One Price Doesn’t Fit All on iTunes

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Recently iTunes has decided to change it’s $.99-cents “one price fits all” policy on song downloads after pressure from recording groups who wanted more flexibility in determining the price of the music they sell through the online music service. Now, songs are either $.69, $.99 or $1.29. The policy has been met with mixed reactions from musicians who sell their music online and consumers who download it.

The new policy has made it more affordable to “discover” lesser known artists, who can price their tunes lower, but has also made it more expensive to stock-up on some of the old classics. When I went to download Elton John’s “Benny and the Jets” last week (a glaring hole in my music library and the third most popular Elton John song on iTunes) it was priced at $1.29, as were “Tiny Dancer” and “Rocket Man,” John’s other two most popular songs on iTunes. All the rest of his songs were $.99 cents. I was hesitant to buy “Benny” for nearly 30% more than it would have cost me a few weeks ago.

After years of illegally downloading through Napster, Limewire, rTunes (a software program that lets users on the same network swap iTunes files) and streaming songs and music videos from Youtube, I had just recently warmed-up to the idea of spending $.99 cents on a song. And even this I did selectively. I have purchased two full albums and about two dozen songs (mostly flavor-of-the-week top-ten songs like Soulja Boy’s “Superman”) from iTunes since I started using the program three years ago to organize and play my music.
Now, ponying-up $1.29 for cheap one-hit-wonder club anthems, I will quickly lose interest in is kind of a game changer for me. Even though it is only 30 cents more, I do not see myself spending that extra money for Katy Perry’s “I Kissed A Girl.” I will continue to selectively add classic gems to my music portfolio but I don’t think I will be downloading as many top 100 songs at $1.29.

When I looked last Friday, four of the top ten songs on iTunes were $.99 cents, and the rest were $1.29. 43 of the top 100 songs were $.99 cents and the rest were $1.29. Being able to charge either $1.29 or $.99 cents (or $. 69, but none were) for a top-100 song gives artists and music labels a lot more flexibility in controlling the popularity of their music. If a song is sliding down the ranks on iTunes at $1.29, the label can change the price to $.99 cents to make it stand out from the more expensive competition. Putting songs on “sale” provides the same two-tier price discrimination that book publishers use. When a book debuts in hardcover, it costs a lot, not because the thick cardboard used for the cover is expensive but to capitalize on people who are willing to pay a premium to read the newest books. Months later the softcover version comes out at a fraction of the price to appeal to more price-sensitive readers. On iTunes, music producers now have the power to do the same, which could mean more money for them and is why they were clamoring for the power to set prices in the first place.

However, the Internet is not the brick and mortar world, and industries from newspapers to movie studios have struggled to find a business model that works online where there are so many free alternatives. There is some risk that higher prices on the most popular content at iTunes will drive consumers back into the shadows of illegally downloaded music. The most popular songs and videos are also the easiest to find and quickest to download in the Internet’s illegal realms. But iTunes’ new pricing rules have only been around for a short while and music labels and Apple are still figuring the system out. In the next few months I expect both parties will have become sophisticated enough in the pricing of iTunes music to maximize their profit. It will be interesting to see what this strategy looks like and if there will be changes to the new system.

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