I think one of the under reported consequences of Apple’s decision earlier this month to drop DRM from their files and to offer variable pricing is that the labels, via Apple, have extended something that has essentially been missing from the record industry for several years – the replacement cycle.

The music replacement cycle, where music consumers upgrade from less convenient carriers of music to more convenient models (think vinyl ->8-track ->Cassette ->CD ->mp3), was a main driver of the record business economy throughout the late 80s and 90s, and a major part of the reason that labels started floundering in the early part of this century. There are few things more convenient than digital music, and although there are other ongoing efforts to kick-start a new format (like those crazy slot music devices), nothing has come along yet to really get folks to repurchase their digital catalog. Which is what makes the $.30 upgrade by iTunes so interesting.

There have been over 5 billion DRM iTunes tracks sold over the past 6 years. iTunes is offering anyone who has purchased a DRM download to replace their track for a new, higher quality, DRM free download for $.30 each. If ?uestlove from the Roots is any indication (he twittered that he is converting his entire collection of 6000 iTunes DRM tracks), this could be a pretty significant revenue stream and a semi-serious revival of the replacement cycle. Although I think it’s unlikely that continuous upgrades to digital will keep this kind of replacement cycle happening (but who knows?), It’s interesting to see the labels leverage their new, happier, variable pricing relationship with Apple in this way. The good news is that indie artists working with a low cost distributor like CD Baby will get about .18 per upgrade (CD Baby takes a 9% cut from the 20 cents, paying 18.2 cents to artists).

One needs only to take a walk down Boylston Street pass the new Apple store at 8AM to see how important word of mouth is to Apple and their new iPhone. Apple is legendary for their marketing (customer service is another thing – I waited close to an hour last week to get an iPhone, in which time Apple was only able to service ONE person). Their integrated marketing campaigns are amazing, from the traditional print, packaging, television, and branding components; to their forward thinking viral and word of mouth campaigns.

To get a large group of people to evangelize about your product or service is the end goal of any marketing campaign, and it’s something that my friend Dave Balter knows a lot about. In 2002, Dave founded BzzAgent, a word of mouth media company that currently coordinates 450,000 volunteer “agents” in the US, Canada, and the U.K.. Dave recently wrote and self-published his second book on Word of Mouth marketing, creatively titled “The Word of Mouth Manual Volume II.” It’s a great read, illustrated with examples from the Grateful Dead, Crocs, and of course, Apple. The book is for sale for $45 on Amazon, but Dave’s provided the book to a few folks for free, as a PDF download, available here. If you’ve ever been curious about how or why word of mouth marketing works, or how to get folks to start talking about your own product, I recommend you check it out.

Balter’s Book