Apple might be forced to change the price structure on Apple iTunes
November 18th, 2005 Leave a comment Visited 47 times, 1 so far today
Apple might be forced to change the price structure on Apple iTunes
Apple has openly stated that they are not in favor of increasing the prices of songs on their iTunes digital music store. However, they are facing serious challenges from the music companies who are supplying them content for the music store. The latest news in claims that they might have to surrender to the demands of the music industry by changing the pricing structure on their iTunes.
Apple has had massive success in the digital music market, both with their iPod music player and the iTunes digital music web store. They sell songs at 99 cents on their store, which the users can purchase and download from iTunes and later transfer it on their iPods. However, music companies like Warner Music Group and EMI Music have demanded a variable pricing structure with newer songs costing more than the older ones.
In fact, Wall Street Journal has quoted Alain Levy, chief executive of EMI as saying that he has had talks with Apple CEO Steve Jobs and he believes that Apple plans to change its one-price policy. Apple has refused to comment on this news source. It would be interesting to see how long Apple can manage to continue without raising the prices on their Apple iTunes web store.
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November 20th, 2005 at 4:21 pm
I can understand the desire of the music industry to milk the internet download phenomenon for as much as possible, and, at first glance it seems reasonable to charge more for newer tunes than lesser tunes. But when you look at it more closely, problems emerge that they are not considering.
The first is the psychological barrier that the $.99 price point overcomes. Although I am a little ashamed to admit it, knowing that I should be above this sort of thing, I have tried out quite a few new artists for 99 cents who I would have skipped for $1.49 or $2.00.
For some reason, the economics just does not make sense to me. There must be some other reason beyond wanting to make more money behind this. Does the industry feel that it is selling too many new tracks through the iTunes store and want to slow down sales through this venue by raising prices? That is what would traditionally happen when the price for any good was raised. Elasticities is the word all the economists are shouting right now. Given the age of the bulk of the new music market, I would have to guess that it is quite price sensitive – so heed my warning music mogals, before it is too late. Push prices too far and something will break.
Perhaps by creating a two-tiered price structure they hope to make the older 99 cent tunes look more like a bargain and sell more of them. Right. Sure, we’ll fall for that one. Right after we finish paying our gas and heating bills.
I see a great deal of the high cost of music sold in “record stores” being tied up in physical production, distribution, and physical loss prevention/theft costs all of which are eliminated when you move to an online sales model like you have with the iTunes online store. No packaging, no shipping, not even a disk. All costs of creating a physical album, if they are ever incurred, are born by they consumer, not the music industry. And why should they be in the business of selling plastic containers and cd’s anyway. This model frees them of all the supply chain issues and shipping problems for a large segment of their market – this does have a tangible value and the consumer at large is smart enough to know this instictively, even if the thought is not enunciated or fully formed.
99 cents is a good experimental price. It allows one to take the chance of trying a track or two of a group without comitting to a whole album. When the group is liked this frequently turns into a double pay situation because you wind up paying $9.99 for an album when it is too expensive to buy the rest of the tracks individually, so your total cost for the album might actually be $10.98 or $11.97.
The psychological price point issue is not a minor one – for some wierd reason I have not bothered to spend the extra 50 cents for any music videos. Perhaps because I perceive that they cannot be added to my playlists musically (this should be remedied Apple – the music part should be playable anywhere) – but the $1.49 just feels *that* much more expensive that I am slower about it. So it would probably inhibit me from trying out new artists to. The commercial music market has a sense of price fairness and is not about to be led around by their noses on this issue.
Then there is the other end of the spectrum. If you open up Apple pricing to supply and demand issues, how long is it until you have songs out there from independent labels competing with the big boys going for 40 or 30 or even 10 cents? As we truly get into the Garage Band era, destabilizing the one price platform might be a big mistake. There a quite a few small groups who would be happy for 20 cents a track if they could sell 50,000 tracks.
Also, if you raise the price of new albums do you eventually devalue the price of older albums lower than the 9.99 they are now going for? So what do you charge for Perry Comos Christmas now?
Perhaps that is only fair. Perhaps downloading “Sister Mary Elephant” should only cost a nickle. Or 40 cents. But moving from a single price model to multi price models opens the door to a supply and demand price model to one in which prices vary with demand. No demand for a song in a week? Its price starts to fall until someone buys it, which stabilizes the price for awhile, etc.
It seems odd to me though that an industry that has virtually an unlimited resource with downloaded media, and such low costs, would risk the stable pricing base it has now to pursue possibly futile profits in the future.
Remember, this whole thing worked because consumers who were downloading your media for free felt that 99 cents was a fair price. Better hold some focus groups before jacking up the prices too high. And make sure you don’t use the same ones Coke did when they test marketed whether the public would buy “New Coke”.
Thinking out loud.
Peter, Editor and Low Honcho, The Peter Files Blog of Comedy and Satire
March 5th, 2006 at 8:10 am
[...] This is bad news for the music companies, which have been pressurizing Apple to raise the prices on their Apple iTunes digital content store since quite sometime. The U.S. Department of Justice has said that they are opening up an investigation into online music pricing by major record labels. [...]