Music Industry Folks Worried About iTunes Variable Pricing

from the it's-going-to-annoy-people dept

Aaron Martin-Colby alerts us to an LA Times report saying that Apple’s variable pricing for iTunes is set to launch on April 7th (a week later than initially planned). More interesting, however, are the reports that many music industry veterans are quite worried about this, and believe that Apple and the major record labels are making a big mistake in that it’s going to piss off and annoy fans, just at a time when they should be embracing fans and giving them more of a reason to buy. The fear is that adding that extra $0.30 to many tracks will add in enough of a mental transaction cost (“is this song really worth that extra $0.30?”) that it may harm sales. Some, like Ted Cohen (former EMI exec, who’s now been pushing his former colleagues to finally enter the 21st century) worries that it’s going to backfire in a big way:

“This will be a PR nightmare. It is for the music industry what the AIG bonuses are for the insurance industry.”

And the manager of Nine Inch Nails noted something similar:

“Wouldn’t it make sense to try to price it cheaper instead of squeezing the handful of people who are still willing to pay for music?”

Oddly, the LA Times article claims that the new pricing scheme is “true to supply-and-demand economics,” but, as Gizmodo notes, that’s not true at all. The supply is infinite. So if it were true to supply-and-demand economics, the price would be free. The actual price is based on an artificially limited supply and a made up demand.

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Comments on “Music Industry Folks Worried About iTunes Variable Pricing”

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60 Comments
R. Miles says:

Sales will drop, but not all that much

“is this song really worth that extra $0.30?”
Hell, I ask this of the $1, and the answer is always no.

Consumers are going to see it as a loss of 1 song for every 4 purchased.

Personally, I can’t fathom why people buy it for a buck, let alone another $0.30.

But hey… a fool and their money are soon parted.

Michael (profile) says:

Re: Sales will drop, but not all that much

$30. That’s what it would take for me. Thirty dollars. Pretty it up and call it $29.99, $29.95, or Apple’s favorite method, $29. I don’t care. Simply put, if they want my money, $30 every month for unlimited access to all of iTunes’ material. If they want to do a tiered system and offer HD for a premium, fine, whatever. I’ll pay $45 a month for that and the standard def. If they want to tier it based on content type, hey, be my guest. I’ll pay $25 a month for unlimited access for any one content type, including all HD for that content type.

That’s what it would take. Full, unfettered, unlimited, access to anything I want, including access anywhere I want on my iPhone, with no limits on how I use my phone and who listens to it. I will pay money for that kind of power; the kind of power that makes the experience worth paying for. Don’t be greedy, though. $30 is a pretty hefty sum of money for someone that has to make decisions based on the cost of bills during the month.

I could give a damn if they want to advertise the band I’m listening too’s tshirts, CDs, and such. I love Battlestar Galactica, and if they want to advertise the availability of physical copies before or after an episode, that’s A-OK. As I see it that’s valuable content to me because I don’t have to search a separate damn place for something that I would like to own in a physical format.

I’m really, really tired of putting up with this. I can’t listen to my music on someone else’s computer with my iPhone, because of whatever ridiculous claims the content companies have made. I’ve introduced more music to people that would otherwise never have heard of the band through the ability to let someone simply listen to it off my iPod through their computer. I want the freedom to use the content how I see fit, anywhere I see fit, anytime I see fit. I would pay $30 for that.

I want to copy music from my phone and share it with someone, if there’s something that I think they would like to listen to. I’m required to log in to that person’s copy of iTunes before I can? Seems like a pain, but what if I never had to login if the other person already pays for an iTunes service account. Holy shit it’s easy again.

I’m required to hook my phone up to my friend’s computer via a cable before I can transfer music, well that’s a nuisance, but if that person has an iTunes service account, all I would have to do is select the artist and the album on my iPhone and tell it to auto-transfer that content from the iTunes music library to my friend’s iTunes library. Good god, it’s better than free music from pirate bay, because I never even have to deal with downloading files anymore. They just appear. For me to listen to, whenever, wherever, however the hell I want. That’s paying for the experience, not the content. That’s how they’ll make money. Lots and lots of money.

