The first order of business: my credentials as an economist.
I don’t have any. In fact, I’m likely the walking, talking embodiment of the ‘a little knowledge is a dangerous thing’ principle.
So as long as we’re clear that I don’t know what I’m talking about, we may proceed.
This past weekend, I saw the two tiniest suggestions of deflation at work.
Now ‘deflation,’ as I understand it, is the black hole of economics. Price goes in, but does not come out. It is the universally feared thing.
Wikipedia defines the fear this way:
A deflationary spiral is a situation where decreases in price lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in price.
Well, ok. I get that. But could we have a little deflation? Y’know, just to take the edge off things?
For example: wouldn’t it be nice to see the price of cds slip below $10? Or movies, even hard to come by ones, below $20?
I found both this weekend.
First, cds. Believe it or not, there’s a new album by 60s pop star Tom Jones. Setting aside the sheer weirdness of a Tom Jones album in 2010, (the album in question is the heavily hyped Praise & Blame) the list price is set just under $10 – a $9.99 sticker at Borders.
Jones is a Universal Music Group artist, and UMG has made a decision to cut the list price on cds to the aforementioned $9.99. I have no idea how the economics work at the record company end, but at the other end of the barrel it could go like this: if I would ordinarily put $20 on the counter and walk out with one cd and $4-$6 in change, I now am more likely to spend the entire $20 (and a bit more for tax) buying two cds.
Assuming that the people most likely to respond to the price drop in that way are older, frequent music purchasers, my guess is the deal is a wash or a slight loss for the record company. They’re not moving so much more volume that it makes up for the fewer dollars they get on each unit.
But if they can live with that, it seems to me they get a much better deal down the road. Given that they can move more units, and that the people most likely to take advantage of the deal will be adventurous listeners (and even if that’s not strictly true, it’s true enough – the deal will capture a significant group of serious music consumers) the potential for more, different music going into circulation increases. And like any garden, variety is the spice of life. Metal not moving this year? Maybe hip-hop or alt-rock is. The group of labels gets an immediate advantage in terms of pushing product (after all, you have to buy UMG acts to take advantage of the deal) and the longer term advantage of having sewn more, different seeds, which gives you an edge, a survivability your competitors don’t have.
Dvds: The Criterion Collection, which never goes on sale, went on sale this past weekend.
Anyone who is serious about movies knows Criterion, which has shepherded the canon of great films from laser disc to dvd to blu-ray and download. For a long time, if you wanted to watch, say, 8 1/2, you only watched it on a Criterion release. Over the last couple of years, some of the big movie houses have started to reclaim titles they loaned to Criterion and issue their own multi-dvd, well annotated editions. Presumably, they know a buck when they see one.
However, Criterion remains the standard against which all others are measured, and because it trafficks in movies of lasting worth, it doesn’t drop prices six months or a year after release.
That is, until this weekend. Through the Barnes & Noble chain, Criterion offered a 50% off sale, with B & N ‘club’ members getting an extra 10 percent deducted.
That meant, for instance, that the beautiful three dvd box of The Battle of Algiers dropped from $60 to $30 and individual movies fell to an average of $19.99.
Again, this is a deal that appeals entirely to avid movie watchers, people who are already ‘invested’ in Criterion, and again it seems to me the real value lies in spreading some seeds. What you could not justify at $40 becomes a more reasonable purchase at half that, which means you are even more entrenched in Criterion and what the label represents (think Macs or iPods for movie nerds). That’s gotta be good for the company over the long haul.
Of course, the ‘long haul’ is probably not the issue for either company. I don’t know if either UMG’s price cut or Criterion’s sale are examples of deflationary pressure at work, but they feel to me like they are, like goods chasing money in a particularly desperate way. That’s bad, but on the other side of the coin, these items have felt overpriced for years, and the lower prices reported here match my own internal sense of what I ‘should’ pay. If this is deflation, it feels more like sanity.