Domestic Trade and Consumer Affairs Minister Tan Sri Muhyiddin Yassin announced yesterday that the prices of VCDs, CDs, DVDs and computer software will fall under the Price Control Act. Just like the price of rice and raw chicken, Malaysia will be the first country in the world to place a definitive price of digital creative media. The logic is that if the prices of original media drops, this will help the government in the battle against piracy. Demand for pirated goods will drop with the affordability of originals.
This conclusion is flawed. There will almost certainly be a ceiling (or "floor") as to how far the prices of original goods can be forced down. A music CD that costs RM35 now will probably not be any cheaper than RM20. The associated costs in the production, manufacturing, distribution and marketing of such products will surely not become "controlled price" items too? Therefore, costs will remain significant, and limit the impact of any price reduction. With prices still hovering within that range, demand for pirated products will remain high. Consumers who have the option of purchasing a pirated copy of Britney Spears' latest album for RM8 will do so; that price is unmatchable by the record labels.
Let's hope the Government sees beyond their delusion. Controlling the price of digital media is not the solution. Instead, it probably will make the problem worse.
The price pressures faced by the producers of creative media because of the Price Control Act will make them extremely sensitive - new artistes or local fledgling software development companies will find it increasingly difficult to break into the market. Record labels will become increasingly selective of the acts they choose to produce; with dwindling profit margins, they will be forced to support only the acts they know for a FACT will perform and bring in the volume sales necessary to off-set the narrower margins. Local fledgling software development companies will find themselves in a market where a predetermined value has been given to their intellectual property. This stymies creativity and removes the potentially large financial incentives that normally would come by being innovative.
Price controls may even lead to a backlash from the industry that harms the consumer. As foreign organizations find it less profitable to do business here, they will focus their attentions elsewhere, perhaps even withdrawing support for certain products or even withdrawing the product from the market altogether simply because it makes no business sense to sell it. If Microsoft is forced to sell Windows XP for RM50, do you think they will even bother selling it?
The Government doesn't understand the dynamics of creative digital media. The fact that's they consider it a commodity that can have its price controlled just like chicken, rice or onions, says a lot about how much they really understand the problem. A possible solution is the iTunes model for digital media purchase and delivery. They can setup a governmental body that takes the iTunes concept and apply it as a national project for all forms of digital creative media e.g. songs, movies, software. Of course, this solution wouldn't be easy either: broadband internet access would have to be available consistently across the country, confidence and culture creation in the area of online payment modes instilled in the average Malaysian, etc. But at least, its a solution that will bring Malaysia forward. The Price Control Act is just another step backwards.
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