$30, that’s what I would pay. Not more, certainly less, and by no means grudgingly if it meant that the technology, the companies, and the distribution system left it to me to decide what I do with it all. To date, the total amount of money I’ve given to iTunes for any content in their store: $0. Which is the better number here? $30 per month, $360 per year.. or $0?

Weird Harold (user link) says:

Re: Re:

At 50 cents a song, the business ain’t worth doing.

The cost of maintaining the website, accounting for the money, actually doing the transaction, maintaining the files, updating available music, following up with the client, offering customer service… and then how much is left to pay the writer, the artist, the manager, the record company, and so on? If you are losing money on every transaction, you can’t make it up in volume. if you are making so little per transaction that it is a rounding error in calculations, all the volume in the world isn’t going to make it work out.

Don’t you think that the artist deserves at least a few cents? Don’t you think the writer deserves a few cents? At 50 cents a song, you are pricing a full CD at under $6 typical. That is pretty darn low, just paying the CC company for the transaction eats a few percentage points off.

They can’t compete with piracy. Free is always the better price.

Ryan says:

Re: Re: Re:

The cost of maintaining the website, accounting for the money, actually doing the transaction, maintaining the files, updating available music, following up with the client, offering customer service

YouTube offers much larger file sizes for free. Really, how much money do you think it costs to “actually do the transaction”?

and then how much is left to pay the writer, the artist, the manager, the record company, and so on?

About $0.49 a song, plus all the hidden revenue generated from increased popularity.

If you are losing money on every transaction, you can’t make it up in volume. if you are making so little per transaction that it is a rounding error in calculations, all the volume in the world isn’t going to make it work out.

If Apple cannot do it, and I don’t think it would be very hard, then somebody halfway competent will. Obviously not you.

Don’t you think that the artist deserves at least a few cents? Don’t you think the writer deserves a few cents?

I don’t think they deserve anything; they will get paid what the market feels they are worth. As it is, they’ll probably get paid pretty well.

SomeGuy says:

Re: Re: Re:3 Re:

You’re only here to rile up the crowd and get some attention.

As has been stated before, this is why Harold is useful for Techdirt, and good for the community. He gives us an opponent to argue against, and you have to grant that he’s at least a better conversationalist than angry dude or Riley (or whatever that guy’s name was). Yeah, he can be frustrattingly stubborn and short-sighted and low on facts, but I think he adds honest value to this place. it’d be intelectually non-stimulating if we all agreed with each other; he draws out critical thinking and finds the holes in our arguments that we wouldn’t even look for.

Anonymous Coward says:

Re: Re: Re:

If they lowered the price to $0.50 per song but sold twice as much…how does this decrease their profits in any meaningful way? You are assuming no increase in demand due to the lower price.

Say someone goes onto itunes to buy one specific song but they see another song from the same artist that they are considering buying. If each song is $0.99, they may not want to spend that much on the second song that they aren’t sure about. If each song is $0.50, they may buy both since $0.50 is an impulse purchase for most people (even more so than $0.99). The artist/record company makes the same amount in both instances.

I don’t know how you say you can’t complete with free. You have to consider the time it takes people to search for illegal music and the quality of that music. People often pay for convenience especially the price of convenience is low. Why else do you think people buy dishwashers and washing machines when they could do both by hand and save money.

Ya Right says:

Re: Re: Re: Re:

Its not hard to find pirated music at all! You can download LimeWire Pro off of limewire and its only about 10 seconds longer to find the song/picture/video for free. Not only that but you can use it on ANY computer you want as many times you want. And its a MP3 not a M4A or watever it is the DRM protection makes it. Pirated music is always better than iTunes bought music.

Anonymous Coward says:

Re: Re: Re:

“Don’t you think that the artist deserves at least a few cents? Don’t you think the writer deserves a few cents? At 50 cents a song, you are pricing a full CD at under $6 typical.”

