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Will record labels force variable pricing on iTunes?

3 April 2006 19:54 by James "Dela" Delahunty | 16 comments

It's no secret that Apple Computer Inc. and the world's largest record labels are caught up in a dispute over the price of a single track music download. Currently, songs sold through iTunes are at a fixed price of 99c and at similar fixed prices in international iTunes stores. Apple CEO Steve Jobs believes that this price is good for the market in these early stages and good for consumers. Record label executives do not agree however; they want variable prices introduced - specifically, more popular music will be priced higher than less popular music.

So far Apple has refused to have its hands pushed and Steve Jobs publicly said what everybody was thinking: "So if they want to raise the prices, it just means they're getting a little greedy." He made this comment after pointing out that record labels make more profit from a sale of a download than a sale of a single CD. For each download that iTunes sells for 99c, labels snatch up the largest figure; 70c. When you consider iTunes has sold over 1 billion music downloads and the frequency and figure of downloads are increasing rapidly, you can see why the extra cents are being called for by record companies.

Apple's defiance could be shaken this year however as record labels are expected to enter into music licensing discussions with the company. "The labels really want to be able to boost up the price for downloads on new releases," said Matt Kleinschmit, an analyst with the Ipsos Insight market research firm. "The question is, are we at a time now that we want to experiment with variable pricing?" Music download stores are still at a stage of attempting to attract consumers who download illegally to their legal services, can they really afford to push the price up when consumers can easily get music for free?

It is likely that most of this dispute has stayed in the background between the record labels and Apple, but along with Steve Jobs' comments, there was also a public reaction from Warner Music Group Corp. CEO Edgar Bronfman Jr. In his reply to Steve Jobs' comments he insisted that Apple must not only allow variable pricing, but should also give the labels a percentage of profits from iPod sales. His argument for this claim was that Apple uses the label's music (through iTunes) to indirectly promote iPods.

EMI Group PLC CEO Alain Levy also believes that variable pricing should be introduced, so that top-selling artists will be priced higher than less popular artists. Analysts believe however that Apple will have the upper hand in any discussions simply because of iTunes' market dominance. It would indeed be a very bad move for a record company to remove their content from iTunes. "The power balance at this point is probably still going to be on the side of Steve Jobs and Apple," Kleinschmit said. "Can the record labels really afford to pull their catalog from iTunes?"

The labels can strike back at Apple though by cutting back on promotional exclusives for iTunes and instead give them to other stores that price music higher. "We can throw variable pricing in and we can raise prices of a hit song, but it doesn't mean consumers will buy," said Charles Wolf, securities analyst for Needham & Co. LLC. "They have an alternative - get songs for free."

Source:
MercuryNews.com

Permalink to this article

Apple keeps tight grip on iTunes 99c price policy (4 May 2006)

Negotiations between Apple and record labels turning ugly (25 April 2006)

Apple Computer defends use of logo on iTunes (5 April 2006)

Apple Corps vs. Apple Computer in High Court (29 March 2006)

Managers and Royalty collectors bite iTunes (3 October 2005)

Warner Music Group CEO hits back at Steve Jobs (25 September 2005)

Steve Jobs blasts greedy record labels (20 September 2005)

