Tren Griffin+ Your Authors @trengriffin I work for Microsoft. Previously I was a partner at Eagle River, a private equity firm established by Craig McCaw. I am on the board of directors of Kymeta. Dec. 15, 2019 1 min read + Your Authors

1/ The streaming industry has been selling music at the current subscription prices for a long time because: (1) the streaming itself is a commodity with zero pricing power and (2) the music owners have wholesale transfer pricing power over the streamers. 

2/ Music streamers must find first party content (e.g., podcasts) that doesn't expose them to wholesale transfer pricing power of music owners to remedy the gross margin problem. Netflix and Amazon know this and that is why they create content they own. 

3/ If the music streamers raise the retail prices for consumers music owners can just raise their wholesale transfer prices and take any new profit.

Chance the Rapper found a way to take a slice of the profit pool and preserve his share in a value chain. 

4/ I heard John Malone explain this in ~ 1995: Wholesale transfer pricing = bargaining power of company A that supplies a unique product XYZ to Company B which may enable company A to take the profits of company B by increasing the wholesale price of XYZ.

5/ When blocked by supplier bargaining power and intense competition, the hope is inevitably cross selling complementary products or selling out to another business that can sell to the installed base. Pricing is designed to increase market share and grow the installed base.

You can follow @trengriffin.


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