What’s an album worth? Let’s ask the computer

By Paul Sloan

If the humans can’t conquer the chaotic digital music marketplace, let the machines try. At least that is part of the message in a Warner Music announcement Monday.

Warner CEO Edgar Bronfman Jr., long frustrated that the industry gave Apple (AAPL) chief Steve Jobs too much control over the pricing of digital music, has enlisted a small software company to help it figure out a varying pricing model that might eventually affect what we all pay for digital albums on sites like Amazon.com.

The company, Indianapolis-based Digonex, has developed a system that suggests prices for Internet goods based on a set of behavioral principles and economic and psychological theory. Digonex has built software products used by eBay buyers and sellers. Now it’s turning to music, which is a natural fit since Digonex began in 2000 as a music download service called MusicRebellion.com.

Digonex spokesman Chris Pohl said Warner (WMG) will send Digonex a range of data that Digonex will feed into its system, called DigitalOnlineExchange. Among the factors it will examine: The number of downloads a particular album receives; the genre of music, sales by similar artists and historical sales data about that artist. It will then come up with wholesale prices that will fluctuate depending on what the data tells it.

Warner, home to such acts as Matchbox Twenty and Lil Kim, can then decide whether this algorithmic method might be help get people to buy more music online and at prices that helps Warner’s bottom line.
Warner, which has seen its stock trade between $5 and $9 in the past few months, is set to report earnings on Thursday.