Monday, February 16, 2004

I fought the law and the law won

One of the better promotions going right now is the Pepsi/Itunes promotion. It's super-simple . . . buy a Pepsi and have a one in three chance of winning free music.

Why would Pepsi want to get involved in what some may say is an effort to stop illegal downloading? Why not? Think of the target demographic of people downloading music -- is it really any surprise that it is the same target demographic that Pepsi wants to sell to (quite frankly, it also happens to be the same demographic that beer companies want to sell to -- rumor has it that Heineken will be running a similar promotion in 12 packs of its beer)?

The television commercial is quite ingenious -- it features the 12 year old girl that was sued by the RIAA for illegally downloading music. In fact, what comes to mind many of the times I hear about new RIAA action is the Pepsi promotion.

Pepsi could not have picked a better company to partner with on this promotion, Apple, the undisputed leader in digital music downloading. What's in it for Apple? Apple's business model is running its Itunes music service as a loss-leader; Apple is in business to sell IPods. If there are 100 million free songs being given away by Pepsi, Apple has a very good chance of converting Pepsi drinkers into IPod owner's.

Economically, what do 100 million songs cost Apple and Pepsi? Strictly speaking, it has been estimated that Apple gives $0.60 of every $0.99 song to the record company. Using that formula, the cost of the hard give-away product, songs, is $60 million. Seems like a large sum, but then again, how much of an advertising budget does Pepsi have in a year? I personally have no idea what Pepsi's advertising budget is, but you can bet that it is well in excess of $60 million (especially with contributions from Apple). As mentioned above, one of the ancillary benefits of the promotion is that Pepsi consumers are being steered toward legal downloading rather than peer-to-peer file sharing. It stands to reason that the record companies, either independently or through the RIAA would want to help subsidize this promotion.

I wouldn't be the least bit surprised to see promotions that mimic this promotion become more and more common. And in 2-5 years? I would certainly expect to see promotions like this one that involve downloading movies rather than downloading music. Personally, I wouldn't be the least bit surprised to see Pepsi and the movie downloading powerhouse (whoever that winds up being) running the first co-branded movie downloading promotion.

Motion Picture Association . . . are you paying attention? Try not to make exactly the same mistakes and find yourself in the exact same place the RIAA is now.

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