods in small units. It’s not? You pay 99 cents a song, and that’s it. You don’t have to deposit any money in an “iTunes account” or pay a subscription fee or anything of that sort. Where’s the “quite large payment”?

By: dsquared

dsquared — Wed, 17 Sep 2003 07:10:42 +0000

iTunes: that’s not a micropayments system. You make one, quite large payment and then consume the goods in small units. Bitpass: well, maybe, but as I say, I’ve seen it before and I am somewhat sceptical at present, particularly as they have not released any technical details at all. Many systems have worked in beta tests; the point is that there’s all the difference in the world between a system confined to a small group of vetted users, and one available to the general public. How many professional credit card fraudsters formed part of the test group? According to their website, they’re “live” at the moment, but scalability is everything in payment systems, and there’s no evidence that they’re breaking even. Scott McCloud: I think he is just part of the test group for Bitpass. Note that it’s easy to come up with all sorts of subscription-type models, but if you’re doing this, you should be thinking about subscription models for the entire music industry rather than assuming that the payments would look reasonably like normal payments but smaller.

By: Russell L. Carter

Russell L. Carter — Wed, 17 Sep 2003 05:51:01 +0000

The entire post can be summarized as: A byte stream of size ‘x’ transmitted over the TCP/IP protocol ought to have a cost ‘y’ associated with it, billable to somebody, and all civilization will fail without that. (Implied: we need to bulk up the caching somehow so that intermediate vampires get their share).

By: Matt McIrvin

Matt McIrvin — Wed, 17 Sep 2003 01:36:15 +0000

How does iTunes do it? Speculation I’ve seen (based on credit-card bills) suggests that Apple has some clever way of chunking multiple transactions by the same user, so that while they look like a bunch of individual one-dollar-and-change purchases to you (including tax), they look bigger and less frequent to the credit card company. Of course they need to handle the case in which you buy one song and never buy another, but to reduce their overhead all they need is to increase the average transaction size. It may be something as simple as grouping the transactions a few days at a time, since people tend to buy several songs at once. I suspect that this algorithm, whatever it is, is a large part of what makes the iTunes store possible.

By: The Philosophical Cowboy

The Philosophical Cowboy — Tue, 16 Sep 2003 21:43:11 +0000

Complete digression, but based on what you’ve said: I suspect that a number of the roles that the Guardian article suggested would disappear would still remain (in lesser numbers), even in a totally honest world. I take “total honesty” to mean – “doesn’t knowingly break the law or cheat others”. However, that would still leave a number of traditional policing functions (traffic direction, people whose speedo’s are broke, people driving dangerously/carelessly without knowing). It would leave a role for checkout staff who could make change and ID what the costs of your goods were (unless moving to a purely cashless society), as it’s too hard to tot up yourself*. Moving onto my bit, the accountants – wouldn’t need auditors, per se, though there would be substantial room for system error leading to mistakes, which they do. You’d have a role for tax accountants, as a complex, but honestly played, system would still be hard to deal with. You’d have a role for accountants preparing accounts, as the purpose of them isn’t just to say if managmeent are doing their best – it’s to show if it’s the best practical or if investors would rather invest elsewhere, or let them make decisions, etc. Bus conductors – well, it’s a convenient way to pay the fare. Examples about payment/cash handling rather depend how full blown a revision you expect. But, e.g., on a busy bus, it may well be more efficient to have a person taking money and making change than any other solution. Individuals doing it will be slower, and if you had pots of change (say) in seats, that still leaves standing passengers. I.e. – the transaction costs in society aren’t all about honesty – some are about convenience to all parties. It may be easier to have cash taking specialists, than to have to do it yourself in time pressured situations… * could have scanners as go round, etc, but would require human back uP)