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Discuss this article!
RPIchuck (Newbie) 3 April 2006 20:32
greedy bastards [ + quote]
caffeine_ (Junior Member) 3 April 2006 21:21
whats going to happen is that people are going to revert back to P2P networks for free music [ + quote]
caffeine_ (Junior Member) 3 April 2006 21:28
oh and one more thing, WTF! They want a percentage of the ipod sale! Unless apple is saying "Buy our ipod and get 10 free downloads from Warner Music Group Corp." They have no right, its not even their product! [ + quote]
oofRome (Senior Member) 3 April 2006 21:44
"Greedy Bastards" is exactly right. And anyways, raising prices will definately increase P2P networks. I think that a 99 cent price is still too high. If I were to pay for music (which I don't unless I like the band a lot), I would certainly opt for a subscription service like napster instead of itunes. [ + quote]
nonoitall (Member) 3 April 2006 23:06
The music is already more expensive than its overpriced physical counterparts. This is just plain greed. The recording industry needs to go away and stop hindering music's progress. [ + quote]
freshguy (Member) 3 April 2006 23:46
I have a feeling that there may be a little more to this plan than meets the eye. This missle seems to be generally targeted to destroy the companies that are selling music downloads, more specifically targeted for i-Tunes and Steve Jobs for having the absolute gall to defy their wishes. Just think about it. Would you rather pay $8.00 for a single downloaded song that is contaminated with DRM disease, or would you prefer to pay $15.00 for a hard copy of the entire album, from your local Best Buy, that is uncontaminated by DRM? It seems that the Record Labels are guessing that the consumer will go for the hard copy album option. True enough, the Recording Industry is probably the greediest federation of corporations in the history of this planet, (possibly even the entire galaxy). I have a feeling, though, that this has more to do with power than it does with the actual money, at least for now. The RIAA would love nothing better than to have things the way they used to be before RIAA-sanctioned music downloads became an option for the music consumer. When all music sales were done via the "brick and mortar" record stores, then the RIAA had, for the most part, absolute control over every facet of the music retail business. I also believe that the RIAA is getting a lot less concerned about P2P networks, as every day now, it seems that another country is becoming more and more restrictive of their consumers's rights and options by passing some sort of new pro-RIAA or pro-MPAA legislation. As we all can see, the politician business is better than ever as the graft bonuses are apparently getting bigger all of the time. Now someone that matters can actually tell the Record Labels to go fly a kite, and this, my friends, ticks them off to no end. If this were politics, the RIAA would be calling Steve Jobs a Communist right about now, just for refusing to cave in to their seemingly Fascist desires. [ + quote] This message has been edited since posting. Last time this message was edited on 4 April 2006 0:10
limelight (Member) 4 April 2006 3:04
They should do varaible pricing- as long as .99 is the highest. New song= .99 90's song=.89 80's song=.79 70's song= .69 Looks good to me. [ + quote]
Joeva (AfterDawn Addict) 4 April 2006 3:10
yea but thats not what they want, they want the newer songs to cost more than that :.JΘΣVΛ.: [ + quote]
ZippyDSM (AfterDawn Addict) 4 April 2006 9:54
a buck a song aint that bad for new stuff but....for older stuff thats already made its money its a bit overkill..... [ + quote]
djgizmo (Junior Member) 4 April 2006 15:22
"Would you rather pay $8.00 for a single downloaded song that is contaminated with DRM disease" Yea, DRM is bad... but think the bit rate is worse myself. But $9.99 for a 13-15 song cd isn't bad. Especially NOW a days when cds are nearly $18.00. I agree a LOT of record companies are getting greedy, but as an owner of a record store, I can see WHY they want variable pricing, but I don't agree that they want more than $1.49 (currently they want new releases to be $2.50+) / any profits from the ipod. New releases should be @ 1.49 for the first 3 months, then .99 for the rest of the year, then .89 for the rest of its life on itunes / store. [ + quote]
ZippyDSM (AfterDawn Addict) 4 April 2006 17:00
freshguy nicely said...ouchy ouchy ouchy.... djgizmo 1.50 dosent seem so bad for new stuff but old stuff should be as cheap as 25cents,simply becuse most older songs have already amde thier money no reason for the industry to arse rape the public twice its makeingmroe than enough moen yto fule itself if it slimed down some.... [ + quote]
neurokasm (Member) 4 April 2006 19:16
Quote: I have a feeling, though, that this has more to do with power than it does with the actual money, at least for now. BINGO!! [ + quote]
rosedog (Member) 4 April 2006 21:45
FCK YOU RIAA! WTF IS NEXT?!?! MP3 PLAYERS? HOW ABOUT MY COMPUTER OR MY HOME STEREO EQUIPMENT. DIE ALREADY!!! Why can't this sht make regular news headlines. [ + quote]
Steve83 (Member) 6 April 2006 9:53
I think variable pricing is a great idea, and it MIGHT get me to buy some music. But why does everyone assume that the price would have to go UP???? Obviously, they value the newest music at $0.99/track, so the older stuff must be worth LESS than that. But if you look at the arguments for DRM & copying copyrighted material (the new arguments - not the established law that's being tossed out the window), none of this even adds up. They claim that you're not really buying the MATERIAL - just the RIGHT to use it. So if I bought the tape/LP/45 20 years ago or if I even bought a used copy yesterday, I still have the RIGHT to continue using it now. So I shouldn't have to pay to download a DRM-crippled version of the music/movie; they should be offering that free so that I don't go out on the interweb, download some free ripping software, & end up with UNcrippled files on my computer that COULD be distributed illegally. It's in THEIR interest to obey their own (mind-bogglingly freaky) interpretation of the copyright laws. [ + quote]
rosedog (Member) 6 April 2006 14:26
Quote: why does everyone assume that the price would have to go UP???? ...ummm only because they (record execs.) said they want higher pricing. [ + quote]
duckNrun (Member) 6 April 2006 19:20
What is being overlooked is the additional power that variable pricing will give them over the artists. Most people equate something's value with it's price. And in the culture of 'cool' cheap is not chic. Concievable a studio could threaten an artist with a lower pricing scheme which not only affects their potential profits per sale but also makes it appear as if their music is less valuable, less 'good' than the group whose music is being sold for twice as much per song. So I too agree that it's not just about money but also about gaining more control than they already have. Finally, does anyone REALLY BELIEVE that they would LOWER prices? How often do you see a NEW (as in unopened not new release) CD for $5.99 and then how often is it one YOU WANT to buy? sidenote: Of course it's really ignorant to be purchasing lower quality, crippled music to begin whether it's from iTunes or Yahoo! [ + quote]