iTunes: How Much Is Too Much?
As the time draws closer for music licensing renegotiations between Apple Computer and recording companies, the pricing structure of iTunes is worth another look. According to MSNBC.com and others, some of the major labels are unhappy with the standard 99 cents per download charged by iTunes. They think an increase in the price of single song downloads would result in more profit.
Maybe they’re right. Maybe they could make more money if iTunes would increase the prices of downloads. After all, with over one billion downloads, think of the extra money the labels would make if iTunes charged more for each download.
Then again, maybe that’s part of the success of iTunes. The price is right. The number of downloads would seem to speak for itself.
If the money made from downloads isn’t enough, the major labels could consider discontinuing download sales. They could go back to traditional distribution methods that have worked for them for years. Of course, this doesn’t guarantee any increase in profit per song for them. By the time labels factor in the costs of marketing and manufacturing, which will only continue to increase, 70 cents profit per song might begin to sound pretty good.
There is only one other problem with returning to the old methods: downloading works better. While traditional sales have dropped, digital downloads continue to increase. According to USA Today, total 2005 music sales increased by 22.7% over 2004. Considering the options for consumers to download free music, this represents a phenomenal rise in sales.
Apple could agree to raise prices at iTunes. They could charge more for popular music and less for the rest, a pricing structure companies have used on CDs. Albums could also be priced according to popularity. An article at engadget says that chairman of EMI Music Alan Levy is talking as though this is already a done deal. He is quoted as saying that there is a “common understanding” that this is the way pricing will be done in the next year. Levy suggests charging a premium on superstars and reduced prices on new and developing artists. Buyers who love following new artists would probably applaud that move as they see their cost per download decrease.
Reading comments after the article is revealing. Quite a few readers suggested that Steve Jobs is right when he states that raising the cost of downloads will cause music lovers to go back to free downloads. Others compared it to pricing movies. Harry Potter, for example, doesn’t command more per ticket than other movies playing at the same theater at the same time. They question why music should be any different.
In a very interesting article at Joel on Software, Joel Spolsky suggests another reason for labels to favor tiered pricing. His theory is that charging more for some songs sends a signal that those songs are worth more, so labels would push higher pricing for any music it was trying to market. This would give labels control over popular singers. All they would have to do when superstars want to change terms is threaten to release the next single to the 99 cent download, making it potentially less popular.
That might actually work. I don’t know if the labels have this in mind or not. Hopefully they realize the harm this would do to their own sales. The part about labels using increased pricing to control popularity makes sense, though. When they put more money into promoting one artist over another, they have a vested interest in seeing that artist become successful.
Maybe it’s time for artists to take control. With online marketing, they can do much of their own promotion and make their own labels. Maybe iTunes could even help.
It’s a credit to music lovers that they are paying for music that they could download free. It’s important to support artists. It’s the best chance we have of keeping variety in our music. Not all artists are popular. Some actually need the money to keep doing what they’re doing. However, the price to consumers still has to be right.
Would tiered pricing make a difference to you? If the price goes too high, would you go back to free downloads, buy less music, or both? I’d also like to know your thoughts on how musicians can market their own music. iTunes seems to be in a good position to help free new bands and singers from labels. Do you think there is an effective way for them to do this?
Interestingly, I didn’t find any comments from recording industry executives about how two-tiered pricing could help artists. They all talked about advantages to the label. I have heard nothing about changing the industry standard on percentages paid to artist.
Think about it: one billion downloads. One billion songs and albums purchased, much of which is available for free on other sites. The internet is not going to go away. Free music opportunities are always going to be available.
When prices are too high, sales are lost. One billion downloads suggests that the price is right.
del.icio.us
Digg
Facebook
Slashdot
StumbleUpon
Comments
Although I don’t like the iTMS all that much (I hate all forms of DRM and avoid them if I can — I am a purchasing customer who would do what I will with the music that I buy), I must agree that from an American standpoint, $.99 is the perfect price point. The labels are getting too greedy with wanting to raise prices. They have a great opportunity to adopt this new model, which works by the way, but they would rather try and squeeze every penny from it and exhaust a potentially good source of profits for years to come.
