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Arnold Kling has a Ph.D. in economics from MIT; founded, one of the very first commercial websites, in 1994; separated from Homefair in January 2000 after it was sold to Homestore; is author of Under the Radar: Starting Your Internet Business without Venture Capital, and is an essayist. Send comments to us at

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February 11, 2004

The Club vs. DRM

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Posted by Arnold

A long interview with Jim Griffin.

iTunes itself I would not call a successful model. It's a model for selling iPod. Very few songs are being sold, and there's just one price of 99 cents. Its lack of interoperability is almost a statement against DRM itself. I would call iTunes the sort of leaky bucket we've always been used to; remember that iTunes ships with its own circumvention.

It costs $20,000 to fill an iPod from iTunes Music Store. Quite simply, no one looks at a 40 GB iPod and thinks, "it will cost me $20,000 to fill it". It's a polite fiction. It's a looking the other way. We pretend there's monetization, but there isn't.

Look where the money goes. It's a good model for credit card companies but a bad one for artists.
iTunes and Napster 2 will go to flat fee systems. Steve Jobs has already said every dime you pay goes to the RIAA. He just wants to sell iPods. Let's say the average person spent $4 a month, which I'd say is very high. And if you charged $10 month, you'd make your money.

People feel it in their belly, this zero marginal cost. If you look at the pricing of goods you can't control, price equalizes at marginal cost. Can you think of a single model for uncontrolled goods where we haven't had a pool of money then split it up?

Griffin made a cameo appearance in my book--he advised one of the entrepreneurs that I interviewed as a case study. Griffin is a fascinating character. The whole interview is worth reading.

Comments (1) + TrackBacks (0) | Category: economics of content


1. Kenny on June 30, 2004 01:33 PM writes...

Best regards!


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