Yes, the artist deserves some $ but do you really think they are going to make it off music sales when the vast majority of the $ goes to the labels. They get more money from touring, merchandise, etc. Also, you might think an entire album is worth $10 or more but that doesn’t mean people are willing to pay that price. It seems you would rather sell 1 album for $10 than sell 2 albums for $12. That logic is fine with items like computers where is price is much higher to produce each additional unit but with digital download, the production cost of an additional unit is almost zero.

ehrichweiss says:

Re: Re: Re:

More proof you know nothing of the music or IT industries. First of all I’ll address your first fallacy and the rest just unravels after that: The record company will always be paid FIRST. There is always money for the record company; whether they actually pay the artist at the current or lower pricing has yet to be seen. That’s part of licensing, and iTunes, etc. are well aware of how it works. If you’re so insightful, why didn’t you know about it?

Anonymous Coward says:

Re: Re: Re:

I sort of agreed with your point about the underlying fees associated with providing digital music, and it’s a point that needs to be made more often, but then you completely go 180 on your whole point at the end by saying free is the better choice. Huh? So if everyone needs to get paid, then offer it….free? We need positive number solutions here

Kevin (profile) says:

iTuned out along time ago

The BS that is apple DRM jaded me from iTunes a long time ago. I do have and use an ipod but 90 of the music on it was ripped from CDs I own or was downloaded as a plain Mp3 and then added to iTunes after the fact. I still have all my music in a DRM Free version saved to an external disk.

My point is though that I thought with the 1.29 for DRM free version or iTunes+ was ridiculous and would never pay it then, now I STILL won’t pay them for it either now that it is going DRM free because its STILL not worth the extra money. So they made it more palatable with loosing the DRM, but now are increasing the price of something that many may claim was never worth .99 to begin with. I love my iPod, I HATE iTunes.

Aaron Von Gauss (profile) says:

Gizmodo

Gizmodo misunderstands the market much as the music industry itself does, the supply is definitely not infinite. Yes, its a digital product and thus can be replicated as many times as desired but that does not mean there is an infinite source of new music to be delivered digitally. The supply and demand model doesn’t really fit the music industry, but if it were applied the supply is not infinite and the demand is what a consumer is willing to pay to acquire said music – nothing artificial there. If there is not enough consumer demand, as in customers purchasing a product, there will be less supply. What a lot of this is really about is the role and purpose, or not, of the music labels in this era.

Bob Mime says:

Aiming for the foot....again

First it was Apple had too much control, fixed pricing is bad. Now flexable pricing is about to hit, it is bad. How many times can the music industry shoot itself in the foot because of greed? It is greed that has put them in the position they are in today. For example: Because a tv show was recorded on video tape vs film, different rates and rules applied for music rights. When the show finally comes out on dvd, because the Industry is so greedy, the music is replaced or removed (and in some cases wrecking the episode). In the end, they don’t get money, the consumer gets a crappy product. They would rather get nothing than bend or adjust.

That’s why the music industry is going to hell in a hand basket and we have a crappy release of WKRP.

Anonymous Coward says:

hurray for full disclosure

but no one wants to talk about how the the lower demand music is going down to $.69.

digital supply is certainly not infinite. if it was up to me, every time there was a sale, the price would go up some tiny percentage (so high demand would increase the price maybe to $2 or $3). however, in every unit time that there was less than some threshold of sales, the price would go down by some tiny percentage, bottoming out just above the marginal cost of reproduction. and based on the stats of loss leading and maintenance costs, you might find that keeping a song in the database is not profitable, and it gets dumped from the library. it’s the same as brick and mortar retail… just the stats and values are different.

also, you can’t just conclusively say something like “halve the price and you’ll make up in more sales” because you really just don’t have the stats. valve tried that for a single weekend successfully, but there’s nothing which suggests that works as a persisting model.

Anonymous Coward says:

variable pricing model that fits Supply and Demand model

I recall an Indie music site that used a variable pricing model where the price per track was based on rate and number of downloads. All tracks were originally free and as more people bought the track the price increased. If the rate of sales was fast, the price increased quickly until it topped at 99 cents. Then as the popularity of the track faded so did the price decrease accordingly.