When a user sees that a song, which cost him $.99 yesterday, now costs him $1.29 (higher maybe?), he will simply say “screw it!” and go back to P2P and pay nada. How SJ got people to pay for something which they could just as easily get for free is astounding and it seems that the music industry is poised to ruin that.
Shame on them for their greed.
I’m not sure what the labels are thinking exactly. I mean, we all realize they have their collective racketerring heads stuck up their collective racketerring asses, but this move makes no sense at all, even for diabolical spawns of the devil.
And personally, I think 99 cents is too high for a song. I don’t think the tiered system is inherently a bad idea, but it should top out at 99 cents and go DOWN from there, not up.
I think on the same lines as Beeblebrox on this subject, the record labels have been over charging people for years, and it is getting more exspensive every year.
Personally, if I was Jobs, I would say “‘OK Mr. Record Label, lets jack the price up to $2 per song, but your cut is still the same, and I am going to keep the extra money, it is only fair beings I am cutting your over head.”’ I think Steve should play hard ball with the greedy Bastits.
Something really bothers me about the claims for pricing…“higher prices for popular songs, lower prices for older stuff” or something like that.
What do they mean by “lower”? Lower than the new stuff for sure but I think that they don’t mean less than $0.99. I would guess that they are thinking $2.49 for new stuff, $1.29 for old stuff.
I strongly doubt that they feel that $0.79 is a good price for ANY song.
- gws
I would guess that they are thinking $2.49 for new stuff, $1.29 for old stuff.
That’s exactly what they’re thinking. They figure if they can get $2.50 for a ring tone, then <strike>chumps</strike> customers will gladly pay that much for a whole song.
I wish the labels would just dry up and die already like the rest of the dinosaurs.
I’m still waiting for the first major artist to say “screw them” and release an album solely for download. One of those uber-successful people who are still doing it because they love it and are fed up with having to work through the labels. Imagine the front page of iTMS with a massive U2 (for example) pic with “Exclusive Album” plastered across it.
Now have it encoded with Lossless and what would happen?
So many people assume the music industry is simple, and artists can leave a label and go and do it on their own. Yes, I actually know many artists who have started their own label for their music, and they definitely get a higher profit from the sales. But they’re getting around 10% of the sales they were getting with a real label because they are absolutely stranded when it comes to marketing and promotion. It takes a label years to acquire the contacts, addresses, licensing deals, publishing deals, territory licensing, and promotional lists needed to release something successfully. An artist on their own won’t have the time, energy or knowhow to make this happen, because they make music not run a business.
The fact is, some artists will do fine on their own, but 99.9 percent of music artists need labels, and the labels need the music artists. It’ll stay that way for a while yet.
And just because you turn digital-only, doesn’t mean your marketing costs disappear. In fact, with no physical product to act as marketing in its own right (on shelves or in stores), then marketing costs can likely go higher in some respects.
I can’t say much for the suggested rises in iTunes pricing. I do think it’s at a good price now. Especially for the large craptacular labels. But if you consider that there is Britney Spears, who sells millions of downloads at 0.99. And then there is one small independent artist who has 1000 dedicated fans, who won’t actually mind paying 1.50, that change would make a big difference to the smaller artist.
The large labels shouldn’t need any prices raised. But for very small artists, it might be needed for them to continue making music.
But I would rather prefer pricing stayed as it is, quite honestly. If prices went up to $3.50, I don’t think people would switch to P2P, I think they’d just switch to rival services. Meaning iPod sales would drop.
“I think they’d just switch to rival services. Meaning iPod sales would drop.”
Maybe, maybe not. If the labels were to raise prices at iTMS, they’d turn around and do it with every other digital service when the contact expires. They want the money.
However, if OVERALL digital sales dropped because people wouldn’t pay, then the labels would adjust the pricing, this is called elasticity.
If I had to pay $15 for an album download, I’d buy the CD instead of dealing with the DRM. This would hurt iTMS sales, but it may not hurt iPod sales because many of these CD’s get ripped right to an MP3 player immediately anyway. I don’t even listen to most of the CD’s that I buy, they get ripped and put away.
- gws