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What the U2/Apple Deal can teach you about agency pricing

u2 at apple launch

In what has been called the largest music release of all time, U2’s new album, Songs of Innocence, magically appeared in every iTunes account on the planet following the band’s performance at the latest Apple product launch in Cupertino, Calif.

In order to release the album for free, Apple spent months negotiating the deal with the band, their label, Universal, and their manager, Guy Oseary. Apple paid the band a lump sum as royalty and committed to a $100 million dollar marketing campaign.

All this is alluded to in the conversation lead singer Bono had with Timothy Cook after U2’s performance at the Apple event. The pair chatted casually about how the album could be released on iTunes “in five minutes”. Cook said it would only be possible if the album was going for free.

“But first you would have to pay for it,” Bono said, “because we’re not going in for the free music around here.”

The exchange has prompted a range of responses from different media outlets, fans, and irate iTunes users outraged their libraries have been “infected by U2.” In an interesting blog post, indie superstar Amanda Palmer talked about a conversation she had with Bono about free music. She says that digital music has changed the industry so drastically that, as artists, “we’re all trying to figure out what to do, how to make money, how much we can trust the public to care about our art and help us find a system that works so that we can get paid for making music for people.”

U2’s manager, Guy Oseary, explains that the crux of the campaign came down to this. “Music still has value, even when it’s been given away. This is a gift from Apple to their customers. They bought it and they are giving it away.”

And valuing creative output is awesome, and important, and vital if musicians and other artists are going to survive in a digital world where consumers expect to receive things for free. But I hear you asking, what does all this have to do with agency pricing? That one simple word; value.

Value.

How much do you value the work you produce? Are you giving away your work by not charging clients for the value they are getting from your services?

For years, the hourly rate has been the standard method agencies use to price their creative work. The client is given a quote based on how many hours the agency will spend on the project, but come invoice time that number could have gone up or down depending on the number of hours the project actually took. For many agencies this can cause drama with some clients, who might not understand how the ten large changes they made to the project resulted in the 20 extra hours on their bill.

More and more agencies are moving away from a pricing by the hour model. In fact, this trend is being observed across all service industries. According to the 2012 National MAP Survey, ¾ of US accounting firms use some sort of fixed-fee pricing, with 56% of firms implementing some form of value pricing strategy.

“The billable hour measures the wrong thing,” says Ron Baker, who founded VeraSage Institute, a think-tank for professional firms. Baker has long been a critic of the billable hour system, explaining that it focuses on the agency’s inputs - time - instead of the output, the results they achieve for their clients. “The value of the results should determine the cost of the service, not the time it takes to achieve them. The only place time spent should matter is in prison.”

And that’s true enough in the music industry, too. The value of a song - or any creative piece of work - for the consumer is in how it moves you, whether it resonates, how it makes you feel. That can be as true for a dirty crustpunk song as it can be for a complex symphonic metal anthem (yeah, you can tell where my musical taste lies!).

Artists like U2 and Amanda Palmer are learning to navigate their way through a music industry that’s vastly different to the one they grew up with, where the value of a song is disconnected from the cost of procuring it. Sometimes, they get things right, sometimes they don’t. But the important thing is the shift in focus from the cost of producing the storage method of the music (the CD, vinyl, tape, etc) to the value of the art itself.

As an agency, that’s an important shift in thinking. The creative work you do has a significant value to your clients, over and above the time you put into each project. Make sure that your pricing reflects this value.

So what is value pricing, and how can you implement it in your agency? Learn more in Jason Blumer’s Pricing Webinar - sign up now!