That made a lot of sense to me….

PRMan (profile) says:

Is anyone ever going to include lyrics or additional artwork?

You know, if you want to justify the additional price, you could stop giving bargain-basement quality MP3s (or A4-whatever-the-heck-Apple-is-selling-these-days).

My CDs come with lyrics and additional artwork (besides the album cover). Why don’t “professional” cuts from iTunes or Amazon come with that stuff?

It’s a good way to justify the additional price to the public and it’s long overdue.

Sound Of Reason says:

Let’s see here.

Infinite re-production for free x 1.29 per unit = GREEDY FKN B@$T@RD$.

The record companies still haven’t figured it out. If just a percentage of the billions of people on the planet pay .02 cents for each song in their catalog the record companies could get around 20 million dollars per song!

I’m sorry but you’re killing yourselves. You have a product that can be re-produced for damn near ZERO. I guess you’d have to pay your ISP bills and whatever money it is that you put up to record music.

Touring, Merchandising and Promotion is now a part of the function of putting music out that people want to hear and the download is used to get the word out about Band A – Z. Not your ever decreasing returns on placing ads, payola, and the like. What is it about this you can’t grasp?

It would also go a long way towards stopping piracy, because the price is so cheap that there is no incentive to pirate a product that can be legitimately obtained for so little.

1,000,000,000 x .02 = 20,000,000

This would go on as long as the Recording Industry continued to pump out Songs that people want to hear. People would go out and buy entire catalogs of music just because they could.

How do most big box retailers make money?

Can you say VOLUME?

Steve (user link) says:

I would buy...

MUCH more music at $.50/track than I do now. $.50 feels like nothing. $.50 feels like less than my time trying to pirate an album costs. $1.29 will have the exact opposite effect on me. I will be surprised if that’s ever worth me not just pirating that particular track.

And it makes even less sense to increase the price of POPULAR tracks, no? At least price the long tail, hard-to-find (and hard to pirate) stuff higher, if you have to add a new price point.

Travis says:

@Weird Harold:

You bring up the point of credit card transactions taking up a portion of the cost. There is nothing stopping someone Apple/iTunes from coming up with a point based system. That way you have one transaction to buy $25 worth of points, and every time you “buy” a song from them they just deduct the points from your account.

You say that at 50 cents it’s “just not worth doing” but you provide no proof whatsoever. If at $.99 or $1.39 an artist sells 5,000 songs then they either got $4,950 or $6,950, respectively. If the songs were much more reasonably priced, you might sell a lot more. It’s not a guarantee, but to say that “it’s just not worth doing” is a pretty ignorant statement since you have no numbers to work with. You have no idea what the operating costs are.

I’m not saying it would work, and I’m not saying it wouldn’t, but you can’t dismiss it outright without knowing anything. I thought you said you take a “middle of the road” opinion on these things.

ToySouljah says:

Re: Re:

“And, not all tracks need to make a profit, some do and make up for those that dont – what’s the prob ?”

Yeah, there are some tracks that should be free. Take for instance a CD that has intros, skits (except for comedy CD’s), and other little tracks that they still charge full price for…it doesn’t make sense. Then they also have the iTunes essentials thing. Why don’t they just make the essentials worth buying by offering a discount on buying all the tracks and not just adding up all the tracks and giving you a tally to pay? Even a 10% discount on Essential collections would be cool.

RD says:

You see, here is how he works...

“You say that at 50 cents it’s “just not worth doing” but you provide no proof whatsoever. If at $.99 or $1.39 an artist sells 5,000 songs then they either got $4,950 or $6,950, respectively. If the songs were much more reasonably priced, you might sell a lot more. It’s not a guarantee, but to say that “it’s just not worth doing” is a pretty ignorant statement since you have no numbers to work with. You have no idea what the operating costs are.”

But that is Weird Harold’s ENTIRE MO! If it isnt easy, provable and complete parity with what already exists, throw up your hands, decalare its “not worth doing” and give up! You’ve just proven it doesnt work! QED. According to Harold, anyway.

James Witte says:

question for Wierd Harold,

In your first post, for this item, you talk about all of these things costing money. let’s break these individual costs down.

– maintaining web site — doesn’t change if you sell songs for $50 or $1 or $.50

– accounting for the money — this cost doesn’t change ever. quickbooks has made a fortune on not charging you a different price.

– actually doing the transactions? check out software automatically does this. and it’s used by MANY websites.

– maintaining the files — tiger direct offered a 1.5 TerraByte hard drive today for $105. last week it was $150. since this is important data, you mirror and use a third for backing up. 3 1.5 TB hard drives $450 and these are rated to last 3 years. even at 0.1 cents per transactions. I think I can have 450,000 transactions in 3 years.

– updating available music — with parsed html files and a database. this is VERY EASY AND FAST and comes out of what I pay the web administrator.

– following up with the client? if I don’t make sure my client is happy, he gets someone else to sell his music

– offering customer service? if I don’t do this, people don’t buy from me.

– the writer do you think the writer gets paid every time the artist goes on tour? the writer got paid when the artist/record label bought the song from the writer.

– the artist – is he supposed to be paid 50% of the sale price per song? I think 1 cent per transaction is quite nice. if an artist sells 450,000 songs in 1 year, that’s $4,500. before you say, “that’s not much” how much work did he do to make that 1 recording that he sold 450,000 times? THAT is what he got paid $4,500 for based upon 1 cent per sale of one of his songs.

– the manager – if the artist doesn’t pay his/her manager then that isn’t my fault

– the record company? what is the record company doing to earn this. I think the record company here is iTunes since they are the people actually distributing the music. the record label helped the artist make the song, yes. but after they get paid $60K for a recording session, does the artist need to continue paying them? they aren’t making records. what is the record label doing to deserve to get paid?

please Wierd Harold, tell us all what the record label is doing to deserve to get paid if iTunes is selling the songs for the artist? or if you feel my logic is incorrect somewhere, please tell me that. and please give specifics and facts to back up your argument.

–witte

Weird Harold (user link) says:

Re: Re:

Okay, now we get back to basic business expenses 101, this is the easy stuff.

When you break down the individual costs, many of them don’t change regardless of price – but the key idea is that their PERCENTAGE OF THE TOTAL PRICE changed.

If accounting costs 4 cents a transation, it is 4% of a $1.00 and 8% of a $0.50 transaction. Just there, but lowering the price by 50%, you doubled your accounting costs per unit.

If you serve a file to a user and it costs 2 cents of bandwidth to do so, then it is 2% of a $1 sale and 4% of the 50 cent sale.

Also, you have to allow for the fact that a high ratio of visitors to your website won’t buy anything. If you are looking at 1 in 500 people actually completing a transaction (example only), then you have to cover all their bandwidth, all the preview files they listened to, all that they used and generated nothing in the cost of the 1 transaction.

Some costs are ratio to the number of transactions. But for the most part, much of it is down to the actual costs of making the transaction.

So pricing is important. If total costs per transaction are, say, 30 cents per transaction, and you charged 50 cents, you only have 20 cents to cover your profit, the artist payout, the song writer payout, and so on. If you charged $1, then you have 70 cents to work with. Very different game.

For your comments about drives and whatnot, it is clear you don’t run or operate a web based service, and certainly not one that maintains sensitive customer data. At minimum, you would be looking at a raid system, likely a dual mirrored raid system. if you are expecting more than a few clients, you would likely need multiple front end servers, cluster controller, load balancers, and all sorts of other stuff. a website to sell bloody great gobs of music isn’t like plugging in a 1TG usb drive.

For security purposes (to protect customer data) you might even go PCI-DSS for that data. You would need 24 hour a day data center, customer service, etc.

I could go on and on. Really, selling music online (or anything for that matter) isn’t like setting up a PC and letting your sister borrow your files. It’s a big, expensive deal.

please Wierd Harold, tell us all what the record label is doing to deserve to get paid if iTunes is selling the songs for the artist?

I would say that it would take to long to teach you here, you may want to go and research how record labels work, how they finance recording, purchasing of rights, retail rights, and all sorts of things like that.

Anonymous Coward says:

Re: Re: @WH

Yes, there are multiple puzzle pieces that go into e-enabling Content Distribution.

One point you stated was operational costs involved in a pay service. To even begin to play in the game, customers will expect service levels to exceed (if not at parity) of “FREE” services. Apple is successful at this because iTunes’ UI is much friendlier, less technical than “FREE” Services that exist. Apple did need major investments in hardware, servers, technology, bandwidth. But in 2001, and Apple being the new player, they had the luxury of developing a game plan with short term and long term milestones which got them to where they are today.

You mentioned PCI-DSS. This is not optional if you plan to accept credit cards as a form of payment. If so, adherence to PCI-DSS absolutely *IS* required, for any company that does business with the Payment Card Industry. To add to it, PCI-DSS 1.2, introduced back in late 2007, enforced starting October of last year, expanded controls for transaction and settlement processes. PCI-DSS is a necessity in light of major credit card breaches. It has affected actual business operations and created new IT requirements, along with mandating new controls, chain of custody, technical requirements for credit card data retention, platforms, and even network design.

You are correct that credit card processing fees can become overly cumbersome. But there are ways to use eliminate some of the fees.

Overall, there are a number of challenges. It’s a heck of a rabbit to pull out of a hat.

Anonymous Coward says:

Re: Re: Re:

Your numbers are absurd. Two cents to transfer a couple megs of data? Where’d you pull that number from? Four cents per transaction for the nebulous “accounting”? what is it that “accounting” is doing, and why is it costing you four cents a hit? And at least some of your ‘costs’ don’t increase with volume of transactions, which means that their distributed cost drops — it costs 4 center per transaction if I have 100 transactions, but only 2 cents per if I have 200 transactions, etc.

Anonymous Coward says:

It's easy

“I would say that it would take to long to teach you here, you may want to go and research how record labels work, how they finance recording, purchasing of rights, retail rights, and all sorts of things like that.”

1) sign some talent and really screw em good.
2) collect $$$ from said talent
3) Do coke off some hookers tits
4) bitch about dimishing returns
5) rinse, repeat

Anonymous Coward says:

Re: Apple format is NOT MP3

It’s you that needs the education…

AAC was developed with the cooperation and contributions of companies including Fraunhofer IIS, AT&T Bell Laboratories, Dolby, Sony Corporation and Nokia, and was officially declared an international standard by the Moving Pictures Experts Group in April 1997.

Jim (profile) says:

Supply not quite infinite

Or rather, the supply is only infinite if you think of iTunes as a merchant of music– I don’t. I’ve always thought of iTunes as a merchant of convenience. I pay iTunes (actually, I don’t) because it’s more convenient than alternatives, and my time is a finite resource.

However, under this conception of iTunes, charging more money for more popular songes makes even less sense because the more popular a song is, the more easily it can be found by other means. As such, a more popular song should cost less to correspond to the decreased inconveniences of obtaining it elsewhere.

Mark Rosedale (profile) says:

I agree this is a bad move

I said when they first announced it that only Apple can make a price increase a price decrease. They tried to convince me that they were dropping prices, but in reality this is raising it.

I like variable pricing. I was a huge fan of Allofmp3 when it was available. That is the lesson the music industry needs to follow. The price should be far lower and variable by quality of music not whether it has DRM or not. Get with it people.

Tony says:

I can’t believe I’m going to say this but I agree with the “music industry veterans”. $0.99 is too high in my opinion. I think that music should depreciate over time (much like every other product). You could charge $0.99 for a new release but over time it should decrease. I could see paying $0.59 for a year old song, but $0.99 is ridiculous and $1.29 is out of the question.

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